Maximizing the Value of an Exit Strategy March 1, 2001 Fabian Barros Marcelo Bermudez Christopher Rowell Marimuthu Subburathinam Alexandre Wolynec

Agenda Learning Objectives Overview and opportunities for Probil The Turkish market for an IPO Cost of Capital Managing Uncertainties and Real Options Recommendations

Learning Objectives Evaluating country risks and mitigating factors Challenges of doing an IPO in Turkey Probil’s Cost of Capital Impact of Uncertainties Identifying and Modeling Real Options Learning Objectives

Probil Overview Founded in 1989 Provides IT solutions Networks, computer hardware, basic software Design and implementation services Support and maintenance services (unique) Multi-vendor, independent of holding groups Good reputation: banking, telco, ISPs, manufacturing Positioned to help build the internet and perhaps provide e-business software Overview and opportunities for Probil

The new Investors EMEA Technology Investment co-managed by Kagan Ceran EFG Hermes (over $2B) Summer 2000 Invested $21 million to Merge Probil Group companies and Bordata Infuse $10 M cash Take advantage of size and reputation to grow more rapidly Expand into e-business applications Exit required by 2005 Overview and opportunities for Probil

The Business Opportunities Acquire a local distributor Improve delivery efficiency, lower price multiples Acquire US Internet professional services firm Access to US market with remote, less expensive Turkey labor Improve image in Turkey Source of US$ revenue Use an IPO to raise cash for acquisitions When? How much? 25% of the Company Consider equity investment? Overview and opportunities for Probil

Turkey Overview Country RisksLevelMitigation ExpropriationLow Currency fluctuationHighYes War or violenceLow Political instabilityHighYes CorruptionLow RepatriationLow Military governments an historic stabilization factor Contract with suppliers to share currency risks The Turkish market for an IPO

Turkey’s Stock Market One of the most active Emerging Markets’ Stock Exchanges High volatility Volumes ($150m-$1.5bn) Prices The Turkish market for an IPO

Doing an IPO in Turkey Small IPO market 35 new issues in 2000 up from 27 in 1997($157m) Turkey’s IPOs are among the most undervalued Pre-IPO condition of the market most important factor Investment bankers do IPOs on a “best effort” basis Investors use Adjusted EV/EBITDA ratio P/E introduces debt and tax structures which may differ Simple EV/EBITDA assumes same growth rate The Turkish market for an IPO

The Cost of Capital Goldman-Integrated Model US Risk-free rate:5.5% Market risk premium: 5.0% Beta of comparable:1.45 Country premium 1: 4.5% Cost of Capital17.25% Cost of debt in US$ in Turkey: 20%-25% Somewhat inflated because of banking system crisis 1 Source: Moody’s Cost of Capital

The Cost of Capital Adjusted ICCRC model Average country cost of capital23% Beta Adjusted30% Mitigation factors-3% Cost of Capital27% Cost of Capital

Impact of key uncertainties Revenue Growth rate Normal distribution (25%, 15%) Expected EV/EBITDA ratio Lognormal Actual EV/EBITDA ratio Lognormal, 0.75 correlation with expected Managing Uncertainties

Base Case NPV Managing Uncertainties E(NPV):$38.5MMSt. Dev.:$15.1MMSkewness:1.02

Real Options Timing of IPO – “Wait for best moment” Alternative Funding – Use VC Funds International Expansion Real Options

Real Option I: Timing of the IPO If Expected EV/EBITDA < Strike EV/EBITDA Don’t do the IPO IPO could be done in any of the next 5 years Depends on pre-IPO market situation Drawback Delays growth boost Open door for competitor’s IPO Real Options

Real Option II: Alternative Funding VC interested in equity investment EV/EBITDA of 10 for 10% of the company If Expected EV/EBITDA < Strike Price < 10 Accept the new equity investment offer Alternative to IPO if we delay it Allows the company to boost some growth Reduce exposure to the IPO proceeds volatility Real Options

Real Option III: Expansion/Flexibility Option to acquire internet consulting company in the US Improves image of the company Adds e-business implementation know-how skill set Reduces overall cash flow volatility (“0.2” correlation) Provides flexibility Reduces cost of capital – ICCRC weighted average for US and Turkey (needs to be calculated) Requires a $5 million investment (company has this money) Real Options

Real Options Model IPO Forecast IPO/VC No - Wait next year Strike Price Finance Domestic Expansion Yes Value to Investor Excess CashCash Flows Company Value 2005 Revenue Growth International Expansion Real Options

Real Options Results Real Options

Recommendations Probil should wait for a suitable moment to do its IPO If the market is unfavorable, Probil should consider raising money through VC They should pursue the international expansion Decrease growth volatility Improve image of the company Conclusions

Timing of IPO Results E(NPV):$39.9MMSt. Dev.:$15.7MMSkewness:.99 Real Options

Alternative Funding Results E(NPV):$40.1MMSt. Dev.:$16.0MMSkewness:1.03 Real Options

International Expansion Results E(NPV):$43.5MM St. Dev.:$17.4MM Skewness:.99 E(NPV):$44.0MM St. Dev.:$17.9MM Skewness: Real Options

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Comparables for EV/EBITDA ratios Managing Uncertainties

Base Case NPV: IPO in 2001 Base Case Valuation