European Private Equity Outlook 2012

Munich, February 2012

European_Private_Equity_Outlook_2012_final.pptx

Contents
A. Focus of study and methodology

Page
4

B. Executive summary
C. Results of the Private Equity survey 2012

6
9

Roland Berger Strategy Consultants

European_Private_Equity_Outlook_2012_final.pptx

PRELIMINARY REMARKS

Our third European Private Equity Outlook offers an interesting experts assessment of the market and its development in 2012
The European Private Equity Outlook 2012 is the third Outlook that Roland Berger publishes since 2009 In the past the Outlook comprised analysis and assessments of selected Roland Berger and PE industry experts and experiences from Roland Berger project work

EUROPEAN PRIVATE EQUITY OUTLOOK 2012

With the Outlook 2012 we switched the approach to a study including a survey with more than 800 participants from Private Equity companies all across Europe
Therefore the results reflect a very live and sound picture of what the experts in the market expect for different countries, regions and relevant factors for the Private Equity business in 2012 We hope that you enjoy studying the Outlook and are happy to take your comments or discuss the one or the other result with you

Source: Roland Berger

European_Private_Equity_Outlook_2012_final.pptx

A. Focus of study and methodology

European_Private_Equity_Outlook_2012_final.pptx

The study is based on exclusive interviews with professionals of leading Private Equity firms across Europe
Focus on methodology of study
Overview of European Private Equity Private Equity survey 2012
Key topics 2012 Development of PE M&A market Key challenges for Private Equity Private Equity business model Overview of interview participants
Number of participants [#]
862

PE experience [yrs / % of responses]

<5 16%

Geographic focus [% of responses]

DACH1) Europe in total Poland Iberia and Italy Other CEE countries Benelux Scandinavia France 35% 24%

7% 6% 6% 6% 6% 5% 4% 1%

5 - 10

25%

> 10

59%

UK Greece

1) Germany, Austria, Switzerland

Source: Roland Berger European_Private_Equity_Outlook_2012_final.pptx 5

B. Executive summary

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PE professionals are rather cautious on market development Slowdown in most European countries expected
Executive summary (1/2)
Development of Private Equity M&A market in 2012 > Respondents are generally cautious about the development of PE-driven M&A in 2012 73% expect a decline or stagnation in the number of transactions > From an industry perspective, respondents expect most M&A activity in the Pharma/Healthcare, Consumer Goods/Retail as well as the Logistics & Business services sectors > Apart from Central/Eastern Europe and Scandinavia, a sharp decline in PE M&A activity is expected Greece (-10%), Iberia, Italy, France and Benelux (-7%) will see the sharpest declines. Moderate declines are expected in Germany (-3%) and UK (-2%) as well

> Buoyancy in the capital markets and the constrained availability of debt financing render large transactions the exception; 94% of all respondents expect most deals below enterprise values of EUR 250 m, 60% expect most deals below EUR 100 m
> The economic outlook is considered the most relevant factor for European PE M&A in 2012 A majority expects a negative development in the overall economic climate > Despite a constrained financing environment, overall market valuation levels are not expected to change high likelihood of mismatch between buyers' and sellers' price expectations

European_Private_Equity_Outlook_2012_final.pptx

Active development of portfolio companies will be in the focus in 2012 Corporate carve-outs will be a key source for targets
Executive summary (2/2)
Key challenges for Private Equity investors 2012 > Private Equity investors expect to dedicate most of their time in 2012 to the active development of portfolio companies New investments or exits are not in focus > The competition in fundraising is expected to become more intense in 2012 Solid track record likely to be required > Corporate carve-outs are expected to be a key source for premier PE targets in 2012 Due to a lack of debt financing and expected limitations in the IPO market, carve-out disposals may also prove an attractive alternative means of financing > In general, respondents do not expect distressed assets to yield attractive investment cases > Availability of debt financing, particularly for recaps and LBOs, expected to be an issue in 2012 > Strategic investors anticipated to play an increasingly important role in PE exits The IPO channel, however, seems to be closed for PE assets Private Equity business model > Respondents feel a need to adapt the PE business model A third sees no need for changes > 94 % of respondents feel that a more active approach to managing companies will become more important in the future > Strategic measures for performance improvement are expected to offer the highest chances for success over the next years
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C. Results of the Private Equity survey 2012

European_Private_Equity_Outlook_2012_final.pptx

DEVELOPMENT OF PE M&A MARKET

PE professionals are cautious about the development of PE-driven M&A in 2012 73% of the respondents expect a decline or stagnation
M&A transaction with PE involvement in 2012 compared to 2011 [%]
Expected change in the number of M&A transactions with PE involvement in 2012
73% 28% 28% 23% 17%

COMMENTS
> More than half of all professionals interviewed expect the number of M&A transactions with PE involvement to decrease or stagnate in 2012 > However, there is also a significant group (one fourth of all survey participants) that anticipate a continuous increase of M&A transactions with PE involvement

4% Less than -10% 0% to -10% 0% 0% to +10% More than 10%

% of responses [only one answer possible]

Source: Roland Berger

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DEVELOPMENT OF PE M&A MARKET

Pharma/Healthcare and Consumer Goods/Retail sectors expected to show most M&A transactions with PE involvement in 2012
Ranking of industries by number of M&A transactions [%]
European industries with a high number of M&A transactions with PE investor involvement in 2012
1 2 3 4 5 6 7 8 9

COMMENTS
> There is a clear opinion among Private Equity professionals about the industries where M&A will be a driver > More than half of all Private Equity Professionals expect that Pharma/Healthcare and Consumer Goods/Retail will have a very high number of M&A transactions with Private Equity involvement

Pharma/Healthcare
Consumer Goods and Retail Logistics & Business Services Energy/Utilities Technology & Media Financial Services Capital Goods & Engineering Chemicals Automotive 14% 13% 9% 21% 27% 37% 37% 34%

56%
51%

10 Building & Construction

100% = Max. value

% of participants that expect a high number of transactions [multiple answers possible]

Source: Roland Berger

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DEVELOPMENT OF PE M&A MARKET

Mid-cap segment expected to dominate 94% of PE transactions in 2012 are expected in the enterprise value range of up to EUR 250 m
Expected range of PE transactions in enterprise value in 2012, [%, EUR m]
"Most PE transactions in 2012 will be in the enterprise value range of"
94%
41% 34%

COMMENTS
> Large cap deals with enterprise values above EUR 500 m are likely to remain seldom

> 94% of all PE transactions in 2012 are expected to be smaller than EUR 250 m
> Still 60% expect that most enterprise values of PE transactions would be even below EUR 100 m in 2012
2% EUR 500-1,000m 0% EUR >1,000m

19%

4% EUR <50m EUR 50-100m EUR 100-250m EUR 250-500m

% of responses [only one answer possible]

Source: Roland Berger

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DEVELOPMENT OF PE M&A MARKET

Despite from Central/Eastern Europe and Scandinavia, a sharp decline in PE M&A activity is expected
Change of PE M&A activity in major countries 2012 vs. 2011 [%]
Expected change in PE M&A activities in the following countries in 2012 compared to 2011
1 2 3 4 5 6 7 8 9 Poland Scandinavia1) CEE (excl. Poland)2) UK Germany Austria & Switzerland Benelux -7% -2% -3% -3% 1% 1% 4%

COMMENTS
> Major PE markets like the UK and Germany are expected to see a minor slowdown of PE M&A activities reduction of 2% to 3% in 2012 compared to previous year > However, in Nordic countries and Central Eastern Europe PE M&A activity is expected to gain momentum in 2012 > Esp. Greece is expected to suffer from the uncertain economic outlook

France
Iberia & Italy -10%

-7%
-7%

10 Greece

Expected change of PE M&A activity in 2012 compared to previous year in % [multiple answers possible] 1) Includes Denmark, Norway, Sweden 2) Central and Eastern Europe includes e.g. Bulgaria, Croatia, the Czech Republic, Hungary, Poland, Romania, the Slovak Republic, Slovenia
Source: Roland Berger European_Private_Equity_Outlook_2012_final.pptx 13

DEVELOPMENT OF PE M&A MARKET

Overall economic situation considered the most relevant factor for European PE driven M&A Decline in economic climate expected
Overview on factors with relevance for M&A business in Europe [%]
"What will be the most influential factors affecting European M&A transactions with Private Equity involvement in 2012? How do they develop?"
Importance of factors
1 2 3 4 5 Overall economic situation Situation of the financial markets Availability of attractive acquisition targets Development of the Euro crisis Development of valuation levels 33% 29% 25% 18% 12%

COMMENTS
> PE investments are mainly driven by the uncertain economic outlook of 2012

Development of factors in 2012

Substantial deterioration No change Substantial improvement

> Survey participants anticipate a further decline of the financial markets and the overall economic situation
> No change in the pipeline of attractive targets expected for 2012 > The valuation levels are not considered to change considerably

% of participants that expect high influence of this factor [multiple answers possible]

Source: Roland Berger

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DEVELOPMENT OF PE M&A MARKET

38% of respondents expect the financing environment to be the most relevant factor for pricing of M&A deals
Relevance of factors for pricing of M&A deals in 2012 [%]
Ranking of factors: high relevance for pricing of M&A deals in 2012
1 Financing environment
2 Target's market positioning 3 Competition among European PE 4 Competition from European strategic investors with European PE 5 Historical purchase price upon entry 6 Competition from Asian strategic investors with European PE

COMMENTS
> The current financing environment as well as the target's market position are the primary factors for determining pricing of M&A deals in 212 > Competition among European PE, strategic investors also from Asia is not considered to be that important

38% 25%
10% 8% 7% 7%

% of participants that rank factor with high relevance [multiple answers ]

Source: Roland Berger

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KEY ISSUES FOR PRIVATE EQUITY 2012

Private Equity investors will dedicate most of their time to the development of portfolio companies Investing or exits not in focus
Focus of PE investors in 2012 on life cycle stages [%]
"On which phase of the PE value chain will you put most of your focus in 2012?" COMMENTS
> Value creation within the holding period is a top priority for PE funds in 2012; 40% of all Private Equity professions will focus on the development of the existing portfolio > Only one to two out of 10 Private Equity investors will continue to make new investments or will continue to raise funds or start new fundraising activities > Divesting of existing investments and prolongation of existing funds is a priority task for less than 10%

40%

15%

11%

8%

7%

Development of portfolio companies

Making new investments

Fundraising Divesting Prolongation existing of existing investments funds

% of participants that will put most of their focus on phase of PE value chain [multiple answers possible]

Source: Roland Berger

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KEY ISSUES FOR PRIVATE EQUITY 2012

64% of PE professionals expect competition in fundraising to become more intense in 2012

Expected degree of competitiveness in fundraising in 2012 [%]
"What degree of competitiveness do you expect in fundraising in 2012?" Easing up competitive situation
5%

COMMENTS
> Two thirds of all PE professionals expect to face a more intense competitive situation for fundraising in 2012 > Only 5%, however, see a significant improvement of the fundraising situation > One third does not see any change of fundraising in 2012

No change of competitive situation 31%

64%

Competitive situation becomes more intense

% of responses [only one answer possible]

Source: Roland Berger

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KEY ISSUES FOR PRIVATE EQUITY 2012

Carve-outs likely to be a key source for premier PE targets in 2012 Distressed deals not expected to yield attractive investment cases
Overview on sources of most attractive targets in 2012 [%]
Ranking of the most important source of attractive targets in 2012
1 Parts of groups/carve-outs 2 Majority shareholdings in family-owned companies 76% 69% 50% 48% 21% 100% = Max. value
% of participants that expect high importance for the source of targets [multiple answers possible]

COMMENTS
> Carve-outs as well as majority shareholdings of family-owned companies will be the primary sources of targets in 2012 > Secondary buy-outs and distressed deals also remain an important source for targets > Taking listed companies private is by far the least attractive source of targets for Private Equity funds

3 Secondary buy-outs
4 Insolvent companies/distressed deals 5 Listed companies (taking private)

Source: Roland Berger

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KEY ISSUES FOR PRIVATE EQUITY 2012

Debt financing generally expected to become more difficult in 2012 Less difficulties for working capital and CAPEX lines
Availability of external financing in 2012 [%]
"Compared to 2011, what external financing will be more difficult to raise in 2012?"
Easier to raise 1 No More difficult change to raise

COMMENTS
> Banks are still reluctant to agree on recapitalizations and to finance leveraged buyouts

Recapitalization (i.e. debt substituting equity, dividend to sponsor) Leveraged buyouts (i.e. new transactions) Refinancing (i.e. improvement of terms)

2 3

> Asset-based growth financing (CAPEX, working capital) is not seen as much under pressure

Growth financing (i.e. working capital, lines for add-on acquisitions or CAPEX)

Source: Roland Berger

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KEY ISSUES FOR PRIVATE EQUITY 2012

Strategic investors are anticipated to play an increasingly important role in PE exits IPO channel expected to be closed for PE assets
Change of exit channels in 2012 compared to 2011 [%]
Ranking of exit channel activity: expected significant increase in 2012 compared to previous year
1 M&A with strategic investors 2 M&A with PE investors 3 Triple track (i.e. IPO, M&A process and refinancing) 4 Dual track (i.e. IPO and M&A process) 5 IPO 11% 10% 27% 61%

COMMENTS
> Strategic investors represent strong competition in PE auction processes based on additional synergy levers A significant increase of exits with strategic investors is expected in 2012 > Secondary buy-outs remain an option while > Dual and triple track are considered while the IPO channel is expected to be closed for PE assets

2%
100% = Max. value

% of participants that expect a significant increase of exit channel [multiple answers possible]

Source: Roland Berger

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PRIVATE EQUITY BUSINESS MODEL

The majority of respondents feel a need to adapt the PE business model 36% see no need for changes
Adjustment of Private Equity business model necessary [%]
"The Private Equity business model is just as robust now as it was before the crisis. No adjustment is necessary. Agree or disagree?"
Disagree
Completely disagree 21%

COMMENTS
> More than half of the PE professionals think that the Private Equity business model needs to be changed > Still one third however expects no need to change the investment strategies in place

Neutral

Agree

Completely agree 19%

79% Somewhat disagree Neither agree or disagree

81% Somewhat agree

57% of all participants

Source: Roland Berger

7% of all participants 36% of all participants

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PRIVATE EQUITY BUSINESS MODEL

94 % of respondents feel that a more active approach to managing companies will become more important in the future
Importance of active portfolio management [%]
"Managing portfolio companies actively will become more important in the future Passive management is no longer suitable. Agree or disagree?"
4% 94%
74%

COMMENTS
> Stronger focus on proactive operational improvement within the portfolio companies becomes more important > Passive portfolio management with pure financial engineering is limited

20% 2% 2% 2%

Completely disagree

Somewhat disagree

Neither agree nor disagree

Somewhat agree Completely agree

% of responses [only one answer possible]

Source: Roland Berger

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PRIVATE EQUITY BUSINESS MODEL

Strategic measures for performance improvement are expected to offer the highest chances for success in the next years
Chances of success of value-enhancement measures [%]
Ranking of value enhancement measures for PE portfolio companies according to chances for success in the next years COMMENTS
> The implementation of strategic measures offers the best chances for success in the next year

1 Strategic measures (e.g. buy-and-build) 2 Operational measures (e.g. cost cutting, outsourcing) 3 Financial measures (e.g. recapitalisation, refinancing)

54%

34%

> Continuous operational measures like cost cutting and outsourcing can tap additional potential to improve profitability
> The effect of financial measures in terms of value enhancement is very limited

2% 100% = Max. value

% of responses that expect very promising chance of success for value enhancement measures [multiple answers possible]

Source: Roland Berger

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It's character It's that creates character that creates impact! impact!
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