Exhibit (c) (4)
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CONFIDENTIAL – PRELIMINARY DRAFT
INVESTMENT BANKING DIVISION
Project Aurora
Special Committee Discussion Material
Strictly Private and Confidential Goldman Sachs (Asia) LLC
November 2012
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CONFIDENTIAL – PRELIMINARY DRAFT
INVESTMENT BANKING DIVISION
Disclaimer
Goldman Sach (Asia) L.L.C. (“GS”) has prepared and provided these materials and GS’s related presentation (the “Confidential Information”) solely for the information and assistance of the Special Committee of the Board of Directors (the “Special Committee”) of Aurora (the “Company”) in connection with its consideration of the matters referred to herein. Without GS’s prior written consent, the Confidential Information may not be circulated or referred to publicly, disclosed to or relied upon by any other person, or used or relied upon for any other purpose. Notwithstanding anything herein to the contrary, the Company may disclose to any person the US federal income and state income tax treatment and tax structure of any transaction described herein and all materials of any kind (including tax opinions and other tax analyses) that are provided to the Company relating to such tax treatment and tax structure, without GS imposing any limitation of any kind. The Confidential Information, including this disclaimer, is subject to, and governed by, any written agreement between the Company, the Board and/or any committee thereof, on the one hand, and GS, on the other hand.
GS and its affiliates are engaged in investment banking, commercial banking and financial advisory services, securities trading, investment management, principal investment, financial planning, benefits counseling, risk management, hedging, financing, brokerage activities and other financial and non-financial activities and services for various persons and entities. In the ordinary course of these activities and services, GS and its affiliates may at any time make or hold long or short positions and investments, as well as actively trade or effect transactions, in the equity, debt and other securities (or related derivative securities) and financial instruments (including bank loans and other obligations) of third parties, the Company, any other party to any transaction and any of their respective affiliates or any currency or commodity that may be involved in any transaction for their own account and for the accounts of their customers.
The Confidential Information has been prepared and based on information obtained by GS from publicly available sources, the Company’s management and/or other sources. In preparing the Confidential Information, GS has relied upon and assumed, without assuming any responsibility for independent verification, the accuracy and completeness of all of the financial, legal, regulatory, tax, accounting and other information provided to, discussed with or reviewed by GS, and GS does not assume any liability for any such information discussed with or reviewed by GS. GS has assumed that all forecasts provided to, discussed with or reviewed by GS have been reasonably prepared and reflect the best currently available estimates and judgments of the Company. GS does not provide accounting, tax, legal or regulatory advice. GS’s role in any due diligence review is limited solely to performing such a review as it shall deem necessary to support its own advice and analysis and shall not be on behalf of the Company. Analyses based upon forecasts of future results are not necessarily indicative of actual future results, which may be significantly more or less favorable than suggested by these analyses, and GS does not assume responsibility if future results are materially different from those forecast.
GS has not made an independent evaluation or appraisal of the assets and liabilities of the Company or any other person and has no obligation to evaluate the solvency of the Company or any person under any law. The analyses in the Confidential Information are not appraisals nor do they necessarily reflect the prices at which businesses or securities actually may be sold or purchased. The Confidential Information does not address the underlying business decision of the Company to engage in any transaction, or the relative merits of any strategic alternative referred to herein as compared to any other alternative that may be available to the Company. The Confidential Information is necessarily based on economic, monetary, market and other conditions as in effect on, and the information made available to GS as of, the date of such Confidential Information and GS assumes no responsibility for updating or revising the Confidential Information.
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CONFIDENTIAL – PRELIMINARY DRAFT
INVESTMENT BANKING DIVISION
Table of Contents
I. Aurora Situation Overview II. Financial Analysis
Appendix A: Illustrative Weighted Average Cost of Capital Calculation
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CONFIDENTIAL – PRELIMINARY DRAFT
INVESTMENT BANKING DIVISION
I. Aurora Situation Overview
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INVESTMENT BANKING DIVISION
Illustrative Offer Price Premium and Multiples
(US$ in millions except per share amounts)
Illustrative Offer Price Premium Illustrative Transaction Multiple
Caesar 2nd China Peers Caesar Round Current Relevant Caesar Final Caesar 2nd Comps Final Offer1 Offer Price2 Aurora Data Offer1 Round Offer Median7
Offer Price per Aurora Shares $ 12.00 $ 12.50 $ 10.43 Enterprise Value/EBITDA
% Premium (Discount) to Last Closing Price
Prior to Announcement of Caesar Proposal 3 21.0 % 26.0 % 5.1 % IBES Estimates:
% Premium (Discount) to Last Closing Price
4 |
| 2012E EBITDA $ 80.5 7.9 x 7.8 x 5.6 x Cited by Caesar 52.3 % 58.6 % 32.4 % |
% Premium (Discount) to Current Price2 15.1 % 19.8 %—2013E EBITDA $ 91.9 6.9 x 6.8 x 3.9 x
% Premium (Discount) to 52 Week High (13.4)% (9.7)% (24.7)% Management Estimates8:
% Premium (Discount) to 52 Week Low 79.9 % 87.4 % 56.4 % 2012E EBITDA $ 85.7 7.4 x 7.3 x 5.6 x
% Premium (Discount) to 2 Year High (47.0)% (44.8)% (54.0)% 2013E EBITDA $ 102.8 6.2 x 6.1 x 3.9 x
% Premium (Discount) to 2 Year Low 87.5 % 95.3 % 63.0 %
% Premium (Discount) to 1 Month VWAP 14.5 % 19.3 % (0.5)%
P/E Multiple
% Premium (Discount) to 3 Month VWAP 8.1 % 12.6 % (6.0)%
IBES Estimates: Aurora FD Shares Outstanding (mm) 5 74.7 74.8 74.0
2012E EPS $ 1.15 10.4 x 10.9 x 8.4 x Aurora Implied Fully-Distributed Equity Value $ 896.3 $ 935.0 $ 771.7 Less: Cash & Equivalents6 $ 255.6 $ 308.7 $ 255.6 2013E EPS $ 1.23 9.8 x 10.2 x 7.1 x Add: Minority Interest6 $(2.8) $ 0.1 $(2.8) Management Estimates8:
Aurora Implied Enterprise Value $ 637.9 $ 626.4 $ 513.3 2012E EPS 10.5 x 10.9 x 8.4 x Total Unrestricted Cash per Diluted Shares $ 3.42 $ 4.13 $ 3.45 2013E EPS 9.4 x 9.8 x 7.1 x
Source: Management projections, IBES and public filings
1 |
| Caesar’s final bid initially was US$11.50 on October 15, 2012, but was increased to US$12.00 on November 12, 2012 |
2 |
| Closing price as of November 9, 2012 |
3 |
| Closing price as of January 19, 2012 |
4 |
| Closing price as of January 11, 2012 |
5 In Caesar’s final proposal, the proposal calculates the offer based on Aurora’s total basic shares outstanding of 72.5 mm shares and excludes any options. However the calculations in this presentation are based on the diluted shares outstanding calculated from the treasury method
6 For Caesar’s 2nd round bid, used Aurora’s March 31, 2012 financial statements; For Caesar’s final round bid, used Aurora’s September 30, 2012 financial statements; Cash and equivalents include cash and short-term investments
7 |
| Peer group median of HiSoft, iSoftSone and VanceInfo. Data as of November 9, 2012 |
8 Includes losses related to overseas business in 2012 and 2013, respectively; Management EPS estimates varies depending on the shares outstanding
Aurora Situation Overview 4
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CONFIDENTIAL – PRELIMINARY DRAFT
INVESTMENT BANKING DIVISION
Situation Assessment
Stock Price Performance for Last 3 Years
Statistic Share Price (US$)
$40 52 Week High 13.85 20,000
06-Dec-2009 01-Jul-2010 06-Dec-2010 30-Jan-2011
Signed a definitive agreement to Aurora completed Divested Lenovo Announced new share 52 Week Low 6.67 acquire Legacy for US$60 mm in cash the acquisition of Security Tech (Beijing) repurchase program to 3 Year High 32.16 and 26.8 mm shares of common stock Legacy for US$15 mm purchase up to US$60 mm 1 Month VWAP 10.48 18,000
$35 3 Month VWAP 11.10
3Y High = US$32.16
16,000 $30 14,000
) $ $25 12,000
(US 20-Jan-2012
Aurora announced non-binding proposal by Caesar.Bid price was $20 not disclosed. Stock price rose 10,000 Volume Price 18.7% in the first day of trading(000) osing Caesar 2nd Round Bid =US $12.50 8,000
Cl $15
Caesar 1st Round Bid = US$12.00
6,000
$10 Caesar Final Bid = US$12.001
US$ 10.43
4000 ,
$5 3Y Low = US$6.40 2,000
$0 0 Nov-09 Feb-10 Apr-10 Jul-10 Oct-10 Jan-11 Mar-11 Jun-11 Sep-11 Dec-11 Feb-12 May-12 Aug-12 Nov-12
Daily from 23-Oct-2009 to 09-Nov-2012
Volume Aurora Share Price
Source: Bloomberg, as of November 9, 2012
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| Caesar’s final bid initially was US$11.50 on October 15, 2012, but was increased to US$12.00 on November 12, 2012 |
Aurora Situation Overview 5
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CONFIDENTIAL – PRELIMINARY DRAFT
INVESTMENT BANKING DIVISION
Situation Assessment
Recent Trading Performance
20-Jan-2012 21-Mar-2012 Statistic Value
$20 7,000
Aurora announced non-binding Special Committee Average Share Price (US$) 11.60 proposal by Caesar. Bid price was Meeting, closing VWAP (US$) 11.63 not disclosed. Stock price rose price at US$13.73 ADTV (Shares in thousands) 374 18.7% in the first day of trading per share
$18 ADTV (US$ in thousands) 4,355
6,000
13-Feb-2012 26-Apr-2012 Week of 11-Jun-2012 31-Jul-2012 12-nov-2012
Aurora reports unaudited Aurora reported Renewed press Aurora reported 2Q12 earning Final Round Bidding fourth quarter and full 1Q12 earning rumors that private results.Met guidance with non—Caesar Bid Price: $16 year 2011 results results.Met guidance GAAP net revenue of US$124.4 mm US$12.00 equity firms are eyeing 5,000 with non-GAAP net bids for Aurora and non-GAAP EPS of US$0.26 revenue of US$121.2 mm and $14 non-GAAP EPS of US$0.27
(USD) 4,000
$12 Volume Price g Closin 3,000 (000) $10
US$10.43
12-Jan-2012 26-Mar-2012 14-May-2012 4-Jul-2012 31-Oct-2012
Caesar submitted non—Announced that 1st Round Bidding 2nd Round Bidding Aurora reported 3Q12 earning 2,000 $8 binding proposal to Special Committee Caesar Bid Price: Caesar Bid Price: results.Met guidance with non-Aurora with an offer price decided to solicit bids US$12.00 US$12.50 GAAP net revenue of of US$12.00 per share in US$129.4 mm and non-GAAP cash EPS of US$0.24
1,000 $6
$4 0 1/11/2012 3/20/2012 5/25/2012 8/2/2012 10/9/2012
Daily from 11-Jan-2012 to 09-Nov-2012
Volume Aurora Share Price
Source: Bloomberg, as of November 9, 2012
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| Caesar’s final bid initially was US$11.50 on October 15, 2012, but was increased to US$12.00 on November 12, 2012 |
Aurora Situation Overview 6
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CONFIDENTIAL – PRELIMINARY DRAFT
INVESTMENT BANKING DIVISION
Situation Assessment
Performance of Stock Indices After Caesar’s Initial Proposal
Implied Aurora Performance of Stock Indices Following Announcement of Caesar Initial Proposal1 Share Price3
140%
ce 120%
Pri US$9.92 5.1% US$ 10.43
100% 4.2%
(4.3)% US$ 10.33
Indexed US$ 9.49
80%
(34.2)% US$ 6.53
60%
Jan-2012 Mar-2012 Apr-2012 Jun-2012 Aug-2012 Sep-2012 Nov-2012
Daily from 19-Jan-2012 to 09-Nov-2012 4
Aurora Chinese IT Services Companies Nasdaq China US-Listed
Implied Aurora Performance of Stock Indices After Last Closing Price Cited by Caesar in Initial Bid Letter2 Share Price3
180% 160%
Price 140%
32.4% US$ 10.43 d 120%
US$7.88 7.2% US$ 8.44
Indexe 100% US$ 7.69
(2.5)%
80%
(31.7)% US$ 5.37
60%
Jan-2012 Mar-2012 Apr-2012 Jun-2012 Jul-2012 Sep-2012 Nov-2012
Daily from 11-Jan-2012 to 09-Nov-2012 4
Aurora Chinese IT Services Companies Nasdaq China US-Listed
Source: Bloomberg, as of November 9, 2012
Note: Chinese IT Service Companies Index consists of VanceInfo, iSoftStone and HiSoft. Market data as of November 9, 2012
1 |
| January 19, 2012 is the last trading day prior to announcement of Caesar’s proposal. Share price was US$9.92 |
2 |
| January 11, 2012 is the last closing price cited by Caesar in its initial bid proposal. Share price was US$7.88 |
3 Implied Aurora share price assuming the stock price mirrors the performance of different indices since the price on the reference date
4 |
| Bloomberg China US Equity Index as of November 9, 2012 |
Aurora Situation Overview 7
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CONFIDENTIAL – PRELIMINARY DRAFT
INVESTMENT BANKING DIVISION
Situation Assessment
Stock Price Performance after Legacy Merger
450%
09-Dec-2009 01-Jul-2010 23-May-2011 20-Jan-2012 4-Jul-2012 12-Nov-2012
Signed a definitive agreement Aurora completed the SEC investigates Aurora announced non—2nd Round Bidding Final Round Bidding to acquire Legacy for US$60 acquisition of Legacy Longtop about binding proposal by Caesar. Caesar Bid Price: Caesar Bid Price: 400% mm in cash and 26.8 mm in possible accounting Bid price was not disclosed. US$12.50 US$12.001 common stock irregularities Stock price rose 18.7% in the first day of trading
350%
300%
Price 250% ndexed 200% I
150%
34.9%
100%
(20.0)%
50%
(58.2)%
0%
Nov-2009 May-2010 Nov-2010 May-2011 Nov-2011 May-2012 Nov-2012
Daily from 09-Nov-2009 to 09-Nov-2012 2
Aurora Chinese IT Services Companies Nasdaq
Source: Bloomberg, as of November 9, 2012 Note:
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| Caesar’s final bid initially was US$11.50 on October 15, 2012, but was increased to US$12.00 on November 12, 2012 |
2 |
| Chinese IT Service Companies Index consists of VanceInfo, iSoftStone and HiSoft. Market data as of November 9, 2012 |
Aurora Situation Overview 8
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China GDP Forecast and Carrier Capex
China Real GDP Growth Forecast
8.5% 8.5% 8.6% 8.4% 8.1% 8.2% 8.2% 8.0% 81% . 81% . 7.8% 7.9%
Caesar Bid 1st Round Bid 2nd Round Bid Final Round Bid January 12, 2012 May 14, 2012 July 4, 2012 November 12, 2012
2012E 2013E 2014E
Source: The Economist Intelligence Unit
China Carrier Capital Expenditures (RMB billion)
294 286 285 286 286 288 286
281 283 256 255 271
Caesar Bid 1st Round Bid 2nd Round Bid Final Round Bid January 12, 2012 May 14, 2012 July 4, 2012 November 12, 2012
2012E 2013E 2014E
Source: IBES
Aurora Situation Overview 9
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CONFIDENTIAL – PRELIMINARY DRAFT
INVESTMENT BANKING DIVISION
Selected Aurora Analyst Views Over Time
Aurora’s Analyst Price Targets and EPS Estimates
Aurora Median Analyst Price Targets
$ 14.55
$ 13.00 $ 13.10
$ 12.10 $ 12.35
Post 3Q2011 Earnings Post 4Q2011 Earnings Post 1Q2012 Earnings Post 2Q2012 Earnings Post 3Q2012 Earnings Announcement Announcement Announcement Announcement Announcement on October 31, 2011 on February 13, 2012 on April 26, 2012 on July 30, 2012 on October 31, 2012 (Submission of Caesar Bid letter on (1st Round Bid Date May 14, 2012; (Final Bid Date November 12, 2012) January 12, 2012) 2nd Round Bid Date July 4, 2012)
# of
14 12 11 9 7 Analysts
Aurora Median Analyst EPS Estimates
$ 1.85 $ 1.71 $ 1.50 $ 1.43 $ 1.35 $ 1.31 $ 1.27 $ 1.24 $ 1.52 $ 1.14 $ 1.19 $ 1.14 $ 1.16
$ 1.06
Post 3Q2011 Earnings Post 4Q2011 Earnings Post 1Q2012 Earnings Post 2Q2012 Earnings Post 3Q2012 Earnings Announcement Announcement Announcement Announcement Announcement on October 31, 2011 on February 13, 2012 on April 26, 2012 on July 30, 2012 on October 31, 2012
2012E 2013E 2014E
Source: Broker Research Reports
Aurora Situation Overview 10
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CONFIDENTIAL – PRELIMINARY DRAFT
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Selected Aurora Research Analyst Views
Research Analysts’ Estimates Post 3Q12 Announcement
Non-GAAP EPS (US$ / Share)
Date Firm Analyst Rating Price Target 2012E 2013E 2014E Price Target Methodology
1-Nov-12 CICC Kai Qian, Haofei Chen Buy $16.00 1.07 1.26 1.35 15x P/E on 2012E Non-GAAP EPS
Vivian Hao, Alan Hellawell
1-Nov-12 DB Hold $13.20 1.04 1.14 NA DCF: WACC 13.8% with Cost of Equity 14.1% III, Eugene Yeohv
1-Nov-12 GS Sam Li Not Rated NA 1.16 1.22 1.35 NA
DCF: WACC 15.5%, Cost of Equity 15.5%, Risk Free Clara Fan, Cynthia Meng,
1-Nov-12 Jefferies Hold $11.50 1.18 1.24 1.35 Rate 2.6%, Equity Risk Premium 8.9%, Beta 1.5, Anita Chen Terminal Growth Rate 0.5%
Qin Zhang, Alvin Kwock, DCF: WACC 12.8%, Risk Free Rate 4.0%, Equity Risk
1-Nov-12 JPMorgan Buy $16.00 1.18 1.33 1.77
Ashish Gupta Premium 7.0%, Beta 1.25, Terminal Growth Rate 3.0%
1-Nov-12 SIG James E Friedman Hold $11.00 1.14 1.22 NA 9x P/E on 2013E Non-GAAP EPS
1-Nov-12 Wedbush Scott Sutherland Hold $11.00 1.16 1.30 NA DCF: WACC 16.0%, Terminal Growth Rate 4.0%
Median $12.35 1.16 1.24 1.35
Management Projections 1.16 1.29 1.55
Source: Broker research as of November 9, 2012
Aurora Situation Overview 11
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CONFIDENTIAL – PRELIMINARY DRAFT
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II. Financial Analysis
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Summary of Financial Analysis
Management Projections ($ per share)
Per Share Range Summary Illustrative Assumptions
Current Price1 = $10.43 Caesar Offer Price = $12.00
Peer Trading Range ? Based on Aurora management’s 2012E EPS and forward trading range of (2012 P/E – Chinese $8.11 $11.58 7.0x to 10.0x for Chinese peers peers)? Chinese peers include VanceInfo, iSoftStone and HiSoft. Median3 is 8.4x
Median = $9.73
Peer Trading Range ? Based on Aurora management’s 2013E EPS and forward trading range of (2013 P/E – Chinese $7.10 $9.68 5.5x to 7.5x for Chinese peers peers)? Chinese peers include VanceInfo, iSoftStone and HiSoft. Median3 is 7.1x
Median = $9.16
PV Future Stock $7.20 $10.92? 2015E forward P/E based on Aurora management 2016E EPS: 5.5x – 7.5x Financial Price? Cost of equity: 10.5%—14.5%
Analysis
? Based on Aurora management projections from 2012E-2016E DCF $11.86 $16.70? WACC of 13.5%—17.5%? Perpetuity growth rate of 0.0% to 4.0%
$9.00 $11.84? 20.0-25.0% IRR with exit P/E multiple ranging from 5.5x – 7.5x LBO Analysis? $350 million bank financing loan with 6.0% interest rate
? LTM EV/EBITDA range between 7.0x-8.2x based on precedent cash Precedent $12.65 $14.04 transactions following the Aurora-Legacy merger Transactions? Based on Aurora management’s 2012E EBITDA
? 9-Nov-2011 to 9-Nov-2012
52-Week Trading $6.67 $13.85
? 52 week high at $13.85 on Mar 12, 2012 Range Additional Median = $12.35? 52 week low at $6.67 on Dec, 21, 2011
Financial Analysis
Analyst Price Targets $11.00 $16.00? Median: $12.35 (Based on 6 brokers’ updated price target post 3Q earning (as of 9-Nov-2012) announcement, as of Nov 9, 2012)
Undisturbed Price2 = $7.88
1. Stock price as of November 9, 2012
2. Undisturbed price as of the closing price on January 11, 2012, the last trading day prior to the bid from Caesar on January 12, 2012
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| The median of comps trading range as of November 9, 2012 |
Financial Analysis 13
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Aurora Peer Trading Range
2012E P/E
10.4 x 10.5 x Median = 8.4x 9.7 x 9.1 x 9.0 x 8.4 x 7.1 x
Aurora Current Price Caesar @ $12.00 Offer Price VanceInfo HiSoft iSoftStone IBES Estimates Management Projections Chinese IT Services Companies
2013E P/E
Median = 7.1x 9.8 x 9.4 x 8.5 x 8.1 x 7.1 x 7.1 x 5.9 x
Aurora Current Price Caesar @ $12.00 Offer Price HiSoft VanceInfo iSoftStone IBES Estimates Management Projections Chinese IT Services Companies
Source: IBES and management projections
Note: Market data as of November 9, 2012. Caesar’s final bid initially was US$11.50 on October 15, 2012, but was increased to US$12.00 on November 12, 2012
Financial Analysis 14
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CONFIDENTIAL – PRELIMINARY DRAFT
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Comparison of Selected Comparable Companies
(US$ in millions except per share data)
Adjusted Enterprise
Closing % of 52 Equity Adjusted Value Multiples (2) Calendarized 5-Year Price Week Market Enterprise Sales EBITDA EBIT P/E Multiples (2) EPS
Company 9-Nov-2012 High Cap (1) Value (1) 2012 2013 2012 2013 2012 2013 2012 2013 CAGR (2)
Aurora—Management $ 10.43 75 % $ 772 $ 513 1.0 x 0.9 x 6.0 x 5.0 x 6.2 x 5.3 x 9.0 x 8.1 x 7.7 % Aurora—IBES 10.43 75 772 513 1.0 0.9 6.4 5.6 10.0 7.6 9.1 8.5 (5.0)
Chinese IT Service Companies
HiSoft (3) $ 10.20 62 % $ 385 $ 259 0.9 x 0.7 x 6.5 x 5.3 x 6.5 x 5.3 x 8.4 x 7.1 x 20.0 % iSoftStone 4.61 42 270 227 0.6 0.5 4.5 3.6 5.3 4.2 7.1 5.9 25.0 VanceInfo (3) 7.58 53 345 270 0.7 0.6 5.6 3.9 7.5 5.1 9.7 7.1 17.0
Mean 52 % $ 333 $ 252 0.7 x 0.6 x 5.5 x 4.3 x 6.4 x 4.9 x 8.4 x 6.7 x 20.7 % Median 53 345 259 0.7 0.6 5.6 3.9 6.5 5.1 8.4 7.1 20.0
Source: IBES
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| Latest publicly available financial statements. Equity Market Cap based on diluted shares outstanding |
2 Projected revenues, EBITDA, EBIT, and EPS are based on IBES median estimates and/or other Wall Street research. All research estimates have been calendarized to December
3 |
| In August 2012, VanceInfo and HiSoft agreed to merge in an all-stock deal |
Financial Analysis 15
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Comparable Trading Multiples
Historical 1-Year Forward Trading Multiples
Historical 1-Year Forward P/E Historical 1-Year Forward EV/EBITDA
25x 1Y Average Max Median Min 14x 1Y Average Max Median Min
Aurora 9.0x 11.6x 9.7x 4.4x Aurora 5.8x 7.8x 5.7x 2.1x Chinese IT Services Companies 12.1 19.2 11.8 7.9 Chinese IT Services Companies 7.3 12.5 6.6 4.4
12x
20x
10x
Chinese IT Services 15x Caesar Final Round Bid2 = 7.9x Companies1 Median = 6.6x Chinese IT Services Multiple 8x Multiple Companies1 Median = 11.8x P/E
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Caesar Final Round Bid = 10.4x EBITDA 6.4x Y1 6x F 10x FY1 Aurora Median = 5.7x 9.1x 5.6x 8.4x Aurora Median = 9.7x
4x
5x
2x
0x 0x
Nov-2011 Jan-2012 Mar-2012 May-2012 Jul-2012 Sep-2012 Nov-2012 Nov-2011 Jan-2012 Mar-2012 May-2012 Jul-2012 Sep-2012 Nov-2012
Daily from 09-Nov-2011 to 09-Nov-2012 Daily from 09-Nov-2011 to 09-Nov-2012
Aurora Chinese IT Services Companies
Aurora Chinese IT Services Companies
Source: IBES & Bloomberg
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| Chinese IT Service Companies Index consists of VanceInfo, iSoftStone and HiSoft. Market data as of November 9, 2012 |
2 Caesar Final Round bid price multiples are based on IBES estimates. Caesar’s final bid initially was US$11.50 on October 15, 2012, but was increased to US$12.00 on November 12, 2012
Financial Analysis 16
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Illustrative Public Market Present Value of Future Stock Price Analysis
Based on 1 Year Forward P/E Multiples | Management Projections
Illustrative Future Value of Share Price1 Illustrative Present Values of 2015 Stock Price2
Illustrative Cost of Equity
$14.74 10.5% 11.5% 12.5% 13.5% 14.5% $13.37
$12.77 5.5 x $ 8.0 $ 7.8 $ 7.6 $ 7.4 $ 7.2
$11.60 $11.58 P/E
$10.43 $10.81 ve 6.0 x $ 8.7 $ 8.5 $ 8.3 $ 8.1 $ 7.9
$10.05 ple $9.80
Multi 6.5 x $ 9.5 $ 9.2 $ 9.0 $ 8.7 $ 8.5 $8.51 $ 8.7 $ 8.5 $ 8.3 $ 8.1 $ 7.9
Illustrati 7.0 X
7.5 x $ 10.9 $ 10.6 $ 10.4 $ 10.1 $ 9.8
Today 2013E 2014E 2015E 5.5x forward P/E 6.5x forward P/E 7.5x forward P/E
(US$ per share, 9M 2012 2012E-16E US$ mm) Actual 2012E 2013E 2014E 2015E 2016E CAGR
Non-GAAP EPS ³ 0.75 1.16 1.29 1.55 1.78 1.96 14.1% Cash 4 255.6 334.8 377.5 457.9 556.4 668.9 18.9%
Note: Non-GAAP adjustments exclude depreciation, amortization and SBC related expenses Source: Management Projections
1 |
| Based on projected non-GAAP EPS multiplied by P/E. Share price as of November 9, 2012 |
2 Present value is discounted to Dec 31, 2012. 2016E Non GAAP Income of $145.4mm. Refer to appendix for illustrative cost of equity calculation
3 |
| Diluted shares outstanding of 74.0 million as of November 9, 2012 |
4 |
| Cash includes cash & cash equivalents and short-term investments |
Financial Analysis 17
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Standalone Illustrative Valuation Analysis
Discounted Cash Flow Analyses
(US$ in millions except per share data)
Assumptions Free Cash Flow Calculation
? Aurora management projections for 2012E Terminal to 2016E 2012E 2013E 2014E 2015E 2016E Year
? Assumes statutory PRC tax rate of 25%; from 2012E to 2016E, assumes additional Net Revenue (Before 3rd party HW) 535 601 668 740 814 814 tax savings relating to lower effective tax %growth 12.2% 11.3% 10.8% 10.0% 10.0% rate of 15% due to certain government EBITDA 76 90 114 135 162 162 subsidies and tax breaks, all calculated on EBITA 72 85 106 127 152 152
Domestic EBITA Tax @ 25% statutory tax rate of Domestic
? Terminal year based on same financial EBITA (22) (25) (29) (33) (39) (39) figures and assumptions as 2016E, other Tax-effected EBITA 1 50 60 77 93 113 113 than to adjust the changes in WC to reflect Depreciation 3589 10 10 long-term PGR assumptions and no Capital Expenditures (25) (27) (8) (9) (10) (10) additional tax savings from government (Increase)/Decrease in WC (24) (26) (30) (30) (30) (6) subsidies and tax breaks Unlevered Free Cash Flow 4 12 46 63 83 107
? Assumes estimated 4Q2012 net cash of $335 mm to calculate equity value Domestic EBITA 90 98 116 134 157 157
? All cash flows are discounted to 01-Jan—Tax Saving@15% effective tax rate of
2013 with mid-year conversion Domestic EBITA 9 10 12 13 16 —
Sensitivity Analysis (Growth Rate and Discount Rate)
Illustrative Equity Value Per Share Implied 2016 P/E Multiple % of EV from Terminal Value Perpetuity Growth Rate Perpetuity Growth Rate Perpetuity Growth Rate 0.0% 1.0% 2.0% 3.0% 4.0% 0.0% 1.0% 2.0% 3.0% 4.0% 0.0% 1.0% 2.0% 3.0% 4.0% 13.5% $ 14.4 $ 14.8 $ 15.4 $ 16.0 $ 16.7 13.5% 7.3 x 7.5 x 7.8 x 8.1 x 8.5 x 13.5% 74.2 % 75.3 % 76.5 % 77.8 % 79.2 % 14.5% $ 13.6 $ 14.0 $ 14.4 $ 14.9 $ 15.5 14.5% 6.9 x 7.1 x 7.3 x 7.6 x 7.9 x 14.5% 72.6 % 73.7 % 74.8 % 76.0 % 77.3 % 15.5% $ 13.0 $ 13.3 $ 13.6 $ 14.0 $ 14.5 15.5% 6.6 x 6.7 x 6.9 x 7.1 x 7.4 x 15.5% WACC WACC WACC 71.1 % 72.1 % 73.1 % 74.3 % 75.5 % 16.5% 16.5% 6.3 x 6.4 x 6.6 x 6.7 x 6.9 x 16.5% $ 12.4 $ 12.6 $ 12.9 $ 13.2 $ 13.6 69.6 % 70.5 % 71.5 % 72.6 % 73.7 % 17.5% 17.5% 6.0 x 6.1 x 6.3 x 6.4 x 6.6 x 17.5% $ 11.9 $ 12.1 $ 12.3 $ 12.6 $ 12.9 68.1 % 69.0 % 69.9 % 70.9 % 72.0 %
Source: Management Projections
1 |
| Assumes amortization is non-tax deductible. |
Financial Analysis 18
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CONFIDENTIAL – PRELIMINARY DRAFT
INVESTMENT BANKING DIVISION
Illustrative Leveraged Buyout Analysis
Assumptions and Sources & Uses
(US$ in millions)
Assumptions Sources and Uses of Funds
? Assumes purchase price of $12.00 per share? Source and Uses of funds for HoldCo in US
? Assumes only domestic FCF to be dividended up to HoldCo
Sources of Funds
— Assumes bond expenses and international portion’s
% of operational losses supported by excess onshore cash
Amount Sources
— Assumes minimum cash requirements of OpCo to be New Debt—3.4x 2012 EBITDA $350 38.1% 30% of total OpCo net revenue Assumes PRC withholding tax of 10% and incremental Existing Cash $ 25 2.7% US tax of 15% of HoldCo pre-tax income (bond expenses etc) Sponsor Equity $ 544 59.2%
? Assumes issuance of $350 million bank financing loan (3.4x Total Sources of Funds $ 919 100.0% 2012 non-GAAP domestic EBITDA) at interest rate of 6% at the offshore HoldCo Uses of Funds
— Assumes 5-year amortization rate of 15%, 15%, 20%, % of
25% and 25% Amount Sources
— Assumes $25 million existing cash in HoldCo per Equity Purchase 1 $ 887 96.5% management discussion
Refinance Existing Debt $—0.0%
— Assumes no existing cash used to pay for transaction
— Assumes all existing shareholders are sellers (i.e., no roll Existing Cash $25 2.7% over by existing shareholders) Fees & Expenses $ 7 0.8%
— Assumes 2% financing fee (legal, financing and other fees) Total Uses of Funds $ 919 100.0%
1. Assumes fully diluted shares of 74.0 mm.
Financial Analysis 19
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CONFIDENTIAL – PRELIMINARY DRAFT
INVESTMENT BANKING DIVISION
Illustrative Leveraged Buyout Analysis
Sensitivities of Illustrative Equity Returns to Sponsor
Illustrative Equity Multiple Return (Assumes 2015 Exit, 3.4x Leverage¹)
P/ E Exit Multiple
5.5 x 6.0 x 6.5 x 7.0 x 7.5 x
$ 11.0 8.5x
Entry 10.3% 14.3% 18.2% 21.7% 25.1%
/ $ 11.5 8.9x 7.5% 11.5% 15.2% 18.7% 22.0% Price ltiple $ 12.0 9.3x 5.0% 8.9% 12.5% 16.0% 19.2%
Mu $ 12.5 9.7x 2.8% 6.6% 10.1% 13.4% 16.6% Purchase $ 13.0 10.1x 0.7% 4.4% 7.9% 11.1% 14.2%
Illustrative Sponsor IRR (Assumes 2015 Exit, 3.4x Leverage¹)
P/ E Exit Multiple
5.5 x 6.0 x 6.5 x 7.0 x 7.5 x
Entry $ 11.0 8.5x 1.3 x 1.5 x 1.6 x 1.8 x 2.0 x
/ $ 11.5 8.9x 1.2 x 1.4 x 1.5 x 1.7 x 1.8 x rice tiple P $ 12.0 9.3x 1.2 x 1.3 x 1.4 x 1.6 x 1.7 x
Mul
Purchase $ 12.5 9.7x 1.1 x 1.2 x 1.3 x 1.5 x 1.6 x $ 13.0 10.1x 1.0 x 1.1 x 1.3 x 1.4 x 1.5 x
Note: Based on Aurora Management Projections.
1 |
| Assumes taking $350 mm bank loan financing at 3.4x of 2012 non-GAAP domestic EBITDA |
Financial Analysis 20
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CONFIDENTIAL – PRELIMINARY DRAFT
INVESTMENT BANKING DIVISION
Selected IT Services/Software Precedent Transactions
(US$ in millions)
Enterprise Equity Enterprise Value Multiples Date Valuation Valuation Sales EBITDA Announced Acquiror Target Status % Stake (mm) (1) (mm) (1) LTM LTM
Jul-2012 SAIC Inc MaxIT Healthcare LLC Completed 100% $ 493.0 $ 493.0 NA NA
May-2012 CGI Holdings Europe Ltd Logica Plc. Completed 100% $ 2,589.8 $ 3,085.2 0.5 x 7.0 x
Convergys Corp’s
Mar-2012 NEC Corp. Information Management Completed 100% $ 450.0 $ 450.0 NA NA business
After AsiaInfo /
Apr-2011 Apax Partners LP Activant Solutions Inc Completed 100% $ 972.5 $ 890.0 2.4 x 7.9 x
Linkage Merger Median of LTM EV/EBITDA = 7.9x
Jan-2011 Investor Group Patni Computer Systems Ltd Completed 63% $ 1,501.9 $ 1,150.3 1.6 x 8.2 x Sep-2009 Adobe Systems Inc Omniture Inc Completed 100% $ 1,721.3 $ 1,619.2 4.8 x NM Jul-2008 BAE Systems(Holdings)Ltd Detica Group PLC Completed 100% $ 1,048.2 $ 1,070.3 2.6 x 17.4 x Jul-2007 Steria SA Xansa PLC Completed 100% $ 939.5 $ 961.7 1.3 x 16.2 x Jul-2007 IIM Acquisition Corp CompuCom Systems Inc Completed 100% NA $ 628.0 NM NM Apr-2007 Computer Sciences Corp Covansys Corp Completed 100% $ 1,274.0 $ 1,147.3 2.5 x 17.2 x Feb-2007 Caritor Keane Completed 100% $ 845.3 $ 807.9 0.9 x 9.2 x
Source: Thomson, CapIQ, publicly available data as of November 9, 2012 Note: Only includes cash transactions
(1) Local currency values converted to USD based on foreign exchange rates on the respective transaction announcement date
Financial Analysis 21
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CONFIDENTIAL – PRELIMINARY DRAFT
INVESTMENT BANKING DIVISION
Selected U.S. Take Private Precedent Transactions
2008 – 2012YTD
Average Acquisition Premia¹
40.7%
25.5%
24.6%
22.8%
18.9%
2008 2009 2010 2011 2012YTD
Number in Selected
7 |
| 5 10 19 9 |
Sample
Source: SDC Thomson, Dealogic Note: 2012 YTD as of November 9, 2012
¹ Premium is relative to target share price 1 day prior to announcement for deals with U.S. targets valued at US$250 – 1,000 million
Financial Analysis 22
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Appendix A: Illustrative Weighted Average Cost of Capital Calculation
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CONFIDENTIAL – PRELIMINARY DRAFT
INVESTMENT BANKING DIVISION
Aurora’s WACC Calculation
Overview of WACC Calculation WACC Calculation
D C E WACC? Kd? 1?t?L? Yc? 1?t?L?Ke L
Cost of Debt Cost of Equity
Ke? Rf??e?ERP)
Pre-tax Cost of debt 3.50% Risk Free Rate 2.48% D Marginal Tax rate 15% Risk Premium 6.62%
Kd = Pre-tax cost of debt = Debt percentage in target capital structure
L Cost of Debt*(1-t) 3.0% Beta 1.5
C = Permanent excess cash percentage in target capital
Yc = Pre-tax yield on free cash Cost of Equity (Ke) 12.5% L structure
Cost of Excess Cash WACC
E
Ke = Cost of Equity = Equity percentage in target capital structure
L Yield on free cash 1.0% Debt as % of L 0% t = Tax rate Rf = Risk-free rate Marginal Tax rate 15% Excess cash as % of L 25% Cost of Excess Cash*(1-t) 0.9% Equity % of L 125%
L = Levered value (Equity + Debt – Cash) at ? = Equity beta WACC 15.4% market value e
ERP = Equity risk premium
Assumptions WACC Sensitivity Analysis
Target D/L 0% Management Projection
Capital Excess Cash as % of Levered Capital
Structure C/L 25% At steady state, company is optimally run with 25% excess cash as % of levered value
E/L 125% 0.15 20.0% 22.5% 25.0% 27.5% 30.0%
Cost of Rf 2.48% 30 year US government bond maturing in 20 1.3 13.7% 13.7% 13.6% 13.6% 13.6% Equity years (as of Oct 23, 2012)
? 1.5 Re-levered beta 1 for VanceInfo (NYSE:VIT) e 1.5 15.4% 15.4% 15.4% 15.4% 15.3%
ERP 6.62% Ibbotson’s US equity risk premium from Beta 1.7 17.1% 17.1% 17.0% 17.0% 17.0% 1926-2011
1.9 18.7% 18.7% 18.7% 18.7% 18.7%
Others Yc 1% Management Projection t 15% Management Projection 2.1 20.4% 20.4% 20.3% 20.3% 20.3%
¹ The beta of VanceInfo on 8/3/2012 for the period between its IPO (12/07/2007) and 8/3/2012 against Russell 3000. Beta is unlevered based on VIT’s capital structure as of August
3, 2012, last trading Friday prior to the announcement of merger between VIT and HSFT in August 10, 2012 Sources: Ibbotson Associates, Axioma and latest publicly available financial statements
Illustrative Weighted Average Cost of Capital Calculation 24
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CONFIDENTIAL – PRELIMINARY DRAFT
INVESTMENT BANKING DIVISION
Project Aurora
Supplementary Special Committee Discussion Material
Strictly Private and Confidential Goldman Sachs (Asia) LLC
November 2012
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CONFIDENTIAL – PRELIMINARY DRAFT
INVESTMENT BANKING DIVISION
Disclaimer
Goldman Sach (Asia) L.L.C. (“GS”) has prepared and provided these materials and GS’s related presentation (the “Confidential Information”) solely for the information and assistance of the Special Committee of the Board of Directors (the “Special Committee”) of Aurora (the “Company”) in connection with its consideration of the matters referred to herein. Without GS’s prior written consent, the Confidential Information may not be circulated or referred to publicly, disclosed to or relied upon by any other person, or used or relied upon for any other purpose. Notwithstanding anything herein to the contrary, the Company may disclose to any person the US federal income and state income tax treatment and tax structure of any transaction described herein and all materials of any kind (including tax opinions and other tax analyses) that are provided to the Company relating to such tax treatment and tax structure, without GS imposing any limitation of any kind. The Confidential Information, including this disclaimer, is subject to, and governed by, any written agreement between the Company, the Board and/or any committee thereof, on the one hand, and GS, on the other hand.
GS and its affiliates are engaged in investment banking, commercial banking and financial advisory services, securities trading, investment management, principal investment, financial planning, benefits counseling, risk management, hedging, financing, brokerage activities and other financial and non-financial activities and services for various persons and entities. In the ordinary course of these activities and services, GS and its affiliates may at any time make or hold long or short positions and investments, as well as actively trade or effect transactions, in the equity, debt and other securities (or related derivative securities) and financial instruments (including bank loans and other obligations) of third parties, the Company, any other party to any transaction and any of their respective affiliates or any currency or commodity that may be involved in any transaction for their own account and for the accounts of their customers.
The Confidential Information has been prepared and based on information obtained by GS from publicly available sources, the Company’s management and/or other sources. In preparing the Confidential Information, GS has relied upon and assumed, without assuming any responsibility for independent verification, the accuracy and completeness of all of the financial, legal, regulatory, tax, accounting and other information provided to, discussed with or reviewed by GS, and GS does not assume any liability for any such information discussed with or reviewed by GS. GS has assumed that all forecasts provided to, discussed with or reviewed by GS have been reasonably prepared and reflect the best currently available estimates and judgments of the Company. GS does not provide accounting, tax, legal or regulatory advice. GS’s role in any due diligence review is limited solely to performing such a review as it shall deem necessary to support its own advice and analysis and shall not be on behalf of the Company. Analyses based upon forecasts of future results are not necessarily indicative of actual future results, which may be significantly more or less favorable than suggested by these analyses, and GS does not assume responsibility if future results are materially different from those forecast.
GS has not made an independent evaluation or appraisal of the assets and liabilities of the Company or any other person and has no obligation to evaluate the solvency of the Company or any person under any law. The analyses in the Confidential Information are not appraisals nor do they necessarily reflect the prices at which businesses or securities actually may be sold or purchased. The Confidential Information does not address the underlying business decision of the Company to engage in any transaction, or the relative merits of any strategic alternative referred to herein as compared to any other alternative that may be available to the Company. The Confidential Information is necessarily based on economic, monetary, market and other conditions as in effect on, and the information made available to GS as of, the date of such Confidential Information and GS assumes no responsibility for updating or revising the Confidential Information.
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CONFIDENTIAL – PRELIMINARY DRAFT
INVESTMENT BANKING DIVISION
Illustrative Levered Recapitalization and Share Buyback
Assumptions Non-GAAP EPS
? Assumes issuance of US$225 mm bank financing loan at the 2.2
2.05
Aurora listed Company level (“HoldCo”), increasing total leverage to 2.2x 2012 domestic Non-GAAP EBITDA 2.0 1.86
1.97
— 6.0% interest rate and 2.0% financing fees 1.8
1.53 1.78
— Assume 5-year amortization rate of 15%, 15%, 20%, 25% 16. and 25%
1.4 1.55 1.29
— Holdco debt may be a riskier and less efficient capital 1.2 structure to meet debt obligations
1.17
1.0
? Assumes only domestic FCF to be dividended up to HoldCo 2013 2014 2015 2016
— Assumes international portion’s operational losses Base Case Model Levered Recap Model supported by excess onshore cash
— Assumes minimum cash requirements of OpCo to be Leverage (Gross Debt / Non-GAAP EBITDA) 30% of total OpCo net revenue 2.0
1.7x
— Assumes PRC withholding tax of 10% and incremental
US tax of 15% of HoldCo pre-tax income (bond expenses 1.6 etc) 1.2x
1.2
? Utilizes $225 mm proceeds to repurchase public shares via 0.7x Dutch auction tender offer 0.8
03x.
— Assumes illustrative tender offer price equal to $12.00 0.4
0.0x 0.0x 0.0x 0.0x
— Purchase at above criteria is equivalent to ~25% of
0.0
diluted shares outstanding 2013 2014 2015 2016
Base Case Model Levered Recap Model
Source: Management projections
Illustrative Levered Recapitalization / Special Dividend 2
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CONFIDENTIAL – PRELIMINARY DRAFT
INVESTMENT BANKING DIVISION
Illustrative Levered Special Dividend
Assumptions Non-GAAP EPS
? Assumes issuance of US$225 mm bank financing loan at the
2.4
Aurora listed Company level (“HoldCo”), increasing total 1.97 leverage to 2.2x 2012 domestic Non-GAAP EBITDA 2.0 1.78
— 6.0% interest rate and 2.0% financing fees 1.55
1.6 1.29
— Assume 5-year amortization rate of 15%, 15%, 20%, 25% 1.53
1.2 1.39
and 25% 1.14
0.8
— Holdco debt may be a riskier and less efficient capital 0.87 structure to meet debt obligations 0.4? Assumes only domestic FCF to be dividended up to HoldCo 0.0
2013 2014 2015 2016
— Assumes international portion’s operational losses Base Case Model Levered Special Dividend Model supported by excess onshore cash
— Assumes minimum cash requirements of OpCo to be Leverage (Gross Debt / Non-GAAP EBITDA) 30% of total OpCo net revenue
2.0
— Assumes PRC withholding tax of 10% and incremental 1.7x US tax of 15% of HoldCo pre-tax income (bond expenses 1.6 etc) 1.2x
1.2
? Utilizes $225 mm proceeds to declare one-time special
0.8 0.7x
dividend of ~$3.05/share to existing shareholders
— Assumes 74.0 mm diluted shares outstanding 0.4 0.3x
— Depending on where the shareholder resides, this 0.0x 0.0x 0.0x 0.0x dividend may be subject to additional withholding tax 0.0
2013 2014 2015 2016 Base Case Model Levered Special Dividend Model
Source: Management projections.
Illustrative Levered Recapitalization / Special Dividend 3
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CONFIDENTIAL – PRELIMINARY DRAFT
INVESTMENT BANKING DIVISION
Illustrative Future and Present Values Per Share
Levered Recap and Share Buyback Levered Special Dividend
Illustrative Future Values per Share1 Illustrative Future Values per Share (Excl. $3.05 Dividend)1
$18.00 5.5x $13.00 5.5x
6.5x 6.5x $11.50 $16.00 7.5x $15.40 $12.00 7.5x $11.00 $10.44 $13.98 $9.96 $13.35 $14.00 $10.00 $12.12 $9.05 $11.48 $8.57 $9.00 $12.00 $9.95 $8.00 $7.43 $11.29 $8.43 $10.00 $7.00 $10.25 $7.65 $8.42 $6.29 $8.00 $6.00 2013 2014 2015 2013 2014 2015
Illustrative PV of 2015E Stock Price Illustrative PV of 2015E Stock Price (Incl. $3.05 Dividend)
Illustrative Cost of Equity2 Illustrative Cost of Equity2
10.5% 11.5% 12.5% 13.5% 14.5% 10.5% 11.5% 12.5% 13.5% 14.5% P/E P/E
PF 5.5x $8.37 $8.15 $7.93 $7.72 $7.52 PF 5.5x $9.29 $9.12 $8.96 $8.81 $8.66 ative ative Multiple 6.5x $9.89 $9.63 $9.37 $9.13 $8.89 Multiple 6.5x $10.43 $10.23 $10.04 $9.86 $9.68 Illustr 7.5x $11.41 $11.11 $10.81 $10.53 $10.26 Illustr 7.5x $11.56 $11.33 $11.12 $10.90 $10.70
Source: Management projections.
1 |
| Based on projected EPS multiplied by illustrative P/E multiple. |
2 |
| Refer to the appendix for an illustrative cost of equity calculation. |
Illustrative Levered Recapitalization / Special Dividend 4