Doing private equity in Russia. March 2008

Transcription

1 Doing private equity in Russia March 2008

2 Mint Capital at-a-glance Entirely independent Long track record in Russia Bi-cultural business approach Small and midsized focus Natural progress in capital under management to meet changing local midsized opportunities Attractive Scandinavian investor base 2

3 An established local private equity investor in Russia Russia's health and beauty industry is attracting foreign investors, with the country s second-largest beauty salon chain recently selling a major stake to Mint Capital. «Up till now we grew organically. Now we expect revolutionary growth, planning to have 100 salons in various regions of the country within two years», Aleksandr Glushkov, beauty salon chain owner. As disposable incomes rise, the health and beauty sector promises to become not only the most glamorous, but also one of the fastest-growing in Russia. Russia Today, July 2007 After seven or eight years of easy growth, Ulf Persson believes that the corporate environment in Russia is becoming much more competitive and that for companies to be successful they will have to be able to distinguish themselves through the quality of the products and services they offer. «We want to be part of that process,» he says, adding that increasingly the fund is looking to identify companies that are market leaders and have well-established brands. Euromoney, May 2007 Verysell has got financing from Deutsche Bank and Hillside Apex Fund SPC. Combined with the capital raised earlier in 2007 from Mint Capital, RP Explorer Fund, Renaissance pre-ipo and Steep Rock Capital, the IT holding has now more than $65 million for further development. We are glad to have such a strong pool of investors, says Verysell s President Mikhail Krasnov. The Board has been strengthened with experienced financiers including Ulf Persson, Paul Swigart and Zafar Zokhidov, he adds. Vedomosti, January 2008 Investing $2 million in Elecsnet, Benchmark Capital has started its activity in Russia. Elecsnet admits that friendship between partners of Mint and Benchmark was crucial in attracting such an well-known investor. Benchmark is typically cautious. They might have looked at the market for some time to finally chose a practically nonrisk variant a rapidly growing business with a clear model and due diligence made by Mint Capital, says Director of Aurora Russia Oleg Bystranov. Vedomosti, October

4 Investment team Advisory committee Ulf Persson Managing Partner Co-Founder Fredrik Ekman Managing Partner Co-Founder Gleb Davidyuk Partner Ben Wilkening Partner Sven Hirdman Jonas af Jochnick Ex- Ambassador Founder of Oriflame of Sweden to Russia and Oresa Ventures Kirill Vesselov Investment Manager Dmitry Fedoseev Investment Manager Ahmadishin Evgeny Investment Manager Jan Ankarcrona Investment Adviser to major Scandinavian family offices Maxim Boyko Independent Investor, Ex-Deputy Prime Minister of the Russian Government Vladimir Zaluzhsky PR and IR Manager Vitaly Vinogradov Tatiana Gerastovskaya Corporate Governance Financial Controller 4

5 Drivers of demand for capital & skills in the region Working capital Capex & marketing Net margins Non-$$ value Competition Tax compliance Net margins Corporate governance Transparency Compliance Private equity Balance sheet management LT value vs. ST cash flow Corporate governance M&A Capitalization The value-added factor is crucial entrepreneurs are looking for wise money The Government is severely combating grey businesses Being grey means exposure to predatory state officials Competition and compliance are putting pressure on EBITDA margin of companies boosting the need for external capital Volume of tax paid by grey and compliant companies 40% Value added tax (18%) Grey company 10% Company profit tax (24%) 30% 30% Personal income tax (13%) Unified social tax (26-2%) 5

6 Capitalizing on Russia s strong growth Sector growth forecasts 2007E E CAGR Russian income to reach European levels Broadband $1 600 $1 450 $1 496 IT integration Banking loans $1 400 $1 200 $1 119 $1 181 Organized food retail Autumobiles ($ per month) $1 000 $800 $600 $798 $814 $519 $897 Construction $400 Media $200 Pharmaceuticals Non-food retail $0 Poland 2006 Hungary 2006 Chezh Republic 2006 Portugal 2006 Russia 2007E Russia 2010E Russia 2012E Russia 2014E Fixed line Mobile Entry valuation, % 10% 20% 30% 40% 50% (% of annual growth) European level Source: BP, US Mining data, Troika Dialog estimates.. Positive investment climate, characterized by rapid economic growth and a stable, predicable political and legal environment Multiples are still lower than in EU Retail Retail Construction Telecoms Food processing EBITDA multiples Source: KPMG. 6

7 Russia s living standard will keep going up Wages and disposable income Private consumption and GDP 14,0% 12,0% 10,0% 8,0% 6,0% 4,0% 2,0% ($ per year) 16,000 14,000 12,000 10,000 8,000 6,000 4,000 2,000 15,8% 13,6% 12,5% 11,0% 9,7% 6,939 5,354 4,125 2,996 2,379 11,9% 8,869 10,837 12,609 14,316 18,0% 16,0% 14,0% 12,0% 10,0% 8,0% 6,0% 4,0% 2,0% 0,0% E 2008E 2009E 2010E 0, E 2009E 2010E 0,0% Real GDP growth (YoY, %) Industrial production growth (YoY, %) Retail trade growth (YoY %) GDP per capita ($) CPI (annual average, %) Growing wages accelerate personal spending Big opportunities for consolidation in fragmented consumer-facing industries, in particular retail, healthcare and financial services Private consumption drives GDP growth Regional cities are developing and start offering investments opportunities Source: Federal Statistics Service, Central Bank of Russia, Ministry of Finance of Russia, Central Bank of Kazakhstan, National Bank of Ukraine, Renaissance Capital estimates. 7

8 Russian private equity market (% of GDP) PE is still in its infancy in the region. According to various estimates, capital under management of PE teams in Russia ranges from $8bn to $10bn PE investments in 2006 totaled $1,4bn or 0,14% of Russia s annual GDP Most deals are cash deals. Leveraged buyouts are rare Most PE in the region is growth capital Exits are becoming easier strategic investors continue entering the market PE investments as % of GDP, ,600 1,400 1,200 1,000 0,800 0,600 0,400 1,44 1,26 1,05 0,61 0,60 0,57 0,45 0,45 0,39 0,37 0,34 0,33 0,31 0,28 0,26 0,23 0,21 ($ million) Raising dynamics (volume of new PE capital) * Notable recent transactions Date 5-Feb Jan Jan Nov May Apr-07 Buyer Unilever Wrigley Kellogg Nestle Polpharma KBC * Including funds that are being currently raised. Target Inmarko Korkunov United Bakers Ruzanna Akrihin Absolut Bank Sector Ice-cream production Confectionary Confectionary Confectionary Pharmaceuticals Banking ,200 0,000 0,14 0,12 0,11 0,10 0,03 Source: Media reports. Sweden UK Netherlands France Hungary Europe Czech Republic Belgium Ireland Spain Denmark Italy Germany Switzerland Norway Finland Poland Russia Portugal Romania Austria Greece Source: EVCA/ Thomson Financial / PwC,

9 Mint Capital s portfolio both small and large companies with revenues from $10M to $600M Total invested to date >$70M 9

10 Case study: Selected Mint II portfolio companies Company Competitive strength Current status Prospects The owner (graduate of the Stockholm School of Economics) is a repeat entrepreneur with strong experience in real estate which is crucial for securing best locations for salons >$20M of estimated revenue in 2008 >20 salons in major Russian cities 1 st national beauty chain with 100 salons by 2010 Sale to strategic investor Own branded cosmetics line Strategy to capitalize on the early stage of beauty salons segment development and growing domestic consumer expenditures: chain players control only 1% of the beauty market Company Competitive strength Current status Prospects Founded in 2000 by professionals with more than 20 years of bank experience, Elecsnet created the local market of payment terminals The major legitimate player fully complying with the Russian legislation, enabling to work with the widest list of corporate clients Balderton (Benchmark) Capital is a shareholder Self-sufficiency: own processing, manufacturing of terminals, software development, marketing >$40M of estimated revenue in 2008 >2,500 own terminals across Russia Strong M&A strategy Financials are audited to comply with IFRS A leading provider of instant cash payments in Russia & CIS IPO on a European stock exchange or sale to strategic investor 10

11 5th Floor, 18b Lva Tolstogo street, Moscow, Russia t +7 (495) f +7 (495)