Business Pitch for the creation of a platform that will facilitate M&As and investment in middle market, non-publicly traded companies.

1. Middle Market M&A and
Investing Platform
I ti Pl tf
Business Pitch
Prepared by: Pete Chatziplis
New York, June 2009

2. The Proposition
Th P iti
Create a platform to facilitate M&As,
and investment in middle market, non
publicly traded companies
Pete Chatziplis, Middle Market M&A and Investing Platform Business Pitch, New York, June 2009
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3. Contents
C t t
The Concept
Th C t
Market Size and Potential
Competition
C titi
The Operating Model
Critical Success F t
C iti l S Factors
Organizational Structure
To-Do Li t
T D List
Funding
Pete Chatziplis, Middle Market M&A and Investing Platform Business Pitch, New York, June 2009
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4. Some Common Th
S C Themes
Market for PE, Middle Market deals inefficient
PE
and illiquid:
Buyers/PE managers/advisors:
“can’t find good pipeline”;
“good targets are on play”;
“don’t know this market/seller/buyer, no
reference points; I’d rather pass”
f i t th ”
“this opportunity is not of interest, doesn’t
meet our criteria”
“If you want a deal, then here’s what we offer”
o ant deal he e’s hat e offe ”
Sellers: “
can’t find buyers, can’t get their attention”
“I believe I can get more”
Pete Chatziplis, Middle Market M&A and Investing Platform Business Pitch, New York, June 2009
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5. Market Si
M k t Size
$300 -550 + bn value of middle
market deals in US and Europe only
(depending on market conditions and on how middle
market is defined)
$
$3-5+ bn advisory fees
y
3-5% of fees could be transaction
related ($200-300mn)
($200 300mn)
And that’s only 10-20% of overall existing reported
M&A market in US and Europe only…
& k i S d l
Pete Chatziplis, Middle Market M&A and Investing Platform Business Pitch, New York, June 2009
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6. Global M&As
Gl b l M&A (2008)
M&A Value Ranges - Europe
M&A V l R
Value Ranges - N th A
North Anerica
i $15m-$100m, $5m-$14m,
$ $
67.6, 7% 12.7, 1%
$15m-$100m, $5m-$14m,
41.9, 5% 3.95, 0% $101m-
$250m, 74.6,
7%
$101m-
$250m, 53.3,
$251m-
6%
$500m, 81.5, >$501m,
$251m- 8% 784.7,
784 7 77%
Europe
$500m, 59.4, >$501m,
7% 680.9, 82%
North
America
Middle East Asia/Pacific
Global M&A Value
4,000 $3,700m 50%
$3,590m
3,500 $440m 12% $180 5% 45%
$431 12% 40%
Latin 3,000 $410m 11%
$2,460m
35% Rest of World
America 2,500
$1,400 $153 6% 30% Asia-Pacific
2,000
$1,400m Africa $396 16% 25% Europe
38% 39% NorthAmerica
1,500 20%
$1,076
15%
1,000 44%
$ ,
$1,450m $1,580 10%
500 39% 44% $839 5%
34%
0 0%
2006 2007 2008
Pete Chatziplis, Middle Market M&A and Investing Platform Business Pitch, New York, JuneCalculations based on Mergermarket figures
Source: 2009
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7. M&A/PE M k t Potential
Market P t ti l
middle market deals may increase as:
availability of capital/investors increases (1/10 of
ideas picked by VC, PEs)
large deals (
g (80% of market) offer limited returns,
) ,
reached saturation, cannot secure debt financing
untapped potential outside US, Europe (in growing
emerging economies deals are mainly middle
market)
more PE investments may come to secondary
market due to IPO slowdown
increased activity due to economic crisis (spin-
offs, restructurings)
g
growth in PE funds, allocations to alternative
,
assets
Pete Chatziplis, Middle Market M&A and Investing Platform Business Pitch, New York, June 2009
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8. Concept Description
C tD i ti
Traditional Model Online Pool
Target sourcing: Target sourcing:
•physical •online (“targets in play”)
•uncompetitive fee •competitive fee
Sell to: Sell to:
•existing contacts (limited) •large global pool
•search for counterparties •prescreened contacts
(contacts/credentials)
Frustration: Ease of use:
•wasted time on logistics •better price-shopping
•limited leads •less frustration from logistics
•inefficiencies •efficiency (time/resources)
Lack of interest: Availability of options:
•limited room for negotiation •focus on deal/add value
•large discount •less time in office, more at client
•low price •better price
$$ •low execution
low fees $$$$ •more work done
higher fees
Pete Chatziplis, Middle Market M&A and Investing Platform Business Pitch, New York, June 2009
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9. Competition
C titi
Private Equity Investments-Middle Market M&A
Investments Middle
Franchises-Small Business
Many other small scale/startup endeavors..
Pete Chatziplis, Middle Market M&A and Investing Platform Business Pitch, New York, June 2009
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10. Trading l tf
T di platform- A
Arguments in f
t i favor
middle market plagued by adverse selection:
− small and large deals require similar amount of advisory work
but do not pay the same;
− streamlining the process will reduce costs (business
development, processing) and quoted fees, hence increase
activity and revenues (process “industrialization”)
ti it d ( “i d t i li ti ”)
move towards electronic trading
can appeal to a larger user group (as retail investors
become familiar they could also participate)
price discovery (price information for similar deals)
opportunity for advisors to identify cross-
selling/follow up
selling/follow-up work opportunities (more room to add
value in middle market)
many try develop trading platforms; competition will
help develop the market
facilitate exchange of investments
Pete Chatziplis, Middle Market M&A and Investing Platform Business Pitch, New York, June 2009
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11. The Operating Model
Th O ti M d l
Inputs •Proprietary research
& sourcing
•Third party referrals
Deal sourcing Deal structuring
l i
& execution
No Deal Deal
Platform proceeds: Platform proceeds:
• user fee • ##% on deal (scalable)
• float on escrows • user fee (depending on
frequency/usage rights)
Pete Chatziplis, Middle Market M&A and Investing Platform Business Pitch, New York, June 2009
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12. System Advantages
S t Ad t
Price anonymity both for seller and buyer
y y y
avoid “bait and switch”
avoid price discovery
avoid putting target on play
keep confidentiality of intentions
pay to talk
Member verification/scoring
monitor financial strength, character
penalties for not following code of conduct
Ease of use
entry standardization (input fields)
securities grouping/flagging (by industry, country etc)
industry
template bank (legal forms etc)
Price Transparency
attract buyer/seller attention
y /
data for comparative valuations
Pete Chatziplis, Middle Market M&A and Investing Platform Business Pitch, New York, June 2009
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13. In
I search of liquidity..
h f li idit
M&A boutiques Private Equity,
Venture Capital
CIQ, Onesource, •existing database
•turned-down leads
Sources Dun & Bradstreet
Feeder users Phone/Mail
Links &
Interfaces Banks
Corporations •private bankers
•loan officers
strategic investors
g
(CFOs/BDOs)
Data/News Online security
providers brokers
(Bloomberg,
Reuters, WSJ etc)
(Scottrade etc) Consultants
Market Electronic Trading
•trade professionals
•credit scoring agencies
platforms
Research, News (Liquidnet, ITG, etc)
•Credit scoring Cos
•“Yellow pages”
3rd Party Lawyers
databases platforms Business
•Newspapers/media (trading/networking
platforms)
Brokers
Pete Chatziplis, Middle Market M&A and Investing Platform Business Pitch, New York, June 2009
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14. Seeking Liquidity
S ki Li idit
Link to other platforms (Bloomberg, Reuters, CIQ)
Consider partners (PEs/advisors/brokers)
Offer incentives for references to:
Sell side (PE development managers advisors)
managers,
Buy side (PE partners, strategic investors)
Research staff
Stimulate i t
Sti l t interest f
t from:
Sufficient price data availability (past transactions, PE
portfolios)
Research in “hot M&A” industries/targets
“Matchmaking” alerts
Newsletters
It’s all about the 3Ls: Liquidity, Liquidity, Liquidity
Pete Chatziplis, Middle Market M&A and Investing Platform Business Pitch, New York, June 2009
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15. Additional applications
Additi l li ti
Data i i
D t mining (discounts, premiums, d l volumes)
(di t i deal l )
News services (M&A updates)
Legal/Tax info p country
g / per y
PE portfolio tracking (if in database):
PE evaluation
Fair Value tracking and volatility reporting
Interim management/consultant
database/placement services
Pete Chatziplis, Middle Market M&A and Investing Platform Business Pitch, New York, June 2009
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16. Possible P t
P ibl Partners
Brokers, IB PE,
Brokers IB, PE IT application providers
Strengths/Desired qualities:
Liquidity
− number of users (i.e. equity traders, corporate
b f (i it t d t
finance professionals)
− target pipeline (PE portfolios and leads)
− global reach
Background
− established brand
− market knowledge/experience
− financial resources
− capacity (leverage operational resources)
− IT infrastructure/competence
− impartiality
Pete Chatziplis, Middle Market M&A and Investing Platform Business Pitch, New York, June 2009
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17. Benefits to Partners
B fit t P t
higher p
g penetration or breaking into new customer
a o o b a g o u o
groups
customer retention (more services offered, higher
switching costs)
g
increased web traffic/ad income
access to/enrich inflow of market data
staff development/remuneration incentives
enhance brand visibility
cross-selling (news, CF/consulting advisory)
sell research (soft dollar type premium
membership services)
Even if product don’t sell on its own …
p
it can add value somewhere else
Pete Chatziplis, Middle Market M&A and Investing Platform Business Pitch, New York, June 2009
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18. Organizational St t
O i ti l Structure
Flexible/Scalable Organizational Structure:
Initially US only; can add overseas offices later
Research staff (5-10 scalable; can be outsourced or
p
procured on a p j
project basis)
)
Business Development/Sales (5-6)
Flexible administrative support (initially):
part-time CFO
outsourced admin/IT support
Advisory Board (TBA):
Pete Ch
P Chatziplis, CFA FCCA
i li CFA, FCCA:
10+ years experience in Corporate Finance/Consulting
specialization in financial services
international experience
Pete Chatziplis, Middle Market M&A and Investing Platform Business Pitch, New York, June 2009
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19. To-Do List
T D Li t
Procedures (member approval/rating/monitoring
approval/rating/monitoring,
terms of usage/code of conduct)
Legal documents (service agreement etc)
Technical Infrastructure (platform features, system
integrity, mobile applications, training manuals)
Pricing structure (success fee, subscription)
Cross-selling/follow up p
g p products and services
Trial periods/incentives
User polling (desired features, user satisfaction)
Marketing Plan
Budgeting, target/milestone setting
Regulatory issues (SEC, FINRA)
Corporate governance
Pete Chatziplis, Middle Market M&A and Investing Platform Business Pitch, New York, June 2009
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20. Required I
R i d Investment
t t
Some positive points:
Investment is scalable (range of services, firms, regions
covered)
Investment depends on competencies contributed by
equity and business partners
it db i t
Possibility of flexible staffing (project based/freelance
research)
Low IT infrastructure requirements (
q (low
complexity/outsourcing)
5 year investment horizon/2 year development phase
5-10 people for 3-6 months launch phase (IT platform,
research collateral, procedures)
10-15 people development team (depending on full-time
or part-time) for 2-5 years
Let s
Let’s talk numbers
Pete Chatziplis, Middle Market M&A and Investing Platform Business Pitch, New York, June 2009
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21. Exit
E it
Exit horizon: 5 years
E it h i
Exit strategy:
Strategic Investor (synergies)
IPO
Potential Revenues in 5 years:
$20-50mn for base case
Further revenues from additional services
Additional revenues from exchange of investments
(turnover)
Returns to exceed hurdle rate
More info available upon request
o e o a a ab e upo equest
Pete Chatziplis, Middle Market M&A and Investing Platform Business Pitch, New York, June 2009
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22. Pete Chatziplis, Middle Market M&A and Investing Platform Business Pitch, New York, June 2009
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