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The Private Equity 2Q 2012 Breakdown

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Table of Contents
Private Equity Deal Flow ..................................................... 3 Transactions by Region and Industry .................................... 4 Investment by Deal Size ................................................... 5 Add-on Activity ............................................................... 6 Exits by Industry and Strategy ......................................... 8 Fundraising and Largest Funds Closed ............................ 9 League Tables ................................................................ 10 PitchBook Methodology ................................................ 11 About PitchBook ........................................................... 13

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The Private Equity 2Q 2012 Breakdown

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Private Equity Activity

When we began to compile research on private equity activity during the first quarter of the year, we discovered that much of the uptick in momentum that the industry saw during 2011 had subsided. While it may be easy to jump to conclusions about a slower first quarter, especially given the economic challenges that opened the year, a few very important aspects of the industry, such as exits, remained quite strong. The private equity industry experienced a quieter level of activity during the first quarter, but 2012 is still very young, said John Gabbert, Founder and CEO of PitchBook Data, Inc. There are several factors that have set the stage for stronger activity throughout the remainder of the year. The middle market continues to be a powerful and integral part of the industry, said Richard Martin, Senior Director for the Merrill DataSite virtual data room business at Merrill Corporation. We are looking forward to increased activity throughout the remainder of 2012, due in part to an anticipation that GPs will invest a portion of the $425 billion dry powder into the market. Within this report, PitchBook explores the trends that emerged during the first quarter of 2012, focusing particularly on investment, exit and fundraising activity. Below are some of the highlights from the analysis: Private equity deal flow experienced a decline in terms of investment activity from the fourth quarter of 2011. In 1Q, there were 321 completed deals totaling $55 billion in invested capital. Deals under $500 million represented a 95% of investment activity. The share of the Information Technology industry within private equity continues to increase. The first quarter of 2012 marked a major growth period for the industry, which was responsible for $10.8 billion in invested capital. Fundraising for private equity remained steady from the second half of 2011, with 26 funds closing on a total of $20 billion of committed capital. Despite declines in private equity investment last quarter, exit activity remained strong with 112 companies sold or taken public for a total of $21 billion. Private equity exits will likely be a major conduit for activity for the remainder 2012, which will be critical in the reduction of the record 6,087 portfolio companies still being held. These are just a few of the highlights from the report. We hope the above information and the in-depth analysis in the rest of this report prove to be useful tools in your private equity endeavors.

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Private Equity Deal Flow

In comparison to recent years, 2012 is off to a slower start in terms of investment activity. Three hundred twenty-one deals, totaling $55 billion of invested capital, closed during the first quarter of 2012, down from 426 deals and $89 billion in 4Q 2011 and 475 deals and $86 billion in 1Q 2011. Private equity fundraising, however, maintained the momentum seen in the second half of 2011, with 26 funds closing on a total of $20 billion of committed capital. Exit activity, too, is proving to be a relatively bright spot for the private equity industry this year with 112 companies being sold or taken public last quarter, the strongest first quarter since 2007.

Private Equity Deal Flow by Year

Given the ambiguity in the debt markets and Source: PitchBook uncertainties overseas, a slowdown in private equity investment activity was not completely unexpected. The middle market continues to be take the lead in private equity deal flow and will likely continue to attract a large amount of capital throughout the rest of the year, especially as the window will soon be closing for some GPs to invest a significant portion of their older dry powder, part of the $425 billion capital overhang. As they work through this buildup of dry powder, there should be a corresponding uptick in investment activity. Exits also look to be another driver of private equity activity in 2012, and will be critical in reducing the record portfolio company inventory. While the first quarter may not have been the strongest start to the year, 2012 is still young. There are several factors that have set the stage for stronger private equity activity as the year progresses.

Private Equity Deal Flow by Quarter

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The Private Equity 2Q 2012 Breakdown

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Transactions by Region
The adjacent graph illustrates deal flow by regions of the country. The inner circle represents deal flow for the first quarter of 2011, while the outer circle represents activity during the first quarter of 2012. Overall, private equity investment activity held relatively steady in each region from 1Q 2011 to 1Q 2012. The Midwest continued its reign as the most active region in the country, with 72 deals closed during the first quarter of 2012. Following closely in second was the West Coast, which saw its share rise up six percentage points from the previous year, the biggest jump for any region. Already in 2012, 66 deals have closed in the West Coast, the overwhelming majority of which involved target companies located in California. Only the South, Northeast and Mid-Atlantic regions saw their shares of the investment activity drop from 1Q 2011 to 1Q 2012. The South had 43 completed deals last quarter, and the Northeast, 29.

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Transactions by Industry
Overall, investment activity within each industry in 1Q 2012 was similar to that seen in 1Q 2011. Business Products & Services (B2B) remained the most active industry for private equity investment during the first quarter of 2012, with 105 completed deals accounting for a 33% share of the activity. The second most active was the Consumer Products & Services (B2C) industry, which represented 18% of the deal flow with 58 completed deals. The Healthcare and Information Technology industries saw the greatest growth in their shares of the activity from 1Q 2011 to 1Q 2012. IT was also the industry that accounted for the most invested capital in 1Q 2012 with $10.8 billion of capital invested through 55 deals. This will be one trend worth watching to see if it holds through the rest of the year or if another industry begins to attract more investor attention.

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Investment (Count) by Deal Size

The first quarter of 2012 was the quietest quarter in the past five years in terms of deal count, with a total of 321 deals completed. The distribution of those deals across the different size groups reveals a growing preference amongst private equity investors for deals under $50 million. With 187 closed deals, these smaller-sized investments accounted for 58% of the quarters total deal flow, up from a 45% share last year. The percentage of activity accounted for by deals in the $250 million to $500 million range also increased, climbing three percentage points to 13%. While the partiality towards smaller deals was certainly prevalent during 1Q 2012, there were also four deals between $1 billion and $2.5 billion, including the $1.6 billion acquisition of 99 Cents Only Stores.

*
* as of 03/31/12
Source: PitchBook

Investment (Amount) by Deal Size

During 2011, more than half (55%) of all capital invested was poured into deals of at least $500 million in size. The first quarter of 2012 was a different story. Of the $55 billion invested in the first quarter of the year, only 29% went to $500 million+ deals, while an overwhelming 71% went towards deals under $500 million. The most active deal size group in terms of capital invested during 1Q 2012 was the $250 million to $500 million group, which represented 41% of all invested capital, up a staggering 22 percentage points from its 19% share of 2011s total invested capital. The second most active group was $50 million to $250 million deals with a 21% share.

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*
* as of 03/31/12
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The Private Equity 2Q 2012 Breakdown

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Private Equity Add-on Activity

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*
Source: PitchBook

* as of 03/31/12

For the first time, add-ons accounted for more than half (54%) of the buyout activity in 1Q 2012 with private equity-backed companies adding on 135 companies. Since 2003, add-ons as a percentage of yearly buyout counts have been on a steady upward trend, and the first quarter of 2012 was no exception. During 1Q 2012, PE firms and their portfolio companies spent a total of $31.69 billion on add-ons, a 59% increase from 4Q 2011. The most active industries for add-ons were Business Products & Services (43 add-ons) and Healthcare (25). Business Products & Services accounted for 56% of all the capital invested through add-ons last quarter, the highest share for a single industry.

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PitchBook Platform Data Tallies1

Companies Transactions Professionals Investment Firm Professionals Investors (Financial & Strategic) Investors (PE & VC) Funds Funds with Returns Open/Upcoming Funds Service Providers Limited Partners % Funds with Dry Powder Funds with Cash Flows Funds with IRR
1

Advanced Analytics

48,832 70,816 182,688 72,075 18,793 9,396 15,915 5,370 2,748 7,454 6,593 70% 2,400 2,694

All Pitchbook data sourced from the PitchBook Platform as of 4/4/12.

The Private Equity 2Q 2012 Breakdown

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Private Equity Exit Activity

Exits by Type

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Private equity exit activity fell slightly from 4Q 2011 with 112 completed sales or IPOs of PE-backed companies in 1Q 2012. Those exits totaled $21 billion in combined size. Sales to strategic acquirers (corporate acquisitions) remained the most common exit strategy, with 66 such exits completed last quarter totaling $16 billion of capital. Though slightly behind fourth quarter numbers, 1Q 2012s exit count was the highest first quarter exit count since 2007. Additionally, the first quarter of the year has historically not been the strongest quarter for exits, so increased exit activity could very well be up ahead in the remainder of 2012. Such a boost would be welcome as PE firms work to offload a large number of aging portfolio companies.

Exits by Industry
Since 2007, exit trends by industry have remained relatively steady, though the first quarter of 2012 marked a few subtle shifts. The Business Products & Services (B2B) industry, a private equity investment staple and a particularly attractive industry due to recurring cash flows, once again accounted for the largest percentage of exits last quarter. The industrys share of the activity even grew slightly to represent 36% of the exit flow with 41 exits. Also on the rise during the first quarter was Information Technology, which was responsible for a 18% share as 20 companies in the industry were sold or taken public. On the other hand, exit activity within the Consumer Products & Services (B2C) industry shrunk considerably from 2011 to represent only 16% of the exits during the first quarter.

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Private Equity Fundraising

The U.S. private equity industry continues to face challenges when it comes to fundraising, as shown by the continued sluggish activity seen in the first quarter of 2012. 26 funds closed during the quarter on a total of $20 billion in commitments, on par with the second half of 2011. Those closed funds were relatively spread out across almost all fund size groups, the one exception being the $5 billion+ group, as mega-funds continued to be elusive. Six funds in the $100 million to $250 million group closed last quarter, while there were three closed in the $1 billion to $5 billion group. Of the $20 billion closed during the first quarter, a little over half ($10.95 billion) was committed to funds within the $1 billion to $5 billion size group. This ebbing is partially the result of bulging PE portfolios and a lingering $425 billion capital overhang, both of which potentially tie up LP capital from new funds. As PE firms feel increased pressure to exit their investments and distribute capital back to LPs, we should see a boost in fundraising.

Fundraising Activity
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Fund Count by Size

Capital Raised by Fund Size

*
2007 55 65 59 42 66 13 2008 37 49 51 42 52 15 2009 25 25 24 21 30 7 2010 29 19 31 25 26 2011 19 33 26 32 25 2012 2 6 6 7 5 2007 2008 $2.00 $1.35 $10.09 $7.61 $21.54 $17.82 $26.35 $27.56 $125.70 $113.35 $128.19 $143.45 2009 $1.21 $4.13 $8.06 $13.71 $62.69 $63.18 2010 $1.44 $3.34 $10.81 $17.24 $57.08 2011 $0.92 $5.54 $9.71 $21.61 $56.84 -

*
2012 $0.01 $1.09 $2.09 $5.44 $10.95 -

< $100M $100M-$250M $250M-$500M $500M-$1B $1B-$5B $5B+

< $100M $100M-$250M $250M-$500M $500M-$1B $1B-$5B $5B+

* as of 03/31/12

Largest Funds Closed in 1Q 2012

Investor GSO Capital Partners Summit Partners TPG Capital Thoma Bravo Cowen Healthcare Royalty Partners New York Life Capital Partners Strategic Value Partners Symphony Technology Group Garrison Investment Group
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Source: PitchBook

Source: PitchBook

Fund GSO Capital Opportunities Fund II Summit Partners Growth Equity Fund VIII TPG Growth Fund II Thoma Bravo Fund X Cowen Healthcare Royalty Partners Fund II NYLIM Mezzanine Partners III Strategic Value Special Situations Fund II Symphony Technology Group IV Garrison Opportunity Fund III
The Private Equity 2Q 2012 Breakdown

Amount ($M) 4,000 2,700 2,000 1,250 1,000 980 918 870 750
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1Q 2012 League Tables

Most Active PE Investors
Investor Name
The Riverside Company Audax Group Genstar Capital Symphony Technology Group Bush ODonnell Grey Mountain Partners The Blackstone Group Yucaipa Companies ABRY Partners American Securities Great Hill Partners GSO Capital Partners GTCR Golder Rauner Gum Branch Capital Halyard Capital Investcorp Kayne Anderson Capital Advisors Levine Leichtman Capital Partners Magic Johnson Enterprises New Evolution Ventures Prairie Capital Riverside Partners Tailwind Capital The Carlyle Group Thomas H. Lee Partners Vision Capital Warburg Pincus American Capital Arsenal Capital Partners Avista Capital Partners Bay Capital BB&T Capital Partners Blue Wolf Capital Blum Capital Partners Building Industry Partners Centerbridge Partners Chicago Growth Partners Clayton Dubilier & Rice Energy Capital Partners Excellere Partners First Reserve Francisco Partners Frontier Capital Goldman Sachs Private Equity Group GS Capital Partners Hellman & Friedman Huntsman Gay Global Capital InterMedia Partners JMI Equity Kelso & Co. Kinderhook Industries Lake Capital Littlejohn & Company Milestone Partners Monroe Capital Navigation Capital Partners North Cove Partners Pamlico Capital Platinum Equity Platte River Ventures Resilience Capital Partners The Private Equity 2Q 2012 Breakdown

Most Active PE Investors, Contd

7 5 5 5 4 4 4 4 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 [ 10 ] Ridgemont Equity Partners Stone Point Capital Superior Capital Partners Tennenbaum Capital Partners The Comvest Group The Edgewater Funds Thoma Bravo Tregaron Capital Company TSG Consumer Partners Veritas Capital Versa Capital Management Vista Equity Partners W Capital Partners W.L. Ross & Co Wedbush Capital Partners Weinberg & Bell Group White Deer Management 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2

Deal Count

Advisors

Most Active Advisors

Houlihan Lokey Goldman Sachs Harris Williams & Co. Alvarez & Marsal Barclays Capital Robert W Baird Sagent Advisors Citigroup RBC Capital Markets Moelis & Company

Most Active Lenders

Lenders
GE Capital Fifth Third Bank Wells Fargo Monroe Capital RBC Capital Markets Ares Capital Madison Capital Funding Avante Mezzanine Partners NXT Capital Abacus Finance Group

Most Active Law Firms

Law Firms
Kirkland & Ellis Jones Day Shearman & Sterling Skadden Arps Slate Meagher & Flom Latham & Watkins Ropes & Gray Simpson Thacher & Bartlett Morgan Lewis & Bockius Weil Gotshal & Manges Vinson & Elkins Paul Hastings Sullivan & Cromwell Baker & Hostetler demo@pitchbook.com www.pitchbook.com

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PitchBook Methodology
Private Equity Deals
The report includes all private equity investments (buyout, growth, PIPE, recapitalization and add-on), excluding real estate investments, made into target companies headquartered in the United States. Only investments made directly by private equity firms are counted. Buyout deals are defined as transactions where the private equity investor receives a controlling ownership stake in the target company. Growth deals are defined as minority investments in target companies. Add-on deals are defined as acquisitions by companies with private equity backing.

Total Capital Investment*

Total amount of equity and debt used in the private equity investment Ex. $10 million of equity and $20 million of debt = $30 million of total capital investment

*PitchBook has changed its methodology in calculating total capital invested to provide a more

accurate accounting of investment totals. Previously the totals included only amounts directly reported to and gathered by PitchBook. The new total capital invested figures now also include deal amounts that were not collected by PitchBook but that have been estimated using a multidimensional substitution and estimation matrix, which takes into account year of investment, deal type, platform v. add-on, industry and sector. Some data sets will include these extrapolated numbers while others will be compiled using only data collected directly by PitchBook; this explains any potential discrepancies that may be noticed.

Fundraising Exits

The report only includes private equity funds that have held their final close. Fund of funds and LP secondary funds are also not included.

The report includes both complete and partial exits via corporate acquisition, secondary private equity buyout and initial public offering (IPO). Dividend recapitalizations are not taken into account in the report.

The Private Equity 2Q 2012 Breakdown

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182,688

70,816

25,000

21,409

8.5x more
More Transactions

2.8x more

More PE & VC Professionals

6,593

2,748

4,000

1,700

1.6x
more

1.6x more
More Open/Upcoming Funds

More Limited Partners

1 Data sourced from 4Q 2011 nearest competitor publication. All other competitor data sourced from nearest competitor site on 4/4/12. 2 All Pitchbook data sourced from the PitchBook Platform as of 4/4/12.

Contact PitchBook: www.pitchbook.com l main: (877) 267-5593 l email: demo@pitchbook.com