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Overview ecef presentation   june 20 2012 Overview ecef presentation june 20 2012 Presentation Transcript

  • Eastern Caribbean Enterprise Fund Ltd Overview Presented by Sonny José & Percy Hanley June 20, 2012
  • Mission & Vision To be an innovative, responsive and profitable provider of entrepreneur development services and to promotesustainable economic growth through thecreation of an internationally competitive OECS private sector. 2
  • Background• Part of ECCB’s overall regional money and capital market development strategy – broadening, deepening and diversifying the financial markets• Creation of a single financial space in ECCU; developing regional financial structures – ECHMB (1991); ECSE (2001)• ECEF incorporated in St. Kitts and Nevis on 11 October 2009• Goals: – To help transform and strengthen the private sector – To develop enterprises in the region via direct funding and technical assistance  To complement commercial lending by offering equity, quasi-equity and debt equity• Key role: – To create and lead investments in ‘flagship’ companies and SMEs in sectors with competitive advantage and export orientation – To establish linkages with regional and global strategic partners – To develop the entrepreneurial standard in the region – To promote a private equity/venture capital industry in the region• ECEF Ltd, is raising EC$25mn in seed funding through sale of ordinary shares via Private Placement in 2nd half of 2012 3
  • About ECEF Ltd.• ECEF is a holding company and venture capital firm, as well as an fund sponsor and manager for a family of funds• Public liability company with authorised share capital of EC$100mn• Initial share subscription of EC$25mn being raised in 2012• Sponsoring 2 asset pools and a donor funded technical assistance facility – Small- & Medium-Sized Enterprise (SME) Development Fund of US$10mn (c. EC$25mn) for seed and start-up stage SMEs with good growth and export prospects but which have capital financing and management challenges that can benefit from technical assistance. Typical funding for investees is up to EC$675,000 (US$ $250,000). – Growth Fund of US$10mn (c. EC$25mn) to invest in more mature companies in the growth and expansion stage and in large cap projects. Minimum financing is expected to be upwards of EC$675,000 (US$250,000). – Technical Assistance Facility of EC$2mn (c. US$750,000) to provide advisory and technical assistance to SMEs on a partial (to full) cost recovery basis.  ECEF will obtain international donor funding to seed the revolving fund. 4
  • Asset Targets ECEF Ltd.Initial Subscription: EC$25mnAuthorised Capital: EC$100mn Growth FundInitial Subscription: EC$25mnAuthorised Capital: EC$100mn SME Dev’t FundInitial Subscription: EC$25mnAuthorised Capital: EC$100mnTechnical Assistance Facility Donor Funding: EC$2mn 5
  • Pipeline of Investment Opportunities• About 143 prospective candidates identified for further review and analysis with expressions of interest received from – Manufacturing firms (woodwork, furniture, building materials, etc.) – Health and wellness company – Garment manufacturing companies – Agro-processing companies – Distribution and transportation company – ICT companies• Shortlist of 17 pipeline companies (potential investees) for further due diligence, company visits and on-site investigation, and management interviews• New project proposals continue to flow in 6
  • Investment Process Screening Stages• Stage 1: Business Concept / Investment Proposal (versus Fund Investment Guidelines)• Stage 2: Review of Business Plan & Financials• Stage 3: Due Diligence (detailed review)• Stage 4: Valuation of Investment & Deal Structure• Stage 5: Term Sheet, Deal Negotiation and Legal Documents 7
  • Initial Evaluation Criteria• The key investment parameters sought for future ECEF portfolio allocation:- – potential solid returns on equity – positioned in a long-term growth industry – entrepreneurial, competitive and hard-working management – potential to be a local and regional leader – possessing competitive advantages (e.g., brands, relationship networks, licenses, pricing power, etc.), and – possessing quality tangible assets• Market risk: – demonstrable market exists? will the product/technology address a problem? can it lead to a dominant market share/adequate market growth? pricing power?• Technology risk: – who owns the technology? ‘protectability’ of the product?• Financial risk: – how much it will take? can sufficient capital be raised? what is the ROR on investment?• Management risk: – expertise & experience? willingness to give up some control? owner’s skin in the game? 8
  • Fund Structure & GovernanceInvestors Social Security NBFI, DB, CU, Local & Int’l CDB EIB IFC DFAECCB & Pension Fds Insurance Cos. Comm’l Banks (Donors) ECEF Board of Directors Technical Assistance Facility (Grants)The Growth Fund E C E F Limited(Separate Fund Entity & (Venture Capital Co. & Fund Operator, SME Dev’t Fund Investment Vehicle) Fund Sponsor & Fund Manager of 2 investment vehicles & a TA facility) (Separate Fund Entity & Investment Vehicle) Gr Fd Portfolio Co. 1 Fund Service Providers SME Portfolio Co. 1 Administ’r/RTA Gr Fd Portfolio Co. 2 Fund Custodian SME Portfolio Co. 2 Gr Fd Portfolio Co. 3 Fund Auditor SME Portfolio Co. 3 Gr Fd Portfolio Co. 4 Legal Counsel SME Portfolio Co. 4 9
  • The Fund Products• Fund Offering 1: Growth Fund – Target annual gross return: 22% – Investing in ‘flagship’ and expansion stage businesses in high growth sectors – Multi-asset class / ‘hybrid’ and flexible investment mandate (private equity and listed securities, investing inside and outside of ECCU markets, short- to long-term investment horizon, etc.) – 2% management fee + 20% carried interest (with 6.8% hurdle rate)• Fund Offering 2: SME Development Fund – Target annual gross return: 12% (de-risked by TA Facility) – Investing in seed stage and new start-up SME ventures – 1.5% management fee + 15% carried interest (no hurdle rate)• Auxiliary Services: Technical Assistance Facility – Link grant funding with SME equity/quasi-equity/debt package – Outsourced services to pre-qualified and accredited business consultants, mentors and management coaches, BSOs, technical experts, etc. – Target break-even operation of TA grant funding resources – Full or partial cost recovery to replenish revolving fund – Revolving fund (EC$2mn); donor funded 10
  • Growth Fund StructureInvestors ECEF HNWIs & Private Ltd Investor 2 Investor 3 Investor 3 Investor 4 Investor 5 Companies Invest in the Fund Manages & ECEF Board of Directors The Growth Fund advises theProvide Fundservices to (Separate Legal EntityThe Fund & Investment Vehicle) Pays 2% E C E F Limited mgmt fee + (Fund Sponsor & Manager of the 20% carried Growth Fund) Outsources to interest Fund Service Providers Invests the Fund assets in Admin agrmt Gr Fd Portfolio Co. 1 Administ’r/RTA Custody agrmt Gr Fd Portfolio Co. 2 Fund Custodian Audit svc agrmt Gr Fd Portfolio Co. 3 Fund Auditor Legal svc agrmt Legal Counsel Gr Fd Portfolio Co. 4 11
  • SME Development Fund StructureInvestors Multilateral Financial Inst’n 1 Caribbean Dev’t Bank Multilateral Financial Inst’n 2 Invest in the Fund Manages & ECEF Board of Directors advises theProvide SME Dev’t Fund Fundservices toThe Fund (Separate Legal Entity Pays 1.5% E C E F Limited & Investment Vehicle) mgmt fee + (Fund Sponsor & Manager of the 15% carried SME Dev’t Fund) Outsources to interest Fund Service Providers Invests the Fund assets in Admin agrmt SME Fd Portfolio Co. 1 Administ’r/RTA Custody agrmt SME Fd Portfolio Co. 2 Fund Custodian Audit svc agrmt SME Fd Portfolio Co. 3 Fund Auditor Legal svc agrmt Legal Counsel SME Fd Portfolio Co. 4 12
  • Technical Assistance Facility Donors / Aid Agencies CDB / Carib Export USAID CIDA BDC Cda DFID Other Aid AgenciesGrant funding for the TA Facility ECEF Board of Directors Tech’l Assistance Disburses Facility Administers & E C E F Limited grant funding (Donor Aid Funding screens aid (Fund Sponsor & Manager of the for the SME funding Pool for SMEs) SME Dev’t Fund) portfolio co’s requests Apply for TA grant funding SME Fd Portfolio Co. 1 Grant $$$ + SME Fd Portfolio Co. 2 TA Action Plan SME Fd Portfolio Co. 3 SME Fd Portfolio Co. 4 13
  • Fund Governance• ECEF Ltd. is the Fund Sponsor and Investment Manager• Funds are “flow through” vehicles to ensure attractive returns – Tax-exempt status for the Fund (work in progress) – Fund Term: 8-years + two 1-year extensions• Investors’ monies will be pooled & managed by ECEF in 2 investment vehicles• Role of the ECEF Board of Directors in managing investments – Provide strategic direction to the Investment Committee – Delegate portfolio construction, selection and investment allocation decisions to an Investment Committee• Investment Committee (of 5-6 members) – Composed of CEO, Deputy CEO, 2 Board directors – External members: 1-2 more respected names in the investment community – Investment decision subject to a certain cap (as authorised by the BoD)• National Advisory Committees – Door openers and rainmakers in their respective country markets – Assist in deal sourcing and origination, as well as business networking• Outsource Fund service providers for the Growth Fund and SME Development Fund – Investment sub-adviser (working for the Fund Manager) – Fund Administrator/RTA – Custodian – Placement Agent – Auditor – Legal counsel – internal & external 14
  • ECEF Ltd’s Target Shareholders• ECCB: EC$5mn (20% stake in Class A ‘founder’s shares’)• Public pension funds & social security scheme: EC$5mn (Class B)• Local and foreign commercial banks: EC$5mn (Class C)• NBFIs, local & regional private institutions: EC$3mn (Class C) – insurance co’s, dev’t banks, credit unions, FNDs, private pension funds, private corporations, etc.)• Accredited (sophisticated) & HMW investors: EC$2mn (Class C) – Investment funds & private investors (other VC/PE funds)• Donor agencies, MFIs & supranational bodies: EC$5mn (Class D) – IFC, CDB, EIB, USAID, DFID, etc.• Target Capitalization: EC$25mn for ECEF Ltd. (VCC/Fund Mgr) − ECCB seed: EC$5mn − External & regional funding sources: EC$20mn 15
  • Funding Sources Target Investors for ECEF Ltd. Target Investors for the Growth Fund ECCB EIB, CDB, ECEF Ltd. Investor 5 Class A IFC & MFIs Class A EC$5mn Class D EC$10mn Class D EC$5mn EC$2mn ECEF Ltd. Growth FundSocial Security EC$25mn EC$25mn& Pension Fds Private Cos., Investor 2 Class B Private Cos., Class B VCFs, HNWIs Class B EC$5mn VCFs, HNWIs EC$5mn Class C EC$3mn Class C EC$2mn EC$5mn NBFI, DB, CU, Local & Int’l Investor 3 Investor 3 Insurance Cos. Comm’l Banks Class C Class C Class C Class C EC$3mn EC$5mn EC$3mn EC$3mn Target Investors for SMED Fd & Target Donors for TA Facility MFI - 1 Class A EC$12.5mn + EC$1mn SME Dev’t Technical DFA (Donors) Fund Assistance Grant Funding Facility EC$2mn MFI - 2 EC$2mn Class A EC$25mn EC$12.5mn + EC$1mn 16
  • Seed Capital & Fund Mgmt Budget• ECCB to provide an initial EC$5mn seed funding• Capital raising for the Funds to come from institutional investors as well as MFIs and HNWIs• Annual ECEF overheads ranging from EC$500K (Year 1), EC$940K (Year 2), and EC$1.3mn (Years 3-5)• Business travel expenses – Fund raising – Investee company research and due diligence (deal sourcing)• Media and publicity campaign – ECCB involvement (head office and rep offices) • logistics • capital intros – Engaging the BoD in promotion activities • roadshows • capital intros • investment research and leads 17
  • Marketing Strategy Asset Gathering• Step 1: Produce Offering Memos/PPMs and Term Sheets• Step 2: Obtain ‘ECSRC’ blessing & OECS ‘tax exemption’• Step 3: Business Trips & Sales Mission – Roadshows & business trips • 2-pronged: 3 days fund raising + 2 days deal sourcing • June 2012: St Kitts & Nevis • July 2012: Tier 1 (Antigua, St Lucia & Grenada) • Aug 2012: Tier 2 (Anguilla, Dominica & SVG) • 2nd half of 2012: Montserrat + follow-up visits – Annual budget: EC$138,650• Step 4: Closing the sale – email, conference call, videoconference, follow up visits• Closed-end fund: 3-6 months offering period – with soft close of 12 to 18 month period • Target Launch: July 1st, 2012 • Close offering period by Dec 2012 18
  • Marketing Strategy Business Networking• Branding – Logo (ASAP) – Website development (WIP) • developing the content • developing modalities for webcast – manager/investor; manager/investee interface • business templates for potential investees – Videoconferencing; mail blast; emails & follow-up calls – Media (publicity) campaign: radio, print, TV advertorials• Network with alternative investment database & industry bodies (HedgeCo.net, BVCA, EMPEA, CVCA, AIN, etc)• Revive contacts with MFIs & regional bodies (IFC, CDB, etc)• Tap private placement agents and capital intro services – HedgeCo.net 19
  • Organizational & Operational Plan• Location: ECCB Office Campus• Management & Operation – 3 person staff (Year 1) – hire additional financial & marketing persons (Yrs 2/3 - 5)• Investment Committee (4-6 members) – CEO & Deputy CEO – 2 Board Reps – 1 - 2 others: from among investors and business community• Legal Counsel – Internal: Kerryanne Amritt (Corporate Secretary) – External counsel (retainer basis only): • St Kitts & Nevis counsel (for ECCU markets) • Fund specialist from Cayman (for international markets) 20
  • Financial Plan & Projections Start-Up Cost• Start-Up Cost: EC$91,332 (excl. EC$5mn ECCB seed) START-UP COSTS (c/o ECCB) Mar-Jun Year 1 (2012) Minimum share capitalization (20% ECCB share) 5,000,000 5,000,000 Legal drafting & incorporation expenses 10,000 10,000 Fund admin & custodian set up fees 3,000 3,000 Trademark-related & business regisn expenses 7,802 7,802 Office furniture 0 0 Computer equipment 0 0 Fax/copier/scanner/printer 0 0 Website devt & email/internet hosting 10,530 10,530 Others (office vehicle) 60,000 60,000 Total Start-Up Costs 5,091,332 5,091,332• EC$13,000 are Fund-related and can be amortized by the ECEF-sponsored Funds over 3-5 years 21
  • Financial Plan & ProjectionsConsolidated Cash Flow for ECEF Ltd: Operating Margin & Cumulative CFEastern Caribbean Enterprise Fund Ltd, Growth Fd, SME Fd & TA FacilityAssuming: Tax Exempt Funds & Fund Management Company(in EC$) Year 1 Year 2 Year 3 Year 4 Year 5 (2012) (2013) (2014) (2015) (2016)GROSS ASSETS UNDER MANAGEMENT 41,674,480 53,709,896 62,983,652 73,851,269 86,622,055ECEF Ltds Net Assets 23,628,122 24,491,210 25,150,263 25,998,115 32,630,315OPERATING REVENUES 171,658 1,802,429 1,961,419 2,150,219 7,934,567OPERATING EXPENSES 492,210 939,340 1,302,367 1,302,367 1,302,367Consolidated Operating Margin -320,552 863,088 659,052 847,853 6,632,200Cumulative CASH FLOW -320,552 542,536 1,201,589 2,049,441 8,681,642 22
  • Financial Plan & Projections Summary of Cash FlowComparative Cash Flow Internal Rate of Return NPV (EC$; @6.8% discount rate) Net Assets CAGRConsolidated Cash Flow of ECEF Ltd. 12.8% $1,331,779 5.5%Cash Flow of Growth Fund -10.4% -$5,031,137 16.5%Cash Flow for SME Devt Fund 77.4% $2,636,043 9.3%Cash Flow for Technical Assistance Facility n.a. n.a. n.a. 23
  • Financial Plan & Projections Discounted Cash Flow Analysis• Operating ECEF Ltd. as a Venture Capital Co. and as Fund Sponsor of 2 asset pools (SMEDF and GF), and as Administrator for the TA Facility will result in a positive discounted cash flow of EC$1.3mn over the first 5-year period - IRR for ECEF Ltd. = +12.8% - ECEF Net Assets CAGR = +5.5% - Critical to profitability is obtaining tax-exempt status for ECEF Ltd. as well as the investment vehicles that it manages• The Growth Fund, seeded by ECEF Ltd. (with EC$10mn), will generate positive cash flow (revenue stream) of EC$6.2mn (incl. carried interest) or EC$2.8mn (ex- carried interest)• The SMED Fund, also operated as a separate investment vehicle but seeded by MFIs (EC$25mn), will generate positive cash flow (revenue stream) for ECEF Ltd. of EC$4.4mn (incl. carried interest) or EC$2.2mn (ex-carried interest) − SMEDF’s better financial results is due to the absence of a hurdle rate (unlike GF’s 6.8%) 24
  • Financial Plan & Projections Payback Period• ECCB’s initial capitalization of EC$5mn will be recovered through positive annual cash flows in Year 5 (2016)• Total revenue stream for the 5-year period = EC$14mn with carried interest and EC$8.5mn ex-carried interest (versus ECCB seed capital of EC$5mn) or 2.8 times and 1.7 times payback, respectively Enterprise Value• Year 1 net assets of EC$23.6mn; @7.5x earnings multiple = (n.a.)• Year 3 net assets of EC$25.2mn; @7.5x earnings multiple = EC$3.0mn• Year 5 net assets of EC$32.6mn; @7.5x earnings multiple = EC$20.3mn (incl. deferred carried interest) or EC$10.2mn (ex-deferred carried interest) 25
  • Thank You