STALWARTS ROUNDTABLE: GLOBAL GROWTH …...STALWARTS ROUNDTABLE GLOBAL GROWT MARET Presented by Contents About BRICs, MINTs, Next Elevens — and Not 1 China’s Risks and Opportunities

STALWARTS ROUNDTABLE: GLOBAL GROWTH MARKET

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THE M&A ADVISOR SYMPOSIUM REPORT Featuring

STALWARTS ROUNDTABLE GLOBAL GROWTH MARKETS

JULY 2015

Executive SummaryAs the developed world grapples with slow growth, debt and an aging population, the developing world offers an abundance of opportunities.

The M&A and investment opportunities that are present in many of the world’s fastest growing economies — as well as the risks and challenges — were the subject of this Roundtable, whose participants were a mix of dealmakers, investors and experienced observers. Subjects covered included:

• The need for country-by-country and even city-by-city analyses when investing in growing markets, rather than looking at arbitrary groupings of countries.• The fourfold growth expected in these markets by 2030.• Why China still dominates growing markets, despite real estate and other problems.• A look at India and Indonesia, as well as Africa and Latin America. • Why investments in some growing-market companies may be less risky than investments in developed-market counterparts.

Euan Rellie Co-Founder

BDA Partners

Selig D. SacksCo-Chair

Global Practice GroupFoley and Lardner

Henny SenderChief Correspondent International Finance

Financial Times

Tom SpeechleyChief Executive OfficerAbraaj North America

THE M&A ADVISOR 2015 INTERNATIONAL FINANCIAL FORUM


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From The M&A AdvisorThe world’s growth markets are endlessly fascinating for dealmakers and investors in the U.S.,

Europe and Japan. And the fascination makes perfect sense. China, India and many other nations in

Asia, Africa and Latin America offer opportunities that are much more difficult to replicate in the

slower growing, debt-laden developed world.

Challenges? Of course there are. So to examine all sides of global growth markets, we assembled

a Stalwarts Roundtable of unparalleled expertise at our recent 2015 International Financial Forum

in New York. Moderated by my distinguished friend Selig D. Sacks, Co-Chair of the Global Practice

Group at Foley and Lardner, the session featured keynote speaker Tom Speechley, Chief Executive

Officer of Abraaj North America, and panelists Euan Rellie, Co-Founder of BDA Partners, and

Henny Sender, Chief Correspondent, International Finance at the Financial Times. The session was

graciously presented by Foley and Lardner and BDA Partners.

Participants in this and the other Roundtables that constituted the 2015 International Financial

Forum — as well as attendees at our 7th Annual International M&A Awards Dinner, which followed

the full-day program — are the luminaries in international investing and deal making. At this annual

event, and at the other forums and symposiums The M&A Advisor conducts during the year around

the world, we strive to assemble our industry’s best and brightest. We are delighted to share their

insights.

David Fergusson

President and Co-Chief Executive Officer

The M&A Advisor


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ContentsAbout BRICs, MINTs, Next Elevens — and Not 1

China’s Risks and Opportunities 2

What about Indonesia? 2

India and the Internet 3

Opportunities in Africa 3

More about China — and Latin America 4

Video Interviews 5

Symposium Session Video 6

Symposium Participant Profiles 7

About the Sponsors 9

About the Publisher 10

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About BRICs, MINTs, Next Elevens — and Not After panelist introductions by moderator Selig D. Sacks, Tom Speechley began his Keynote remarks by observing that the names and categories used in discussing global growth markets — emerging markets, frontier markets, developing markets, BRICs (Brazil, Russia, India, China), MINTs (Mexico, Indonesia, Nigeria, Turkey) and the Next Elevens (Bangladesh, Egypt, Indonesia, Iran, Mexico, Nigeria, Pakistan, the Philippines, Turkey, South Korea and Vietnam) — are “not helpful.”

“People are trying to bucket over a hundred countries into a single term and then make useful observations about them. You can’t,” Speechley said. “Even the well-intentioned attempts to categorize acronyms or numeronyms are all fundamentally flawed. What does Russia have in common with Brazil or India or China? How does that help you navigate the investing world? It doesn’t. And why is Turkey a MINT but not the Philippines? Is it because ‘MINT’ sounds better than ‘MINP?’ These terms are just not useful.”

The key point, Speechley added, is that it is important to understand the underlying fundamentals of each country and be able to differentiate among them and among the many opportunities.

“Eighty percent of global growth is now coming from these markets and 75% of economic activity is now in these markets,” he said. “Over the next 15 years, we’re going from $7.9 trillion of annual consumption in these markets to about $33 trillion. That’s a fourfold increase, and it’s driven by two trends: demographics and urbanization.”

Explaining those trends, Speechley noted that the average age in Africa is 19, compared with an average age of around 40 in developed countries.

“Around 20, you leave home and start to consume,” he said. “Your consumption rises year on year until you reach about 40, at which point you start to worry about the future and start to save. It doesn’t matter where you are; it happens everywhere.”

As a result of demographics, said Speechley, countries in global growth markets are at the start of their consumption curve while companies in developed markets are at the end of their consumption curve and are starting to save, changing the patterns of consumption globally.

“The second major trend driving consumption is urbanization — and it’s bigger than demographics,” according to Speechley. “For the first time in history, more people live in a city setting than in a rural setting. Four hundred plus cities are accounting for two-thirds of global growth today.”

When investing, “we talk about cities, not countries,” he said. “In Africa, a lot of borders were drawn by French or British bureaucrats in the 1800s and 1900s after one too many glasses of sherry, and they don’t even reflect the borders that people think of demographically. It’s the cities that are important. Nairobi has 2.7 times the amount of consumption as the Kenyan

“China is undergoing a fundamental reorientation to a service economy.” – Selig D. Sacks

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national average. That is the opportunity. And it’s an opportunity for fast-moving consumer goods, healthcare, logistics, education and pretty much every sector you can imagine.”

Even risk should be looked at on a city, rather than country, basis, Speechley said. “If you look at intentional homicide by city, you’ll find that Detroit, Chicago, and Washington, D.C., have substantially higher rates than Mexico City, Nairobi or Cairo,” despite national murder rates in Mexico, Kenya and Egypt that are higher than that of the U.S., he emphasized.

China’s Risks and OpportunitiesNext, after stating that “China is undergoing a fundamental reorientation to a service economy,” Mr. Sacks asked Henny Sender to share her views on the changes that are taking place in China.

“China is now shifting from an export model of development to demand growth, and it is not going to be easy, but it’s happening,” Sender said. “That has huge implications for investors…In emerging Asia, nine out of ten countries are actually in deflation, which has to do with the fact that there is too much capacity in the world. We will see a shift to more and more services-led growth.”

Euan Rellie, who created an Asian-focused fund in 1997, said that China is probably the greatest generator of fees for his firm.

“We’re seeing some dramatic changes,” he said. “First, many people don’t want to put all their eggs in the China basket and many are worried about the risks of investing in China. I wouldn’t discount that risk at all. I think there is a very significant chance of a dramatic real estate correction in China.”

Still, Rellie said he is “certainly not giving up on China. We think there is still a heck of a lot of momentum in the Chinese economy and a lot of M&A activity to take place in China over the next five to 10 years.”

What about Indonesia?In response to a question about Indonesia, the world’s fourth most populous country currently and likely the seventh largest in terms of gross domestic product by 2050, Sender offered a pessimistic view.

“A year and a half ago,” she said, “I went to see a tire factory outside Jakarta. It should have taken me half an hour to get there; it took two hours. Arguably, Jakarta has the worst infrastructure of any city that I’ve ever spent time in. I have subway passes for practically every subway system in Asia. There is no subway in Jakarta. The public busses are terrible. But, what really struck me was that the factory was like something out of the 1950s. The workers were using punch cards because most of them were illiterate, but they could line up the holes.”

“Growth is driven by two trends: demographics and urbanization.”– Tom Speechley

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She continued: “Human capital is a big problem in Indonesia…The country thinks of itself as very lucky because it is so richly endowed with commodities, but the trumps of trade have turned on Indonesia and commodities are not going to be the way to prosper in the next ten years, as they were in the past. If Indonesia doesn’t get its human capital act together it will not make that breakthrough.”

India and the InternetGiven Indonesia’s problems as perceived by Sender, Selig Sacks asked about countries that are better positioned to succeed.

“China has leapfrogged everyone else in mobile Internet,” Sender responded. “India should have been the leader, but all the reasons it should have been became restraints. China has 700 million mobile Internet users and India has less than 100 million. In a very counterintuitive way, one of the problems is English. If you want to have a mass mobile Internet you need vernacular languages. India has 15 to 20 that are recognized by the constitution. Until you have applications in all these languages, the Internet will not be a mass product in India. And, you have this huge income gap with China.”

Another difference, according to Sender, is the business model of mobile Internet companies in India, which is built on the missed call.

“Indians must pay to receive a cell phone call, which they don’t like,” she explained. “So they will call the equivalent of Craigslist, a company called Quikr — which has money from Sequoia, by the way — and Quikr promises to not answer the call for you; they call you back so they pay for the call. In China, where time is money, this makes no sense, but in India, even though mobile phone calls are so cheap, it is still too expensive.”

Opportunities in AfricaGiven the Internet and mobile as macro themes that shape investing in growth markets, Sacks asked Tom Speechley for some of the themes he looks for when investing.

“We like mass market consumption, so dairy is a sector we’ve come back to many times,” Speechley said. “If you’ve got a well-known dairy company in Kenya, you’re going to do well. Is a dairy company in Kenya a lot more risky than a dairy company in Wyoming? That’s a question I get asked often, and the answer is that the one in Wyoming is probably risker because it is not going to increase market share and it probably has debt, while the one in Kenya is almost certainly growing at a leverage multiple of demographics.”

Speechley noted that finding management talent in growth economies can be a challenge, but when talent is present the rewards can be significant.

“One of the luxuries of private equity is that you are not taking a view on the market; you’re taking a view on a company,” he said. “In fact, you’re almost taking a view on an individual — has

“Human capital is a big problem in Indonesia.”– Henny Sender

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this person got the ability to make this company three times as large? That’s what we do. It’s not easy, but it’s doable.”

Speechley added that Dannon has just come into the African dairy business, and that giants like Coke, Pepsi and Kellogg are looking for “ready-made, buyable companies” in Africa.

More about China — and Latin AmericaSacks then asked the panelists to comment on the role of government in helping to create opportunities in growing economies, particularly the role of China’s Asian Infrastructure Investment Bank (AIIB), which all Asian nations except Japan have joined, as have most major countries outside Asia, except the U.S. and Canada.

“Soon the U.S. will be in a very difficult position because even the Japanese are likely to join the AIIB,” Sender said. “I think the U.S. handling of the AIIB was so unfortunate and massively increased Chinese paranoia about US intentions.”

Said Rellie: “Most places I go in Asia, people assume that China is going to win the next century, and most people seem to be confident that they have a China strategy.”

In Latin America, Speechley said that he sees opportunities in Mexico — “If you understand the nuances of the region,” and that the tariff-reduction pact signed by Mexico, Peru, Colombia and Chile will be a “huge bonus for that part of the world.”

“But I don’t think we should end this discussion with the impression that the U.S. is finished,” Speechley said. “It is the most advanced, and it will remain that. I think that people should just recognize that there is a lot going on in the rest of the world that is extremely interesting and potentially very exciting from an investment perspective.”

“Most places I go in Asia, people assume that China is going to win the next century.”- Euan Rellie

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To watch exclusive M&A Advisor interviews with these experts in global growth markets, click on the following images:

Video Interviews

Euan Rellie Co-Founder BDA Partners

Selig D. SacksCo-Chair Global Practice GroupFoley and Lardner


https://youtu.be/mVbSwraq1Zw

https://youtu.be/IauE4GxzYW4

https://youtu.be/VgCMN-qEAsI

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To watch Stalwarts Roundtable, “Global Growth Markets,” click on the following image:

Symposium Session Video

Stalwarts Roundtable: Global Growth Market

https://youtu.be/hVwpmx_iIOk

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Symposium Participant Profiles Euan Rellie is Joint Founder and Senior Managing Director of BDA Partners, based in New York. He is also President of BDA Advisors Inc., the firm’s registered Broker-Dealer. Since founding BDA in 1996, Mr. Rellie has lived in Singapore, New York and London, and worked in China, Taiwan, Korea, Japan, India and the Middle East. From 1990 to 1996, he worked for Schroders (the UK investment bank now part of Citigroup), in New York, London and Singapore. He was Head of Southeast Asia Execution for Schroders’ Asia-Pacific Regional Advisory Group. His clients have included AgFeed, Axa, C. R. Bard, Dainippon Ink & Chemical, DuPont, Ecolab, Hanjin, ICI, ICICI, Intel, Kraft Foods, Life Technologies, Lubrizol, Materion, Nalco, Pfizer, Philip Morris, Platinum Equity, Sara Lee, Sigma-Aldrich, Tenneco, Thomson Reuters, and Wockhardt. He was educated at Eton and Trinity College, Cambridge. He was named the 2014 North American Investment Banker of the Year and one of the Top 50 Global M&A Dealmakers by The Global M&A Network, and 2012 Dealmaker of the Year by The M&A Advisor.

Selig D. Sacks is a Partner and Co-Chair of the International Practice at Foley & Lardner LLP, and Chair of the Business Law Department for their New York office. He is also a member of the firm’s Transactional & Securities, and Private Equity & Venture Capital Practices. He works closely with the industry teams at Foley, including Automotive, Food & Beverage, Health Care and Life Sciences. Mr. Sacks is also a leader of Foley’s Next Generation Manufacturing Initiative. Mr. Sacks focuses his practice on cross-border transactions primarily involving FDI (foreign direct investment) by Chinese and other Asian companies in the U.S. and companies engaged in FDI into China and Asia generally. His clients span a broad cross-section of industries and sectors.

Henny Sender joined the Financial Times in 2007 and is currently FT’s chief correspondent for international finance, based in New York. Previously, Ms. Sender was based in Hong Kong and covered international finance. Prior to joining the FT, she served as Senior Special Writer in the Money & Investing section of the Wall Street Journal, and covered private equity and hedge funds. Earlier, Ms. Sender worked in Hong Kong for nearly 10 years, covering regional finance for the Wall Street Journal Asia and the Far Eastern Economic Review. Prior to that, she was based in Tokyo for five years, writing for Institutional Investor. Ms. Sender was part of a team at WSJ that won a Loeb award for coverage of the meltdown of Amaranth, a hedge fund. Her work on the overseas Chinese nationals received a citation from the Overseas Press Club, and she was a finalist for the National Magazine Awards. Her book on India, The Kashmiri Pandits, was published by Oxford University Press. Ms. Sender has a Ph.D. in Indian history and holds an M.S. from the Columbia University School of Journalism. She is a member of the Council on Foreign Relations.

Euan Rellie Co-FounderBDA Partners

Selig D. SacksCo-Chair Global Practice GroupFoley and Lardner

Henny SenderChief Correspondent International FinanceFinancial Times

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Tom Speechley is a Partner with The Abraaj Group based in New York, and is also the Chief Executive Officer of Abraaj North America, LLC. Mr. Speechley joined the firm in 2006 as investment director, and since then has been responsible for several investments in a number of countries across the growth markets. In addition to overseeing various parts of the firm’s investment activities, he has been a member of the main board of Abraaj, its management executive committee and its investment committee. Mr. Speechley has also been responsible for overseeing the creation of new Funds and has led the expansion of Abraaj into several new growth markets. In 2012, as Chief Executive of Aureos Capital, he co-led the integration of Aureos into The Abraaj Group. In 2013 Mr. Speechley moved to the US to establish and lead the Group’s activities in North America, from where he oversees the firm’s institutional investor program. He is a member of the Board of Directors of the Emerging Markets Private Equity Association (EMPEA), a board member of JA Worldwide (a global organization which invests in young people to help them develop essential workplace skills), and an advisor to Endeavor (a global organization dedicated to supporting high impact entrepreneurs across Africa, Asia, the Middle East, Europe and the Americas). Mr. Speechley is also a Fellow of the Royal Society of Arts in the United Kingdom (a global network of people committed to enriching society through ideas and action). Mr. Speechley has a First Class Honours degree in Law from the University of Sheffield, UK, where he was a Falconer Prizeman.


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About The SponsorsFoley & Lardner LLP Foley & Lardner LLP, founded in 1842, provides award-winning business and legal insight to clients across the country and around the world, with approximately 900 attorneys in 21 offices in the United States, Belgium, China, and Japan. Foley attorneys practice in more than 60 areas, including corporate governance, mergers and acquisitions, real estate, securities enforcement, litigation, immigration, intellectual property counseling and litigation, information technology and outsourcing, labor and employment, environmental, and tax. The firm provides services for the automotive, emerging technologies, energy, entertainment and media, food, hospitality, insurance, health care, life sciences, nanotechnology, and sports industries. Clients and the legal industry continually recognize its exceptional client service, value, and innovative technology. In a recent survey of Fortune 1000 corporate counsel, conducted by The BTI Consulting Group of Wellesley, Mass., Foley received a top-five ranking out of more than 300 firms for delivering exceptional client service. Foley strives to create legal strategies that help meet today’s needs — and anticipate tomorrow’s challenges. Visit www.foley.com or contact Selig D. Sacks at [email protected] or 212.338.3420.

BDA PartnersBDA Partners (“BDA”) is a leader in cross-border investment banking. BDA advises on M&A, capital raising, and restructuring. BDA has been consistently owned and managed by the same team since 1996. It has a track record of providing independent advice to blue-chip corporate and financial sponsor clients from North America, Europe and Asia. BDA was named Investment Banking Firm of the Year at the ACG Champion’s Awards in 2014. It is headquartered in New York with offices in London, Bahrain, Mumbai, Ho Chi Minh City, Hong Kong, Shanghai, Beijing, Seoul and Tokyo. BDA formed a partnership with William Blair & Company in 2011. BDA carries out its US securities business through BDA Advisors Inc., a broker-dealer registered with the US Securities and Exchange Commission (SEC) and a member of FINRA and SIPC. BDA’s UK subsidiary is authorised and regulated by the Financial Conduct Authority (FCA). www.bdapartners.com

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About the PublisherThe M&A AdvisorThe M&A Advisor was founded in 1998 to offer insights and intelligence on M&A activities. Over the past seventeen years we have established a premier network of M&A, Turnaround and Finance professionals. Today we have the privilege of presenting, recognizing the achievements of and facilitating connections among between the industry’s top performers throughout the world with a comprehensive range of services. These include:

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STALWARTS ROUNDTABLE: GLOBAL GROWTH …...STALWARTS ROUNDTABLE GLOBAL GROWT MARET Presented by Contents About BRICs, MINTs, Next Elevens — and Not 1 China’s Risks and Opportunities

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