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Corporate Finance for Private Companies - Financial Executives ...

Corporate Finance for Private Companies

The Changing Marketplace and the Potential

Impact on Private and Midsize Companies

Private Company Services


Panel moderator

Fentress Seagroves

PricewaterhouseCoopers – Private Company Services

PricewaterhouseCoopers LLP

Slide 2


Objectives

• Provide an overview of the current market conditions

• Provide a private equity, commercial lending and due diligence point of

view on the following:

- The impact of the economic uncertainty on present and future deal

activity

- How the difficult financing environment for mega-deals has impacted the

middle market

- The credit crunch’s impact on transaction flow

- Financing strategies available in today’s market

- The market’s impact on buyer and seller expectations

- Strategies to help bridge the gap between buyer and seller expectations

- Advice for companies looking to grow through acquisition as well as

those looking to divest

- Industries and market sectors appearing to have the most activity/value

- Open Q&A

PricewaterhouseCoopers – Private Company Services

Slide 3


The panel

Peter Dontas

Bank of America

Craig Lawson

Harris Williams

PricewaterhouseCoopers – Private Company Services

Philip Yates

Great Hill Partners

Avery Tuchman

PricewaterhouseCoopers

Slide 4


Recent trends

• Financing is having a significant impact on M&A, however, good

companies continue to get financed at healthy levels

• Estimated amount of PE capital to be deployed exceeds $300 billion

Corporate acquirers becoming more active

• Declining US dollar boosting foreign acquirers

• Although Mega-PE deal market has slowed to a crawl, volume of middle

market PE relatively unchanged

• Seller value expectations and transaction multiples have started to come

down slightly over the past few months, but still at historical highs

• Bargains still not easily found

PricewaterhouseCoopers – Private Company Services

Slide 5


Deal activity increased in fourth quarter 2007 but has since

slowed again with the vast majority of global deal activity outside

the US

Deal Revival?

Announced mergers and acquisitions LTM 1Q08

$ in billions

700

600

500

400

300

200

100

0

April

May

US Global

June

Source: Thomson Financial as of April 22, 2008

July

PricewaterhouseCoopers – Private Company Services

August

September

October

November

December

January

February

March

Slide 6


Private equity share of US total deal value peaked in 2006 and

2007 and has declined significantly in 2008

US M&A Activity: 2001-1Q 2008

$ in billions

$1,800

$1,600

$1,400

$1,200

$1,000

$800

$600

$400

$200

$0

$924.80

10.4%

16.6%

$458.60

20.2%

$587.70

PricewaterhouseCoopers – Private Company Services

$933.80

16.4%

$1,250.10

23.1%

$1,635.00

34.8%

$1,666.70

30.0%

13.7%

2001 2002 2003 2004 2005 2006 2007 1Q08

Total US Deal Value PE as a % of Total US Deal Vale

Source: Thomson Financial as of April 22, 2008

This chart covers US M&A transactions announced in each period indicated, involving US or international buyers acquiring US companies and excluding

open market share repurchases.

195.7

40%

35%

30%

25%

20%

15%

10%

5%

0%

Slide 7


US private equity deal value has declined significantly during

2008 as the majority of deals have been in the middle market

US Private Equity Activity: 2001-1Q 2008

2,500

2,000

1,500

1,000

500

0

1,082

$95.9

1,235

$75.9

1,360

$118.6

PricewaterhouseCoopers – Private Company Services

1,521

$152.8

1,649

$288.7

1,885

$568.7

2,127

$606.8

2001 2002 2003 2004 2005 2006 2007 1Q2008

US PE Deal Volume US PE Value

Source: Thomson Financial as of April 22, 2008

This chart covers US M&A transactions announced in each period indicated, involving US or international private equity buyers acquiring US companies

and excluding open market share repurchases.

451

$26.8

$1,000

$900

$800

$700

$600

$500

$400

$300

$200

$100

$0

$ in Billions

Slide 8


The size and number of PE deals greater than $1 billion peaked

in the spring of 2007 and is since practically non-existent

US Private Equity Deals-(Large Cap)

$ billions

120

100

80

60

40

20

0

January 2007

February 2007

March 2007

Source: Thomson Financial as of April 22, 2008

PricewaterhouseCoopers – Private Company Services

April 2007

May 2007

June 2007

July 2007

August 2007

September 2007

October 2007

November 2007

December 2007

January 2008

February 2008

March 2008

16

14

12

10

8

6

4

2

Number of deals

Slide 9


The number of middle market deals has been relatively stable

even during a difficult financing market

US Private Equity Deals-(Mid-Cap)

$ billions

12

10

8

6

4

2

0

January 2007

February 2007

March 2007

Source: Thomson Financial as of April 22, 2008

PricewaterhouseCoopers – Private Company Services

April 2007

May 2007

June 2007

July 2007

August 2007

September 2007

October 2007

November 2007

December 2007

January 2008

February 2008

March 2008

80

70

60

50

40

30

20

10

Number of deals

Slide 10


The amount of private equity capital raised continues to grow

Private Equity Fundraising 1995-2007 ($B)

$325.0

$300.0

$275.0

$250.0

$225.0

$200.0

$175.0

$150.0

$125.0

$100.0

$75.0

$50.0

$25.0

$0.0

$33.3

6.1

22.5

Source: Private Equity Analyst

PricewaterhouseCoopers – Private Company Services

1.7

0.8

2.2

$38.7

8.1

25.6

1.4

1.3

2.3

$67.7

5.8

14.3

43.1

0.7

3.8

$101.3

12.5

4.2

21.0 49.1

61.1

2.4

$116.5

16.6

5.0

43.8

2.0

$183.5

22.5

4.5

74.0

79.7

2.9

$117.1

10.3

4.5

5.1

39.7

57.5

$66.7

8.5

11.3

42.6

1.9

$53.8

6.7

4.6

9.5

29.6

CAGR 2003-2007: 53.9%

3.4

$99.2

8.5

5.9

5.9

17.6

61.3

$168.1

18.2

6.0

4.8

26.5

112.6

$254.7

22

7.7

20.9

27.0

177.1

$302.0

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Buyouts Venture Capital Mezzanine Other Private Equity Funds of Funds

2.4

26.3

6.9

8.6

32.2

228

Slide 11


Multiples have begun to come down over the past few months

LTM Median Transaction Multiples (EBITDA)

12

10

8

6

4

2

0

6.5x

8.5x

PricewaterhouseCoopers – Private Company Services

9.3x

less than $25M $25M to $100M $100M to $250M $250M to $1B Over $1B

Source: Thomson Financial Securities Data Corporation as of April 22, 2008

Based on multiples between 0x and 25x; excluding media and telecom

9.7x

10.3x

Slide 12


However, bargains are not easily found resulting in greater equity

contributions by sponsors

12.0x

6.0x

.0x

1997

7.6x 7.5x 7.1x 6.9x

1998

1999

2000

2001

5.9x

2002

6.7x

2003

7.0x

2004

7.2x

2005

8.5x 8.1x

2006

2007

9.3x 9.1x

Senior Debt/EBITDA Sub Debt/EBITDA Equity/EBITDA Others

Source: Standard & Poors

Average Purchase Price and Equity Contribution by Sponsors for Deals With EBITDA of $50M or

less Excludes Media, Telecom, Energy 6 and Utility Deals

PricewaterhouseCoopers – Private Company Services

Slide 13

4Q07


The vast majority of lenders have tightened standards over the

past nine months

% of BANKS LOOSENING STANDARDS

45%

-15%

-75%

Source: Bank of America

Jan-99 Jan-08

Net Lenders Loosening

PricewaterhouseCoopers – Private Company Services

Change in Borrower Demand

Slide 14


Default rates have spiked in 2008

DEFAULT LEVEL INDEX

($ Bn) (# of deals)

10

8

6

4

2

0

Mar-00 Mar-02 Mar-04 Mar-06 Mar-08

$ By Principal Amount # of defaults

Source: Bank of America

PricewaterhouseCoopers – Private Company Services

40

30

20

10

0

Slide 15


Average equity contribution to leveraged buyouts have been

rising since Summer of 2007

45%

35%

25%

15%

1997

1998

1999

2000

2001

Source: Standard & Poors Average Equity Contribution to Leveraged Buyouts 1997 – 2007Issuers with EBITDA < $50MM

PricewaterhouseCoopers – Private Company Services

2002

2003

2004

2005

2006

2007

4Q07

Slide 16


The panel

Peter Dontas

Bank of America

Craig Lawson

Harris Williams

PricewaterhouseCoopers – Private Company Services

Philip Yates

Great Hill Partners

Avery Tuchman

PricewaterhouseCoopers

Slide 17


Contact information

Peter Dontas,

Bank of America

Craig Lawson,

Harris Williams

Philip Yates,

Great Hill Partners

Fentress Seagroves,

PricewaterhouseCoopers LLP

Avery Tuchman,

PricewaterhouseCoopers LLP

PricewaterhouseCoopers – Private Company Services

750 Walnut Avenue Cranford, NJ 07016

(908) 709-5672

peter.a.dontas@bankofamerica.com

450 Sansome St. San Francisco, CA 94111

(415) 288-4260

clawson@harriswilliams.com

One Liberty Square Boston MA, 02109

(617) 790-9455

pyates@greathillpartners.com

10 Tenth Street Ste. 1400 Atlanta, GA 30309

(678) 419-4189

fentress.seagroves@us.pwc.com

400 Campus Dr. Florham Park, NJ 07932

(973) 236-7652

avery.tuchman@us.pwc.com

Slide 18


© 2008 PricewaterhouseCoopers LLP. All rights reserved. "PricewaterhouseCoopers" refers to

PricewaterhouseCoopers LLP or, as the context requires, the PricewaterhouseCoopers global network or other

member firms of the network, each of which is a separate and independent legal entity.

PwC

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