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									Deal Structuring & Financing Acquisitions

                          Private & Confidential
                  Deal Structuring is of paramount importance

  REGULATORY              • Open offer requirements, ownership norms, capitalization
 CONSIDERATIONS             norms

                          • Capital gains impact to sellers, stamp duty and sales tax
                            issues, availability of past tax losses

                          • Ability to consolidate, goodwill impact, provisioning in the
                            balance sheet, purchase consideration break-up between

                          • Cost of capital, availability of funds on target vs. acquirer
                            balance sheet, tax benefit for interest expense, Cross-
 CONSIDERATIONS             border jurisdictions

   DEAL TIMING            • Implementation time to financial closure

                                   Private & Confidential
Commonly Used Deal Structures

                                Transaction Structures | Stock Purchase


                                               Target Stock


            Benefits                         Some Potential Issues                          Recent Examples

• Simple and quick to                 • May lead to tender offer                     • Vodafone’s acquisition of
   execute                               requirements                                   the equity from Essar in its
• Minimal transaction costs           • Potential capital gains                         telecom business
• Pricing benchmarks are                 Implication for the seller                  • Mahindra’s acquisition of
   easier to establish                • Inability to cherry pick select                 Shares in Satyam Computers
                                         assets of the business                      • Emami’s acquisition of
                                                                                        shares in Zandu

                                                 Private & Confidential
                                   Transaction Structures | Asset Purchase

                                     Target                                     Acquirer
                                  Shareholders                                Shareholders

                                     Target               Cash                  Acquirer
                                     Corp.                                       Corp.
                                                   Target Assets


            Benefits                             Some Potential Issues                              Recent Examples
• Fairly quick to execute                 • Potential implications of stamp                  • Schneiders’ purchase of
• Ability to cherry pick assets             duty and sales tax                                  the cabling business of
  (or a specific business)                • Cash inflow into the company                        Smartlink
• No tender offer requirements              and not to the shareholders                      • Indo Asian Fusegear -
• Could be slump sale or                                                                        Legrand
  Piecemeal transaction of                                                                   • Abbott’s purchase of
  assets                                                                                        Domestic Formulations
                                                                                                business of Piramal’s

                                                     Private & Confidential
                                    Transaction Structures | Mergers

                           shareholders                                    company’s

                                                Cash and/or other                         ABC
                                                  consideration                           stock

                            Acquiring                                        (merged)
                          company XYZ                                     company ABC
                                            Cash and/or other

            Benefits                          Some Potential Issues                               Recent Examples

• Ability to consolidate                  • Time consuming - needs                         • Centurion Bank of Punjab
  operations into a single entity           court approvals                                  with HDFC Bank
• Ideal in situations like JVs            • Needs approval of lenders                      • Bank of Rajasthan with
  wherein existing shareholders             and majority shareholders                        ICICI Bank
  wish to continue
• Variants include reverse
  mergers and demergers

                                                 Private & Confidential
Financing Acquisitions

Some Key Considerations

 Sources of Financing

  Forms of Financing

   Cost of Financing

      Private & Confidential
                              Sources of Financing

                              Sources of Finance

                 Commercial        Finance                  Long term       Venture        Leveraged
Buyer   Seller
                   Banks          Companies                  Finance      Capital Firms   Buyout Funds

                                                  Insurance             Pension
                                                  Companies              Funds

                                   Private & Confidential
                   Financing Considerations Differ

                    The buyer / management team provide the most critical portion of
                   the transaction

Management/         The amount of principal a buyer invests often dictates
Buyer                     The capital structure of the transaction
                          The terms of the transaction
                          The types of lenders that will participate

                    Seller may finance part of the transaction if the seller receives a
                     premium over an all cash price
Seller of Target    Seller may be willing to take back long term, subordinated debt and
                     occasionally preferred stock
                    Earn-out arrangements are also used for compensation

                               Private & Confidential
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                               Financing Forms | Characteristics

                                             DEBT                              EQUITY
Tax-deductible finance costs       X                       X

Covenants/ Restrictions            X                       X

Convertibility features                    X (In specific cases)        X

Dilution of Ownership                      X (In specific cases)        X                 X

No required fixed payments                                                                X

Base for leverage                                                       X                 X

Not subject to redemption                                                                 X

Cost of financing                 Low                  Higher         Higher            Highest

EPS dilution of shares                    X (In specific cases)         X                 X

                                         Private & Confidential
                                                  - 11 -
                     Financing Forms | Other Financial Instruments

                        Debt securities with attached or detachable equity warrants
Debt with Warrants
                        Gives the debt holder participation in the future performance of the company

                        High-yield, high risk securities
Junk Bonds
                        General obligation bonds that have credit ratings below investment grade

                        Debt securities with interest and /or principal payable in cash or securities of
Paid-in-Kind Debt
                         the issuer at the issuer's option

Paid-in-kind            Preferred Stock which pays dividends in cash and /or additional shares of
Securities               preferred stock at the issuer's option

                                         Private & Confidential
                                                  - 12 -
                       Financing Forms | Other Financial Instruments

Adjustable Rate                Preferred stock with interest rates that are reset at periodic auctions
Preferred Stock

Debt securities with           Investors retain put option
put option

Alphabet / Tracking            Investors hold a company's stock but the shares participate only in the
                                earnings of a specified subsidiary or group of assets

Sale-lease back                Similar to Senior Debt
financing                      Complicated as to who receives the risk/benefit of the residual value

                                          Private & Confidential
                                                   - 13 -
                                           Acquisition Finance (Debt) | Structuring


       Company’s Perspective                                                       •   Lender ‘s Perspective
            Minimum equity contribution                                                    Adequate security with commensurate
            Appropriate leveraging through an optimal funding                             return
          structure balancing cost and risk                                                 Protection against default
            Limited recourse to parent for repayment - Ring                                Promoter comfort and contribution
          fencing liability associated with acquisition


       Myriad transaction specific structuring options available
       Different contemporary financial instruments for funding the acquisition including debt, mezzanine and equity
       Indian and offshore laws and regulations relating to acquisition, tax and investment


•   Target Vs. Acquirer (Leveraged Vs. Own Balance Sheet)
•   Recourse Vs. Non-Recourse
•   Off-shore Vs. On-shore SPV

                                                           Private & Confidential
                                                                    - 14 -
                                    Acquisition Finance (Debt) | Challenges

Objective           Issues / Challenges
Optimizing Cost      •   To minimize the Financing cost

                     •   To minimize Transactions Costs like DD cost, Legal cost etc.

                     •   To minimize Future Costs like Prepayment penalty, Commitment charges, Penal interest etc.

Structuring   the    • To finalize the best suitable Financing instrument and provide the most appropriate Security
Transaction most
appropriately        • To choose the best suitable Jurisdiction and most optimal Borrowing Vehicle
                     • To negotiate the Financial Covenants / other Restrictive covenants
                     • To structure the Repayment schedule as per the Cash flow
                     • To minimize the various kind of Tax (Withholding, Dividend Distribution, Income Tax etc.)

Finding the most     • To decide the most suitable Lender from a long-term perspective
suitable Lender
                     • Whether to go for a Bilateral loan or Syndicated loan

Timely completion • To complete the Transaction in a Short Time especially when there are multiple bidders for
of the Transaction /
Synchronize      the    the Target
entire process       • To coordinate across different geographies, lenders and various advisors

                                                     Private & Confidential
                                                              - 15 -
                       Case Study - Acquisition Finance for L.T. Overseas Ltd. (1/2)

                           Business Acquisition
                                USD 20 MN

L T Overseas Ltd.                  Kusha, INC.                               Strategic Opportunity

• One of the largest               • The largest basmati rice                • Kusha has provided the marketing
 basmati rice players in            marketing and distribution                and distribution platform for LT
 India with a topline of            company in the US, with                   Overseas’ brands
 ~USD 120 MN                        revenue of ~ USD 40 MN                   • With its milling and product
• Owner of “Dawaat” and            • Has portfolio of strong brands,          development capabilities, LT
 “Heritage” brands                  “Royal” and “Pari”, with 40%              Overseas will be able to launch high
                                    market share in the US                    value add products in the US market
                                    basmati rice industry                    • LT Overseas became the largest
                                                                              basmati player in the US

                                                    Private & Confidential
                                                             - 16 -
                            Case Study - Acquisition Finance for L.T. Overseas Ltd. (2/2)

                                                                          ‘DEBT TO OFFSHORE SPV WITH RECOURSE’

  Lending Bank              Rupee                                          The Lending Bank, through its offshore operations,
India Operations            Loan of          Acquirer
                             Rs. 80                                         extended US$ 13 million financial assistance to
                             million                                        facilitate acquisition of the Target
                                                   OFFHORE                        Extended additional US$ 2 million to the Indian
                                                                                   operations through its Indian Balance Sheet
                Corporate                Equity Investment                        Loan extended infused as Equity in the US SPV
               Guarantee                   US$ 2 million
                                                                           Security
                                                                                  Pledge of SPV and Target’s shares
Lending Bank -          Senior Debt        Acquirer SPV                           Corporate Guarantee of the Indian Parent
Offshore Branch           US$ 13               USA
                          Million                                                 Pledge of Promoters’ shareholders in the Indian
                                                                                   Parent company
                                             Acquisition                          Mortgage of Target company brands
                                       Consideration for 100%
                                               stake                       Repayment
   Cash       flow                                                                Cash flow accrued at the Target level
  available for
 Acquirer to be                               Target                              Undertaking to capitalize the USA operations, if
   utilized for                                USA
 debt servicing
                                                                           Time taken to conclude the financing: 2 months

                                                          Private & Confidential
                                                                   - 17 -
Contact Details

  Corporate Executive Director
  Email: director@lloydbancaire.com

                                                   Lloyd Bancaire Worldwide.

United States                         Luxembourg            Hong Kong           United Kingdom   Singapore


                                                       Private & Confidential
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