1、Investment Due Diligence Assessment,23 December 1999,2,Z5112OSF,Disclaimer,The investment opportunity described below has not been recommended or approved by Bain & Company, Inc. or any of its subsidiaries. No representation or warranty is made as to the accuracy or completeness of the information c
2、ontained in this memorandum. Oliver Stratton and Jim Hildebrandt are distributing this memorandum in their individual capacities and not as representatives of Bain & Company, Inc. or any of its subsidiaries. Any investment in will not be guaranteed by Bain & Company, Inc. or any of its subsidiaries
3、.,3,Z5112OSF,Agenda,Executive Summary Detailed Business Assessment US Market Benchmarks China Market Dynamics Financials,4,Z5112OSF,Attractive online recruitment market space in China with high growth potential Differentiated click-and-mortar business model (online and newspaper) with a 16 month op
4、erating history and US$1M in 1999 revenue Current #1 or #2 position in 3 key city markets (0.7 RMS in Beijing, 5.5 RMS in Shanghai and 0.3 RMS in Guangzhou) No competitor has locked up exclusive relationships with key portals - maintaining #1 or #2 position appears to be a realistic goal Capable man
5、agement including head of Bains China practice and 3 former Bain consultants Realistic business plan targets (in Private Placement Memorandum) with additional upside if timing of adjacent business roll-out (eBay, B business models for China) is accelerated (business plan financials are 99% driven by
6、 core recruiting business),Exposure to potentially significant sovereign risk given Chinas unclear regulations on foreign ownership and operation of internet businesses Expected investment returns based on business plan forecasts and comparable US online recruitment valuation multiples are attractiv
7、e (base case: 3.8X return on money, 57% IRR), but not blockbuster (high case: 7.9X return on money, 99% IRR),Pros,Cons,Summary Investment Evaluation,Executive Summary,5,Z5112OSF,Executive Summary,Source: OneSource; SG Cowen Securities; Analyst Reports; Company Websites, is a China-based start-up com
8、pany established in 1998 focused on the online recruitment market Its key partner team includes 1 Bain partner (Rick Yan) and 3 former Bain consultants is seeking to raise US$3M in exchange for a 5% equity stake in the business,Underlying China online recruiting market growth and penetration (inclu
9、ded in business plan targets) Adjacent e-business opportunities (not included in business plan targets), has a click-and-mortar business model for job placements, consisting of a newspaper, Career Post Weekly, launched in Oct 1998 a website, , launched in Jan 1999 It is currently one of the leading
10、players in each of the high-end multinational recruitment advertising markets of Beijing, Shanghai and Guangzhou 500,000 readership relationship with 5,000 HR managers resume bank has 50,000 subscribers (highly educated professionals and middle managers: relatively affluent, highly paid customer bas
11、e) is targeting growth through a combination of initiatives: growth of core online recruiting business in existing and new city markets embarking on adjacent e-business opportunities to serve its core affluent customer base (ebay, business models for China) developing into an umbrella brand with
12、a strong portfolio of vertical applications establishing an e-commerce business incubator,China-specific legal and regulatory risk Intrinsically low entry barriers Speed in reaching scale,Investment Overview,6,Z5112OSF,Bain role Business Plan Development Accounting Advisory Board Recruiting Support
13、Creative Seed Funding Temporary Management Technical Fundraising Support Legal Facilities/Space Strategic Partner Introductions,Criteria,Market potential,Business concept,Leadership opportunity,Team,Bain value added,Bain learning,Bain compensation,Company: ,Proposed Terms: To invest US$0.5M in excha
14、nge for 0.83% equity stake in company,Required resources:,OverviewSee attached,RecommendationSee attached,Current investors:,Contact/principals: Rick Yan,X,X,Comments,Chinas internet growth potential is very high given its current embryonic stage (internet penetration from 4% in 1998 to 16.5% in 200
15、2) In the US, the online recruiting market is one of the most successful B2C business models (US$265M market revenue in 1999) In China, the online recruiting market is in early stages but the underlying potential is high (opportunity to improve currently inefficient recruiting processes/channels),Un
16、ique click-and-mortar business model with newspaper and online media Opportunity to leverage employer and job seeker customer base into adjacent business opportunities, is currently #1 or #2 in Beijing (0.7 RMS), Shanghai (5.5 RMS) and Guangzhou (0.3 RMS) No competitor has locked up exclusive relati
17、onships with leading China portals,The senior management team has had several years work experience in China with Bain & Company and have worked together for more than 3 years,Some potential for Bain case team involvement Relatively low ownership stake (0.83%) yields limited influence on management
18、direction,Potential to explore multiple e-business opportunities in China,Compared with US and China benchmarks, s pre-money valuation is relatively high Potential to unlock higher valuation multiple long term by spinning off online business in the future However, investment is exposed to considerab
19、le China-specific regulatory risk on top of standard operating risk No indication of potential participation in subsequent financing rounds,Opportunity Screen,Executive Summary,7,Z5112OSF,Executive Summary,Screening Criteria,8,Z5112OSF,Executive Summary,Hybrid vs. Pure Online Play,The hybrid click-a
20、nd-mortar business model has several advantages over the pure online plays.,Description:,Increased certainty of earnings,More stable and certain earnings stream from newspaper business dampens the more volatile and uncertain earnings from the online business barriers to entry higher for newspaper bu
21、siness,Greater customer penetration,Increased access to customers complementary distribution channels joint branding strategy improves customer recall,Higher overall profitability,Unlike pure online models, the newspaper business is profitable 48% operating margin for Career Post (driven by 5% marke
22、ting/sales spend) negative operating margins for (driven by 203% marketing/sales spend),9,Z5112OSF,Business Plan Targets,Total costs: US$4.4M US$7.4M US$11.1M Operating profit: (US$0.2M) US$2.0M US$1.8M Operating margin: (3.8%) 21.7% 13.7% EBITDA: (US$0.3M) US$2.0M US$1.8M,Non- recruitment*,,Career
23、 Post,CAGR (00-02),150%,50%,Source: Private Placement Memorandum,Revenue (US$M),2000F (Bain Forecast),2000F (Business Plan),2001F (Bain Forecast),2001F (Business Plan),2002F (Bain Forecast),2002F (Business Plan),Executive Summary,s revenue targets are realistic, based on an evaluation of US benchma
24、rk comparables and an assessment of business plan targets - new adjacent business opportunities are not forecasted to contribute materially to 2000-2002 financials.,$4.1M,$4.2M,$8.8M,$9.4M,$11.6M,$12.8M,*Includes all adjacent business opportunities (, , incubator),10,Z5112OSF,US and China Valuation
25、Benchmarks,s overall valuation multiple is roughly in line with US online only recruitment benchmarks, although a standalone valuation multiple (more apples to apples) is relatively high. However, s valuation multiple is considerably lower than that of C, the only NASDAQ listed China internet bench
26、mark.,Executive Summary,Note: Price-to-sales multiple for Career Post, and based on year 2000 projections (price is pre-money valuation); All other price-to-sales multiples based on December 10, 1999 market capitalization and 1999 forecast revenue (Q1-3 actual, Q4 forecast) Source: Company Financi
27、als; Private Placement Memorandum,Online Recruitment Price-to-Sales Multiples,Internet Portal Multiple (China vs. US),Price-to- Sales Multiple,Price-to- Sales Multiple,Market capitalisation: $1,141M $146M $150M Revenue: $16M $7M $14M,11,Z5112OSF,Investment Risks,Executive Summary,China internet reg
28、ulatory risk,Currently, regulations on foreign internet participation in China are unclear officially, up to 49% foreign ownership is allowed but active foreign operating involvement is prohibited unofficially, significant foreign operating involvement is already in place in many e-business ventures
29、 Impact of WTO should be positive, but initial MII reactions have not been positive under WTO, up to 49% foreign ownership and active foreign operating involvement is allowed however, Minister Wu of MII has advocated a clampdown of foreign participation without specific details Several ministries ai
30、ming to control internet regulations with the Ministry of Information and Industry (MII) emerging as the leading regulator partners are comfortable with China risks based on multiple discussions with senior government officials Chinese title law not well developed physical and intellectual property
31、 not well protected,The investment in is not without risks.,Standard operating risks,12,Z5112OSF,Pre and Post-Money Valuation,$36M,$57M, 2000 Sales: $4.25M $4.1M $4.1M blended Price-to-sales multiple*: 13.4x 9.5x price-to-sales multiple: 38x 16x 11x,Source: Private Placement Memorandum; Bain Anal
32、ysis Note: price-to-sales blended multiple based on varying price-to-sales multiples of ,Pre-Money: 8.3% Post Money: 7.7%,Pre-Money: 5.3% Post Money: 5.0%,$3M investment being raised,Executive Summary,Pre-Money: 7.5% Post Money: 6.9%,*Price-to-sales multiple based on year 2000 projections,$40M,s va
33、luation is on the high end, driven by the high price-to-sales multiple of its online recruitment business.,13,Z5112OSF,Potential Returns,Low Case:,Post-money Valuation,US$60M,Year 2002 Valuation,Revenue US$7.85M from Career Post US$4.82M from Price-to-sales multiple 4x for Career Post 20x for ,3 Ye
34、ar Return,2.2x,Assumptions,Valuation,Return on Money,IRR,29%,US$130M,The expected returns are attractive but not blockbuster.,Executive Summary,14,Z5112OSF,Agenda,Executive Summary Detailed Business Assessment US Market Benchmarks China Market Dynamics Financials,15,Z5112OSF,US Internet Penetration
35、 and Online Recruitment Forecast (1998-2002F),US Market Benchmarks,The US online recruiting market is projected to be US$1B in 2002.,Source: IDC; Goldman Sachs Research; Euromonitor; Forrester Research; Bain Estimates,16,Z5112OSF,Pricing Models: US Markets,Source: Competitor Websites; Industry Analy
36、st Reports; Interbiznet; Forrester Research; Bain Analysis,Most of the leading online job search sites in the US offer high margin Job Board services, accounting for the bulk of online recruitment revenues.,US Market Benchmarks,Description:,Estimated market size (1998):,Key players:,Job Board,Recrui
37、ters are charged for each job posted on recruiting site/ network,US$85M,M CareerB C H D C W,Subscription,Recruiters are charged a flat fee per time period for posting jobs on recruiting site/network,US$16M,H R,Upgrade,Recruiters are charged an upgrade premium so that they can increase the exposure o
38、f their jobs (listed at the front of any search),US$5M,HeadH,*Based on 1998 financials,Typical pricing:,$20-200 per job per month (average of $100 per job per month),$1,000 per year for unlimited job postings,$25-$75 premium per job per month,Typical gross margin*:,75%,85%,98%,Basic Charges,Addition
39、al Charges,17,Z5112OSF,US Online Recruitment Examples,*As of 10 December 1999,Targeting profitable customers and having a strong market position are key to the success of online recruitment businesses in the US.,US Market Benchmarks,Target Market:,Market position:,H,#1 choice for corporate recruiter
40、s,100,000 job postings 2,520 clients,HeadH,#1 site among individuals in the $75K-$100K annual income bracket #3 player in mass market online recruitment,175,000 job postings 1,104 clients,CareerB,Mass market recruiting #5 player in mass market online recruitment,100,000 job postings 870 clients,Gros
41、s margin 1999 Revenue/client Sales and marketing spend/revenue,85% US$4,800 88%,98% US$4,800 245%,75% US$13,908 182%,Financial Measures (1999):,Valuation: (Price-to-sales multiple*),71x,21x,11x,Partnerships:,None,Provides content to strategic partners such as PeopleWeb Communications and ,Partnershi
42、p with Microsoft to launch career channel on MSN; agreement with several Lycos Network members,Gross margin 1999 Revenue/client Sales and marketing spend/revenue,Source: Competitor Websites; Industry Analyst Reports; Company Financials,18,Z5112OSF,Recruitment Business Value Chain,For Corporate custo
43、mer:,For Job seeker:,Customer acquisition,Develop network of corporate customers Build strong relationships with HR managers,Build resume database,Matchmaking,Advertise quality of resume database,Advertise quality of corporate customers Tie up with internet portals/newspapers,Servicing,Expand produc
44、t and service offering HR website management executive search,Expand product and service offering job seeker virtual community career development information services,Wallet deepening,Customer loyalty programs Adjacent business opportunities,Customer loyalty programs Adjacent business opportunities,
45、Activities:,Relationship management,Increasing differentiation and barriers to entry,US Market Benchmarks,Having access to a resume database and matchmaking job seekers with corporates are only the first steps in the online recruitment business value chain.,Benefits:,Increased number of job postings
46、,Increased number of job postings,Increased customer loyalty Increased job seeker churn,Increased customer loyalty Increased revenue/ customer,Source: Literature Searches,19,Z5112OSF,Key Success Factors,Description:,Performance measures:,Examples:,High employer retention,High number of repeat custom
47、ers (employers) using services from year to year Strong relationships with recruiters and job hunters,Percentage repeat customers Revenues/customer,H,Quality resume database,Effectively maintain and leverage high quality job-seeker resume base, providing for the best recruitment results for both employers and job-seekers,Number of reputable corporate customers Percentage successful placements,H HeadH,Exclusive partnerships,Agreement with portals and/or business sites to be the exclusive provider/advertiser of job search products and services,
