Exit Strategies - CVCF May 2005
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  • 1. Exit Strategies For Chinese Technology Companies CONFIDENTIAL DRAFT NEW YORK SILICON VALLEY BOSTON LONDON BROADVIEW INTERNATIONAL A DIVISION OF JEFFERIES & COMPANY, INC May 2005
  • 2. About Jefferies Broadview CONFIDENTIAL DRAFT
  • 3. Jefferies Broadview 全面性投资银行业务
    • 企业合并收购
    • 2004 年至今承办的全球高科技企业合并与收购业务总额综合排名第二,交易额 5 亿美元以下排名第一 1
    • 从 1997 至今,完成了 200 个并购项目,总成交额超于 500 亿美元
    • 股票
    • 纳斯达克市场股票交易量第一(超过每日公布交易量 12% );处理 纽约股票交易所 每日交易量 11%
    • 近 10 年来,通过股票公开发售为客户融资超于 200 亿美元
    • 债券
    • 最大的中级市场高收益债券发售商
    • 可兑换债券五大交易商之一
    股票市场 Equity 证券研究 Research 企业合并收购 M&A 债券 Debt
    • 证券研究
    • 100 多位分析师,研究 400 多家公司 , 超过 70% 的公司为中型企业(市场价值为 25 亿美元以下)
    1 数据来源: SDC 中国 高科技企业
  • 4. 实力雄厚的纳斯达克股票交易公司 纳斯达克股票市场最大的交易商 资料来源: Autex , 2003 年 7 月 1 日至 2004 年 6 月 30 日。市场份额按公告板市场、纳斯达克全国市场、纳斯达克小市值市场总交易量加权计算,得出总交易量百分比。
    • 规模大、业绩稳定的销售团队,共有 180 位机构投资人股票投资销售代表
      • 股票投资销售队伍–共有 150 位高级推销员
      • 证券研究服务销售团队 – 共有 30 位高级推销员
    Jefferies 的联营公司 Helfant Group, Inc. 处理纽约股票交易所每日公布交易量的 11% 1.9% 1.9% 2.0% 2.3% 2.6% 3.3% 3.5% 3.6% 3.6% 12.5% 0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% 4.0% Lehman BAS UBS CSFB Bear Stearns Merrill Lynch Morgan Stanley Goldman Sachs Citigroup Jefferies 占总交易量的百分比
  • 5. 全球性业务
    • 居领先地位的机构投资经纪商和投资银行公司, 具有 本行业最强大的资本市场交易平台之一
    • 为 Jefferies Group, Inc. ( 纽约股票交易所代号: JEF )的主要运营子公司。该公司为一家控股公司,市值大约为 20 亿美元,在世界各地有 20 多家办事处,共有员工 2,000 名
    • 银行业务合作伙伴: Burdett Buckeridge Young Limited
    • Jefferies 为 50%+ 员工拥有
    • Jefferies 股票在投资银行界表现第一
    奥斯汀 旧金山 洛杉矶 达拉斯 休士顿 新奥尔良 芝加哥 纳西维尔 亚特兰大 里士满 波士顿 斯坦福 纽约 新泽西 华盛顿 伦敦 巴黎 苏黎世 东京 悉尼 * 墨尔本 * 矽谷 * 为联营公司
    • 与 Jefferies 共同经营全套投资银行业务 , 并就合并与收购、重组和股本私募提供重要咨询
    • 在纽约、矽谷、波士顿和伦敦设有办事处
    • 高科技投资银行的主要业务部门共有 75 名高级银行业务人员和 18 名以上常务董事
    • 风险投资基金: Broadview Capital Partners 、 Kennet Venture Partners 、 AxcessNet (特拉维)、 Allen & Buckeridge (悉尼)
    Broadview Jefferies 以色列 * 沃尔瑟姆 香港 近期中国项目 Initial Public Offering Co-Manager $106,000,000 December 2004 Ninetowns Digital World Trade $80,600,000 October 2004 Initial Public Offering Co-Manager China Finance Online Co. Limited $66,000,000 August 2004 has been acquired by $66,000,000 August 2004 has been acquired by $165,100,000 has divested its Handset Division to June 2004
  • 6. Technology IPO And M&A Trends CONFIDENTIAL DRAFT
  • 7. Technology Capital Markets Overview
    • U.S. equity markets have been steadily rising since November 2003
    • − NASDAQ LTM performance of 10.8%
    • Fund flows in November 2004 were $12.0 billion
    • NASDAQ market capitalization currently at 99.7% of 52-week high
    As of December 3, 2004. Source: Jefferies Broadview capital markets Historic Equity Mutual Funds and S&P Performance LTM Market Performance Market Recovery Trends 80 85 90 95 100 105 110 115 12/05/03 01/13/04 02/19/04 03/25/04 04/30/04 06/07/04 07/14/04 08/18/04 09/23/04 10/28/04 12/03/04 (Price as a % of Base Value) NASDAQ 10.8% S&P 500 12.2% DJIA 7.4% ($60) ($40) ($20) $0 $20 $40 $60 Sep-91 Sep-92 Sep-93 Sep-94 Sep-95 Sep-96 Sep-97 Sep-98 Sep-99 Sep-00 Sep-01 Sep-02 Sep-03 Sep-04 0 400 800 1,200 1,600 Funds S&P 500 $ in Billions
  • 8. Post-Bubble Equity Recovery Time: 4 - 6 Years 80’S PC 0 10 20 30 40 50 60 70 80 Jan-82 Oct-82 Jul-83 Apr-84 Jan-85 Oct-85 Apple Computer 4 Year Span 60’S TRONICS BOOM 0 50 100 150 200 250 300 Apr-60 Jan-61 Oct-61 Jul-62 Apr-63 Jan-64 Oct-64 Jul-65 Apr-66 6 Year Span Texas Instruments 70’S NIFTY FIFTY 0 20 40 60 80 100 120 140 Nov-74 Sep-75 Jul-76 May-77 Mar-78 Jan-79 Nov-79 Hewlett Packard 4 Year Span 90’S INTERNET eBay 0 15 30 45 60 75 90 4 Year Span 00’S CHINESE INTERNET 1 10 19 28 36 45 54 63 Apr-00 Oct-00 Apr-01 Nov-01 May-02 Nov-02 May-03 Nov-03 Jun-04 SINA 4 Year Span Sep-99 Jun-00 Mar-01 Dec-01 Sep-02 Jun-03 Mar-04
  • 9. US IPO vs. Follow-On Technology Market Stats QUARTERLY IPO ISSUANCES IPO PRICING VS. FILING RANGE QUARTERLY FOLLOW-ON ISSUANCES FOLLOW-ON PRICING VS. FILING RANGE As of 12/3/2004. Source: Jefferies Broadview capital market. Technology defined per SDC Platinum high technology industry classification Below Filing Range Within Filing Range Above Filing Range 0% 20% 40% 60% 80% 100% Q1 ‘03 Q2 ‘03 Q3 ‘03 Q4 ‘03 Q1 ‘04 Q2 ‘04 Q3 ‘04 Q4 ‘04 0% 20% 40% 60% 80% 100% Below Filing Range Above Filing Range Q1 ‘03 Q2 ‘03 Q3 ‘03 Q4 ‘03 Q1 ‘04 Q2 ‘04 Q3 ‘04 Q4 ‘04 - - 2 7 10 17 21 3 9 12 - 5 10 15 20 25 Q3 '02 Q4 '02 Q1 '03 Q2 '03 Q3 '03 Q4 '03 Q1 '04 Q2 '04 Q3 '04 Q4 '04 Number of Deals $0 $1,000 $2,000 $3,000 $4,000 $5,000 $6,000 $7,000 Amount Raised (millions) 7 16 29 30 43 21 14 11 4 4 - 5 10 15 20 25 30 35 40 45 50 Q3 '02 Q4 '02 Q1 '03 Q2 '03 Q3 '03 Q4 '03 Q1 '04 Q2 '04 Q3 '04 Q4 '04 Number of Deals $0 $1,000 $2,000 $3,000 $4,000 $5,000 $6,000 $7,000 $8,000 $9,000 Amount Raised ($millions)
  • 10. The IPO Market Is Strengthening
    • Current IPO Environment
    • Recent strengthening of the IPO and equity capital markets
    • The IPO market is stronger than it has been for over three years, particularly in technology (but the “bar” is high)
    • Comparable public companies are now benefiting from improved economic conditions and trading at healthier multiples, but IPO backlog has increased
    Historic Tech IPO Activity Tech IPO Activity – Number of Transactions 25 17 78 23 2001 20 2002 19 2003 2004 1 20 2003 - Q3 2004 Technology IPOs 2 IPO Backlog # IPOs 2 7 10 17 13 15 24 1 Source: Broadview IPO Database. As of 12/3/04. 2 Source: Capital IQ. 3 Source: SDC Platinum. For the period 1/1/02-12/3/04. Asian Companies Represent Nearly 20% Of US Tech IPOs Since 12/9/03 IPO Issuances by Subsector 3 59 Software & Internet Services 36% IT & Network Services Semiconductors 12% Network Infrastructure 8% Computing Equipment 5% Other 25% 14% US Western Europe 123 370 1996 137 244 1997 171 204 1998 323 415 1999 398 289 2000 Q1 Q2 Q3 Q4 Q1 Q2 Q3 2003 2004 0 20 40 60 80 100
  • 11. The Dramatic Rationalization Of The Public Markets Has Contributed To The Market’s Health 1 Source: NASDAQ 2 Source: CapitalIQ 3 Source: Thomson Financial First Call Number Of NASDAQ Listed Public Companies 1 Mar 2000 – Sep 2004 (35%) (1,838) 5,000 DEC 2000 3,800 DEC 2001 3,500 DEC 2002 CHANGE ’ 00-’04 3,300 DEC 2003 5,181 MAR 2000 3,343 SEP 2004 56% of NASDAQ Listed Public Companies Have No Research Coverage 3 Trading Values <Cash <$100m <$250m # Companies 2 41 1,136 1,882 1% 34% 56% % of Total
  • 12. The Current IT M&A Environment Has Returned To 1996 Levels M&A Activity 1992 – 9M 2004 Number Of Transactions North America - IT, Media, Communications Source: Broadview's Global Mergers & Acquisitions database 741.7 33.1 36.8 48.1 75.9 126.9 139.6 369.0 544.3 195.7 95.7 71.3 116.3 0 500 1,000 1,500 2,000 2,500 3,000 3,500 4,000 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 9M 2004 $0 $100 $200 $300 $400 $500 $600 $700 $800 Number of Deals Total Consideration ($B) 583 831 920 1,593 2,079 2,844 2,994 3,763 3,801 2,343 2,327 1,821 1,621 2,161 Median Deal Size ($MM) $8.5 $10.0 $11.0 $13.5 $12.2 $12.0 $15.0 $21.9 $28.1 $18.3 $13.5 $17.0 $16.4
  • 13. The Venture Capital Industry Has Also Enjoyed A Recovery In Higher Value Private Company Exits 59 of These Companies Were Venture Capital-Backed Source: Broadview's Global Mergers & Acquisitions database. North American private seller transactions. Middle Market Transactions Will Drive Venture Capital Returns In The Current Environment 2000 2002 9M 2004 >$20MM 636 172 138 97 >$50MM 397 84 80 78 >$150MM 193 30 23 28 2003 Approximately 75% Of North American M&A Deals Over US$50MM In Value Were VC Backed For 9M 2004 20 of These Companies Were Venture Capital-Backed 15 of These Companies Were Venture Capital-Backed 50 of These Companies Were Venture Capital-Backed
  • 14. Most Buyers Are Seeking Acquisitions At A Later Stage Of Company Development STAGE VALUE/ PROOF Technical Feasibility Product Functionality Customer Acceptance Business Model Works Economic Model Works Scalability Proven 5 6 Product is possible to do Product does what it is supposed to do Customers care Customers are willing to pay a rational economic price Company can be profitable Increasingly profitable growth is possible Size Of Addressable Market Drives Valuation Business Acquisition 3 4 Product Acquisition 1 2 Technology Acquisition
  • 15. Exit Considerations For Chinese Technology Companies CONFIDENTIAL DRAFT
  • 16. Chinese Companies Typically Go Public On The HK Main Board Or Seek Dual Listings The Mix Of IPO And M&A Exits For Chinese Companies In 2004 Have Returned To 2000 Levels Exit Strategy IPO Exit M&A Exit Dual Listing includes all companies listed on more than 1 exchange Other includes Shenzhen, Tokyo, Shanghai and New York Source: SDC. Excludes transactions where IPO gross proceeds and M&A deal values were < $25MM 34 36 2004 Total 2003 2002 2001 2000 190 116 32 19 44 11 37 11 43 39 M&A IPO
  • 17. However, Chinese Technology Companies Have Historically Gone Public On The NASDAQ Exit Strategy In 2004, Nearly 50% Of Chinese Technology Companies Listed Solely On The NASDAQ Dual Listing includes all companies listed on more than 1 exchange Other includes Shenzhen, Tokyo, Shanghai and New York Source: SDC. Excludes transactions where IPO gross proceeds and M&A deal values were < $25MM IPO Exit M&A Exit 5 16 2004 Total 2003 2002 2001 2000 46 40 7 1 4 2 10 2 20 19 M&A IPO
  • 18. Chinese Technology M&A / Minority Investment Activity Select 2003 – 2004 Transactions Involving Chinese Technology Companies As of November 24, 2004. Source: SDC. ($Millions)
  • 19. A Profile Of Chinese Tech IPOs Shows High Quality, Profitable Companies With Strong Revenue Growth 1 As of 12/1/04. Source: Broadview’s IPO Database / Hoover’s IPO Central / Capital IQ ($Millions) Issue Date Name Offering Amount TTM Revenue TTM Revenue Growth Quarters of Profitability TTM EBITDA Margin % Change From IPO 1 TMC / TTM Revenue TTM P/E 12/2/04 Ninetowns $105.6 $21.1 43% 15 66% 0% 14.14 x 23.70 x 11/10/04 China Netcom 1,141.1 7,663.4 10% 14 52% 10% 1.74 x 9.70 x 10/27/04 eLong 62.1 13.3 94% 0 4% 58% 20.48 x NM 10/15/04 China Finance Online 80.6 3.5 122% 8 66% (8%) 37.08 x 77.84 x 10/7/04 Hutchison Telecom 808.7 1,597.8 32% 2 27% 4% 3.32 x 67.84 x 9/28/04 51job 73.5 45.9 77% 10 25% 181% 21.14 x 143.43 x 7/8/04 Kongzhong 100.0 14.3 3798% 5 41% 18% 12.67 x 30.00 x 5/13/04 Shanda 152.4 72.6 84% 8 43% 262% 26.27 x 59.82 x 3/12/04 SMIC 1,712.9 365.8 627% 1 48% (30%) 7.89 x NM 3/5/04 TOM Online 175.0 77.1 157% 4 30% 4% 5.60 x 13.90 x 3/4/04 Linktone 86.0 15.5 285% 4 31% (31%) 3.94 x 22.60 x 12/9/03 Ctrip.com 75.6 16.6 62% 6 37% 203% 39.78 x 76.25 x High 1,712.9 7,663.4 3798% 14 66% 262% 39.78 x 143.43 x Median 102.8 45.9 94% 5 37% 10% 12.67 x 59.82 x Low 62.1 3.5 10% 0 4% (31%) 1.74 x 9.70 x
  • 20. U.S. Listed Chinese Technology Companies Are Growing Rapidly The Number Of NASDAQ And NYSE-Listed Companies In China And Their Aggregate Market Capitalization 1 Have Doubled Since December 2003 1 As of 12/4/04 * 5 companies are listed on the NYSE. The remaining are listed on the NASDAQ. 11 11 12 13 Number of Companies (Market Cap in $B) 2003-2004 IPOs Dec-04 Ninetowns Mar-04 SMIC Oct-04 Hutchison Telecom Nov-04 China Netcom Dec-03 Ctrip.com Mar-04 Linktone Mar-04 TOM Online May-04 Shanda Jul-04 Kongzhong Sep-04 51job Oct-04 China Finance Online Oct-04 eLong Listing Date Company 24 *
  • 21. Typically, Chinese Technology IPOs Have U.S. Comparables…But With Unique Chinese Attributes
    • VALUATION DRIVERS
    • U.S. Comparable Exists
    • Strong Revenue Growth
    • Higher Customer Retention
    • Recurring Revenue Streams
    • Higher Operating Margins
    Total Projected 2005 Enterprise Value / Revenue Total Projected 2005 P/E Internet Media Online Travel Semi Foundry Recruiting Online Gaming Financial Intelligence Wireless Value-Added Services Internet Media Online Travel Semi Foundry Recruiting Online Gaming Financial Intelligence Wireless Value-Added Services 14.86 x 7.05 x 2.24 x 29.09 x 4.48 x 2.87 x 3.36 x 6.79 x 3.63 x 10.21 x 4.92 x 11.03 x 8.52 x 2.49 x 76.00 x 26.30 x 24.58 x 43.60 x 15.73 x 27.95 x 33.44 x 64.59 x 24.23 x 32.62 x 24.87 x 23.33 x 46.68 x 17.79 x Yahoo Sina IAC Ctrip.com TSMC SMIC Monster 51Job EA Shanda Factset China Finance JAMDAT Linktone Yahoo Sina IAC Ctrip.com TSMC SMIC Monster 51Job EA Shanda Factset China Finance JAMDAT Linktone 13.0 x 2.0 x 2.8 x 2.2 x 1.8 x 1.8 x 1.9 x 1.4 x
  • 22. Final Thoughts CONFIDENTIAL DRAFT
  • 23. The Changing Landscape For Emerging Growth Technology Companies
    • 2004E IT spending up 3.9%…but a $2.1 trillion market 1
    • IPO market thawed but uncertain…the “bar” remains high
    • M&A continues to rebound…sector specific
    • Regulatory / structural changes driving rationalization of US public companies
    Companies Must Develop Flexible Exit Strategies To Prepare For Volatile Market Windows and Environment 1 Source: Gartner Dataquest Global Market Sizing – January 2004 Global Landscape China-Specific Landscape
    • Largest wireless market with soon-to-be largest Internet market
    • One of few global markets with attractive investment returns
    • IPO/M&A window for Chinese companies will experience cyclicality but in the long-term will be a viable exit for Chinese companies
  • 24. Chinese Company Exit Considerations
    • Primary means of liquidity for technology companies in U.S.
    • International M&A challenging given regulatory environment
    • Likely to be staged as a strategic investment then M&A
    • Typically positioned as the “China strategy” of U.S. buyer
    Organic Growth, Private Equity or IPO on Alternative Markets Always Exists U.S./Chinese M&A Considerations U.S. IPO Considerations
    • Market leader in sector with direct U.S. comparables
    • Limited appetite for “me-too” companies unless market has matured such that it can support duopoly or many competitors
    • VC backing is critical for marketing China-based deals
    • Chinese companies are held to a higher standard due to risk
  • 25. So What’s Next? MAINFRAME The BUNCH 1960 MINI Data General 1970 CLIENT/SERVER 1990 INTERNET 2000 “ DISTRIBUTED INTERNET” 2005+ 1980 MICRO ?
  • 26. The Hot Themes For 2005?
    • Next generation infrastructure software
    • High ROI, customer-centric applications
    • Technology-based services
      • Profitable / scaleable e-commerce
      • Enhanced services that use cheap bandwidth
        • VOIP
        • Next generation video
    • Power Management
    • Security
    Better, Faster, Cheaper, Smaller, Less Power and Heat, High ROI, Uses Existing Infrastructure Global Landscape China-Specific Landscape
    • Semiconductor devices
    • Network communications and equipment
    • Distance learning
    • Social networks
    • eCommerce
  • 27. Contact Information CONFIDENTIAL DRAFT
    • DAVID A. LIU Managing Director Investment Banking Technology Capital Markets Jefferies & Company, Inc. Broadview, a division of Jefferies 950 Tower Lane, 18 th Floor Foster City, CA 94404 T: (650) 573-4803 F: (650) 573-4801 Email: dliu@jefco.com