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ALPHAGROWTH CAPITAL
An initiative by ANTZ AGE Technologies Private Limited
Private Placement Memorandum
PRIVATE & CONFIDEN...
ALPHAGROWTH CAPITAL
AlphaGrowth Capital
Aishwarya V Chaturvedi
267-746-9444
aishwarya@sookshm.co.in
ALPHAGROWTH CAPITAL
TABLE OF CONTENTS
Executive Summary 4
Principal Background 5
Investment Structure 6
Search Strategy 7
...
ALPHAGROWTH CAPITAL
EXECUTIVE SUMMARY
AlphaGrowth Capital is a search fund formed to identify, acquire and operate an exis...
ALPHAGROWTH CAPITAL
PRINCIPALS’ BACKGROUND
Aishwarya, Indrajeet and Mayank are the founding partners of AlphaGrowth Capita...
ALPHAGROWTH CAPITAL
INVESTMENT STRUCTURE
AlphaGrowth Capital is raising $600,000 through the sale of twenty (20) investmen...
ALPHAGROWTH CAPITAL
SEARCH STRATEGY
AlphaGrowth Capital is focused on promising businesses with $10MM to $50MM USD2
in
ann...
ALPHAGROWTH CAPITAL
United States
US represents a slow growing5
, yet large economy with high number of acquisition
opport...
ALPHAGROWTH CAPITAL
INVESTMENT HIGHLIGHTS
AlphaGrowth Capital represents a compelling investment opportunity for the follo...
ALPHAGROWTH CAPITAL
Underserved Acquisition Niche. More than $4.8 trillion of net worth, representing the largest
intergen...
ALPHAGROWTH CAPITAL
PRINCIPALS’ BACKGROUND
AISHWARYA VARDHAN CHATURVEDI
Professional Experience
Aishwarya Chaturvedi is th...
ALPHAGROWTH CAPITAL
MAYANK KUMAR
Professional Experience
Mayank Kumar is the Founder & Managing Partner of AlphaGrowth Cap...
ALPHAGROWTH CAPITAL
INVESTMENT OPPORTUNITY
AlphaGrowth Capital is a search fund formed to identify, acquire and operate an...
ALPHAGROWTH CAPITAL
FIVE STAGES OF THE SEARCH FUND
The search fund model is executed over five distinct stages, the entire...
ALPHAGROWTH CAPITAL
Stage 1: Raise the search fund
AlphaGrowth Capital is raising $600,000 through the sale of twenty (20)...
ALPHAGROWTH CAPITAL
CATEGORY HEAD 2 YEAR BUDGET %AGE SPLIT
Team Draw $360,000 60%
Benefits & Insurance $90,000 15%
Travel ...
ALPHAGROWTH CAPITAL
Quality of People ● Honest, respected seller with a strong reason to sell the
company
● Strong Middle ...
ALPHAGROWTH CAPITAL
Direct Marketing & Cold Calling
Deal Flow Type: Medium Volume, High Quality
Positives: o Best source o...
ALPHAGROWTH CAPITAL
Public Relations
Deal Flow Type: Low volume, variable quality
Positives: o Enhance credibility with bu...
ALPHAGROWTH CAPITAL
of between $10 million and $50 million, investor capital could total between $3M and $35MM.
This amoun...
ALPHAGROWTH CAPITAL
Stage 5: Exit the business
Investment in AlphaGrowth Capital should be viewed as a long-term investmen...
ALPHAGROWTH CAPITAL
INVESTMENT RISKS
The search fund model attempts to minimize risk for investors via a staged financing ...
ALPHAGROWTH CAPITAL
APPENDICES
APPENDIX A: LINKEDIN PROFILES
Aishwarya V Chaturvedi: https://www.linkedin.com/in/aichaturv...
ALPHAGROWTH CAPITAL
APPENDIX B: ILLUSTRATIVE TRANSACTION ECONOMICS
Refer to pages 1 to 6 of “Search Fund Economics” for a ...
ALPHAGROWTH CAPITAL
APPENDIX C: STANFORD GSB, “SEARCH FUNDS – 2013: SELECTED
OBSERVATIONS”
See the Stanford Study at the U...
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AlphaGrowthCapital-PrivatePlacementMemorandum

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AlphaGrowthCapital-PrivatePlacementMemorandum

  1. 1. ALPHAGROWTH CAPITAL An initiative by ANTZ AGE Technologies Private Limited Private Placement Memorandum PRIVATE & CONFIDENTIAL
  2. 2. ALPHAGROWTH CAPITAL AlphaGrowth Capital Aishwarya V Chaturvedi 267-746-9444 aishwarya@sookshm.co.in
  3. 3. ALPHAGROWTH CAPITAL TABLE OF CONTENTS Executive Summary 4 Principal Background 5 Investment Structure 6 Search Strategy 7 Investment Highlights 9 Principals’ Profiles 11 Professional Experience 11 Education 11 Skills 11 Investment Opportunity 13 Overview of Search Fund Model 13 Five Stages of Search Fund 14 Stage 1: Raise the Search Fund 15 Stage 2: Source & Evaluate Opportunities 16 Stage 3: Finance & Close a Transaction 18 Stage 4: Operate the Business 20 Stage 5: Exit the Business 21 Investor Returns 21 AlphaGrowth Capital’s Carried Interest 21 Investment Risks 22 Appendices 23 Appendix A: Resumes 23 Appendix B: Illustrative Transaction Economics 24 Appendix C: Stanford GSB, Search Funds – 2013: Selected Observations 25
  4. 4. ALPHAGROWTH CAPITAL EXECUTIVE SUMMARY AlphaGrowth Capital is a search fund formed to identify, acquire and operate an existing private company with initial enterprise value between $10 and $50 million. This summary provides an overview of AlphaGrowth Capital’s Principal, the financial structure of the search fund, and the strategy to identify and acquire an existing private company. The purpose of the search fund is to provide investors with the opportunity to participate in the staged financing of the search for and acquisition of existing private businesses. Search funds have been in existence since 1984 and have been structured to mitigate many of the risks associated with purchasing a small business. To date, over 150 search funds have been raised. A 2013 study conducted by Stanford concluded that a portfolio of first time search funds produced annual returns of 34%1 . 1 Search Funds – 2013: Selected Observations, Stanford Graduate School of Business
  5. 5. ALPHAGROWTH CAPITAL PRINCIPALS’ BACKGROUND Aishwarya, Indrajeet and Mayank are the founding partners of AlphaGrowth Capital. They currently run a consulting business serving small and medium family owned manufacturing businesses in India, with annual revenues between INR 20 Crores to 500 Crores ($10M - $250M USD). Aishwarya has complemented leadership positions in services business in education, software and manufacturing industries in the last 3 years. His experiences include: strategy, operations planning and control, B2B sales, inbound marketing and technology implementations. At his current venture, he builds on his knowledge of Business Model Canvas, Organizational Behavior and Lean Philosophy to help clients build their brands, develop a people-first culture in organizations and adopt new tools to manage growth successfully. Indrajeet has 6 years of experience starting, running and growing businesses in education, and manufacturing industries. His experiences include: corporate strategy and international expansion for an infrastructure business, process design & implementation in manufacturing environments, supply chain management for PepsiCo, employability assessments in education and talent acquisition. He leads Sookshm’s practice in delivering Corporate strategy and business strategy projects. Mayank has 3 years of experience working with businesses in Clean Energy, Manufacturing and food processing industries. His experiences include: implementing decision support systems for small businesses, turnkey projects to setup and run rice mills, total quality management and throughput improvements using lean practices and workforce training to reduce defects on stitching lines. At Sookshm, he helps clients realize process improvements with his knowledge of lean manufacturing tools including Value Stream Mapping, Kaizen and Theory of Constraints. All three of them graduated from Indian Institute of Technology, Delhi as Industrial Engineers.
  6. 6. ALPHAGROWTH CAPITAL INVESTMENT STRUCTURE AlphaGrowth Capital is raising $600,000 through the sale of twenty (20) investment units priced at $30,000 each. This initial capital is intended to sustain a dedicated search for up to 24 months. For each Unit purchased, investors will receive: Right of First Refusal. Investors will have the right, but not the obligation, to participate in financing the acquisition. Depending on the size and structure of the acquisition, investors are expected to have the opportunity to invest additional equity at the time of acquisition. Investors will be given the opportunity to provide 100% of the required equity capital in order to prevent dilution from outside investors. Investment Step-Up. All Units will be converted to securities in the acquired company and stepped-up by 50%, structured as a combination of equity and subordinated debt on terms pari pasu with the investor capital provided in the acquisition round of financing (i.e., for every $1.00 invested in AlphaGrowth Capital the investor will receive $1.50 of securities of the acquired company). This 50% step-up is meant to compensate the initial investors for the increased risk of investing in the first round of financing. AlphaGrowth Capital intends to finance the acquisition through a combination of bank debt, subordinated debt, seller financing and investor capital, which may include subordinated debt, preferred stock and common stock. The exact capital structure will depend on the nature and location of the acquisition, depending on the local financing environment. Subordinated debt securities can provide attractive returns through interest and tax-free principal repayments, while preferred equity provides the benefit of capital gains tax rates rather than ordinary income. The common equity allows the investor to participate in the expected upside upon sale or recapitalization of the acquired company. AlphaGrowth Capital will retain equity interest on behalf of its principals in return for identifying and acquiring the target company, and for achieving agreed upon operating results. The Principals will have the opportunity to earn between 20-30% of the common equity, depending on the ultimate size and structure of the acquisition. A portion of this equity will be subject to meeting pre-established performance benchmarks. Neither the investors’ nor the Principals’ upside is limited in any way.
  7. 7. ALPHAGROWTH CAPITAL SEARCH STRATEGY AlphaGrowth Capital is focused on promising businesses with $10MM to $50MM USD2 in annual revenues, in India and USA. The two target geographies don’t possess the same level of maturity with respect to the search fund landscape. Consequently, AlphaGrowth Capital will employ different strategies to navigate through the two geographies India With a 7% growth, the Indian economy is among the fastest growing economies in the world3 . The growth has largely been fueled by the domestic demand. Government initiatives like Make in India coupled with keen investors to grab a share of the pie, make it a unique opportunity to build strong businesses in the country. However, the small business acquisition market lacks liquidity. The illiquidity in the market seemingly owes to a lack of buyers than lack of owners willing to sell. Search funds offer a unique vehicle to take advantage of this opportunity in the country’s otherwise limited institutional investment environment. India is a less competitive and mature market as compared to more mature markets such as the United States. Consequently, it offers limited opportunities in an individual sector. The search strategy will hence be criteria focused across 11 industries that are also covered under the larger Make-In-India program by Govt. of India4 : 1. Automobiles 2. Automobile components 3. Electrical Machinery 4. Electronic Systems 5. Information Technology and Business Process Management 6. Media & Entertainment 7. Food processing 8. Pharmaceuticals 9. Railways components 10. Textiles.& Garments 11. Tourism & Hospitality AlphaGrowth Capital will build proprietary channels to search for opportunities, using targeted letters, cold calling, e-mailing, meeting at industry conferences and tradeshows. River Guides, who are well connected in the respective industry will be an important source for the search. Business brokers will rarely be used, if at all. 2 $1M ~ INR 2 Crore, considering a PPP factor of 17.12, as measured by World Bank and 1 USD = 65.14 INR 3 India’s Economy Outshines Neighbors, Wall Street Journal 4 Make In India Website, http://www.makeinindia.com/sectors/
  8. 8. ALPHAGROWTH CAPITAL United States US represents a slow growing5 , yet large economy with high number of acquisition opportunities. Private Equity activity is common in the country and the target businesses are more comfortable with the search funds concept. AlphaGrowth Capital relies on its experience in India to find, acquire and grow businesses in the US too. The US is a more competitive and mature market as compared to India. There are ample number of opportunities within multiple industry niches and the search strategy will follow a rigorous industry focus. The criteria to select industries is as follows: 1. Asset light industries, measured by historical CAPEX/Growth ratios 2. Growing industries, measured by revenue CAGR of last 5 years compared against expected CAGR in next 5 years 3. Profitable industries, measured by average EBIT margin of last 5 years greater than 10% 4. Reasonably fragmented industries, measured by number of firms making up 30% of total sales in the industry 5. Industries with simple and understandable business operations AlphaGrowth capital will rely on other professional services firms in addition to building its own proprietary channels to source opportunities. River guides will play an important role in the search as well. Prospective companies in both geographies will be evaluated against the following dimensions. Minimum attributes: ● Strong reason on part of the seller to sell the company ● Healthy and sustainable profit margins (>10% EBIT margin) ● $10MM to $50MM USD in annual revenues ● Solid middle management ● Reasonable valuation ● Potential of liquidity option in 3-5 years, via IPO (in India), or a financial/strategic acquisition 5 The World Factbook, Central Intelligence Agency
  9. 9. ALPHAGROWTH CAPITAL INVESTMENT HIGHLIGHTS AlphaGrowth Capital represents a compelling investment opportunity for the following reasons: Aging business owners’ demographics. The US Small Business Owners’ 2013 survey by the US census shows that 51.7% of business owners are in the 50-88 year age group6 , which has increased from 50.9% in 2012 and 46% in 20077 . In India, 56% of the businesses the principals have served in the last 3 years were anticipating selling the business or managing the transition to the next generation in family. This doesn’t include over 300 other businesses we have met and interacted with over the same time. Relevant Industry Experience. The principals have helped grow small family owned manufacturing businesses with annual revenues from $5 MM to $125 MM in the last 3 years. The projects have spanned across operations, sales & marketing, human resources, information technology and strategy functions in these businesses. Committed Principals. The principals are entrepreneurs with a vision to create product brands for themselves and fully believe in the opportunity to grow small businesses to leading brands on a national and international level. They have dedicated last 3 years in the service of small businesses in India and independently identified the potential of small business acquisition before learning about the search fund model. The principals have a commitment to deliver value in excess of $1 Billion to small business by the year, 2021. Opportunity for Value Creation. The Principals’ experience building lower middle market companies has convinced them of the opportunity that exists to build value in small businesses. They anticipate continuing their approach from their previous venture to create value in the acquired firms. As a first step, the Principals anticipate assembling an experienced Board of Directors and management team who embrace the traditional values of hard work, integrity, humility and teamwork. Second, the team will work to add rigor to existing business processes and upgrade information systems at the acquired company to serve as a foundation for growth. Finally, the team will look to prudently pursue underexploited growth initiatives, both organically and inorganically. 6 Demographic Characteristics of Business Owners & Employees: 2013, Small Business Administration 7 Demographic Characteristics of Business Owners, Small Business Administration
  10. 10. ALPHAGROWTH CAPITAL Underserved Acquisition Niche. More than $4.8 trillion of net worth, representing the largest intergenerational shift of wealth in the world8 , will be transferred over the next 20 years in India and the United States, as virtually all closely-held and family-owned businesses will lose their primary owner to death or retirement. Opportunities to acquire lower middle market businesses will be greater than demand, as these businesses typically fall below the investment parameters of most buyout firms and are often too large for private buyers. Furthermore, direct sourcing of these opportunities requires a significant time investment that is often times not feasible for private equity firms due to their limited professional staffs. As a result, acquisition multiples in the lower middle market are lower than those found up-market. Tested Investment Vehicle. Search funds have been in existence since 1984 and have been used by over 150 entrepreneur teams primarily from Harvard Business School and Stanford Graduate School of Business to support efforts to locate, acquire and manage an existing private company. A 2013 study of “first time” search funds by the Stanford Center for Entrepreneurial Studies shows aggregate pre-tax internal rate of return as 35% per year, and an aggregate pre-tax return on invested capital as 10x9 . 8 “The Ten Trillion Dollar Question: A Philanthropic Gameplan,” Initiatives, Robert Avery, Cornell University 9 Search Funds – 2013: Selected Observations, Stanford Graduate School of Business
  11. 11. ALPHAGROWTH CAPITAL PRINCIPALS’ BACKGROUND AISHWARYA VARDHAN CHATURVEDI Professional Experience Aishwarya Chaturvedi is the Founder & Managing Partner of AlphaGrowth Capital. He has complemented leadership positions in services business in education, software and manufacturing industries in the last 3 years. His experiences include: strategy, operations planning and control, B2B sales, inbound marketing and technology implementations. At his current venture, he builds on his knowledge of Business Model Canvas, Organizational Behavior and Lean Philosophy to help clients build their brands, develop a people-first culture in organizations and adopt new tools to manage growth successfully. Education Indian Institute of Technology, Delhi New Delhi, India B.S. Production & Industrial Engineering 2013 Skills Operations Planning & Control, Industrial/Organizational Psychology, Business Planning, Investment Planning, Supply Chain Management, Corporate Finance, Product Management, Business Development INDRAJEET ROY Professional Experience Indrajeet Roy is the Founder & Managing Partner of AlphaGrowth Capital. He has 6 years of experience starting, running and growing businesses in education, and manufacturing industries. His experiences include: corporate strategy and international expansion for an infrastructure business, process design & implementation in manufacturing environments, supply chain management for PepsiCo, employability assessments in education and talent acquisition. He leads Sookshm’s practice in delivering Corporate strategy and business strategy projects. Education Indian Institute of Technology, Delhi New Delhi, India B.S. Production & Industrial Engineering 2010 Skills Corporate Finance, Team management & Leadership, Business Strategy, Project Management, Operations Planning & Control, Industrial/Organizational Psychology, Total Quality Management, Supply Chain Management, Recruiting
  12. 12. ALPHAGROWTH CAPITAL MAYANK KUMAR Professional Experience Mayank Kumar is the Founder & Managing Partner of AlphaGrowth Capital. He has 3 years of experience working with businesses in Clean Energy, Manufacturing and food processing industries. His experiences include: implementing decision support systems for small businesses, turnkey projects to setup and run rice mills, total quality management and throughput improvements using lean practices and workforce training to reduce defects on stitching lines. At Sookshm, he helps clients realize process improvements with his knowledge of lean manufacturing tools including Value Stream Mapping, Kaizen and Theory of Constraints. Education Indian Institute of Technology, Delhi New Delhi, India B.S. Mechanical Engineering 2013 Skills Operations Management, Business Process Reengineering, Enterprise Resource Planning, Total Quality Management, Lean Manufacturing, Movie Production, Marketing Communications, Customer Relationship Management, Business Intelligence Please see Appendix A for a link to Principals’ LinkedIn profiles.
  13. 13. ALPHAGROWTH CAPITAL INVESTMENT OPPORTUNITY AlphaGrowth Capital is a search fund formed to identify, acquire and operate an existing private company with initial enterprise value between $10 and $50 million. The fund will allow the Principals to conduct a full-time search for a period of up to 24 months. OVERVIEW OF A SEARCH FUND Conceived in 1984, the search fund is an investment vehicle in which investors financially support a manager’s efforts to locate, acquire and manage an existing private company. Over 150 search funds have been raised to date, predominantly by recent graduates of Harvard Business School and Stanford Graduate School of Business. In a search fund model, capital is raised in two distinct rounds of financing. In the first round, funds are invested into the search fund entity, AlphaGrowth Capital to cover operating expenses and allow the Principal to draw a modest salary while conducting a professional search to acquire an existing private company. In return, search fund investors obtain the right, but not the obligation, to invest in the second round of financing, the acquisition round. All funds invested in the first round will automatically be converted to securities in the acquired company and stepped-up by 50%, structured as a combination of equity and subordinated debt (i.e., for every $1.00 invested in AlphaGrowth Capital the investor will receive $1.50 of securities of the acquired company). A 2011 study of 150 “first time” search funds (funds raised by management teams without prior search fund experience) by the Stanford Center for Entrepreneurial Studies shows average investor returns of 34.9% per year10 (full text provided in Appendix C) 10 Search Funds – 2013: Selected Observations, Stanford Graduate School of Business
  14. 14. ALPHAGROWTH CAPITAL FIVE STAGES OF THE SEARCH FUND The search fund model is executed over five distinct stages, the entirety of which can last anywhere from five to eight years. Search Fund Stage Stage Time Stage 1: Raise the search fund 2-4 months Stage 2: Source & Evaluate Opportunities 1-24 months Stage 3: Finance & Close a transaction 2-6 months Stage 4: Operate the business 4-6 years Stage 5; Exit the business 4-6 months Table 1. Search Fund Process Timeline
  15. 15. ALPHAGROWTH CAPITAL Stage 1: Raise the search fund AlphaGrowth Capital is raising $600,000 through the sale of twenty (20) Units priced at $30,000 each. This initial capital is intended to sustain a search for up to 24 months. For each Unit purchased, investors will receive: Right of First Refusal. Investors will have the right to participate in financing the acquisition, but are not obligated to do so. Depending on the size and structure of the acquisition, investors are expected to have the opportunity to invest again at the time of acquisition. Investors will be given the opportunity to provide 100% of the required equity in order to prevent dilution from outside investors. Investment Step-Up. All Units will be converted to securities in the acquired company and stepped-up by 50%, structured as a combination of equity and subordinated debt on terms pari pasu with the investor capital provided in the acquisition round of financing (i.e., for every $1.00 invested in AlphaGrowth Capital the investor will receive $1.50 of securities of the acquired company). This 50% step-up is meant to compensate the initial investors for the increased risk of investing in the first round of financing. Upon completion of a transaction, any funds remaining in the search fund will be invested in the acquired company. Investors will be released from any remaining capital commitments once the acquisition has been completed. Operating expenses for AlphaGrowth Capital are projected to be $600,000 for a 24 month search. These costs include salaries and benefits for the Principal and an analyst, office space, travel, communications, research and deal expenses. Specific expenses incurred during diligence and documentation of the acquired company will be included as part of the transaction’s purchase price. A detailed search budget is as follows:
  16. 16. ALPHAGROWTH CAPITAL CATEGORY HEAD 2 YEAR BUDGET %AGE SPLIT Team Draw $360,000 60% Benefits & Insurance $90,000 15% Travel $72,000 12% Rent & Office Expenses $18,000 3% Marketing $30,000 5% Diligence $30,000 5% Total $600,000 100% Table 2. Search Capital Budget Allocation AlphaGrowth Capital is interested in assembling a diverse investor base with expertise in successfully sourcing, investing, financing, operating, growing and exiting private companies. AlphaGrowth Capital is also interested in identifying investors who have the time and interest to provide mentoring and advice throughout the search fund process, especially in the form of participation in an Advisory Board during the search stage and Board of Directors during the operating stage. AlphaGrowth Capital welcomes any level of investor participation and believes the credibility associated with a distinguished investor group will aid in approaching and negotiating with business owners. Stage 2: Source & Evaluate Opportunities AlphaGrowth Capital will be based out of Philadelphia in US and/or New Delhi in India, and will perform search to generate deals that meet AlphaGrowth Capital’s acquisition criteria. At a minimum, companies must possess the following characteristics:
  17. 17. ALPHAGROWTH CAPITAL Quality of People ● Honest, respected seller with a strong reason to sell the company ● Strong Middle Management ● Well-developed customer and supplier base Quality of Industry ● Size, growth & stability of primary demand ● Fragmented competitive landscape, measured by number of firms making up 30% sales in the industry ● Low threat of external variables - technological, regulatory, legal, environmental etc. Quality of Cash Flows ● $10MM - $50 MM in annual revenues ● >10% EBIT Margins ● Diverse (by customers, products and markets) Quality of Operations ● Simple, understandable ● Asset light, measured by capex/growth ratios ● Identifiable areas of improvement Quality of Liquidity options ● Ability to generate 30% compound annual return on investor capital ● History of M&A activity in the industry ● Identifiable set of future buyers Table 3. Screening Criteria for Acquisition Opportunities While a variety of sourcing alternatives exist, each alternative requires a different level of time and financial commitment to generate a specific volume and quality of deal flow. The Principals believe the key to a successful search is to balance the use of these alternatives in a focused manner while also factoring in the professional experience and personal preferences of the principals. It is important to remember that the ultimate goal of the search strategy is to generate enough high-quality deal flow to close a transaction in not more than 24 months. The specific sources AlphaGrowth Capital will use to generate deal flow are as follows
  18. 18. ALPHAGROWTH CAPITAL Direct Marketing & Cold Calling Deal Flow Type: Medium Volume, High Quality Positives: o Best source of proprietary deal flow o Uncover companies that are otherwise off the market Negatives: ○ Can be time intensive to weed through opportunities due to low response rate ○ Owners are always not committed sellers AlphaGrowth Capital Strategy: ○ Streamline direct marketing efforts by specific industries / geographic regions ○ Generate list of companies that fall within specified deal critieria ○ Reachout plan with 10 touch points with each company spread across a direct letter, emails and phone calls ○ Expected 1-2% response rate on mailings, of which 25% will result in “real” opportunities Network with Service Providers Deal Flow Type: Low volume, variable quality Positives: Source of semi-proprietary deal flow Negatives: o Serendipity required o Can have low return on investment o Easy to fall off deal radar AlphaGrowth Capital Strategy: o Secondary source of deal flow o Focused networking by individual principal, separated by geographic region and/or industry o Establish contact with relevant professionals using social tools and trade shows, using network to gain introductions and establish credibility Network with River Guides / Personal Network Deal Flow Type: Low volume, High Quality Positives: Source of semi-proprietary deal flow Negatives: o Serendipity required o Difficulty to harness AlphaGrowth Capital Strategy: o Secondary source of deal flow o Circulate standing offer to pay finders fee to friends, family, classmates and river guides who provide an introduction to any business which is ultimately acquired o Build proprietary network of business owners and river guides in respective industries through trade shows and cold outreach
  19. 19. ALPHAGROWTH CAPITAL Public Relations Deal Flow Type: Low volume, variable quality Positives: o Enhance credibility with business owners o Introduce AlphaGrowth Capital to wider audience Negatives: ● Difficult to generate meaningful publicity AlphaGrowth Capital Strategy: o Cultivate press coverage in local regions o Write articles for press, participate in panel discussions and help a reporter out with news on the industry Table 4 – 7: Channel Strategies to Search for Opportunities Stage 3: Finance & Close a Transaction AlphaGrowth Capital intends to finance the acquisition through a variety of sources, including: Bank Debt. Typical revolving credit facilities provide advances against a negotiated borrowing base, such as 80% of accounts receivable and 50% of inventory. Senior term debt can be either asset-based or cash flow-based. Asset-based loans are determined primarily on the liquidation value of the company’s fixed assets. Cash flow loans are predicated on the company’s earnings. While search funds in the past have been able to secure bank debt for a substantial portion of the overall purchase price, the availability, interest rate and other terms for such debt will depend on the quality of the company’s assets and cash flow and on the general lending environment at the time of purchase. AlphaGrowth Capital will build on the Principals’ existing senior lender relationships and cultivate new relationships throughout the search process. Institutional Subordinated Debt. Institutional subordinated debt, also referred to as mezzanine debt, may constitute a portion of the eventual capital structure. Mezzanine debt is structurally subordinate in priority of payment to senior debt but typically ranks senior to seller financing and investor capital. As with the senior lender market, the availability, interest rate and other terms for mezzanine debt will depend on the quality of the company’s cash flow and on the general lending environment at the time of purchase. Seller Financing. Owners of companies in AlphaGrowth Capital’s target range are often willing to accept a stream of future payments as part of the acquisition. Typical structures include seller paper and/or earn-out provisions. The availability and extent of seller financing is influenced by several criteria, including the seller’s need for immediate liquidity, his/her tax situation and his/her desire to remain involved with the business. Previous search funds have shown that if the external lending environment is poor then seller financing is a convenient way to close the funding gap. Investor Capital. AlphaGrowth Capital anticipates that investor capital will represent between 30% and 70% of the capital required to fund the acquisition. Based on a targeted transaction size
  20. 20. ALPHAGROWTH CAPITAL of between $10 million and $50 million, investor capital could total between $3M and $35MM. This amount represents $150K to $1.75M per Unit. Investor capital may include a combination of subordinated debt, preferred equity and common equity. The ultimate capital structure will depend on specific acquisition and investor preferences. Subordinated debt securities can provide attractive returns through interest and tax-free principal repayments, while preferred equity provides the benefit of capital gains tax rates rather than ordinary income. The common equity securities allow the investor to participate in the expected upside upon sale or recapitalization of the acquired business. Stage 4: Operate the business Following completion of the acquisition, one of the Principals will assume the role of President of the acquired company. For the first 180 days the Principal will be focused on acclimating himself with the acquired business without disrupting the status quo. The diligence process will provide an important foundation, however it is anticipated that significant time and energy will be required to gain a more thorough understanding of the business, to establish credibility with the existing management team and to formulate a strategy for the business. Additionally, during the first 180 days the Principal will evaluate the strength of the existing management team, paying careful attention to how the strengths and weaknesses of the existing team overlay the current and future risks and opportunities of the business. The Principal, with the help of the investor group, will include an assessment of his individual strengths, weaknesses, interests, and areas of relevant expertise in this analysis in order to paint a complete picture of the management situation at the acquired company. The Principal anticipates making additions to the management team in the first twelve to eighteen months after acquisition. The representative additions may include upgrading the finance and accounting team with the addition of a qualified Chief Financial Officer and/or hiring an experienced sales executive as a new Vice President of Sales. While change can be disruptive, the Principal believes that it is important to thoughtfully assemble a team that embrace traditional values of hard work, integrity, humility and teamwork and can accelerate the growth of the business. The Principal will recruit a Board of Directors for the acquired business. The Board of Directors will consist of between five and seven shareholders or leaders in the company’s industry. The Principal is interested in assembling a Board of Directors consisting of individuals with expertise in operating, growing and exiting private companies as well as those with an interest in coaching and mentoring the Principal throughout the life of the investment.
  21. 21. ALPHAGROWTH CAPITAL Stage 5: Exit the business Investment in AlphaGrowth Capital should be viewed as a long-term investment. While interest payments and subordinated debt principal repayments could return a portion of investor’s capital in the medium term, investor returns will primarily come from the management team’s ability to increase the value of the acquired company. AlphaGrowth Capital expects to provide investors with a liquidity event between three and five years after acquisition. Although liquidity will most likely come from a sale of the business, the Principal may in fact remain with the business following a sale, depending on the buyer and the continued growth prospects of the business. In certain situations investors with a longer term investment horizon may be able to maintain their investment in the business. In addition to a liquidity event through sale, AlphaGrowth Capital will explore additional opportunities to maximize investor returns such as recapitalizations and share repurchases. As such, the duration of the investment could vary substantially from the initial expectations of five to eight years. INVESTOR RETURNS Through the acquisition and active management of its company, AlphaGrowth Capital targets a 30% compound annual return on investor capital. The overall return is a blend of the payments on the subordinated debt and equity portions of financing. This targeted internal rate of return, which is comparable to the returns of previous search funds, will be used to evaluate all investment opportunities. Investor returns on equity will not be capped in any way. ALPHAGROWTH CAPITAL’S CARRIED INTEREST AlphaGrowth Capital will earn common equity in the acquired company in return for identifying and acquiring the target company, and for achieving agreed upon operating results. The company expects to have the opportunity to earn between a 20-30% share of the common equity, depending on the ultimate size and structure of the acquisition. The earned equity is comprised of three parts: one third will be allocated at the close of the acquisition; one third will be based on management service and will vest evenly over a period of four years; and the final one third will be restricted equity, with restrictions that lift as investor IRR hurdles are met. In addition, an employee option pool may be granted for between 5% and 10% of the company’s common equity. Options will be used as a combination of time and performance-based incentives for employees, excluding the Principal, and must be approved by the Board of Directors prior to issuance. The Principal will suffer pro-rata dilution from the option pool.
  22. 22. ALPHAGROWTH CAPITAL INVESTMENT RISKS The search fund model attempts to minimize risk for investors via a staged financing structure, but it is not risk free. While AlphaGrowth Capital’s search, acquisition and management process will utilize best practices outlined in this document, the search fund has risks characteristic of investment vehicles that pursue superior returns. Significant risks include the inability to complete an acquisition, poor performance of the acquired company, inability to meet debt service commitments and the lack of liquidity for investors. Additionally, the Principals are crucial to the success of the search fund, and therefore investors run the risk that they will not be able to complete the search process due to illness, accident or personal reasons. While past performance of other search funds provide benchmarks for the type of returns the search fund is capable of generating, there is no guarantee that AlphaGrowth Capital will achieve the same results. AlphaGrowth Capital will attempt to mitigate risk factors by aligning the interests of investors and management, conducting extensive due diligence and by reducing exogenous factors related to industry and company operations. Nevertheless, there can be no guarantee that investors will recover their initial investment or realize the projected returns. Investors may experience a substantial or complete loss of invested capital and therefore must be capable of bearing that risk.
  23. 23. ALPHAGROWTH CAPITAL APPENDICES APPENDIX A: LINKEDIN PROFILES Aishwarya V Chaturvedi: https://www.linkedin.com/in/aichaturvedi Indrajeet Roy: https://in.linkedin.com/in/indrajeetroy Mayank Kumar: https://in.linkedin.com/in/imayankkumar
  24. 24. ALPHAGROWTH CAPITAL APPENDIX B: ILLUSTRATIVE TRANSACTION ECONOMICS Refer to pages 1 to 6 of “Search Fund Economics” for a background on the terms and nature of transaction. Refer to pages 7 to 9 of “Search Fund Economics” and “Exhibit 12” for an illustrative example of search fund financials URLs: Search Fund Economics: http://sookshm.co.in/wp-content/uploads/2015/10/Search-Fund- Economics.pdf Exhibit 12: http://sookshm.co.in/wp-content/uploads/2015/10/Exhibit-12-Sample-Search-Fund- Financials.pdf
  25. 25. ALPHAGROWTH CAPITAL APPENDIX C: STANFORD GSB, “SEARCH FUNDS – 2013: SELECTED OBSERVATIONS” See the Stanford Study at the URL below: http://sookshm.co.in/wp-content/uploads/2015/10/ces-search-fund-study-2013.pdf

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