Private Equity in Practice

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Private Equity in Practice
Ettore V. Biagioni Second Punta del Este
Conference Developing Meaningful
Relationships March 31, 2006
CONFIDENTIAL
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Disclaimer
The information provided herein is neither
financial advice nor a recommendation, offer or
solicitation to engage in a financial transaction
or purchase particular securities or assets, and
no representation is made concerning its
accuracy, completeness or fairness. All opinions
and estimates herein, including forecast returns,
reflect our judgment on the date of this report
and are subject to change without notice. This
contains forward-looking statements that are not
historical facts. Examples of forward-looking
statements include financial projections and
estimates and their underlying assumptions and
statements regarding future performance.
Forward-looking statements are based on current
plans, estimates and projections, and therefore
you should not place too much reliance on them.
Forward-looking statements speak only as of the
date they are made, and we undertake no
obligation to update any forward-looking
statement in light of new information or future
events. Forward-looking statements involve
inherent risks, and uncertainties, most of which
are difficult to predict and generally beyond our
control. We caution you that a number of
important factors could cause actual results or
outcomes to differ materially from those
expressed in, or implied by, the forward-looking
statements. The information contained herein
does not constitute a composite or comply with
AIMR standards. No information is contained
herein with respect to risks or conflicts of
interest, which may be significant. You should
conduct your own analysis thereof. Investment in
international markets can be affected by a host
of factors, including political or social
conditions, diplomatic relations, limitations or
removal of funds or assets or imposition of (or
change in) exchange control or tax regulation in
such markets. Additionally investments
denominated in an alternative currency will be
subject to changes in exchange rates which may
have adverse effect on the value, price or income
of the income of the investment. The businesses
described herein are in Latin America, a region
which has undergone significant economic
volatility. Events occurring in these markets
will significant influence results. In this
document we rely on and refer to information
obtained from internal surveys, portfolio
companies, market research, publicly available
information and industry publications. Although
we believe the information is reliable we cannot
guarantee the accuracy or completeness of the
information and have not independently verified
it. The past performance of a business does not
guarantee or predict future performance. The
businesses described in this document may not be
appropriate for everyone, so an interested party
must make his or her own independent legal, tax,
accounting and financial evaluation of their
merits and risks. In general, an investment in
these businesses would not be insured by any
governmental entity and would be subject to
risks, including possible loss of the entire
amount invested. If these or other risks and
uncertainties materialize, or if the assumptions
underlying any of these statements prove
incorrect, results may be materially different
from those expressed or implied by such
statements. Availability of such investment may
be limited by applicable law. The information
set forth is the work product of the Alothon
Group LLC and was not calculated or verified, and
is not endorsed, by Deutsche Bank or any of its
affiliates, and neither Deutsche Bank AG not its
affiliates make any representation or warranty or
provide any other form of assurance with respect
to the accuracy of completeness of such
information. This document, and the information
contained herein, is confidential and should not
be copied, distributed or disclosed to a third
party without our prior approval. By your
receipt hereof, you agree to comply with the
foregoing.
THE INFORMATION SET FORTH ON THIS PAGE IS THE
WORK PRODUCT OF THE ALOTHON GROUP LLC AND WAS NOT
CALCULATED OR VERIFIED, AND IS NOT ENDORSED, BY
DEUTSCHE BANK AG OR ANY OF ITS AFFILIATES, AND
NEITHER DEUTSCHE BANK AG OR ANY OF ITS AFFILIATES
MAKE ANY REPRESENTATION OR WARRANTY OR PROVIDE
ANY OTHER FORM OF ASSURANCE WITH RESPECT TO THE
ACCURACY OR COMPLETENESS OF SUCH
INFORMATION. The estimated valuations in this
presentation are provided for information
purposes only and do not represent what Alothon
may actually receive from the sale of the
investment(s), which will be higher or lower
depending, at the time of exit, among other
things, on market conditions, past and expected
financial performance of the investment, the
negotiating ability and position of Alothon, the
cooperation of other shareholders, and the timing
of the exits. Alothon makes no representation,
expressed or implied that the estimate valuations
are an indication of the returns which may
actually be generated by the portfolio of
investments on which Alothon is currently
advising, or on returns which may be generated on
new investments which Alothon may make in the
future on behalf of Alothon Fund, L.P.
Note Not audited. No representation expressed
or implied is made with respect to its accuracy
or completeness therefore. Strictly Private and
Confidential - For Information Purposes Only -
Not for distribution
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Alothon and FMO a long-term relationship

• Alothon team members have worked with FMO since
  1997
• Alothon introduced to FMO a successful management
  team and structured a joint investment program
  with them
• Alothon and FMO are co-investor in three
  successful companies in Brazil
• FMO has committed funds to Alothons new private
  equity fund

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Overview of Alothon Group

• Alothon is an independent private equity firm
  that focuses on investing in mid- to late-stage
  businesses in Latin America
• Since 1993, the Alothon team has invested
  approximately half a billion US dollars in 29
  buy-out transactions in Latin America
• Alothons team members continue to manage a
  portfolio of 12 companies in the region
• Unique combination of senior private equity
  professionals who have worked together for many
  years as a group

Confidential
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Our Presence
Alothon Team Presence
Alothon Board Presence
Confidential
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Industry/Business Focus
Diversified Investments Portfolio
Selected Companies where Alothon has invested
Confidential
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What is Private Equity?

• Private Equity is a major component of the
  alternative investment universe

Alternative Investments
Private Equity Venture Capital Buyout Mezzanine
Capital Special Situations
Hedge Funds Long/Short Global Macro Event
Driven Market Neutral Arbitrage Emerging Markets
Real Estate Office Retail Residential REITs
Physical Commodities
Currencies
Interest Rates
Natural Resources
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What is Private Equity?

• Private Equity is the business of investing
  through a negotiated process and partnering with
  management in private companies
• Private equity can be structured according to the
  maturity stage and growth opportunities of the
  Company

Targets the acquisition of a significant portion
or majority of businesses Invest in mature
companies with established business plans to
finance expansions, consolidations, turnarounds
and sales, or spinouts of divisions or
subsidiaries
Targets the acquisition of a limited portion or
minority of businesses Invest in companies that
have undeveloped or developing products or
revenue. Venture Capital has a particular
emphasis on entrepreneurial undertakings and less
mature businesses
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Definition of Private Equity
Broad Categories of PE Investing

• Majority/Control
• Minority

Economic Stake

• Active
• Passive

PE Management Role

• Strategic Acquiror
• IPO
• Sale to other shareholders

Exit/Liquidity

• Independent fund
• Captive fund
• Club/deal funding

Sources of PE Finance

• US/Europe
• Latin America
• Australia/Asia

Geographic Focus

• High Tech
• Consumer
• Generalist, etc.

Industry Focus

• Includes distressed debt, equity-linked debt,
  project finance, one-time opportunities resulting
  from changing industry trends or government
  regulations, and leasing. This category includes
  investment in subordinated debt, sometimes
  referred to as mezzanine debt financing, where
  the debt-holder seeks equity appreciation via
  such conversion features as rights, warrants or
  options.

Special Situations
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Private Equity as a Source of Funding for
Companies
Sources of Funding
Debt
Equity
Junior
Senior
Mezzanine
Shareholders
Strategic
Private Equity
Banks Financial Institutions
Banks Specialized Funds
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Latin Americas private equity has matured
Private and Venture Equity Fund raised in Latin
America(1)(US Billions)
Maturity Strategy Focus Approach Players
Hybrid funds with international and local
expertise
The Rush Strategy US LBO Model
Players US Financial Players, Regional Super
Funds
Early Stage Strategy Minority Investments
Players US Financial Players

1. Source Latin American Venture Capital
   Association July 2005- 2005E source EMPEA

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Why have a private equity investor in a Company?

• Capital
• Value maximizing partner
• Private Equity can be catalyst for change amongst
  the management ownership structure

Value
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Why have a private equity investor in a Company?
(Cont.)
Alignment of Interests

• Apolitical partner
• Objective and independent in the expression of
  views
• Partner that is not interested in being involved
  in the full time management of the firm
• Unbiased partner that may solve situations were
  family, mixed ownership, and managerial roles are
  difficult to dislocate
• Value maximization focus
• Alignment of interests

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Why have a private equity investor in a Company?
(Cont.)
Change in Perspective

• External input at Board Level
• Challenge conventional thinking
• Act as catalyst to take the company to the next
  level
• Cross fertilization
• Access to other companies in portfolio

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Why have a private equity investor in a Company?
(Cont.)

• A path to implementing
• Corporate governance practices
• Strategic decisions
• Compensation structures
• Financial results
• Financial transparency
• Management performance evaluation,
• Fiscal responsibility
• Best intermediary step from a privately held
  company to a publicly traded company
• Increases the credibility of the company to
  bankers and investors
• Access to the financial markets
• Up to date knowledge of financial markets

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What is a private equity investor looking for?

• Highly reputable partners and managers
• Viable exit plan with an expected positive return
  on capital
• A management team and business that is going to
  be successful and open to growth in its strategy

• Objectivity by management and shareholders
• A management team to which the private equity
  investor can delegate the management of the
  company

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Case Study Odontoprev

• The investment thesis was to roll-up the dental
  care industry in Brazil
• Odontoprev is the largest dental care management
  company in Brazil, with over one million
  affiliates
• The Companys network is recognized for its high
  technical quality and consists of 12,000 dentists
  nationwide
• The Company focuses on corporate customers to
  whom it offers a broad range of services such as
  dental care management, dental insurance
  policies, and management of third-party fee-based
  dental care system

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Case Study Odontoprev (Cont.)

• Odontoprevs primary clients are multinational
  corporations (i.e., American Express, BASF,
  Citibank) and large Brazilian companies (i.e.,
  Brahma, Visanet, Odebrecht)
• Financial reporting and corporate governance
  practices that enable the shareholders to
  undertake an IPO

Number of Members (End of Period)
CAGR 1997-2005 42.1
Acquisitions
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Case Study BGH

• BGH is a leading Argentine conglomerate in the
  consumer electronics, telecom and information
  technology businesses
• Headquartered in Argentina, BGH also has
  operations in Brazil and Chile
• BGH has partnership and manufacturing agreements
  with Motorola, Avaya Communications, Oracle,
  Nortel Networks, Lennox Global, Nokia, Samsung,
  Fedders International, Thomson Consumer
  Electronics, Vertex Standard, Alpine, and Huawei
  technologies

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Case Study BGH (Cont.)

• The investment thesis has evolved from a
  recapitalization of the Company to growth in the
  telecom and IT sectors in Argentina.
• Key factors of the investment thesis were the
  backing of a strong management team and the
  participation in the Argentinean
  telecommunication sector indirectly through BGH
• Participate in the Board of Directors of the
  Company
• Provide outside view to the Companys strategic
  vision particularly helpful prior to the
  devaluation
• Work with the Company on developing the adequate
  compensation structures

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Conclusion

• Private equity is a well established source of
  multiple value added to companies and management

THE END