Investment opportunity

Right moment
  • A number of Russian industries has very low multiples (EV/EBITDA x 3-4)
  • Low level of competition from other buyers
  • Unique opportunities for RUB Debt financing (>60-80% of EV)
Unique team
  • Team has different type of experience (entrepreneurship, managing, structuring, financing, procurement, operations, sales, legal, M&A, PE) in different industries that matchs with LBO fund purpose
Low regulation risk
  • Fund concentrated on mid size companies in non-strategic industries that minimizes government regulation of investments

Russia is the largest country in the world, covering more than one-eighth of the Earth's inhabited land area

Russia Macro

  • Population: 143,9 mln (#9 in the World)
  • GDP (2015): $1 176 bn (-37% YoY in $ terms, -3% YoY in RUB) (#10 in the World)
  • GDP (2015) per capita: $8 447
  • Debt/GDP x 25%
  • Mainly resource driven economy (#1 in the world for natural gas reserves, #8 for oil and #2 for coal)
Ratings:
  • S&P: BB+ “Negative”
  • Moody`s: Baa2 “Negative”
  • Fitch Ratings: BBB- “Negative”

Russia index and Industries valuations

  • Currently RTS Index has very low value
  • Industrial and Consumer Goods Industries have very attractive valuations levels about x 3 times (EV/EBITDA) and low level of state regulation (compare to Oil & Gas)
Industry valuations
Industry 2015F 2016F
Oil & Gas/td> 3.27 2.91
Retail 12.16 9.73
Telecommunications 4.11 3.90
Power Generation 4.31 3.94
Fertilisers 5.36 4.80
Media 11.57 8.27
Transporation 3.77 3.24
Real Estate 6.06 5.82
Consumer Goods 3.38 3.31
Industrial 2.97 2.48

Right moment for investments

During past time exit opportunity in Russia for Business sellers significantly decreased:
  • PE Funds. Most of PE funds has US or European investors that decreases their appetite for Russian risk and now they are net sellers. Also PE Funds in general prefer minority stakes with strong shareholders/managers.
  • Some of high net worth Russian individuals try to cash out from the country due to political reasons
  • Due to sanction Western corporations freeze their appetite for Russian companies acquisitions

Why Leveraged buy out (LBO) Fund

  1. Low Enterprise Values multiples in Russia with relatively high Debt financing multiples up to 3X EBITDA follows to low level of needed equity
  2. Low currency risk for investor via using RUB denominated leverage
  3. Buyout funds outperform Market index on the long run and have better risk/return profile than other opportunities
Absolute average IRR of Buyout PE in main regions
Period US Europe Asia-Pacific
1 years 23 24 22
3 years 15 9 9
5 years 19 15 16
10 years 14 16 13
20 years 13 17 11
Relative performance Buyout PE vs Market Index
Period US Europe Asia-Pacific
1 years -2 -6 9
3 years -1 1 3
5 years 0 3 7
10 years 6 9 8
20 years 5 10 7

Why SK Global Fund

Competitive advantages vs other Russian PE Funds
  • Unique fund strategy: LBO
  • Exit strategy: primarily focused on operating cash flow return and secondary on sale of the target
  • Own professional team of managers who are ready to manage acquired companies
  • Structure of financing: most of acquisition financed by RUB denominated debt (60-80%), that decreases currency risk for foreign investors
  • We are looking for control stake (>51%) while the other PE prefer less than 50%

Investment approach

Criteria for targets:
  • Entry equity stake: 51-100%
  • Investment size of equity: $10-25 mln
  • Target IRR: 30+%
  • Low volatile of sales and OCF
  • Significant proportion of non-current assets
  • Sustainable competitive advantage
  • No significant law risks or corporate conflicts
  • Low level of debt
How we plan to create value.
  • Return on investment is generated by the next factors:
  • Improve operations
  • Finance leverage
  • Growth of multiples
Competitive advantages vs other Russian PE Funds
  • Unique strategy: LBO
  • Exit strategy: primarily focused on operating cash flow return and secondary on sale of the target
  • Own professional team of managers who are ready to manage acquired companies
  • Finance structure: most of acquisition financed by RUB denominated debt (70-80%), that decreases currency risk for foreign investors
  • We are looking for control stake (>51%) while the other PE prefer less than 50%

Source of pipeline

The latest tendencies Source of pipeline Source of inefficiency
First wave of Russia entrepreneur become «retired age» person but don’t have opportunity from the business Retired shareholders Most of them build their business around one strong competence (sales for one segment of market, operations ect) and company has potential for
Large corporations spin off non core assets Spin off from Corporations Corporate bureaucracy
Due to decline in oil&gas prices government will be looking for others source of money and start privatization more actively Privatization State bureaucracy and significant operations inefficiency (cost+logic)
NPL level in the banking system increased that increases the number of bankruptcy Distressed State banks can’t manage companies in the most effective way

About team

SK Global Fund has Six Partners who met during studying on Executive MBA program in Skolkovo School of Management (#1 Business School in Russia). It multiples our own network of contacts significantly and helps to find deals and managers for acquired companies on exclusive terms.

Alexey Belov

  • Current position: President of the Contact Center Open Line, Co-owner of the Seven Sky Company (Telecommunication company in Moscow area)
  • Key skills: Strategy development, Negotiating of the deals, M&A, Operations management
  • Selected transactions tCreating one of the leading broadband operator in Moscow area (>$50 mln), Cooperation with PE funds (Russia Partners)

Alexey Goryachev

  • Current position: Managing partner at RMG Partners
  • Key skills: Serial entrepreneurship, Executive management (23 year of experience), investments (public equities, PE, VC), fund management, M&A.
  • Building from scratch, managing for 20 years and successfully sold one of the first private IB in Russia.

Igor Mazanov

  • Current position: Managing Partner SK Global Fund.
  • Key skills: Cost optimization of industrial company, working capital optimization due to inventory optimization and accounts payable, procurement strategy creation and implementation for industrial company, supply chain optimization, operations bottle neck elimination, M&A structuring, fast team building for solving crisis issues.
  • Selected transactions turned the unprofitable steel company into the profitable one due to the cost reduction program during 2 years, unprofitable bankrupt mining company into the profitable one during 6 months, structured M&A deal and sold the mining company for 20 million USD, 8% cost reduction (90M$) due to supply chain optimization without any additional cost, working capital optimization 200m$.

Anton Vasiliev

  • Current position: Partner at Orange Capital
  • Key skills: M&A, PE, JV and VC setup, debt restructuring
  • Selected transactions Purchase, debt restructuring, split of business and sale of the large vegetable oil company

Mikhail Kamyshev

  • Current position: CEO, Owner of Oil Service, Ltd (producer of oil and gas equipment)
  • Key skills: Operational management, business efficiency improvement, entrepreneurship
  • Selected transactions Growth management of company from $0 to $20 mln

Igor Felitsin

  • Current position: Founder & CEO of the Author-Stone and RGK (Construction and mining company)
  • Key skills: Entrepreneurship, sales & negotiation, foreign economic activities
  • Selected transactions Creating market leader from scratch in 5 years in Russian natural stone industry

Term sheet

Name SK Global Fund LP
General Partner SK Global Fund
Offices Moscow
Purpose LBO of companies with low volatile sales and high portion of fixed assets
Geographic focus Russia and CIS
Target size US$100 million
Term Closed-ended , 5+1+1 years form the first closing date
Investment period 3 years
Net target returns 30%+ IRR
LP preferences 1x preferred return / 5% hurdle rate
Carried interest 20%
Management fee 1.5% p.a. on committed capital during investment period, on net invested capital thereafter
Redemption None
Leverage Up to 80% of invested capital
Auditor Big 4
Advisory board 5 members – all representing LPs
Investment committee 6 Partners / Consensus voting
NAV calculation Semi-annually
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