Bc Investment Due Diligence Assessment 23 December 1999 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 contained 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 51net.com will not be guaranteed by Bain & Company, Inc. or any of its subsidiaries. bc Z5112 2 OSF SNG Agenda • Executive Summary • Detailed Business Assessment – US Market Benchmarks – China Market Dynamics – 51net.com Financials bc Z5112 3 OSF SNG Executive Summary Summary Investment Evaluation Pros • • • • • • Cons • • Attractive online recruitment market space in China with high growth potential Differentiated click-and-mortar business model (online and newspaper) with a 16 month operating 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 management including head of Bain’s 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, Buy.com business models for China) is accelerated (business plan financials are 99% driven by core recruiting business) Exposure to potentially significant sovereign risk given China’s 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 attractive (base case: 3.8X return on money, 57% IRR), but not blockbuster (high case: 7.9X return on money, 99% IRR) bc Z5112 4 OSF SNG Executive Summary Investment Overview Background • • • Strategy and business model • • • Investment upside • • 51net.com is a China-based start-up company established in 1998 focused on the online recruitment market Its key partner team includes 1 Bain partner (Rick Yan) and 3 former Bain consultants 51net.com is seeking to raise US$3M in exchange for a 5% equity stake in the business 51net.com has a click-and-mortar business model for job placements, consisting of – a newspaper, Career Post Weekly, launched in Oct 1998 – a website, 51job.com, launched in Jan 1999 It is currently one of the leading 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 base) 51net.com 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, buy.com business models for China) – developing 51net.com into an umbrella brand with a strong portfolio of vertical applications – establishing an e-commerce business incubator Underlying China online recruiting market growth and penetration (included in business plan targets) Adjacent e-business opportunities (not included in business plan targets) Source: OneSource; SG Cowen Securities; Analyst Reports; Company Websites Key risks • • • China-specific legal and regulatory risk Intrinsically low entry barriers Speed in reaching scale bc Z5112 5 OSF SNG Executive Summary Opportunity Screen Company: 51net.com Contact/principals: Rick Yan Proposed Terms: To invest US$0.5M in exchange Recommendation See attached See attached Bain role Business Plan Development Recruiting Support Temporary Management Legal for 0.83% equity stake in company Required resources: Current investors: Criteria Overview Scoring Accounting Creative Technical Facilities/Space Advisory Board Seed Funding Fundraising Support Strategic Partner Introductions X X Comments Market potential 4 • • • China’s internet growth potential is very high given its current embryonic stage (internet penetration from 4% in 1998 to 16.5% in 2002) In the US, the online