Capital Raising & Finance

Capital Raising & Finance for Companies Entrepreneurs Investors Syllabus Andreas T. Angelopoulos

Course Description - Aims - Objectives Description This course examines the role of capital raising for: Entrepreneurs Investors Companies based on: Theory Cases & Financial Modeling Speakers Project following the Connect Theory with Practice approach aiming students to acquire not only the required theory and understanding of the finance instruments and methods but also to develop their execution and modeling skills around selected topics and cases. 1

Course Description - Aims - Objectives Aims The purpose of this course is students to: Review the Theory in capital raising understanding in depth the: Finance instruments debt quasi-equity equity Finance Methods Equity and Quasi-Equity Finance: Growth Capital, IPO (Primary & Secondary offer), Primary (Rights Issue & Capital increase), Secondary (Follow on), Equity linked (Convertible bonds) Debt Finance: Leverage Finance, Project Finance, Infrastructure Finance Go deeper in theory through Cases and Financial modeling Connect the theory with practice through Banks and Funds Presentations of real transactions Practice through an individual Project work developing the required execution and modeling skills 2

Course Description - Aims - Objectives Objectives The objective is the student to acquire the basic skills required to answer the following questions: What type of capital can be raised? Which finance instruments should be used? What type of financing is required? Who could provide the capital? How to structure the financing from a financial and legal prospective? How to model specific cases from a value, risk and return prospective? How to present the case to a committee through the development of various tools and financial models? Understanding of these capital raising & finance concepts and developing these execution skills are important elements for any student interested to work as an investor, private equity fund manager, entrepreneur, company executive but also as an investment banker or lawyer or consultant. 3

Course Syllabus Section A - Capital Raising & Finance Theory Debt and Quasi Equity, Equity Finance Instruments Introduction STEP B - LOOKING THE ENTRY Debt or Equity? Sources EqV CO & Post Types MV of = capital 37.5 / raising? (1+50%)ˆ5 = 4.9 The finance instruments EqV CO Pre MV = Post MV - I = 4.9-3.5 = 1.4 Debt Finance instruments (Loans) Senior (short case) Junior Number (short of Shares case) = (EqV / Share Price) Mezzanine (short case) Entry Net Income, Multiple PIK Capex (short case) RCF (short case) Debt Finance instruments (Bonds) High Yield Bonds PIK Bonds Corporate bonds Self Issued bonds Quasi Equity & Equity Finance instruments Quasi Equity Convertible Bond (public or private company) Shareholder Loan (short case) Preference Shares Equity Preferred Ordinary shares Ordinary Shares Equity Quasi Equity Debt Finance and Investor base 4

Course Syllabus Section B - Capital Raising & Finance Theory Growth Capital Finance Capital increase Characteristics, Type of assets, Use of financing Shareholder Liquidity Factors that will affect the financing and the structure Growth Capital Finance investors Value creation process Financial Structuring - Key considerations The concept of Pre Money and Post Money valuation Antidilution protection (Full and weighted average ratchet) A short case on antidilution Liquidation preference (simple and participating) A short case on liquidation preference Financial Modeling & Valuation methodology A modeling case in excel - a Growth Capital model Legal structuring - minority position protection Growth Capital Finance Risks A short case in Pre Money and Post Money valuation How Growth Capital finance generates returns? IRR method, EQV/NI, no dilution, no share options IRR method, EV/EBITDA, no dilution, no share options 5

Course Syllabus Section B - Capital Raising & Finance Theory Initial Public Offering (IPO) Equity capital markets IPO overview Marketing process Rationale for stock market listing Key milestones during a process Timetable for an IPO Deal structure and timing Syndicate structure Factors affecting the listing venue Timing considerations Legal documentation Due diligence IPO valuation and pricing Bookbuilding and pricing Research and distribution Investor education and roadshow Pricing and bookbuilding After market performance Selected post IPO transactions (primary and secondary) Accelerated bookbuilding Rights issue Fully marketed offering 6

Course Syllabus Section B - Capital Raising & Finance Theory Equity linked - Convertible bonds What is a convertible bond Pricing drivers for a convertible bond Pricing drivers for the bond component Pricing drivers for the option component Key convertible bond definitions Valuation drivers Issue convertible bond or debt or equity? Structuring a convertible bond Structuring considerations Key structural features of a convertible bond Dividend protection Overview of equity linked structures Convertible and exchangeable bonds Execution and investors Time plan Launch day Key documents Marketing by the sales team Investors Equity linked market & Short Cases by Commerzbank Issuer s call for redemption 7

Course Syllabus Section B - Capital Raising & Finance Theory Leverage Finance Characteristics of a good leverage finance candidate Structuring leverage finance what is the right quantum The leverage finance and investor base The parties involved in the leverage finance process Leverage finance instruments offered by the Investment banks Typical leverage finance products slicing and dicing the risk Leverage finance capital structures 2000 2007 2011 Leverage finance repayment quantum tenor pricing A representative acquisition finance (LBO) structure The covenants Typical leverage finance organizational structure Maximizing recovery value What is affecting the investment decisions and the financing? The impact on investor s returns by applying leverage The three drivers increasing equity value The combined effects in equity value and returns Structuring leverage finance key considerations Leverage finance modeling and valuation methodology A modeling exercise - simple and advanced model Leverage finance structures - recent acquisition finance Risks in Leverage finance - early signs of trouble A Leverage Finance Short Case The business plan (IM) and the financial plan analysis The operational plan & assumptions 8

Course Syllabus Section B - Capital Raising & Finance Theory The cash flow model analysis & assumptions The sources and uses of funds the typical split Initial debt / equity structure (1) The financial covenants (credit statistics ) Second debt / equity structure (2) The financial covenants (credit statistics ) Final debt / equity structure (3) The financial covenants (credit statistics ) The Capital structure optimisation - debt structuring & sizing Negotiating the covenants headroom The structuring / tranching of debt The impact on IRR The risk of LBO structures to go wrong Company underperforms - distress 9

Course Syllabus Section B - Capital Raising & Finance Theory Project & Infrastructure Finance Type of assets - Operating infrastructure assets Type of assets Greenfield infrastructure Projects Characteristics of infrastructure and project finance A broad area of investment possibility The bank involved in the finance process The investors involved in the finance process The parties involved in a project finance process typical project structure The parties involved in a infrastructure finance process typical acquisition structure Typical infrastructure finance structure capital structure quantum repayment pricing tenor Typical project finance structure capital structure quantum repayment pricing tenor Structuring infrastructure finance key considerations Structuring project finance key considerations Infrastructure and project finance Credit Statistics Infrastructure and project finance Reserve accounts Infrastructure and project finance Covenants How infrastructure generates returns for investors? The effect of multiple increase The four drivers affecting the equity value How project finance generates returns for investors? Infrastructure finance modeling and valuation methodology 10

Course Syllabus Section B - Capital Raising & Finance Theory A modeling exercise in excel - an infrastructure finance model Project finance modeling and valuation methodology Main risks in infrastructure and project finance Investing in infrastructure assets assessing the risks from debt and equity prospective Consequential differences between Project finance and Infrastructure finance 11

Course Structure Section C - Capital Raising Finance Cases & Models Raising Equity & Quasi Equity Finance - Cases Case 1 : An entrepreneur is raising capital (growth capital, equity and quasi equity) from an investor (private equity fund) Capital raising of Growth Capital financing using shareholder loan instruments with cumulative interest, redeemable & convertible rights to ordinary shares Modeling section (only) : Growth Capital Model * Case 2 : An investor is raising capital (Convertible Bond) from the Equity Capital Markets The Capital raising of a convertible bond financing for a private equity fund in UK Case 3 : An investor and a company are raising capital (IPO) through the Equity Capital Markets The IPO exit process of an LBO investment by a private equity fund in Germany Raising Debt Finance - Cases Case 1 : Investor (private equity fund) raising capital (leverage finance) through banks Raising leverage finance for the private equity (LBO) investment of a media company in South Africa* Modeling section : Leverage Finance Case Model Case 2 : Investor (private equity fund) or Entrepreneur raising capital (infrastructure finance) through banks Raising infrastructure finance for the development and acquisition of a wind farm portfolio in UK* Modeling section : Infrastructure Finance Model Case 3 : Investor (private equity fund) raising capital (project and infrastructure finance) through banks Raising project & infrastructure finance for the development and acquisition of a solar farm portfolio in Italy* Modeling section * Excel : Case Project with and a valuation Infrastructure and finance Finance methodology Model & model 12

CR & F Guest Speakers Program In each course day a guest speaker (PE fund manager or investment banker) will present a real case or topic covering a specific capital raising case : Zaheen Osman, Director, Head of Equity Linked Origination & Structuring, Commerzbank, London Franck Pascault, Associate, Equity Capital Markets, Commerzbank, London Case: Capital raising of a convertible bond financing for a private equity fund in UK Dan Oakes, Managing Director, Head of International Origination, Commerzbank, London Case: The IPO exit process of an LBO investment by a private equity fund in Germany Jim Karp**, Managing Director, Leverage Finance, Goldman Sachs, London Case: The Leverage Finance Case of Avusa in South Africa* Claudio Vescovo, Associate, Clean Energy Partners, BNP Paribas, London Case: Raising project & infrastructure finance for the development and acquisition of a solar farm portfolio in Italy* * Case with a valuation and finance methodology & model ** To be confirmed 13

Course Assessment * A 24 hour course from April until June 2012 with a final mark based on: 1) A project (with 3 elements) : Raising leverage finance capital for the acquisition of a Co. The 3 elements that should be analyzed and submitted as a proposal to the committee are: A Leverage Finance Case A Leverage Finance Model A Leverage Finance Term Sheet This is simulation of a leverage finance capital raising process: analyzing a sector (Retail, Food, Consumer Goods, Healthcare, Education, TMT & Publishing, Luxury brands, Industrial & Manufacturing), choosing a target company, analyzing the potential opportunity, executing the financial analysis, structuring, valuation and presenting the opportunity & risks. The project will be prepared independently. It worths 80% of the overall mark for the elective. 2) one individual test in class worths 20% of the overall mark for the elective. * Subject to change 14

Lecturer Profile Professional experience Andreas T. Angelopoulos, 43 years old, has more than 20 years of experience in the areas of private equity and engineering specialised in investments in the sectors of: education, healthcare, alternative energy, environment, infrastructure & real estate. In the private equity area, he has advised Englefield Capital ( 2 billion UK fund), Bridgepoint Capital ( 8 billion UK fund), TPG ($50 billion US fund), Oak Tree Capital ($76 billion USA fund) and Summit Partners ( 11 billion USA fund) having reviewed more than 130 companies in the services sector (education, healthcare, energy, environment, telecom & media, financial, outsourcing and business) and in retail, consumer goods, building materials in South East Europe. In the entrepreneurship side, he has advised various CEOs (Cognita Schools, Humanitas Hospital Group, Metropolitan Hospital Group, Bioiatriki Diagnostics, Ionis Healthcare Services, Techint Engineering Group, Valtour Group, Vivodi Telecom, Korres Natural Cosmetics, etc) in their marketing & business development, new ventures & acquisitions strategy, operations, restructuring and capital raising. He has reviewed specific M & A advisory opportunities in the sectors of healthcare, infrastructure and media in Europe with leading international banks like Rothschild and Commerzbank in London. Between 2000 2004, he was a member of Dresdner Kleinwort Benson s (the investment bank of Dresdner Bank, member of Allianz Group) Principal Finance Group in London, which commits the bank s own risk capital ( 1 billion balance sheet) in taking secured equity and debt positions (senior debt, mezzanine) in operating or financial assets as a principal. He reviewed and financed various transactions on span of healthcare, leisure, hospitality, satellites, cable, mezzanine loans, lease contracts and specialized industrials in West Europe. Representative transactions that he reviewed are: Le Meridien Hotel Group, Center Parcs, Travelodge, Priory Healthcare, Fraikin, DT Cable disposal, Eutelsat. He involved in the financing of Goldman Sachs Capital Partners, GSC and AIG Mezz Vest Mezzanine Funds analyzing more than 21 companies in USA and Europe, which these funds have invested in. Originated the relationship with Anschutz Investments Group leading to the structuring of the 200 million Dresdner Anschutz Mezzanine (DAM) Fund for Germany. Before that he worked in the venture capital division ( 100million fund) of Dresdner Kleinwort Benson, based in London, covering TMT in USA, Europe and Israel investing in 13 companies. He invested and served at the Board of Directors of Inxight (USA) and Consul (Netherlands), as an observer. 15

Lecturer Profile In 1999, he started his career in the private equity working for Commercial Capital ( 500 million fund), member of Gredit Agricole Group, investing in growth capital in small/medium enterprises (SMEs) in South & Eastern Europe. Between 1993 and 1999, he worked in the area of engineering (infrastructure and real estate) working with Bechtel, Dames & Moore and Hochtief ABB J/V, in USA and Europe. Academic experience Andreas, as an Adjunct Professor, has been lecturing Private Equity, Venture Capital and Entrepreneurship at Imperial Business School in London, UK, visiting Oxford University s Said Business School in Oxford UK, The University of Chicago s Booth School of Business in Chicago USA, and Luiss University s Business School in Rome Italy, since the academic year 2005-2006. Currently, he is lecturing 5 elective courses at Imperial College Business School covering Venture Capital, Growth Capital, LBO, HY, Mezzanine, Leverage Finance, Principal Finance, Project & Infrastructure Finance, Distress & Debt Restructuring supervising more than 16 students in their thesis, each year. In 2009, 2010, 2011 and 2012, he was awarded with the "Principal's List for Outstanding Contribution to Teaching" at Imperial College Business School. In 2008, he founded the Connect Theory with Practice - www3.imperial.ac.uk / business-school / pevce annual PEVCE Series at Imperial College developing and presenting real cases & market trends in various investment sectors, together, with more than 51 executives from the venture capital, private equity, investment banking and industry sector. In 2008, Andreas as a founding member of Columbia University s SEAS Advisory Committee supported the proposal for the development of a new Center and Program in Entrepreneurship & Engineering Innovation at Columbia University in New York City. Education He holds an MBA from The University of Chicago Booth School of Business (sponsored by Dresdner Bank AG), a MSc from Columbia University School of Engineering in New York City (Gerondelis Scholar) and a graduate 5 year degree, Diploma in Civil Engineering (Structural Engineering), from the University of Patras School of Engineering, in Greece. Andreas is speaking English, Italian, and Greek. 16

Lecturer Contact Details Andreas T. Angelopoulos Adjunct Professor Private Equity, Venture Capital & Entrepreneurship Finance Group Imperial College Business School Imperial College London Exhibition Road, South Kensington Campus London SW7 2AZ, UK Connect Theory with Practice - www3.imperial.ac.uk/business-school/pevce 17