acg immlaw presentation april 11, 2013
DESCRIPTION
ACG's Managing Director, Alexander Aginsky, presented on the topic of direct investments in EB-5 to an audience of immigration attorneys members of IMMLAW in Vancouver, BC.TRANSCRIPT
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Direct Investments: The Less Traveled Road for EB-5 InvestorsIMMLAW Meeting – Vancouver, BC April 6th, 2013
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Presentation Outline
EB-5 todayNew marketsAlternatives to EB-5 Regional CentersEB-5: the ACG way Implications for legal professionals
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EB-5 TODAY
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EB-5 Today – Why?
Why EB-5?
Key Drivers: Political instability Corrupt institutions Crime and violence Impediments to free enterprise Economic instability/ volatility
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EB-5 Today – Visas Issued
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2012Direct
Investment
% of Total
Regional Center
% of Total
Total
China 205 2.7% 5,926 77.6% 6,131 South Korea 22 0.3% 425 5.6% 447 Venezuela 7 0.1% 102 1.3% 109 Total All
Countries 323 4.2% 7,318 95.8% 7,641
2011Direct
Investment
% of Total
Regional Center
% of Total
Total
China 207 6.0% 2,323 67.1% 2,530 South Korea 36 1.0% 218 6.3% 254
Iran 12 0.3% 105 3.0% 117 Total All
Countries 382 11.0% 3,081 89.0% 3,463
2010Direct
Investment
% of Total
Regional Center
% of Total
Total
China 214 11.4% 652 34.6% 866 South Korea 92 4.9% 203 10.8% 295
UK 23 1.2% 112 5.9% 135 Total All
Countries 563 29.9% 1,322 70.1% 1,885
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EB-5 Today - Regional Centers
Influx of players due to low barriers to entry:2300% increase in the number of RCs over the past 5
yearsFraud and SEC compliance issues:
Particularly in China, there is a growing sense of distrust towards Regional Centers, in light of the recent IRCTC scandal
Increased USCIS scrutiny: I-924 acceptance dropped from
68% to 36% in 2012The tenant occupancy issue
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EB-5 Today – China: Pitfalls & Challenges The top producing country of EB-5 investors
Accounted for 80% of applications during FY2012
Expected to experience quota limitations in FY2013 Current volume not sustainable as applications from other
countries increase Extended waiting periods could discourage Chinese
investors from participating in the EB-5 program Intensified competition
All active Regional Centers market in China Lack of transparency and misrepresentation of facts Brokers’ commissions in this market have nearly
doubled
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NEW MARKETS
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Similar to China
Presents an untapped opportunity
Moscow is the billionaire capital of the world
By 2020, Russia is expected to surpass Germany as the largest European economy
New Markets - Russia
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New Markets – Latin America
Venezuela became the 3rd largest producer of EB-5 investors in 2012.
Mexico: due to its proximity to the U.S. and its increasingly violent internal conflicts, there will be an increase in the number of HNWIs from Mexico taking advantage of the EB-5 program.
Brazil and others are expected to follow in the coming years as their economies continue to mature and a new generation of millionaires emerges.
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Second fastest growing economy among BRICs after China.
Among emerging markets in 2020, India is likely to have the highest per capita wealth among millionaires with $4.25 million - placing it ahead of the U.S.
New Markets - India
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ALTERNATIVES TO EB-5 REGIONAL CENTERS
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Investor Options (Alternatives to RCs)Competing immigrant-investor
programs overseas Other Visa Categories (L-1, E-2) EB-5 Direct Investment
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Alternatives - Competing Immigrant investor Programs Canada
Principal investment guaranteed by the government Financing options make it significantly cheaper
United Kingdom Popular destinationCan invest 75% in government bonds (safer)
St. KittsSimple and quick process Relatively inexpensive Ease of travel
Belgium, Monaco, Latvia, Australia, New Zealand, Bulgaria, Cyprus, Dominica.
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Alternatives - Other U.S. Immigration Options E-2
More suited for active entrepreneurs Limited to nations that have investment
treaties with the U.S. (excludes Brazil, China, Russia, Venezuela)
L-1For executives of multinationalsActive employment mandatory
Longer and riskier road to a Green CardApril 6th, 2013 www.aginskyconsulting.com 15
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Alternatives - Direct Investment
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ACG & EB-5
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ACG EB-5 Service Offering: A One-Stop Shop
ACG
Investment Opportunity Identification
Due Diligence
Negotiations and Deal Structuring
Matter of Ho
Business Plan
New Entity
Formation
Immigration Legal
Support (if necessary)
Corporate Legal
Support
Post Acquisition Business
Management
Exit Strategy and
Execution
Escrow/Closing
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EB-5 DIRECT INVESTMENT CASE STUDY
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Client: Boris IvanovACG Collected information
Financial information verificationBoris Ivanov’s Investment Criteria
Investment objectives: Green card, safe investment, returns
Investment size: ~$1,500,000
Phase I: Information Gathering & Client Interviews
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Boris Ivanov’s Investment Criteria (continued)Risk profile: ConservativeTimeline
Green card as soon as possibleExit within 3-4 years of investment
Any other specific criteria: Majority control of the investment
Phase I Timeline: 1-2 weeks
Phase I: Information Gathering & Client Interviews
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“NewCo LLC” Boris Ivanov owns 100% membership stake
in NewCo LLC Boris Ivanov hired ACG as a Manager
for NewCo LLC
Phase II Timeline: 1 week
Phase II: New Entity Formation
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Phase III: Market monitoring & long listProvided Boris Ivanov with a customized list
of available dealsACG Dealbook
Phase IV: Short list Worked with Boris Ivanov to narrow down to
1 or 2 deals that will work best for him
Phase III & IV Timeline: 3-4 weeks
Phase III and IV
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Selected Deal: Commercial Janitorial Service Company
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• Total investment size: $1,500,000• Expected umber of new jobs: 24• Projected ROI: 26.5%• Expected Exit: 3-4 years
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Company Overview
Founded in 1995 Services include janitorial services, floor
care, supply sales, related services to commercial customers
Markets: Oregon, Washington, and Arizona Clients include the likes of AT&T, Parr
Lumber, Union Pacific Railroad, Leading Regional Property Management Firms
Multiple awards won
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Financial Summary
*2013 forecasts are based on existing customer contracts
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2010 2011 2012 2013*
Revenue
$1,906,939.00
$1,636,755.00 $1,707,474.00 $1,939,514.00
Cash Flow $387,767.00 $365,385.00 $377,684.00 $398,362.00 Net Cash Margin 20.3% 22.3% 22.1% 20.5%
ROI 25.9% 24.4% 25.2% 26.6%
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Current Employment Structure
Total Employees: 12
Owner
Business Manager (1)
Operations Manager (1)
Janitorial Staff (9)
Office Secretary (1)
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Phase V: Due Diligence
ACG verified all the claims made by the company
Financial, legal, personnel, and business due diligence
Deliverable to Boris Ivanov: Due diligence report
Phase V Timeline: 4-6 weeks
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Phase VI: Negotiations and Closing ACG negotiated and structured the deal for NewCo
LLC Reduced price by 23%
ACG worked with the corporate lawyers to draft and finalize all the contracts for the transaction
Immigration attorney contract review
Escrow/Closing Phase VI Timeline: 2-4 weeks
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Phase VII: Ongoing Management ACG oversees the day-to-day operations Key strategic decisions Hiring and firing Quarterly reports to investor
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Post Closing: EB-5 Application ACG role
Drafted a “Matter of Ho” compliant business plan for NewCo LLC
ACG worked with the client’s immigration attorney or recommends an immigration attorney if the client does not have one
Assisted with I-526 application
EB-5 Application Timeline: 4-6 weeks
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New Job Creation (post acquisition) Business plan outlined growth strategy and job
creation time table
All senior hires were made first Salesmen (4 new hires) 1099 conversion (9 conversions) New janitorial staff for new accounts
acquired (12 new hires)
Initial hires were funded by working capital reserves and existing cash flow
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EB-5 Investor(s)
ACG Oversight
Senior Management
(2)
Sales Force (4)
Janitorial Staff (30)
Owner
Business Manager (1)
Operations Manager (1)
Janitorial Staff (9)
Office Secretary
(1)
Organizational Transformation
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Pre - Acquisition
Post - Acquisition
Pre-acquisition # of employees: 12
Post-acquisition # of employees: 36
New jobs created: 24
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Exit Strategy and Execution
Apply for I-829 (condition removal) ACG will work with Boris Ivanov and the immigration
attorney to file the application Boris Ivanov decides to sell NewCo LLC after
receiving approval of the I-829 Exit strategy execution (Phase VIII)
ACG will prepare the offering documents to place NewCo LLC in the market ACG will work with interested buyers through the entire selling process
Exit Timeline: 2-4 months
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Summarized Process and Timeline Phase I. Information gathering and client interviews Phase II. New entity formation Phase III. Market monitoring and long listPhase IV. Selection process – short list Phase V. Due diligence Phase VI. Negotiations and contract signing
PROJECT TIMELINE OF PHASES I-VI: 11-17 weeks
EXIT: 2-4 months after approval of I-829
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Comparative Analysis: RC vs. DI
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Metrics Direct Investment Regional Center
Business Control 100% control No control
Number of Options Virtually unlimited Very limited
Involvement Level Passive/Active/Hybrid (options)
Passive only (no options)
Transparency Full Limited
Brokerage/ Admin fee 4% to 6% 5% to 10%
Liquidity Liquid Illiquid
Business Expansion Optional Not an option
Returns 12% to 30% 0% to 1.5%
Risk Low High
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Advantages of Direct Investment – Lower Risk
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Reduced risk Business track-record Existing cash-flow Direct job creation, easy to
demonstrate Ability to bridge any job creation
deficit with existing cash-flow Perfect alignment of stakeholders’
interests No leverage required
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Direct Investment
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IMPLICATIONS FOR LEGAL PROFESSIONALS
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Direct Investments – A New Tool for Immigration Professionals
To capture new clientele and capitalize on this emerging opportunity:
Know of EB-5 investments taking place outside Regional Centers
Understand the process and structure of these transactions Establish strategic partnerships with professionals:
That can identify/create opportunities that meet your clients’ needs
That have networks in the emerging economies likely to provide the next wave of EB-5 investors
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Closing remarks
The EB-5 landscape is quickly changing: New opportunities are opening up outside China Emergence of a more a robust and dynamic alternative
to Regional Centers As service providers, we must adapt and be at the
forefront of the industry to better assist clients
The underutilized direct-investment route will be key in maintaining the EB-5 program’s momentum
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THANK YOU
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QUESTIONS?
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ContactsAlexander AginskyManaging DirectorAginsky Consulting Group
[email protected] cell. (Russia): +7-965-121-9945cell. (USA): +1-206-356-8777office: +1-503-546-4049 ext. 100 (USA)
www.aginskyconsulting.com
April 6th, 2013
411 NW Park Ave., Suite 402
Portland, OR 97209