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Managing Risk in Emerging Markets PE Transactions An EMPEA Professional Development Webcast, 29 November 2011
Managing Risk in Emerging Markets PE Transactions
An EMPEA Professional Development Webcast
Managing Risk in Emerging Markets PE Transactions An EMPEA Professional Development Webcast, 29 November 2011
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EMPEA Upcoming Events
Save the Dates! • 17 January 2012: EMPEA Professional Development Webcast: Investment Spotlight – Emerging Europe
with Alpha Associates, EBRD, Pinebridge Investments and White & Case LLP (registration now open!)
• 1 February 2012: Private Equity in Southern Africa 2012 hosted by EMPEA, South African Venture Capital
and Private Equity Association (SAVCA) and FT Business – Johannesburg
• Qualified institutional investors receive complimentary event registration/LP Masterclass on January
31st
• SAVCA/EMPEA Members-Only Reception on January 31st
• 28 February 2012: EMPEA Professional Development Webcast: Investment Spotlight – Mexico
(registration now open!)
• 14-16 May 2012: IFC’s 14th Annual Global Private Equity Conference in association with EMPEA –
Washington, DC
• May 14th: Second Annual Institutional Investors-Only Summit
• May 15th – 16th: Main conference program
• Qualified institutional investors receive complimentary registration
Managing Risk in Emerging Markets PE Transactions An EMPEA Professional Development Webcast, 29 November 2011
Today’s moderator
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Philip Bass Global Markets Leader, Private Equity Ernst & Young
Managing Risk in Emerging Markets PE Transactions An EMPEA Professional Development Webcast, 29 November 2011
Today’s agenda
The case for emerging markets (EMs)
Potential risks of transacting and operating in EMs
Managing risks
Leading practices for transacting in EMs
Outlook
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Managing Risk in Emerging Markets PE Transactions An EMPEA Professional Development Webcast, 29 November 2011
Today’s panelists
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Alvaro Gonçalves Managing Partner Stratus Group Demet Ozdemir Private Equity Leader, Turkey Ernst & Young Bob Partridge Private Equity Leader, Greater China Ernst & Young
Arpinder Singh Fraud Investigation & Dispute Services Leader Ernst & Young India Pvt., Ltd. Greg Wolski Partner, Fraud Investigation & Dispute Services Ernst & Young LLP
Managing Risk in Emerging Markets PE Transactions An EMPEA Professional Development Webcast, 29 November 2011
Opinion check
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What is the average size of your typical investment (equity check)? A. US$10m – US$49m
B. US$50m – US$99m
C. US$100m – US$249m
D. US$250m – US$499m
E. Greater than US$500m
F. Not applicable
Managing Risk in Emerging Markets PE Transactions An EMPEA Professional Development Webcast, 29 November 2011
Today’s agenda
The case for emerging markets (EMs)
Potential risks of transacting and operating in EMs
Managing risks
Leading practices for transacting in EMs
Outlook
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Managing Risk in Emerging Markets PE Transactions An EMPEA Professional Development Webcast, 29 November 2011
Importance of EMs is underscored by underlying GDP growth
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2011 Ernst & Young Rapid-Growth Markets (RGMs) Forecast– 25 RGMs’ real GDP growth 2000-10
Source: Ernst & Young and Oxford Economics
Managing Risk in Emerging Markets PE Transactions An EMPEA Professional Development Webcast, 29 November 2011
PE transaction activity in select markets
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EM PE investment totals by select markets, 2002–YTD 2011
Source: EMPEA. Data as of 30 September 2011. Published 15 November 2011. Data for Turkey only collected from 2008 onwards.
US
$m
0
5000
10000
15000
20000
25000
30000
35000
2002 2003 2004 2005 2006 2007 2008 2009 2010 YTD 2011
Brazil China India Russia/CIS South Africa Turkey
Managing Risk in Emerging Markets PE Transactions An EMPEA Professional Development Webcast, 29 November 2011
Fundraising – Emerging Asia continues to attract greatest interest
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EM PE investment totals by region and value, 2008–YTD 2011
Source: EMPEA. Data as of 30 September 2011. Published 15 November 2011.
48% 60%
71% 61%
73%
25% 8%
7%
5%
7% 7%
10% 24%
18% 9% 10%
5% 6% 7% 12%
0%
20%
40%
60%
80%
100%
2007 2008 2009 2010 YTD 2011
% o
f Tot
al V
alue
Emerging Asia CEE & CIS LatAm & Caribbean MENA Sub-Saharan Africa Multi-region
Managing Risk in Emerging Markets PE Transactions An EMPEA Professional Development Webcast, 29 November 2011
Growing interest from PE across most major EMs
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Source: Ernst & Young Private Equity Capital Confidence Barometer. November 2011
Managing Risk in Emerging Markets PE Transactions An EMPEA Professional Development Webcast, 29 November 2011
Today’s agenda
The case for emerging markets (EMs)
Potential risks of transacting and operating in EMs
Managing risks
Leading practices for transacting in EMs
Outlook
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Managing Risk in Emerging Markets PE Transactions An EMPEA Professional Development Webcast, 29 November 2011
Types of risks
Management team
Internal controls and governance
Country/local customs and practices
Transaction
Pricing
Contract
Asset ownership
Legal and regulatory/compliance
US Foreign Corrupt Practices Act
UK Bribery Act
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Managing Risk in Emerging Markets PE Transactions An EMPEA Professional Development Webcast, 29 November 2011
Red flags
History of corruption in country or industry Family or business ties to local country government officials Related party transactions Multiple sets of books Request for unusually high commission or other payment Refusal to provide anti-bribery certification Large/frequent fourth quarter adjustments Lack of written agreement Request for payments to third countries or third parties Request for increase in compensation during sales campaign Request for payments in cash or bearer instrument Lack of experience or track record with product field or industry
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Managing Risk in Emerging Markets PE Transactions An EMPEA Professional Development Webcast, 29 November 2011
Today’s agenda
The case for emerging markets (EMs)
Potential risks of transacting and operating in EMs
Managing risks
Leading practices for transacting in EMs
Outlook
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Managing Risk in Emerging Markets PE Transactions An EMPEA Professional Development Webcast, 29 November 2011
Types of transactions
Buyouts/control acquisitions
Minority interest
Minority interest with significant influence
Joint venture
Public private partnership
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Managing Risk in Emerging Markets PE Transactions An EMPEA Professional Development Webcast, 29 November 2011
Strategies to manage transaction risks
Understand local market and characteristics of businesses typical in the market
Ferret out potential issues early
Ask the right questions – to the right people
Include the right controls in purchase agreements
Right team/people/advisors
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Managing Risk in Emerging Markets PE Transactions An EMPEA Professional Development Webcast, 29 November 2011
Today’s agenda
The case for emerging markets (EMs)
Potential risks of transacting and operating in EMs
Managing risks
Leading practices for transacting in EMs
Outlook
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Managing Risk in Emerging Markets PE Transactions An EMPEA Professional Development Webcast, 29 November 2011
Strategies for successful transactions in EMs
Establish a local presence early
Focus on core investment strengths (e.g., sector, investment type)
Ensure good governance model at portfolio company
Be actively involved in guiding management teams
Be prepared for longer and more thorough diligence
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Managing Risk in Emerging Markets PE Transactions An EMPEA Professional Development Webcast, 29 November 2011
Phases of FCPA due diligence
FCPA risk assessment
FCPA due diligence procedures
Development of post-closing compliance program
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Managing Risk in Emerging Markets PE Transactions An EMPEA Professional Development Webcast, 29 November 2011
Today’s agenda
The case for emerging markets (EMs)
Potential risks of transacting and operating in EMs
Managing risks
Leading practices for transacting in EMs
Outlook
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Managing Risk in Emerging Markets PE Transactions An EMPEA Professional Development Webcast, 29 November 2011
Outlook
Beyond BRIC
Other considerations around EMs
Opportunities for portfolio companies
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Managing Risk in Emerging Markets PE Transactions An EMPEA Professional Development Webcast, 29 November 2011
Ernst & Young thought leadership Log onto: www.ey.com/privateequity
Facebook: Ernst & Young transactions 23
Managing Risk in Emerging Markets PE Transactions An EMPEA Professional Development Webcast, 29 November 2011
EMPEA Webcast Series
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Launched in 2008, EMPEA has hosted over 20 webcasts to date drawing more than 2,600 participants from 70 countries and more than 500 unique firms.
Webcast Topics have included: • Changing Landscape of EM PE Fund Formation
• The MENA Region: An Overview and Update
• The Impact of the AIFM Directive on PE and VC in Emerging Markets
• Private Equity in North Africa: What Every LP Must Know
• The Impact of the Dodd-Frank Act on Investment Adviser Regulation in the U.S.
• Private Equity Investing in the Middle East, North Africa and South Asia
• Evolving Key Terms & Conditions in Today’s EM PE
• Managing Environmental and Social Risks and Opportunities
• How Will the ILPA Principles Shape GP-LP Relationships in Emerging Markets?
• Catching the Rising Tide of Chinese RMB Funds
• Strategies to Address and Prevent LP Defaults
• Broken BRICs (a four-part series)
• Role of the Secondaries Industry in Emerging Markets Private Equity
• Corporate Governance in Emerging Markets Private Equity
• Marketing Your Fund to LPs in Today’s Market Conditions
• Risk Management in Emerging Markets Private Equity
• Recruiting and Talent Management in Emerging Markets Private Equity
Managing Risk in Emerging Markets PE Transactions An EMPEA Professional Development Webcast, 29 November 2011
EMPEA Contact Information
For follow-up questions on this or other webcasts, please contact Shannon Stroud at strouds@empea.net or +1.202.333.8171. Please also visit www.empea.net for further information.