Global Investment Banking

Introduction
June 2015

Notice to Recipient
Confidential

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Global Investment Banking Introduction

Table of Contents

1. Investment Banking Overview

2. Mergers & Acquisitions

3. Enfocas Sale of Maestro to Falabella Peru

13

4. Equity Capital Markets

19

Investment Banking Overview

What is Investment Banking?

Providers of Capital

Mutual funds
401(k) funds
Venture capital firms
Private equity/LBO shops
Corporations
Governments
Individuals

Users of Capital

Investment Banking

Product Groups

Mergers & Acquisitions (M&A)

Leveraged Finance
Capital Markets

Equity Capital Markets

Debt Capital Markets

Capital Structure &

Advisory Solutions

Corporations

Public and private

Governments
Public sector organizations

Schools

Hospitals
Multilateral institutions

Industry Groups

Consumer/Retail
Diversified Industrials
Technology, Media & Telecom
Financial Institutions Group
Financial Sponsors
Energy & Power

I-banking is an intermediary between providers and users of capital, working across a broad range of products and industry groups
1

Mergers & Acquisitions

Mergers & Acquisitions

Why is valuation important?

Divestitures
How much should
we sell our
company/division
for?

Acquisitions
How much should
we pay to buy the
company?

Fairness opinions
Is the price offered
for our
company/division
fair (from a financial
point of view)?

Research
Should our clients
buy, sell or hold
positions in a given
security?

Valuation
Hostile defense
Is our company
undervalued/
vulnerable to a
raider valuation?

Public equity
offerings
For how much
should we sell our
company/division in
the public market?
New business
presentations
Various Applications

Debt offerings
What is the
underlying value of
the business/assets
against which debt is
being issued?

Mergers & Acquisitions

Scope of Work
Key Objectives

Maximize speed of transaction

Limit strain on management team (buyer "beauty contest")

Maximize purchase price through competitive process

Limit/manage information leaks

Maximize certainty of close

Stages of Compact Sale Process

Define transaction strategy

Merrill Lynch to perform due
diligence
Begin commitment for
stapled financing

Merrill Lynch to prepare

Teaser
Prepare Descriptive
Memorandum (DM)
Prepare Confidentiality
Agreement (CA)

Select and approach

potential strategic and
financial buyers
Distribute/negotiate CAs
Prepare audited financials

Phase 2:
Confirmatory Diligence
and Final Bids
(~4 Weeks)

Phase 1: Marketing
and Initial Bids
(~4 Weeks)

Preparation /
Contact Buyers
(4-6 Weeks)

Finalize audited financials

Deliver DMs to potential
buyers
Maintain dialogue with
potential buyers

Begin management
presentation and data room
preparation
Begin drafting Sale and
Purchase Agreement (SPA)
Solicit non-binding
indications of interest

Interview first round bidders

Collect feedback through
Merrill Lynch system
Invite selected buyers to
second round

Distribute SPAs
Maintain dialogue with
potential buyers
Hold management
presentations
Allow site visit(s), as
appropriate
Allow access to virtual data
room and confirmatory due
diligence
Solicit binding proposals

Final Negotiation &

Signing
(1-2 Weeks)

Receive and evaluate

binding proposals
Negotiate as required
Finalize and execute SPA
Make public announcement

Mergers & Acquisitions

Valuation Methodologies

Valuation Methodologies

Publicly Traded Comparable

Companies Analysis

Comparable Transactions
Analysis

4
Discounted Cash Flow
Analysis

Leveraged Buyout/
Recap Analysis

"Public Market Valuation"

"Private Market Valuation"

"Intrinsic" value of business

Value to a financial/LBO
buyer

Value based on market

trading multiples of
comparable companies

Value based on multiples

paid for comparable
companies in sale
transactions

Present value of projected

free cash flows

Value based on debt

repayment and return on
equity investment

Applied using historical and

prospective multiples
Does not include control
premium

Includes control premium

Incorporates both shortterm and long-term

expected performance
Risk in cash flows and capital
structure captured in
discount rate

Other

Liquidation analysis

Break-up analysis

Historical trading
performance

Expected IPO valuation

Discounted future share

price

EPS impact

Dividend discount model

Mergers & Acquisitions

The Valuation Process

Publicly Traded Comparable

Companies
Utilizes market trading
multiples from publicly traded
companies
to derive value

Comparable Acquisition
Transactions
Utilizes data from M&A
transactions involving similar
companies

Discounted Cash Flow

Analyzes the present value of
a company's free cash flow

Leveraged
Buy Out
Used to determine range of
potential value for a company
based on maximum leverage
capacity

Determining a final valuation recommendation is a process of triangulation using insight from each of the relevant valuation methodologies

Mergers & Acquisitions

1

Publicly Traded Comparable Companies

Pros

Market values incorporate perception of all investors

reflecting firm prospects, industry trends, business
risk, market growth, etc
Basic tool for estimating market value
Provides check for DCF

Values obtained are reliable indicators of the value of

firm for minority investment

Cons

Difficult to identify 100% comparable companies

Must make the difficult decision whether the
company being analyzed is valued higher, lower or
the same as the average of the sample
May be short term divergences from fundamental
value

Thinly traded, small capitalization and poorly

followed stocks may not reflect fundamental value
Different accounting standards
Different level of information according to national
stock market requirements

Mergers & Acquisitions

1

Comps Main Considerations

Operational

Financial

Industry

Cyclicality

Product

Growth prospects

Markets

Size

Distribution channels

Margins

Customers

Leverage

Seasonality

Shareholder base (influence of a large shareholder)

Cyclicality

Key comparables must be in same business as target

Mergers & Acquisitions

1

Selecting Relevant Metrics

It is important to select the appropriate

metrics the companies in a peer group trade
off of (revenue, EBITDA, EPS, etc.)

Commonly Used Multiples

Multiple

Typical valuation measures include:

Enterprise Value/EBITDA

Enterprise Value (EV) multiples

EV/EBITDA

EV/EBIT

EV/Sales

Price/Earnings (P/E)

P/E to Growth (PEG)

Pros

Good ratio in cyclical industries

Good for cross-country comparisons
Independent of leverage

Distorted by differing tax rates in comps

Widely used by investors, particularly

forward-year P/E estimates
Consensus prospective EPS figures available

Distorted by different accounting

practices, particularly depreciation
Highly sensitive in cyclical companies
Can be distorted by leverage

Normalizes P/E ratios for growth prospects

Widely used in industrial, consumer sectors

Equity Value/Net income

Price/EPS (P/E)

Equity Value/After-Tax Cash

flow

Price/Book Value

Independent of leverage

Equity Value/Book Equity

Valuation multiple can be calculated on both a

latest twelve months ("LTM") and a forecasted
basis

Useful for capital intensive industries and

financial institutions
Reflects long-term profitability outlook

Distorted by different accounting

practices, particularly depreciation
Highly sensitive in cyclical companies
Can be distorted by leverage

Distorted by different
depreciation/accounting policies
EV/EBITDA is a better ratio

Distorted by accounting differences

Need profitability cross-check

Enterprise Value/EBIT

Equity Value multiples

Cons

Performance Measures
Growth Rates

Sales

Operating Income

Net Income

Margins/Profitability

Gross margin

EBITDA margin

EBIT margin

Net income
margin

Operating margin

Return on total

invested capital
(industrial
companies)

Return on equity
(FIG)

Capitalization/Credit

Leverage and liquidity ratios

Coverage ratios

Mergers & Acquisitions

2

Comparable Acquisition Transactions

Overview

Assists investment bankers, clients, lenders to understand the:

Valuation of a company

Structuring of a potential transaction

Current state of M&A in a specific industry (number and relative

value)

Examines a group of transactions to identify a median/range/trend of:

The multiple (of cash flow, operating profit, earnings or other

industry metrics) paid for a target

The premium paid to gain control of a target ("control premium")

Business fundamentals of a target (revenue/earnings growth,

profitability)

Considerations

Technical transaction elements (deal protection, conditions to

closing)

Social issues (board seats, management)

Other value drivers (synergies, tax benefits)

When valuing a company, key objective is to find the most comparable

businesses

Similar industries with similar products or services

Size, margins, relative market position, major potential liabilities

When seeking guidance regarding structure, the situation surrounding the

acquisition is crucial

Scenarios could include: LBOs, bankruptcy-related acquisitions,

hostile transactions, reverse mergers, divestitures, asset vs. stock
acquisitions, consideration, and many others

If possible, try to locate transactions in a similar industry as well

Some types of transactions should, generally, not be considered as a

comparable transaction

Acquisitions of a minority interest (not a change of control

transaction)

Rumored or withdrawn transactions

Recent deals are typically a more accurate reflection of the values buyers
are willing to pay

Remember that some transactions are more relevant than others when
selecting a range of multiples for valuation

Mergers & Acquisitions

3

Discounted Cash Flow Overview

Discounted cash flow analysis is based upon the theory that the value of a business is the sum of its expected future free cash flows, discounted at an
appropriate rate

DCF analysis is one of the most fundamental and commonly-used valuation techniques

Widely accepted by bankers, corporations and academics

Corporate clients often use DCF analysis internally

One of the most heavily used valuation techniques in M&A transactions

DCF analysis may be the only valuation method utilized, particularly if no comparable publicly-traded companies or precedent transactions are
available

DCF analysis is a forward-looking valuation approach, based on several key projections and assumptions

Free cash flows

Terminal value

What is the projected operating and financial performance of the business?

What will be the value of the business at the end of the projection period?

Discount rate

What is the cost of capital (equity and debt) for the business?

Depending on practical requirements and availability of data, DCF analysis can be simple or extremely elaborate

There is no single "correct" method of performing DCF analysis, but certain rules of thumb always apply

10

Do not simply plug numbers into equations

You must apply judgment in determining each assumption

Mergers & Acquisitions

3

11

DCF Analysis Process

Projections/FCF

Project the operating results and free cash flows of the business over the forecast period (typically 10 years,
but can be 520 years depending on the profitability horizon)

Projections/FCF
Terminal Value

Estimate the exit multiple and/or growth rate in perpetuity of the business at the end of the forecast period

Discount Rate

Estimate the companys Weighted Average Cost of Capital (WACC) to determine the appropriate discount rate
range

Present Value

Determine a range of values for the enterprise by discounting the projected free cash flows and terminal value
to the present

Adjustments

Adjust the resulting valuation for all assets and liabilities not accounted for in cash flow projections

Mergers & Acquisitions

3

Free Cash Flows (Levered and Unlevered)

DCF Of Unlevered Cash Flows

Focus of these materials

Projected income and cash-flow streams are free of the effects of debt, net of excess cash

Present value obtained is the value of assets, assuming no debt or excess cash ("firm value" or "enterprise value")

Debt associated with the business is subtracted (and excess cash balances are added) to determine the present value of the equity ("equity value")

Cash flows are discounted at a weighted-average cost of capital

DCF Of Unlevered Cash Flows

Most common in valuation of financial institutions

Projected income and cash-flow streams are after interest expense and net of any interest income

Present value obtained is the value of equity

Cash flows are discounted at the cost of equity

12

Enfocas Sale of Maestro to Falabella

Peru

Enfocas Sale of Maestro Peru to Falabella

US$714 million TEV (1)

Has agreed to
sell 100% of

To
September 2014
BofAML acted as
Financial Advisor to Enfoca

BofA Merrill Lynchs Role

BofAML acted as financial advisor to

Enfoca
The transaction highlights BofAMLs
leading position as an M&A advisor in
Peru and its ability to maximize value for
its clients

Transaction Summary

On September 17, 2014 Enfoca announced the sale of 100% of Maestro Peru to Falabella Peru
(through Sodimac) for S/. 1,404 million (US$492mm, equity value), implying an enterprise value
multiple of 16.1x LTM EBITDA (1)

This transaction represents:

The largest retail transaction in Peru in the last 7 years

The first exit of Enfocas portfolio and sale of its first investment

The largest sale of a business managed by a Private Equity fund in Peru

Enfoca and Maestro Highlights

Enfoca, one of the largest private equity firms in Peru with over US$ 700 million in assets under
management, holds investments in 7 companies (ex-Maestro) operating in markets with high
growth potential

Maestro began operations in 1994 under the name Ace Home Center; Enfoca acquired a minority
stake in 2007, took control in 2009 and achieved full ownership in 2012

As of December 2013, Maestro had 30 stores (16 of which are in Lima) and over 3,800 employees

Maestro has a ~41% share of the Peruvian modern home improvement market by sales

Enfoca Investment Portfolio (2)

Home improvement

Home Improvement Modern Channel

Education
Promart
14%

Tiles and sanitary

Healthcare

45%

Peru
Source: Press releases, Broker Research, Company public filings,
and Apoyo Consultoria Retail report (2013).
(1) Based on publicly available information.
(2) Displays companies where Enfoca has a controlling stake.
Excludes Pesquera Diamante.

13

41%

Media

Maestro Peru: A Unique Investment Opportunity

Key Investment Highlights

Low Home Improvement Stores Penetration (1)(2)

M2 per 10,000 Inhabitants

Favorable long-term macroeconomic

environment

Underpenetrated home improvement market

with ample room for growth

211

66

Leading home improvement player in Peru

focused on the most attractive customer
segments

Differentiated service model resulting in high

customer loyalty

Unique store footprint with nationwide presence

and capacity to continue expanding in a
profitable manner

20

10

Proven growth with profitability and operational

track record

Highly trained and skillful workforce, led by

experienced management team

____________________
Source: Company filings, Apoyo Consultoria Retail report (2013) and Kantar Worldpanel.

14

Undisputable Market Leadership

HI Modern Channel Market Shares in Peru

PF Sales: ~US$1BN
Market share: 85%

Promart

14%
45%
41%

Peru

Maestros Impressive Track Record Under Enfoca

Proven Track Record of Expansion (19942013)

Founded by the Vurnbrand

Family under the brand
"Ace Home Center

New entrants compete

with a similar product
matrix

New business strategy

with a project-based focus

Opens 11 new stores

2009-2013

2002- 2009

1997-2002
1994-1997

Store Evolution
30

Sales (S/. MM)

Enfoca takes control

Continues expansion in Lima

and accelerated growth in
provinces

EBITDA (S/. MM)

30
1,469

1,520
133

127

2013

LTM

12
55
659
2009

2013

____________________
Source: Company filings and Wall Street Research.

15

LTM

2009

2013

LTM

2009

Favorable Market Reaction Upon Announcement

Falabellas Share Price Performance
Indexed
104%

Broker Commentary

Stock closed 2.1% up following announcement

and 4.4% up after 5 trading days, even amidst a
general market decline

Volume
(000)
20,000

102%

The acquisition makes strategic sense and has lower risks than
entering markets in which Falabella has less experience.

Broker 1, October 1, 2014

18,000

100%

16,000

98%

14,000

96%

12,000

94%

10,000

We believe this was the right strategic move in the Peruvian DIY
industry, and that some evident synergies might make the deal
accretive in the medium term.
Broker 2, September 26, 2014

The acquisition increases Falabellas sales mix both to Peru from

21% to 24% - and to home improvement, Falabellas strongest format,
in our view.
Broker 3, September 22, 2014

92%

8,000

90%

6,000

88%

4,000

86%

2,000

84%
Sep-14

Sep-14
Falabella

Oct-14
Falabella Volume (000)

____________________
Source: Broker Research, Factiva News, FactSet as of October 31, 2014.

16

Oct-14
S&P 500

0
Oct-14
IPSA

Maestro should help extend Falabellas dominance of the

underpenetrated, fragmented and fast-growing Peruvian market.
Broker 4, September 17, 2014

We see potential synergies representing 400bps of Sodimacs and

Maestros combined sales, in areas including procurement, pricing,
banner rationalization, advertising and back office.
Broker 5, September 10, 2014

Financial Highlights and Potential Synergies

Acquisition Price and Enterprise Value (1)

Potential for Significant Synergies

Item

Gross margin expansion through improved

US$MM

competitive position and procurement

Equity Value

$492

Significant SG&A, overhead and back-office expense

reductions

(+) Total Debt 6.30.14

$227

Exploit Maestros consumer finance upside potential

through increased in-store sales penetration and

decreasing marginal costs

(-) Cash & Equivalents 6.30.14

($6)

= Enterprise Value

$714

EV / EBITDA 2013

15.3x

EV / EBITDA LTM (6.30.14)

16.1x

Consolidation of distribution centers and routes

Improve profitability of private label products and

____________________
Source: Press releases, Company public filings and Wall Street research.
(1) Based on publicly available information. Balance sheet data as of 6.30.14. Figures converted at an FX rate of 2.855 PEN/USD.

17

other revenue enhancements

Analysts estimate combined EBITDA margin

expansion of approximately 400bps as a result
of synergies

Key Lessons Learned

International investors have faith in Perus long-term potential, despite a temporary deacceleration in economic growth

Although expected real GDP growth decreased to ~3.1% for 2014, a strong rebound is
expected for 2015 and 2016, making Peru one of the fastest growing economies in the region

Perus highly underpenetrated home improvement market and expanding middle class offer
significant upside potential in the retail space

Scalable franchises with leading market positions command premium valuations

18

At an implied EV / LTM EBITDA multiple of 16.1x, the transaction represents one of the
highest valued in the Latin American retail space

The market welcomes inorganic growth initiatives with compelling strategic rationale

With a combined market share of ~85%, Sodimac and Maestro will become the undisputable
leaders of the Peruvian home improvement industry

Research analysts expect a combined EBITDA margin expansion for Maestro and Sodimac of
~400 bps due to synergies

Equity Capital Markets

Initial Public Offerings

26

Why Go Public?
IPO: The first sale of stock by a private company to the public

Benefits

Considerations

Fund growth

Dilution of ownership

Liquidity for financial sponsors, founders (estate planning)

management and employees

Corporate governance and SOX compliance

Distraction for management

Set a public market valuation

Fishbowl existence
De-lever the balance sheet

19

Disclosure of information to competitors / vendors

Prestige & publicity

Fees & expenses

Upgrade management & attract/retain good employees

Accurate financial reporting

Establish an acquisition currency

Vulnerability & change of control

Alternative to Sale of Company

Alternative to Sale of Company

The Life of an IPO and Add-On

20

1.)

Win Mandate

6.)

Pricing:
Allocation
Stock begins trading

2.)

5.)

Due Diligence/Preparation:
Legal Preparation
File the Prospectus
SEC Review

3.)

Buildbook:
Gather feedback from Salesforce
Institutional / Retail
Market Message

4.)

Launch Deal:
Investor Targeting
Sales Teach-In
Mgmt Presentation
Schedule Booking

Roadshow:
One-on-Ones / Conf. Calls
Group Events
Internet Roadshow

Price Discovery
A price discovery process - the marketing process collects and interprets market information to optimize pricing

Set initial wide range

21

Research analyst
vetting process

Discussions between
Company and
Bookrunner to refine
range

Preliminary
prospectus price
range; bottom end is
hook, top end is
target

Roadshow feedback
and bookbuilding

Set offer price and

complete allocation
of the shares