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Mexico and its Wealth of Digital Investment Opportunities

Axon Partners Group Investment | Corporate | Consulting

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Constitutional reform to the telecoms sector approved,

including the promise to install a shared public telecommunications

network of wholesale wireless services

Mexico is one of the most attractive markets globally for implementing a “digital” strategy given recent regulation driving digitalization rates

2012

Changes are driving increased investment and lower prices, which in turn contribute to a rise in penetration rates

The legislative reforms and entrance of foreign players have increased competition amongst telecommunication companies, resulting in two primary effects on the Mexican ICT and digital/internet sector:

2014

Enrique Peña Nieto elected to the Presidency, promising to increase competition within historically

monopolistic sectors

Anti-monopoly legislation effects Telcel, Telmex y Televisa;

Secondary Telecom Law passed; and AT&T acquires Iusacell

2013

AT&T acquires Nextel

2015

Regulatory changes and entrance of foreign multinationals shake up the Mexican telecommunications sector

FALLING PRICES AND IMPROVED

INFRASTRUCTURE ARE EXPECTED TO LEAD TO

AN INCREASE IN INTERNET AND SMARTPHONE

PENETRATION RATES

Source: Reuters, IFT

• According to the Federal Telecommunications Institute (IFT), cell phone service prices fell by nearly 17% between February 2013 and January 2015, and telecoms sector prices in general fell by 15.3%, despite a 7.2% rise in the consumer price index, for the same period

• With the increased infrastructure investment projected by market leaders, prices are expected to remain low

• In 2015, America Movil signaled that it intends to invest more than USD 50bn in the next five years across Latin America, expanding its fiber optic network in Mexico specifically

• Following its USD 3.4bn investment to acquire Iusacell and Nextel, AT&T also signaled that it intends to invest heavily to build its LTE (4G) network across the country

Lower Prices Increased Investment

3

The digital sector in Mexico is growing at accelerated rates, as over 20 million new users will use the internet and smartphones by 2017

Sources: eMarketer and Accenture (2014), IMF, Cisco

The increased base of internet users and prevalence of smartphones opens opportunities for the growing digital sector and the creation of new businesses that capitalize on the trend, particularly those companies that incorporate mobile approaches into their

strategy from inception.

2012 2013 2014 2015 2016 2017

50 58 64 70 75 80

6761 56 51 47 44

Users Non Users2012 2013 2014 2015 2016 2017

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

16%

45%

19%

42%

11%

34%

Mexico Argentina Brazil

123117 118 120 121 122

Mexico Internet User Penetration (in millions of users) Smartphone Penetration by Country (2012-2017)

10% (CAGR) 23% (CAGR)

4

2000 2003 2004 2006 2007 2008 2009 2010 2011 2012

0.11.2

1.9

4.3

6.9 7.48.3

10.512

14.9

in USD bn

Furthermore, although Mexico is considered amongst the most attractive investment regions, PE/VC funds are still under-represented

Mexican funds are attracting investment Accumulated Committed Capital in Mexico (in USD bn)

LAVCA Scorecard vs PE/VC Funds as % of GDP (2013) Improved conditions and lower competition in PE/VC

• According the LAVCA Scorecard, Mexico is amongst the top three most attractive countries for investment in LatAm

• Regulatory changes and the professionalization of the PE/VC sector have improved Mexico’s position recently

• Nevertheless, despite improved investment conditions and an increase in PE/VC and M&A activity in recent years, the Mexican PE/VC market is still underserved, with PE/VC investment a mere 0.06% of GDP

• For that reason, now is an attractive time to enter given that the conditions are attractive but competition remains low

• Since 2000, PE investors in Mexico have committed nearly USD 15bn to alternative investment funds

• The largest portion has been committed to real estate funds, yet growth stage funds have gained growing interest amongst investors

• In 2013, VC firms committed USD 8.9bn in 233 investments in Mexico, which represented a 13% increase over 2012

Prequin, Bain. EY

0.00% 0.20% 0.40% 0.60% 0.80% 1.00% 1.20%0

20

40

60

80

100

120

UK Israel Chile Spain BrazilMexico Colombia Peru Argentina

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Following examples like Argentina, the Mexican entrepreneurial and PE/VC ecosystems are on course to thrive in coming years

Argentina Case Study: Early investment in Argentina drives to the success of numerous local start-ups

More than 15 years ago, Argentina was already attracting early stage financing from local angel investors, and later, from international PE/VC firms, which fueled the development of the entrepreneurial ecosystem in the country. Ultimately a number of regional leaders were formed that were either acquired by international players or performed an IPO in international markets.

Acquired by BSCH for USD 500m in 2000

• Founded by Wenceslao Casares in 1997 with USD 200k• In 1998, received a total of USD 59m from local angel investors• The company, acquired in 2000, was still not generating profit at the time it was sold

• Founded in 1999 by Argentinian, Roberto Souviron, while studying an MBA in USA• Opened 9 offices in the main cities of LatAm within only 10 months• In 2002, Despegar.com acquired main competitor Viajo.com

• Founded 1999 by Marcos Galperín, and quickly expanded to 9 countries in LatAm• Received funding from JPMorgan Partners, Goldman Sachs, GE Capital, Santander • In 2001, Ebay acquired 19.5% stake of the company, becoming the main stakeholder

• Founded in 1999 as Latin America’s first job online classifieds• In 2000, company in Argentina, Brazil, Chile, Mexico, Venezuela and Spanish US• In 2003, MBO executed and later received funds from Tiger Global Management

Mar2015 Expedia invested USD 270m for 20% stake

In 2007, company IPO at a USD 1bn valuation

To date, received >USD 100m in total funding

Source: Pereiro, Luis E. Tango and Cash: Entrepreneurial Finance and Venture Capital in Argentina

• Founded in 2003 by M. Migoya, G. Englebienne, M. Umarán & N. Nocetti• Globant started operation with own funded capital• In 2005 the Sloan School of Management of the MIT wrote a case about them

IPO in 2014, valuing the company at USD380m

Argentina

MexicoSimilar to the case of Argentina, Mexico has experienced a significant increase in early stage funding in the last five years, setting the stage for success stories in the next five to ten years.

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Similarly, Brazilian teams with in-depth knowledge of local markets scaled effectively, leading to IPOs & acquisitions by digital giants

Brazil Case Study: Following the first wave of investment in the late 90s, a number of start-ups have succeeded

Acquired by Starmedia in 1999

• Recognized as two of the first internet search engine start-ups in Brazil • Began operations between 1996 and 1998 • Acquired for assumed extremely high valuations just before the Internet bubble burst

• Established in 1996, with online operations with a base connection of 2mb/s• 2002: established exclusive partnership with MercadoLivre, with 5m monthly visits• Same year, also launched partnership with Patagon and secured USD 8m investment

• Created by University professors from Federal University of Minas Gerais in 2000• Akwan received financial support from local investors prior to the sale to Google• Akwan continues to be Google’s R&D center for LatAm

• Founded 1999 and received USD 500k seed funding from Plataforma Capital Partners• In 2000, raised USD 6m Series A from Merrill Lynch, Great Hill Partners, Unibanco• The sale to Naspers proved to draw significant attention from investors back to Brazil

IPO in 2005 in Bolsa de Valores de Sao Paulo

Acquired by Google in 2005

Acquired by Naspers in 2009 for USD 342m

Source: World Start-up, Brazil Start-up Report 2014

1998 was the start of venture investments in Brazil, with those pioneer companies like UOL and Buscapé becoming extremely successful in the region given the local teams’ expertise in their markets.Brazil began to again attract significant attention in the second half of the 2000s and has become a leader in LatAm, with many companies today valued at hundreds of millions of USD.

Brazil

MexicoThe case of Brazil has proven that local teams, with in-depth knowledge of their markets, are the most capable of scaling quickly to exploit the large opportunities, attracting local and international investment, and ultimately positioning themselves to be acquired by global giants or for an IPO.

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Axon has been active in Mexico for ten years and expects to grow it’s presence, with the four member team growing to 10+ by year end

Investment and Transaction Advisory

Extensive experience in Project Finance and Investment Advisory in the technology and

energy sectors

• 100% sale of the Concesionaria Universidad Politécnica de San Luis Potosí SA de CV (owned by Abengoa SA) to the Fondo de Infraestructura Macquarie México – Transaction Value of USD 46.5M

• JV with ICP Capital to obtain over USD 120M to finance the purchase of two barges, which were then rented to Pemex Refinanción for transport of petroleum products

Entrepreneurial Ecosystem

Active in the entrepreneurial ecosystem since 2011, with a well-established network of

investors, accelerators, and others

• A number of Axon´s portfolio companies have established presence and clients in Mexico, with four of the successful cases being Akamon (digital entertainment company) O4IT (cloud computing), Sentisis (social media analysis platform), and NicePeopleAtWork (B2B digital video services)

• Axon’s existing local network includes important players that contribute to Axon’s pipeline generation

Local Business Development

Axon’s team members have experience building companies in Mexico, establishing vital partnerships with leading companies

• As CEO of bwin.party group, Manfred Bodner, was responsible for establishing the market entry strategy for Latin America of the online entertainment company

• Alfonso de León led the strategy as bwin.Party’s Business Development Director, focused largely on Mexico by establishing local partnerships with companies such as Televisa for licensing and disbursement

Strategic Advisory to TIC Sector

Axon has carried out numerous projects for blue-chip TIC companies and government entities in

Mexico

• Telefonica Mexico: Development of a BULRIC costing model for mobile telephone for business intelligence in order to develop pricing and commercialization strategies and analysis of impact of on-net/off-net tarrifs on market dynamics and competition

• COFETEL: Market analysis to determine the need for regulatory intervention in order to ensure satisfactory service for the end user

Axon has both built companies on-the-ground as well as provided advisory services to blue-chip digital companies

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Axon Partners Group is an international investment, corporate, and consulting firm with blue chip clients and investors worldwide

Telefonica Digital Jeremie FundFonprode ENISA Skandia State Street BWIN Party Bankia

Etisalat Turkcell Telefonica (Mex) Telecom Italia Atlantic TelecomLife PDVSA Banco Santander

European CommissionCMT AGCOM EETT Anacom SUTEL CRC IADB

Investors Private Clients Institutional Bodies

Axon is able to leverage its global network, which spans multiple continents and sectors (non-exhaustive list)

ETB UNE Domino’s Pizza QStar Pierrel MondoBiotech

Banco Mare Nostrum Orienta Capital CAF IFC (World Bank) Bancoldex Casa KishooSoftBank+ 20 More

Axon Partners Group has a team of more than 50 experts spread across four different continents

BOGOTA / DELHI / ISTANBUL / MADRID (HQ) / MEXICO D.F. / MIAMI / SEVILLA

Cofetel OCECPR TRA (Oman)TRA (UAE)CITC NITA

Axon Corporate

Axon Investment

Axon Consulting

Axon Partners Group

Manages several hundred million dollars in investments in the digital technology sector across LatAm, Southern Europe and South Asia for companies in the early to growth stage, with an IRR of over 20%Corporate finance and business development services to companies worldwide, having successfully executed transactions of over €1bn in technology and innovation sectors

World-class leader creating and applying state-of-the-art analytical modelling techniques and conceptual frameworks for the broad technology sector

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Axon Partners Group’s Four Drivers for Investment Success

Axon has a proven track record, having executed nearly 20 investments and six exits at average multiples of +3x to produce IRRs well above the target 20%.

This has positioned Axon as a highly-reputable investor on a global scale.

• Axon has local offices in four continents, with particularly strong presence across convergent markets

• This has enabled the team to build an extensive network that can be leveraged for portfolio companies during their international expansion process

International Capillarity Disciplined Approach to Deal Flow Generation

Constructive Engagement Entrepreneurial Focus

• Axon uses a disciplined and systematic methodology to analyze macro trends and local complexities to identify the best investment opportunities

• Axon’s in-depth knowledge of the global digital economy sector and Value Added Network, developed through its engagement with both potential buyers as well as all local players, is extremely valuable for portfolio companies

• Axon’s team works closely with management in the execution of expansion strategies and key decision making processes

• Axon leverages team’s extensive M&A experience for inorganic growth strategies

• Axon takes an active role in the exit process to maximize returns for the fund and entrepreneur

• Axon fundamentally believes that the entrepreneurs are key to a successful investment

• As entrepreneurs themselves, Axon’s team is able to identify first-class leaders who are capable of successfully executing their projects

• Axon works proactively with its portfolio teams to build discipline and professionalism within the organization

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3 4

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Kathryn Wellemeyer

Manager

Ram BhavnaniNon-Executive Partner

Dimitri KallinisPartner (Axon Consulting)

Julio VillalobosPartner (Axon Consulting)

Axon’s Investment Team is comprised of members who have worked together for over 8 years, with extensive experience

Axon Partners Group Investment Team

Manfred Bodner

Partner

Swarandeep Singh

Senior Associate

Carlos Rodriquez

Manager

Javier Garay

Associate

Iván Feito

Manager

Daniel Martin

Manager

Mario Rojas

Associate

LatAm

South Asia

Europe

Advisors

Management Team

Alfonso de Leon

Founder & Managing

Partner

Francisco Velazquez

Founder & CEO

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Investment Team

Alfonso de Leon, Founder and Managing PartnerAlfonso graduated from ICADE in Business Administration.He has 20 years experience in finance and entrepreneurship, having executed numerous deals for 100s of millions of EUR. Just in the past twelve months, he led the sale of four online food delivery companies to global leaders, generating upwards of USD 200m of value for the shareholders and entrepreneurs.He serves as Board Member to Exotix LLP in London, a firm dedicated to LatAm investment banking opportunities in the energy sector. Alfonso previously worked at Mizuho International Plc, where we was the Managing Director for Alternative Investments in LatAm and Africa, as Managing Director ad Deutsche Bank AG, where he was responsible of the Cleantech portfolio in Europe, and as a telecoms analyst at Schroder Salomon Smith Barney.

Francisco Velazquez, Founder and Managing PartnerFrancisco is a YPO member, holds an MSc in Aerospace Engineering, an MBA (graduating with Honors), and first level CFA.He has more than 20 years of experience in venture capital, private equity, finance, technology and consulting. Francisco founded Axon in 2006, driving the success of Axon’s funds, which currently have an IRR of 40%+ to date.Francisco has been involved in five private equity funds, more than 30 large M&A transactions worldwide, and three IPOs. He was the founding partner of Axon Partners Group, bringing his know-how in VC and expertise in ICT, which is now part of APG. Previously, he worked as Principal in UK strategy consulting company, Analysys Mason, and in its VC arm, Analysys Ventures Ltd, participating in the AIM IPO as well. Prior to Analysis, he held several management and engineering roles at satellite operator Hispasat and aerospace conglomerate EADS Airbus.

Manfred Bodner, Partner Manfred is one of the most successful technology entrepreneurs and investors in Europe, with 30+ years’ experience in top-management positions. Among others, he founded bwin Interactive Entertainment, serving as CEO for 10 years, until its merger with Party Gaming in 2010. As one of the first movers in the sports betting online platforms, Manfred led the company to an IPO in 2000 and the eventual merger, at which point the company was valued at nearly EUR 3bn.During his career he has launched more than ten successful franchises and start-up companies in countries across Europe and LatAm.

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Tel: +34 91 310 2894

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Tel: +52 55 91711771

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