EFTA01088956.pdf

Draft BOYU CAPITAL March 2011 EFTA01088956  Disclaimer Draft THE INFORMATION CONTAINED HEREIN IS PROVIDED FOR INFORMATIONAL AND DISCUSSION PURPOSES ONLY AND IS NOT, AND MAY NOT BE RELIED ON IN ANY MANNER AS, LEGAL, TAX OR INVESTMENT ADVICE OR AS AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY AN INTEREST IN BOYU CAPITAL FUND I, L.P. (THE "FUND"). A PRIVATE OFFERING OF INTERESTS IN THE FUND WILL ONLY BE MADE PURSUANT TO A CONFIDENTIAL PRIVATE PLACEMENT MEMORANDUM (THE "OFFERING MEMORANDUM") AND THE FUND'S SUBSCRIPTION DOCUMENTS, WHICH WILL BE FURNISHED TO QUALIFIED INVESTORS ON A CONFIDENTIAL BASIS AT THEIR REQUEST FOR THEIR CONSIDERATION IN CONNECTION WITH SUCH OFFERING. THE INFORMATION CONTAINED HEREIN WILL BE QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE OFFERING MEMORANDUM, WHICH CONTAINS ADDITIONAL INFORMATION ABOUT THE INVESTMENT OBJECTIVE, TERMS AND CONDITIONS OF AN INVESTMENT IN THE FUND AND ALSO CONTAINS TAX INFORMATION AND RISK DISCLOSURES THAT ARE IMPORTANT TO ANY INVESTMENT DECISION REGARDING THE FUND. NO PERSON HAS BEEN AUTHORIZED TO MAKE ANY STATEMENT CONCERNING THE FUND OTHER THAN AS SET FORTH IN THE OFFERING MEMORANDUM AND ANY SUCH STATEMENTS, IF MADE, MAY NOT BE RELIED UPON. THE INFORMATION CONTAINED HEREIN MUST BE KEPT STRICTLY CONFIDENTIAL AND MAY NOT BE REPRODUCED OR REDISTRIBUTED IN ANY FORMAT WITHOUT THE APPROVAL OF THE GENERAL PARTNER OF THE FUND. 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THERE WILL BE RESTRICTIONS ON TRANSFERRING INTERESTS IN THE FUND, INVESTMENTS MAY BE LEVERAGED AND THE INVESTMENT PERFORMANCE MAY BE VOLATILE. BEFORE DECIDING TO INVEST IN THE FUND, PROSPECTIVE INVESTORS SHOULD READ THE OFFERING MEMORANDUM AND PAY PARTICULAR ATTENTION TO THE RISK FACTORS CONTAINED IN THE OFFERING MEMORANDUM. THE FEES AND EXPENSES CHARGED IN CONNECTION WITH AN INVESTMENT IN THE FUND MAY BE HIGHER THAN THE FEES AND EXPENSES OF OTHER INVESTMENT ALTERNATIVES AND MAY OFFSET PROFITS. INVESTORS SHOULD HAVE THE FINANCIAL ABILITY AND WILLINGNESS TO ACCEPT THE RISK CHARACTERISTICS OF THE FUND'S INVESTMENTS. PROSPECTIVE INVESTORS SHOULD MAKE THEIR OWN INVESTIGATIONS AND EVALUATIONS OF THE INFORMATION CONTAINED HEREIN. EACH PROSPECTIVE INVESTOR SHOULD CONSULT ITS OWN ATTORNEY, BUSINESS ADVISER AND TAX ADVISOR AS TO LEGAL, BUSINESS, TAX AND RELATED MATTERS CONCERNING THE INFORMATION CONTAINED HEREIN AND SUCH OFFERING. EXCEPT WHERE OTHERWISE INDICATED HEREIN, THE INFORMATION PROVIDED HEREIN IS BASED ON MATTERS AS THEY EXIST AS OF THE DATE OF PREPARATION AND NOT AS OF ANY FUTURE DATE, AND WILL NOT BE UPDATED OR OTHERWISE REVISED TO REFLECT INFORMATION THAT SUBSEQUENTLY BECOMES AVAILABLE, OR CIRCUMSTANCES EXISTING OR CHANGES OCCURRING AFTER THE DATE HEREOF. CERTAIN INFORMATION CONTAINED IN THIS PRESENTATION CONSTITUTES "FORWARD-LOOKING STATEMENTS," WHICH CAN BE IDENTIFIED BY THE USE OF FORWARD-LOOKING TERMINOLOGY SUCH AS "MAY," "WILL," "SHOULD," "EXPECT," "ANTICIPATE," "TARGET," "PROJECT," "ESTIMATE," "INTEND," "CONTINUE" OR "BELIEVE," OR THE NEGATIVES THEREOF OR OTHER VARIATIONS THEREON OR COMPARABLE TERMINOLOGY. DUE TO VARIOUS RISKS AND UNCERTAINTIES, ACTUAL EVENTS OR RESULTS OR THE ACTUAL PERFORMANCE OF THE FUND MAY DIFFER MATERIALLY FROM THOSE REFLECTED OR CONTEMPLATED IN SUCH FORWARD-LOOKING STATEMENTS. PROSPECTIVE INVESTORS IN THE FUND SHOULD NOT RELY ON THESE FORWARD-LOOKING STATEMENTS IN DECIDING WHETHER TO INVEST IN THE FUND. 1 EFTA01088957  I Draft Table of Contents I. Overview of Boyu II. Market Opportunity in China III. Investment Strategy IV. Organization and Culture V. Track Record and Deal Pipeline VI. Key Investment Terms 2 EFTA01088958  Draft I. Overview of Boyu EFTA01088959 A Newly-formed, China-focused Investment Firm Invest in high-quality companies in focused sectors Grow and transform businesses with operating expertise Deliver superior long-term risk-adjusted returns for capital partners Founding Team I Strategy Advantage 1 ■ World-class business ■ Focused sectors ■ Strong investment track record operators ■ Proprietary deal flow ■ Unparalleled leadership ■ Experienced China ■ Optimal transaction experience in corporate world investors structures ■ China insights with global ■ Value-added services perspectives 4 EFTA01088960 A Complimentary, Unified Investment Team I Draft Mary Ma Louis Cheung Sean Tong I ■ Partner of TPG and co- ■ Group President and ■ Managing Director and Head Chairman of TPG's Greater Executive Director of Ping An of Greater China at China business since 2007 Insurance Group since 2000. Providence Equity Partners ■ Previously spent an 18-year Covered the CIO role and since 2008 career at Lenovo as Vice directly supervised ■ Previously Managing Director Chairman and CFO investment subsidiaries with and Co-Head of Greater China US$125 billion AUM, ■ Serves on the board of at General Atlantic, where he including a US$3 billion Lenovo, Standard Chartered helped open the firm's China private equity portfolio Bank, Daphne and Wumart office in 2000 ■ Previously Global Partner of ■ A member of the Listing McKinsey & Co., advising ■ Built China teams at both Committee of the Stock financial services institutions General Atlantic and Exchange of Hong Kong as well as other consumer, Providence and led a number IT/media and healthcare of important PE transactions clients across Asia ■ All other investment professionals have prior work experience at top-tier global PE firms and professional institutions, such as Goldman Sachs Principal Investment Area (PIA), General Atlantic, Morgan Stanley and McKinsey ■ Team members share a common vision, business principles, and investment strategies 5 EFTA01088961 A Shared Investment Strategy Draft ■ Consumer and Retail Focused ■ Media and Technology Sectors ■ Healthcare ■ Financial Services ■ Deep domain knowledge in focused sectors Proprietary ■ Industry network based on "first-call" status Deal Flow ■ Proactive and thematic deal sourcing ■ Target $50-200 million equity check for minority stake or relative control Optimal ■ Growth and transformational capital (including expansion stage deals, Transaction shareholder recaps, PIPE deals) Structures ■ SOE restructuring (including spin-offs, carve-outs, subsidiary purchases) ■ Strategic planning Value-added • Operational improvement Services ■ Corporate governance ■ M&A and capital raising 6 EFTA01088962 The Boyu Advantage I Draft ■ The founding Managing Directors have collectively led over $1.0 billion of PE investments since 2005 Strong Investment ■ Accomplished many of the landmark PE transactions in China, as well as Track Record numerous corporate investments and M&As of strategic importance ■ Team with rich transaction experience at leading global PE firms ■ Mary Ma and Louis Cheung have 30 years of combined leadership experience at two of China's well-respected/non-SOE Fortune Global 500 companies Unparalleled ■ Vast industry connections and "first-call" status with key decision-makers Leadership ■ Insider read on market dynamics, business models and people Experience in ■ Profound operating expertise in building and growing companies through Corporate World various stages of lifecycle ■ Resources and skillsets fully transferable to investment sourcing, evaluation and value creation ■ All investment professionals possess significant work tenure in the region ■ Local decision-making and efficient team communication ensure fast and China Insights with accurate responses Global ■ Ability to conclude transactions amid the economic, market, regulatory and Perspectives cultural complexities in China ■ Global perspectives and commitment to international best practice 7 EFTA01088963 II. Market Opportunity in China EFTA01088964 A Unique Destination for Investment I Draft China will remain a fast growing economy undergoing profound transitions in the next decade ■ Long term growth supported by urbanization, consumer spending, investment demand and deregulation Macro Economy ■ Near term challenges and structural imbalances are expected to be addressed through the right policy responses Large market ■ Private equity is underpenetrated with large growth opportunity potential with ■ Opportunities exist in the private sector and state- significant PE Market owned enterprises local nuances ■ Higher entry barrier as local market complexities create hurdles to conclude transactions Sector, ■ Abundant investment opportunities in mainstream Company, sectors, especially in our focused sectors People ■ Dynamic market development with business models constantly adapting to the competitive environment ■ Decision makers of targets are mostly native Chinese 9 EFTA01088965  I Draft Four Major Drivers to Propel China's Economic Growth ■ Urbanization remains the major driver • Current urbanization ratio of 47% is much lower than the level in developed countries and comparable to the level in Japan in the 1950s • Further urbanization will not only provide room for fixed asset investments but also stimulate consumption ■ Consumer spending will grow at a faster pace ❑ The government has been providing subsidies and welfare benefits to stimulate demand ❑ Rising wages, income redistribution and public service provision (especially in rural areas) are also expected to further boost consumption-driven demand ■ Investment should continue to be strong and create more job opportunities ❑ China needs to accumulate more capital stock from both a per unit output and per capita basis to catch up with industrialized economies • Investment in infrastructure, high end manufacturing and public housing would also boost demand for steel, cement and other major commodities ■ Deregulation should stimulate further economic development ❑ The government will continue to open up previously monopolized/sensitive sectors ❑ Industries expected to benefit include: media, healthcare, education, transportation, energy, telecom, natural resources, etc. 10 EFTA01088966 Robust Macro Outlook in the Post Crisis Era I Draft While we share recent concerns about China's near-term economic challenges and structural imbalances, we believe a hard landing to be unlikely and robust growth to be sustainable: ■ Policy misstep causing an economic hard-landing is unlikely u Policy adjustments remain ahead of the curve • Inflationary pressure should ease due to front-loaded monetary tightening ■ Asset bubble concerns are overblown u Sharp run-up of asset prices has been underpinned by strong fundamentals and funded by savings (instead of leverage as in the U.S.) • Equity valuations are comparable to Asia's other major markets and the historical average for China, with a robust earnings growth outlook in 2011 and 2012 ■ Economic structure has started to rebalance u Income redistribution is expected to boost domestic consumption u Export slowdown is less severe than anticipated • Gradual but long term currency appreciation beneficial to the rebalancing process ■ Aging population is a double-edged sword j Aging population brings a growing market for healthcare products and services j Tightening labor supply would accelerate industrial upgrade 11 EFTA01088967 A Rapidly Growing Private Equity Industry I Draft ■ Bright outlook of PE industry in China: C -2 Megabank Deals j Relatively low PE penetration rate at • Others 13.5 Total Private Equity Investment in China (US$ bn) 0.3% of GDP suggests significant room Venture Capital for growth 11.6 Buyout j Chinese PE industry is expected to grow • Growth Capital 10.3 10.1 at 20-25% CAGR 9.2 -- • Foreign LPs are increasing asset allocations to China: u Encouraged by robust Chinese GDP growth and more open policies towards foreign investment u Weak economic recovery has led to 3.3 slower growth in U.S./EU PE markets, pushing more capital allocation to 2.2 1.7 emerging markets such as China 0.8 I • Yet local market complexities can 0.5 sometimes create hurdles for private equity El , M ,I . . firms to conclude transactions 2000 2001 2002 2003 2004 2005 2006 2007 2008 ' 2009 Source: McKinsey Analysis. 12 EFTA01088968 Significant Opportunity Set with Private Sector and SOEs Draft Private Sector State-owned Enterprises ■ More sectors are open to private investment ■ The Chinese government will continue to following deregulation: consolidate, restructure, and upgrade the u Demand for growth capital investments state-owned enterprises: increases with the growth of private u Fewer but higher quality: the number companies of SOEs under SASAC will be reduced u SMEs still have difficulty getting debt from 123 to - 50 during the "12th-five- financing, as bank loans remain largely year-plan" (2011-2015) geared towards SOEs and government • Privatization and IPOs of provincial- infrastructure projects level SOEs ■ Private sectors opportunities include ■ Growing PE investment opportunities expansion capital, succession issues for first- regarding SOE consolidation / generation entrepreneurs, and business restructuring, spin-off of non-core assets, upgrades/transformation and cross-border acquisitions ■ PE's value: ■ PE's value: u Access to long-term capital ❑ Restructuring capability u Value creation in human capital, ❑ Introduction of best corporate management systems and governance practices and top talent 13 EFTA01088969 Significant Opportunity Set in Our Focused Sectors Draft Consumer/Retail II ■ World's #3 consumer market by • World's #3 pharmaceutical value market and #3 medical ■ Most sub-sectors have been instrument market by value ■ Most sub-sectors have been growing at 15-20% p.a. ■ —$800 billion total market cap growing at 20-25% p.a. ■ An attractive combination of • —$200 billion total market cap ■ Regulatory and demographic strong growth, profitability, cash flow, and opportunity for tailwind, long runway for industry consolidation growth, and ample opportunity for industry consolidation Media/Technology Financial Services BOYU CAPITAL ■ World's #1 Internet market and ■ World's #3 stock market, #6 #1 mobile market by # of users debt market and #6 insurance ■ Most sub-sectors have been market growing at 30-40% p.a. ■ Most sub-sectors have been ■ —$650 billion total market cap growing at 20-30% p.a. ■ High entry barrier, scalable ■ —$1,700 billion total market business model and attractive cap, with some of the world's growth/profitability profile largest listed companies ■ Greater China is increasingly ■ High entry barrier, long runway the world's center of innovation for growth, and opportunity to deploy substantial capital 14 EFTA01088970 Macro Trends Shaping China's Consumer/Retail Sector I Draft Rising middle class with increasing purchasing power O - Total middle and affluent population' will exceed 400m by 2020, almost 3x 2010 Emerging importance of smaller cities in inland China - By 2020, 233 cities and 543 counties will reach 2010 Shanghai income level2 0 -Growing willingness to trade up among affluent population China is the only major economy where trading up still beats trading down Modern retail formats expected to achieve further penetration O - Department stores and hyper/supermarkets continue to gain market share More awareness of health and wellness - Concerns over product safety drive consumer demand for "healthfulness" 1. Middle and affluent population defined as households with disposable income > RMB60,000 per year in real terms, BCG analysis 15 2. Based on disposable income per capita, BCG analysis EFTA01088971 Macro Trends Shaping China's Media/Technology Sector I Draft O Extended connectivity and proliferation of interfaces and devices - Penetration of broadband and emergence of new interfaces and devices drive demand for computing, communication and media consumption 0 Digitization of media content - Profound shift from analogue to digital, from offline to online Deregulation of the media sector 0 - Government intention to liberalize the traditional media (TV, radio, etc.) Behavioral expansion from media consumption to online consumerism O - 30% of Internet users engaged in e-commerce and growing exponentially PC-based Internet going mobile O - Mobile Internet has taken off in China with proven business models emerging 45 Technology enablement in multiple industries - Adoption of information technology is changing the basis of competition 16 EFTA01088972  Macro Trends Shaping China's Healthcare Sector I Draft I-- o An aging population in need for more healthcare services - Population over 65 years old is forecast to reach 11.7% in 2020 v.s. 8.3% in 2010 0 Increasing affordability of medical products and services - Hospital visits and pharmaceutical consumption grow rapidly with rising disposable income and wealth accumulation 41) Government expenditure - Significant government investment on both the demand and supply side 0 Hospital reform - Private sector participation in building and operating healthcare facilities 0 Stronger regulatory oversight - Higher entry barriers and accelerating industry consolidation 17 EFTA01088973  Macro Trends Shaping China's Financial Services Sector I Draft I-- Non-bank credit o -Increasing accessibility of credit; migration from bank-centric financing to multiple non-bank credit platforms 0 Wealth accumulation - Savings growth by government, enterprises and consumers creates opportunities for financial product creation and distribution 4/1) Deregulation - Initial signs of deregulation emerging in selected financial services sectors Financial transaction efficiency O - Further development of payment processing, financial information and other fintech business models 0 Risk management - Stronger demand fuelled by penetration of bank cards and advancement in securities trading technologies 18 EFTA01088974  I Draft III. Investment Strategy 19 EFTA01088975  I Draft Disciplined Approach Based on Key Investment Criteria ■ Strong and trustworthy entrepreneur/management: ❑ Integrity, capability and openness to partnership ❑ Interests fully aligned with those of the investors ■ Market leader that captures compelling market opportunity: ❑ Large market size with clear growth potential driven by identified macro trends • Market leader with sustainable business model, proven track record in growth and profitability and true barriers to entry u Significant operational improvement potential ■ Favorable transaction terms: u Active investor role with meaningful stake and board representation u Clear exit path, preferably with downside protection u Sufficient access to due diligence ■ Target return: J 3x on invested capital and 25% gross IRR 20 EFTA01088976 Four-pillar Investment Strategy Tailored for China I Draft Adhere to Focused Sectors ] Four-pillar Create Proprietary Deal Flow ] strategy to deliver ] superior risk- Design Optimal Transaction Structures adjusted returns Emphasize Value-added Services 21 EFTA01088977  Adhere to Focused Sectors I Draft From years of experience investing in our focused sectors, we know exactly what criteria to look for when making investment decisions: Consumer/Retail ■ Deep market ■ Spirit of innovation and ■ Competitive strength in ■ Strong regulatory know- ■ Strong brand equity entrepreneurship large therapeutic areas how ■ True mastery of ■ Network effect creates ■ Strong regulatory know- • Recurring revenue for distribution channels formidable entry barriers how transaction-based model ■ Scale matters ■ First-mover advantage • IP-based competition to • Access to competitive ■ Asset light model with avoid pure pricing war source of funding ■ Platform play with strong operational ■ High gross margin to • Robust risk management consolidation opportunities leverage support significant sales system in place ■ Deregulation gives local and marketing costs ■ Effective talent retention ■ Robust cash flow players advantage • Domestic players need system ■ Convergence with IT leads clear value proposition to to higher growth compete with MNCs 22 EFTA01088978 Our Initial Focus in Consumer/Retail Draft High Priority Medium Priority Low Priority ■ Men's apparel • Footwear • Sportswear Apparel Women's apparel • Baby • Processing / packaging • Agri-industrial Food • Food brands Juice / RTD drinks • Liquor / wine Beverage Consumer • Dairy Product • Auto / auto parts Luxury • Home care • Home appliance • Consumer electronics Household • Skincare / cosmetics Personal Care Staples • Education Consumer • Restaurant • Travel • Beauty and Services Discretionary • Lodging wellness • Department store • Convenience store Multi-line • Supermarket • Hypermarket Retailer • Home shopping • Outlets Retail • E-commerce Specialty • Home decor / furniture • Auto dealership Note: Interest level based on current deal pipeline and market conditions, subject to future revisions 23 EFTA01088979 Our Initial Focus in Media/Technology Draft High Priority Medium Priority Low Priority Online • Social network • Online video • Display ad — portal Advertising • Vertical display ad • Digital agency • Search ad • Online retailers • Marketplaces • E-commerce enablers E-Commerce • Online payment Internet Online • Information services Services • Security services • Platforms • Infrastructure Mobile • Applications Internet • Traditional media (TV) Production • Content provider Media • System solutions • IPTV • Out-of-home media Distribution • Cable TV • Media agency • IT solutions • IT outsourcing Technology Services • Transaction processing • BPO • Packaged software Technology Technology • Logistics • High-end manufacturing Enablement Note: Interest level based on current dealpipeline and market conditions, subject to future revisions 24 EFTA01088980 Our Initial Focus in Healthcare Draft High Priority Medium Priority Low Priority Traditional • Chemical drugs • API Pharma • Traditional Chinese .1 medicine • Biosimilar • Blood product Biotech • Vaccine • CRO • Clinical trial management Pharma I Outsourcing • CSO Services • CM° Distribution / • Wholesale distribution • Retail pharmacy Retail Durables • Durable medical Medical equipment Device Consumables • Orthopedics • Dental implants / Supplies • Medical supplies • Private hospitals/clinics • Public hospitals Primary • Clinical labs Institutions Healthcare Services Cemetery • Retirement community Consumer • Services Note: interest level based on current dealpipeline and market conditions, subject to future revisions 25 EFTA01088981 Our Initial Focus in Financial Services Draft High Priority Medium Priority Low Priority • SME/retail credit • Consumer finance • Credit guarantee Non-bank • Leasing Credit Banking & • City commercial banks • Rural banks Banks • Joint-stock banks Credit • Credit rating Credit Services • Credit scoring • National insurers • Regional insurers • Reinsurance Insurance • National asset managers • Alternative managers Wealth Asset Management Management Distribution / • Advisory network Retail • Distribution agency • Stock exchanges • OTC exchanges Exchanges • Commodity exchanges Capital Markets • National securities firms • Regional securities firms Securities • Payment network • Card issuers Payments • Payment processor Payments / Fintech Risk • Risk data analytics • Risk solutions Management • Financial information Note: Interest level based on current dealpipeline and market conditions, subject to future revisions 26 EFTA01088982  . Create Proprietary Deal Flow I Draft ■ Decade-long operating and investing experience ■ Rely on proprietary industry/company investment ideas ■ Highly familiar with industry dynamics ■ Constantly and systematically refreshing sector strategy Deep industry ■ Proactively create domain ■ "First-call" investment knowledge relationships with opportunities key decision-makers rather than relying ■ Partner level access upon competitive to top companies in bidding situations our target sectors ■ Ability to align Savvy deal ■ Boyu professionals "First-call" different interests striking based industry have been on the through deal capability network boards of some of terms the largest and most successful companies in China 27 EFTA01088983 Design Optimal Transaction Structures Draft The Boyu team is experienced in providing flexible financing alternatives to ease the "growing pains" of Chinese companies Expansion Shareholder PIPE SOE Restructuring Stage Recap ■ Expansion capital for ■ Liquidity to early ■ A long term, active ■ Spin-off, carve-out, enterprises that investors and partner unlike public or subsidiary have funding needs entrepreneurs investors purchase ■ Significant minority ■ Preferred partner to ■ Privately negotiated ■ Preferred security stake management ■ Active board ■ More management • Lead investor ■ Right management presence and human control incentive plan capital enhancement Boyu Team Members' Selected Expertise • Renren.com • CICC • Lenovo • Shenzhen • Baidu/Qiyi • Alibaba Group • Daphne Development Bank • China Grand Auto • Soufun • Wumart • New Century • Wuxi Apptec • MStar • Taiwan Mobile • Xuji Group 28 EFTA01088984  Emphasize Value-added Services Draft Strategy Planning Operational Improvement ■ Value-add: overall strategic planning, market ■ V