Funds for direct investments. Anton Sokolov. "the director -info" в„– of yay'2002

One of the methods of the investment of free cash resources for the important investor, be it a private or juridical individual - direct investments, i.e., the acquisition of the actions of company.

Investor undoubtedly can independently accept investment decision and purchase portion in regulation capital him of the company interesting. However, is more effective turning to the services of the fund for direct investments (FPI). How investors can create FPI as with its aid obtain profit from the growth of promising companies, that one should consider the leader of enterprise, if he does want to draw investment FPI?
What this FPI?

In the world practice by direct investments is considered the purchase more than 10% regulation capital of company, less - already portfel'nye investments, which are been simple game on the fund market: investor with an increase in the cost of securities guessed or did not guess. In the Russian practice direct investments are interested in acquisition not less than 25% actions of enterprise. In many instances the discussion deals with 50-75% and more regulation capital.

Opinion the classical funds for direct investments, widespread in the West, can be subdivided into the venture funds, which help young firms to appear and to be developed, and the funds, which are occupied by the purchase of "problematic" companies, by their restructuring and subsequent sale. In the West this diagram usually is called "buy out" and realizes by large industrial groups.

Cyril Dmitriev, director on investments Delta Capital

Strategy of the actions of direct investments is such: fund accumulates the means of several important particular investors or companies. Moreover investor compulsorily one should know that the money inserted in FPI it will not be able to take away conversely, at least, for 3-5 years. Then FPI packs means into the enterprises by the acquisition of the significant shareholdings. The basic investment purpose, which in this case is pursued - an increase in the cost of company. For this very reason for the investment, as a rule, is selected the young rapidly-growing enterprise. This means that in practice FPI acquires, let us say, the block of the shares of firm "A" for 1 mln. dollars, and in 3-5 years it realizes its portion for 10 mln. dollars. FPI "leaves" from the company, either when it becomes public (is carried out procedure IPO - public arrangement of actions), or when in it it appears strategic investor. In principle the owners of company can themselves "at the output" redeem actions in fund.

In this case the acquisition of the shareholdings should be considered as the certain long credit, however, sufficiently unfavorable for the enterprise.

Opinion it is necessary to understand the philosophy of the funds: this is long-term investor, but simultaneously this and investor with the fixed horizon of time. In contrast to the strategic investor it is not assembled to sit in this business eternally. Classical example to the activity of the funds for direct investments - company "VympelKom".

Several funds invested into it the means, when this was small nepublichnaya firm with the prospects for increase. In 1996 AO "VympelKom" it left to New York stock exchange (NYSE).

But the funds for direct investments derived their means from the company, after obtaining a good profit.

By the way, direct investments can be the successful tools of repatriation into Russia of previously exported capital for those investors, who for different reasons are especially concerned by the appropriate security assurances of their investments into the domestic companies.

Aleksandr tsapin, senior executive director is THE IR "horizon"

Thus, the task of direct investments - to purchase the shareholdings, to trace the economical utilization of money, is sufficient to actively contribute to an increase in the cost of company, helping with resolution of strategic questions, questions of financial control, etc., and in 2-3 years to leave it, profitably selling packet and after obtaining essential profit. Through the defined by constitutive documents period FPI it is obligated to leave of all projects and to return money to investors.

Than is interesting for the investor diagram with the use of direct investments? First of all, money packed in the development of real company. If object is selected correctly, then the investments of investor grow. Indeed the cost of the investments FPI usually does not correlate with the fund market: share quotations can be subjected to significant fluctuations, and direct investments into the correctly selected company bring stable income. Second advantage - professional approach.

Opinion if investor intends to be put in that sector of the business, which to him is well familiar, i.e., are known risks, special features of conducting business, etc., then it can simply acquire part or entire company in this sector. For example, the owner of store can purchase another store, located in more prestige region. But if he intends to diversify his investments and to invest into those sectors, which to him are unknown (for example, the proprietor of metallurgical plant interested himself in company- honeycomb operator), then to him it is better to enter the contact with the fund for direct investments. In this case FPI ensures professional approach to the investment of the means of investor.

Dmitriy Paramon, executive director AB "IBG Of nIKoyl"

Also it is worthwhile to note the profitableness of investments in FPI.

Opinion together with the fact that with the aid of the direct investments the investor packs money into the actually growing promising companies, with the correct investment policy of the controlling company such investments ensure to client acceptable profitableness. In the beginning the 90's first Russian FPI they were oriented toward the high profitableness (from 35-40% of annual in the currency). Now profitableness somewhat was reduced against the background of riper Russian markets. The expectations of investors can be named "more landed": usually the investors OF FPI interest profitableness more than 20-25% annual in the currency. However, if we compare this with the profitableness of emitted by Russian companies Euro-bonds (9-13%) or corporate bonds (17-21% of annual in the rubles), possible increase in capital of investor appears tempting.

Aleksandr tsapin, senior executive director is THE IR "horizon"
How It is created BY FPI?

Thus, let us assume that several investors decided to combine its capital and to together create FPI. How this to make?

In Russia on the basis of the funds for direct investments thus far there is no adequate legislation, which would entirely consider the interests of investors. Yes even particular investors do not always want to invest their proclaimed income into a similar tool of "domestic assembling". Therefore funds, as a rule, are recorded in the foreign jurisdictions in the form of partnership. Among the popular for the establishment FPI jurisdictions the experts separate the American state of Delaware and offshory, such as Bermuda, Kaymanovy about- VA a number of others. In the first case the registration and maintenance FPI will cost more: American legislation requires conducting Audit and idea of account according to standards GAAP. As far as The kaymanoveye islands are concerned, here investors deal concerning the jurisdiction, not entering the "black list" FATF, and c by favorable tax regime. There in contrast to THE USA the rigid standards of the disclosure of information be absent. In Europe the interest of investors cause Dzhersi and Antil'skiye about- VA.

With the creation FPI basic document for the investor is the agreement about the purchase of the actions (portions) of fund (Share Purchase Agreement or Subscription Agreement). This document legally attaches the obligations of investor and his right in the portion in the incomes of fund. Furthermore, to investor it is necessary to focus attention on prospectus (Offering Memorandum). The crucial points, reflected in this document, information about the controlling company (or the investment manager of fund) and the investment declaration of fund.

How is selected the controlling company? In the western practice there is a market of the controlling companies. The selection of investors is based on the study so of that called track record - the history of administration of analogous FPI. As a rule, investors track, how controlling a company effectively and successfully governs funds. The longer the company governs FPI, the greater in it the possibilities to study market to the object of the selection of qualitative investment projects.

Opinion special attention during the study track record western investors focus on profitableness level, which ensured this controlling company for its investors. Basic index here - IRR (internal standard unit of income). This is the rate of discounting, with which NPV (clean current cost) project is equal to zero. The western funds have the very clear criterion: direct investments in Russia must ensure IRR 30-40%.

Thomas Blake, director on the corporate to the finances OF PRIVATELY HELD COMPANY "about -Invest Konsalting"

In the West the controlling company frequently governs several funds. In this case its structure provides for the creation of special it is sectional, that control each of the "under wardship" funds. In the domestic practice, when experimental controlling companies not so there are many, is possible this version: several important investors create BY FPI, hire the group of completely familiar to market, but close to itself managers, having thus far none track record. If in 2-3 years young command is achieved good financial results, then investors obtain profit, and controlling - reputation on the market, which makes possible for them subsequently to undertake more scale projects.

In the Russian practice interaction of investors and FPI can be reduced to the following diagrams:
by several important Russian investors, who act, as a rule, in one sector of business, is created "chamber" fund (the so-called kaptivnyy fund) for investment into the specific companies;
the chief Russian investor, who packs in FPI is not less than 25-30%, is created the consortium of smaller investors, including of foreign. Foreign investors in this case are necessary for the attraction of other foreign investors;
Russian investor packs his means into existing western FPI. The fact is that with the creation of fund the founders establish the specific date (closing date), to which the initiators of fund assume obligations regarding the investments of strange investors. Investor carries out negotiations with the founders FPI and introduces his money.

In the second and third cases the investors do not participate in the composition of the basic constitutive documents of fund and assume they, which is called as given.

The effectiveness of the subsequent activity of fund depends from the competent composition of investment declaration in many respects. As a rule, investment declaration in the process of the functioning of fund no longer changes. In it are defined such strategic directions, as:
the sectors of business, into which will be invested working capital;
the natural region of the potential objects of investments;
the approximate sizes of the blocks of the shares, which will be acquired in the companies.

However, investment declaration must leave certain space in decision making for the controlling company, since the rigid regulation of actions can negative affect the effectiveness of the investment of means.

On the sums of the study of documents the investor makes decision about the subscription on the action (portion). As a rule, before the signing documents thoroughly analyzes the juridical adviser of investor. The basic questions, to which is paid the attention: the tax consequences, which appear in the case of acquisition and subsequent rotation (pay-off) of the actions (portions) of fund, and the order of the rotation (pay-off) of the actions (portions) of fund.

After registration FPI in it is transferred the part of the money of investors, necessary for the realization of the starting investments (remaining means they are transferred in FPI in proportion to the preparation of investment transactions during the so-called initial investment period). Being figuratively expressed, "money bag" is ready, those, who will it govern selected. After this, the investors no longer interfere in current control of the investment activity of fund, periodically obtaining from the controlling company reports about the results.
How FPI does invest means?

The practice of direct investments shows that already at the stage of the formation of fund the preliminary versions of investments (specific companies) most frequently are outlined. Therefore from the moment of the beginning of the functioning of the fund, when all necessary formalities are already settled, to the investment of means in the company it can pass entirely little time.

Opinion now for FPI in the Russian business are priority food industry, retail- business, tele-communications, packing branch, hotel projects. For our fund the most interesting sectors of market are sector the productions of goods of the popular consumption (that that in the West it is called "consumer goods"), the sector of financial services, media- company and tele-communication. We focus attention on the enterprises, which either rapidly are developed, or (in certain cases) it is sufficiently promising, but financial difficulties are tested at the present moment.

Cyril Dmitriev, director on investments Delta Capital

In principle the fund for direct investments can put means into any firm; however, one should understand that the fund for the size only of 30 mln. dollars will hardly invest means into the natural gas company. How funds do select projects for the investments?

Opinion basic criteria for evaluating the company- recipient: the scales of market and the place of enterprise on the market, the prospect for increase, qualification and the reputation of management, financial state and, perhaps, the main thing - possibility of "output" from the investments into this company.

Aleksandr tsapin, senior executive director is THE IR "horizon"

FPI, as a rule, adhere to one of two strategies of entry into capital of company. The part of the funds prefers not to buy the large shareholdings. This approach is based on the prerequisite, that if enterprise govern the professional managers, the piously honoring principles of corporate administration and the soblyudayushchiye rights of minority shareholders, then to acquire complete control over the enterprise does not have a sense. With this FPI interests only strategy of the development of company, and conducting the current management is laid on the management. Fund can soak with the solution of marketingovykh problems, conduct financial activity analysis and prompt the way of increasing the effectiveness of business. Other funds acquire the shareholdings not less than the control room. In this case the fund completely checks the company- object of investments. Strategic solutions (as to distribute profit as to diversify activity and so forth.) assume together the representatives OF FPI and the owners of company.

After FPI he in earnest interested itself by company, in her owners inquire the documents, which in detail examine the business history of enterprise, the structure of property, financial state. Further FPI conducts the vsestronneye study of the assumed transaction, called due diligence.

Due diligence consists of two basic stages. During the first stage FPI is studied the market, on which the company- potential object of investments acts, in order to be certified over its capacity and long term. Further the business- model of company, is examined to the object of effectiveness. Fund in this case must be certified that it will be possible to govern the risks of the selected firm.

In the second stage the financial and juridical checking of company is conducted. The purpose - to reveal all details of the business of this enterprise, which subsequently can be dangerous for the investor.

Duration due diligence depends on sizes and the "transparency" of company, degree of the structuring of active memberships and amounts on the average to on 1-5 months. Nuance for FPI in the fact that after on conducting due diligence and checking the enterprise are spent the specific means (now and then very big enough), is psychologically very complicated to forego the investment of means into this company in the case of the development of not too great, but nevertheless completely concrete risks.

As in any transaction, with sale of the block of the shares of company arises a question of cost. The demands of salesmen usually depend on the needs for the financing. It is thinner, assigning price for the actions, salesmen they are repulsed from the real financial indices. There are several approaches to the estimation of the enterprise: the method of the discounting of flow of money (DCF), the method of market comparisons, the method of the restored cost. In practice adapt, as a rule, first two, moreover to the method of the market comparisons (as the objects of comparison they are used transaction on the acquisition of the comparable companies or their exchange quotations) investor entrusts more. Final price is determined in the process of negotiations, it depends on the size of the block of shares and structure of transaction and it can considerably differ from initial estimation.

the "point of no return" in the process of the entry of direct investments into the firm - the signing of the investment agreement between FPI and present owners of company. In this agreement are determined the "rules of game" in the stage of the postinvestitsionnogo management and in the stage of "output" from the investment. Conducting discussion about the postinvestitsionnom management, one should isolate:
assignment to the investor of right to the participation in making of strategic decisions (place in the council of directors, the enumeration of the solutions, taken by consensus);
assignment to the investor of the right to assign its representatives to the stipulated menedzherskiye positions (this it can be, for example, financial director either director on marketing or sales);
step by step fulfillment by the investor of its obligations depending on the degree of the correspondence to the activity of company- recipient to forecast parameters (benchmarks), determined even in the stage of the structuring of the transaction (in the case of serious divergence investor it has the right either to reduce investments or to obtain more than actions, in other words, the initial price of action for the investor it is corrected to the side of a decrease).

Opinion in the investment agreement can be prescribed this mechanism: first yr - fund packs into the company of 15 mln. dollars, in exchange for it obtains By x% of actions; second yr - with reaching of the specified financial conditions the block of the shares of fund decreases to Y%. thus, in the agreement the gradual output of fund from the company is provided for.

Dmitriy Paramon, executive director AB "IBG Of nIKoyl"

On the "output" from the investment the controlling company of fund begins to worry long before the realization of investment itself, namely in the stage of the structuring of transaction. As a result in the investment agreement is prescribed the coordination of actions of investor and initial shareholders of company in the stage of "output". Here there can be many nuances and, correspondingly, the mechanisms, fixed on the paper. As a rule, the controlling company insists on the start in the agreement of the obligations of initial shareholders regarding simultaneous sale of their blocks of shares and block of the shares of investor (drag-along rights). This is done for purposes of the realization of the shareholdings, which exceeds control room, for the start in the price of reward for the control. The right of investor and initial shareholders to the first priority purchase of the blocks of the shares of each other (first refusal right, i.e., if one side it sells its actions to the third persons, then it it first proposes to purchase actions to its partner in the same price) can also be prescribed.

In the specific cases (for the investor this less attractive way) in agreement can be included and the right of investor to propose to the initial shareholders (moreover in the latter in that case appears rigid obligation) to redeem its block of the shares (this construction it is equivalent to the possession of option "put").

In the stage of "output" the defined obligations can arise in all shareholders of company, including investor both in the cases of IPO (impossibility of sale of their actions (all or partially) on the public market during some period of time, which is fixed in the prospectus of emission) and in the case of strategic sale (this it will be coordinated with the buyer it is fixed in the agreement of buying and selling).

The payment of services to the controlling company is composed of the fixed yearly pay for control of active memberships (management fee) - approximately 1,5-2,5% of the cost of the inserted by investors in FPI active memberships. With the "output" from the investment project the controlling company as the single reward obtains to 20% of profit, acquired from the realization of investment project.

Opinion during the establishment FPI and the establishment of contract relationship with the controlling company can be stipulated, that the single reward (success fee) the controlling company will obtain only in such a case, when profitableness from control exceeds the specific level. Let us say, the manager obtains single reward, only if he ensures IRR project 20% even more.

Thomas Blake, director on the corporate to the finances OF PRIVATELY HELD COMPANY "about -Invest Konsalting"

If the company, whose actions are acquired BY FPI, pays out dividends, then FPI also can obtain its portion. However, since the companies, into which FPI invest means, are young and rapidly-growing, according to the agreement with FPI the dividends, as a rule, are reinvested into the business.
How to draw attention FPI?

Now let us examine activity FPI from the point of view of the leader of the firm, by which are necessary the investments.

In the western practice any company (especially young and growing rapidly) with the appearance of the need for long-range investments can either draw means with the aid of the release of actions or bonds or turn for the "long" credit into the bank, or resort to the services FPI. Moreover fairly often the leaders of companies select the precisely third version of financing. The attraction of means FPI is thus far so natural for the Russian practice.

Benefits for the enterprises, into capital of which enters FPI, are at first glance obvious. Buying portion in capital of company (and investing by such means of means into the project), funds give actually interest free long-term financing the managers of project. So that the leader of company is not concerned constantly by problem, as when it should return money. Moreover, the participation of fund in business capital - unique seal of corporate quality, which opens way to other sources of funds, including bank.

Advantages of attraction FPI as the investor:
FPI - objectively reliable partner for the specific period of time;
FPI - good specialist in the region of finances, who moreover is interested in an increase in the cost of company. I.e., from it it is possible to await aid on questions of production and realization of strategy, evaluating of business- plans, financial control.

The presence of the respected financial investor in the composition of shareholders substantially increases the cost of company at the moment of "output" by the public market or negotiations with the strategic investors.

However, the wrong side of the attraction of "longitudinal" capital becomes the loss of the substantial part of the independence with decision making. Director and managers are forced to from now on correlate their each step with the opinion of shareholders, even if they are not majority. But in the case of significant control FPI over the company for management it generally is necessary to reject the independence making of strategic decisions. Therefore, in order to use money FPI, the leader of enterprise must:
to be ready to return large or control block of shares of its company;
to release the representatives of the controlling company FPI into the council of the directors of firm, after reserving operational control over its activity;
to be finished either to make a company of the public through procedure IPO or to find with the time of strategic investor.

Thus, if company decided to draw investment FPI, first of all should be composed investment memorandum, i.e., investment proposal investor. This is the document, on the basis of which the investor makes decision about the investment of cash resources. The main thing, that the investor desires to get from the memorandum, is profitable to it to now finance this company, how many means will be necessary to put, also, on what conditions.

In the memorandum the questions, first of all which interest investor (especially nonresident), must be completely illuminated:
the business standing of enterprise;
the forecast of demand for the production of enterprise, based on marketingovykh studies;
the level of management, the qualification of personnel;
the current financial state of enterprise;
validity and the authenticity of expenditures on the project;
the forecasted level of the profitableness of project;
the risks, characteristic for this project, the degree of the sensitivity of project to the environmental factors;
the value of the key economic measures of the effectiveness of project (clean current cost, the index of profitableness, the internal standard of profitability, payback period).

After composing investment memorandum, company approaches the search FPI. In the business of the funds for direct investment and in the investment bank business generally, the enormous value have connections. It is possible to achieve a search FPI independently or to resort to the services of financial consultant.

Opinion with the independent search is its risks. For example, company found fund, tedious work begins, but they refused after 3-4 months from the transaction - time is lost. If we work through the consultant, the search is conducted simultaneously through several funds, by which sends the investment memorandum. With FPI, which appeared maximum interest, immediately begins active operation, time frame are determined. If during the established period FPI it does not leave to the specific proposal of company, then contact with it ceases. Thus, consultant gradually determines FPI, which as a result becomes investor.

Aleksandr tsapin, senior executive director is THE IR "horizon"

It occurs, that FPI at the last moment before the signing of investment agreement begins to change conditions, to press to the management of company. If the latter acts without the consultant, then with the appearance of similar collisions by it to considerably more complexly conduct its line to the successful completion of negotiations.

As the financial consultant for the client- investors, if they express the interest in the diversification of their active memberships with the aid of the direct investments, can come out bank.

Opinion since the task of particular bank - complex maintenance and the protection of the interests of client of every kind, if the latter expresses the desire to invest its means and to ensure their increase, bank can propose on the level with the broker services or the services on control of active memberships the possibility of investment into the fund for direct investments. The main thing in this case - the presence in the client of ample means and understanding the fact that money it is not possible it will be take away conversely earlier than in 2-3 years. Remaining concerns beret to itself particular bank.