Lead Manager

BABCOCK & BROWN PROSPECTUS
7.1.5 Reputation and adverse publicity
Babcock & Brown’s business relies to a large extent on relationships and a reputation for integrity and
high-calibre professional services to attract and retain clients. As a result, if a client is not satisfied with the services
provided or Babcock & Brown is involved in litigation relating to a transaction in which it is involved, it may be
more damaging to Babcock & Brown than in other businesses. Babcock & Brown may incur significant legal
expenses in defending itself against any litigation arising in such cases and may also incur significant reputational
and financial harm if litigation is successful.
The Group’s business has, over a number of years, included providing advice to numerous clients on leasing and
other transactions. Some of those transactions are now subject to litigation involving the Group’s clients
(including some actions commenced by the US Internal Revenue Service), and others may be litigated in the
future. Babcock & Brown, as advisor, is typically not a party to the litigation, and is not exposed to the risk of
material financial liability as a result of the litigation. However, as some of these actions involve alleged corporate
tax shelters there is a higher than usual risk of potential adverse publicity surrounding the litigation, and this
publicity may draw attention to Babcock & Brown’s role in the relevant transactions. As with any negative
publicity, there is the potential for damage to the Group’s reputation and to the goodwill of the business.
While Babcock & Brown has full ownership of the Babcock & Brown name it has allowed, on occasions, third
parties to use the Babcock & Brown name in relation to certain activities, principally comprising joint venture
activities in which Babcock & Brown is involved.
7.1.6 Liability for advice/arranging
Babcock & Brown’s business often involves providing advice and assisting in arranging transactions for third
parties. In doing so Babcock & Brown could be held liable for this advice in certain circumstances. In order to
mitigate this risk, Babcock & Brown seeks, wherever possible, to limit any potential liability to parties by way of
contract to the fees paid on the transaction and generally includes express representations from the third party
that Babcock & Brown has not provided any tax advice.The Group also carries indemnity insurance to help
defray this risk.
7.1.7 Transaction reliance
Historically, a large proportion of revenues have been earned from fees on transactions that are sometimes paid
conditional upon successful completion of the client’s transaction. As a result, high activity levels in any period are
not necessarily indicative of continued high levels of activity in the following or any other period. In addition,
when an engagement is terminated, whether due to the cancellation of a transaction due to market reasons or
otherwise, Babcock & Brown may earn limited or no fees and may not be able to recoup the costs incurred prior
to that termination.
7.1.8 Market conditions
Unfavourable financial or economic conditions may reduce the number and size of transactions on which
Babcock & Brown provides advisory services. Unfavourable market conditions could also affect Babcock &
Brown’s ability to engage in, or exit, principal investments as well as syndicate into key markets, correspondingly
reducing revenues.
7.1.9 Ability to access capital markets
Babcock & Brown depends on a variety of markets as principal sources of funding for many transactions, including
principal investment. Inability to access debt markets on acceptable terms would significantly limit the ability of
Babcock & Brown to fund its activities. Further, an inability to procure debt funding for clients would limit
Babcock & Brown’s ability to offer financing offerings and therefore reduce advisory and arranging revenues.
Babcock & Brown also depends on a variety of equity investors to provide funding in transactions which are
either not fully funded by Babcock & Brown or which are arranged by Babcock & Brown, for example, leasing
transactions. Inability to access equity investors on acceptable terms would also significantly limit Babcock &
Brown’s activities.
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