Overseas Growth and Exit Opportunities for Utah
Businesses, PEs, and VCs
Agenda
I.
Speakers
i.
ii.
iii.
iv.
v.
Michael Gibbons – Chairman of Global M & A
Faisal Alsayrafi, ASA, CEO of Financial Transaction House
(fka Andersen M & A Worldwide)
Pablo Rion
Saul Zeigen
Roberto H Castro
II. Why Pursue a Merger, Joint Venture, or a Strategic
Alliance?
i.
ii.
Overview
UT and International Trade
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Agenda
III. Do Emerging Markets Offer greater return
potential? Do we forgo Mature Markets?
IV. Tax Issues: US Taxation of US Entities Abroad: an
Overview of US International Tax
V. Corporate Governance and Compliance Issues
VI. Conclusions
VII. Supplemental Material – Colombia and Saudi Arabia
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I. Speakers
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Michael Gibbons, Chairman of
Global M & A
Brown Gibbons Lang & Company is a leading independent
investment bank serving middle market companies and
their owners throughout the U.S. and internationally.
BGL’s professionals are experts in mergers & acquisitions,
debt & equity placements, and financial restructurings.
The firm has over 35 experienced professionals from
diversified backgrounds, all of whom have an appreciation
for the unique cultures and complexities of middle market
businesses and the financial institutions that support
them. Founded in 1989, BGL has remained true to its
mission of delivering corporate finance solutions to
companies with enterprise values between $50 and $500
million.
Although BGL’s professionals have skills applicable to
companies in a broad range of sectors, the firm has
developed specialized expertise and publishes periodic
research in a number of key industries, including metals &
metals processing, healthcare, business services,
chemicals, and food & beverage.
BGL is the U.S. partner in Global M&A, one of the world’s
leading partnerships of independent middle market
financial advisory firms focusing on cross-border
transactions with values between $25 and $500 million.
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Pablo Rión
Pablo Rión y Asociados, S.A. de C.V.
Mergers / Acquisitions /
Corporate Finance
Mr. Rión is an investment banker
with more than 20 years of
experience in Mexico. His firm is
specialized in middle market
transactions. As founder and
managing partner of Pablo Rión y
Asociados, the firm is the exclusive
partner of Global M&A for Mexico.
Pablo Rión y Asociados has closed
more than 100 transactions in 20
years, with an accumulated value of
that exceeds USD $1.5 Billion.
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Faisal Alsayrafi, ASA, MBA – CEO of
Financial Transaction House (FTH)
FTH founded in 1994 to function as the regional corporate
finance arm of Arthur Andersen’s financial advisory services
subsidiary. FTH has operated as a licensed independent
corporate finance advisory firm since 2002 with a GCC and
North Africa focus.
Work Experience:
FTH has provided corporate financial advisory services in
more than 100 transactions with a total value exceeding $4
billion USD; including the $1.9 billion USD acquisition of a
commercial bank, a $220 million USD IPO (Al-Jazeera News),
and numerous private placements ranging up to $85 million
USD.
FTH serves as financial advisor to certain members of the
Saudi Royal Family, Board Members for Saudi Holding
Companies, and Saudi Arabian Private Equity funds and
regional banks involving small to middle market company
transactions, with a focus on recapitalizations, capital raises,
acquisitions, formation of Joint Ventures and strategic
alliances.
FTH also provides valuation advisory services to start-ups and
mature firms in connection with acquisitions, Fairness
Opinions, and financial reporting (Purchase Price Allocation,
Goodwill Impairment Testing).
FTH’s investment banking services include Feasibility studies,
Exit and Succession Planning, the issuance of Solvency
Opinions, Reorganizations, and litigation support services.
Industry focus: Real estate, media and entertainment,
financial services, petrochemicals, health care, agriculture, and
basic materials or sectors focused on the infrastructure.
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Saúl Zeigen
Saúl Zeigen is a Director at Nogal
Asesorías Financieras, Global M & A’s
Colombia partner. Prior to joining Nogal,
Mr. Zeigen worked for 13 years with
Citgroup and Rothschild’s investment
banks.
Mr. Zeigen’s M & A experience includes
numerous “going private” transactions
involving sales by both Colombian
Government and private sector
companies.
Significantly, Mr. Zeigen’s experiece
includes the privatization process of over
20 electricity companies in Colombia, as
well as in transactions in the water,
sewage, and telecommunications
sectors.
His private sector M & A and JV
experience project financing in the
financial sector, oil & gas sector, steel,
toll roads, consumer goods and airports
concessions, among others.
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Roberto Castro
Roberto Castro is a Draper, UT resident. He is Managing
Director of Wasatch Business Valuation and M & A
Consultants, LLC, based in Sandy, UT. Wasatch Business
Valuation and M & A is focused on US business valuation
for tax and financial reporting purposes, litigation
support, and investment banking engagements.
He serves as Advisor to Faisal Alsayrafi, ASA, CEO of FTH.
His latest non-U.S. projects involve:
 Feasibility Study of a Substantial Mixed
Commercial Property Development in the Middle
East
 Private Placement involving a hospital operated as
a Joint Venture
 Purchase Price Allocation involving an acquisition
by a UAE of Saudi-based telecom company
 Valuation of a bank owned four star Cairo, Egypt
hotel
In the US, where he recently opened his office, his work
has included providing valuation advisory services and
Exit planning services to small business owners, including
use of an ESOP, buy-sell agreements for professional
service companies in the healthcare and law sectors,
valuation of start-ups, IP, and intangible assets.
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Why Pursue a Merger, Joint Venture, or
a Strategic Alliance?
 Timing Issues
“Five crucibles of change will restructure the world economy
for the foreseeable future. Companies that understand them
will stand the best chance of shaping it.” McKinsey Quarterly,
(June 2010)
1. The great rebalancing – the rise of the middle class in emerging
markets impacts product design, market infrastructure, and value
chains
2. The productivity imperative – developed countries need to focus
on innovation to create jobs
3. The global grid – the rise of global networks
4. Increased demand for commodities and the emergence of clean
tech industries
5. Challenge of governments providing a safety net to maintain
stability and balancing growth initiatives
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Why Pursue a Merger, Joint
Venture, or a Strategic Alliance?
Global M & A’s view
The sooner Board’s and management commit to a global strategy
the better, while markets continue to change, the best markets
and opportunities will always go to firm’s that planned,
identified the market leaders, and devised controls to build and
protect shareholder value

Diversify sales base

Commit to Product Innovation

Secure IP
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Use multiple channels to build and protect the brand

Identify trends and respond

Identify competitors and competitive forces early-on
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UT and International Trade
 Utah Governor’s Office of Economic Development is
focused on job creation within the state and targeted
clusters, but it is also committed “[t]hrough the
International Trade and Diplomacy Office, conducts
activities such as trade missions to encourage
expansion of international business opportunities for
Utah companies and attract foreign investment.”
 Largest international trade partners: UK, Canada, Mexico,
China, and India
 Active Trade in Industries: commodities/mining,
electronics, medical equipment, industrial machinery,
aerospace equipment, auto parts, and cosmetics
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Tax Issues: US Taxation of US Entities
Abroad: an Overview of US International Tax
DISCLAIMER
The following are issues that—in our experience—arise with USbased clients and operations. We are investment bankers, not
attorneys. Accordingly, neither this section nor anything in this
presentation is intended to serve as legal advise.
Each firm is strongly encouraged to consult with qualified
international business, IP, and/or tax counsel!
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US (International) Tax Regime
 History of Tax Acts impacting Foreign Income
 Income Tax Act of 1913 (imposed a 1% tax on the worldwide
net income of US citizens)
 Revenue Act of 1918 (credit against US tax liability for foreign
taxes paid)
 Revenue Act of 1921 (limit of foreign tax credit imposed on an
overall basis)
 Revenue Act of 1932 (foreign tax credit limitation imposed on
the lesser of a per country or overall basis. In addition, sec.
367 extended non-recognition-of-income rules under
subchapter C to certain ‘extraordinary’ transactions involving
a foreign corporation (e.g., the transfer of a parent’s patent
rights to a foreign subsidiary in exchange for shares in a
foreign subsidiary)).
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US (International) Tax Regime
 History of Tax Acts impacting Foreign Income (cont.)
 International Revenue Code of 1954 (overall limitation on the foreign tax credit
repealed, leaving a per country limitation as the sole limitation and the
deemed-paid credit extended to second- and third-tier foreign subsidiaries.
 Revenue Act of 1958 (allowed for the carry-back and forward of excess foreign
tax credits. This remained in effect until 2005 when The American Jobs Creation
Act (AJCA) of 2004 reduced the carry-back period but extended the carryforward period to 10 years)
 HR 0087 (1960) (the overall FTC reenacted as an optional method, but if
elected, cannot use the per-country method)
 Revenue Act of 1962 (Subpart F enacted, this eliminated the deferral taxation of
passive foreign subsidiary income in situations deemed abusive (e.g., FPHC
income (e.g.. US citizens w/tax haven company that earned passive income in
the form of dividends, interest, rents, and royalties), Foreign Base Company
Sales income, Foreign Base Company Services Income (e.g., a tax haven
company providing marketing, engineering, or accounting services to a related
corporation)).
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US (International) Tax Regime
 History of Tax Acts impacting Foreign Income (cont.)
 Foreign Investors Tax Act of 1966 (replaced the force-of-attraction with the
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effectively connected income. Significantly, the pre-1966 exemption from US
taxation for the foreign source income of a US branch was repealed, but the
Foreign Tax Credit was allowed for foreign-sourced income)
Tax Reform Act of 1969
Revenue Act of 1971 (DISC created)
Tax Reduction Act of 1975
Tax Reform Act of 1976
Tax Reform Act of 1984 (sec. 367(d) introduced governing outbound transfers of
intangible property, such as patents, copyrights, trademarks, and trade secrets;
such a transfer to a foreign company was treated as giving rise to a stream of
royalty payments over its useful life, rather than recognition of gain upon the
transfer)
Tax Reform Act of 1986 (significantly reduced the FTC; baskets of income, each
with its own foreign tax credit limitation)
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US (International) Tax Regime
 History of Tax Acts impacting Foreign Income (cont.)
 OBRA 1993 (new anti-deferral provisions added to the Code (sec. 956A)
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subjecting accumulated active business profits of CFCs that were not
reinvested in active business assets to US taxation)
Small Business Job Protection Act of 1996 (repealed sec. 956A since the
law provided incentives for CFCs to make foreign investments, enter
into transactions, and engage in reorganizations to avoid the tax … it
discouraged investment in the US
Tax Payer Relief Act of 1997
November 2000; Congress repealed the FSC structure and replaced
with the Extraterritorial Income Exclusion Act; this Act provided a
partial territorial system proving relief from double taxation for both
exports and foreign production; declared illegal in 2002 by WTO
American Jobs Creation Act of 2 2004 (among other things it enacted
provisions aimed to stop abusive corporate inversion transactions)
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US (International) Tax Regime
 History of Tax Acts impacting Foreign Income (cont.)
 More recent activity

The Education Jobs and Medicaid Assistance Act of 2010 (new
provisions target the foreign tax credit planning, with an
emphasis on indirect credit planning by US multinationals)
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US (International) Taxation
 The US employs a credit system and taxes U.S. persons
on their worldwide income. §§61 and 901. “U.S.
persons: includes U.S. citizens, resident aliens, and
domestic corporations.
 Exception: The U.S. credit system contains a deferral
wherein the U.S. does not tax foreign-source income
earned by a U.S. person through a foreign corporation
until those profits are repatriated by the domestic
shareholder through a dividend distribution.
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US (International) Taxation
 Strategic Planning considerations will include tax planning
too.
 There will be situations where the taxpayer (U.S. corp.) will be
in an excess limitation position (that is when the foreign
tax rate is lower the U.S. tax rate) and in an excess credit
position (that is when the foreign tax rate is higher than the
U.S. rate)
 Eliminate the excess credit by increasing the percentage
of taxpayer’s total taxable income (buy more of the foreign
entity or arrange to have title—when inventory is sold—pass
in the foreign country. Another option is cross-crediting
(blend low- and high tax foreign source income).
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US (International Taxation)
 Subpart F (Code secs. 951-965) was enacted in 1962 to close a
perceive loophole (a U.S. multinational corp.'s foreign-source
income earned through a foreign source was not taxed until the
sub repatriated the dividend through a dividend). Prior to
1962, this was one of many reasons for cross-border M & A
(Code driven)
 Subpart F requires U.S. shareholders of a CFC to include in
income a deemed dividend equal to a pro rata share of the CFC’s
Subpart F income. Sec. 951. A foreign corp. is a CFC if the U.S.
shareholders own more than 50% of the stock of the foreign
corp., either by vote or value.
 Effective for tax years after 2006, sec. 954(c)(6) treats DIRR
accrued or earned from a related CFC to be outside the FPHCI
(Foreign Personal Holding Company Income). This placed US
multinationals on par with foreign multinationals.
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Mergers and Acquisitions
 Developed Markets v. Emerging Markets
 Global M & A sees more M & A in emerging markets as
opposed to developed markets.
 Liquidity and Exits are more readily available in the
developed markets where Private Equity funds compete,
as do strategic purchasers
 Emerging Markets M & A are picking-up, however, the
activity is regional and with known competitors.
Liquidity and exits are available provided management
is patient.
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Merger and Acquisitions
 In the US, Mergers are usually pursued –in lieu of building
from scratch--to:
 Boost economies of scale
 Generate greater sales revenue
 Build market share within existing or new markets
 Broaden or diversify the customer and/or product base, and
 Increase tax efficiency
Cross-border M & A’s share these same reasons and are pursued by
US firms that have worked with the target, understand local
customs, management, and believe the target market is relatively
efficient and ready for growth.
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What is the trend in cross-border M & A?
Taxable or Non-taxable transactions?
 On January 23, 2006 the Treasury issued final regulations
that allow for certain mergers (A Reorgs, sec.
368(a)(1)(A)) with foreign entities to qualify as tax-free
reorganizations.
 Treas. Reg. Section 1.368-2(b)(1)(i) expands the ability of
certain foreign and disregarded entities to qualify under
Section 368(a)(1)(A) as statutory mergers, only if two
events occur simultaneously at the effective time of the
transaction. Those events are (1.) All of the assets and
liabilities of the transferor become assets and liabilities of
one or more of the members of one other combining unit;
and (2) the combining entity of each transferor unit ceases
its separate legal existence for all purposes..
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What is the trend in cross-border M & A?
Taxable or Non-taxable transactions?
 The IRC favors “A” reorg’s. involving foreign entities.
 The language in the regulations suggests that forward
triangular reorganizations fall within the tax-free
exchange, but not reverse triangular mergers.
 But how common are “A” reorg’s.
 Review: An “A” reorg. Combines two separate legal
entities into one (consolidation or merger)
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What is the trend in cross-border M &
A? Taxable or Non-taxable transactions?
 A Reorg – considered the most flexible; no limitation on the type of
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consideration involved; Target shareholders may receive cash, voting or
nonvoting common or preferred shares, notes or real property. At least
40% of the purchase price must be acquiring company stock to ensure
the Continuity of Interests’ requirement is satisfied.
B Reorg – stock-for-stock and no “boot”. Can replicate using a reverse
triangular merger (“E” Reorg) that allows some boot.
C Reorg – stock-for-assets reorganization; “substantially all” assets of
the Target “solely” for voting stock of Acquirer
D Reorg – “Forward Triangular Merger” and divisive reorg’s
E Reorg – “Reverse Triangular Merger” (common in the US but not a
good option for cross-border M & A
“Double Dummy” – more common in the US (sec 351 followed by a
Reverse Triangular Merger) but problematic w/cross-border M & A
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Joint Venture: Definition
There is no fixed legal definition.
It is generally understood that it encompasses an:
1.
Undertaking by two existing businesses;
2. That share risks (liabilities and losses);
3. Profits;
4. Control; and/or
5. Management
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Global M & A’s experience with US firms
pursuing a foreign Joint Venture
Classic Form
 Two parties (or more) form a
corporation
 In the case of 2 businesses,
they each take a 50-50 share
in the business,
 Both entities manage the
operations; and
 Key person (from the US
side) monitors compliance
and reports to the US CEO.
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Other
 Buy a 50% +/- share in an
existing foreign business or
where IP involved, form a JV in a
tax haven (to protect IP and have
that entity enter a licensing
agreement with foreign
“partner”)
 One of the Joint Venturers takes
a lead role managing operations
(usually the foreign “partner”)
 Key US person (from the US
side) monitors compliance and
reports to the US CEO.
28
Global M & A’s experience with US firms
pursuing a foreign Joint Venture
 The form of Joint Venture often reflects the intensity of
cooperation.
 Equity JVs typically require a greater commitment and a
more hands on approach
 Equity JVs require more than just termination of the
contractual agreement, it requires a liquidity event. The
liquidity event can involve: an acquisition, merger with a
portfolio firm (meaning a sale to a foreign or US PE or VC)
 Contractual JVs (where the JV enters into a licensing or
distribution agreement with the foreign partner)
 Easier to unwind, less costly, less risky and limited to no
upward potential besides what the channels developed.
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Joint Ventures: Get to know the market and
minimize the downside risk
The Cass School of Business recently conducted a
study where it compared the frequency of use of Joint
Ventures v. Strategic Alliances and it found that:
“the activity of both joint ventures and strategic alliances
during our sample period. It is clear from the exhibit that
strategic alliances in most years are the most common
alliance type. However, joint venture activity rises in
frequency after a major downturn (indicated with circles),
whereas strategic alliances show no such correlation to
these crises.”
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Joint Ventures: IRC sec. 902 – Applies if
you are a 10/50 corporation
 If you own more than a 10% interest in the “JV”, but
own 50% or less, then this interest is called a “Noncontrolled” foreign corporations subject to IRC § 902.
It is referred to as a “10/50 corporations.”
 See IRS Notice 2003-5 (consult with counsel)
 As long as the U.S. corporation owns at least 10 percent
of the voting stock of a foreign corporation, it is
deemed to have paid an allocable share of foreign
income taxes paid by the foreign corporation on
earnings distributed as a dividend. (It became easier in
2003 to get the Foreign Tax Credit.)
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Joint Venture
Capital sources remain cautious and Global M & A believes
that will continue to be the case for the next few years.
Research undertaken by academia in the UK confirms this
impression:
“the activity analysis … uncovered another important
finding: relative joint venture activities increased
significantly after the last credit crisis in the early 1990s. An
explanation could be that the constraint of capital in the
years during and immediately following the crisis
significantly changed the relationship in activity between
the two deal types, as one fundamental component in an
acquisition is the acquirer’s access to capital. In joint
venture deals, the capital requirement is typically
significantly less.”
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Global M & A’s experience with US firms
pursuing a foreign Joint Venture
 Why Joint Ventures
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Enter a new market or a new business segment
Risk averse
Limited capital (resources for an M & A are limited)
Limited personnel
Risks exists:
 In the case of technology, control is partially lost;
 Management efficiency can improve or be compromised;
 Future resource allocation/focus can change
 Forms Seen
 R & D JV(ideal for VCs), Production of goods, distribution,
sale of products, marketing, property development JV, ecommerce
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Legal Form and Capital Structure
 Legal Form
 Partnership
 Corporation
 LLC
 Capital Structure
 Remarks regarding multiple classes of preferred stocks
and convertible debt instruments (sometimes these
cannot be used at all or are so rarely used that there is
little local experience with them and it would be unwise
to use them)
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Exits and Terms of the JV: Global M & A’s
Experience
 Exits events take several forms
 Based on a term of years (time)
 Termination of a Project (a government project; example a
project where US firm enters via World Bank, US AID)
 Terms in a JV Agreement
 Interest-transfer provisions are critical and challenging
 Common ownership transfer provisions
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Right of First Refusal
Right of First Offer
Drag-Along Rights
Tag-Along Rights
Russian Roulette/Texas-Shoot-out/Dutch Auction Arrangement
Forced Sale
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Mexico: Asociacion en Participacion (akin to a JV
in Mexico- an unincorporated partnership)
 The “Asociación en Participación” is described in MX’s General
Corporation Law as “the contract by which one person shares
capital profits or loss with others that provided goods of services
within a commercial relation or one or several commercial
transactions.”
 Considerations involving Mexico
 Antitrust laws, Foreign Investment Law, General Corporation Law,
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NAFTA and other Treaties (US – MX Tax Treaty)
Choice of law
Dispute Resolution Methods (arbitration is recognized)
Importation (import duties ad satisfaction of non-tariff
requirements)
Intellectual Property and Licensing (if MX is distributor, need to
register the license agreement with MX IP authorities)
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Strategic Alliances: Test the Waters
and Minimize the Upfront Risk
“When to think alliance”
“In some circumstances, the market seems to reward
alliances more richly than mergers and acquisitions.
Maybe it knows something that many managers don’t.”
McKinsey Quarterly,
November 2000
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Strategic Alliances: Tax Issues
 U.S. companies that export their products through independent
distributors will not have a taxable presence within the importing
country and, therefore, foreign tax reduction planning is a considered a
moot issue.
 Generally, a U.S. exporter will be subject to host country taxation only if
it has a permanent establishment within the host country.
 Once the U.S. exporter establishes a foreign sales office it must decide
whether to structure the foreign sales operations as either a branch or a
subsidiary.
 An unincorporated foreign branch is considered an extension of the
domestic corporation, as opposed to a separate legal entity. The
foreign branch is subject to the U.S. tax at the regular corporate rate
with a FTC. The foreign subsidiary arrangement has historically
enabled those foreign corps to defer payment. A foreign sub may
receive local tax incentives—a tax holiday—and more control over the
timing of income.
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Strategic Alliance(s)
 The term “Strategic Alliance” is also undefined.
 As a general rule, they entail less upfront costs, but also a lot of
risk; this is often the least expensive way to enter a market.
 Profit potential is capped, as are losses. You get to learn about
the target market, companies in the market, and your staff’s
talents. Shareholders tend to like it b/c it does not involve the
transfer of an equity stake and in non-dilutive.
 Global M & A’s experience:
 Works well with firms with limited capital and access to finances
 Enables smaller firms to learn, build relationships, and either form
a JV, acquire an interest in the foreign partner and have a greater say,
or establish a new business relationship with a (former) competitor
in the new market.
 Tricky issues: who owns the IP rights developed pursuant to the
strategic alliance? What about capital infusions?
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Do Emerging Markets Offer greater
return potential? Do we forgo Mature
Markets?
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2010 World Bank Ranking: Business Friendly Countries
Economy
Singapore
Hong Kong
SAR, China
New Zealand
United
Kingdom
United States
Denmark
Canada
Norway
Ireland
Australia
Saudi Arabia
Georgia
Ease of
Doing
Business
Rank ▲
Starting a
Business
1
2
3
4
5
6
7
8
9
10
11
12
Dealing with
Registering Getting
Construction
Property
Credit
Permits
4
6
1
17
9
27
3
33
11
2
13
8
2
1
5
16
27
10
29
65
38
63
14
7
15
56
3
22
12
30
37
8
78
35
1
2
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Protecting
Investors
6
2
2
2
6
15
32
46
15
6
46
15
Trading
Paying Taxes Across
Borders
2
3
1
10
5
28
5
20
5
59
16
20
4
3
26
16
62
13
10
18
7
48
6
61
Enforcing
Contracts
1
2
28
15
20
5
41
9
23
29
18
35
Closing a
Business
13
2
9
23
8
30
58
4
37
16
140
41
2
15
16
7
14
5
3
4
9
12
65
105
41
Discipline and Experience … are needed to Succeed in
both Developed and Emerging Markets
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Wall Street Journal, 3 January 2011
“With this stronger foundation, coupled with new
confidence about the global economy, corporations are
looking to expand. Many are focusing on the fastergrowing economies of Asia, Latin America and Africa,
rather than the sluggish markets of Europe and the U.S.
Others plan to enlarge existing operations through new
equipment, products, factories and research labs.”
“Big Firms Poised to Spend Again” by James R. Hagerty
and Dana Mattioli
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MarketWatch, 3 January 2011
The current growth rate of 2% to 2.5% makes this the most anemic
recovery since World War II. At this rate, it could take us another three
or four years just to get back to the employment level we had prior to
the start of the recession, and that does not account for the added jobs
we need for normal population growth, immigration and returning
veterans if we withdraw from the Middle East.
***
Now, the world’s manufacturing axis is shifting to Asia, and it is not
coming back to the United States except in a more efficient form that
uses less labor to be globally competitive. We have expanded
government and services at all levels beyond our ability to support them
without further damaging competitiveness.
The Long Road to Recovery by Robert Mittelstaedt, Dean of the W.P.
Carey School of Business at Arizona State University
Utah World Trade Center
44
The Outlook: Emerging Markets Lead in GDP Growth –
Stability, Pro-business environment, and emergence of a
Middle Class
Utah World Trade Center
45
Views on entering a new market by way of M & A,
JV, or a Strategic Alliance
 Michael Gibbons, CEO of
Global M & A
 Faisal Alsayrafi, ASA, CEO of FTH
 Strategic Alliances offer the best
opportunity to enter and assess
the GCC markets (especially
where Intellectual Property is
involved).
 Private Equity in the Middle
East usually buys a minority
interest—that can change—and
look for an IPO as the preferred
exit. Within the firm,
constructive advise and
involvement is critical.
 Returns are high and US Private
Equity is beginning to enter the
GCC and Egypt market, usually
in a recap or sale of portfolio
company not ready for an IPO.
Utah World Trade Center
46
Views on entering a new market by way of M & A,
JV, or a Strategic Alliance
Pablo Rión, Pablo Rión y
Asociados, S.A. de C.V.
Saul Zeigen,
Nogal Asesoria
Financieras S.A.
Instead of entering alone, it is better to
do enter into a joint venture with a local
market because of :
 Know who and know how are critical
 Understand market trends,
opportunities, risks, and weaknesses
 Seek and Retain Experience in
managing local personnel
 Due Diligence: Ensure contacts with
key customers and suppliers exist and
assess the quality of these
 Retain competent legal to assist in the
JV and address any and all regulatory
issues
Utah World Trade Center
47
Conclusions:
1.
Expanding the business into new markets has always
been an attractive option to achieve growth for wellestablished firms. Whether the expansion is geographical
or in terms of boosting the product line, the need for
expertise and knowledge of unexplored areas is of vital
importance. Cass School of Business
2. Joint Ventures and Strategic Alliances enable firms to
enter new markets and learn. They require patience and
commitment and are usually a precursor to M & A.
Utah World Trade Center
48
Conclusions:
3. Think and act Regionally and Globally
Emerging Markets: Beyond The Big Four -- Egypt, Mexico,
Poland, South Africa, South Korea, and Turkey are
investor-friendly and boast strong growth, too
The biggest, fastest-growing economies of the Third World are Brazil,
Russia, India, and China. But while the Big Four, also known as BRICs,
have attracted the most investor attention in recent years, there are also
opportunities in less prominent but more promising emerging markets
such as Egypt, Mexico, Poland, South Africa, South Korea, and Turkey.
They may not have the buzz of billion-plus population markets, but
their growth is impressive -- and their stocks, in many cases, can offer s
superior value.
BusinessWeek article (2005)
Utah World Trade Center
49
Conclusion
We invite you to visit Global M & A at
http://www.globalma.com
To learn more about Global M & A and/or explore M &
A, JVs, or Strategic Alliances within our network please
contact:
Roberto H Castro, JD, MST, MBA, AVA at 801-953-3675
Utah World Trade Center
50
Global M & A: Contact Information
Thank you for attending the UT Global M & A
presentation. For further information and/or comments
regarding Global M & A and any of the parnters, please
contact us through:
Roberto H Castro, JD, MST, MBA, AVA
(801) 676-6433 (office)
(801) 953-3675 (c)
(801) 285-7401 (fax)
Utah World Trade Center
51
Investment Banking – Global Partners
Industrialized Countries
Emerging Markets
United States
France
Italy
Sweden
Spain
Germany
Netherlands
Australia
Japan
Israel
Mexico
Guatemala
Costa Rica
GCC & Yemen
India (Mumbai)
China (Beijing)
China (Shanghai)
Brazil (Porto Alegre)
Brazil (Sao Paolo)
Turkey
Russia
Chile
Argentina
Colombia
Peru
United Kingdom
Canada
Austria
Switzerland
Denmark
Hungary
Belgium
Luxembourg
Norway
Poland
Utah World Trade Center
52
Industries Served
 Business Sector – Logistics, Security, Facilities




Management
Chemicals – Agricultural, Specialty, Paintings and
Coatings, Rubber and Plastics, Consumer Chemical
Construction and Real Estate – including Hotels,
Commercial Mixed Use
Consumer Products – Home furnishings, food and
beverage, health and personal care, lawn and garden
Energy and Mining – oil and gas (services), coal,
precious metals, rare earth, green energy, water,
utilities
Utah World Trade Center
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Industries Served (cont.)
 Financial Services & Insurance – commercial banks, asset lending,






private banking
Healthcare and Pharmaceutical – healthcare services (hospitals, ASC,
out-patient surgery centers), medical devices and equipment (patented
and subject to approvals by either FDA or the EMA (European
Medicines Agency)), pharmaceutical, and biotechnology (Phases I to
III)
Industrials – automotive components, hydraulics and fluid power,
instrumentation, and power generation, conversion, distribution, and
transmission
Information Technology - software to hardware to communication
Leisure and Retail
Media, Marketing & Entertainment
Packaging
Utah World Trade Center
54
Global M & A Services
 Mergers & Acquisitions – over 1,500 transactions closed with an
aggregate deal value of over €30 billion
 Small-to-Middle Market focus
 Assist PE funds, VC firms, and Angels to identifying potential Exit
options
 Formation of Joint Ventures and Strategic Alliances as a precursor to M
&A
 Succession Planning
 Recaps
 Identification of International Financial Buyers, particularly Private
Equity funds (as buyers)/Auctions
 Identification of International Strategic Buyers (as
purchasers)/Auctions
 Restructurings and Turnarounds
 IPOs: US and foreign countries (UK’s AIM, NASDAQ Dubai)
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55
Global M & A Recent Transactions
Utah World Trade Center
56
Sampling of Recent Transactions by
Global M & A Partners
 Germany – Healthcare (sale of hospital group w/8,000 beds)
 Saudi Arabia – Private Placement for hospital (a operated as a






Joint Venture SAR 220,000,000)
Saudi Arabia – Private Placement (tourism company focused in
the promotion of Middle East destinations SAR 175,000,000)
Denmark – Sale to Norwegian company of off-shore crane
installer)
Chile – sale of vineyard and several recaps
Israel – Purchase by Polish firm of leading Israeli IT comp
Mexico – Sale to Kimberly Clark of diaper company
US – Sale of Georgia firm (specialty metals)
Utah World Trade Center
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Colombia’s Global M & A Partner
Supplemental Material
Utah World Trade Center
58
Colombia
Macroeconomic Highlights
 January 2011
Colombia As An Investment Destination
Colombia General Information and Location
Official name: República de Colombia
•Population (2010): 45.5 million
• Capital: Bogotá (2010), Population: 7.4 million
• GDP nominal (2009): US$ 208.551 million*
• GDP per cápita (2009): US$ 4.676
• GDP growth (2010): 4,0%; (2009): 0,4%
• Inflation (2010): 3,2%;
•Exports (FOB) (2010): US$ 35.974 million **
• Imports (FOB) (2010): US$ 32.897 million***
• Foreign Direct Investment (2010): US$ 9.483
million
• Literacy rate: 92,8%
• Currency: Peso colombiano
•Current Exchange rate: $1.914 pesos per US$1
dollar (31/12/2010)
*Estimated
** November 2010
***October 2010
60
Colombia As An Investment Destination
Colombia has become one of the major investment destinations in Latin America due to several aspects:
Emerging markets are driving the world’s GDP growth, becoming recipients of
the investments once directed to developed countries.
Macroeconomic
Stability
Colombia's GDP has grown steadily over the Latin American average and has
kept inflation within the single digits.
Increased FDI
Foreign Direct Investment has been growing steadily over the past decade,
rising from USD $ 2,134 million in 2002 to $ 10,600 million in 2009.
(Foreign Direct Investment)
Private investment
Stimulus



Emerging Markets

Increased levels of
security
Colombia is ranked within the top 10 countries for doing business in Latin
America, according to "Doing Business Report" 2010. Part of this progress is
due to the issuance of new legislation that improves its business platform
standards . 42 positions were modified during 2007 and 2010.
Investor incentives:
 Free Zones.
 Legal stability contracts.
 Income tax deductions.
Safety is the central government’s primary objective evidenced by improved
safety level indicators.
61
Evolution Of Macroeconomic Indicators
During the past years, Colombia has maintained a steady GDP growth and has kept inflation within the single
digits, positioning the country as one of the region’s most solid economies with significant growth prospects:
Colombia´s Historical Inflation
Colombia ‘s GDP Growth
8.8%
7.7%
7.0%
7.7%
6.9%
6.5%
5.5%
5.7%
5.7%
4.9%
7.5%
4.6% 4.7%
4.5%
3.2%
2.0%
4.0%
2.2% 2.5%
3.6%
2.4%
0.4%
2009 2010
Source: Banco de la Republica
The country's sustained growth has taken place in a
healthy manner and is based on several aspects:
Source: Banco de la Republica
2009 GDP: Colombia Vs. Other Countries In The Region
3.3%
2.9%
0.9%
-0.2%
-1.5%
-3.3%
-1.9%
-4.5%
Arg
Uru
-6.5%
Bol
 Increased commodity demand from emerging
economies.
 Gradual diversification of the market.
 Appropriate fiscal and monetary policy.
 Security.
 Stability.
0.9% 0.4% 0.4%
Región
2008
Mex
2007
Par
2006
Ven
2005
Chi
2004
(E)
QIII
2007 2008 2009 2010 2010
Bra
2003
Col
2002
Ecu
2001
2002 2003 2004 2005 2006
Peru
2000
2001
Source: Banco de la Republica and International Monetary Fund
62
Sovereign Rating and Foreign Direct Investment
Sovereign Ratings Latinamerica
Foreign Direct Investment (USD$ MM)
A+
Chile
Mexico
BBB+
Brasil
Brazil
BBB-
Perú
BBBBB+
2003
10,600
7,261
5,466
3,016
2004
2005
2006
2007
2008
2009
2010*
* Figures for August 2010
Source: Proexport and Banco de la República
Investment Grade
Foreign Direct Invesment by industry 2009 (USD$ MM)
Source: Standard & Poors
Regardless of the non-investment grade level, debt
and capital resources have increased over the last
decade.
721
542
349
261
116
7,261
Total
Otros*
Other*
Manufactu
Manufactu
ra
ring
Transporta
Transp,
Comunica…
tionl
Financiero
Financial
 Improvements in the flexibility of economic
policy.
 Increased size of the local financial market.
 Improved safety standards.
 Increased economic strength.
 Prudent fiscal management.
 Increased investment in infrastructure.
(977)
635
2,994
Mining
Mineria
Colombia is one notch below the investment grade
level. Standard & Poors expects a rating
improvement based on:
2,620
Comercio
Commerce
BBB-
2002
9,049
6,656
Public
Serv
Services
Publicos
Argentina
1,720
10,252
Agricultura
Agriculture
Venezuela
2,134
Petroleo
Oil
Colombia
USD$ 4.714 M
SAB Miller Investment
* Other includes construction and communal services.
Source: Banco de la Republica
FDI growth has been supported by:
 Decrease in the country´s risk premium.
 Increase in the international commodity prices .
 Higher local interest rates compared to local
rated AAA economies.
Source:Standard & Poors`
63
Increased Confidence Levels
Consumer Confidence Index
M&A Colombia (USD$ MM)
Telecom: 33%
Prodeco: 28%
11,038
9,442
Bavaria: 65%
BP: 39%
7,048
6,445
Avianca and Coltabaco:
68%
Low investor confidence
1,314
108
5,733
3,123
907
50
34
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Source: Capital IQ
Transaction proportion to year total
Source: Fedesarrollo
Financial crisis
Banco de la Republica Intervention Rate
25%
 The continuing decline in inflation, during the last
decade, combined with sustained economic growth
(GDP), lower interest rates and increased foreign
direct investment reflect the higher levels of
consumer confidence.
24.0%
20%
15%
10%
3.0%
5%
Feb-10
Feb-09
Feb-08
Feb-07
Feb-06
Feb-05
Feb-04
Feb-03
Feb-02
Feb-01
Feb-00
Feb-99
0%
 The increase confidence levels will result in
increased investment flows, mergers and
acquisitions, reflecting the economy´s dynamism.
Source: Banco de la República
64
Doing Business in Colombia: Conclusions
 Most stable democracy in the neighborhood
 Consistently stable regulatory framework
 Oil and Gas sectors strongly growing: High Capital Expenditures levels in Exploration & Production
 Infrastructure sector outrageous potential growth
 Oil and Gas transportation networks needed
 Appropriate macroeconomic scenario: inflation, interest rates and devaluation under control
 Private Equity Funds entering Colombia
 Infrastructure and Hydrocarbon funds have been set to boost new projects
 Banks strongly willing to finance projects in infrastructure sectors
 Colombian companies willing to become regional players
 Improved security
65
Saudi Arabia: Global M & A’s Partner
Supplemental Information
Utah World Trade Center
66
M & A and Financial Advisory Services
Financial Transaction House
Company Profile and Credentials
Strictly Confidential
INTRODUCTION TO FTH
Financial Transaction House was established by Mr. Faisal Alsayrafi, ASA, MBA, who serves
as FTH’s President and CEO. FTH is as an investment banking firm based in Jeddah, Saudi
Arabia. FTH was started in 1994 and was previously the corporate finance arm of Andersen
M & A Worldwide in the Middle East. FTH provides a wide range of corporate finance
advisory services to a diversified client base in the Middle East, the base is comprised of
strategic and financial investors.
FTH continues to offer its clients a complete and integrated solution from structuring M &
A transactions, reorganizations, recapitalizations, business valuations, including business
valuations for IFRS financial reporting purposes, establishment of JVs, and litigation
support services.
Our focus on the Middle East and our knowledge of the local business context and culture
has helped us establish close relationships with senior management of top companies, as we
help them address the challenges they face in an increasingly complex, global and
competitive business environment.
68
Financial Transaction House (FTH) is the 3rd licensed firm by the Capital Market
Authority (CMA)
Financial Transactions House receives License 28 June 2005 According
to the Subject (6/A-18) of the Capital Market Authority issued by Royal
Decree number (M/30) dated (2/6/1424H) and subject (7) of the Capital
Market Authority by decision number 1-38-2005 dated 21-5-1426H,
28/6/2005, the Capital Market Authority has approved applications of
Financial Transaction House and granted it the license to operate as a
transaction manager and offer advisory services for Capital Market
engagements.
69
Financial Transaction House (FTH) – Services Offered.
Business
Valuations
Corporate
restructuring
Fairness
Opinions
IPO & Private
Placements
Financial
Advisory
Services
Debt
Syndication
Structuring
Financial
Instruments
70
Mergers
&
Acquisitions/JV
Local &
International
Strategic
Partnership
INTRODUCTION TO FTH - Continued
• (FTH) Currently became the Global M&A Partner for the Gulf
Region and Yemen. Global M&A is widely recognized as one of the
world's
leading
partnerships
of
independent
merger
and
acquisition houses. Its prime purpose is to provide cross-border
support and opportunities for clients who wish to complete
acquisitions, company sales, buy-outs and buy-ins, fund raising
and other corporate finance transactions. Global M & A is
comprised of over 30 partner firms; its partners are in the U.S., UK,
Western and Eastern Europe, Russia, Hong Kong, Japan, India,
Mexico, Argentina, Colombia, Chile, Brazil, and Turkey. The
partnership's focus is on mid-market transactions, valued at
between €20 million and €250 million, and each partner has been
carefully selected as 'best of breed' in their own local territories.
Global M&A's success in delivering outstanding results for its
clients is borne out by its recent track record: over 700 completed
transactions with an aggregate deal value of over €15 billion since
2000.
For
more
www.globalma.com
71
details
about
Global
M&A,
please
visit
Equity Research Department
Equity Research Department is a key support to the FTH
arranging and advisory services
Create a Complete Saudi Market Database which Covers:

State of the economy and related news

General Stock Market news

All corporate actions pertaining to listed companies including earning reports, stock splits,
financial statements and ratios

Historical market data on all companies

CMA news and announcements.
Support Technical department with equity research data
Market Reports:
Prepare and issue a weekly market coverage report which covers the technical aspects of selected
companies and also for the market as a whole
72
SELECTED TOMBSTONES
.
SAR 97,845,000
In progress
SAR 450,000,000
Najran Holding Co.
(Under Establishment)
Taif Investment &
Tourism Co.
2010
In progress
2010
Undisclosed
Al Aton Steel Industry
Business valuation
Private Placement
2009
2009
Valuation
Sell side mandate
Restructuring
Private Placement
Al Rajwa Est.
Global Arabian For Modern
Application LTD
Business Valuation
Business Valuation
Business Valuation
2008
National Experimental
Establishment
(Mutawaffy HujjajSouth
Asian Countries)
Global Distribution Co. Ltd.
Anaam International
Holding Group
Capital Restructuring
2008
Al Banawi
Industrial Group
Business Valuation
2006
2008
Al Raya Foodstuff Est
Buy side Mandate
Private Placement
2009
2009
2009
Al Hajerah Est.
Information
Memorandum
2010
Sami Mufti Est.
Saudi Bell Co.
Magrabi Hospitals &
Centers
SAR 10,000,000
Advisory Valuation
Information
Memorandum
2009
Mr. Alsayrafi founded FTH in 1994 as the regional corporate finance arm of Andersen, and
has operated as an independent corporate advisory firm since 2002, offering a wide range of
corporate finance advisory services to a diversified client base in the Middle East. Faisal,
FTH Team
responsible for reviewing technical aspects of transactions and ensuring quality advisory, has
directed the development of relationships and managed high profile transactions in the real
estate, media and entertainment, financial services, petrochemical and general industrials
sector, working with client organizations in Saudi Arabia, Egypt, UAE, Lebanon, Bahrain,
Yemen, Qatar, UK and USA.
Faisal Alsayrafi
Managing
Director & CEO
Mr. Alsayrafi’s experience includes his role as managing partner of Andersen’s Global
Corporate Finance practice in the Middle East, a senior management position with one of the
region’s largest food manufacturers, and numerous international and regional finance and
strategy roles, leading to an exceptionally strong network of regional and local contacts in
finance, business and government.
Faisal holds an MBA from the University of Vermont and an MS in Accounting from the
University of New Haven. He is a Registered Financial Consultant (RFC), Saudi Arabia, and
an Accredited Arbitrator by the GCC Association for Arbitration. In addition, Faisal holds the
following qualifications from the United States; American Society of Appraisal (ASA), CFC,
RFC, CFE, CVM, CVA, CM&E, CM&A, CPES, as well as being a Master Financial Professional
and a Certified Senior Business Analyst. Faisal has also earned the prestigious ASA
designation conferred by the American Society of Appraisers and is an Accredited Senior
Appraiser (ASA). Mr. Alsayrafi is the first and only Arab investment banker to complete and
pass the ASA’s stringent experience and examination requirements.
74