ACG IMMLAW Presentation April 11, 2013

Direct Investments: The Less Traveled
Road for EB-5 Investors
IMMLAW Meeting – Vancouver, BC
April 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


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
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

Direct Regional
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


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


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


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


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.

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.


Investor Options (Alternatives to RCs)
 Competing immigrant-investor programs
overseas
 Other Visa Categories (L-1, E-2)
 EB-5 Direct Investment


Alternatives - Competing Immigrant investor
Programs
 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.

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

Alternatives - Direct Investment


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


Phase I: Information Gathering & Client
Interviews

Client:
Boris Ivanov
ACG Collected information
Financial information verification
Boris Ivanov’s Investment Criteria
Investment objectives: Green card,
safe investment, returns
Investment size: ~$1,500,000


Phase I: Information Gathering & Client
Interviews
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

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


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


Selected Deal: Commercial Janitorial
Service Company

• Total investment size: $1,500,000
• Expected umber of new jobs: 24
• Projected ROI: 26.5%
• Expected Exit: 3-4 years

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


Financial Summary

2010 2011 2012 2013*
Revenue $1,906,939.00 $1,636,755.00 $1,707,474.00 $1,939,514.00
Cash Flow $387,767.00 $365,385.00 $377,684.00 $398,362.00
Net 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


Current Employment Structure

Owner

Total Employees: 12
Business
Manager (1)

Operations Office
Manager (1) Secretary (1)

Janitorial Staff (9)


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 report

Phase V Timeline: 4-6 weeks


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/Closing

Phase VI Timeline: 2-4 weeks


Phase VII: Ongoing Management

 ACG oversees the day-to-day operations
 Key strategic decisions
 Hiring and firing
 Quarterly reports to investor


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


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


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 Oversight

Operations Office Senior
Manager (1) Secretary (1) Management (2)

Janitorial Staff (9) Sales Force Janitorial Staff
(4) (30)

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

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


Comparative Analysis: RC vs. DI
Metrics Direct Investment Regional Center
Business Control 100% control No control
Number of Options Virtually unlimited Very limited
Passive/Active/Hybrid Passive only
Involvement Level
(options) (no options)
Transparency Full Limited
Brokerage/ Admin fee 4% to 6% 5% to 10%

Liquidity Liquid Illiquid

Business Expansion Optional Not an option
Returns 12% to 30% 0% to 1.5%

Risk Low High


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


Direct Investment


Direct Investments – A New Tool for
Immigration 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


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


Contacts
Alexander Aginsky
Managing Director
Aginsky Consulting Group

a.aginsky@aginskyconsulting.com
cell. (Russia): +7-965-121-9945
411 NW Park Ave., Suite 402
cell. (USA): +1-206-356-8777 Portland, OR 97209
office: +1-503-546-4049 ext. 100 (USA)

www.aginskyconsulting.com


ACG IMMLAW Presentation April 11, 2013

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