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Jimmy Dadrewalla, European Finance Director at United Phoshorus - Dealing with acquisitions in unique countries
1. DOING ACQUISITIONS IN DIFFICULT
COUNTRIES
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JIMMY E DADREWALLA – EUROPEAN
FINANCE DIRECTOR
UPL LTD
2. Disclaimer
This presentation is for information purposes only for the CFO event.
The information in this presentation is subject to change without notice, its accuracy is not guaranteed, it may
be incomplete or condensed and it may not contain all material information concerning the Company
mentioned. The company or the presenter do not have any obligation to, and do not intend to, update or
otherwise revise any statements reflecting circumstances arising after the date of this presentation or to reflect
the occurrence of underlying events, even if the underlying assumptions do not come to fruition.
All information contained in this presentation has been prepared solely by the presenter. No information
contained herein has been independently verified by anyone else. No representation or warranty (express or
implied) of any nature is made nor is any responsibility or liability of any kind accepted with respect to the
truthfulness, completeness or accuracy of any information, projection, representation or warranty (expressed
or implied) or omissions in this presentation. Neither the author nor anyone else accepts any liability
whatsoever for any loss, howsoever, arising from any use or reliance on this presentation or its contents or
otherwise arising in connection therewith. This presentation may not be used, reproduced, copied, distributed,
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The distribution of this document in certain jurisdictions may be restricted by law and persons into whose
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3. ABOUT UPL LTD
1. Global business in Crop Protection space with turnover of $ 1.7 billion.
2. Growth over last 8 years (2005-2013) - 23%
One of the Fastest growing global Ag-chem companies in the world
3. Strong Manufacturing and distribution base with operations in 70
countries
4. 70% of Business in international markets.
5. Key international markets Europe, USA, Latam America (including Brazil),
Australia and Asia.
6. Regulatory requirements key to the business model
7. European business across UK, France, Germany, Italy, Spain, NL & EEU.
4. Ukraine Favourable macro fundamentals and significant growth potential
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Despite economic downturn, Ukraine remains one of the largest and fast-growing
economies in CEE
GDP growth of 5.2% in 2011, anticipated real GDP growth of 3.0% in 2012
2 nd economy in CEE with the largest population
2nd anticipated real GDP growth in CEE over 2010-2014
Ukraine is home to nearly 30% of the world’s black soil, is one of the three regions
in the world with the most fertile lands.
Favourable climatic conditions and superior soils create the necessary
prerequisites for boosting crop yields
Country with lowest usage of CPP & yields in Europe so opportunity increase yield
through better used of fertilizers and & CPP products.
Ukraine agrochemical markets slated to grow at 15% -20% CAGR for the next 3-5
years & is expected to exceed $ 1 bn in 2017.
So cannot ignore this market
5. KEY CHALLENGES OF DOING BUSINESS IN UKRAINE
• Legal systems – Complex laws and time consuming court process.
Conflicts between Civil law and commercial law. If JV is external can be
referred in International courts. However matters may be referred to
Local economic courts (1-2 years to resolve)
• Antitrust laws (threshold of € 12 mm turnover too low)
• Cash transactions still dominates method of doing business, so makes
business valuation more complex
• High level of corruption (Corruption Perception Index 2012 – 144 out of
176 most corrupt countries – 2.6 put of 10)
• Government backing crucial
• Credit default way of life
6. SOME POSITIVES
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Ukraine committed to reform its laws
Needs foreign investment to develop various sections of the economy
New foreign investment policy
Need for new products and technology
For local entrepreneur who wishes to grow the business , the need to
move from cash to white business key to get JV partners and be credible
exporters.
• Need international partner to compete with big MNC based in Ukraine
• The cash components of transactions is coming down
7. RISK MITIGATION TO MANAGE THE BUSINESS
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Credibility of local partner pre-requisite
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Creating a structure and SPA which can work- Structure where the SPA is signed outside the
Ukraine, ( Netherland, UK, Cyprus) with English law
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External JV structures will ensure that all JV level disputes are resolved in international courts.
Although referral to local courts will be time consuming.
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Tie up funding and charge on assets through local banker.
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Tie up partly with an International Equity investors – eg structure will have a 3 year lock in
period. Call option if disputes or things do not go right. This helps at entry stage as these
investors have local knowledge and are usually have strong backing
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Important to have a clear exit plan for the JV partner
8. RISK MITIGATION TO MANAGE THE BUSINESS (contd)
• Valuation of the business –(official & cash) – Pay upfront only for the official
business with balance pay back only after entire business is made official.
• Tight charter of company (Articles of Association)- One member of the board with
veto rights – ????? any guesses
• Limit powers of General directors. Have own co-signatory as mandatory.
• Control on the board and board meetings 60%
• Warranties Implementation and managing partner expectations
• Do not join the bribery bandwagon, pursue though legal and government systemmay take time but is more solid. Important to understand implications of UK bribery
act.
9. Additional points to be considered in acquisitions
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Drivers – Major driver access to products, registrations and distribution access
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Managing warranties of share holders- When share holder is MNC its easy. But if its an
individual retiring - worth of warranty may be questionable.
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Best to retain some payments to be paid over 3-4 years, offer some interest payment.
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In retrospect the sellers assumptions were right, no claims
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Where shareholder is still going to run the business, clear objectives with definitive exit
and terminations options.
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Non compete clause (issue in Ukraine)
10. JOINT VENTURES ARE UNIQUE
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Brazil key CPP market $ 11 bn still consumes less pesticides vs USA. (In 2005 the market
was $ 2.5 bn)
50%-50% perfect case for deadlock (but for Acquiring company access to market key)
Partner has been in country for last 30 years so has seen both peaks & lows
Both have different aspirations
Existing partner wanted to have steady sales , Acquiring company was more ambitious
and wanted 2.5 time the sales? So challenge of how to manage this.
Existing partner agreed but demanded Working capital of 100% of the amount and that
Acquirer should pay for the same.
Acquirer asked for dilution in turn which was turned down
Finally both agreed for restrained growth linked to debt levels and EBITDA
11. JOINT VENTURES ARE UNIQUE (contd)
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Where 51% -49% your situation is better.
JV aspirations made much more clear & Stronger shareholders agreement.
Management local to develop business and work on credit terms
Corporate policies of Acquiring company would apply.
CFO choice of Acquiring company.
Growth plans linked to debt levels and maintenance of EBITDA ( debt cannot exceed (x)
times the average EBITDA in first year, tapering down by third year)
Initial debt ceiling agreed , any excess debt would be charged at higher rate by Acquiring
company
Clear exit policy at end of 5 years for the existing partner- linked to avg EBITDA multiples
less Net debt.