Roland Berger European Private Equity Outlook April 2011

European Private Equity Outlook 2011
Munich & Frankfurt, April 2011

European Private Equity Outlook 2011_Final_010411.PPTX
Contents
A. The current private equity environment En route to recovery
B. A look at the European real economy In and out of turmoil and back again? C. A look at capital markets No full recovery yet D. Outlook 2011 and beyond Situation improved, but complexities ahead
Page
6 11 18 27
2010 Roland Berger Strategy Consultants GmbH
While PE regains momentum after a disastrous year 2009, market conditions presented substantial challenges in 2010
Executive summary (1/3)
> Situation 2010 PE market regaining strength after downturn in 2009 but still challenging > In 2010, European PE activity is starting to regain momentum after a historical low in 2009 PE investments have increased by 52% compared to previous year > The European economy is starting to recover, but long-term prospects still uncertain > European governments fueled growth with deficit spending, which may hamper growth in the long run and put the stability of the European financial system at high risk > The capital markets environment has substantially improved but remains buoyed by concerns about the sustainability of economic recovery
> Low loan availability and volatile markets limit acquisition and exit opportunities, leverage levels of around 3.5-4.0x EBITDA require high equity commitments in LBOs
> Margins have recovered despite sovereign debt woes. Due to low base rates, overall loan and bond pricing is below bull market levels > With approx. EUR 173 bn in committed funds available, European general partners will have to rethink how they can meet limited partners' return expectations in the future
European Private Equity Outlook 2011_Final_010411.PPTX 3
Outlook for 2011 positive in a changing environment

> Outlook 2011 situation will improve with changes regarding type of investors, transactions and pricing Expected increase in PE relevant M&A activity esp. in the Automotive, Capital goods, Business services and Consumer goods sectors M&A activity from strategic buyers is likely to increase as the corporate agenda shifts from crisis to growth management. Also, we expect more activity from Asian buyers Given the improvement in overall market conditions, we expect higher transaction security for sellers
As debt capital markets have yet to recover, large deals are likely to remain seldom
Revival of dual track PE exits, as investors aim to increase transaction security and leverage the window of opportunity in the stock market
Challenges for the mid and long term perspective expected

> Medium/long-term perspective challenges in financing and redesign of business models expected Refinancings become increasingly complex, driven by the restraint of debt providers As value creation via pure financial engineering becomes more and more exhausted, we expect to see more business model innovation
A. The current private equity environment En route to recovery
PE investments are gaining momentum in 2010 Rising valuation levels are crucial to recovery
Current situation
> In 2010, European PE activity is starting to regain momentum after a historical low in 2009 > In 2010, EUR 36 bn were invested in Europe a 52% increase year on year > With low deal volumes and average values, the M&A market is yet to recover buyers' and sellers' price expectations in mismatch > With approx. EUR 173 bn in dry powder1) available, general partners will have to rethink how they can meet limited partners' return expectations in the future > Also, PE funds must regain trust of their investors as fund performance has suffered during the financial crisis
1) "Dry powder" refers to committed, yet uncalled funds of private equity funds
Source: Roland Berger European Private Equity Outlook 2011_Final_010411.PPTX 7
Return to sound valuation levels is key to the PE market's recovery
While PE investments decreased by 57% in 2009, PE activity is starting to regain momentum in 2010
European PE activity flows [EUR bn]
Dry 60 powder [EUR bn]
67 104 141 112.3 178 191 194 173
82.9 71.8 47.1 27.0 29.1 13.6 36.9 27.5 19.6 29.8 71.2 72.9
81.4
-57% 54.0 +52% 35.6 14.0 16.1 23.4 11.1 15.3 11.7
33.1
27.6
2003
Funds raised
Source: EVCA; Prequin
2004
Investments
2005
Divestments
2006
2007
2008
2009
2010
M&A volumes remain low, average deal values decline Mismatch between buyers' and sellers' price expectations
M&A volume in Western Europe [EUR bn]
Total no. of M&A deals1)
2,000 4,478 4,692 1,224
991 785 483 477
8,560
9,059
10,102
11,526
12,946
11,961
9,341
9,964
thereof deals with an disclosed deal value:
6,000 5,000 3,962

968
1,500 3,316 1,000 3,433
4,045
4,000 2,571
482
2,917
3,000 2,000
500 0
398
1,000 0
2003
2004
2005
2006
2007
2008
2009
2010
Value in EUR bn (left scale)

1) Including those with undisclosed transaction value
Source: Thomson Financial
Volume in no. (right scale)

Massive dry powder available But how can limited partners' return expectations be met in the future?
Private equity returns
EUROPEAN BUYOUT, 5-YEAR ROLLING IRR [%]
15.9 12.5 9.6 8.2 8.3 12.7 11.1
REMARKS > European PE funds raised approximately EUR 380 bn of capital in 2005-2010 > With dry powder of approx. EUR 173 bn, PE funds must find a high number of attractive targets to meet investors' demand > In the past, many funds have relied entirely on deleverage to reach required IRRs > In the current environment, PE funds may have to rethink their investment strategy
2003
2004
2005
2006
2007
2008
2009
2010
Source: EVCA, Prequin, Roland Berger Research
10
B. A look at the European real economy In and out of turmoil and back again?
11
The real economy is recovering But pre-crisis levels will not be reached in the short run
Current situation
> To overcome the financial crisis, European governments fueled economic growth with deficit spending most of them issued government bonds > This inflated the volume of money in circulation and reduced the interest rate pressure but for how long? > The European economy is highly dependent on exports the appreciation of the euro dampened the recovery in 2010 > The high deficit might hamper growth in the long run
> The high risk that individual governments as in the case of Ireland or Greece might default on their high debt puts the stability of the entire European financial system at high risk
The European economy is starting to recover, but long-term prospects remain uncertain
12
Growth in Europe is sluggish and far behind emerging markets and China
GDP change in the Eurozone [%]
3.1 2.8
GDP growth of selected countries/regions [%] 2009

1.7
1.0
2010p 4.8 2.5 7.1 2.7 3.4 3.5 1.7 10.2 4.0
2011p 4.2 2.1 6.4 2.2 1.8 1.2 1.5 9 4.0

13
Global Industrialized countries Emerging markets USA Germany Japan
-0.6 -3.5 2.5 -2.6 -4.7 -5.3 -4.1 9.1 -7.9
0.4
-4.1
2006 2007 2008 2009p 2010p 2011p
Euro zone China Russia
Source: IMF, EIU
Many currencies appreciate against the USD Governments incline towards fiscal intervention
Appreciation against USD since June 1 2010 [%]
20.3
Quantitative Easing: USA eases pressure on their banks flooding the financial system with money
11.0
10.6 7.2
European measures to compete against US monetary policy are limited
9.7
9.7 3.6
High exchange rates slow down exports, restrictive monetary policy of many emerging markets decelerates growth Risk of competitive devaluation of currency countries want to increase competitiveness New threat of protectionism?
CHF Euro
Source: Bloomberg
Yen
Baht Real Won Yuan
Public budgets are falling into disarray No major industrial nation could fulfill the Maastricht criteria
Public budgets 2010 budget deficit and public debt [in % of GDP]
Budget deficit
0 -5
Maastricht-criterion 60%
Brasil Germany India Italy Eurozone EU-27 USA Portugal France UK Spain Mexico China Russia
Japan
-10 -15 -20 -25 -30
Greece
Maastrichtcriterion 3%
Ireland
-35 -200 -190 -180 -170 -160 -150 -140 -130 -120 -110 -100 -90 -80 -70
Source: EIU
Public debt
-60 -50 -40 -30 -20 -10 0
15
Rising public debt leads to an increased risk of national bankruptcy Greece and Ireland are especially at risk
Development of interest rate of government bonds, subscribed [01/2008=100]1)
300 250 200 150 100 50 0 1/4/08
Increased risk of default, especially for Greece, Ireland and Portugal

Greece Ireland Portugal Spain Italy France Germany
Spread of Greek government bond about 800 base points above the eurozone average Greece is still mostly on track with reforms, but a new wave of actions is needed to ensure a long-term recovery
7/4/08
1/2/09
7/3/09
1/1/10
7/2/10
1/7/11
Ireland's credit ratings have been cut and worries about the health of the economy and banking system persist
1) 10 year Government Bond, rebased

Source: Bloomberg; Roland Berger Research European Private Equity Outlook 2011_Final_010411.PPTX 16
Uncertainty about how the financial markets will develop has increased again despite recovery of the real economy
Development of credit default swaps of banks [January 2010=100]
260 240 220 200 180 160 140 120 100 80 60 40 20 0
Core equity ratio too low in many countries

Eurozone
UK USA May 2010 IMF/EU/ECB Stability program
There is still risk on the balance sheet of major banks need for additional impairment
Bankruptcy of countries with high public debt is an additional risk factor Procedure for more regulation not clear no agreement on international level
1/1/10
3/1/10
5/1/10
7/1/10
9/1/10 11/1/10 01/07/11

Source: Bloomberg; Roland Berger Research
C. A look at capital markets No full recovery yet
18
The capital market environment has substantially improved, but continues to provide challenges for investors
Current situation
> The rules of the game remain unchanged for now: low loan availability and volatile markets limit acquisition opportunities and exit channels > The shift from loans to bonds in debt capital markets continues, but is buoyed by concerns about the sustainability of economic recovery > Margins have recovered despite sovereign debt woes. Due to low base rates, overall loan and bond pricing is below bull market levels > Leverage levels of around 3.5-4.0x EBITDA are driving up the required equity commitments in transactions > Despite successful PE-backed IPOs in 2010, the potential for IPOs as an exit channel is limited
Development in 2011 depends heavily on the sustainability of economic recovery
19
Activity in loan markets remains low Substantial influence of macroeconomic worries on bond markets in 2010
Development of European debt capital markets Availability
DEVELOPMENT OF EUROPEAN BOND AND LOAN ISSUANCE [EUR bn]
Investment grade loans Leveraged loans
REMARKS > Worries about European government borrowers such as Greece, Ireland, Spain, Italy or Portugal are having a fundamental impact on markets in 2010
748 593 187 218
732 310 89
+13%
312 60 353 84
Loans
542 391 109
242
106
> Loan markets recover slightly in 2010, but activity remains low > Banks prefer borrowers they know: refinancing, corporates with strong credit ratings, secondary buyouts > Low loan availability is increasingly becoming an issue for companies without bond market access
Investment grade bonds

High yield bonds
-61%
295
Bonds
75
19
56 28
60 28
116
42
133 26
149 6 30
115
40
2003
2004
2005
2006
2007
2008
2009
2010
Source: SIFMA, Loanconnector, Bloomberg
High-yield bond market still no alternative to loans for PE Refinancing remains the primary aim of new bond issues
Development of European debt capital markets Debt availability and purpose
EUROPEAN LEVERAGED LOAN VOLUMES [EUR bn, %] EUROPEAN HIGH YIELD BOND VOLUMES [EUR bn, %]
LBO share, 45 refi share 12 [%]
242
42 11
50 7
34 19
44 13
90 23
7 52
10 75
250 200 150 100 50 0 109 106 187
218
CAGR: -30%
200 150
CAGR: +15%
89
60
84
100 50 0
19
28
28
42
26
30
40
2003 2004 2005 2006 2007 2008 2009 2010
2003 2004 2005 2006 2007 2008 2009 2010

LBO Non-LBO
Source: SIFMA, S&P LCD, Roland Berger Research
Margins have recovered despite sovereign debt worries Due to low base rates, pricing is below bull market levels
Development of European debt capital markets Loan and bond pricing
TOTAL LBO PRICING [bps]
1,200 1,000 800 600 400 200 0 Q2 Q4 Q2 Q4 Q2 Q4 Q2 Q4 Q2 Q4 Q2 Q4 Q2 Q4 Q2 Q4 03 03 04 04 05 05 06 06 07 07 08 08 09 09 10 10
Avg. LBO margin Avg. 5-yr euro mid-swap rate
BOND YIELDS FOR BBB RATED ISSUERS [bps]

1.200 1.000
1,064 932
693
775 691
800 600 400 200 0
540 483
Q2 Q4 Q2 Q4 Q2 Q4 Q2 Q4 Q2 Q4 Q2 Q4 Q2 Q4 Q2 Q4 03 03 04 04 05 05 06 06 07 07 08 08 09 09 10 10
BBB spread Avg. 5-yr euro sovereign bond rate
Source: Loanconnector, Bloomberg, Roland Berger Research
22
Current leverage levels are around 3.5-4.0x EBITDA But banks remain careful when selecting deals
Development of European debt capital markets Leverage
LEVERAGE RATIOS IN EUROPEAN LBOS [Debt/EBITDA]
5.9x 4.9x 4.0x 4.4x 4.6x 3.9x 3.3x 3.4x 4.1x 4.3x 3.7x 3.3x 5.2x 5.3x
REMARKS
Mediumterm average
> Leverage levels have not entirely recovered from the crisis > For substantially higher leverage, lenders typically have to be familiar with the target existing lenders often stay committed
4.1x
4.1x
4.7x
3.8x
2003
2004
2005
2006
2007
2008
2009
2010
Total debt/EBITDA
Source: Loanconnector
Senior debt/EBITDA
Sponsors have to commit substantially more equity in LBOs To reach IRR levels of the past, deleverage will not be enough
Development of LBO transaction structures
Total LBO loan transaction structures [%1)]
100%
AVG. EQUITY CONTRIBUTION IN LBOs [%]

Deals with > 50% [%] 0 24 0 0 30 0
34 33 33 33 33 42
16
7 29 28 20 24 5 28 23
10
31
75
45
71
50
52
50
35 33 12 11
65 76
0 48
5 44
70
38
27
2003 2004 2005 2006 2007 2008 2009 2010

Sr + 2nd lien + mezz Sr + mezz Sr + 2nd lien Sr only
2003
2004
2005
2006
2007
2008
2009
2010
Average equity contribution in % of transaction value
1) Percentage of deals involving the specific instruments based on transaction count: e.g. in 2006, 29% of all deals had senior, 2nd lien and mezz structure
Source: S&P LCD European Private Equity Outlook 2011_Final_010411.PPTX 24
After almost no activity in 2009, the IPO market shows timid signs of revival
Development of European equity capital markets IPOs
EUROPEAN IPOs BY QUARTER [EUR bn, no.]
600 500 400 300 200 100 0 139
REMARKS
30 25 20
28.0
29.1
> European IPO activity almost came to a halt in 2009 > Despite sovereign debt crisis and the uncertain pace of recovery, IPO activity has picked in 2010 > Key growth sectors so far: raw materials and utilities, stock exchange listings, PE-backed IPOs > Q2 2010 has witnessed the return of IPOs in the >EUR 1 bn range
10.6
258
12.6 9.2
233 1.9 183 133 72 68 64 18 28 44 61 79 89 86
9.0 1.6 1.2 0.0 0.5 1.4 5.0 4.7 2.5
10.1
15 10 5 0
130
-5 -10 -15
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 07 07 07 07 08 08 08 08 09 09 09 09 10 10 10 10
Value [EUR bn, right scale] Volume [no., left scale]
Source: Bloomberg
25
Solid equity stories over pure refinancing Failed IPOs of Travelport, New Look make dual tracks worth considering
Development of equity capital markets Top PE-backed IPOs in Q1-Q4 2010
TOP 10 PE-backed IPOs 20101)
Date Okt 5 Apr 18 Jul 9 Jun 2 Mar 19 Mar 26 Nov 11 Company Pandora A/S Amadeus IT Holding Vallar Christian Hansen Holding Seller Axcel BC Partners, Cinven N. Rothschild PAI Partners Volume [EUR m] 1,336 1,317 808 674 660 650 648 441 436 358
YTD SHARE PRICE PERFORMANCE2) [%]

Eurostoxx 50 Pandora -2.5 62.5
Amdeus
Vallar
33.3
33.7
Chr. Hansen
Kabel Deutschland Brenntag Mail.ru AZ Electronic Ocado Strer
32.3
60.7 39.5 42.8 28.2 18.9 25.0
Kabel Deutschland Holding Providence Equity partners Brenntag AG Mail.ru Group Ltd. BC Partners Elbrus Capitals Carlyle , Vestar Capital J. L. pension fund, others Cerberus
Okt 29 AZ Electronic Materials SA Jul 20 Jul 14 Ocado Group Strer Out-of-Home Media
1) Excludes IPOs of SPACs and investment vehicles, such as Helikos, Horizon Acquisition Co., or NB Distressed Debt Investment 2) Share price performance since IPO. Eurostoxx 50 performance since January 1, 2010
Source: Bloomberg, Roland Berger European Private Equity Outlook 2011_Final_010411.PPTX 26
D. Outlook for 2011 and beyond Situation improved, but complexities ahead
27
Asset quality and transaction security will improve in 2011 over the medium term, we expect new challenges ahead
Private equity outlook 2011 and beyond
SHORT-TERM TRENDS 2011
1 2 3
MEDIUM TO LONG-TERM TRENDS 2012+

8 9
Improved asset quality hot sectors 2011
Complex refinancings Increasing business model innovation
Comeback of strategic buyers

Higher transaction security Focus on mid-size deals Increase in Asian bidders
4
5 6
More dual-track auctions
28
In 2011, we expect more strategic buyers in an improving deal environment Also, auctions will become more competitive
Key trends in the 2011 PE environment (1/2)
TREND
1 IMPROVED ASSET QUALITY - HOT SECTORS
Capital goods Automotive Consumer Goods Financial services Business services
ASSESSMENT
> We expect a substantial increase in PE relevant M&A activity in the Automotive, Capital goods, Business services and Consumer goods sectors > In the broader M&A market, we are looking forward to an increase in transactions in Financial services > After focusing on navigating the turbulences of the crisis and the often rapid recovery in 2010, growth is back on the corporate agenda in 2011 > In many industries, leading corporates have amassed substantial amounts of cash and thus represent strong competition in PE auction processes > Substantial number of auctions in 2010, but many have not been completed > Transaction multiples stabilize - banks may commit to slightly more risk towards H2 > Driven by the improvement in overall market conditions and most business' performance, we expect higher transaction security for sellers > As debt capital markets have not recovered yet, large cap deals are likely to remain seldom > In line with a likely recovery throughout the year, the return of larger deals is possible in the long-term
COMEBACK OF STRATEGIC BUYERS

PE buyers Corporate buyers
HIGHER TRANSACTION SECURITY

Low conversion High conversion
FOCUS ON MID-SIZE DEALS

Small cap Mid cap Large cap
Increase in Asian bidders expected Capital markets environment likely to be used for more dual tracks
Key trends in the 2011 PE environment (2/2)
TREND
5 INCREASE IN ASIAN BIDDERS
Domestic Intra-European Intercontinental
ASSESSMENT
> Increase in activity from Asian and Middle Eastern buyers expected in Europe particularly from Chinese strategic buyers > Also, securing access to Chinese markets is a key issue for many European companies > While the stock market may provide windows of opportunity for corporates in search of financing, high volatility may prove a serious obstacle for some > In search of increased transaction security, we expect Private Equity investors to increasingly opt for dual track processes
MORE DUAL-TRACK AUCTIONS

DUAL TRACK EXITS Private equity Public equity
30
MEDIUM-TO-LONG-TERM TRENDS 2012+
In the medium/long term, solving refinancing issues will become more complex We also expect more business model innovation
Key trends in the 2012 PE environment and beyond
TREND
8 COMPLEX REFINANCINGS
Noncomplex Complex
ASSESSMENT
> Balance sheet constraints in portfolio companies support the need for refinancing > Increasing complexity in refinancing, driven by the restrained behavior of debt providers
INCREASING BUSINESS MODEL INNOVATION

Product / marketcombination Status quo Revenue model
> Enhanced focus on operational improvement within the portfolio companies because the value added based on financial engineering is limited > Return to the performance level of the original business plan > Closer look on new technology/market combinations > PE should try to bring their portfolio company to a new phase in its life-cylce
Value chain
31
IMPROVED ASSET QUALITY - HOT SECTORS 2011
On the back of the improved economic prospects, we expect an increase in M&A activity in key sectors
M&A in 2011 sectors with increasing activity
HEAT INDICATOR Automotive Capital goods Financial services Consumer goods, retail Business services Energy/utilities Chemicals Engineering Technology, Media Pharma/Healthcare Logistics Building and construction Tourism
Source: Roland Berger
HOT INDUSTRIES
Automotive > Automotive industry was severely hit by the crisis. On the back of the global recovery, revenue and order intake have improved to record levels, which makes the disposal of assets likely
Capital goods
Financial services Consumer goods Business services
> Most subsectors, such as plant construction or engineering, still remain very fragmented and provide substantial opportunities for classic platform buy-and-build strategies
> Increase in regulatory efforts by the EU likely to drive consolidation in certain subsectors > Issues of German Landesbanken still need to be resolved > In certain subsectors, such as fashion and textiles, a substantial number of PE portfolio companies will be back in the market > Business services industries typically flourish in the recovery > Good opportunities to dispose of portfolio companies in various subsectors
32
COMEBACK OF STRATEGIC BUYERS
Great cash reserves imply that M&A activities of strategic investors will increase Enhanced competition for PE
Indicators for increasing competition from strategic investors
M&A VOLUMES WESTERN EUROPE [#, EUR bn]
Corporate investors share by deal volume [%] 82.0 79.4 78.2 79.4 79.2 1,224
785 483 477 881 968 482
NON-RESTRICTED CASH OF EUROSTOXX 50 COMPANIES1) [EUR bn]

79.4 250 200 150
398
CAGR: 19.9%
82.0
81.0
216 174 141 84 97 101 105 184
100 0 2003 2004 2005 2006 2007 2008 2009 2010
2003 2004 2005 2006 2007 2008 2009 2010 > Cash levels have substantially increased from pre-crisis levels > Cash financing of transactions thus becomes much easier
> Decreased share of strategic bidders since the beginning of the crisis in 2008 > During the crisis, many companies have abstained from acquisitions and have limited capital expenditure
1) Excludes financial services companies such as Allianz SE, BNP Paribas, Deutsche Bank, Mnchener Rckversicherungs AG, and others
Source: Thomson Financial, Roland Berger Analysis European Private Equity Outlook 2011_Final_010411.PPTX 33
HIGHER TRANSACTION SECURITY
European M&A market shows decreasing conversion rates since 2008 Transaction security likely to improve 2011
Transaction completion and pricing
EUROPEAN ANNOUNCED VS COMPLETED DEALS [# '000]
Conversion [%] 80.1 82.5
85.2 82.8 15.1 12.5 81.5 17.4 11.7 11.9 9.7 9.5 12.8 14.2 80.4 17.0 13.6 74.5 16.8 12.5 73.9 18.3 13.5
EUROPEAN EV/EBITDA TRANSACTIONS MULTIPLES

Transactions [# '000] 9.5 9.7 10.9
12.5 14.2 14.6x 14.0 13.5x 10.3x 12.5 13.5
10.9
10.8x
12.3x 12.6x 13.1x
12.2x
2003
2004
2005
2006
2007
2008
2009
2010
2003
2004
2005
2006
2007
2008
2009
2010
Announced deals
Closed deals > Stabilization of pricing in M&A markets > Investors are likely to take advantage of low valuations in stock markets. However, volatilityis still high
> Since 2008, deal conversion has constantly decreased > Due to the improved business performance of most targets and a positive economic outlook, we expect transaction security to increase in 2011
Source: Thomson Financial
34
FOCUS ON MID-SIZE DEALS
Focus on to mid-size transactions debt financing constraints on large deals would incur bulk risks in portfolios
Deal sizes
"IN WHAT DEAL SIZE RANGE DO YOU EXPECT THE BULK OF M&A TRANSACTIONS TO TAKE PLACE IN THE NEXT 12 MONTHS?"
7% 16% 10% 15% 8% 27%
REMARKS
0%
5% 10% 40%
12%
21%
MID-MARKET
28%
22% 30%
> Low loan availability and the inexistence of a functioning European loan syndication market make large transactions likely to remain seldom, at least in H1
> Given debt financing constraints, PEs are unlikely to accept bulk risks in their portfolios resulting from high equity contributions in large deals > We thus expect the majority of PE transactions in Europe below the EUR 1 bn threshold, with some bigger deals from H2 being the exception from the norm
41%
41% 22%
62% 37%
8%
12%
13%
8%
5%
Total
>USD 1 bn US$501-US$1bn
APAC
Latin America
<US$100m
North America
Europe
US$251-US$500m US$101-US$250m
Source: Intralinks Global M&A survey July 2010
35
INCREASE IN ASIAN BIDDERS
After a steep decrease in 2009, we expect the activity of Indian and Chinese bidders to recover in 2011
Indian and Chinese bidders in European transactions
M&A WITH CHINESE OR INDIAN BIDDERS EUROPEAN TARGET [#]
54 42 36
10 17
REMARKS > Competitive pressure on Chinese and Indian domestic markets and gradual opening of China increase the relevance of cross-border M&A
36
18
> Increase in activity is already notable > Key motives: Access to technology, Western European customers and internationalization > M&A processes with Indian or Chinese audience often difficult no standard auctions
2011
25
8
11
22
25 32 37 13
13 5 3 2 2 4 2 2001
6 7 17
18 9
2000
2004
2005
2006
2007
2008
2009
2010
Chinese bidders
Source: Mergermarket
Indian bidders
MORE DUAL TRACKS
As the capital market environment stabilizes, we expect investors to increasingly use dual tracks as an exit route
Dual track auctions
EUROSTOXX 50 [2008=100]
120 100 80 60 40 20 0
REMARKS > After turbulent 2008/09, valuations in equity capital markets are attractive again and relatively stable > Window of opportunity to sell portfolio companies to the stock market > Dual track processes provide higher transaction security (and often valuation), but very thorough preparation required > Recent news on ISS, Takko, Valemus, or ProSiebenSat1 indicate that dual tracks are already becoming more frequent
Jan./07
July/07
Jan./08
Juli/08
Jan./09
July/09
Jan./10
July/10
Jan./11
Source: Mergermarket
37
COMPLEX REFINANCINGS
Pressing need to refinance debt burden from bull market years sustainable concepts and stakeholder management are vital
Refinancing trends
LEVERAGED LOAN MATURITY PROFILE [EUR bn]
50 45 40 35 30 25 20 15 10 5 0 2010
REMARKS
> Until 2015, leveraged loan volumes of more than EUR 100 bn will have to be refinanced
> Without debt markets at full speed, refinancings are difficult, costly, and increasingly complex: Loan-to-bond refinancing or amend-toextend agreements are expensive Equity investors demand solid balance sheets in rights issues Mitigation of varying stakeholder interests Time constraints vs. time requirements
2011 2012 2013 2014 2015 2016
Loan maturities as of June 2010

Source: Standard & Poors
> Refinancings increasingly demand sustainable concepts in non-sustainable 2017 environments

INCREASE IN BUSINESS MODEL INNOVATION
While making additional investment necessary, rethinking a portfolio company's business model often is a viable option
Framework for business model innovation
PERFORMANCE VS. ORIGINAL PLAN
B B
BUSINESS MODEL INNOVATION FRAMEWORK

Product / marketcombination
A A
Do nothing
Status quo Acquisition 2009 2010 Exit Revenue model
Value chain
THREE POSSIBLE RESULTS OF SUCCESSFUL BUSINESS MODEL INNOVATION

A Return to original business plan performance level > Sustainable increase of sales or profitability > Higher EBITDA upon exit increases returns
Source: Roland Berger
B Establish new technology / market combination > Change in the level playing field > Higher exit multiple possible due to new peer group
OR
Reach a new phase in the company's lifecycle > Bringing the company from maturity to a new growth phase > Benefits for all stakeholders
39
It's character that creates impact!
40

Roland Berger European Private Equity Outlook April 2011

Uploaded by

Document Information

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Roland Berger European Private Equity Outlook April 2011

Uploaded by

Copyright:

Available Formats

European Private Equity Outlook 2011

Munich & Frankfurt, April 2011

2010 Roland Berger Strategy Consultants GmbH

European Private Equity Outlook 2011_Final_010411.PPTX

Outlook for 2011 positive in a changing environment

European Private Equity Outlook 2011_Final_010411.PPTX

Challenges for the mid and long term perspective expected

European Private Equity Outlook 2011_Final_010411.PPTX

A. The current private equity environment En route to recovery

European Private Equity Outlook 2011_Final_010411.PPTX

Return to sound valuation levels is key to the PE market's recovery

European Private Equity Outlook 2011_Final_010411.PPTX

thereof deals with an disclosed deal value:

6,000 5,000 3,962

1,500 3,316 1,000 3,433

Value in EUR bn (left scale)

Volume in no. (right scale)

Source: EVCA, Prequin, Roland Berger Research

European Private Equity Outlook 2011_Final_010411.PPTX

European Private Equity Outlook 2011_Final_010411.PPTX

European Private Equity Outlook 2011_Final_010411.PPTX

GDP growth of selected countries/regions [%] 2009

2011p 4.2 2.1 6.4 2.2 1.8 1.2 1.5 9 4.0

Global Industrialized countries Emerging markets USA Germany Japan

-0.6 -3.5 2.5 -2.6 -4.7 -5.3 -4.1 9.1 -7.9

Euro zone China Russia

Source: IMF, EIU

European Private Equity Outlook 2011_Final_010411.PPTX

European measures to compete against US monetary policy are limited

Baht Real Won Yuan

European Private Equity Outlook 2011_Final_010411.PPTX

Increased risk of default, especially for Greece, Ireland and Portugal

1) 10 year Government Bond, rebased

Core equity ratio too low in many countries

UK USA May 2010 IMF/EU/ECB Stability program

9/1/10 11/1/10 01/07/11

Source: Bloomberg; Roland Berger Research

C. A look at capital markets No full recovery yet

European Private Equity Outlook 2011_Final_010411.PPTX

Development in 2011 depends heavily on the sustainability of economic recovery

European Private Equity Outlook 2011_Final_010411.PPTX

748 593 187 218

542 391 109

Investment grade bonds

Source: SIFMA, Loanconnector, Bloomberg

250 200 150 100 50 0 109 106 187

2003 2004 2005 2006 2007 2008 2009 2010

2003 2004 2005 2006 2007 2008 2009 2010

Source: SIFMA, S&P LCD, Roland Berger Research

BOND YIELDS FOR BBB RATED ISSUERS [bps]

800 600 400 200 0

Source: Loanconnector, Bloomberg, Roland Berger Research

European Private Equity Outlook 2011_Final_010411.PPTX

AVG. EQUITY CONTRIBUTION IN LBOs [%]

2003 2004 2005 2006 2007 2008 2009 2010

Average equity contribution in % of transaction value

9.0 1.6 1.2 0.0 0.5 1.4 5.0 4.7 2.5

European Private Equity Outlook 2011_Final_010411.PPTX

YTD SHARE PRICE PERFORMANCE2) [%]

European Private Equity Outlook 2011_Final_010411.PPTX

MEDIUM TO LONG-TERM TRENDS 2012+

Improved asset quality hot sectors 2011

Complex refinancings Increasing business model innovation

Comeback of strategic buyers