European Private Equity Outlook 2011

European Private Equity
Outlook 2011
Munich & Frankfurt, April 2011
European Private Equity Outlook 2011_Final_010411.PPTX

Contents Page
A. The current private equity environment
En route to recovery 6
B. A look at the European real economy
In and out of turmoil – and back again? 11
C. A look at capital markets
No full recovery yet 18
D. Outlook 2011 and beyond
Situation improved, but complexities ahead 27
© 2010 Roland Berger Strategy Consultants GmbH
European Private Equity Outlook 2011_Final_010411.PPTX
2

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
Executive summary (2/3)
> 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
European Private Equity Outlook 2011_Final_010411.PPTX 4

Challenges for the mid and long term perspective expected
Executive summary (3/3)
> 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
European Private Equity Outlook 2011_Final_010411.PPTX 5

A. The current private equity environment
En route to recovery
European Private Equity Outlook 2011_Final_010411.PPTX 6

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 powder 1) 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
Return to sound
valuation levels
is key to the
PE market's
recovery
European Private Equity Outlook 2011_Final_010411.PPTX 7

While PE investments decreased by 57% in 2009, PE activity is
starting to regain momentum in 2010
European PE activity flows [EUR bn]
Dry
powder
[EUR bn]
27.0 29.1
Funds raised
Source: EVCA; Prequin
60 67 104 141 178 191 194 173
2003
13.6
36.9
27.5
Investments
2004
19.6
71.8
Divestments
47.1
2005
29.8
112.3
71.2
2006
33.1
82.9
72.9
2007
27.6
81.4
54.0
2008
-57%
2009
+52%
23.4
14.0 16.1
11.1
15.3
35.6
2010
11.7
European Private Equity Outlook 2011_Final_010411.PPTX 8

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
deals 1)
thereof deals with an disclosed deal value:
2,000
1,500
1,000
500
0
483
477
1) Including those with undisclosed transaction value
Source: Thomson Financial
8,560 9,059 10,102 11,526 12,946
3,316
2003
3,433
2004
4,045
785
2005
4,478
991
2006
4,692
1,224
2007
Value in EUR bn (left scale) Volume in no. (right scale)
11,961 9,341 9,964
3,962
968
2008
2,571
482
2009
2,917
398
2010
6,000
5,000
4,000
3,000
2,000
1,000
European Private Equity Outlook 2011_Final_010411.PPTX 9
0

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 [%]
12.5
2003
8.2
2004
Source: EVCA, Prequin, Roland Berger Research
9.6
2005
12.7
2006
15.9
2007
11.1
2008
8.3
2009
?
2010
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
European Private Equity Outlook 2011_Final_010411.PPTX 10

B. A look at the European real economy
In and out of turmoil – and back again?
European Private Equity Outlook 2011_Final_010411.PPTX 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
European Private Equity Outlook 2011_Final_010411.PPTX 12

Growth in Europe is sluggish and far behind emerging markets
and China
GDP change in the Eurozone [%] GDP growth of selected countries/regions [%]
3.1
2006
Source: IMF, EIU
2007
2.8
0.4
-4.1
1.7
1.0
2008 2009p 2010p 2011p
2009 2010p 2011p
Global -0.6 4.8 4.2
Industrialized
countries
-3.5 2.5 2.1
Emerging markets 2.5 7.1 6.4
USA -2.6 2.7 2.2
Germany -4.7 3.4 1.8
Japan -5.3 3.5 1.2
Euro zone -4.1 1.7 1.5
China 9.1 10.2 9
Russia -7.9 4.0 4.0
European Private Equity Outlook 2011_Final_010411.PPTX 13

Many currencies appreciate against the USD – Governments
incline towards fiscal intervention
Appreciation against USD since June 1 2010 [%]
20.3
CHF
Source: Bloomberg
11.0
Euro
10.6
Yen
7.2
Baht
9.7
Real
9.7
Won
3.6
Yuan
Quantitative Easing: USA eases pressure on
their banks flooding the financial system with
money
European measures to compete against
US monetary policy are limited
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?
European Private Equity Outlook 2011_Final_010411.PPTX 14

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
-10
-15
-20
-25
-30
-35
Source: EIU
Japan
Greece
Italy
Germany Brasil
India
Eurozone
Portugal
EU-27
USA
France UK Spain
Ireland
Maastricht-criterion 60%
Mexico
Russia
-200 -190 -180 -170 -160 -150 -140 -130 -120 -110 -100 -90 -80 -70 -60 -50 -40 -30 -20 -10 0
China
Maastrichtcriterion
3%
Public debt
European Private Equity Outlook 2011_Final_010411.PPTX 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 7/4/08 1/2/09 7/3/09 1/1/10 7/2/10
1) 10 year Government Bond, rebased
Source: Bloomberg; Roland Berger Research
1/7/11
Greece
Ireland
Portugal
Spain
Italy
France
Germany
Increased risk of default, especially for
Greece, Ireland and Portugal
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
Ireland's credit ratings have been cut
and worries about the health of the
economy and banking system persist
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
1/1/10
3/1/10
5/1/10
Source: Bloomberg; Roland Berger Research
May 2010
IMF/EU/ECB
Stability program
7/1/10
9/1/10
11/1/10
01/07/11
Eurozone
UK
USA
Core equity ratio too low in many
countries
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
European Private Equity Outlook 2011_Final_010411.PPTX 17

C. A look at capital markets
No full recovery yet
European Private Equity Outlook 2011_Final_010411.PPTX 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
European Private Equity Outlook 2011_Final_010411.PPTX 19

Bonds Loans
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]
391
Investment grade loans
Leveraged loans
109
542
106
High yield bonds
748
Investment grade bonds
116 133 149
115
75
19
56 28 60 28 42 26 6 30 40
2003 2004 2005 2006 2007 2008
Source: SIFMA, Loanconnector, Bloomberg
187
593
218
732
242
310
89
312
295
+13%
2009
60
-61%
353
2010
84
REMARKS
> Worries about European
government borrowers such as
Greece, Ireland, Spain, Italy or
Portugal are having a fundamental
impact on markets in 2010
> 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
European Private Equity Outlook 2011_Final_010411.PPTX 20

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, %]
250
200
150
100
50
0
109
106
187
2003 2004 2005
218
Source: SIFMA, S&P LCD, Roland Berger Research
242
CAGR: -30%
89
60
84
2006 2007 2008 2009 2010
LBO
share,
refi
share
[%]
200
150
100
50
0
45 42 50 34 44 90 7 10
12 11 7 19 13 23 52 75
19
2003
28
42
2004 2005 2006 2007
LBO Non-LBO
28
26
CAGR: +15%
2008
30
2009
40
2010
European Private Equity Outlook 2011_Final_010411.PPTX 21
6

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
03
Q4
03
Q2
04
Q4
04
Q2
05
Avg. LBO margin
Q4
05
Q2
06
Q4
06
Q2
07
Source: Loanconnector, Bloomberg, Roland Berger Research
Q4
07
693
Q2
08
Avg. 5-yr euro mid-swap rate
775
Q4
08
Q2
09
Q4
09
Q2
10
691
Q4
10
BOND YIELDS FOR BBB RATED ISSUERS [bps]
1.200
1.000
800
600
400
200
0
Q2
03
Q4
03
Q2
04
Q4
04
BBB spread
Q2
05
Q4
05
Q2
06
Q4
06
Q2
07
932
Q4
07
Q2
08
1,064
Q4
08
Avg. 5-yr euro sovereign bond rate
Q2
09
Q4
09
540
483
Q2
10
Q4
10
European Private Equity Outlook 2011_Final_010411.PPTX 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]
4.0x
3.3x
2003
4.4x
3.4x
Source: Loanconnector
4.9x
3.9x
5.2x
4.1x
5.9x
4.6x
5.3x
4.3x
4.1x
3.3x
4.1x
3.7x
2004 2005 2006 2007 2008 2009 2010
Total debt/EBITDA Senior debt/EBITDA
Mediumterm
average
4.7x
3.8x
REMARKS
> 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
European Private Equity Outlook 2011_Final_010411.PPTX 23

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) ] AVG. EQUITY CONTRIBUTION IN LBOs [%]
100%
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
0
52
0
48
2003
Sr + 2nd lien + mezz
2
50
5
44
2004
16
35
12
38
2005
Sr + mezz
29
33
11
27
2006
28
20
24
28
2007
Sr + 2nd lien
7
65
5
23
2008
0
24
0
76
2009
Sr only
0
30
0
70
2010
Deals with > 50% [%]
10 9 8 6 7 31 75 71
34
2003
33
2004
33
2005
33
2006
33
2007
Average equity contribution in % of transaction value
42
2008
45
2009
50
2010
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
10.6
139
Q1
07
Source: Bloomberg
28.0
258
Q2
07
12.6
183
Q3
07
29.1
233
Q4
07
Value [EUR bn, right scale]
1.9
72
Q1
08
9.2
133
Q2
08
1.6
68
Q3
08
1.2
64
Q4
08
0.0
18
Q1
09
Volume [no., left scale]
0.5
28
Q2
09
1.4
44
Q3
09
5.0
61
Q4
09
4.7
79
Q1
10
9.0
89
Q2
10
2.5
86
Q3
10
10.1
130
Q4
10
30
25
20
15
10
5
0
-5
-10
-15
REMARKS
> 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
European Private Equity Outlook 2011_Final_010411.PPTX 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 2010 1)
Date
Okt 5
Company Seller
Pandora A/S Axcel 1,336
Jul 9 Vallar N. Rothschild
808
Christian Hansen Holding PAI Partners
Kabel Deutschland Holding Providence Equity partners
Brenntag AG BC Partners
Mail.ru Group Ltd. Elbrus Capitals
AZ Electronic Materials SA Carlyle , Vestar Capital
Ocado Group J. L. pension fund, others
Ströer Out-of-Home Media Cerberus
Source: Bloomberg, Roland Berger
Volume
[EUR m]
Apr 18 Amadeus IT Holding BC Partners, Cinven 1,317
Jun 2
Mar 19
Mar 26
Nov 11
Okt 29
Jul 20
Jul 14
674
660
650
648
441
436
358
YTD SHARE PRICE PERFORMANCE 2) [%]
Eurostoxx 50 -2.5
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
Pandora 62.5
Amdeus 33.3
Vallar 33.7
Chr. Hansen 32.3
Kabel Deutschland 60.7
Brenntag 39.5
Mail.ru 42.8
AZ Electronic 28.2
Ocado 18.9
Ströer 25.0
European Private Equity Outlook 2011_Final_010411.PPTX 26

D. Outlook for 2011 and beyond
Situation improved, but complexities ahead
European Private Equity Outlook 2011_Final_010411.PPTX 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
1
2
3
4
5
6
SHORT-TERM TRENDS 2011
Improved asset quality – hot sectors 2011
Comeback of strategic buyers
Higher transaction security
Focus on mid-size deals
Increase in Asian bidders
More dual-track auctions
8
9
MEDIUM TO LONG-TERM TRENDS 2012+
Complex refinancings
Increasing business model innovation
European Private Equity Outlook 2011_Final_010411.PPTX 28

SHORT-TERM TRENDS 2011
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
2
3
COMEBACK OF STRATEGIC BUYERS
PE buyers Corporate
buyers
HIGHER TRANSACTION SECURITY
Low
conversion
4 FOCUS ON MID-SIZE DEALS
High
conversion
Small cap Large cap
Mid cap
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
European Private Equity Outlook 2011_Final_010411.PPTX 29

SHORT-TERM TRENDS 2011
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
6
INCREASE IN ASIAN BIDDERS
Domestic Intra-European Intercontinental
MORE DUAL-TRACK AUCTIONS
Private
equity
DUAL TRACK EXITS
Public equity
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
European Private Equity Outlook 2011_Final_010411.PPTX 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
9 INCREASING BUSINESS MODEL
INNOVATION
Product /
marketcombination
Revenue
model
Status
quo
Value
chain
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
> 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
European Private Equity Outlook 2011_Final_010411.PPTX 31

1
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
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
HEAT INDICATOR
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
European Private Equity Outlook 2011_Final_010411.PPTX 32

2
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
483
2003
477
2004
785
2005
881
2006
Source: Thomson Financial, Roland Berger Analysis
79.2 82.0 81.0 79.4
1,224
2007
968
2008
482
2009
398
2010
> 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
NON-RESTRICTED CASH OF EUROSTOXX 50
COMPANIES 1) [EUR bn]
1) Excludes financial services companies such as Allianz SE, BNP Paribas, Deutsche Bank, Münchener Rückversicherungs AG, and others
250
200
150
100
0
84
2003
97
2004
101
2005
105
2006
141
2007
CAGR: 19.9%
174
2008
184
2009
216
2010
> Cash levels have substantially increased from pre-crisis levels
> Cash financing of transactions thus becomes much easier
European Private Equity Outlook 2011_Final_010411.PPTX 33

3
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
11.9
9.5
2003
11.7
9.7
2004
Announced deals
Source: Thomson Financial
12.8
10.9
2005
15.1
12.5
2006
81.5 80.4 74.5 73.9
17.4 17.0 16.8
18.3
14.2 13.6
12.5
13.5
2007
Closed deals
2008
2009
2010
> 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
EUROPEAN EV/EBITDA TRANSACTIONS MULTIPLES
Transactions [# '000]
9.5 9.7 10.9 12.5
10.8x
2003
12.3x
2004
12.6x
2005
13.1x
2006
14.2 14.0 12.5 13.5
14.6x
2007
13.5x
2008
10.3x
2009
12.2x
2010
> Stabilization of pricing in M&A markets
> Investors are likely to take advantage of low valuations in stock
markets. However, volatilityis still high
European Private Equity Outlook 2011_Final_010411.PPTX 34

4 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?"
MID-MARKET
7% 10% 8%
16% 15%
28%
41%
8%
Total
>USD 1 bn
US$501-US$1bn
22%
41%
12%
APAC
Source: Intralinks Global M&A survey July 2010
US$251-US$500m
US$101-US$250m
27%
30%
22%
13%
Latin
America
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
European Private Equity Outlook 2011_Final_010411.PPTX 35

5
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 [#]
3 2
5
2000
4
2
2
Source: Mergermarket
13
6
7
2001 2004
Chinese bidders
25
8
17
2005
36
11
25
2006
Indian bidders
42
10
32
2007
54
17
37
2008
22
13
9
36
18
18
2009 2010
2011
REMARKS
> Competitive pressure on Chinese and
Indian domestic markets and gradual
opening of China increase the
relevance of cross-border M&A
> 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
European Private Equity Outlook 2011_Final_010411.PPTX 36

6
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
Jan./07 July/07 Jan./08 Juli/08 Jan./09 July/09 Jan./10 July/10
Jan./11
Source: Mergermarket
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
European Private Equity Outlook 2011_Final_010411.PPTX 37

7 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
2011
Source: Standard & Poors
2012
Loan maturities as of June 2010
2013
2014
2015
2016 2017
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
> Refinancings increasingly demand
sustainable concepts in non-sustainable
environments
European Private Equity Outlook 2011_Final_010411.PPTX 38

8 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 BUSINESS MODEL INNOVATION FRAMEWORK
Acquisition … 2009 2010 … Exit
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
A
Do nothing
Product / marketcombination
Revenue
model
B Establish new technology / market
combination
> Change in the level playing field
> Higher exit multiple possible due to
new peer group
Status
quo
OR
Value chain
Reach a new phase in the
company's lifecycle
> Bringing the company from maturity
to a new growth phase
> Benefits for all stakeholders
European Private Equity Outlook 2011_Final_010411.PPTX 39

It's character
that creates
impact!
European Private Equity Outlook 2011_Final_010411.PPTX 40