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Specialists in alternative sources of funding

Alternative sources of funding

Seminar at the London Stock Exchange

18 May 2012

Specialists in alternative sources of funding

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2000

4000

6000

8000

10000

12000

14000

16000

18000

2006 2007 2008 2009 2010 2011

Fun

ds

rais

ed (

£ m

illio

n)

Total

Ex-natural

resources

Equity raised on AIM 2007-2011

Traditional financing options: Going, going….?

• Straight bank debt difficult

Lack of lending to higher growth /risk companies

Net lending negative every month since 2008

Securing debt is a lengthy and time consuming process

• Equity raising under pressure

Private equity funds suffering and withholding capital

AIM IPO financings collapsed: £75m in first four months 2012 vs. £609m total for 2011

Secondary signs of stress: 794 issues to raise only £1.2bn in first four months

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Sources: London Stock Exchange as at 31 December 2011

0

20

40

60

80

100

120

2005 2006 2007 2008 2009 2010 2011

€ b

illio

ns

Funds Raised

Investments

Divestments

Private Equity: Fundraising, Investments & Divestments

Sources: EVCA Yearbook 2012

Specialists in alternative sources of funding

Mind the funding gap

• Companies are undervalued, vulnerable and facing a financing gap

Private companies having to stay private longer

Rise in bids for AIM listed companies

A spike in de-listings – 134 left AIM over last 12 months

Big price discounts on public secondary placements

• Market inadequately equipped to help

Limited flexibility in financing products

NOMAD/brokers primarily geared to public institutional ordinary equity placements

• At the same time growth and M&A opportunities now greater than ever for SMEs

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Specialists in alternative sources of funding

Chrystal Capital Partners

• Specialists in alternative sources of funding

Helping companies access new or under-explored capital pools & structures

• Equity

Family offices filling the equity gap with direct investments into companies

Chrystal’s network of 200+ families financing pre IPO and IPO deals

• Debt

Convertible bonds for listed companies

Retail bonds

Non traditional bank finance

• Alternative structures

Specialists in alternative sources of funding

Convertible bonds

• Typical bond characteristics

Minimum £20m bond offering & maximum of 30% potential dilution

Unsecured debt obligation or covenants with an offset to senior indebtedness

Instrument publically traded by global institutional investors

• Key issuer characteristics

Market cap minimum £50 million

Financial stability with strong earnings growth and interest cover

Proven management team & transparent operations

Liquidity preferably £1m+ daily trade, ideally c.£3m

• Historically the preserve of large-caps, now available to smaller issuers

Chrystal has acted on two recent financings: £65m raised for Sportingbet Plc and $70m for Lonrho Plc

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Specialists in alternative sources of funding

Smaller convertible loans

• Partnership with Optimus Capital to source & finance secured convertible loans for listed smaller companies

• Typical loan characteristics

Private, secured convertible loans of £500k to £10m

3-5 year duration

Coupon typically 8-10% p.a.

IRR to conversion including redemption premium 20%

• Key issuer characteristics

Funding must deliver transformational impact on the business

Proven management team & transparent operations

Coupon must be affordable out of cash flow

• 13 transactions completed by Optimus team in the last three years

Examples include Spiritel, bglobal and Cleardebt

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Specialists in alternative sources of funding

Retail Bonds

• ORB: transparent secondary market giving small private investors access to corporate bonds

• Over £1.7 billion raised in 20 new issues and four taps of existing ORB issues

• Opens up new source of capital for companies seeking to diversify investor base

Private investors seek income generating alternatives in context of low interest rates and market volatility

Smaller denominations than traditional corporate bonds – as low as £1, more typically £100

• Public & private issuers: Tesco Bank, HSBC, ICG, Places for People

• Parameters (based on historic ORB issues)

Bonds of £25 - £350 million issued since launch in 2010

Duration 5 - 10 years

Coupon 1 - 7%

Denomination £1 - £1,000

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Specialists in alternative sources of funding

Commodity stream finance

• Alternative asset source of development finance for listed natural resources companies

• Typical finance characteristics

Immediate up-front capital payment: $10–$200 million to develop or expand projects

Subsequent fixed payments based on production cost per unit of resource produced

Share of future production ranges from 5-30% of output

• Typical company characteristics

Listed resources companies: precious metals, base metals, coal, oil & gas

Assets within 24 months of production in stable geographic locations

• Advantages over traditional debt and equity

Asset specific: does not dilute company’s other projects

Finances project development without diluting shareholder value

Less onerous than debt: retains flexibility for raising debt in the future as assets are unencumbered

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Specialists in alternative sources of funding

Family office capital

• Strong and growing network of large single family offices

• Significant discretionary capital that can be invested opportunistically in the best deals

• Tend to have few restrictions on where and how they can invest their funds

• Able to move quickly and decisively when assessing a potential investment

• An under-deployed pool of capital bridging the gap left by retreat of traditional finance sources

• 200+ family offices in Chrystal’s network

Assets of $250m+

Mostly seeking direct investment opportunities in private and public companies

Diverse sector and geographical focus

Strong appetite for natural resources, technology and consumer businesses

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Specialists in alternative sources of funding

About Chrystal Capital Partners

• FSA regulated corporate finance firm based in London

• Specialists in alternative sources of funding for private and public companies

• Large network of family offices and niche institutional investors

• Proven experts in capital markets, corporate finance, private equity & fund management

• Seven completed transactions in the past 18 months raising over $280 million

• Global outlook: completed deals in Canada, Poland, Ireland, US & UK

• Sector agnostic: clients in mining, energy, software, gaming, consumer goods, specialist manufacturing, financials

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Specialists in alternative sources of funding

Example deal: pre-IPO private placement

Silurian Hallwood Plc

• Private oil & gas company focused on Poland, the largest shale play in Europe

Company • Strong management team with decades of experience in US shale exploration and production

Finance raised • Private equity placement of £13 million

Preparation • Silurian Hallwood came to Chrystal at a very early stage and required significant preparation prior to raising finance

• Chrystal advised on business & financial strategy, strategic positioning, branding & website

Investors • Majority of the investment placed with a large European family office

• Three additional smaller family offices invested alongside

Use of funds • Funds used to continue development of 577,000 net acres of land that lie in the shale oil window of Poland

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Specialists in alternative sources of funding

Example deal: AIM IPO

Escher Group Plc (LSE:ESCH)

• Escher’s financial transactions platform is global market leader in the Post Office counters market

Company • Operates in over 30 countries processing over 3.4 billion transactions annually

Requirement • Following 2007 MBO Escher required equity funding to repay bank and PIK debt to move to a more conventional capital structure

• Growth capital was also required for the development and launch of a new product

Solution • Chrystal advised on attaining VCT status and introduced both VCT investors and Panmure Gordon as Nomad and Broker for the IPO

Fund raising • $25m raised via an IPO in August 2011 at 170p per share

Result • 3rd best performing IPO on AIM in 2012 – up 53% as at 16 May 2012

• PIK loans and a substantial part of the bank debt also repaid

• Remaining debt has been refinanced through a long term facility

• Finance enabled Escher to win a major contract in USA

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Specialists in alternative sources of funding

Example deal: convertible bond

Sportingbet Plc (LSE:SBT)

• Main listed Sportingbet (£210m market cap at time of transaction): global online gaming operator

Origin • Knowledge of both the gaming sector and the inadequacy of equity capital markets as a source of capital led to pro-active approach to company

Structure • £65m 5 year Convertible Bond

• Coupon rate 7.0% payable six months in arrears

• Initial conversion price a 20% premium

Investors • Large blue chip international convertible bond investors

• CEO Andrew McIver commented “The bond has brought a whole new group of investors to the Sportingbet story”

Result • Proceeds financed the acquisition of Centrebet, an Australian listed online sportsbook operator.

• Equity dilution for shareholders reduced

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Specialists in alternative sources of funding

Other recently completed transactions

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Specialists in alternative sources of funding

Chrystal Capital Partners

Dr Mustapha Omar - Head of Research at Collins Stewart and Fairfax

- Main Board Director at AIM-listed Nviro

- Co-founder of Chrystal Capital

Kingsley Wilson - Media Analyst at Collins Stewart and Investec Securities

- Co-founder of First Columbus & Chrystal Capital

James Innes - Corporate Finance at Andersen

- Private Equity at Isis Capital

- Co-Founder of Convex Capital & Chrystal Capital

Stephen Ford - Technology, Water and Gaming analyst at Collins Stewart

- Co-founder Essential Capital Management

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Specialists in alternative sources of funding

Contact us:

Chrystal Capital Partners LLP

New Broad Street House

35 New Broad Street

London EC2M 1NH

T: 020 7850 4760

F: 020 7023 4904

E: first.second@chrystalcapital.com

W: www.chrystalcapital.com

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