Currently 34 issues Liquidity – situation magnified with withdrawal of RBTT. (1.2Bn evaporated) There is no correlation between stock market performance & Economic performance (T&T primarily Oil & Gas) not reflected Government made commitment to address
Drafting the Offering Memorandum Assist management in preparing a high-quality offering memorandum for investors. work closely with Investment Banking, WISE, Markets to appropriately position client offerings. Preparing for the Road Show Senior team members to help management thoroughly prepare for and anticipate questions during interaction with potential investors. Work with management to craft a road show presentation that fairly presents and positions the client while providing potential investors with the information they need to make an investment decision. Managing Investors' Due Diligence Assist in managing the investor due diligence process, which includes the preparation of due diligence materials in advance of on-site visits. Structuring the Transaction Based on up-to-date knowledge of the private equity markets and a complete evaluation of the company's business and financial requirements, determine the most appropriate structure for financing. Match each company's needs with those of investors and lenders to develop a structure that provides important long-term capital. Negotiating the Terms Acting as agents, help management, board members and potential investors collaborate and put deal structures and terms into perspective based on our experiences with other transactions.
According to the Central Statistics Office (CSO), as at January 2007 there were 28,944 businesses registered in Trinidad and Tobago of which an estimated 1,535 have the minimum capital required to list on the Exchange. Interestingly enough only 27 companies have listed on the Exchange. (Companies classified as medium to large sized) The so-called ‘soft side’ issues in family-controlled companies include, for example, trust levels among shareholders, goal agreement, a participatory culture and views on the long-term health and competitiveness of the business. These relationship issues are directly linked to the risk perceptions of shareholders which in turn have a direct impact on the company’s cost of capital and its overall ability to create wealth.“ Very few family business members, especially those who are family leaders, want to invest time in building unity among shareholders and professionalizing the strategies and structures through which they interact.
Some of the measures suggested can effectively divert some of the private companies financing needs away from commercial borrowing Increasing this openness will result in beneficial changes for the company’s operations, such as increased efficiency and more rapid responses to competition. Thereby enabling Business owners to realize the advantages of more active use equity financing could outweigh its disadvantages. Commercial borrowing The Banking sector dominates as the major source of funding that companies choose to finance their activities. Because corporate borrowing is firmly embedded within the banking sector, corporations do not have any strong motivation to seek financing from the Capital markets. Over a five-year period from 2003 to 2008 private sector borrowing has increased significantly from $18.4 Billion to $43.1 Billion. To put this into perspective Bank credit to the private sector represented approximately 30% of GDP in 2007.
Key topics of interest to issuers – educate them on Understanding corporate disclosure Potential issuers Locally promote to business owners the value of listing access to cheaper financing enhances visibility (prestige) graduate from mom & pop Employee incentive programs (ESOP) Initiate discussions with brokers to get a commitment that they will support the market
To reduce the risks to the private equity investor, careful and extensive due diligence must be conducted. Some companies have three sets of books.
Often the most contentious issue in private equity negotiations. Exit strategy negotiations are really all about control. Tag-Along and Drag-Along Rights – A contractual obligation used to protect a minority shareholder . If a majority shareholder sells his or her stake, then the minority shareholder has the right to join the transaction and sell his or her minority stake in the company. (effectively oblige the majority shareholder to include the holdings of the minority holder in the negotiations in order to facilitate the possibility that a tag-along right is exercised.) Tag-Along and Drag-Along Rights – A right that enables a majority shareholder to force a minority shareholder to join in the sale of a company. The majority owner doing the dragging must give the minority shareholder the same price, terms, and conditions as any other seller. ( Designed to protect the majority shareholder. Because some buyers are only looking to have complete control of a company, drag-along rights help to eliminate minority owners and sell 100% of a company's securities to the buyer)
Private Equity Trinidad Presentation
WINSLOW DOUGLAS AUGUST 10 TH 2009 Private Equity in Trinidad & Tobago Presentation
Agenda <ul><li>Why is Private Equity Investment Important? </li></ul><ul><li>The Importance of a Private Equity Operation </li></ul><ul><li>Favorable time for Private Equity investing </li></ul><ul><li>Private Placement Process </li></ul><ul><li>Current Challenges </li></ul><ul><li>Important Goals To Achieve </li></ul><ul><li>Accomplishing Goals </li></ul><ul><li>Risk to the Investor </li></ul><ul><li>Risk to the Company </li></ul><ul><li>Due Diligence </li></ul><ul><li>Exit Strategies </li></ul><ul><li>Conclusion </li></ul>
Why is Private Equity Investment Important? <ul><li>Current sources of capital private companies utilize include: </li></ul><ul><ul><li>direct bank lending </li></ul></ul><ul><ul><li>private placement of debt </li></ul></ul><ul><li>Local capital market still lacks liquidity, but gaining strength </li></ul><ul><li>Conclusion: Equity financing is an important source of funding for private companies </li></ul>
The Importance of a Private Equity Operation <ul><li>A private equity group will enable Investment Banks to build longer-term and closer working relationship with clients beyond the typical Borrower/Lender relationship </li></ul><ul><li>Opportunity to take private equity clients public and or provide M&A and other investment bank services </li></ul><ul><li>Strengthen client’s balance sheet enabling expansion </li></ul><ul><li>A private equity operation will help Investment Banks develop a disciplined and experienced team of investment analysts </li></ul>
Favorable Time for Private Equity Investing <ul><li>Stock prices and valuations are low </li></ul><ul><li>Many companies have limited access to new financing sources </li></ul><ul><li>No IPO’s on TTSE since Prestige Holdings </li></ul><ul><li>In short, if you believe in the adage “buy when there’s blood in the streets,” now may be a good time to be in the private equity business </li></ul>
Private Placement Process <ul><li>Draft the offering memorandum </li></ul><ul><li>Prepare the road show </li></ul><ul><li>Manage investors' due diligence </li></ul><ul><li>Structure the transaction </li></ul><ul><li>Negotiate the terms </li></ul>
Current Challenges <ul><li>Lack of interest in Equity financing </li></ul><ul><li>Many family run companies gravitate towards commercial loans for expansion and growth </li></ul><ul><li>Fear of takeover of the business, dilution of ownership </li></ul><ul><li>An unwillingness to open up the books to public scrutiny and or a fear of divulgence of trade secrets </li></ul><ul><li>Level of disclosure required may be perceived as burdensome </li></ul>
Important Goals to Achieve <ul><li>Make business owners fully aware of the benefits of utilizing Equity financing </li></ul><ul><li>Divert borrowing from commercial lending </li></ul>Promote Equity financing as alternative source of funding
Accomplishing Goals <ul><li>May require aid of specialist in transaction advisory services with the aim of: </li></ul><ul><li>Strengthening a culture for information disclosure </li></ul><ul><li>Provision of adequate intermediary support </li></ul><ul><li>Addressing issues of proper corporate governance to achieve transparency </li></ul><ul><li>Succession planning and exit strategy for business owners </li></ul>
Risks to the Investor <ul><li>Investors may incur “illegality risks” by being tarnished with illegal or unethical activities of companies in which they invest. Examples: tax fraud, money laundering, etc </li></ul><ul><li>Lack of a reliable legal framework for the protection of minority rights, investors may be unable to protect their rights as a minority investor </li></ul><ul><ul><li>However, considerable progress has been made recently in the areas of transparency, corporate governance, shareholder rights, enforcement procedures (arbitration, etc.) </li></ul></ul>
Risks to Companies <ul><li>Companies may be subjected to (at least in their view), excessively intrusive and offensive influence by the private equity investor in the operations and management of the company </li></ul><ul><li>The company’s culture may change </li></ul><ul><li>The original owners, especially if a family group, may lose operational control of their company which they view as a family right or heritage </li></ul>
Due Diligence <ul><li>Conduct careful and extensive due diligence to reduce risk </li></ul><ul><li>Financial Statements – Assess the accuracy of a company’s “official” financial statements </li></ul><ul><ul><li>What is the real financial picture of the company </li></ul></ul><ul><li>Discovering illegal activities and conduct: </li></ul><ul><ul><ul><li>Bribery of local officials </li></ul></ul></ul><ul><ul><ul><li>Environmental misdeeds </li></ul></ul></ul><ul><ul><ul><li>Labor law violations </li></ul></ul></ul><ul><li>Assuming the foregoing problems can be cleared up, what impact will this have on the company’s profitability ? </li></ul>
Exit Strategies <ul><li>Possible Exit Strategies: </li></ul><ul><li>Acquisition of the investor’s shares by a strategic investor </li></ul><ul><li>An IPO offering </li></ul><ul><li>A put option to sell shares back to the company or to certain principal shareholders at a specified time or upon a particular event </li></ul><ul><li>Tag-Along and Drag-Along Rights </li></ul>
Conclusion <ul><li>Private equity investment an important source of funds for companies </li></ul><ul><li>Private equity is an important product and service for commercial and investment/merchant banks </li></ul><ul><li>Timing may be right for private equity </li></ul><ul><li>Do due diligence to reduce risk and to exercise some control </li></ul>