pipe deal
DESCRIPTION
Private equityTRANSCRIPT
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A Study of PIPE Deals
in India
By:
Manas Singhal(MS10A034)Maulik Doshi(MS10A035)
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Agenda• Introduction• Why PIPE deals• Types• PIPE deals in India• Scope• Investment Scenario• Characteristic of Investee Companies• Performance of Investee Companies• Summary
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Incubation Angel Investors
Seed Stage
Growth Capital
Private Equity PIPE LBO
Introduction- Private Equity
• $700 billion- world wide• 70% in U.S• 7% in India
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PIPE
• Private Investment in Public Equity• Investment made by private companies
in the company which are publicly listed• This investment is made at a price lower
than that of current market price• Investment can be done Private
investment firms, Mutual Funds or other qualified investors
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PIPE
• Market reaction
Capital
Positive signal
Highly dilutive nature
Downside protection
• Reverse Mergers
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Why PIPE Deals
Investors
Perspective
Companies Perspective
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Investors Perspective
• Discounted Price• Exit option• Downside Protection• Risk averse• Regulatory concerns
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Companies Perspective
• Efficient in cost• Less regulatory requirements• No other capital raising sources• No loss of control
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Type of PIPE Deals
• Based on conditions of deals– Pure– Standard
• Based on vehicle of investment– Traditional– Structured
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• 10-12 % of all transactions• Many major player entering this segment• Foreign investors mainly investing in
PIPE deals
• High level of accountability, transparency and corporate clarity
• Better regulatory environment than Private investments
• 25% minimum public float for listed companies
• High investment horizon in early stage deals in India
• Less Complex Valuation
PIPE Deals in India
• Competition from Chinese markets• Sectoral caps• Overvaluation • Tax norms
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Scope
Investee Company Net profit margin of investee company in year 2008
PE Firm Net profit margin in year 2011 Amount of investment D/E of investee company in
year 2008 % stake acquired Industry average D/E in year
2008 Industry of the investee
company Industry average net profit
margin in year 2008 Sector of the investee company Growth in revenues from year
2006 to 2008 Growth in revenues from year
2008 to 2011 Growth in earnings from year
2006 to 2008 Growth in earnings from year
2008 to 2011 Beta of investee company
Year 2008 PIPE Deals
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Investment Scenario Industry wise number of deals and investments
Industry Number of deals Investments (million USD)Agri-business 1 7BFSI 8 148.02Education 1 23Energy 1 278Engg. & Construction 7 124.05Food & Beverages 1 9Healthcare & Life Sciences
2 15
Hotels & Resorts 1IT & ITES 8 92Manufacturing 21 347.8Media & Entertainment 4 30Shipping & Logistics 1 84Textiles & Garments 5 50Travel & Transport 2 100Grand Total 63 1307.87
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Investment Scenario
Abras
ives
Alumini
um C
ondu
ctor
s
Auto
Compo
nent
s
Autom
obile
s
Diesel
Engine
s
Hydra
ulic
Pumps
Irriga
tion
Equipm
ent
Power
Elec
tronic
s
Power
Equ
ipmen
t
Pumps
Sugar
0
20
40
60
80
100
120
140
160
180
200
0
0.5
1
1.5
2
2.5
3
3.5
4
4.5
Number of deals and investment in each sector of manufacturing industry
Investment
Number of deals
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BPO Education - Training
Electronics IT Services IT Services & BPO
0
5
10
15
20
25
30
35
40
45
50
0
0.5
1
1.5
2
2.5
3
3.5
Number of deals and investment in each sector of IT & ITES industry
Investment
Number of deals
Investment Scenario
Total Investment - $ 92 mnNumber of deals - 21
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Investment Scenario
Broking Financial Services Investment Bank NBFC0
20
40
60
80
100
120
0
1
2
3
4
5
6
Number of deals and investment in each sector of BFSI industry
Investment
Number of deals
Total Investment - $ 148.02 mnNumber of deals - 8
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Characteristic of Investee Companies
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Average profit margin and D/E of investee companies in year 2008Industry Number of
dealsAverage of Profit
margin in year 2008Average of D/E
in year 2008Industry
average of D/E
Industry average of profit margin
Agri-business 1.00 1.60% 4.61 0.19 3.20%BFSI 8.00 24.09% 3.40 1.29 22.63%
Education 1.00 15.11% 0.53 0.47 12.81%Energy 1.00 0.31 25.43%Engg. &
Construction7.00 7.64% 0.40 1.10 6.65%
Food & Beverages
1.00 0.16% 1.37 0.19 3.20%
Healthcare & Life Sciences
2.00 10.22% 1.04 0.60 5.48%
Hotels & Resorts
1.00 20.12% 0.80 0.76 20.55%
IT & ITES 8.00 7.91% 0.23 0.33 14.04%Manufacturing 21.00 4.07% 1.56 0.46 7.09%
Media & Entertainment
4.00 23.05% 0.52 0.52 8.18%
Shipping & Logistics
1.00 18.72% 0.26 1.97 7.76%
Textiles & Garments
5.00 0.72% 1.47 0.98 6.36%
Travel & Transport
2.00 -10.31% 4.53 2.24 -9.77%
Grand Total 63.00 8.94% 1.57
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Average growth in revenues and earnings in from 2006 to 2008 in investee companies of each industry
Industry Investment (mn USD)
Number of deals Average of growth in revenues
Average of growth in Earnings
Agri-business 7.00 1.00 111.70% 40.47%
BFSI 148.02 8.00 104.53% 66.31%
Education 23.00 1.00 71.74% 84.75%
Energy 278.00 1.00
Engg. & Construction
124.05 7.00 61.24% 70.33%
Food & Beverages 9.00 1.00 41.89% -7.52%
Healthcare & Life Sciences
15.00 2.00 47.72% 55.32%
Hotels & Resorts 1.00 19.48% 7.26%
IT & ITES 92.00 8.00 59.30% 60.56%
Manufacturing 347.80 21.00 32.72% 45.45%
Media & Entertainment
30.00 4.00 59.20% 19.61%
Shipping & Logistics
84.00 1.00 51.69% 46.67%
Textiles & Garments
50.00 5.00 23.19% 0.62%
Travel & Transport 100.00 2.00 75.67% -36.03%
Grand Total 1307.87 63.00 55.45% 44.60%
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Beta of investee companiesIndustry Average of Beta
Agri-business 0.94BFSI 0.74
Education 1.10Energy 0.78
Engg. & Construction 0.94Food & Beverages 0.77
Healthcare & Life Sciences 0.57Hotels & Resorts 0.67
IT & ITES 0.98Manufacturing 0.78
Media & Entertainment 0.42Shipping & Logistics 0.64Textiles & Garments 0.70Travel & Transport 1.36
Grand Total 0.80
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Performance of Investee Companies
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Comparison of present D/E with D/E of 2008Industry Average of D/E 2011 Average of D/E 2008
Agri-business 6.09 4.61
BFSI 3.00 3.40
Education 0.37 0.53
Energy 0.04 0.00
Engg. & Construction 1.00 0.40
Food & Beverages 2.14 1.37
Healthcare & Life Sciences 0.74 1.04
Hotels & Resorts 0.59 0.80
IT & ITES 0.14 0.23
Manufacturing 1.15 1.56
Media & Entertainment 0.44 0.52
Shipping & Logistics 0.20 0.26
Textiles & Garments 0.80 1.47
Travel & Transport 0.00 4.53
Grand Total 1.27 1.57
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Comparison of present profit margin with profit margin of 2008Industry Average of Profit Margin 2011 Average of Profit margin 2008
Agri-business -0.68% 1.60%
BFSI 26.58% 24.09%
Education 23.46% 15.11%
Engg. & Construction 4.46% 7.64%
Food & Beverages 0.10% 0.16%
Healthcare & Life Sciences 8.64% 10.22%
Hotels & Resorts 5.64% 20.12%
IT & ITES 13.85% 7.91%
Manufacturing 5.69% 4.07%
Media & Entertainment 13.43% 23.05%
Shipping & Logistics 16.79% 18.72%
Textiles & Garments 7.66% 0.72%
Travel & Transport 3.43% -10.31%
Grand Total 10.19% 8.94%
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Average growth in revenues and earnings over the last three yearsIndustry Average of Revenue
Growth %Average of Earnings Growth %
Agri-business 6.12 -177.55
BFSI 33.98 19.05
Education 48.97 56.77
Engg. & Construction 25.50 7.34
Food & Beverages 23.07 6.19
Healthcare & Life Sciences 20.25 3.74
Hotels & Resorts -3.56 -41.01
IT & ITES 3.10 73.42
Manufacturing 13.71 1.70
Media & Entertainment 12.79 6.32
Shipping & Logistics 16.37 -51.67
Textiles & Garments 18.86 32.29
Travel & Transport 30.52
Grand Total 18.00 8.12
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Summary• Investment:
– Totally, 1.3 billion USD investments happened through PIPE deals which amounts to approximately 12.5% of total PE investment
• Diversification: – PIPE deals happened across 14 industries. Manufacturing Industry
witnessed maximum number of deals.
• Growth:– PIPE deals happened in companies which witnessed huge growth in
the year 2007 and 2008.– After 2008, the growth of companies is bit stabilized.– Majority of companies which witnessed PIPE deals in year 2008
improved their profit margin from 2008 to 2011.
• Risk: – Average beta of the companies which witnessed PIPE deals is 0.8.