FountainVest Introduction SDCERA Board Meeting May 17, 2012 1
Disclaimer DISCLAIMER The information contained herein (the Presentation ) is furnished strictly to a limited number of sophisticated investors (each, a Recipient ) by FountainVest Advisors Ltd. or its affiliates (collectively, FountainVest Group ). The Presentation is intended exclusively for the use of the person to whom it has been delivered by the FountainVest Group. No portion of the Presentation may be used by any other person without the consent of the FountainVest Group. The Presentation shall not constitute an offer to sell, a solicitation of any offer to purchase, or any recommendation in relation to, any pooled investment vehicles to be managed by the FountainVest Group; any offers or sales, if any, of such pooled investment vehicles shall be made pursuant to the private placement memorandum (or similar marketing document) of such vehicle and subject to the procedures thereto. The Presentation is provided on an "as is" basis without representation or warranty of any kind. Certain information contained in the Presentation constitutes forward looking statements or opinions that are based on a variety of estimates and assumptions which are inherently uncertain. The FountainVest Group does not accept any responsibility whatsoever for any direct, indirect or consequential loss or damage suffered by the Recipient or any other person or entity however caused in any way in connection with the Presentation. BY ACCEPTING THE PRESENTATION, THE RECIPIENT HEREBY ACKNOWLEDGES AND AGREES THAT HE OR SHE IS ENTITLED TO RECEIVE THE PRESENTATION IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH ABOVE AND AGREES TO BE BOUND BY THE LIMITATIONS CONTAINED HEREIN. 2
1. Introduction & Team 3
About FountainVest Overview FountainVest Partners is one of the leading private equity firms focusing on China Focus on investing growth capital in Chinese private enterprises who are emerging leaders Managed by four founding partners who have worked together for 15 years Offices in Shanghai, Hong Kong and Beijing Progress Founded in 2007, FountainVest team started with 8 people including the 4 founding partners Fund I completed final closing in October 2008, raising approximately $950 million 1 Over the last 4 years, Fund I has committed approximately 75% of its capital and is working on fully investing the fund this year FountainVest China Growth Capital Fund II, L.P. ( Fund II ) is seeking capital commitments of US$1.25 billion and anticipates a first closing during the second quarter of 2012 Note: 1 Fund size includes GP Commitment. 4
Firm Evolution Mid 1990s to 2004 2005 to 2007 2008 to present Frank Tang, George Chuang and Chenning Zhao were colleagues at Goldman Sachs (Asia). Worked with Terry Hu, who was at Bear Stearns / CSFB, on many deals All 4 worked together on landmark China deals since the mid 90s: the first generation of capital markets professionals that participated in the evolving Chinese business landscape Frank, Terry, George and Chenning together joined Temasek Holdings and formed its local Chinabased investment team During this period, the Partners were one of the most active China teams among all PE investment firms in terms of both the number of investments made and the amount of capital deployed Frank, Terry, George and Chenning, together with others, formed FountainVest FountainVest Fund I held a final close in October 2008 on approximately US$950 million 1 The FountainVest team is now 38 strong with 24 dedicated investment professionals Pre Fund I Completed 11 transactions with approximately US$3 billion of equity investments in China Fund I final close in October 2008 FountainVest Fund I FountainVest Fund II Fund launch in Q1 2012 Target US$1.25 billion Continuation of strategy and approach 2005 2008 2009 2010 2011 2012 Note: 1 Fund size includes GP Commitment. Robust pipeline with several investments in advanced stages of DD 5
Founding Partners Frank Tang, 43 1994 2005 Goldman Sachs (Managing Director) 2005 2007 Temasek (Senior Managing Director, Head of China Investments, Member of Senior Management Committee, Member of Senior Investment Committee) M.B.A. from Columbia University; B.S. from Shanghai Donghua University Terry Hu, 41 1994 1996, 1998 2004 Bear Stearns (Head of China Investment Banking) 2004 2005 Credit Suisse First Boston (Head of China TMT) 2005 2007 Temasek (Managing Director, Member of Senior Investment Committee) B.A. from Fudan University George Chuang, 41 1995 1999 Sullivan & Cromwell LLP 1999 2005 Goldman Sachs (Executive Director) 2005 2007 Temasek (HK) (Managing Director) LL.M. from Harvard Law School; J.D. from Osgoode Hall Law School Chenning Zhao, 39 1997 2001 Goldman Sachs 2001 2002 ZoomCommerce (CFO) 2002 2005 CCMP Capital Asia (Vice President) 2005 2007 Temasek (HK) (Managing Director) M.S. in finance from the London School of Economics; M.S. in international finance from the Graduate School of the People s Bank of China; B.S. in international trade from Nanjing University 6
FountainVest Team Overall team of 38 people including 24 investment professionals based in Shanghai, Hong Kong and Beijing 4 Founding Partners; 14 Directors and Vice Presidents supported by a strong junior team In house CFO, Chief of Staff and General Counsel Portfolio management specialists to be added in 1H 2012 Augmented by six senior advisors that have strong backgrounds as business leaders, ex regulators, or listed company CEOs Expanding new portfolio management specialist team Frank Tang CEO/Founding Partner Terry Hu Founding Partner George Chuang Founding Partner Chenning Zhao Founding Partner Investment Team Finance, Legal & IR Senior Advisors Director Director Director Director Director Director Director CFO General Counsel Senior Advisor Senior Advisor Vice President Vice President Vice President Vice President Vice President VP of Research & Portfolio Full Time Consultant Chief of Staff & Head of IR Financial Controller Senior Advisor Senior Advisor Associate Associate Associate Associate Associate Associate 1 Finance Manager Accountant Senior Advisor Senior Advisor Notes: 1 To join summer of 2012 7
2. Strategy & Process 8
Strategy Consistency Investment themes Back emerging private enterprise champions Focus on beneficiaries of long term sustainable macro trends Create consolidation platforms or back leaders in consolidation Deal selection Generally conservative but long term steady performing deals Core values and strong partnership approach with management Execution and value creation approach Remain disciplined and fundamentals driven in valuation Lead or co lead transactions with strong governance terms Sophisticated structures to enhance returns and/or reduce risk Proactively add value post investment 9
Investment Themes Focus on 3 key macro China themes and their direct beneficiaries Rise of Middle Class and Domestic Consumption Urbanization and Industrial Upgrade Sustainable Development Since 2000, both China s per capita GDP and disposable income have grown almost three fold Consequently, China has seen a marked increase in domestic savings and consumption Almost 50% of China s population is now located in urban areas, about 15% more than 15 years ago Growth in urban population has spurred a significant increase in infrastructure and industrial development China is one of the world s largest consumers of energy, but remains relatively resource poor The government remains committed to establishing a more resource efficient and environmentally friendly economy (US$bn) Disposable Income in China 3,000 2,500 2,000 1,500 1,000 500 0 2000 2003 2006 2009 2012 2015 China s Urban Population 50% 40% 30% 20% 10% 0% 1998 2001 2004 2007 2010 2013 Energy Consumption China US 2008 Europe 2030 0 20 40 60 80 100 120 140 160 180 (Quadrillion Btu) Source: EIU Market Indicators (2011), Global Insight (2011), U.S. Energy Information Administration (2011) 10
Investment Themes: Industries Industries Portfolio Companies Rise of Middle Class and Domestic Consumption Consumer Services, leisure & lifestyle Retail & e commerce Healthcare / pharmaceuticals Media, education Home builders & developers Urbanization and Industrial Upgrade Transport & logistics Advanced machinery and equipment Home furnishing Sustainable Development Environmental services Renewable resources Agriculture 11
Investment Themes: Consolidation What we see in many industries: Highly fragmented with small scale players Operational efficiency varies Scale is critical to survive and win What we expect to happen: Underperformers or smaller players will be forced to exit Another driver: first generation business founders near retirement age Consolidation will be a key trend Regional leader National champion Capital and expertise needed in consolidation Some of our portfolio companies operate in sectors characterized by rapid consolidation: Hydropower plants Automobile retail Pharma distribution What did we see at time of investment? 100% 50% 0% Most smaller players in US and Japan were acquired by the Big 3 It makes sense for pharmaceutical distribution industry to consolidate and enjoy the benefit from economies of scale What happened after our investment into CHS? RMB (mm) 5,000 2,500 95% CHS Case Study Market Share of Top 3 Pharmaceutical Distributors 80% 21% US Japan China Faster Pace of M&A among Leading Chinese Distributors 40 2,321 4,619 2,500 China Resources Group merged with Beijing Pharmaceutical Group in 2010 to create the second largest pharmaceutical distribution group in China Shanghai Pharma s acquisitions include its purchase of CHS for RMB3.6 billion, the largest acquisition in pharmaceutical distribution industry in China ever 8 Sinopharm Shanghai Pharma China Resources Group total purchase price in 2010 number of acquisitions in 2010 4 50 25 12
Institutionalized and Systematic Investment Process Whereas deal sourcing is multifaceted and "localized", FountainVest adopts an institutionalized "western" approach to deal execution Robust Decision Making Disciplined Execution Proactive Value Add Profitable Divestment Collaborative decision making process incorporates a wide range of experience and expertise to eliminate blind spots Typically two partners work together on key aspects of a transaction, and all partners involved in each critical decision making Standardized procedures to analyze transactions (from concept paper to investment committee) All team members have solid, institutional backgrounds and skill sets Strives to uphold what the team believes to be a very high diligence standard in the industry High degree of pricing discipline Extensive industry reference checks and detailed business, financial and legal DD, accompanied by multiple rounds of internal reviews Sophisticated structuring to reduce risk (e.g. warrants, tag along rights, specific covenants) CFO and General Counsel provide strong support in terms of structuring, deal execution and postinvestment monitoring Specific areas for value creation already identified during diligence prior to investment, as part of the investment decision itself Relationship with portfolio companies does not rest only with CEO and CFO Internal systematic process based on clear portfolio management agenda Tangible operational improvements and financial growth across portfolio companies Successfully divested two portfolio companies in 2011, through atrade sale and successive public market trades respectively Meaningful returns of approximately 80% gross IRR generated from divestments 13
Deal Sourcing: A Multifaceted Approach Examples Direct relationship with management and principals Long term direct engagement and tracking Systematic top down industry mapping Proactive targeting by building upon previous experience Leveraging other strategic/intermediary relationships 14
Value Add Examples Examples Governance, Reporting and Controls Strategic Initiatives Operations Finance M&A 15
3. Portfolio 16
Our Investments Company Description 1 2 3 4 5 6 7 8 9 The largest online environmental monitoring equipment manufacturer in China The largest home builder in the most populous province of China One of the most influential online media platforms in China 3rd largest privately owned pharmaceutical distributor in China Auto dealership group with leading concentration of premium brands One of the largest small hydropower operators and consolidators in China The largest online retailer of diamonds in China The world s largest die casting machines manufacturer Leading color gemstone jewelry retailer in China Industry leaders Primary proceeds to fund growth Privately negotiated deals Board seats Downside protections All lead or co lead investor role Thoroughly diligenced Big 4 audit or review 10 One of China s Top 10 women apparel retail chains 17
Significant Growth Across the FountainVest Portfolio Revenue CAGR: 48% US$4,635m US$3,029m US$2,116m 1 2009 2010 2011 1 1 Note: 1 Values based on average exchange rate during specified period. 18
The Enzo Case Study 19
The Peace Bird Case Study 20
4. Forward Outlook 21
Consistency in Focus and Strategy to Deal with Volatility Outlook Our Strategy The Chinese economy is undergoing structural changes with domestic consumption becoming more important. PE industry in China will continue to face volatility in economy, markets, competition and government policies. Attractive enterprises continue to increase in quantity and quality Maintain consistency in our focus and discipline, while innovative in building our network and deal ideas Themes & sectors Emerging champions and trends Team & organizations The key is execution Since 2008, we have been steadfastly building a scalable and quality platform and we are well positioned for opportunities ahead. 22
Investment Highlights Experienced Investment Team Highly cohesive Partners with long history of collaboration spanning 13 to 15 years and several economic cycles Reputation as a safe pair of hands in China with trustworthy senior leadership Strong local networks to source proprietary deals. All Partners are native Chinese with both local and international experience Internal culture emphasizes team work and long term institution building Focused and Consistent Strategy Focused strategy of targeting privately owned enterprises with strong growth trajectories Focuses on capitalizing on China s key macro themes: (i) middle class consumption, (ii) urbanization and industrial upgrade, and (iii) sustainable development Strong orientation towards conservative but steady performing deals Investment focus and strategy consistently applied over the last seven years during which the Partners invested together Highly Disciplined Approach Top heavy hands on execution; consensus driven decision making Multifaceted local approach to deal sourcing, but institutional western approach to execution and decision making Sophisticated approach to deal structuring, incorporating both value creation and downside protection mechanisms Proactive portfolio management approach to enhance value Consistent Track Record of Strong Returns While still young, Fund I is already marked at 1.5x (17.2 months of average life as of December 31, 2011) Showing signs of impressive operational growth and outperformance Two companies in Fund I portfolio achieved liquidity events in 2011 (one full exit and one partial exit) with clear path to further liquidity events Strong pre Fund I track record demonstrates length and depth of relevant experience 23
Hong Kong Office Suites 705 708, ICBC Tower 3 Garden Road Hong Kong, China Tel: +852 3972 3900 Shanghai Office RM 1602, K. Wah Center 1010 Central Huaihai Road Shanghai, China Tel: +86 21 2419 0800 Beijing Office Suite 3410, China World Office 1 No. 1 Jianguomenwai Avenue Beijing, China +86 10 5776 6288 24