Geopolitical trends – world is quickly changing, while at the same time becoming much smaller
Key items to note:Total numbers doubling annually, the pendulum has recently swung in favor of the RCs, which will soon change, the top three markets…
REGIONAL CENTER:In the past years the number of RCs registered at the USCIS has increased over 2300%. Today there are over 270 RCs, compared to only 11 in 2007.Dramatic increase in SEC scrutiny.SEC scandal: The SEC alleges that Anshoo R. Sethi created A Chicago Convention Center (ACCC) and Intercontinental Regional Center Trust of Chicago (IRCTC) and fraudulently sold more than $145 million in securities and collected $11 million in administrative fees from more than 250 investors primarily from China. Through 9/30/12, the USCIS received 240 Regional Center Applications (Form I-924), processed 108 with 35 approved and 63 denials. The approval rate of 36% was a significant drop-off from the prior two years: 2011 (68%), 2010 (65%), and a significant drop-off in the number of approvals: 2011 (123) and 2010 (78). The USCIS is currently scrutinizing Form I-924 applications, leading to a lower approval rate and number of approvals.
Source for number of applications: US Dept of State (http://iiusablog.org/wp-content/uploads/2012/10/IIUSA-FY2012-EB5-VISA-STATS-Source-DOS.pdf)Source for quota limitations: Ron Klasko’s “THE IMPACT OF CHINESE QUOTA RETROGRESSION ON EB-5 INVESTORS AND EB-5 INVESTMENTS”
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Source for 3rd point: Reuters (http://www.reuters.com/article/2011/03/09/us-billionaires-russia-idUSTRE7287NA20110309)Source for 4th point: Bloomberg/PWC (http://www.bloomberg.com/news/2013-01-16/russia-may-overtake-germany-as-no-5-economy-by-2020-pwc.html)
Source 1st point: USCIS
Source 1st point: Reuters (http://in.reuters.com/article/2013/01/24/emerging-growth-survey-india-china-bric-idINDEE90M0J820130124)Source 2nd point: India Inc. (http://www.indiaincorporated.com/index/item/304-india-millionaire-wealth-to-multiply-by-405.html)NOTES: Indian millionaire’s wealth is projected to grow by 405% by 2020.
There are numerous competing immigrant-investor programs ranging from Canada to St. Kitts to Bulgaria to Australia. Some of the popular programs that compete directly with EB-5 in recent years have been Canada, United Kingdom, and St. Kitts Canada – Principal guaranteed by the govt. and easy financing options UK – High investment but still a popular destination for HNWIs, also 75% can be invested in bonds (theoretically safer) St. Kitts – Inexpensive, relatively safe, easy process
E-2:No set minimum investment, but the investor must leave after his business is done. Temporary, non-permanent immigration. http://www.uscis.gov/portal/site/uscis/menuitem.eb1d4c2a3e5b9ac89243c6a7543f6d1a/?vgnextoid=2ea36811264a3210VgnVCM100000b92ca60aRCRD&vgnextchannel=2ea36811264a3210VgnVCM100000b92ca60aRCRDhttp://www.nolo.com/legal-encyclopedia/e-2-visa-treaty-investors-the-us-do-you-qualify.htmlE-2 - EB-5’s primary competition among other visa categories is with the State Department’s visa program for Treaty Investors (E-2). Data shows that in 2010, the ratio was still about 10 visas for the E-2 category to 1 for the EB-5 category. Major differences between the two visa categories: 1.) EB-5 is worldwide in scope, E-2 is limited to nations with treaties. 2.) E-2 is more for active entrepreneurs and EB-5 is for passive 3.) E-2 does need lesser money than EB-5. L-1 Another indirect competitor to the EB-5 program, the L-1 visa permits a foreign national to enter the U.S. for work purposes with L-1 status. In order to qualify, the individual must be employed by a foreign branch of the company they intend to work for in the U.S. for a period of no less than one year.Key differences – 1.) L-1 is based on employment and EB-5 based on investment. 2.) less capital intensive but more active IT TAKES LONGER TO OBTAIN A GREEN CARD FOR BOTH VISA CATEGORIES
The thirdalternative is direct investments and is what we as a company do.What we recommend to our clients. This image will become more relevant as i explain the our services and methodology
Gamut of services
Financial info: is Boris a qualified investor?
ACG will register a new LLC .. “NewCo LLC”. Boris Ivanov, the investor, owns 100% of this newly created LLC. Boris will then hire ACG as its manager. Since Boris is the 100% owner, he has absolute control over this LLC and can either manage it himself, hire another manager, or hire ACG. He can then fire ACG at a later time if he is not satisfied. We figure out the structure of the new entity
Founded in 1995, the Company is one of the leading janitorial service companies In Oregon. It currently serves the Oregon, Washington, and Arizona markets and provides services such as janitorial services, floor care, supply sales, and related services to commercial customers. The Company is also an exclusive subcontractor for a major national firm and is given first choice of opportunities in a wide area including Oregon, Washington, and Arizona. With clients such as AT&T, Parr Lumber, and some leading regional property management firms, the Company has a strong track record and a loyal customer base. The Company was once the third largest building maintenance company in Oregon and has been recognized as one of Oregon's Fastest Growing Companies multiple times, won the Top 10 Growth Award in 2002, won the Business Integrity Award in 1999, won the Customer Service Award in 2001, named the Best Service Provider in 1999, nominee for the National Torch Award in 2000, and nominee for the Business of the Year in 2001.
Talk about the nature of the cash flow: safe, consistent, predictable, high return on investment.. Track record, etc.
We will conduct thorough due diligence on each of these potential acquisition targets to obtain and develop substantial analysis and detailed information about each potential investment vehicle. Our due diligence will include an analysis of the following aspects of the business:Personnel;Inventory;Operations;Marketing and sales;Accounting and tax records;PP&E (property, plant, and equipment);Insurance;Outstanding liabilities;Legal matters. Once our team completes the due diligence process, we will prepare a detailed report with all of our findings and a book of all relevant documentation for each opportunity. Additionally, the report will contain a list of potential red flags and recommendations. The duration for the Due Diligence Phase is expected to be two to three weeks.
Reduction in price: our firm created value instantly for Boris.
Here are some of the key advantages of Direct Investment over a Regional Center. Greater number of options – Regional Centers tend to invest into a very small number of industries, which may or may not be of interest to a foreign investor. By investing directly into a U.S. company or starting a new U.S. company, the investor can invest into virtually any legal business, as long as the minimum investment and the minimum number of jobs requirements are met. Business control – by investing directly into a company the investor maintains control over his/her investment, rather than relinquishing it to a third party. With a direct investment, the final decision-making power remains with the investor. Active involvement – some investors prefer to be involved in the day-to-day operations management of a business and being the creative driving force behind its growth, which only a direct investment would allow them to do, while still having the option to relieve themselves of these duties and assign them to ACG at any time. Higher returns – investing directly into a business gives the investor the opportunity for significantly higher returns, both in the short and long-term. The typical regional center offers only 2-3% returns on an investment and keeps the remainder. By investing directly into a business there is no limit to the recurring revenue stream and the long-term asset appreciation that the investor will be able to capture.
You own the ENTIRE bowl, you are the only one swimming in it, you choose the direction of where to swim, how fast/slow to swim, keep/eat all of the fish food, and you can leave the bowl whenever you wish.----- Meeting Notes (4/5/13 17:17) -----Not strong enough to control the tide
Service providers mustlook outside RCs
To maintain the Program’s momentum, it is necessary to offer immigrant-investors an alternative that allows a clean and transparent investment into the U.S. economy. That alternative is the underutilized direct-investment route.
ACG IMMLAW Presentation April 11, 2013
Direct Investments: The Less TraveledRoad for EB-5 InvestorsIMMLAW Meeting – Vancouver, BCApril 6th, 2013
Presentation Outline EB-5 today New markets Alternatives to EB-5 Regional Centers EB-5: the ACG way Implications for legal professionals April 6th, 2013 www.aginskyconsulting.com 2
EB-5 Today – Why?Why EB-5?Key Drivers: Political instability Corrupt institutions Crime and violence Impediments to free enterprise Economic instability/ volatility April 6th, 2013 www.aginskyconsulting.com 4
EB-5 Today – Visas Issued Direct Regional 2012 % of Total % of Total Total Investment Center China 205 2.7% 5,926 77.6% 6,131 South Korea 22 0.3% 425 5.6% 447 Venezuela 7 0.1% 102 1.3% 109 Total All Countries 323 4.2% 7,318 95.8% 7,641 Direct Regional 2011 % of Total % of Total Total Investment Center China 207 6.0% 2,323 67.1% 2,530 South Korea 36 1.0% 218 6.3% 254 Iran 12 0.3% 105 3.0% 117 Total All Countries 382 11.0% 3,081 89.0% 3,463 Direct Regional 2010 % of Total % of Total Total Investment Center China 214 11.4% 652 34.6% 866 South Korea 92 4.9% 203 10.8% 295 UK 23 1.2% 112 5.9% 135 Total All Countries 563 29.9% 1,322 70.1% 1,885 April 6th, 2013 www.aginskyconsulting.com 5
EB-5 Today - Regional Centers Influx of players due to low barriers to entry: 2300% increase in the number of RCs over the past 5 years Fraud and SEC compliance issues: Particularlyin China, there is a growing sense of distrust towards Regional Centers, in light of the recent IRCTC scandal Increased USCIS scrutiny: I-924acceptance dropped from 68% to 36% in 2012 The tenant occupancy issue April 6th, 2013 www.aginskyconsulting.com 6
EB-5 Today – China: Pitfalls & Challenges The top producing country of EB-5 investors Accounted for 80% of applications during FY2012 Expected to experience quota limitations in FY2013 Current volume not sustainable as applications from other countries increase Extended waiting periods could discourage Chinese investors from participating in the EB-5 program Intensified competition All active Regional Centers market in China Lack of transparency and misrepresentation of facts Brokers’ commissions in this market have nearly doubled April 6th, 2013 www.aginskyconsulting.com 7
New Markets - Russia Similar to China Presents an untapped opportunity Moscow is the billionaire capital of the world By2020, Russia is expected to surpass Germany as the largest European economy April 6th, 2013 www.aginskyconsulting.com 9
New Markets – Latin America Venezuela became the 3rd largest producer of EB-5 investors in 2012. Mexico: due to its proximity to the U.S. and its increasingly violent internal conflicts, there will be an increase in the number of HNWIs from Mexico taking advantage of the EB-5 program. Braziland others are expected to follow in the coming years as their economies continue to mature and a new generation of millionaires emerges. April 6th, 2013 www.aginskyconsulting.com 10
New Markets - India Second fastest growing economy among BRICs after China. Among emerging markets in 2020, India is likely to have the highest per capita wealth among millionaires with $4.25 million - placing it ahead of the U.S. April 6th, 2013 www.aginskyconsulting.com 11
Investor Options (Alternatives to RCs) Competing immigrant-investor programs overseas Other Visa Categories (L-1, E-2) EB-5 Direct Investment April 6th, 2013 www.aginskyconsulting.com 13
Alternatives - Competing Immigrant investorPrograms Canada Principalinvestment guaranteed by the government Financing options make it significantly cheaper United Kingdom Popular destination Can invest 75% in government bonds (safer) St. Kitts Simple and quick process Relatively inexpensive Ease of travel Belgium, Monaco, Latvia, Australia, New Zealand, Bulgaria, Cyprus, Dominica. April 6th, 2013 www.aginskyconsulting.com 14
Alternatives - Other U.S. Immigration Options E-2 More suited for active entrepreneurs Limited to nations that have investment treaties with the U.S. (excludes Brazil, China, Russia, Venezuela) L-1 For executives of multinationals Active employment mandatory Longer and riskier road to a Green Card April 6th, 2013 www.aginskyconsulting.com 15
Alternatives - Direct Investment April 6th, 2013 www.aginskyconsulting.com 16
ACG EB-5 Service Offering: A One-Stop Shop New Entity Investment Exit Strategy Formation and Execution Opportunity Identification Immigration Legal Support Due (if necessary) Diligence Matter of ACG Negotiations Ho Business and Deal Plan Structuring Post Acquisition Corporate Business Legal Support Management Escrow/Closing April 6th, 2013 www.aginskyconsulting.com 18
Phase I: Information Gathering & ClientInterviewsClient: Boris IvanovACG Collected information Financial information verification Boris Ivanov’s Investment Criteria Investment objectives: Green card, safe investment, returns Investment size: ~$1,500,000 April 6th, 2013 www.aginskyconsulting.com 20
Phase I: Information Gathering & ClientInterviews Boris Ivanov’s Investment Criteria (continued) Risk profile: Conservative Timeline Green card as soon as possible Exit within 3-4 years of investment Any other specific criteria: Majority control of the investment Phase I Timeline: 1-2 weeks April 6th, 2013 www.aginskyconsulting.com 21
Phase II: New Entity Formation “NewCo LLC” Boris Ivanov owns 100% membership stake in NewCo LLC Boris Ivanov hired ACG as a Manager for NewCo LLC Phase II Timeline: 1 week April 6th, 2013 www.aginskyconsulting.com 22
Phase III and IV Phase III: Market monitoring & long list Provided Boris Ivanov with a customized list of available deals ACG Dealbook Phase IV: Short list Worked with Boris Ivanov to narrow down to 1 or 2 deals that will work best for him Phase III & IV Timeline: 3-4 weeks April 6th, 2013 www.aginskyconsulting.com 23
Selected Deal: Commercial JanitorialService Company• Total investment size: $1,500,000• Expected umber of new jobs: 24• Projected ROI: 26.5%• Expected Exit: 3-4 years April 6th, 2013 www.aginskyconsulting.com 24
Company Overview Founded in 1995 Services include janitorial services, floor care, supply sales, related services to commercial customers Markets: Oregon, Washington, and Arizona Clients include the likes of AT&T, Parr Lumber, Union Pacific Railroad, Leading Regional Property Management Firms Multiple awards won April 6th, 2013 www.aginskyconsulting.com 25
Financial Summary 2010 2011 2012 2013*Revenue $1,906,939.00 $1,636,755.00 $1,707,474.00 $1,939,514.00Cash Flow $387,767.00 $365,385.00 $377,684.00 $398,362.00Net Cash Margin 20.3% 22.3% 22.1% 20.5%ROI 25.9% 24.4% 25.2% 26.6% *2013 forecasts are based on existing customer contracts April 6th, 2013 www.aginskyconsulting.com 26
Current Employment Structure Owner Total Employees: 12 Business Manager (1) Operations Office Manager (1) Secretary (1) Janitorial Staff (9) April 6th, 2013 www.aginskyconsulting.com 27
Phase V: Due Diligence ACG verified all the claims made by the company Financial, legal, personnel, and business due diligence Deliverable to Boris Ivanov: Due diligence reportPhase V Timeline: 4-6 weeks April 6th, 2013 www.aginskyconsulting.com 28
Phase VI: Negotiations and Closing ACG negotiated and structured the deal for NewCo LLC Reduced price by 23% ACG worked with the corporate lawyers to draft and finalize all the contracts for the transaction Immigration attorney contract review Escrow/ClosingPhase VI Timeline: 2-4 weeks April 6th, 2013 www.aginskyconsulting.com 29
Phase VII: Ongoing Management ACG oversees the day-to-day operations Key strategic decisions Hiring and firing Quarterly reports to investor April 6th, 2013 www.aginskyconsulting.com 30
Post Closing: EB-5 Application ACG role Drafted a “Matter of Ho” compliant business plan for NewCo LLC ACG worked with the client’s immigration attorney or recommends an immigration attorney if the client does not have one Assisted with I-526 application EB-5 Application Timeline: 4-6 weeks April 6th, 2013 www.aginskyconsulting.com 31
New Job Creation (post acquisition) Business plan outlined growth strategy and job creation time table All senior hires were made first Salesmen (4 new hires) 1099 conversion (9 conversions) New janitorial staff for new accounts acquired (12 new hires) Initial hires were funded by working capital reserves and existing cash flow April 6th, 2013 www.aginskyconsulting.com 32
Organizational Transformation Pre - Acquisition Post - Acquisition EB-5 Owner Pre-acquisition # of Investor(s) employees: 12 Post-acquisition # of Business employees: 36 ACG Manager (1) New jobs created: 24 OversightOperations Office SeniorManager (1) Secretary (1) Management (2) Janitorial Staff (9) Sales Force Janitorial Staff (4) (30) April 6th, 2013 www.aginskyconsulting.com 33
Exit Strategy and Execution Apply for I-829 (condition removal) ACG will work with Boris Ivanov and the immigration attorney to file the application Boris Ivanov decides to sell NewCo LLC after receiving approval of the I-829 Exit strategy execution (Phase VIII) ACG will prepare the offering documents to place NewCo LLC in the market ACG will work with interested buyers through the entire selling process Exit Timeline: 2-4 months April 6th, 2013 www.aginskyconsulting.com 34
Summarized Process and Timeline Phase I. Information gathering and client interviews Phase II. New entity formation Phase III. Market monitoring and long list Phase IV. Selection process – short list Phase V. Due diligence Phase VI. Negotiations and contract signing PROJECT TIMELINE OF PHASES I-VI: 11-17 weeks EXIT: 2-4 months after approval of I-829 April 6th, 2013 www.aginskyconsulting.com 35
Comparative Analysis: RC vs. DIMetrics Direct Investment Regional CenterBusiness Control 100% control No controlNumber of Options Virtually unlimited Very limited Passive/Active/Hybrid Passive onlyInvolvement Level (options) (no options)Transparency Full LimitedBrokerage/ Admin fee 4% to 6% 5% to 10%Liquidity Liquid IlliquidBusiness Expansion Optional Not an optionReturns 12% to 30% 0% to 1.5%Risk Low High April 6th, 2013 www.aginskyconsulting.com 36
Advantages of Direct Investment –Lower Risk Reduced risk Business track-record Existing cash-flow Direct job creation, easy to demonstrate Ability to bridge any job creation deficit with existing cash-flow Perfect alignment of stakeholders’ interests No leverage required April 6th, 2013 www.aginskyconsulting.com 37
Direct Investment April 6th, 2013 www.aginskyconsulting.com 38
Direct Investments – A New Tool forImmigration Professionals To capture new clientele and capitalize on this emerging opportunity: Know of EB-5 investments taking place outside Regional Centers Understand the process and structure of these transactions Establish strategic partnerships with professionals: That can identify/create opportunities that meet your clients’ needs That have networks in the emerging economies likely to provide the next wave of EB-5 investors April 6th, 2013 www.aginskyconsulting.com 40
Closing remarks The EB-5 landscape is quickly changing: New opportunities are opening up outside China Emergence of a more a robust and dynamic alternative to Regional Centers As service providers, we must adapt and be at the forefront of the industry to better assist clients The underutilized direct-investment route will be key in maintaining the EB-5 program’s momentum April 6th, 2013 www.aginskyconsulting.com 41