acg immlaw presentation april 11, 2013

Direct Investments: The Less Traveled Road for EB-5 InvestorsIMMLAW Meeting – Vancouver, BC April 6th, 2013

Presentation Outline

EB-5 todayNew marketsAlternatives to EB-5 Regional CentersEB-5: the ACG way Implications for legal professionals

April 6th, 2013 www.aginskyconsulting.com 2

EB-5 TODAY


EB-5 Today – Why?

Why EB-5?

Key Drivers: Political instability Corrupt institutions Crime and violence Impediments to free enterprise Economic instability/ volatility


EB-5 Today – Visas Issued


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

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


Yurop Shrestha

Insert graph: rc up, acceptance down.

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


NEW MARKETS


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


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.


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


ALTERNATIVES TO EB-5 REGIONAL CENTERS


Investor Options (Alternatives to RCs)Competing immigrant-investor

programs overseas Other Visa Categories (L-1, E-2) EB-5 Direct Investment


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.


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

Alternatives - Direct Investment


ACG & EB-5


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


EB-5 DIRECT INVESTMENT CASE STUDY


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


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


“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


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


Selected Deal: Commercial Janitorial Service Company


• Total investment size: $1,500,000• Expected umber of new jobs: 24• Projected ROI: 26.5%• Expected Exit: 3-4 years

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


Financial Summary

*2013 forecasts are based on existing customer contracts


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%

Current Employment Structure

Total Employees: 12

Owner

Business Manager (1)

Operations Manager (1)

Janitorial Staff (9)

Office Secretary (1)


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


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


Phase VII: Ongoing Management ACG oversees the day-to-day operations Key strategic decisions Hiring and firing Quarterly reports to investor


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


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


EB-5 Investor(s)

ACG Oversight

Senior Management

(2)

Sales Force (4)


Owner

Business Manager (1)

Operations Manager (1)


Office Secretary

(1)

Organizational Transformation


Pre - Acquisition

Post - Acquisition

Pre-acquisition # of employees: 12

Post-acquisition # of employees: 36

New jobs created: 24

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


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


Comparative Analysis: RC vs. DI


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

Manuel Rivera

Thought this chart was more complete. just added the Brokerage/Admin fee row.

Advantages of Direct Investment – Lower Risk


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

Direct Investment


IMPLICATIONS FOR LEGAL PROFESSIONALS


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


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



THANK YOU


QUESTIONS?

www.aginskyconsulting.com 44

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

mailto:[email protected]



http://www.aginskyconsulting.com/