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Agribusiness Management Company Agribusiness Management Company
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CIS and Eastern Europe Business Forum
November 3, 2006
Private Equity Investments in the CIS
November 2006
Agribusiness Management Company Agribusiness Management Company
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Fund investment manager with offices in Omaha, Moscow and Almaty
Investment team has worked together for over nine years
Business areas include:
1. Private equity investment funds
2. Real estate development and investment
3. Commodities trading to assist NGO’s
Active hands-on approach of involvement with portfolio company management teams
Provides hands-on financial guidance, business discipline/control, and strategic planning assistance for portfolio companies
Deal flow, monitoring, and exit opportunities enhanced by extensive industry contacts, both international and local
Agribusiness Management Company Agribusiness Management Company
Agribusiness Management Company Agribusiness Management Company
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Investment ProjectsInvestment Projects
Poultry Processing
Champagne Bottling Benefits of Commodity Trading
Packaging Dairy Products
Kazakh Real Estate
Glass Bottle Manufacturing
Agribusiness Management Company Agribusiness Management Company
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Investment fund is set up as limited partnership Specific contractual terms and investment focus General Partner and Fund Manager (usually related) Limited Partners (the investors) have limited Liability Investments are made in private, non-public companies Fund Manager assists portfolio company management in
developing the business Limited life of 8-10 years; 4 year investment period Target investment projects with potential for high returns and
cash multiples Annual management fee, declining in later years, plus a
percentage of the long-term profits (carried interest)
Characteristics of a Private Equity Fund Characteristics of a Private Equity Fund
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Investment TeamInvestment Team
The first ingredient in establishing a successful private equity fund is the investment team.
Significant experience – investment, financial and business Locals involved on the investment team Strong education backgrounds In-country office locations Investment/business track record
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Sector: Food, agribusiness and related consumer products investments, which includes
sectors such as food and beverage processing, packaging, distribution and storage
Emphasis: Early-stage growth and expansion capital for established businesses
Instruments: Equity and equity-like securities
Structure: Majority ownership or control positions
Investment Size: $5-$20 million
Target Countries: Former Soviet Union, primarily Russia, Ukraine and Kazakhstan.
Diversification: Diversified by region, country, and sector
Investment StrategyInvestment Strategy
A coherent and consistent investment strategy is a second necessary ingredient in establishing a private equity fund
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Investments have been made in five different countries of the former Soviet Union
The largest concentration of investment is in Russia
5%
7%
75%
4% 9%
RussiaUkraineKazakhstanMoldovaGeorgia
API Portfolio Investments by Country (% of Investment)
API Portfolio Investments by Country (% of Investment)
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Investment team has invested in eight companies since 1997 Investments have been made in several important food and
agribusiness sectors
7%
15%8% 20%
21%
29%
Bottles
Dairy
Poultry
Packaging
Beverages
Wine
API Portfolio Investments by Sector (% of Investment)
API Portfolio Investments by Sector (% of Investment)
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Investment ClimateInvestment Climate
Political stability
Good macro economic performance
Growth in consumer incomes and rising consumer confidence
Structural reform in key areas, e.g., taxes, shareholder rights and currency policy
Industry sector with solid growth as well as good prospects for the future
Investment climate in the region is important to the success of the investment program (i.e. the “wind” at your back)
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Food Sector OpportunityFood Sector Opportunity
Excellent business growth and efficiency improvement opportunities are available to those with sector expertise and investment capital
Significant improvement in consumer purchasing power
Food processing one of the fastest growing sectors
Critical capital shortage in the food sector
Assets often available at low valuations
Strong demand for quality local food products
Consumers want modern and convenient food products
Economic growth extending beyond Moscow and St. Petersburg
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Growth in Large-Scale Grocery Retail Growth in Large-Scale Grocery Retail
Consumers are significantly increasing food purchases at large-scale stores
Declining sales and fewer locations for open air markets and kiosks; 34% decrease in grocery outlets since 2000
Large food retailers are expanding to regional cities
Large-Scale Retail Food Sales GrowthRussia
0102030405060708090
100110120130140
2003 2004 2005 2006E
%
Large-Scale Retail
Real Disposable Income
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No shortage of investment opportunities in the region – the issue is to identify growth sectors and excellent management
Maintain a high profile in the region and the industry
Proactively work with sources to develop investment projects
Strong deal flow from various proprietary and other sources (more than 600 projects reviewed for API):
Existing portfolio company management teams Strategic agribusiness companies Local business contacts and entrepreneurs Accounting and law firms Investment and commercial bankers Multi-lateral financial institutions
Deal FlowDeal Flow
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Due DiligenceDue Diligence
Backgrounds of owners/managers of potential investments
Market sector study and analysis of competition
Current and prospective financial condition of the business
Legal status of assets, government relations and business contracts
On-site review of plant, equipment and other facilities
Extensive business review and analysis
Financial projections and assumptions
Exit possibilities
Analysis of key business, financial and legal points to determine if a potential deal meets all investment criteria
Key areas of review and investigation:
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Experience has shown Agribusiness Management that several key factors are important to consider when investing in the former Soviet Union:
Partner with trustworthy local management teams with a proven track record
Invest in established early-stage businesses in growth sectors
Gain majority control; alone or with other like-minded investors
Enter into well-defined shareholder legal documents
Attend to financial details, particularly GAAP financials
Minimize hard currency exposure Portfolio company management team has its own capital at risk
Use performance-based incentives for management
Potential to develop significant scale and market share
Investment Factors to ConsiderInvestment Factors to Consider
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Deal StructuringDeal Structuring
Majority ownership stakes or control positions
Control of key strategic, capital and Board decisions
Direct significant management decisions
Control the cash – Fund financial officers have signatory authority on bank accounts
Create transparent financial conditions
Application of performance benchmarks/hurdles
Equity participation for key management (in addition to their own capital at risk)
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Investment team actively participates on a “hands-on” basis:
Investment officers work closely with portfolio company management to develop and implement business strategy
Chief Financial Officer and Controller establish financial and accounting controls at portfolio companies
Investment officers implement a program of frequent contacts with company management to discuss business operations
Quarterly reviews held in Moscow with senior management
Quarterly or semi-annual reports to investors
Annual investor meeting; helpful to alternate locations
Investment MonitoringInvestment Monitoring
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Evaluate the ability to exit as part of the due diligence process
Plan to exit an investment in 3 to 7 years
Evaluate the viability of potential exits prior to investing
Sale to a Western strategic or financial investor Sale to a local or regional group Sale to the project’s management team IPO on either a local or a developed market
Exit StrategiesExit Strategies
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API Business LocationsAPI Business Locations
Agribusiness Management Company Agribusiness Management Company
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Chicken KingdomChicken Kingdom
Summary Information: Industry Segment Poultry Initial Investment July 1997 Total Investment $22.5 m Fund Ownership 88.4%
Business Description: Producer of poultry meat products for the Russian market
Investment Rationale: Severe shortages – domestic production was down 75% since 1990 Substantial room for efficiency improvements Opportunity to acquire and consolidate businesses at attractive
valuations Low-cost supply of feed ingredients in Lipetsk vicinity Close proximity to the Moscow market
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Chicken Kingdom (continued)Chicken Kingdom (continued)
Current Status: Chicken Kingdom has become a strong
brand name in Moscow and other areas of European Russia
Renovation of production and processing facilities in Lipetsk complete
Lipetsk produces 750,000 birds per week using 14 grow-out locations
Acquired second location near Bryansk in 2004
First Bryansk live bird production in 2006; target capacity 500,000 birds per week in early 2007
Advanced production technologies and state-of-the-art equipment at all facilities
Superior bio-security procedures based on Western production model
Potential Exit Russian IPO or Sale to strategic investor
29.636.7
57.6
79.5
115.3
4.3
24.9
6.1 7.3 6.9
27.524.9
9.25.7
15.516.5
6.54.3
$0
$20
$40
$60
$80
$100
$120
2001 2002 2003 2004 2005 2006e
$ m
illi
on
Sales
EBITDA
Net Income
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Summary Information: Industry Segment Beverage Initial Investment February 1998Total Investment $9.8 mFund Ownership 72.3%
Business Description:Producer of soft drinks under license agreement from A.G.
Barr
Investment Rationale:Soft drink market growing fastFavorable taste tests in RussiaExclusive distribution rights for IRN-BRU
KLP Soft DrinksKLP Soft Drinks
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KLP Soft Drinks (continued)KLP Soft Drinks (continued)
Current Status: Business is closed
Prior to Closure: Award winning advertising
program created brand identity IRN-BRU sold at a premium Unit volume was less than plan
following 1998 economic crisis Ruble devaluation in 1998
hampered ability to meet hard currency costs
Prices negatively impacted by Coke and Pepsi discounts
Cash shortage in 2000 reduced production and sales
Major reduction in operating expenses did not produce profit
1.1
4.9 4.1
-4.0
-1.5-0.6
-4.3-2.5 -1.8
-$5
$0
$5
$10
$15
$20
$25
$30
1998 1999 2000$
mil
lion
Sales
EBITDA
Net Income
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Experienced investment team able to create operational improvements, profitable growth and increasing cash flow
Cohesive investment team; incentives and time together
Track record of growing and exiting businesses
Consistent investment strategy supported by internal processes
Maintain high profile in your sector and region to develop a strong proprietary deal flow
Economic and market conditions should favor investment in the targeted sector and region
Growth companies provide high future returns and cash multiples
ConclusionConclusion
Key Considerations in Developing a Private Equity Investment Fund