French M&a And Restructuring Forum

mergermarket

Forum 2009: French M&A and Restructuring Forum Post-event briefing

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Time never stands still Mergers & acquisitions and restructuring Our firm advises French and foreign public and private companies on their investments both in France, Europe and other jurisdictions. The team advises on the following key areas: • Mergers, acquisitions and joint-ventures

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• LBOs and capital development transactions • Takeover offers • Restructuring • Capital markets and securities • Creating investment funds Our clients benefit from the team’s extensive experience in structuring and carrying out these types of transactions. Our team works with lawyers from the firm’s other departments and from our international network on a daily basis to provide our clients with comprehensive services that cover all their needs. 2

French M&A forum June 2009

Herbert Smith LLP 66 avenue Marceau 75008 Paris, France T : +33 1 53 57 70 70 F : +33 1 53 57 70 80

CONTENTS

05 Chair’s welcome address 06 Where next for the French economy? 09 New ethics for tomorrow’s capitalism – the future of shareholder value 11 Is more regulation the solution? 14 Corporate finance in the post-crisis economy 14 How to get a deal done in France 17 The importance of technology in an M&A transaction 18 Is restructuring the way out? 20 Historical data 22 Where the debt breaks

FRENCH M&A forum June 2009

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French M&A forum June 2009

Chair’s welcome address

Patrick Valroff, Chief Executive Officer, Calyon

The French M&A and Restructuring Forum began with a welcome speech by Patrick Valroff, Chief Executive Officer of corporate and investment banking firm Calyon. Mr Valroff started the forum by quoting a famous line from Giuseppe Di Lampedusa’s bestseller, The Leopard: “If we want things to stay as they are, things will have to change.” Valroff likens this to the predicament faced by modern-day regulator’s who, one year on from the bankruptcy of US investment bank Lehman Brothers, are calling for a new balance to be struck between shareholders and stakeholders, companies and banks and employees and the market in order to promote a new form of wealth distribution. According to Valroff, there is a need for reform within the Financial Services sector but he warns that, in the context of the economic crisis, such an approach heightens the risk of reducing competition and impairing free markets. The only way to avoid this is for regulatory bodies the world over to take concerted and united action so as to avoid regional disparities between different jurisdictions – especially in the case of North American and European markets. Furthermore, Valroff explained that there is a robust correlation between global stock

markets and M&A activity. It was argued that the principal impediment to deal-making activity is the mismatch between bidder and seller expectations and not, as many commentators have been speculating, a lack of deal financing options being available. Valroff also said that the current crisis will invariably cause a reshuffling of the cards. Players who were able to maintain a strong balance sheet throughout the downturn will be in a good position to snap up weaker players in their respective industries. In conclusion, Valroff urged decision makers to worry about the real economy rather than ‘hydroponic finance’. The governance of regulatory bodies around the globe remains a key issue that needs to be addressed in the future with too much regulation today likely to have a negative impact in the future.

Patrick Valroff, Chief Executive Officer, Calyon

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Where next for the French economy?

Philippe Mills, Chief Executive Officer, Agence France TrEsor

Philippe Mills began his keynote speech by looking at the international response to the banking and financial crisis over the past two years. According to Mills, the response was both quick and coordinated with both the Federal Reserve and the European Central Bank cutting interest rates swiftly and decisively. Furthermore, in October 2008, following the collapse of Lehman Brothers, European leaders met in Paris to hold an emergency finance summit and in December, they agreed a European Economic Recovery Plan, equivalent to around 1.5% of the annual GDP of the European Union.

At the national level, Mills recalled that the French plan was designed to be temporary, targeted and delivered on time as a means of restoring confidence and increasing liquidity within the domestic economy. Mills took an optimistic view of the final outcome of these measures and suggested that there is a considerable ‘potential upside’ in terms of the wider economic recovery. He explained that economists tend to underestimate the extent of economic recoveries after recessions and generally adopt a conservative stance in terms of growth predictions – as was the case in 1993. However, Mills also warned that there are a number of potentially mitigating factors which currently exist and these could serve to hinder the economic revival. Such factors include the price of commodities, macroeconomic imbalances caused by the rapid expansion of emerging markets and the exchange rate environment.

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French M&A forum June 2009

Paradoxically, the global economic downturn also served to highlight some encouraging characteristics of the French economy, namely its diversity and lack of exposure to the Financial Services and Real Estate industries, as well as a relatively low level of indebtedness. This perception has been supported by the rating agencies as they have remained bullish about the French economy throughout the crisis, having placed France in the ‘very fundable’ category – a rating which is unlikely to change going forward.

New ethics for tomorrow’s capitalism – the future of shareholder value Augustin de Romanet, Chief Executive Officer, Caisse des DEpots Colette Neuville, Founding Director/President, ADAM Nicole Notat, Founding President, Vigeo Anton Brender, Director of Economic studies, Dexia Asset Management (moderator)

The panel began with both Nicole Notat and Augustin de Romanet emphasising that companies need to consider all their stakeholders when examining the value creation chain. De Romanet went on to suggest that a company’s employees should also be considered within such a chain – especially given the increasing tendency for companies to incentivise their employees now with shareholding schemes. Colette Neuville added that the short term emphasis on shareholder value has been the result of an incorrect definition of what real shareholder value actually is. She argued that only by integrating the company’s external costs into shareholder value would the true definition of the concept actually be achieved – a process that would only take place over the long-term. De Romanet went on to explain that he believed there could be three ways to maximise long-term value: firstly, by having long-term shareholders; secondly, by improving the financing of small and medium-sized enterprises (SMEs) in order to support domestic family businesses; and thirdly, by taking corporate governance away from quarterly short-term reporting. Notat particularly agreed with the second point and added that SMEs should be given the means to reach the next stage of their development.

Neuville pointed out that financial market volatility has encouraged investors to increasingly adopt short-term views. As a result of this, governance should be put in place so as to allow for the more efficient management of savings and investments, “One cannot get people on board if they don’t share the company’s profits and long term vision.” De Romanet added that “this puts a lot of old business models into question.” He argued that capitalism has been transformed in recent times, away from the traditional family model seen in smaller businesses. Neuville agreed with de Romanet’s viewpoint, suggesting that the true owners of capital now are not shareholders but mutual funds. In addition, the key question for a new form of capitalism was how to reconcile risk-taking with profitmaking. She acknowledged that it will be very difficult to change the managers of mutual funds into shareholders as they are ultimately not interested in being associated with a company over the longterm, instead seeking short-term profits.

Equally, the company’s directors are rarely chosen by the shareholders. Indeed, they are typically chosen by the management and presented to shareholders at the AGM. Neuville believes that such a procedure has been, at best, inappropriate given that shareholders have now lost control over the decisionmaking process with regards to capital raising and reduction, or debt issuance. Neuville and Notat both offered some interesting thoughts for the future. Firstly, directors should represent the shareholders and not the management. Secondly, it is crucial to set management’s bonuses on a long-term basis as a way to reintegrate the risk attached to running a business. Thirdly, it was argued that the board of a business should look to play some role in managing risk within the firm.

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“banks need visibility in the current climate and a covenant reset negotiation is not simple as it raises questions of business plans where sometimes there is no visibility about where the business is going.” Fabrice Keller, Managing Director, Duff & Phelps

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French M&A forum June 2009

Is more regulation the solution?

Jean-Paul BetbEze, Chief Economist and Director of Economic Studies, CrEdit Agricole Pierre Fleuriot, Chief Executive Officer, PCF Conseil Jean-FranCois ThEodore, Deputy Chief Executive Officer & Director, NYSE Euronext Anne Perrot, Vice President, l’AutoritE de la concurrence Arnaud de Bresson, Director General, Paris EUROPLACE (moderator)

Anne Perot started off the discussion by tackling the problems posed by state aid. She claimed that although the aid is meant to improve the way the market operates, it can actually distort it. The first issue with aid is that, often being ill-informed, the state is not always best placed to decide how or where to improve the market. The second risk is that it can prevent poor performing companies exiting the market and thus constitutes an obstruction to the market’s automatic regulation. The European Commission therefore needs to act as quickly as possible to help rescue troubled companies while ensuring that state aid effectively meets companies’ needs on a short-term basis. Companies can sometimes face short-term difficulties but state-sponsored consolidation in certain sectors will have long term consequences. Jean-Paul Betbèze pointed out that the financial crisis impacted on the whole global financial system and caused such panic that it forced governments and regulators to act quickly. This time pressure inevitably led to inequalities and certain perversities and those companies which benefited from such support now have an advantage over those that did not. As a result, the market has become slightly distorted in certain areas and this will have to be rectified as soon as possible.

Pierre Fleuriot went on to compare state intervention in the US and European Financial Services sectors. He highlighted that the US Government intervened and oversaw the notional buyouts of Bear Stearns and Merrill Lynch before allowing Lehman Brothers to enter bankruptcy. In Europe, the solution revolved around state support and private remittances back to various governments are yet to be fully established. Fleuriot warned that regulatory bodies could encounter difficulty in managing the exits of state investment in various banks. Fleuriot moved on to say that as a result of several ‘overnight mergers’ in September and October 2008, consolidation in the Financial Services space could accelerate once market conditions improve. Behind such a consolidation is not the idea that the bigger the banks are, the less likely they will be to fail, but more to do with the fact that banks will now be more connected. The process of consolidation among stock exchanges has also seen some important changes, Jean-François Théodore noted. Between 2000 and 2008, there was strong competition between European stock exchanges and the search for economies of scale drove M&A activity. However, since 2008 there has been a drop off in activity involving European

bourses largely due to valuation issues. In Europe, the implementation of Markets in Financial Instruments Directive (MIFID) in November 2007 has enabled multilateral negotiation platforms to gain market share free of the rules imposed upon regulated exchanges. Such conditions will be at the centre of revisions to MIFID, scheduled to start in November 2009. According to Betbèze, the September G20 summit in Pittsburgh acknowledged the need for accounting norms and harmonisation of the regulation of financial markets across the globe. Fleuriot added that a new strand of global governance is emerging behind the evolution of these norms, highlighted by the transformation of the G8 into the G20. While Europe is addressing the regulation of financial markets by looking to give more power to authorities, Théodore warned that Europe is less advanced than the US or China in this respect. Indeed, the United Kingdom and Europe disagree on some crucial issues, highlighting that, to a certain extent, continental regulation remains a very much localised affair.

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Corporate finance in the post-crisis economy

Thierry Francq, General Secretary, AMF (AutoritE des MarchEs Financiers)

Thierry Francq, AMF General Secretary, started the afternoon session by looking at the current state of corporate finance in France. Francq noted that that, notwithstanding the Financial Services sector, the levels of share placements and rights issues in France were generally down. While there have also been few initial public offerings (IPOs), the market has lately shown signs of recovery thanks in part to the changing regulatory environment. Going forward, such changes will undoubtedly have an impact on corporate activity. Firstly, the AMF has reviewed the definition of threshold levels in light of the use of derivatives to take control of listed companies. Secondly, declarations of intentions have also been made more specific, including financing methods and the future strategy towards the listed company. The period for declaration has also been shortened from ten to five days and this should help transparency by better identifying the shareholder structure of listed companies and alerting the market of stake building.

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French M&A forum June 2009

Thirdly, the AMF has also planned to lower mandatory offer thresholds from 33% to 30% so as to prevent stealth takeovers in a market where valuations remain depressed. Francq commented that although a date is yet to be set, the change should be made some time in 2010. Looking at corporate restructurings, France has seen the continued strengthening of the ‘sauvegarde’ procedure. However, Francq stressed that while it is possible to delay, for a limited period of time, the publication of information to preserve the company’s interests, such an approach has to be strictly governed. Meanwhile, the current environment has seen an increase in debtto-equity conversions although these require the authorisation of the AMF, Francq added.

More generally, Francq summarised that the financial crisis has seen the AMF review its strategy towards restoring confidence by protecting savings and taking a more proactive role in the domestic economy. On a European level, the most significant change for the regulation of European financial markets revolves around the institutional empowerment of the Committee of European Securities Regulators (CESR). In the long-term, this will aim to create a set of rules to implement European directives.

“France tends to be one step ahead of other European countries with regards to the M&A market, on both the up-side and down-side.” Axel Kirstetter, Product Marketing Director, IntraLinks

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How to get a deal done in France

Jacques Buhart, Partner, Herbert Smith FrEdEric Dubuisson, Managing Director, Duff & Phelps Bernard Gault, Partner, Perella Weinberg Partners Sophie Javary, General Partner, Rothschild Gilles Ourvoie, Managing Partner, PMI Factory Serge Weinberg, Partner & Chairman, WEinberg Capital Partners Beranger Guille, Deputy Editor, mergermarket (moderator)

The discussion began with moderator Beranger Guille quoting mergermarket M&A data which shows that the total value of deals in France for the first three months of 2009 is down 77% compared to the same period last year. In volume, the numbers of deals also saw a sharp decrease, from 404 last year to 222 this year.

Sophie Javary, Managing Partner of Rothschild in Paris, noted that while deal flow has been considerably reduced over the past 12 months, the first signs of recovery have started to emerge. The recovery is primarily being driven by strategic players who are now targeting companies they had been eyeing for some time. Examples include Kraft Foods’ attempt to take over Cadbury, Suntory’s bid on Orangina and Abbott’s acquisition of Solvay’s pharmaceutical business. Private equity players have so far been largely absent from the top end of the market and this is likely to remain the case due to the difficult debt financing environment. However, Serge Weinberg, Chairman of Weinberg Capital Partners, concurred that the market was beginning to come out of a period of great uncertainty. The rally in global equity markets and better availability of debt for industry players will likely continue to fuel M&A while weak growth in exposed sectors will also drive consolidation with firms needing to realign and reduce their costs. Bernard Gault, Partner of Perella Weinberg Partners, argued that debt is still scarce and confidence remains fragile, making the M&A outlook uncertain in the short term. According to Jacques Buhart, many deals that have occurred recently have been paid in shares as opposed to cash

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French M&A forum June 2009

or debt. To a certain extent, this was the case in the joint venture between Orange and T-Mobile and the acquisition of Razorfish by Publicis. Nevertheless, some targets such as Cadbury are reluctant to enter into agreements, likely due to a lack of visibility in the equity markets. Weinberg noted that while strategic players could get financing for large deals, this was not the case for private equity players. Indeed, there are few examples of large transactions brokered by financial investors over the past year, except for the acquisition of minority stakes in large listed companies. On the other hand, financing remains available to private equity players that are making acquisitions in the mid-market. Although difficult, it is definitely possible to get €100m financing on a €300m deal. Weinberg also argued that lowered multiples and the scarcity of debt can have positive consequences on sellers’ expectations and these will have to be adjusted downwards over time to take into account the new economic reality. However, Javary stated that the lack of visibility over future economic conditions and the inherent difficulty valuing a business continue to constitute the main obstacle to a recovery in deal activity. In this context, deal structures will become more innovative with vendor financing becoming

more common. There is also the capacity for sellers to remain shareholders and value creation participants post-deal. 'In these cases, the seller can agree to an initial lower price while also benefiting from any potential future upside. Frédéric Dubuisson, Managing Director of Duff & Phelps, also concurred that buyers could get away with lower transaction prices if they can guarantee a future upside for the seller when the market recovers. These models can be applied to carve-outs or the sale of distressed assets where healthy strategic players broker deals that offer good synergies without raising a lot of debt. Gilles Ourvoie, Managing Partner of PMI Factory, stressed that the overall success of a deal is down to its execution in particular in times of economic crisis. In this regard, it is crucial to think of the postmerger integration (PMI) process as part of the M&A process rather than a mere consequence of it. Ourvoie highlighted that SMEs tend to lag behind large companies when it comes to integrating strategies – M&A specialists at large have a role in activating PMI expertise early. The panellists also went on to discuss the impact of government intervention and regulation on M&A activity in France. Javary said that governments

won’t remain shareholders in financial services companies in the long run and this could lead to consolidation. Elsewhere, the governments will also help secure transactions and give moral backing and this should be a positive factor for deal activity going forward.

In Italy, similar state intervention ensured that the merger between Alitalia and Air One went through. In France the antitrust authority scrutinises deals on the sole criteria of competition although the Finance Minister can approve or veto a deal on the grounds of public interest.

Gault argued that, whilst governments could help push a deal through in some instances, it will now be more difficult than ever before to acquire French companies that are deemed strategic. Weinberg moved on to warn that state intervention has not always been a good thing for the competitiveness of the French economy although it is seen as a positive both politically and socially.

Looking at future M&A activity, Javary noted that M&A will continue to return to defensive sectors such as Pharmaceuticals and Consumer. Other panellists had slightly different views with Dubuisson predicting that the Technology sector will be active while Buhart named the Energy and Telecoms spaces as likely to see significant deal making going forward.

In spite of the economic downturn, Buhart said that antitrust rules will not be bent or softened by the European Commission (EC). The UK has seen the striking example of the merger between HBOS and Lloyds although this deal was ultimately not referred to the EC as more than two thirds of these banks' activities were domestic in nature. The Secretary of State for Business and Enterprise also said that the public interest in ensuring the stability of the UK financial system outweighed competition concerns raised by the Office of Fair Trading (OFT) and as such, the merger did not need to be referred either to the OFT or to the Competition Commission.

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KEYNOTE: The importance of technology in an M&A transaction

Axel Kirstetter, Product Marketing Director, IntraLinks

Axel Kirstetter, Director of Product Marketing at IntraLinks, discussed the evolution of the M&A process over the last decade and the role that technology has played in the development. Kirstetter began by highlighting the difficulties involved in the process; managing and collaborating securely with internal and external parties, the need to gather and analyse information in real time and the ability to capture best practices involved throughout the process. Kirstetter suggested that one of the main issues when conducting transactions is viewing them as a single event rather than a structured process. He further commented that when viewed as a single event, technology usage is limited to the use of spreadsheets containing lists of people, activities and cost, together with simple project management tools to manage the timing and execution of projects and intranet sites and email to manage, store and share information. However, when M&A follows a more structured process, other tools can be utilised, such as virtual datarooms and software-based project management tools, to add increased efficiency and security. Kirstetter argued that to ensure internal resources are productive, buyers fulfill commitments and the asset achieves the best value, M&A business process tools should be used across the entire lifecycle of the M&A process.

He stated that this should start in the deal preparation phase where online tools, such as IntraLinks, can be used for document discovery and approval, utilising workflow and versioning functions to ensure the correct information is approved and stored in a central secure repository.

He stated these online tools are also being used when the deal has been signed, to facilitate the post-merger integration process, where platforms are being used by teams to collaborate and develop integration plans and analysis in a neutral, secure environment.

In the marketing phase, these tools can then be used to send out offering memorandums, teasers and confidentiality agreements, allowing the marketing of a deal to be conducted online from a central location.

Finally, Kirstetter discussed deal trends that IntraLinks was witnessing in the French market. He commented that France tends to be one step ahead of other European countries in regards to M&A, on both the up-side and down-side. Looking at recent announced deals, IntraLinks has seen that the Real Estate, Consumer and Pharma sectors have been most active in the past few months. In terms of listings, Kirstetter remarked that the IntraLinks platform has not seen a single initial public offering (IPO) in France in 2009.

Due diligence is the phase in which virtual datarooms have been widely utilised, adding both speed and security to this part of the process, by reducing the need to travel and allowing buyers from across the globe to conduct due diligence simultaneously on a secure platform. However, Kirstetter highlighted that there are also innovations happening in this phase, with the Q&A process for example. Traditional Q&A is a spreadsheet-driven, insecure and labour intensive process. Using an online Q&A tool can help the sell-side team, the subject matter experts and the bidders streamline this part of the transaction. Kirstetter also asserted that using technology solutions in the closing phase generates further time savings with legal teams being able to collaborate and communicate on the drafting of final documentation.

Furthermore, between 2007 and 2008, 36% of all European financing activity on IntraLinks platforms took place in France, although such activity was down 200% in 2009. Additionally, he stated that France has been responsible for around one third of overall European restructurings seen on IntraLinks this year, although the average value of these transactions has dropped by around 50%.

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Is restructuring the way out?

Bruno Basuyaux, Partner, Herbert Smith Gonzague de BligniEres, Co-Head of Private Equity & Managing Director, Barclays Private Equity Jacques Guonon, Chief Executive Officer, Eurotunnel Fabrice Keller, Managing Director, Duff & Phelps Laurent Le GuernevE, Judicial Administrator Laurent PerpEre, Group Managing Partner, Brunswick Michel Rouger, Honorary President, Tribunal de Commerce de Paris Yves de Kerdel, Le Figaro (moderator)

Fabrice Keller started the discussion by distinguishing between operational and financial restructuring. Financial restructuring typically involves debt re-negotiation, covenant resets or repayment waivers and this is often a complicated process even if there is no need for new money. Keller added that banks need visibility in the current climate and a covenant reset negotiation is not simple as it raises questions of business plans where sometimes there is no visibility about where the business is going. People are asking where the 2009 debt wall is and the answer is probably in 2010 as both banks and businesses try to hold on as long as possible through effective cash management and good use of working capital. Gonzague de Blignières estimated that there were around 2,200 French companies that are significantly levered with 60% to 70% in breach of covenants. Around 20% of these 2,200 companies have a value of more than €50m, meaning that funds will think twice before investing new money in them. One of the issues is that private equity firms need to raise money every four to five years and the only way to do this is to return money to limited partners. This leads some funds to invest new money in portfolio companies for which they might previously have overpaid. When a portfolio company is facing difficulties, it is important to start negotiations as early as possible with debt holders. However, this process is made more complicated by the fact that

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to renegotiate the debt you need to have a unanimous agreement from the banks. Bruno Basuyaux stressed that from a legal point of view, the tipping point was the suspension of payments. An important development over the past few years was the passing of the EU Insolvency Regulation in 2000 which allows distressed French companies to open insolvency proceedings in other European member states so long as their ‘centre of main interest’ is the said country. Judicial Administrator Laurent Le Guernève strongly believed that preventing proceedings have been empowered by the recent reforms on insolvency. However, he noted that while ‘sauvegarde’ has been used successfully with regards to financial restructurings, it has not prevented companies from losing the trust of its partners. Thus, one must give emphasis to preventing proceedings. From a communication standpoint, Laurent Perpère, Managing Partner at Brunswick, argued that a company has to acknowledge that information will be made public sooner or later. This is due to a number of reasons including the large number of participants and debt holders, the potential social and political consequences as well as different strategies pursued by the participants. The management of a distressed company tends to defend the interests of the company and not the interests of the private equity owner. Opinions vary and an important factor is that communication now happens

in real time and Debtwire plays a significant role in this respect. Consequently, one has to be constantly prepared to react to new events and handle divergent views. Michel Rouger also conceded that views are not always aligned in a restructuring. Furthermore, tomorrow’s restructurings will be very different from the deals we see today as accounting and financing tools are in constant evolution. In summary, the know-how of a company and the quality of its management should not be ignored at the expense of the accounting books when analysing a company that is going through a restructuring. Jacques Gounon, Chief Executive Officer of Eurotunnel, recalled the company’s own restructuring process that was undertaken to ease a considerable debt burden. The first measure taken by Gounon was to reduce the number of employees by around 30% while also communicating that, despite the debt burden, the company’s fundamentals were solid. Another challenge was to present a balanced solution that would enable every party to save face, including reluctant US debt holders. The ‘sauvegarde’ process helped Eurotunnel to find a way out as it forced different parties to address the following question: do you want to rescue the company? Gounon concluded by saying that a restructuring process should never be delayed (as was the case with Eurotunnel) and should firstly aim to simplify the debt structure of the company.

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LEVERAGING THE PMI F ACTORY C APABILITIES – CONTACT POINT La Grande Arche - Paroi Nord 14-15th Floors 92044 Paris La Defense Telephone: +33 (0)1 40 90 30 25 Mail: [email protected] FRENCH M&A forum June 2009

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historical data TOP 10 FRENCH M&A TRANSACTIONS, Q1-Q3 2009 Announced date

Status

Target company

Target dominant sector

Target dominant country

Bidder company

Bidder dominant country

Seller company

Seller dominant country

Deal value (€m)

Aug-09

P

Alcan Packaging (majority of businesses)

Industrials & Chemicals

France

Amcor Ltd

Australia

Rio Tinto plc

United Kingdom

1,433

Mar-09

C

Motier SAS (37.1% stake)

Consumer

France

Moulin family (private investors)

France

BNP Paribas SA

France

1,100

Jun-09

C

CACEIS (Crédit Agricole Caisse d'Epargne Investor Services) (35% stake)

Financial Services

France

Crédit Agricole SA

France

Natixis SA

France

595

Jan-09

C

Crédit Foncier de France (23.4% stake)

Financial Services

France

Caisse Nationale des Caisses d'Epargne et de Prévoyance

France

Nexity Initiale SAS

France

540

Aug-09

C

Kallista Energies Renouvelables SAS; Kallista France SAS

Energy, Mining & Utilities

France

Holding Energies Renouvelables SAS

France

Babcock & Brown International Pty Ltd

Australia

220

Aug-09

C

Château Cheval Blanc (50% stake); La Tour du Pin (50% stake)

Consumer

France

LVMH Moët Hennessy Louis Vuitton SA

France

Groupe Arnault SAS

France

200

Jun-09

P

NT1; TMC (40.00% stake)

TMT

France

Télévision Française 1 SA

France

AB Groupe SA

France

192

Mar-09

C

Groupe Lucien Barrière SAS (15% stake)

Leisure

France

Accor SA

France

Colony Capital LLC

USA

153

Jul-09

C

FPEE Industries SA

Construction

France

Barclays Private Equity Ltd; Pragma Capital

United Kingdom

AGF Private Equity; AtriA Capital Partenaires; Euromezzanine Conseil SAS; UI Gestion SA

France

150

Jan-09

C

Société Foncière Lyonnaise SA (8.8% stake)

Real Estate

France

CALYON

France

Inmobiliaria Colonial SA

Spain

143

C = Completed; P = Pending.

TOP 10 FRENCH PRIVATE EQUITY TRANSACTIONS, Q1-Q3 2009 Announced date

Status

Target company

Target dominant sector

Target dominant country

Bidder company

Bidder dominant country

Seller company

Deal type

Deal value (€m)

Aug-09

C

Kallista Energies Renouvelables SAS; Kallista France SAS

Energy, Mining & Utilities

France

Holding Energies Renouvelables SAS

France

Babcock & Brown International Pty Ltd

IBO

220

Aug-09

C

Château Cheval Blanc (50% stake); La Tour du Pin (50% stake)

Consumer

France

LVMH Moët Hennessy Louis Vuitton SA

France

Groupe Arnault SAS

Exit

200

Mar-09

C

Groupe Lucien Barrière SAS (15% stake)

Leisure

France

Accor SA

France

Colony Capital LLC

Exit

153

Jul-09

C

FPEE Industries SA

Construction

France

Barclays Private Equity Ltd; Pragma Capital

United Kingdom

AGF Private Equity; AtriA Capital Partenaires; Euromezzanine Conseil SAS; UI Gestion SA

SBO

150

Mar-09

C

Autodistribution

Industrials & Chemicals

France

TowerBrook Capital Partners LP

USA

Investcorp SA

SBO

110

Sep-09

C

Geoxia Maisons Individuelles SAS

Construction

France

LBO France SAS

France

Initiative & Finance Investissement SBO SA; NI Partners SA

100

Jun-09

C

Eminence SA

Consumer

France

Orium; Pechel Industries III

France

MBO

100

Feb-09

C

CTR Leyton

Business Services

France

Gimv NV; Pragma Capital France

Capzanine; iXEN Partners

SBO

100

Feb-09

C

Compin

Industrials & Chemicals

France

Barclays Private Equity Ltd

United Kingdom

LBO France SAS

SBO

95

Jul-09

C

Michel Thierry SA

Industrials & Chemicals

France

Fonds de Modernisation des Equipementiers Automobiles; HTP Investments BV

France

Deutsche Bank AG; MatlinPatterson Global Advisers LLC

Exit

85

C = Completed; P = Pending.

18

French M&A forum June 2009

Deal size split of M&A activity in France: volume 90,000

160

80,000

140

70,000

120

60,000

100

50,000

80

40,000

60

30,000

40

700

600

Number of deals

180

Value of deals (€m)

Number of deals

Overall M&A trends in France

27 17 28

400

300

10,000

0

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 04 04 04 04 05 05 05 05 06 06 06 06 07 07 07 07 08 08 08 08 09 09 09

54

20 30

143 136 72

55

67

16

96

107

91

52 4

46 200

20,000

20

20 27 48

500

31 25 46

34 22

287

11

146

0

0

284

259

228

100

301

40 33

2004

Number of deals

2005

Not disclosed

2006

<€15m

2007

2008

€15m-€100m

Q1-Q3 2009

€101m-€250m

Value of deals (€m) >€500m

€251m-€500m

Sector split of M&A activity in France Q1-Q3 2009: volume

Sector split of M&A activity in France Q1-Q3 2009: value 2%

3%

3%

3% Industrials & Chemicals

22%

4%

4%

Industrials & Chemicals

4%

Consumer

6%

1%

3%

TMT

27%

Consumer Financial Services

4%

Business Services 6%

Financial Services

TMT 6%

Real Estate

Pharma, Medical & Biotech Construction

6% 20% 9%

Construction Business Services

9%

Leisure

Leisure

Energy, Mining & Utilities

Energy, Mining & Utilities

Real Estate

Pharma, Medical & Biotech

24%

Transportation

16%

Transportation

18%

Geographic split of inbound cross-border M&A activity in France Q1-Q3 2009: volume

Geographic split of inbound cross-border M&A activity in France Q1-Q3 2009: volume 1%

3%

1%

6%

North America

4% 29% 6%

1%

1%

4% APAC

2%

UK & Ireland

UK & Ireland

6%

Germanic

North America

Iberia Benelux 11%

Germanic 9%

Iberia

Italy

Africa

APAC

Nordic 59%

CEE Other 15%

11%

16%

Benelux Italy Other

15%

FRENCH M&A forum June 2009

19

Where the debt breaks Robert A. Bartell, CFA (Managing Director, London) FrEdEric DubuissOn (Managing Director, Paris)

Income approach

Market multiple approach

The income approach faces limitations in the current economic environment, including:

The market multiple approach has a multitude of questions as well:

Challenges in estimating the Cost of Capital

• Should a valuation use current, historical or projected multiples?

• Which risk-free rate should be used? • What is the proper equity risk premium? • How did the collapse in the financial industry affect my firm’s beta? Assessing the reasonableness of financial projections • Are the projections aggressive or conservative given the current environment?

• Is the current EBITDA appropriate for applying to the multiple? • Will the historical peak-to-trough cycle of a company match the future peak-to-trough? Valuation-driving market multiple selections are even more critical if the value falls within the “Red Zone” in which slight adjustments could dramatically affect a conclusion.

• How do we treat the Net Operating Losses, a tax asset, of a company? • What is the amount of 'new money' necessary for a company to achieve its business plan?

The “Red Zone”

Positive Equity Value

Low Multiple

Senior Debt

20

French M&A forum June 2009

High Multiple

Second Lien Term Loan / Mezzanine Debt

Enterprise Value

To assess the financial viability of a company, long term projected performance needs to be reviewed in conjunction with the current situation. Companies that look solvent today may not be solvent tomorrow. A simple example comparing

two companies with similar free cash flow but different capital structures demonstrate the importance of not only measuring the current health of a company but also estimating its future strength.

Which company is in a better position? Step 1: Balance Sheet Assess where the Debt Breaks (€ in 000s)

(€ in 000s)

Company 1

Company 2

Enterprise Value

€300,000

Is enterprise value greater than outstanding debt?

Enterprise Value

€140,000

Debt Securities Senior Debt Second Lien Term Loan / Mezzanine Debt

(125,000) (100,000)

Debt Securities Senior Debt Second Lien Term Loan / Mezzanine Debt

(125,000) (100,000)

Aggregate Equity Value Surplus / (De

€75,000

Aggregate Equity Value Surplus / (De

-€85,000

it)

it)

Step 2: Cash Flows Assess Company Liquidity

(€ in 000s)

Can cash flows pay debt obligations?

(€ in 000s)

Company 1

Company 2

Enterprise Value

€300,000

Enterprise Value

€140,000

Debt Securities Senior Debt Second Lien Term Loan / Mezzanine Debt

(125,000) (100,000)

Debt Securities Senior Debt Second Lien Term Loan / Mezzanine Debt

(125,000) (100,000)

Aggregate Equity Value Surplus / (De

€75,000

Aggregate Equity Value Surplus / (De

-€85,000

it)

it)

Step 3: Conclude Which Company is in Better Position In the first scenario, company 1’s enterprise value exceeds the outstanding debt but Company 1 may not have the ability to refinance in the current environment.

In the second scenario, company 2’s enterprise value is less than the outstanding debt but Company 2 should have the ability to service upcoming payments.

Solvency Tests

Solvency Tests

Balance Sheet: Pass Cash Flow: Fail

Balance Sheet: Fail Cash Flow: Pass

Duff & Phelps is well positioned to provide a debtor, creditor or security trustee an independent going concern business enterprise value and expert testimony. We are confident in assessing and defending 'where the debt breaks' in connection with negotiations amongst various stakeholders. FRENCH M&A forum June 2009

21

About IntraLinks

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French M&A forum June 2009

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For information regarding this report please contact: Karina Cooper Publisher T: +44 20 7059 6324 E: [email protected]

FRENCH M&A forum June 2009

23

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