Private Equity Apax Partners 2008 Annual Report
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Apax Partners Annual Report 2008
www.apax.com
What’s in this Annual Report? Table of contents
Apax Partners Annual Report 2008
2
Performance highlights
4
Apax Funds live portfolio summary
1 10
Section 1: Overview Chief Executive’s letter from Martin Halusa
14
Investment strategy
19
Our global reach
20
China – opportunities and challenges
2
Section 2: Governance
26
Operational structure
28
Governance and compliance
32
Our values
34
The wider community
3
Section 3: Our sector expertise
42
Sector review Tech & Telecom
52
Sector review Retail & Consumer
62
Sector review Media
70
Sector review Healthcare
80
Sector review Financial & Business Services
4 90
Section 4: Our investors Investors
98
Current portfolio
100
Apax Partners international offices
Designed and produced by RadleyYeldar Photography by Matt Mawson (Mosaic: Benedict Johnson – Emmaus: Henry Thomas) Printed by CTD (FSC and ISO 14001 certified) Printed on Challenger Laser Matt comprising of fibres sourced from well-managed sustainable forest reserves and bleached without the use of chlorine. The production mill for this paper operates to EMAS, ISO 14001 environmental and ISO 9001 quality standards.
Front cover: Shanghai World Trade Centre, Apax Partners’ new China headquarters
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Apax Partners Annual Report 2008
www.apax.com
What’s in this Annual Report? Table of contents
Apax Partners Annual Report 2008
2
Performance highlights
4
Apax Funds live portfolio summary
1
Section 1: Overview
10
Chief Executive’s letter from Martin Halusa
14
Investment strategy
20
China – opportunities and challenges
2
Section 2: Governance
26
Operational structure
28
Governance and compliance
32
Our values
34
The wider community
3
Section 3: Our sector expertise
42
Sector review Tech & Telecom
52
Sector review Retail & Consumer
62
Sector review Media
70
Sector review Healthcare
80
Sector review Financial & Business Services
4
Section 4: Our investors
90
Investors
98
Current portfolio
100
Apax Partners international offices
Designed and produced by RadleyYeldar Photography by Matt Mawson (Mosaic: Benedict Johnson – Emmaus: Henry Thomas) Printed by CTD (FSC and ISO 14001 certified) Printed on Challenger Laser Matt comprising of fibres sourced from well-managed sustainable forest reserves and bleached without the use of chlorine. The production mill for this paper operates to EMAS, ISO 14001 environmental and ISO 9001 quality standards.
Front cover: Shanghai World Trade Centre, Apax Partners’ new China headquarters
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The development of Apax Partners
Total funds raised At 31.12.2008
The history of Apax Partners is interwoven with the development of the private equity asset class on both sides of the Atlantic. Throughout its 30 year history, the firm has successfully raised and advised Funds which invested across all investment stages, and through several complete economic cycles. The firm’s focus on buyouts is rooted in a culture that has always been outward looking, pioneering and committed to growing businesses.The deep understanding of the five sectors in which its Funds invest has been at the core of Apax Partners’ strategy, giving it early access to investment opportunities and an ability to add value quickly to portfolio companies.
1976 Sir Ronald Cohen’s Multinational Management Group and Alan Patricof Associates join forces.
At 31.12.2008 At 31.12.2008
1999:The firm raises its first panEuropean fund, having integrated the management companies of its European and Israeli offices.
2001: Apax Europe V raised The largest European private equity fund at the time.
2007: Apax Europe VII raised The largest European private equity fund.
€1.8bn
€4.4bn
€11.2bn
€26.6bn £25.7bn US$36.9bn
2008 China Shanghai office opens 2004 Sweden Stockholm office opens
1980: Excelsior Fund The US firm raises its first fund
1994 Israel Tel Aviv office opens
2006 India Mumbai office opens
US$25.53m 1981: Apax Venture Capital Fund The UK firm raises its first fund
1989 Spain Madrid office opens
£10.15m
2000 Italy Milan office opens
1990 Germany Munich office opens
2002: European and US operating companies merge to become Apax Partners LLP built quity firm Private e
1976
1980
2005 China Hong Kong office opens
sectors industry around
2004: Succession Martin Halusa elected CEO to succeed founder Sir Ronald Cohen
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Find out how we got here Apax Partners timeline under the flap
Apax Partners Annual Report 2008
Apax Partners is an independent global partnership focused solely on private equity. Funds advised by Apax Partners typically invest in large companies with a value between €1bn and €5bn. The Funds invest in five sectors: Tech & Telecom, Retail & Consumer, Media, Healthcare, Financial & Business Services. Apax Funds provide the capital and expertise that help excellent management teams release the full potential of their businesses. Companies backed by Apax Funds have a strong track record of growing by investing in research and development, exports and sales and by growing employment. About us
Our mission Our
mission is to release the untapped potential of companies, management teams and portfolio company employees in order to generate superior returns for the millions of individuals whose pension funds and investment plans commit to our Funds.
1
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Apax Partners Annual Report 2008
2
3
2008 Performance highlights
New investments in 2008 Deal name
Location
Germany
D+S europe
Total amount invested in 2008 (€)
Key realisations in 2008 Deal name
Location
US
Audible
Emap
UK
Bezeq
Israel
TriZetto
US
Intelsat
US
Weather
Italy
Princeton Softech
US
1.84bn Total amount realised in 2008 (€)
1.07bn
Average portfolio profit growth 2008
11% 16% Average portfolio profit growth, last ten years
Investor breakdown by type
In Apax Partners funds returns to Investors
Public pension funds
31.77%
Private pension funds
14.16%
Funds of funds
11.14%
High net worth individuals
10.28%
>270,000
0%
15 year
Total portfolio enterprise value (€)
68bn
18.3%
0.1%
Equity : Debt ratio in the Apax Funds live portfolio MSCI Europe
Net IRR top decile benchmark 2
10% Investor breakdown by type
1
20%
Net IRR – Apax Europe Funds
4.52%
5.7%
Gatekeepers
30%
MSCI Europe
5.18%
23.4%
Sovereign funds
Net IRR top decile benchmark 2
6.14%
28.1%
7.05%
Endowments
30.1%
9.76%
Banks
of which is top line growth;
Acquisitions Monthly Winner Exit of the year Mölnlycke
of which is operational improvement. Dow Jones/Private Equity News Awards Winner European fundraising of the year Winner European large buyout of the year Winner European exit of the year Intelsat
FinancialTimes-Mergermarket European M&A Awards 2008 Winner Private Equity Firm of the Year
Total portfolio staff 2008
Net IRR – Apax Europe Funds1
Insurance
40%
46% 54%
Award winning private equity
10 year
1 At 31 December 2008. 2 Benchmark is the top decile buyout cumulative vintage year annual IRR as of March 2009 (latest available for 2009) for AEVI and all private equity IRR for other funds.10 year and 15 year benchmarks are the cumulative composite vintage year IRRs over each period. Source:Thomson Financial. MSCI data as of 31 December 2008.
31:69 Net debt/EBITDA multiple
5.1x
European Venture Capital Journal Awards 2008 Winner Fundraising of theYear
Financial News/Private Equity News Awards for Excellence in Private Equity Winner European Private Equity Personality of theYear – Martin Halusa
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Apax Partners Annual Report 2008
4
5
Apax Funds live portfolio summary
Tech &Telecom
Apax Funds live portfolio value by sector at 31 December 2008 Retail & Consumer
29.73%
Tech & Telecom
27.25%
Healthcare
17.17%
Media
13.54%
Financial & Business Services
12.31%
Retail & Consumer
Media
†
*
Healthcare
Financial & Business Services
*
* Portfolio equity value
*
*
*
Sale agreed July 2008, completed March 2009
*Walker: UK compliant †BVK: Germany compliant
*
*
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1
Section 1 Overview 10
Chief Executive’s letter from Martin Halusa
14
Investment strategy
19
Our global reach
20
China – opportunities and challenges
7
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Apax Partners Annual Report 2008
9
Strategy Our investment strategy is clearly focused on identifying opportunities where our in-house resources and expertise can add value. Our sole focus is, and always has been, excellence in private equity investing. We do not do anything else. Within private equity, we focus on five industry sectors, which together account for around 50% of the economy. Our Funds have invested in the same five sectors for over 25 years and our team is made up of industry experts who are dedicated to generating unique investment opportunities within these sectors. We believe this strategy was right at the top of the market and is the right one to employ in this unusual and difficult market.
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Apax Partners Annual Report 2008
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11
Chief Executive’s letter
Why are we reporting? Welcome to the second Apax Partners Annual Report. The aim of the Report is to provide greater transparency on Apax Partners and the portfolio companies in which its Funds invest. We recognise that, as the industry expands and matures, it has an obligation to increase the quality of its transparency and disclosure. Apax Partners has been at the forefront of discussions about how to achieve this on an industry-wide basis and is fully committed to conforming to the Walker Guidelines in the UK and the transparency guidelines of the BVK in Germany, as well as the Private Equity Council guidelines on responsible investment.
Martin Halusa, CEO Apax Partners
>270,000 employees in portfolio companies Source: Apax Partners
How does the current economic turmoil impact Apax Partners? Given the dramatic events in the financial services industry and the global economy during 2008, I would like to start by stating clearly that we believe the private equity ownership model is robust and relevant in these turbulent and worrying times. In the last decade, private equity has become an established and viable alternative to public market and family ownership, and we believe that this shift is here to stay. It is our view that companies will continue to alternate between public and private ownership in accordance with their funding needs and the ability of the public markets to value them correctly, fund their growth and deal with significant changes in strategy, which may impact short-term performance. The private equity model is characterised by a strong alignment of interests between the shareholders, management and employees and by a long-term investment horizon, which in our case stretches to an average of five years. This governance model will always be an attractive solution for those public companies which have multitudes of short-term shareholders with conflicting motivations. The quarterly reporting schedule and the distraction of a fluctuating share price, which is so often unrelated to company fundamentals, represents a constant distraction for management. It is an equally applicable model for those family owned companies which are struggling with succession issues and a lack of clear management incentive and for whom a public listing is not a viable alternative. In our view the private equity model is well suited to help companies through this difficult period. The ability to act quickly and decisively with an eye to the long-term health of company fundamentals, rather than short-term concerns about the share price, is critical. This is a view shared by the World Economic Forum, whose findings in a recent report show that private equity is best suited to make the difficult decisions to manage companies effectively in a downturn. So far, private equity is proving to be one of the most stable elements of the financial services industry. In terms of results, when we look back at this crisis, we believe that the leading firms will have outperformed the top players in other asset classes. There is now significant evidence that the best firms in the industry are able to sustain their performance by continuing to help management teams, and we think that the current downturn will further emphasise this trend.
On the other hand, this industry will face considerable challenges over the next few years. The market for raising new capital will be more difficult because the pension funds and other institutional investors that are the main backers of the asset class will themselves have less liquidity and may well cut back on the number of firms in which they choose to invest. Ultimately, this could lead to a considerable amount of consolidation. The availability of debt financing is expected to continue to be limited, which puts more emphasis on private equity firms being able to deliver operational value-add. This, in return, presents a personnel challenge as the skill sets needed in private equity shift from financing to operational expertise.
11% 16% average growth rate 2008
average annual growth rate over the past 10 years. Source: Apax Partners
What are we doing? The number one priority for Apax Partners at the moment is ensuring that our Funds’ existing portfolio companies are in a robust position to weather the stormy economic climate. While our Funds’ portfolio overall is in good shape, the severity and speed of the current downturn is unprecedented and is impacting certain sectors and companies more severely than others. We are mobilising internal and external resources to help and support portfolio companies that are feeling the effects of the current downturn. However, while we cannot account for all future scenarios, we believe that we will be able to contain the impact on our Funds’ portfolio overall. At present, the average debt level across our Funds’ portfolio is relatively modest at 5x annual profits, and the first significant re-financing is not due until 2012. Despite the economic slowdown last year, the 36 major companies in our Funds’ portfolio achieved increased profits (EBITDA) of 11% and, of these companies, 30 were on or above our original investment plan for 2008. The ability to grow the companies in which our Funds invest and to release their full potential is more important at this time than it has ever been. Over the past 18 months, in anticipation of this downturn, we have recruited several senior industrialists to our Portfolio Support Group, which now numbers ten professionals. This team supports the investment staff, providing a wealth of operational and finance expertise. Additionally, the senior Partner group has an average of 13 years’ private equity experience and has been through challenging recessions before. Around 80% of the investment team has a background in industry and consultancy, rather than investment banking and transaction management. It is this team strength and experience that will help our portfolio, as well as Apax Partners, emerge out of the current difficulties in a robust position. The governance structure with private equity firms in general and with Apax Partners in particular has never been more crucial, for example, our Funds remain unleveraged, we remain focused on one core business and are rewarded only on a long-term basis. We have a governance model that has, to a large degree, insulated us from many of the problems that financial services companies are facing today, which have been caused by inadequate checks and balances, by a short-termist culture of uncontrolled and excessive risk taking, by misalignments of interest, and by expansion into new business areas where risks were improperly understood and governance structures poorly defined.
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Apax Partners Annual Report 2008
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13
Chief Executive’s letter continued
Growth in the Global Private Equity market Buyout value (US$bn)
Number of buyouts
700
700
3,000
600 2,500 500 2,000 400 1,500 300 1,000 200
500
0
Source: Dealogic
2007
2008
2005
2006
2003
2004
2002
2001
2000
1999
1998
100
0
In contrast to the compensation schemes that have been widely criticised at banks and other financial services companies, we are only rewarded if our Funds’ investments are successful. Our reward scheme is aligned with the investors in our Funds; we do not participate in the capital gains of the Funds until the pension funds, endowments and insurance companies that are our main backers have been paid back in full and have received the agreed return on their capital. Our horizons are also long-term, the Funds that we advise typically have a life-span of ten years or more. We have a relatively simple model. We are a ‘pure play’ private equity firm, G whose Funds make investments in large companies operating in five industry sectors. We provide the backing for companies that operate in the ‘real’ economy across the world: companies that provide mobile phone infrastructure in Greece and Pakistan, milk and dairy products in Israel and Romania and operate hospitals in India. We stuck to this strategy when there was ample opportunity to expand our business, and fully intend to stick to it in this more challenging environment. We remain a focused investment manager rather than an ‘asset gatherer’ and we believe that the governance structures that we have put in place to manage our business globally are amongst the best in class (see pages 28–31 for more detail). What next? We have been expecting a downturn in the credit market and a slowdown in the economy for the last three years and have invested accordingly. Clearly it has been deeper than we predicted and, at the time of writing, we expect it to get worse before it gets better. We clearly saw valuations become over-inflated in the years leading up to August 2007, and we invested accordingly; now we think that confidence is dropping to the extent where we will see a period of significant over-compensation. Looking at valuations with an historic perspective, we are seeing good companies with strong fundamentals being mis-priced by the public markets. In this environment, where banks have scaled back their lending, the percentage of our own equity that our Funds use to back companies will increase. Indeed, many investments will be equity only. We will see more situations where our Funds invest alongside established corporate players, such as our partnership with the Guardian Media Group in Emap and Trader Media or investments like Weather, where our Funds took a minority stake in a larger growth company to enable it to fully benefit from the recovery. What hasn’t changed is our commitment to helping companies release their full potential in terms of growth, profitability and long-term sustainability. In its 30 year history, Apax Partners has never been focused on distressed situations and ‘turnarounds’ or trying to take advantage of cyclical fluctuations in the market. From our earliest days, when our Funds invested in small high growth businesses, we have always sought to back excellent management teams in companies with growth potential. Our Funds continue to back the same excellent companies and provide the industrial expertise that will enable them to prosper in these difficult times.
Key events for Apax As part of a long-term plan to expand our presence in Asia, last year we opened an office in Shanghai, our first in mainland China. We were also pleased to welcome Richard Zhang to the Firm to lead our push into Greater China. Coinciding with Richard’s arrival, several of our senior European and US based partners have relocated to the China office. Richard’s account of the challenges and opportunities that present themselves as we continue our expansion follows on page 21 of this Report. It remains our long-term ambition to have equivalent sized teams in Europe, the US and Asia. In terms of investments, 2008 was very much a year of two halves. In the first half of the year, our funds were active investors, backing four companies: Emap, D+S europe, TriZetto and Weather Investments. In the second half we did not make any new investments due to the extraordinary economic turbulence. In terms of divestments, the highlights were the sale of satellite operator Intelsat at the very start of the year and the agreed sale of grocery chain Somerfield to the Co-Operative Group in July. Both illustrate how we are able to help companies release their full potential. The case of Somerfield is a good example of how a period of private equity ownership can breathe new life into a public business that is lacking strategic direction. Intelsat was a very successful consolidation play in an industry sector where our team had a very deep prior understanding. The skill sets, governance model and alignment of interests in private equity will continue to create out-performance relative to the public markets. However, in the short term, the industry will have to deal with a challenging fundraising environment and portfolio companies which are suffering in the current recession. Fortunately, Apax Partners is well positioned on both counts. The companies in which our Funds invest continue to perform well in a tough market. We also have a large team of industry specialists and the capital necessary to support the few companies in our portfolio which are struggling as a result of the recession. Although there will inevitably be consolidation in the industry, in the long term those firms that can create value through these difficult times will enjoy a very attractive future.
Martin Halusa Chief Executive
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Apax Partners Annual Report 2008
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Investment strategy Overview
Apax Funds have a proven strategy of sector focused investing, looking for opportunities where capital, experience and insight can release the potential of businesses and lead to significant growth.The firm has successfully pursued this strategy since 1990. Our sector focus, combined with an established network of local offices and a global platform, represents the foundation of Apax Partners’ strategy.
Sector focus Apax Funds invest across five global growth sectors: Tech & Telecom, Retail & Consumer, Media, Healthcare, Financial & Business Services. Funds advised by Apax Partners have invested successfully in these sectors over the last 25 years, giving us genuine insight into the businesses in which our Funds invest. The team at Apax Partners is geared toward this strategy of sector-focused investing, with 80% of investment professionals having prior relevant sector expertise. Local presence Our offices have been established for an average of 13 years each and are primarily staffed by local nationals. Close relationships with decision makers in the countries in which we operate helps us to unearth new investment opportunities and understand the market in which portfolio companies operate. Global reach Apax Partners has an established global presence, with ten offices in nine countries across three continents. Our global platform enables us to grow businesses by spotting emerging trends early, supporting the growth of global companies and using the world’s stock markets most effectively. As the private equity market matures, we believe that some of the best-performing firms will be those with genuine global reach and financial scale.
10 5
Apax Partners has ten offices in nine countries across three continents.
Apax Partners focuses on five industry sectors bringing deep expertise and experience to management.
Investment focus The five sectors in which Apax Funds invest follow different business cycles, which can also vary by country. Apax Funds do not pre-allocate capital to sectors or countries but invest according to the prospects for each sector and economy as well as the detailed strategies developed by each Apax Partners sector team. Investments are structured around the growth needs of the specific business. Apax Partners believes that investments in companies which are typically valued between €1bn and €5bn are best suited to its experience and expertise. In our view, these larger businesses offer more established and resilient business models, more opportunities to create value, greater attraction for excellent management teams, and more diverse exit options than smaller businesses and yet still maintain the growth characteristics that are more difficult to realise in the very largest businesses. These are also businesses that often benefit from Apax Partners’ extensive global platform and presence in multiple markets and its ability to deploy a large amount of experienced resources in complex international transactions. Responsible Investment Apax Partners is focused on advising the Apax Funds on managing the portfolio risks as well as the risks of the individual companies in which the Funds invest. Apax Funds take a responsible attitude toward the capital structures in the portfolio companies in which they invest to avoid over-leveraging a business. The average debt level in Apax Funds’ live portfolio is 5.1x EBITDA. Value creation Throughout its 30+ year history, Apax Partners has been committed to helping businesses through all stages of their development. Apax Funds continue to look for opportunities where they can use their insight into the growth drivers of the underlying business. We believe that this is a more robust source of returns, over the business cycle, than a sole reliance on financial leverage or multiple arbitrage. Over the last ten years, the cumulative annual growth rate of profits across the Apax Funds portfolio was 16% per annum.
How do we grow businesses? Typically, Apax Partners attempts to grow businesses by acting as a catalyst for change.
How we help businesses grow
Step 1
Define the full potential Step 2
Develop the business plan Step 3
Accelerate performance Step 4
Harness the talent Step 5
Focus on company results Step 6
Optimise returns on equity As well as ensuring that the financial structure is appropriate, Apax Partners has recently embedded non-financial principles for responsible investment into its investment process (see page 32–33). In the case of virtually every investment, at least one Apax Partners executive will join the board of a portfolio company in a non-executive capacity to bring broad experience to bear and to give the company access to the international resources that Apax Partners can provide. This can assist Apax Funds portfolio companies with matters as diverse as acquisition opportunities, IPO planning, key management hires, understanding competitive threats and opportunities, international expansion and benchmarking Key Performance Indicators against best practice. Apax Partners believes that having its own executives perform this role is key to driving value creation. The Apax Partners representative will also monitor non-financial aspects of portfolio companies such as corporate governance, corporate social responsibility and compliance with the Apax Partners values.
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Apax Partners Annual Report 2008
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Investment strategy How do we select our investments?
17
Investment strategy Global reach
Apax Partners deal selection criteria
Question 1 US Established: 1969
Is the company in one of our five sectors of industry expertise?
UK Established: 1981
Sweden Established: 2004
Germany Established: 1990
China: Shanghai Established: 2008
Question 2
Do we have any particular insight into the risks and opportunities for growth? Question 3
Is it a market leader with significant growth potential within our targeted size range?
10 45 13 offices
Question 4
Does the company have untapped potential to grow?
partners worldwide
Question 5
Is it a global company or does it have the potential to be?
years average partner experience in private equity
Question 6
Is the company well managed? Can we add value to the management and governance of the business? We generate a huge amount of investment ideas across our global platform. Each of these initial ideas is subject to rigorous assessment by the investment team, who will often call on external analysis to support their deal hypothesis. When the investment is sufficiently well developed, it is brought before our internal investment committees who assess the opportunity based on the criteria highlighted above.
China: Hong Kong Established: 2005
Of a total of 1,531 investment ideas logged in our system since the start of 2005, 11% made it to the point where they were under serious consideration and only 3% made it to the next stage. Of all of the investment opportunities that we looked at around the world, we completed just 30. We invest a significant amount of internal and external resources in those investments that do reach completion. The research involves all areas of the company’s performance, management
and market, as well as non-financial aspects such as environmental impact, CSR policies and governance structures. On average, we spend over eight months looking at an opportunity before it reaches completion, and in virtually every one of these investments we will have a prior relationship with the management before the deal even makes it on to the system.
Spain Established: 1989
Apax Partners’ offices have been established for an average of 13 years each and are primarily staffed by local nationals. Close relationships with decision makers in the countries in which we operate gives us an advantage in terms of finding new investment opportunities and understanding the market in which Apax Funds’ portfolio companies operate.
Italy Established: 2000
Apax Partners has an established global platform with ten offices in nine countries across three continents. This breadth enables it to spot emerging trends early, support the growth of companies and use the financial markets most effectively. As the private equity market matures, we believe that some of the best-performing firms will be those with genuine global
Israel Established: 1994
India Established: 2006
reach and financial scale. Apax Partners is one of a small group of private equity firms to have embraced the challenge of globalisation.
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Apax Partners Annual Report 2008
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19
Investment strategy How we support our portfolio
Sector Expertise
One of Apax Partners’ core strengths is that our Funds only invest in companies in five industry sectors. As a result, the expertise we have built up over the years gives us the understanding
necessary to help our management teams develop and grow their firms in good times as well as bad.
Management Support
A key part of the strategy to invest along sector lines is Apax Partners’ panel of operating partners – seasoned industrialists who offer a wealth of managerial experience and specialist expertise. The members of this panel can be used to help
tackle particular situations and projects or, in exceptional circumstances, can take the helm at businesses that might be facing specific issues for which the existing management is not adequately equipped.
100-Day Planning
Actions taken by an investor during the first few months with a new portfolio company are critical in determining the success of the business. Apax Partners has refined its approach to this process. An enormous amount of time is invested in gathering information and assessing the
experience within the business and codifying this to accelerate the pace of change. We make sure that the right people and incentive structures are in place in our Funds’ portfolio companies. And we perfect the detailed plan that will guide the business well into the future.
FinancingTeam
In such turbulent times it is inevitable that some of the companies in which our Funds invest will face significant financing challenges and in many cases the existing management teams will not have faced such tough trading conditions before. Apax Partners’ Financing Team can be made available to help navigate a path through the
difficult conditions, working both in-house and directly with investee managers. The team can also exploit the silver linings that come with this territory, working with the companies to make use of the ultra-low interest rate environment and the value-creation opportunities it offers.
Portfolio Recruitment Centre
With over 100 companies in the current portfolio employing hundreds of senior managers, Apax Partners’ Portfolio Recruitment Centre provides a key support function. The team, which manages a 30,000-strong database of contacts, undertakes
the search and selection function for strategically important managerial and advisory positions within the portfolio, sourcing and liaising with specialist outsourcing firms where necessary.
Secondments
Apax Partners also seeks to provide support via the seconding of investment team members into portfolio firms. Given the current economic conditions, this makes for a win-win situation: our portfolio companies benefit from additional
high-level support, while the investment team members gain invaluable hands-on experience in a tough operating environment.
Sector Expertise
100-Day Planning Centre of excellence
Secondments
Portfolio Support Group
Portfolio Recruitment Centre
Management Support
FinancingTeam
The Portfolio Support Group harnesses the varied array of talents within the firm to deliver the best mix of services to the companies in which our funds invest.
As well as helping portfolio companies deal with today’s challenging market conditions, the Group identifies longer-term opportunities that may have been lost by management as they deal with pressing short-term operational issues.
The Group delivers focused support in a number of different ways as explained in the diagram and descriptions on this page.
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Apax Partners Annual Report 2008
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China: opportunities and challenges Richard Zhang Apax Partners Greater China
China and beyond The opening of Apax Partners’ first office in mainland China was one of the key highlights for the Firm in 2008. It followed nearly three years of methodical preparation after the opening of a beachhead in Hong Kong in 2005, and represents the continuation of a deliberate and consistent globalisation strategy. By transferring senior professionals from across our network and making highly selective new hires in China, we now have seven investment professionals including three Partners based in Greater China. The team is headed by me, Richard Zhang, a native Chinese and a former Director of McKinsey who, over 15 years of consulting experience with the firm, played a key role in building its China practice. Apax Funds’ initial investment focus is mainland China, Hong Kong and Taiwan while being opportunistic in South East Asia (primarily Singapore and Korea). The Funds will follow the same proven investment strategy and apply the same investment principles and criteria as they do across our global platform. We want our Funds to be seen as not just a financial sponsor, but a ‘strategic partner’. Greater China In terms of the market, the Greater China economies are all profoundly shaped by mainland China. For instance, roughly 60% of the Hong Kong stock exchange market capitalisation comes from pure mainland Chinese companies and a listing in Hong Kong has become a gateway to the world for Chinese champions with global aspirations. Many of Taiwan’s
technology and consumer goods giants are also the market leaders in the mainland, and recent political change in Taiwan has accelerated the speed of this integration. Investments can be completed in Hong Kong or Taiwan, which have more investor friendly regulatory regimes, while still being able to tap into the mainland growth. Regardless of where the transactions actually take place, developing truly deep China-specific insights, relationships, and networks to spot attractive assets and make them actionable is a critical factor of success across Greater China markets. The impact of the global slowdown While
the current economic events have had no bearing whatsoever on the timing of our entry into mainland China, this is certainly a critical moment for China’s potential rise as an economic superpower. After 30 years of reform, liberalisation and astonishing economic growth, China is undergoing one of its most challenging periods as a result of the global financial crisis; proving there is no such thing as decoupling. The dramatic slowdown in exports has almost halved China’s GDP growth from a peak of 13% in 2007 to only 6.8% in the final quarter of 2008. The first half of 2009 is likely to continue this downward trend. Yet it is difficult to think of anywhere in the world today where you can sense more hope and positive energy, not least in the vast upsurge of entrepreneurial activity that has been unleashed.
The Chinese government’s response to the crisis has been swift, massive and continuous. It is primarily aimed at boosting domestic investment and consumption to counterbalance export losses. We are already starting to see limited signs of progress. Retail sales grew about 15% in the first two months of 2009 compared to the same period a year ago, and automobile sales in particular hit a record high of over 1 million units in March 2009. Credit has steadily become more widely available since November 2008; new loans quadrupled to reach RMB1.89 trillion in March 2009 from only RMB470 billion back in November. Chinese banks remain highly liquid and profitable, having suffered minor bruises from the subprime loss. More importantly, China’s longer term fundamentals remain strong, as continued urbanisation will create another 200 million new consumers and possibly over a dozen mega cities (each with a population in excess of 10 million) in the next 2–3 decades. Danger or opportunity Despite the enormous promise, China is never an easy market, and we are fully aware of the need for patience and prudence. However, growth was, is and will remain a fundamental theme of China, notwithstanding the current crisis. Incidentally the Chinese word for ‘crisis’ literally consists of two characters -‘wei’ meaning danger, and ‘ji’ meaning opportunity – the marriage of danger and opportunity.
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Section 2: Governance 26
Operational structure
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Governance and compliance
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Our values
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The wider community
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Stability The private equity model is characterised by an alignment of interests between the private equity firm, the investors in its funds and the portfolio company management. In contrast to many other financial services models, our investment horizons are long-term and we are only rewarded for success after our investors have been repaid. Apax Partners has consistently sought the highest possible standards in corporate governance and transparency. Our rigorous internal processes are supported by external advisory boards to ensure that interests remain aligned and any conflicts are dealt with quickly and efficiently.
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How we are run Operational structure
Apax Partners Executive Committee
The Executive Committee is responsible for the day-to-day management of Apax Partners worldwide. The group meets on a monthly basis to discuss matters of strategic importance for the global organisation.
Martin Halusa Worldwide CEO (London) Martin joined Apax Partners in 1990. He is Chairman of the global Executive Committee and Investment Committee and a member of the Approval, Exit and Portfolio Review Committees.
John Megrue (New York) John initially joined Apax Partners in 1988, then left to co-found his own private equity firm and returned with his team in 2005. He is a member of the Approval, Investment, and Portfolio Review Committees.
Michael Phillips (Munich) Michael joined Apax Partners in 1992. He leads the Financial & Business Services team globally and is a member of the Approval, Investment, Portfolio Review and Exit Committees.
Stephen Grabiner (London) Stephen joined Apax Partners in 1999. He leads the Media team globally and is a member of the Investment, Portfolio Review and Exit Committees.
Investment Committees
Below the Executive Committee are a further four sub-committees that oversee the investment process from initial idea through due diligence and throughout the life of the investment to its eventual exit. At every stage in the process, the investment is subject to a rigorous process of scrutiny by these committees.
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Approval Committee Chaired by Peter Englander, the Approval Committee acts as a sounding board to the deal teams and ensures that the best opportunities are pursued across our sectors and geographies.
Investment Committee Chaired by Martin Halusa, the Investment Committee makes the investment recommendations to the investment manager.
Portfolio Review Committee Chaired by Peter Englander, the Portfolio Review Committee periodically monitors individual portfolio companies to assess ways in which Apax Partners can add further value or to iron out potential problems.
Exit Committee Chaired by Paul Fitzsimons, the Exit Committee reviews exit options for specific portfolio companies.
Five specialist sectors
Sector teams work across our global network of offices, using extensive in-house knowledge and access to business networks. We are able to quickly identify global trends within a sector and maximise the business opportunities.
Tech & Telecom Pioneers in Technology and Telecommunications investing with companies on both sides of the Atlantic.
Retail & Consumer One of the leading global investors in the Retail and Consumer sector over several decades. Over €2.4bn of equity invested in retail businesses.
Media One of the largest and longest-established teams in the industry. The team has a wide variety of industry, consulting, private equity and banking experience, with focus on niche sub-sectors.
Healthcare Strong scientific background, with many members having achieved academic success in their specialist field before moving into industry, consulting or private equity directly.
Financial & Business Services Worldwide, the FABS team is made up of 18 investment professionals located across Apax Partners’ office network. The team has a broad range of expertise spanning industry, consulting and investment banking.
Portfolio Support Group
The Portfolio Support Group harnesses a varied array of talents within the firm to deliver the best mix of services to the companies in which our funds invest.
Sector expertise We only invest in the five sectors in which we have specialist experience and expertise.
Management support Our panel of seasoned industrialists are experts at working with the management of our portfolio companies to maximise growth potential.
100 Day Planning Our process of early-day planning is critical to the success of our investments.
Financing team Our finance team offer portfolio companies unrivalled experience, which is proving crucial during the current economic downturn.
Portfolio Recruitment Centre Our 30,000-strong database of experienced management personnel offers our portfolio companies unrivalled recruitment resources.
Support operations
Compliance
Funds Administration/Finance
Investor Relations
Communications
Tax
IT
Human Resources
Ensures the business complies with governance regulations.
Provides administrative operations to ensure the smooth financial running of the business and timely and accurate investor reporting.
Manages the relationships with our investors.
Manages the dialogue between the firm and its stakeholders.
Manages reporting of information to investors to allow them to comply with their own tax filing obligations.
Provides and manages the technology infrastructure.
Manages all aspects of the firm’s relationship with its employees.
Ensures the business complies with external regulations and the Apax Partners internal code of conduct.
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How we are run Governance and compliance
The Company’s approach to corporate governance Apax Partners LLP (‘Apax Partners’) is the holding company for the worldwide Apax partnership and is the lead investment adviser to the most recent Apax Funds. In the UK, it is regulated by the Financial Services Authority (FSA) and advises Apax Partners Europe Managers Limited (APEM) which is also regulated by the FSA. APEM is owned by the firm’s UK-based senior partners and manages the assets of the most recent Apax Funds. Apax Partners is committed to maintaining the highest business standards consistently across all of its offices. Although the firm is only subject to formal registration and regulation in some of the markets in which it operates, it is nonetheless governed on a global basis and applies the same business principles and compliance procedures to all of its operations. As such, Apax Partners has consistently sought to lead good practice in corporate governance and transparency within the private equity sector. The business of Apax Partners is operated and managed through a small number of committees whose respective terms of reference clearly define responsibilities and accountability.
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Executive Committee 1. Martin Halusa Chairman 2. Stephen Grabiner 3. Michael Phillips 4. John Megrue
Sub-committees Below the Executive Committee are a further four subcommittees that oversee the investment process from initial idea through due diligence and throughout the life of the investment to its eventual exit. At every stage in the process, the investment is subject to a rigorous process of scrutiny by these committees. Investment process
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Approval Committee
Investment Committee
Portfolio Review Committee
Exit Committee
Chair Peter Englander
Chair Martin Halusa
Chair Peter Englander
Chair Paul Fitzsimons
Terms of reference Source of guidance to deal teams. Approval of deal expense budgets. Provision of advice to European Investment Committee.
Terms of reference Provide investment recommendations to the investment manager.
Terms of reference Review of progress of portfolio company compared to 100 Day Plan. Forum for discussion of likely ongoing funding requirements and for exit opportunities. Recommendation of management changes to the deal team.
Terms of reference Reviews exit options for specific portfolio companies.
Fund Advisory Boards As well as the internal corporate governance bodies, Apax Partners has a well-established structure of external advisory boards. Each of the Funds managed or advised by Apax Partners has a Board of Advisers. Representatives of up to 15 of Apax Funds’ Investors are invited to become members of the Board. The independence of the Board is maintained because it is always chaired by one of our investors, who are appointed every two years. The Board is currently chaired by Wim Borgdorff, managing partner at AlpInvest Partners, Europe’s largest investor in private equity. The responsibility of the Chairman is to set the agenda and ensure that the Board of Advisers complies with its terms of reference. The Board of Advisers meets twice a year and is consulted by the General Partner on certain of the affairs and operations of the Funds, in particular, issues relating to conflicts of interest and review of the valuations at which investments are carried in the notes to the accounts. Debt Apax Funds are managed with zero leverage. At the portfolio company level, average leverage is 5.1x.
Executive Committee The Executive Committee is responsible for the
day-to-day management of Apax Partners worldwide. The group meets on a monthly basis to discuss matters of strategic importance for the global organisation. It is also responsible for setting standards on remuneration and recruitment and oversees the governance of the firm in each of the countries in which it operates.
Compliance Compliance reports periodically to the Executive Committee on results of monitoring and other issues and on an ad hoc basis as necessary. The Partner with the responsibility for the oversight of Apax Partners’ compliance is Martin Halusa.
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How we are run Governance and compliance continued
Global business standards The Compliance department has developed a series of principles and procedures to guide and support the global firm. The key principles are communicated through regular training and visits to all offices and are regularly monitored to ensure that the standards are being adhered to. The main areas of focus are as follows: Conflicts of interest Apax Partners maintains policies concerning potential conflicts of interest not only to comply with its FSA regulatory obligations but in particular to identify and manage those conflicts. Typically, conflicts are managed by obtaining consent, refraining from taking action and by disclosure. Detailed procedures are in place to manage conflicts, for example co-investment, remuneration, carried interest, allocation and responsibility of Directors. There are also policies designed to manage personal conflicts such as personal share and securities dealing, the receipt of gifts and entertainment, and external non-Apax activities. Each Fund has a Board of Advisers, made up of the major investors in that fund to which potential conflicts can be referred for guidance. The scope of this Board is set out in its terms of reference and in the Fund’s partnership agreement. Senior management arrangements Certain positions and functions within Apax Partners require key individuals to receive approval from regulatory bodies before they can be appointed: these include all Partners and Directors, and certain key support functions such as Compliance and Finance. As an Approved Person, those individuals are required to conduct themselves in a manner consistent with a specified set of principles and are personally accountable to the Regulator for their actions. Confidentiality Members of the Apax Partners team recognise the trust that is placed in them, both by investors and by the companies that the Funds are looking to invest in. Confidential information received by any Apax Partners representative is treated as such and all reasonable practical steps are taken to restrict access by unauthorised persons. Everyone is required to sign an undertaking reminding them of their obligations on joining the firm and annually thereafter.
Personal responsibilities Apax Partners prides itself on the honesty and integrity of the people it employs, and recognises its duty to make all employees aware of their responsibilities. The Compliance department provides guidance to all members of the team on how they should conduct themselves and the consequences of their behaviour, and encourages all members of the team to voice any concerns that they might have. All employees are required to sign an undertaking confirming that they will adhere to the standards which are available to everyone via the Apax Partners’ Intranet site and also brought to their attention as appropriate. Apax Partners recognises that an individual may act in a way which places them in direct conflict with the interests of the business and it has adopted a strict personal account dealing procedure and requires all members of the global team to obtain prior approval from Compliance before carrying out any personal transaction. Compliance maintains a restricted list and permission to deal will not usually be granted where the transaction relates to a company on that list. Anti-money laundering Apax Partners considers it unlikely that parties will seek to use their relationship with Apax Partners in connection with money laundering or terrorist financing. Nevertheless it views its responsibilities in the area of anti-money laundering seriously and has worked with the BVCA and the FSA to contribute to the standards currently in place within the private equity industry in the UK. Custody APEM is appointed by the General Partner of the Apax Funds to act as custodian of the assets of the Apax Funds. This is a regulated activity in the UK. Its activities as Custodian are specifically reported on by external auditors to the FSA. Since its appointment, APEM has only received unqualified audit reports in respect of this activity. Risk management The responsibility for risk management within Apax Partners rests with the Executive Committee. The overriding culture within the organisation is always to adopt the highest standards in all areas of the business and demand the same from all third parties who perform activities on our behalf. Where specific risks within the business have been identified, appropriate controls are in place to mitigate those risks from occurring wherever possible.
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Our values
What is important to us? Our values are built into every aspect of our business. Because private equity is such a long-term business, and depends on the trust it receives from investors, business owners and management teams, the values of integrity and sustainability are crucial in everything we do. We apply these values equally across our business in all of the countries in which we operate. They inform our interactions with employees, portfolio companies, suppliers, investors and the local communities in which we operate. Apax Funds are long-term stewards of over US$35bn of our investors’ capital, which has been entrusted to us on the basis of our values and uncompromising integrity. Apax Funds predominantly invest in growth companies within our five sectors of expertise. The Apax Funds do not invest in companies involved in firearms, pornography or that derive significant revenues from the production or sale of tobacco.
We are long-term investors with the aim of building robust and sustainable businesses. We employ a rigorous screening process before we make any investment, which includes an assessment of the environmental, ethical and social impact of that business. These aspects of the business are then assessed on an ongoing basis as part of the portfolio review process and are analysed by the whole team on a twice-yearly basis. Portfolio companies are encouraged to take an active lead in terms of corporate social responsibility partly because we believe that this will enhance the reputation and long-term prospects of the business and help to reduce potential liabilities. We are proud of what we do: backing management to release the full potential of their businesses through insight and patient long-term investment. We are very aware of our responsibilities and at all times are guided by our values.
Our five core values 1. Integrity We apply the highest standards of integrity across our worldwide business in our dealings with all of our stakeholders. 2. Safeguarding our environment We run environmentally sound operations which aspire to create minimal damage to the environment. We seek to drive down the environmental impact of operations by reducing waste, emissions and discharges and by using energy efficiently. Following an
independent assessment by the Carbon Neutral Company, Apax Partners has offset its carbon emissions to become carbon neutral across all its offices. We continue to work to reduce our carbon footprint wherever possible. 3. Supporting communities We act with respect and consideration for the quality of life and economic and social progress of the communities within which we operate.
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4. Building long-term relationships We conduct business on a long-term, sustainable and transparent basis, looking to create relationships founded on mutual advantage which are capable of enduring beyond a single transaction. 5. Putting people first We treat people with dignity and respect, as we would wish to be treated ourselves. We only recruit, select and
advance employees on merit, irrespective of age, gender, nationality, disability, religious belief or sexual orientation. We do not tolerate abusive, harassing or offensive conduct in the workplace. The welfare of our employees and those of Apax Funds’ portfolio companies is a top priority. We aspire to have no accidents, no harm to people and not to subject anyone to unnecessary risks at work.
Shaping our industry’s values We are committed to working with the industry on corporate responsibility issues including environmental, social and governance best practice, as well as raising the standard of transparency and disclosure to all our stakeholders. As such, we were engaged from the earliest stages in the development of the Walker Guidelines on Transparency and Disclosure in the UK, and are involved with industry associations in other countries in their creation of similar codes. In addition, this year we signed the Private Equity Council’s Guidelines for Responsible Investment, and again were involved from the start of the project. Working with our investors and the Private Equity Council in the US, we helped devise nine principles for the private equity industry, guided by the UN Global Compact’s Principles and the UN Principles for Responsible Investment. We are formally embedding these Guidelines into our investment process. See the PEC website for the full list at www.privateequitycouncil.org
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How we are run The wider community
The Apax Foundation is a UK-registered charity and is the channel for Apax Partners’ corporate giving globally. In 2008/09,The Foundation made grants of £1.2m. Given the wide range of good causes that exist and the difficulty of choosing between them, we have continued to focus our major grant-giving on the very specific area of social entrepreneurship. Social entrepreneurship is a natural fit with what Apax Partners does commercially and is also an area where several of our team, including some of the Apax Foundation’sTrustees, have significant experience.This provides us with a steady flow of introductions to leading charities in the field, both from within the firm and from our wider network. The Foundation has also continued its commitment to our staff ‘matching’ scheme and the private equity community’s collective charity, the Private Equity Foundation. The Apax Foundation is chaired by Sir Ronald Cohen and itsTrustees are drawn from the senior ranks of the firm: Peter Englander (CEO of the Foundation), Martin Halusa, Khawar Mann, David Marks, John Megrue, Michael Phillips and Richard Wilson. Social entrepreneurship is a wide field covering all enterprises that have a social purpose rather than being purely profit-driven. The Apax Foundation concentrates on organisations that are working to promote employment in disadvantaged communities. We have extended the range of charities we support this year and added three significant new sponsorships to our existing portfolio: Emmaus, Ashoka and the Bridges Social Entrepreneurs Fund. Social entrepreneurship: Ashoka is a global organisation which identifies leading social entrepreneurs around the world and provides financial backing to enable them to develop their enterprises. The Apax Foundation wanted to support an Ashoka Fellow whose business matched our specific focus on enterprises which stimulate employment in deprived communities and selected Norbert Kunz. Norbert’s project aims to establish self-employment as a viable option for disadvantaged, unemployed young people in deprived regions of Germany. He created a support system for young, small-business entrepreneurs offering advice, training, infrastructure, financing and mentoring in what he calls a ‘one-stop shop’. The project has so far enabled 1,000 formerly unemployed young entrepreneurs to set up their own small businesses and created 1,300 jobs.The Apax Foundation’s three year funding commitment to Norbert via Ashoka will enable him to continue his work and build on the existing success of the project.
www.ashoka.org
Social entrepreneurship: Bridges Social Entrepreneurs Fund As one of the founders
of Bridges Ventures in 2002, Apax Partners maintains a close relationship with the organisation and is keen to be involved in its development. Bridges is a venture capital firm with a social mission – it invests in businesses which will generate a social return as well as a financial return. Many social enterprises need capital to develop but find it difficult to raise investment. Bridges’ latest initiative is the Bridges Social Entrepreneurs Fund, which aims to fill this need by providing funding specifically to enable successful social enterprises to grow. In 2008 the Apax Foundation became one of the Founder Partners of the Social Entrepreneurs Fund with a three-year funding commitment to the Bridges CharitableTrust, which is establishing the new fund. www.bridgesventures.com Social entrepreneurship: Emmaus is an international movement which creates communities for the homeless, offering a home, work and the chance to rebuild their lives in a supportive family environment. The communities aim to be self-sustaining – the Emmaus model is that, alongside the living quarters and pastoral care, each community runs a business operation providing work for the residents, all of whom are required to sign off primary state benefits.The revenue from this business goes to maintain the community.The ethos combines self-help with awareness of the needs of others. Emmaus has created a virtuous circle where existing, successful communities give from their profits to help communities at the early stage of development to get up and running. We were introduced to Emmaus by its President,Terry Waite, whose experience as a captive in Beirut made him particularly sensitive to the isolation of people living outside mainstream society.
“It was then I experienced what many people go through. I endured the misery, the sense of isolation, fear, boredom, the despair and that sense of helplessness and exclusion from ordinary, everyday life, which is so much part of both captivity and homelessness”. TerryWaite President, Emmaus UK In 2008 the Apax Foundation agreed a three year grant to Emmaus which will go towards the development of communities in the UK, US and India. www.emmaus.org.uk www.emmaus-international.org
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Emmaus Andy’s story Andy worked as a carer for children and adults. In 1996 he went to work in Bosnia and was deeply traumatised by what he saw there. Shortly after he returned to the UK, his wife and children were killed in a road accident. Until a year ago Andy lived at Emmaus Greenwich (UK).
“After I heard about my family, I locked myself in my flat. I don’t know how I got through it. My doctor then told me I couldn’t do care work anymore because of an old back injury that had flared up again. That was the final straw. I lost track of time for a while. I slept on the streets in Victoria for four months. When I arrived at Emmaus Greenwich it was as if I had been looking for a place like that all my life. It felt safe and I could relax at last. My room was an expression of me. I had flowers in my room. Living at Emmaus Greenwich gave me the chance to think about what had happened to me and to work out what to do next. When I felt strong enough to leave, the Community helped me move out into a shared house. I delivered leaflets, worked as a cleaner – at one point I had three part-time jobs!
One of these was for a company providing pet medication, and they offered me full-time employment. Recently I was promoted to store manager, which I’m really enjoying. The skills I picked up at Emmaus have helped me. I don’t want to lose my links with Emmaus Greenwich and I want to continue to help them because they helped me. I go into the Community from time to time and help out in the kitchen. I make cakes and pastries. I am taking each day as it comes, but on the whole I feel optimistic about the future. Emmaus gave me the breather I needed. They gave me support, even when I thought I didn’t need it. I feel so much stronger now. The loneliness inside me has gone. There should be more Emmaus Communities. It’s a system that works”.
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How we are run The wider community continued
The ‘matching’ scheme Many of our team give their time and skills to charitable causes close to their hearts. Apax Partners supports and encourages this spirit of giving through a ‘matching’ scheme. Under this scheme, the Apax Foundation makes a grant of at least £5,000 to every charity that benefits from the significant, active involvement of a member of the Apax Partners team. Apax Foundation matching scheme Irene Liebler, HR Manager, Apax Partners Munich office, and Khawar Mann, Partner, Apax Partners London office, supporting Room to Read Room to Read is an international organisation which builds schools in the developing world in partnership with local communities. Irene Liebler and her husband, Hans, helped to establish Room to Read in Germany in 2006. As they had already been sponsoring the education of two girls in Nepal for some years, they chose that country for the new school which their Room to Read division would support. As well as continuing to organise fundraising activities for the school in Nepal and now a second school in Vietnam, Irene has activated her network to inspire others to become involved and, as a result, a new Room to Read division is being established in Frankfurt. Separately, Khawar Mann and some friends from business school got together to fund a school in Vietnam in the Room to Read programme.They have raised funds for the construction of the school, teacher training and materials, and ongoing maintenance of the school, and their involvement also extends to providing guidance about what they would like the school to achieve. www.roomtoread.org
The Private Equity Foundation (PEF) is the collective charity for the European private equity community. It focuses on the issue of NEETs (young people not in education, employment or training) and invests both money and expertise from the private equity community to help charities working in this area achieve a step-change in their impact. As well as backing the Private Equity Foundation financially, Apax Partners staff play an active role in the work of the charity. Isabelle Probstel from Apax Partners’ Munich office has been instrumental in establishing the Private Equity Foundation’s operations in continental Europe, overseeing all of the charity’s activities in Germany. Under her leadership, the PEF made its first grant in mainland Europe this year, to the Hamburger Hauptschulmodell (HHM), an organisation working to optimise the career opportunities of young people who leave school having completed only the most basic level of education. In the UK, ten members of the Apax Partners London team swapped their suits for overalls to add the finishing touches to a new community centre in Newham, East London.They worked alongside teams from other private equity firms to complete the project, which was funded by the Private Equity Foundation in partnership with Community Links. In addition, Apax Partners’ London office hosted a summer reception for the PEF to bring together their supporters and portfolio charities.
Apax Foundation matching scheme Mia Saunders, Personal Assistant, Apax Partners London office, supporting The Samaritans Mia has regularly manned a helpline for The Samaritans, covering either an evening shift after work from 6-10pm or the 10pm-3am night time slot. She underwent training in order to qualify for this work counselling people in vulnerable emotional states, for whom The Samaritans acts quite literally in some cases as a lifeline. www.samaritans.org
Opportunities for young people: Business in the Community Apax Partners is a member of Business in the Community and we welcomed 30 students from John Kelly Boys and Girls Schools to Apax Partners’ London headquarters through Business in the Community’s mentoring programme, Mosaic.The students spent a day learning about the work of the different departments in the firm to open their minds to career opportunities they might not have been aware of, and some students then returned for more focused work experience later in the year.
“I spent my work experience with Iain Katimbo [Fund Accountant] – he showed me everything he does and was really helpful. I’m still in touch with Iain and he gives me great advice”. Usman Mirza Student, John Kelly Boys’Technology College, Neasden Opportunities for young people: Social Mobility Foundation Separately, we are supporters of the Social Mobility Foundation’s placement programme. The programme aims to inspire able students from less privileged backgrounds by broadening their outlook on potential career opportunities. In 2008, a group of students from the Social Mobility Foundation joined our existing work experience programme.They were based in the Media team and, in addition to their project work there, had ‘lunch and learn’ sessions to give them a view of a variety of office functions.The students were encouraged to explore and to draw on help across the firm: the Apax team enjoyed the experience of being unexpectedly waylaid by enthusiastic teenagers bursting with questions; an exercise particularly enjoyed by the students was the challenge to find potential bolt-on acquisitions for the firm’s portfolio companies.
“This work experience has given me bigger ambitions and dreams for the future. I didn’t have any links into the financial industry before and this experience has made me even more determined to work hard to achieve my goals”. Anish Shah Student, Claremont High School, Kenton
Apax Foundation matching scheme Stephen Grabiner, Partner, and Steven Dyson, Principal, Apax Partners London office, supporting Building Bridges Dr Mark Berelowitz, Consultant Psychiatrist at the Royal Free Hospital, London, had an idea to foster understanding in areas of conflict by bringing young doctors from both sides of a troubled region to London to train together at the Royal Free, a leading London teaching hospital. He talked about it to Stephen Grabiner and Steven Dyson at Apax Partners, and they decided to work with him to translate the idea into reality. A few months later the Building Bridges
Apax Foundation matching scheme project is under way, with four young orthopaedic surgeons, two Israeli and two Palestinian, working side by side at the Royal Free with the support of Mr Nicholas Goddard, Consultant Orthopaedic Surgeon. An important component of the model is that, as well as working together, the doctors should also live together for the duration of their stay in London to deepen their understanding of each other’s culture and perspective. The project is not limited to Israel/Palestine and it is hoped that in time it could be developed to other regions damaged by conflict.
Mitch Truwit, Partner, and Mike Gallagher, Associate, Apax Partners New York office, supporting StreetSquash Mitch serves as a board member of StreetSquash, a charity in Harlem, New York providing support to underprivileged children. At risk children are selected by their schools to join the programme, which teaches the children squash and also, more importantly, improves their academic and social prospects through one-to-one mentoring and involvement in community service projects. To date, every one of the high school
students to have gone through the programme has graduated or is on course to graduate in the standard four years and all have gained acceptance to college. Mitch’s enthusiasm for the programme was clearly infectious and Mike Gallagher, a colleague in the New York office, volunteered as a mentor this year, working with a 12-year old boy both on a one-to-one basis and at group events with other children taking part in the programme. www.streetsquash.org
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Section 3: Our sector expertise 42
Sector review Tech & Telecom
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Sector review Retail & Consumer
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Sector review Media
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Sector review Healthcare
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Sector review Financial & Business Services
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Our sector expertise
Tech & Telecom Apax Funds are pioneers in technology and telecoms investing. They have backed companies on both sides of the Atlantic from the very first days of the venture capital industry and were among the first to apply the skills forged in these venture capital deals to the buyout arena.
Top Tech & Telecom investments Weather Investments
Investment year
NXP
Investment year
Enterprise value at time of investment
2006
$11.0bn
TDC
Investment year
Enterprise value time of investment
Enterprise value at time of investment
Bezeq
Investment year
Tim Hellas
Investment year
Intelsat/ PanAmSat
Investment year
Enterprise value at time of investment
2005
$11.6bn
2008 €21.3bn
2005 €11.3bn
2005 2005
Enterprise value at time of investment
€4.3bn Enterprise value at time of investment
€1.9bn
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Our sector expertise Tech & Telecom partners
7 1
9
2
5 4
10
1. Borja Martinez
6. Nico Hansen
Office Madrid
Office New York
Board seats Panrico, Wisdom-LaNetroZed, DMR Consulting, Fractus, Electro-Stocks (observer).
Board seats TriZetto, Xerium, Kabel Deutschland, Versatel.
Background Joined Apax Partners in 2000. Prior experience at BCG and Goldman Sachs. BSc in Business Administration from ESADE. MBA from Harvard Business School.
Background Joined Apax Partners in 2000 from McKinsey, where he specialised in telecoms. PhD in Economics from the University of Bonn, MA in Economics from the University of Göttingen.
2. Roy Mackenzie
7. Jason Wright
Office London
Office New York
Board seats Frontier Silicon, King.com, Tideway Systems, NXP (observer).
Board seats Realpage, Plex Systems, Planview
Background Joined Apax Partners in 2003. Prior experience at McKinsey & Company, Psion Computers and Microsoft Corporation. M.Eng in Electrical Engineering from Imperial College, London. MBA from Stanford Graduate School of Business (Arjay Miller Scholar).
Background Joined Apax Partners in 2000. Prior experience at GE Capital and Accenture. BA in Economics from Tufts University. MBA from the Wharton School of the University of Pennsylvania.
3. Giancarlo Aliberti 3
Office Milan
6 8
Board seats Farmafactoring, Azimut, Tim Hellas, Sisal. Background Joined Apax Partners in 2000. Prior experience at Monitor Company and Montedison. Economics Degree from University of Rome, Italy. MBA from Harvard Business School.
8. Andrew Sillitoe Office London Board seats Intelsat, TDC. Background Joined Apax Partners in 1998. Prior experience at LEK. MA in Philosophy, Politics and Economics from St. John’s College, Oxford. MBA from INSEAD. 9. Neeraj Bharadwaj Office Mumbai
4. Salim Nathoo Office London Board seats Weather Investments, SMART Technologies, Tim Hellas, Promethean Technologies, Mobifon, Inmarsat. Background Joined Apax Partners in 1999 from McKinsey & Company. MA in Mathematics from St. John’s College, Cambridge University. MBA from INSEAD.
Board seats Apollo Hospitals, JAMDAT Mobile, WiderThan, NXP Background Joined Apax Partners in 1999. Previously with McKinsey & Company, Goldman Sachs, and Morgan Stanley. BSc in Economics from the Wharton School of the University of Pennsylvania. MBA from the Harvard Business School. 10.Torsten Krumm Office Munich
5. Richard Wilson Office London Board seats Weather Investments, TDC, NXP, Inmarsat, Mobifon, Jazztel, Autonomy. Background Joined Apax Partners in 1995. Prior experience at Scientific Generics and Marconi Space Systems. BA (Hons) in Engineering from Gonville & Caius College, Cambridge University. MBA from INSEAD. Chartered Engineer (MIMechE).
Board seats Suse,Tropolys, Versatel, Q-Cells, Acol, Onespin Solutions Background Joined Apax Partners in 2002 from Intel as a Director of Intel Capital Europe. Graduate diploma (MA) in electrical communication engineering and computer science, and corporate MBA programme from INSEAD.
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Our sector expertise Tech & Telecom review
Overview Apax Funds are pioneers in Technology and Telecommunications investing. They have backed companies on both sides of the Atlantic from the very first days of the venture capital industry and were among the first to apply the skills forged in these venture capital deals to the buyout arena. Nowadays Apax Partners focuses purely on buyouts and larger growth investments, but still offers a unique sector-focused capability, with the growth DNA and industry expertise remaining a core feature of one of the largest sector teams in the business. This capability has led to a number of buyout investments having been made ‘ahead of the curve’, or in non-obvious areas. The 25-strong team comes from a variety of backgrounds in industry, consultancy and banking and each person specialises in different niche subsectors. This pool of industry knowledge can be rapidly deployed across Apax Partners’ global platform according to the needs of the specific investment. The team has advised Apax Funds on more than €3.8bn of investment in the last 15 years. Marketplace/trends and drivers Telecom: We segment the telecom sector into incumbents, altnets, cable and mobile. This segmentation reflects the differing challenges and opportunities faced by each type of operator as the trend towards convergence marches forward. Though not immune to recessionary conditions, the changes that are happening as a result of convergence mean that competitive market structures and regulatory regimes are the most important determinants of the medium-term health of any national or regional telecom market. Marketplace/trends and drivers Technology: We segment the technology sector into components, systems, software and services, each with their own dynamics. In contrast to the telecom sector, the macroeconomic environment is likely to dominate the effect of any structural changes occurring in the technology sector over the coming quarters. That said, difficult macroeconomic times will accelerate some of these changes (for example, the delivery of software as a service and industry consolidation) and it is the companies that are best placed to benefit from these changes that will emerge stronger from the current downturn.
Strategy Telecom: As discussed above, the dynamics in the telecom market differ quite considerably from country to country. As a result, our investment strategy is predicated on a detailed analysis of i) the competitive and regulatory dynamics in any given country and ii) the identification of those operators and management teams who are best placed to benefit from the secular shifts towards data, mobility and applications such as video or have exceptional marketing and segmentation skills. Strategy Technology: In technology, we are focused on those companies whose fundamentals ensure that they will emerge from the current difficult times in a position of strength. These companies typically possess strong franchise value – derived, for example, from distribution, intellectual property and brand – as well as being active in sub-sectors in which the secular growth trends offset macroeconomic downforces – for example the increasing recognition of the benefits of technology in the classroom. Outlook The telecom space is characterised by a relatively high degree of short-term predictability, but with important medium-term effects that are largely independent of the current macroeconomic difficulties, yet will have a lasting effect on the various market participants. In technology, the short-term predictability is significantly less. It is nevertheless highly likely that the process of consolidation that is underway will ensure that the leaders emerge from the downturn with a strengthened position.
Andrew Sillitoe
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”We carried out a highly detailed due diligence exercise – taking Intelsat’s global capacity and building up a supply and demand model, region by region, band by band and application by application. Our analysis showed that supply and demand were coming into balance and we saw real scope to reverse revenue declines and to improve operational efficiency.” Andrew Sillitoe Apax Partners’ head of Tech & Telecom
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Our sector expertise Tech & Telecom continued
Case study: Tech & Telecom
Intelsat
Making communications closer, by far Intelsat is the world’s leading provider of fixed satellite services (FSS). Based in Bermuda, the firm became the first to launch a commercial communications satellite in 1965 and, four years later, transmitted images around the world of man’s first steps on the moon. Over 40 years on, it runs a global network of satellites and terrestrial infrastructure which serves over 200 countries and territories and is setting the standard for the advanced transmission of video, data and voice services. Why this deal? Intelsat initially came onto Apax Partners’ radar screen at the end of 2003, after Apax Funds had completed the first leveraged acquisition of a satellite business (Inmarsat). Back then, according to Apax Partners’ Andrew Sillitoe, head of the Tech & Telecom sector, Intelsat faced some challenges: “Intelsat had been hit particularly hard by overcapacity in the FSS market following the tech boom – and its revenues had been declining as a result.” But despite this, the business still posted strong and predictable cash flows and Apax Partners was able to see the potential for growth thanks, in part, to the expertise and relationships it had built during the Inmarsat process. In January 2005, Apax Funds acquired Intelsat for $5.2bn together with a consortium of investors including Apollo, Madison Dearborn and Permira. What has happened since the deal completed? This transaction represented a turning point for the company and under the stewardship of a new CEO – Dave McGlade, who joined the business in March 2005 from UK mobile operator O2 – its fortunes began to improve rapidly. Most significantly, Intelsat agreed in August 2005 to acquire rival operator PanAmSat in a $6.4bn transaction. The deal, which brought Intelsat added video market expertise, an advanced satellite fleet and a blue-chip media customer base, created the industry’s largest satellite operator with the broadest customer base. It also resulted in a new COO for the combined business in the form of PanAmSat’s Jim Frownfelter. Commenting on the PanAmSat transaction McGlade says: “The plan was to use the acquisition of PanAmSat as a vehicle to accelerate change and improve performance. Literally, the day after we announced the deal we began a rigorous integration process aimed at creating a more balanced business. One of the key early priorities was to make use of the significant synergies that existed in terms of both operating and capital expenditures.” What about the future? The next task for Intelsat’s management team, aided by a Principal from Apax Partners who had been seconded to the company on a full-time basis, was to develop a clear growth strategy. This strategy was to be based on three core principles: firstly to maximise revenues on a satellite by satellite basis; secondly to identify and make selective investments in key growth areas; and finally to generate a strong pipeline of incremental business development opportunities. The initiatives undertaken by the management team with the support of its backers showed clear and early signs of success, with strong growth in revenues and profits and a real improvement in its competitive position. In light of this, the decision was taken by the backers to launch a sale process and in June 2007 the investors signed an agreement to sell Intelsat to BC Partners.
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“We have very strong management which will not let the market dictate to us. We are currently concentrated on EBITDA and free cash flow across the group and on reducing debt. On the more offensive side, I think there will be lots of potential acquisition targets out there in the next couple of years”. Naguib Sawris, CEO, Weather Investments
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Our sector expertise Tech & Telecom continued
Case study: Tech & Telecom
Weather Investments
A strategic partnership for global growth Weather Investments is a global
telecommunications company offering mobile, fixed-line, internet and international communication services to over 100 million subscribers in Southern Europe, North Africa and Asia. The company operates through its subsidiaries Wind Telecomunicazioni, Wind Hellas and Orascom Telecom Holding. Wind Telecomunicazioni is the third largest mobile and second largest fixed
operator in Italy. Wind Hellas (formerly TIM Hellas) is the number three mobile and fixed operator in Greece and a former Apax Europe VI portfolio company. OrascomTelecom Holding is a Cairo listed holding company of leading mobile
operators in North Africa and Asia. Why this deal? Apax Partners had long been attracted to the company because of the balance between the high growth characteristics of the emerging market portfolio and the cash flow stability of the more mature, Western European businesses. In June 2008, Funds advised by Apax Partners together with two other firms, won a limited auction to buy a minority stake in Weather for €1.1bn, and a further investment later in the year increased the consortium’s stake. Why Apax Partners? Apax Partners’ strong prior relationship with founder and CEO Naguib Sawiris was instrumental in ensuring that it secured the opportunity to invest, as Sawiris explains: “The reasons why we went with Apax were trust, chemistry and integrity. I initially came across them when I was trying to buy Wind Telecom in 2005 and, although the opportunity to work together on that did not materialise, we kept in touch and at the end of 2007 we were in contact again when Weather Investments acquired TIM Hellas from Apax. We did that deal from start to finish in three weeks and subsequently became very close to them through that deal”. What about the future? Sawiris, who founded the company from scratch to become the world’s 11th largest telecom provider in terms of customer numbers, has clear ambitions for Weather. “Today, we are 11th largest, but my ambition is to be among the five or six biggest telecom providers globally. I believe that having a critical mass of subscriber numbers is crucial because in the future more products and services will be run through the phone. Banking for us is a big potential revenue stream and we already have 100 million potential customers. In terms of payment, we own these relationships whereas a VISA or Mastercard do not”. The growth achieved by Orascom and Wind in recent years is due in large part to the skills of the company’s management team in acquiring and integrating assets well and driving value. The current economic downturn provides both threats and opportunities for the group. Apax Partners has supported Weather on a number of initiatives on the strategic, operational and financial side to optimise the capital structure. Commenting on the relationship to date, Sawiris concludes: “The relationship is strong, but they are tough and know the space well. They put our people under pressure and have ensured that the reporting discipline is in place across the group”.
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Our sector expertise
Retail & Consumer We have been one of the leading global investors in the Retail and Consumer sector over several decades. During this time we have invested €2.4bn in retail businesses, backing a diverse range of retail, consumer and leisure businesses across our global platform. Top Retail & Consumer investments Tnuva
D+S europe
Investment year
Enterprise value at time of investment
2008
$1.4bn
Investment year
Enterprise value at time of investment
2008 Sisal
Investment year
2006 Tommy Hilfiger Investment year
2006
Somerfield
Panrico Donuts
€0.6bn Enterprise value time of investment
€1.2bn Enterprise value time of investment
€1.2bn
Investment year
Enterprise value at time of investment
2005
£1.8bn
Investment year
Enterprise value at time of investment
2005 New Look
€0.9bn
Investment year
Enterprise value at time of investment
2004
£0.8bn
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2 1
9 3
5
7
1. Zehavit Cohen
6. Amedeo Carassai
Office Tel Aviv
Office Milan
Board seats Tnuva, Bezeq.
Board seats Weather Investments, Farmafactoring, Sisal.
Background Joined Apax Partners in 2006. Prior experience as Executive VP and CFO of the IDB Group (Israel’s largest investment company) and VP of Chase Manhattan. MA from the Wharton School, University of Pennsylvania; MBA from the University of Pittsburgh. Lecturer in Finance and Accounting at the Wharton School, University of Pennsylvania. Fellow of the University of Pennsylvania.
Background Joined Apax Partners in 2003. Prior experience at McKinsey, Procter & Gamble, Syntek Capital. Laurea in Ingegneria Elettronica (Electrical Engineering, Operations Research) from Universita’ La Sapienza, Rome, Italy. MBA from Sloan School of Management, MIT, Boston. 7. Alex Fortescue
2. Oriol Pinya Office Madrid Board seats Panrico, Electro-Stocks, Vueling, Itevelesa.
8
Background Joined Apax Partners in 1999. Prior experience at BCG and Merrill Lynch. BBA from ESADE. Master CEMS from HEC. MBA from Harvard Business School.
Office London Board seats Plantasjen, Somerfield, New Look. Background Joined Apax Partners in 1999 from OC&C Strategy Consultants. BEng in Electrical and Electronic Engineering from Imperial College, London. MBA from INSEAD. 8. Matthew Brockman
4
6
3. Alex Pellegrini Office New York Board seats Advanced Homecare, MagnaCare Holdings, Spectrum Laboratory Network, Voyager HospiceCare, Rue21.
Office London Board seats Hit Entertainment, New Look, Healthcare at Home, Merlin Entertainments.
Background Joined Apax Partners in 2000. Prior experience at Merrill Lynch. BA in Finance with Honors from the Pennsylvania State University.
Background Joined Apax Partners in 2000. Prior experience at LEK Consulting. BEng in Mechanical Engineering from Imperial College, London. MBA from Harvard Business School.
4. John F. Megrue, Jr.
9. David Kim
Office New York
Office New York
Board seats Bob’s Discount Furniture, Tommy Hilfiger Corp., MagnaCare, Rue21.
Board seats Tommy Bahama, Spyder Active Sports, Contech Construction Products, Norcraft Cabinets.
Background Originally joined Apax Partners in 1988, then left to co-found his own private equity firm and returned with his team in 2005. BS in Mechanical Engineering from Cornell University. MBA from the Wharton School of the University of Pennsylvania. 5. Christian Näther Office Munich Board seats Tank & Rast, Phillips van Heusen/Calvin Klein, LR Health & Beauty Systems, Tommy Hilfiger, CBR, D+S europe AG. Background Joined Apax Partners in 2001 after 8 years as a Partner in Consumer & Retail at McKinsey. Degree in business administration and PhD in Strategic Management from the Ludwig Maximilian University in Munich.
Background Joined Apax Partners in 2000. Prior experience at Butler Capital Corporation. BS in East Asian Studies from West Point. MBA from Harvard Business School. Graduate of the U.S. Army Airborne and Ranger schools.
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Our sector expertise Retail & Consumer review
Overview Apax Funds have been one of the leading global investors in the Retail and Consumer sector over several decades, during which time they have invested €2.4bn of equity in retail businesses. Apax Funds have backed a diverse range of retail, consumer and leisure businesses across their global platform: companies such as Somerfield and New Look in the UK; Plantasjen in Scandinavia; CBR in Germany; Sisal and Panrico in Southern Europe and Tommy Bahama, Spyder and Life Time Fitness in the USA as well as global brands such as Tommy Hilfiger and PVH/Calvin Klein. The Retail & Consumer team is made up of 23 investment professionals globally, including nine partners, spread throughout North America, Europe and Asia. The team has a range of professional backgrounds and wide experience across many segments within retail, consumer and leisure. Marketplace trends and drivers During the course of 2008 the global macroeconomic environment deteriorated sharply, pushing many developed economies into recession. Retail and consumer facing businesses have been amongst the first and worst affected by this. An all time low in consumer confidence, increasing (fear of) unemployment, significantly reduced credit availability and tumbling asset prices, especially housing, have contributed to falls in consumption. Emerging markets, which many had thought would prove more resilient, are now also showing major signs of weakness. An unprecedented level of policy response, with low interest rates, spending programmes and quantitative easing take us into uncharted waters in terms of how consumption and GDP will respond. The hope is clearly that these policies begin to boost demand during 2009, the danger is that they lead to inflation, inefficiency and ultimately stagnation. However, the current economic slowdown is not hitting all areas of retail and consumer equally and evidence from previous recessions suggests that whilst certain sub-sectors are hit hard others are relatively insulated. Even within individual cyclical sub-sectors, there remain winners and losers and particularly in a tough environment, performance levels polarise. Consumer companies need to remain responsive to over-riding market trends whilst also reacting to changes caused by the current environment. These trends include: Polarisation Individuals are increasingly discerning in their choices as they weigh up every purchasing decision. Value for money is now the key purchase criterion and in their increasing search for this, consumers are showing willingness to alter their purchasing habits – trading down to value offers to make savings on some items, whilst also investing in premium quality for others. Winning propositions are those that offer distinctive value to consumers either through price, product or service and are able to deliver and communicate this consistently.
Interruption of some long-term consumer trends Whilst the downturn is mostly accelerating certain long-term channel or consumer trends, there is also evidence that it is temporarily disrupting others. In recent years, there has been significant growth in higher priced products offering maximum convenience or strong health and sustainability credentials. The downturn is forcing consumers to go ‘back to basics’, trading chilled ready meals for home cooked recipes, expensive trips abroad for ‘staycations’, lattes from coffee shops for instant coffee, and organic smoothies for cheap soft drinks. Acceleration of channel shifts with value at the forefront of many consumers’ minds, the relative pricing transparency and convenience of home shopping provided by the internet is transferring share online at an increasing rate. Increasing reach and scale of multiple grocers: in every major Western country there is a very large and typically concentrated grocery sector which has considerable influence on a number of food and non-food consumer and retail categories. Whilst genuine category killers are able to compete effectively with the grocers, variety retailers are increasingly struggling to keep up. Although sector valuations dropped dramatically throughout the year, the swift deterioration in trading and lack of visibility in outlook meant Apax Funds took a very cautious view on investing, with completed investments limited to contexts where clear secular trends underpinned growth. A good example of this approach is the acquisition of D+S europe, an e-tail fulfilment business. The opportunity was also taken to realise the investment in food retailer Somerfield, which operates in one of the most defensive categories in the consumer space, via a trade sale. Retail & Consumer strategy Apax Funds’ investment strategy in the sector is to focus on growth driven by exposure to underlying positive trends (some of which are outlined above). Apax Partners’ local market presence, combined with a global reach, enables it to understand the themes from around the world and adapt them to local market circumstances. It also allows Apax Partners to build relationships with, and Apax Funds to invest behind, the very best international retail, consumer and leisure sector management. Outlook The Apax Partners sector strategy will remain focused on global sub-sectors which will exhibit growth, backing strong management teams executing within the context of the secular trends identified above. The uncertain consumer environment and lack of bank debt will inevitably be reflected in the nature of deals undertaken. Liquidity issues, over-levered balance sheets and under-valued cyclical businesses are likely to generate continued investment opportunities.
Alex Fortescue
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“Since the acquisition by Apax Funds, we have introduced a culture of value creation and efficiency to the company which, as a cooperative, had not previously been part of its thinking”. Zehavit Cohen Apax Partners
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Our sector expertise Retail & Consumer continued
Case study: Retail & Consumer
Tnuva
Adding value to Israel’s food industry Tnuva is the largest food manufacturer and distributor in Israel and one of its most well-known companies. It owns seven out of the ten most known food brands in Israel and accounts for over 14% of shelf space in supermarkets. Tnuva was formed over 80 years ago as an agricultural cooperative of 620 farming communities across the country, who were also the company’s suppliers of raw milk and produce. Over the years it had been seen by many investors as an attractive proposition but due to the complex ownership structure it was out of reach to potential buyers. The deal Aware of a potential economic downturn, Apax Partners was attracted to Tnuva because of its stable business model: the majority of the company’s food products are basic staples (65% dairy-related plus meat, poultry, eggs, fish, frozen vegetables) and so the company was felt to be well placed to weather a recession. Why Apax Partners? In 2006, Tnuva opened itself up to a limited auction.
Although the Apax Fund’s bid was not the highest in financial terms, it was nonetheless perceived as the most attractive. The management and board of the company explained their decision to accept the third highest bid by saying that the expertise and professionalism displayed by the Apax Partners team during the four month due diligence process prior to the Fund’s bid had convinced them that Apax Partners would be the best partner for the future growth of the company. Apax Partners’ ability through its local presence to understand the different stakeholders’ needs and address them appropriately was also critical to the success of the Fund’s bid. Post completion Following the auction there was a lengthy and complex process of negotiation with the agricultural owners of the business, which took almost two years, and necessitated a change in the law and the introduction of new tax codes. The transaction closed in January 2008, with the Apax Europe VII Fund and its co-investor Mivtach Shamir gaining a 77% stake in Tnuva for an enterprise value of $1.4bn. What about the future? Apax Partners believes that the first year after an acquisition is critical to the success of a business and the deal team put a great deal of time into learning more about Tnuva’s business and working out where Apax Funds could add value. By the end of the first year following acquisition, many of the planned changes at Tnuva had been completed. These included sales of some of unused real estate; turning around the fresh meat business, which became profitable in the second half of 2008; hiring new talent and creating a new organisational structure which is expected to enhance synergies across the group. Led by Zehavit Cohen, who became Chair of Tnuva, the Apax Fund deal team is continuing to work through the numerous projects which were identified as areas where our Funds can add value, as well as exploring strategic alternatives for non-core subsidiaries and potential add-on opportunities.
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“The partnership has already borne fruit. In collaboration with Apax, we are benefiting from its financial strength and its broad international network. This network is serving to pave the way for partnerships and business relations. In addition, D+S is gaining access to potential customers at the highest level”. Achim Plate CEO, D+S europe
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Our sector expertise Retail & Consumer continued
Case study: Retail & Consumer
D+S europe
Fashioning a successful investment in a growth sub-sector D+S europe AG is a leading international e-commerce and customer service provider listed on the Deutsche Börse. The company’s e-commerce division provides the tools that enable some of the world’s biggest fashion names to maintain their competitive edge in the online sphere. The business looks after all of the elements involved in ensuring that customers get the best online treatment, including the design and operation of online shops, warehousing, delivery of goods, and payment processing. The customer service division provides essential call centre support to some of Germany’s largest companies and is now the country’s third-largest provider of value-added telephony services. As an early mover in the supply of e-commerce solutions to the fashion industry, D+S europe has seen very rapid growth in this part of the business, and now dominates the European market in this very high-growth field. In 2007, fashion was the fastest-growing segment of the online retail market and D+S’s management expects the segment’s growth to continue at a double-digit pace, despite the general economic climate. This sector trend opened up enormous opportunities for D+S europe; so in late 2007, the company began looking for a partner who could offer the know-how and requisite financial strength to take advantage of this potential. Why Apax? Apax Funds stood out because of their experience in the fashion industry through investments such as Tommy Hilfiger, CBR Group and Calvin Klein, as well as their experience in the IT and business services sectors and focus on growth buyouts. As a result, D+S’s management team engaged with Apax Funds on an exclusive basis and in April 2008, the current Apax Europe VII fund acquired the shares of several legacy shareholders and at the same time submitted a voluntary acquisition tender to all other shareholders. The offer was unanimously recommended by the D+S Board and in early 2009 Apax Funds became the majority shareholder in D+S europe, holding over 90% of the company’s shares. What about the future? Since the investment,CEO Achim Plate and his team have driven D+S europe’s growth in both lines of business: In 2008 total revenues rose by 29 per cent to €299 million. In addition to growing the existing e-commerce customers, the business has launched online sites for new customers including Hugo Boss and C&A. Around 40 new websites for fashion players are scheduled to launch in 2009, including the online shop for another Apax Funds portfolio company, Tommy Hilfiger. In the field of call centre services, the company entered into a strategic partnership with Deutsche Telekom in 2008, under which Germany’s largest telecommunications company is transferring considerable customer service and back office operations to D+S. The call centres also serve as the foundation for corporate social responsibility activities at D+S. For years, the company has been one of the major sponsors of the Students Helping Life (SHL) non-profit initiative, which conducts its Social Day annually in Germany. On this day, students work for companies or private individuals for a good cause – in 2008, some 200,000 students from over 1,000 schools participated in this campaign, which was organised with the aid of a D+S call centre.
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Media The 20-strong Media team is one of the largest and longestestablished in the industry. The team has a wide variety of industry, consulting, private equity and banking experience, with members focusing on niche sub-sectors of the market. In the last ten years, the team has advised Apax Funds on the investment of €3.4bn of equity. Top Media investments Emap
Cengage Learning
Investment year
Enterprise value at time of investment
2008
£1.2bn
Investment year
Enterprise value at time of investment
2007
$7.3bn
Trader Media Group
Investment year
2007
£1.4bn
CME
Investment year
Enterprise value at time of investment
2006
$2.8bn
Enterprise value at time of investment
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Our sector expertise Media partners
6 2 3 5
1. Jacqueline Reses
4.Tom Hall
Office New York
Office London
Board seats Cengage Learning, Nelson Education, Hit Entertainment, The Learning Annex, NEP Broadcasting.
Board seats Trader Media Group, Truvo, The Stationery Office, Zeneus Pharma, 20 Minutes, Thomson Directories.
Background Joined Apax Partners in 2001. Previously at Goldman Sachs. BSE from the Wharton School, University of Pennsylvania.
Background Joined Apax Partners in 1998. Previously at S.G.Warburg and Deutsche Bank. MA from Cambridge University.
2. Stephen Grabiner
5. Irina Hemmers
Office London
Office London
Board seats Emap, Travelex, Incisive Media, Bezeq, PCM, Yell.
Board seats Emap, Trader Media Group, Incisive Media, World Directories, PCM, Sulo/Cleanaway.
4
1
Background Joined Apax Partners in 1999. Previously at On Digital and The Daily Telegraph. BA in Economics from University of Sheffield. MBA from Manchester Business School.
Background Joined Apax Partners in 2001. Previously at McKinsey. MA in International Economics from University of Innsbruck/Tulane University. MPA in Public Administration from Harvard.
3. Christian Stahl Office New York Board seats Cengage Learning, Central European Media Enterprises (CME), Tommy Hilfiger, World Directories, 20 Minutes, Telcast Media Group, Thomson Directories, The Stationery Office. Background Joined Apax Partners in 1999. Previously at Bain & Company. Diplom Kaufmann and BA in Business Administration from Europaeisches Studienprogramm fuer Betriebswirtschaftslehre (ESB), Reutlingen/London. MBA from INSEAD.
6. Paul Fitzsimons Office London Board seats Cengage Learning, Hit Entertainment, Hub International, Kabel Deutschland Group, Future Publishing, Stage Three Music. Background Joined Apax Partners in 1992. Previously at Arthur Andersen. Chartered Accountant (ACA).
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Our sector expertise Media review
Overview The 20-strong Media team is one of the largest and longestestablished in the industry. The team has a wide variety of industry, consulting, private equity and banking experience, with members focusing on niche subsectors of the market. In the last ten years, the team has advised Apax Funds on the investment of €3.4bn of equity. In the last five of those years, Apax Funds have led eight investments in the sector, of which four have been in noncompetitive situations. Marketplace/trends and drivers The two main forces driving change in the media sector are the economic climate and rapid technological change. The severity of the current recession has hit nearly all parts of the media sector as businesses across the economy slash marketing budgets. Advertising revenues are being most severely affected. In traditional media channels we are seeing year-on-year declines of up to 30%. In online businesses, where search advertising has until now been a significant growth driver, advertising spend has fallen from high double digit to single digit growth. There are certain business models however, such as those based on subscriptions or with more stable end users such as the public sector, which are proving more resilient to the downturn. In parallel, the internet has led to a revolution in the way media content is distributed. This technology shift has led to falling costs of distribution and storage and consequently to lower costs of entry; in other instances the impact of digital content has changed the game for incumbent suppliers. The pace of technological change is having a profound impact across the media space and has been accelerating in the current economic climate, as customers focus on cheaper channels with the clearest return on investment. Widespread penetration of digital media across multiple channels including cable television, broadband internet and mobile internet has led to changes in consumer behaviour with regard to media consumption. In the UK, for instance, the number of households connected to broadband internet shot up to 58% in 2008 from just 1% in 2001. This has corresponded with a rapid increase in usage. In the three years to 2006, internet usage across Europe rose by 28% against a backdrop of falling circulations in more traditional media formats like newspapers and magazines. Digitisation has led to its own changes in the radio, TV and music landscapes. Across Europe, the old incumbent TV and radio channels are seeing their viewing figures fall as new digital competitors take market share. In the music space, the major record labels are struggling to find business models that fit the new world of digital publishing.
Media strategy On a positive note, the fast-paced technological change affecting the industry has led to a sustained increase in media consumption. While the current economic downturn means that it is difficult to translate a growth in consumption into a growth in revenues, this trend provides commercial opportunities and a favourable long-term outlook for those companies that are able to understand and exploit sub-sector dynamics. Working in conjunction with Apax Partners’ Tech & Telecom team, the Media team is well positioned to react and continue to advise on investments that are ‘ahead of the curve’. Our funds are looking to invest in situations where businesses are seeking to build out an online platform or in situations where brand strength and market leadership can enable companies to operate across various media platforms successfully. Outlook The impact of the current economic climate and technological change is having a variable impact across the sector. This will continue to be the case, and the prospects for the various sub-sectors will consequently differ widely according to how they are affected. In segments such as consumer book publishing and outdoor advertising, the impact of technological change is relatively low; in others, like business-to-business publishing, recorded music and newspapers it will continue to have a massive impact. Finally, for some, such as professional or academic publishers and information service providers, changes in media consumption and technological innovation represent a significant opportunity for growth. Understanding the uptake of new technology across different geographies and how this will impact the various sub-sectors within the media space will continue to be the key to successful investing.
Stephen Grabiner
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Case study: Media
Emap
Backing best of breed in a challenging environment Emap is one of the UK’s leading business information providers serving the retail/fashion, public services, construction, media and automotive industries. The Company provides information to its customers through four key formats: print and online magazines (35% of 2007 revenues); exhibitions and festivals (32%); digital information services (27%); and conferences (6%). As well as publishing, the business also organises three of the top four UK trade exhibitions, has the leading publication in most of its core market segments, runs the pre-eminent international advertising festival (Cannes Lions) and, with WGSN (a provider of digital information to the fashion industry), has a high-growth and market-leading information services business. Approximately 75% of revenue is generated in the UK and 25% from international sources including the highgrowth Middle Eastern market. The company’s business model has evolved from being largely reliant on print advertising to being far more diverse and resilient and thus able to tap different corporate budgets other than advertising. Close to 75% of Emap's brands are number one or number two in their market. Because of this leadership, the brands are highly valued by customers and enjoy high renewal rates. They also benefit from a flight to quality in a more challenging trading environment when customers will cut budgets on second tier brands rather than reducing spend on the market leader. The Investment Apax Funds, alongside corporate partner Guardian Media Group, acquired the business as a result of the three-way break-up of Emap plc at the end of 2007. The break-up led to the sale of the consumer publishing and radio divisions to Bauer Media, a large German media conglomerate, while Apax Funds and GMG took private the remaining B2B division and umbrella “plc” organisation. The strong existing partnership between Apax Funds and GMG through their joint ownership of Trader Media Group in the UK proved to be a decisive competitive advantage in securing the coveted B2B titles. Apax Partners also had a strong ‘angle’ because of its existing investment in the B2B sector with Incisive Media. Progress In the nine months to December 2008, Emap's revenue grew 3% year on year. This growth was achieved against the back-drop of a difficult trading environment in Emap's core UK market where the key end markets it serves, retail and construction, experienced a significant downturn. This was partly compensated for by a strong performance in its public sector end market. In comparison to other media companies, Emap has shown a good degree of resilience, largely as a result of having a streamlined portfolio of market leading products that benefit from customers concentrating budget spend on the market leader. Since the initial investment, which completed at the beginning of the year, Apax Funds and GMG have worked with the company to complete the senior management team, including hiring David Gilbertson as buy-in CEO from Informa. The Group has also been fundamentally restructured along product lines, with new reporting lines put in place and a new set of performance indicators introduced.
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Healthcare The Healthcare team at Apax Partners comprises 17 dedicated investment professionals based in Europe, the US and India. The team is characterised by its very strong scientific background, with many of the members having achieved academic success in their specialist field before moving into industry, consulting or private equity directly.
Top Health investments TriZetto
Investment year
2008
$1.5bn
General Healthcare Group
Investment year
Enterprise value at time of investment
2006
£2.5bn
Enterprise value at time of investment
Capio
Investment year
Mölnlycke Health Care
Investment year
2006 2005
Enterprise value at time of investment
€2.9bn Enterprise value at time of investment
€1.3bn
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Our sector expertise Healthcare partners
1
4 3
1. Bill Sullivan
4. Khawar Mann
Office New York
Office London
Board seats TriZetto, Spectrum Laboratory Network, MagnaCare Holdings.
Board seats General Healthcare Group, Capio, Unilabs, Celldex.
Background Joined Apax Partners in 2007. Prior experience at MagnaCare Holdings, Inc., Oxford Health Plans and Lincoln HN Life. Bachelors of Finance and Banking from Suffolk University in Boston.
Background Joined Apax Partners in 2003. Prior experience at Weston Medical Group PLC and Linklaters. MA in Medical Sciences and Law and LL.M from Girton College, Cambridge University. MBA from the Wharton School, University of Pennsylvania.
2. Buddy Gumina
5. Cathrin Petty
Office New York
Office New York
Board seats TriZetto, Qualitest Pharmaceuticals, Spectrum Laboratory Network, Encompass Home Health, Voyager HospiceCare, Magnacare Holdings.
Board seats Qualitest Pharmaceuticals, Affymax Inc., Intercell AG, Zymogenetics Inc, Xanodyne Inc., Zeneus Pharma Ltd.
Background Joined Apax Partners in 1998. Prior experience at Donaldson, Lufkin & Jenrette Merchant Banking Partners. BA in Political Science from Yale University. MBA from Harvard Graduate School of Business Administration. 3. Ian Jones Office London Board seats General Healthcare Group, Mölnlycke Health Care Group, Regent Medical, Medlock Medical, Hansen Transmissions, PureWafer. 5 5
2
Background Joined Apax Partners in 1997 from Coopers & Lybrand. Degree in Mathematics and Computer Science from Cambridge University. MBA from Warwick Business School. Chartered Accountant (ACA).
Background Joined Apax Partners in 2000 from Schroder Ventures, and previously worked at Schroders Investment Management. MSc in Natural Sciences (immunology) from New Hall, Cambridge University with a post graduate in Management Studies from the Judge Institute, Cambridge.
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Our sector expertise Healthcare review
Overview The Healthcare team at Apax Partners comprises 17 dedicated investment professionals based in London, New York, Madrid, Milan, Munich and Mumbai. The team is characterised by its very strong scientific background, with many of the members having achieved academic success in their specialist field before moving into industry, consulting or private equity directly. Led from London by Ian Jones, it is a stable team, with the core members having advised the last three Apax Funds. The Healthcare group focuses exclusively on buyouts and has advised Apax Funds on equity investments of over €2.2bn in companies such as Apollo Hospitals, General Healthcare Group, Capio, Unilabs, Mölnlycke Health Care Group, TriZetto and Qualitest Pharmaceuticals. Marketplace trends and drivers The Healthcare team focuses specifically on three core areas globally: medical products, devices and supplies; speciality and generic pharmaceuticals and healthcare service providers and in addition, in the US, on the healthcare IT space. Dynamics are different in each sub-sector. The key drivers in the medical products space are innovation, consolidation and globalisation. There are pressures on many large medical product companies to divest non-core assets. In our opinion the medical products sub-sector has attractive LBO characteristics, displaying long-term growth prospects with good margins and cash flow characteristics. The pharmaceuticals space is characterised by increased commercial pressures driving a re-examination of the business model. Ongoing consolidation amongst the major pharmaceutical companies will drive portfolio rationalisation and create opportunities for more nimble competitors. In the generics space, we are witnessing continued strong growth in demand, balanced by consolidation and aggressive competition; the sector remains an attractive area for the team to focus on. Across the broad sweep of companies that are covered by the healthcare providers tag, the key dynamics are ageing populations, consumer awareness and patient choice. Healthcare costs are forcing payers to re-assess the level of future provision and the financing of care. New reimbursement models are emerging including ‘pay by performance’ rather than ‘pay by procedure’. The sector is also becoming increasingly regulated and specialised management teams are emerging on a global basis, which are well equipped to deal with a rapidly changing part of the healthcare sector.
Healthcare IT is becoming increasingly important for providers, professionals and patients. New models of healthcare delivery are increasingly IT intensive. Further, there is broad recognition, especially in the US, that data analytics and customer-facing technologies will be critical to future success. The team is interested in segments of the market benefiting from exposure from these drivers and led the US$1.5bn public-to-private of TriZetto in the US during the summer of 2008. Healthcare strategy The Healthcare team has specialists in each of the three key areas of focus outlined above. It is focused on making investments in growth areas where it has a proprietary angle, derived from its sector knowledge and expertise. The primary focus of the team is on European and US opportunities but there are significant opportunities for transatlantic and global transactions, reflecting the global nature of the healthcare industry. Outlook We believe that the healthcare sector remains dynamic and will see increasing changes in how healthcare is provided and sourced. As a result of these changes, we anticipate that there will be far-reaching consequences in the healthcare sub-sectors that we focus on. We continue to concentrate on areas where rapid change and dislocations in the market are producing interesting opportunities.
Ian Jones
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“I feel that we are already seeing an improvement in our strategic planning – specifically in our ability to look further into the future and make decisions which will help us achieve the greatest impact – and this is largely thanks to the support we receive from Apax on the strategic and financial planning side”. Jeff Margolis, CEO, TriZetto
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Our sector expertise Healthcare continued
Case study: Healthcare
TriZetto
Towards Integrated Healthcare Management Based in Newport Beach, California, the TriZetto Group Inc. develops, licences and manages software solutions that link together constituents in the healthcare supply chain to improve the coordination of benefits and care for healthcare consumers. The company, which was founded in 1997 and achieved an IPO on NASDAQ two years later, has approximately 2,000 staff and sells its software systems to over 350 separate customers in the US health insurance and benefits administrator markets; all in all, TriZetto technology touches approximately half the insured population of the US. The deal In August 2008, Apax Europe VII and Apax US VII joined forces with two of TriZetto’s core customers – Blue Cross Shield of Tennessee and Regence Group – to take the company private in an investment worth approximately US$1.5bn. On the decision to de-list TriZetto, founder and CEO Jeff Margolis says: “Although the management team felt that TriZetto had a very strong profile as a listed business, we also saw a major opportunity to secure the investment that would get us closer to achieving our ultimate goal of Integrated Healthcare Management. Clearly, the state of the public markets was also a factor: we had predicted an extended period of volatility on the markets and wanted to avoid the potentially destructive situation where management resources are diverted away from the objectives of a business to deal with PR issues. The option of a take-private by a strong backer offered us the chance to secure real value for our shareholders and customers”. Why Apax Partners? As far as the choice of partner was concerned Margolis explains that the options had been varied: “There was significant interest in TriZetto in late 2007 and into 2008, with something like 20 unsolicited approaches from trade and financial bidders. We had already crossed paths with Apax before, whilst analysing a potential acquisition, and on this occasion we were immediately impressed by the team’s grasp of the long-term vision for the business and their willingness to buy into this vision and trust the strengths of the company. In the end, this, plus their relationship with two of our key clients, gave them the edge and the three parties combined to win the bid.” Since the deal completed In the few short months since the completion of the deal the transition from public to private has been a seamless one. What is more, as Margolis points out, the change has not affected the company’s performance. What about the future? The TriZetto and Apax Partners teams strongly believe that healthcare systems in the US and elsewhere continue to suffer from poor coordination and the company’s ultimate goal is to optimise benefits and care via the principle of Integrated Healthcare Management. To achieve this, the primary objective must be to continue to make investments that fuel growth, both in terms of the development of TriZetto’s existing technology and services, and via acquisitions that bolster the company’s footprint, increase its range of offerings and, perhaps, expand its geographical coverage.
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“Given the current market conditions, there are certainly opportunities out there. They genuinely understand the business and although India is a different culture, the fundamental business model of operating a hospital doesn’t change that much and the experience they have as owners of hospitals elsewhere will be beneficial as we continue to grow.The results of the partnership so far have been good and they have given the company the freedom to take decisive action”. Suneeta Reddy, Finance Director, Apollo Hospitals
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Our sector expertise Healthcare continued
Case study: Healthcare
Apollo
Bringing focused expertise to an Indian leader Treating over three million patients every year, Apollo Hospitals is the largest private healthcare provider in Asia. Apollo was established as a public company in 1979 by Dr P C Reddy, and has been a pioneering force in Indian healthcare ever since. Today it operates a network of 44 hospitals with around 7,000 beds. In addition to its hospitals business, Apollo owns and operates one of the largest pharmacy chains in India as well as primary care clinics, nursing homes, a health insurance business and one of India’s largest medical outsourcing businesses. The deal In mid 2007, Apollo was looking to raise equity capital in order to expand. Suneeta Reddy, Apollo’s Finance Director, explains the rationale: “We had a very clear sense that Apollo was poised for growth. Demand in the Indian healthcare sector was, and still is, far greater than supply, the stock markets were doing well and we wanted to capitalise on the opportunity.” Why Apax Partners? As part of this sales process, the Apollo Management team met with five or six other investors and ultimately chose Funds advised by Apax Partners. Apax was always well placed due to its knowledge of the healthcare sector in general and specific experience with hospital investments such as Capio and General Healthcare Group in Europe. It also benefited from a strong prior relationship with the company and with the Reddy family stretching back to an initial meeting in the US in 2004. Reddy continues: “We were looking for a strategic partner that could really help the business maximise the opportunities that we saw. Most of the others could provide the financing, but we felt that Apax understood the hospital business much better and would also have the strategic know-how that we were looking for. In terms of process, they were extremely thorough; they had commissioned an external study and had a deep understanding of the market. They were also able to complete the diligence very quickly and with a very high level of understanding.” Since the deal completed in October 2007, Apax Funds’ deal team has advised management on a number of initiatives such as budgeting and performance monitoring in the group, operational improvements and assessment of potential acquisition targets. “We haven’t seen eye-to-eye on everything”, says Reddy, “but they have been a surprisingly useful sounding board for the business and their questioning approach has helped to get the best out of our team and, at the end of the day, our interests are very closely aligned. “They have also been effective at benchmarking our business against performance in their European investments and have challenged us to drive through operational improvements without compromising on clinical excellence. The team have risen to this challenge and, as a consequence, the business has become more profitable.” What about the future? As more people demand a higher standard of medical care, the growth potential for Apollo remains strong. The private hospitals market is diverse and there is scope for further consolidation as well as organic growth. The group also has ambitious plans to grow the number of pharmacies it operates from 700 to 1,200 by 2010.
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Financial & Business Services Worldwide, the FABS team is made up of 18 investment professionals located across Apax Partners’ office network. The team has a broad range of expertise spanning industry, consulting and investment banking that enables Apax Partners both to identify opportunities and to work deeply with portfolio companies across the sector. Top Financial & Business Services investments Hub International
Investment year
2007
$2.0bn
Farmactoring
Investment year
Enterprise value at time of investment
2006
Enterprise value at time of investment
€224m
Travelex
Investment year
Enterprise value at time of investment
2005
£1.1bn
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Our sector expertise Financial & Business Services partners
1
5 2 3
4
1. Mitch Truwit
4. Massimiliano Belingheri
Office New York
Office London
Board seats Hub International
Board seats Farmafactoring, Azimut, Smart Technologies, Yell, PCM.
Background Joined Apax Partners in 2006. Previously President and Chief Executive Officer of Orbitz Worldwide, Chief Operating Officer of priceline.com and Head of Corporate Development for Oxford Health Plans. BA in Political Science from Vassar College. MBA from Harvard Graduate School of Business Administration.
Background Joined Apax Partners in 2001. Prior experience at McKinsey and Morgan Stanley. Laurea in Economia in Government, Business & Economics from Universita’ Commerciale Bocconi, Milan, Italy. MBA from Harvard Business School (Baker Scholar). 5. Ralf Gruss
2. Michael Phillips Office Munich Board seats Xerium, Sulo, IFCO, PVH, Tommy Hilfiger. Background Joined Apax Partners in 1992. Prior experience at Ciba-Geigy Ltd. and Otto Waste Management Ltd. BSc Honours in Engineering Chemistry from Queen’s University, Kingston, Canada. MBA from INSEAD. 3. Frank Ehmer Office London Board seats CME, Emap, Tommy Hilfiger, Authentos, Bundesdruckerei, Wind Hellas. Background Joined Apax Partners in 2000. Prior experience at the hedge fund Highbridge in New York. Diploma from Universität Mannheim. MBA from Harvard Business School.
Office Hong Kong Board seats IFCO, Kabel Deutschland, LR Health & Beauty Systems. Background Joined Apax Partners in 2000 from Arthur D. Little. Degree in Financial Economics and Industrial Engineering from the University of Karlsruhe. Studied Financial Economics and Business Administration at the London School of Economics and the University of Massachusetts (Boston).
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Our sector expertise Financial & Business Services review
Overview The Financial & Business Services (‘FABS’) sector represents a substantial portion of the global economy, with approximately 18% of the market capitalisation of the MSCI Global Index in the sector. The sector itself encompasses a diverse range of businesses, from diversified global financial institutions to international business services companies, and countless regional, national and local players. Worldwide, the FABS team is made up of 18 investment professionals located across Apax Partners’ office network. The team has a broad range of expertise spanning industry, consulting and investment banking that enables Apax Partners both to identify opportunities and to work deeply with portfolio companies across the sector. Apax Funds have invested €1.4bn in the sector over the past 15 years.
Marketplace/trends and drivers The financial services sector has been one of the main beneficiaries of the long term globalisation and deregulation process that has transformed the global economy over the past 30 years. This long term trend will continue, despite the current credit crisis. After the global correction in asset values and a re-basing of GDP levels, normal growth will return, as will the need for financial services in both developed and developing regions. We remain confident that the financial services sector will out-perform GDP growth in the future. However, whenever the speed of new product innovation and product complexity outstrip the limits of the available regulatory framework and risk control systems, an imbalance is created. In this instance, the imbalance allowed a surplus of cheap liquidity to misprice risk in ‘repackaged’ sub-prime real estate assets and other financial debt products. The crisis was further fuelled by the issuance of derivatives and insurance products in the form of credit default swaps and credit wraps, without adequate requirements for regulatory capital. What appeared to be free money now burdens the financial markets with losses that cannot be financed. The only solution to stabilise the financial markets has been strong government intervention and the elimination of loopholes in the regulatory framework of the banking sector. This process will continue through 2009 and the effects will be felt for years to come. We expect the financial services sector to be reshaped in the years to come as financial services conglomerates (some of them government owned) sell high quality non-core businesses to raise capital to restore their balance sheets, repay government support and retrench to their core markets. While asset management, asset gathering, insurance and support services will go through a cyclical downturn, the viability of wholesale funded business will be severely tested. We expect the new wave of legislation and regulation to restrict entry into the sector, increase core capital requirements and protect the profitability of the existing institutions.
In business services, the main drivers continue to be the implications of outsourcing and globalisation. In a recession, companies are looking to outsource more of their non-core functions, and are increasingly seeking partners that are able to fulfil these functions across their entire network. This will lead to continuous growth within the sector to counterbalance the impact of the global recession. Governments’ commitments to free trade should support the globalisation of the sector and its consolidation as business services firms strive to meet their clients’ needs around the world. Strategy The team pursues different strategies for financial services and business services, reflecting the unique dynamics of each sector. In financial services, we target businesses that own strong customer-facing franchises and have the potential to strongly benefit from a rebound in the economy. We aim to support solid institutions to take advantage of the scarcity of available capital to pursue growth through acquisition in their vertical segments of operation. In business services, we believe that as the market tends to be characterised by relative fragmentation there exists a substantial opportunity to build and develop businesses of scale through organic growth and acquisition. Our goal is therefore to acquire strong platforms that can be used to drive growth both within their own markets and overseas and be positively exposed to a rebound in the global economy. Outlook The trends underlying both the financial services and business services industries mean that they are likely to continue to be highly geared to an economic rebound, and present attractive investment opportunities for the Apax Funds. Within financial services, scarcity of capital will present a unique flow of investment opportunities as large groups seek to exit non-core businesses and geographies and business models get redefined. Continued turbulence in the capital markets will create opportunities as firms seek strategic partners to help them through the downturn. In business services, globalisation and consolidation will continue to present opportunities for investment in the sector.
Michael Phillips
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Case study: Financial & Business Services
Farmafactoring
Farmafactoring S.p.A. is the leading provider of credit management services to suppliers to the Italian public healthcare system, the Servizio Sanitario Nazionale (‘SSN’). The company was founded in 1985 by a group of Italian and multinational pharmaceutical and biomedical companies to alleviate the cash-flow difficulties of the SSN’s suppliers, who were affected by the traditionally long payment cycles of its constituent health authorities. Farmafactoring purchases and manages the collection of its clients’ receivables, allowing them to completely outsource their accounts receivables management function. In addition to providing non-recourse factoring, Farmafactoring also provides receivables management services for clients who choose to retain them on their own balance sheets. Farmafactoring’s strong relationships with the SSN’s local health authorities across Italy and deep knowledge of their payment patterns allows the company to price its products very competitively, while its scale gives it a strong bargaining position when negotiating payments from the health authorities. The deal The company was attractive to Apax Funds as it is the clear market leader with a defensible competitive position in a growing sector. Historically, growth in public healthcare expenditure has not been impacted by the economic cycle and, in addition, the company has identified several growth opportunities, including providing its services to a wider range of suppliers to the SSN and to other parts of the Italian public sector, launching new products to its existing clients, and expanding internationally. Why Apax Partners? In December 2006, the Apax Europe VI fund won an auction to acquire a 91.7% stake in Farmafactoring. The Apax deal team had been developing an understanding of Farmafactoring’s business and prospects for some time prior to the decision by the company’s shareholders to begin the sale process, and their extensive knowledge of the business provided a key competitive advantage during the auction process. What about the future? Since the acquisition, the business has continued to perform strongly and the Apax deal team has advised the company’s management to put in place preemptive measures to counter any shocks resulting from the volatility of the credit markets. In addition, a series of initiatives has been launched to optimise the key value drivers of the business, including targets to encourage the collection of as much default interest as possible from the existing book of business, buying portfolios of receivables outside the existing client base, and improvements to the funding structure of the business. Finally, the company has completed the necessary groundwork to expand its operations to Spain to leverage its expertise with public healthcare payers in a market with similar dynamics to Italy.
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4
Section 4: Our investors 90
Investors review
98
Current portfolio listing
100
Apax Partners international offices
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Total funds raised At 31.12.2008 At 31.12.2008 At 31.12.2008
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Apax Partners Annual Report 2008
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David Whitehouse Partner, Investor Relations
Nadia Preston Head of IR Client Services
91
The development of Apax Partners
Our investors are our clients and the relationship with our investors is at the heart of our business and indeed drives our business. Advising the Apax Funds to which our investors have committed, understanding what they are looking for from their investment, and working with them to provide enhanced returns drives the Apax Partners strategy and that of the Investor Relations (IR) team. The IR team places significant emphasis on three key areas: (i) investor communication; (ii) relationship development and (iii) content improvement. The primary principle applied across the three areas is to be transparent, by providing detailed and frequent information through formal and informal communication channels. Emilio Voli Partner, Investor Relations
€26.6bn £25.7bn US$36.9bn
Investor communications The IR team advise our Guernsey office on communications with our investors. This includes quarterly reports and activity updates (or press releases) upon the occurrence of significant events such as the making or disposal of an investment. Formal reporting is sent directly to investors and there is also a secure Extranet providing online access to financial, legal and reporting information for investors, as well as copies of presentations given to investors at the Annual Meeting, Boards of Advisers Meetings, as well as Minutes of the Boards of Advisers Meetings. In addition to the above, the Funds Administration team provides quarterly Capital Statements to Investors and audited Financial Statements for the Apax Fund Partnerships and can assist in answering more technical and accounting queries from investors. A specialist tax team is also available to assist in the provision of tax reporting information. Relationship development The IR team manages a thorough relationship development programme ensuring investors receive relevant updates as well as access to senior investment professionals across the firm. The opportunity for oneon-one meetings is regularly offered to current and potential investors in the funds and meetings are taken by both the IR team and the investment professionals. P The IR team is keen to develop long-serving relationships with investors and seeks to understand through these relationships what investors are looking for, how best to deliver this, and make ongoing proposals to investors as appropriate. Content improvement Apax Partners recognises that investors’ demands and requirements for information are constantly evolving. Therefore Apax Partners has built an appropriate infrastructure to collect information to support investor needs, as well as to be able to communicate to investors on topical issues as they emerge. Investors have the opportunity to pose ad-hoc questions via the IR team and we ensure they receive a timely response.
Investor breakdown by type Public pension funds
31.77%
Private pension funds
14.16%
Funds of funds
11.14%
High net worth individuals
10.28%
Insurance
9.76%
Banks
7.05%
Endowments
6.14%
Sovereign funds
5.18%
Gatekeepers
4.52%
How the Funds have evolved The history of Apax Partners is interwoven In with the development of the private equity asset class on both sides of the Atlantic. Throughout its 30-year history, Apax Funds have successfully invested across all investment stages, and through several complete economic cycles. The firm’s current focus on large buyouts is rooted in a culture that has always been outward looking, pioneering and committed to growing businesses. The deep understanding of the five sectors in which its Funds invest has been at the core of Apax Partners’ strategy, giving it early access to investment opportunities and an ability to add value quickly to portfolio companies.
Year of first investment
Total amount raised (m)
UK I Apax Venture Capital Fund Apax Ventures II Apax Ventures III Apax Ventures IV Apax UK V Apax UK VI
1982 1984 1987 1990 1995 1997
£10.15 £30.12 £75.00 £109.60 £164.00 £313.20
Pan-European Apax Europe IV Apax Europe V Apax Europe VI Apax Europe VII
1999 2001 2005 2007
€1,803.15 €4,404.30 €4,310.33 €11,204.27
Germany APA German European Ventures Apax Germany II
1992 1997
€49.39 €133.20
Israel Israel Growth Fund Apax Israel II
1994 1999
US$40.05 US$102.50
United States Excelsior Fund Excelsior II Excelsior Jersey The P/A Fund Excelsior III P/A Fund II Excelsior IV P/A Fund III Excelsior V Excelsior VI Apax US VII SKM Equity Fund I SKM Equity Fund II SKM Equity Fund III
1981 1985 1985 1987 1989 1993 1995 1997 1998 2000 2006 1993 1996 2000
US$25.53 US$109.13 US$29.82 US$40.40 US$175.00 US$60.61 US$265.15 US$100.00 US$406.00 US$1,100.00 US$856.34 US$300.00 US$516.00 US$720.00
Japan Apax Globis Japan Fund
1999
¥20,000.00
Other Apax European Buy-In Fund
1989
€300.00
Fund
Investor breakdown by type
Investor breakdown by geography US
40.21%
Continental Europe
24.54%
UK
13.98%
Canada
11.59%
Asia
8.13%
Oceania
1.56%
Investor breakdown by geography
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The firm believes that private equity has the ability to deliver excellent returns to investors by bringing better governance to companies, by improving operational performance and by ensuring full alignment of interest between investors and company management.
Apax Partners Annual Report 2008
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Our Investors
Case study: Investor
AlpInvest
AlpInvest Partners independently manages the private equity investments for two of the world’s largest pension funds: Dutch ABP and PFZW. The pension funds’ beneficiaries are civil servants, teachers and healthcare workers, all participating in sector based defined benefit schemes. While ABP and PFZW had successful histories as private equity investors, the funds concluded that their long-term commitment to the market would best be served by an independent, dedicated and full-scale private equity organisation. AlpInvest Partners became the exclusive private equity manager for these funds in 1999 and bears full discretionary power over all investment decisions. AlpInvest Partners is one of the few private equity investors with the financial scale and global reach to partner with the world's largest private equity firms as well as the specialised high-performers. With €40bn of assets under management, AlpInvest Partners has the ability to provide substantial commitments to partners’ funds and also to support them with meaningful equity and mezzanine co-investment in their portfolio companies. In portfolio construction AlpInvest Partners takes a long-term investment perspective by analysing the global economic trends effecting private equity. AlpInvest Partners follows a deliberate allocation process: top-down segment analysis and bottom-up partner selection. The top-down approach includes analysis of the general characteristics, size and growth of all private equity market segments. In investment selection the fund investments team performs extensive due diligence in order to be able to identify the best-in-class general partners based on the desired geography, industry focus and stage of life focus. In conducting this due diligence, the team leverages AlpInvest Partners’ firm-wide resources and intelligence. With first-hand knowledge collected from the co-investments team along with the market visibility of the secondary investments team, AlpInvest Partners is able to quickly and efficiently identify trends, integrate knowledge and capture opportunity. AlpInvest Partners’ success is driven by partnering with experienced private equity investors, operating within well structured teams with solid investment histories. This requires our partners to be responsible owners of their portfolio companies. AlpInvest Partners is engaged in the discussions on implementation of the UN Principles for Responsible Investment in the private equity space and promotes portfolio companies to subscribe to the UN Global Compact principles.
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Some relationships, such as the Commonfund-Apax relationship, date back two decades to the very first commitments made outside of the US by Commonfund Capital. Commonfund Capital places a high value on these relationships, seeking to be a trusted partner and adviser to select, high quality general partners.
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95
Our Investors
Case study: Investor
Commonfund
Commonfund Capital LP Founded in 1971, Commonfund is a non-profit investment management company devoted to enhancing the financial resources of non-profit institutions and social enterprises including educational endowments, foundations, hospitals and healthcare systems, cultural, social service and faithbased organisations and other charities located in the US, Canada, the United Kingdom and elsewhere. Commonfund Capital is the private capital arm of Commonfund. Since the founding of Commonfund Capital in 1988, the mission has remained the same: to provide organisations with a total solution for private capital investing – venture capital, private equity and natural resources. With offices in Wilton, Connecticut and London, UK, Commonfund Capital is staffed by more than 40 investment professionals and serves over 700 institutional investors from the non-profit community. Since the formation of Commonfund Capital, the group has managed 37 fund-of-fund programmes totalling over US$11bn in private capital commitments. Within these programmes, Commonfund has forged partnerships with 188 direct private capital management groups around the globe. There are several fundamental factors that continue to testify to the strength and success of the private capital industry that distinguish the private capital model in any environment, weak or strong. These advantages include strong competitive urgency, long-term horizon, strong governance, aligned incentives, focus on strong management talent, stable shareholder base and efficient capital structures. From a portfolio allocation standpoint, the key to potential success in this asset class is to partner with top tier private capital managers in a diversified programme in order to access the vast and largely distinct opportunity set private companies represent. The manager selection process for a private capital programme considers such fundamental issues as the quality and experience of the manager's team, investment philosophy and past performance. Assessment includes the strategic fit of the manager’s investment approach with investment objectives of the organisation and conduct of a number of qualitative and quantitative analyses. More specifically, this could be a review of factors such as quality of team, investment strategy, investment and exit experience, alignment of interest, ability to add value to portfolio companies, commitment/motivation, firm culture, due diligence expertise, deal sourcing, firm governance, prior track record and distribution policies. This work, accompanied by structured risk management, legal negotiation and documentation in the commitment phase, is key to building a private capital programme. After the commitment period, the focus becomes ongoing monitoring and dialogue with the manager during the investment life of manager commitments. Commonfund Capital works on advisory boards for private capital managers around the world.
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Our partnership with Apax Partners is now in its third decade, and is an impressive example of the high-quality relationships which GIC SI seeks to establish globally.
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Our Investors
Case study: Investor
GIC
GIC The Government of Singapore Investment Corporation (GIC) has been the manager of Singapore’s foreign reserves since 1981. The GIC Group strives to achieve good long-term returns on assets under its management, to preserve and enhance Singapore's reserves. Owned wholly by Singapore’s Ministry of Finance but reporting to its own Board of Directors, GIC operates as a private fund management company with the sole objective of generating financial returns through its main subsidiaries: Public Markets, Real Estate and Special Investments (SI). GIC is today one of the largest investment management organisations in the world, investing well over US$100 billion in multiple asset classes in more than 40 countries. GIC SI’s team of 70 investment professionals operates from offices in Singapore, London, New York, Silicon Valley and Beijing, and adopts a globally integrated approach in its selection of fund manager and direct investments. The GIC SI portfolio includes limited partner interests in leading global and regional funds focused on investments in buyouts, venture capital, infrastructure and mezzanine. Minority equity and mezzanine investments are also made directly in well-run companies. GIC SI further invests directly in infrastructure assets worldwide. GIC SI’s investment team adds value to fund managers and investee companies by providing advice and access to a global network of business links which GIC SI has developed over the years. The GIC perspective is that of a long-term investor over various economic cycles. For over 25 years, the firm has identified and invested with outstanding private equity fund managers and grown with them over time. Our partnership with Apax Partners is now in its third decade, and is an impressive example of the high-quality relationships which GIC SI seeks to establish globally.
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Apax Partners Annual Report 2008
98
99
Current portfolio Following is a complete list of all live Apax Funds portfolio companies.
Tech & Telecom
Year of initial investment
Bezeq The Israel Telecommunication Corp
2005
BitBand Inc
2003
BlueArc Corporation
2000
Centerbeam
2000
Composite Software
2002
Corvil Networks Limited
2003
Crescendo Networks Limited
2003
Starhome BV
2004
Streamserve Inc
1999
Synetrix Holdings Limited
2004
TDC A/S
2005
Tideway Systems Limited
2004
Transera Communications
2004
Versatel AG
2005
Weather Investments SpA
2008
Wisair Inc
2002
Media
Year of initial investment
Cengage – Nelson Education
2007
Cengage Learning
2007
Central European Media Enterprises Ltd
2006
Emap*
2007
HIT Entertainment*
2005
Incisive Media Limited*
2006
Quartermaster
2005
CSG Solar AG
2005
SportsMyx Holdings
2005
Dialog Semiconductor Plc
1998
Stage Three Music Limited
2004
Digital Fuel Technologies Inc
2005
Elliptec Resonant Actuator AG
2004
Frontier Silicon Holdings Limited
2003
Handmark
2001
InnovaLight
2004
Iris Financial Engineering Holdings Ltd
2003
mFoundry
2003
Midasplayer/King.com
2005
Mobixell Networks
2000
Nanomix
2002
NXP
2006
OnePath Networks Limited
1997
Onespin Solutions GmbH
2005
Peregrine Semiconductor
1997
Pictage
2006
Power Paper Limited
2005
PowerID Limited
2007
Printar Limited
2004
Promethean Ltd
2004
RaySat, Inc.
2005
Red-M Group
2001
SMART Technologies
2007
Retail & Consumer
Year of initial investment
Ale House Holdings
2004
Bob’s Discount Furniture
2005
Café Rio
2004
Comark
2005
D+S europe AG
2008
Home Organizers
2000
LR Health & Beauty Systems GmbH
2004
New Look Group*
2004
Norcraft Companies
2003
Ollie’s Bargain Outlet
2003
Panrico, S.A.
2005
Plantasjen
2007
rue21
1998
S.B. Restaurant
2000
Savaria Corporation
1998
Sisal S.p.A.
2006
Somerfield Ltd*
2005
Spyder Active Sports
2004
Teavana Holdings Tnuva
2004 2008
Tommy Hilfiger Corp
2006
Xerium Technologies
1999
Telcast Media Group GmbH
2001
The Learning Annex
2006
The NewsMarket
2000
Trader Media Group*
2007
Truvo/World Directories
2004
VoodooVox
2001
Healthcare
Year of initial investment
Aerovance
2004
Affymax Pharmaceuticals
2001
AngioDynamics
1999
Apollo Hospitals Enterprise Ltd
2007
Ascent Healthcare
2000
Astex Technology Ltd/Metagen GmbH
2001
Cadent
2000
Capio AB
2006
Celldex Therapeutics
2003
Dune Medical Devices Limited
2004
General Healthcare Group Limited*
2006
Magnacare Holdings
2002
Novacea
2004
Orexo AB (Biolipox AB)
2002
Procognia Limited
2002
Prometheus Laboratories
1999
Qualitest Pharmaceuticals
2007
Senex Financial
2004
Sense Proteomic Ltd/Procognia
1998
SkinMedica
2003
Spectrum Holding Company
2005
The TriZetto Group
2008
Voyager HospiceCare
2004
Wilex AG
1998
Xanodyne Pharmaceuticals
2005
ZymoGenetics
2000
*UK Walker-compliant portfolio companies Emap Emap is the UK’s leading business information provider. The company provides information to its customers through four key formats: print and online magazines, exhibitions and festivals, digital information services, and conferences. The initial investment from Apax Funds was made by Apax Europe VII in 2007. Turnover (year to 31 March 2008)
£283.3m 1,588
Number of employees
New Look Group New Look is a retailer of value fashion clothing and the third largest womenswear retailer in the UK. The company has nearly 600 stores in the UK and over 270 stores trading under the MIM format in France. The initial investment in this company was made by the Apax Europe IV and Apax Europe V funds in 2004. Turnover (53 weeks to 29 March 2008) Number of employees
£1,169.1m 20,405
Somerfield Somerfield is the fifth largest grocery retailer in the UK, operating out of small, local stores to serve the ‘convenience shoppers’ market. In July 2008, funds advised by Apax Partners agreed the sale of Somerfield to the Co-operative Group for £1.565bn.
Bolero.net
2000
Builders TradeSource
2003
General Healthcare Group Limited General Healthcare Group is the leading provider of independent health care services in the UK. Its primary businesses are BMI Healthcare and Netcare UK. The initial investment in this company was made by the Apax BMI Healthcare is the acute care private hospital division and Europe VI fund in 2005. Netcare UK provides specialised clinical services to patients Turnover (year to 30 April 2008) under contract to the National Health Service. The initial investment in this company was made by the Apax Europe VI fund in 2006. Number of employees
Contech Construction
2006
Turnover (year to 30 Sept. 2008)
CorMine
2005
Financial & Business Services
Electro – Stocks Grup S.L.
Year of initial investment
2007
Farmafactoring S.P.A.
2006
Hub International
2007
IFCO Systems N.V.
2003
L3
2000
PlanView
2004
Plexus Systems
2006
RealPage
2003
Travelex Holdings Limited*
2005
Number of employees
Year of initial investment
Applied Tech
1997
Basic Energy Services
2005
Precision Partners
1998
Trader Media Group Trader Media Group is one of Europe’s largest specialist multimedia publishers, with market-leading automotive classified websites, over 70 leading classified titles and a high-volume printing business.
HIT Entertainment Hit Entertainment is the world's largest independent owner and distributor of pre-school children's content. Hit owns brands such as Thomas and Friends, Bob the Builder, Barney the Dinosaur, Pingu, Fireman Sam and Angelina Ballerina. The initial investment in this company was made by the Apax Europe VI fund in 2005.
The initial investment in this company was made by the Apax Europe VII fund in 2007.
Turnover (year to 31 July 2008)
Turnover (year to 31 March 2008)
Number of employees
Other
£772.6m 8,473
£4,221.4m 40,855
US$273.8m 384
Autotrader is the leading player in the UK automotive print classified market and autotrader.co.uk is the leader in the online segment.
Number of employees
£309.1m 3,527
Incisive Media Limited Incisive Media is a business-to-business information provider. The business operates across the main areas of financial services, with leading brands in the financial, legal, accountancy, real estate and IT sectors. The initial investment in this company was made by the Apax Europe VI fund in 2006.
Travelex Holdings Limited Travelex is the world's largest non-bank provider of commercial foreign exchange services, providing integrated payment solutions for business customers globally. Travelex operates over 700 retail foreign exchange branches around the world. The initial investment in this company was made by the Apax Europe V and Apax Europe VI funds in 2005.
Turnover (year to 31 Dec. 2008 – unaudited)
Turnover (year to 31 Dec. 2008)
Number of employees
£224.7m 1,899
Number of employees
£583.7m 5,554
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100
Apax Partners international offices
China
Italy
Apax Partners Hong Kong Ltd 16th Floor Nexxus Building 41 Connaught Road Central Hong Kong People’s Republic of China T: +852 2297 2313
Apax Partners S.r.l. Palazzo Gallarati Scotti Via A. Manzoni, 30 Milan 20121 Italy T: +39 02 762 1191
China
Apax Investment (Shanghai) Company Ltd 65th floor Shanghai World Financial Center 100 Century Avenue Pudong New District 200120, Shanghai People’s Republic of China T: +86 21 5198 5656
Apax Partners India Advisers Private Limited 2nd Floor Devchand House Shivsager Estate Dr Annie Besant Road Worli Mumbai – 400018 India T: +91 22 4050 8400
Germany
Spain
Apax Partners Beteiligungsberatung GmbH Possartstrasse 11 Kopernikustrasse 81679 Munich Germany T: +49 89 998 9090
Apax Partners España, S.A. Velázquez 10-5° 28001 Madrid Spain T: +34 91 423 1000
Guernsey
Third Floor Royal Bank Place 1 Glategny Esplanade St Peter Port Guernsey GY1 2HJ T: +44 (0)1481 810 000 Israel
Apax Partners (Israel) Ltd Museum Tower 4 Berkowitz Street Tel Aviv 64238 Israel T: +972 3 777 4400
For any questions on this Report please contact Ben Harding in the UK office.
India
UK
Apax Partners UK Ltd 33 Jermyn Street London SW1Y 6DN United Kingdom T: +44 (0)20 7872 6300 USA
Apax Partners, L.P. 53rd Floor 153 East 53rd Street New York, NY 10022 USA T: +1 212 753 6300
For any questions on this report please contact Ben Harding in the UK office.
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Apax Partners Annual Report 2008
www.apax.com
What’s in this Annual Report? Table of contents
Apax Partners Annual Report 2008
2
Performance highlights
4
Apax Funds live portfolio summary
1 10
Section 1: Overview Chief Executive’s letter from Martin Halusa
14
Investment strategy
19
Our global reach
20
China – opportunities and challenges
2
Section 2: Governance
26
Operational structure
28
Governance and compliance
32
Our values
34
The wider community
3
Section 3: Our sector expertise
42
Sector review Tech & Telecom
52
Sector review Retail & Consumer
62
Sector review Media
70
Sector review Healthcare
80
Sector review Financial & Business Services
4 90
Section 4: Our investors Investors
98
Current portfolio
100
Apax Partners international offices
Designed and produced by RadleyYeldar Photography by Matt Mawson (Mosaic: Benedict Johnson – Emmaus: Henry Thomas) Printed by CTD (FSC and ISO 14001 certified) Printed on Challenger Laser Matt comprising of fibres sourced from well-managed sustainable forest reserves and bleached without the use of chlorine. The production mill for this paper operates to EMAS, ISO 14001 environmental and ISO 9001 quality standards.
Front cover: Shanghai World Trade Centre, Apax Partners’ new China headquarters
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Apax Partners Annual Report 2008
www.apax.com
What’s in this Annual Report? Table of contents
Apax Partners Annual Report 2008
2
Performance highlights
4
Apax Funds live portfolio summary
1 10
Section 1: Overview Chief Executive’s letter from Martin Halusa
14
Investment strategy
19
Our global reach
20
China – opportunities and challenges
2
Section 2: Governance
26
Operational structure
28
Governance and compliance
32
Our values
34
The wider community
3
Section 3: Our sector expertise
42
Sector review Tech & Telecom
52
Sector review Retail & Consumer
62
Sector review Media
70
Sector review Healthcare
80
Sector review Financial & Business Services
4 90
Section 4: Our investors Investors
98
Current portfolio
100
Apax Partners international offices
Designed and produced by RadleyYeldar Photography by Matt Mawson (Mosaic: Benedict Johnson – Emmaus: Henry Thomas) Printed by CTD (FSC and ISO 14001 certified) Printed on Challenger Laser Matt comprising of fibres sourced from well-managed sustainable forest reserves and bleached without the use of chlorine. The production mill for this paper operates to EMAS, ISO 14001 environmental and ISO 9001 quality standards.
Front cover: Shanghai World Trade Centre, Apax Partners’ new China headquarters
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Apax Partners Annual Report 2008
www.apax.com
What’s in this Annual Report? Table of contents
Apax Partners Annual Report 2008
2
Performance highlights
4
Apax Funds live portfolio summary
1
Section 1: Overview
10
Chief Executive’s letter from Martin Halusa
14
Investment strategy
20
China – opportunities and challenges
2
Section 2: Governance
26
Operational structure
28
Governance and compliance
32
Our values
34
The wider community
3
Section 3: Our sector expertise
42
Sector review Tech & Telecom
52
Sector review Retail & Consumer
62
Sector review Media
70
Sector review Healthcare
80
Sector review Financial & Business Services
4
Section 4: Our investors
90
Investors
98
Current portfolio
100
Apax Partners international offices
Designed and produced by RadleyYeldar Photography by Matt Mawson (Mosaic: Benedict Johnson – Emmaus: Henry Thomas) Printed by CTD (FSC and ISO 14001 certified) Printed on Challenger Laser Matt comprising of fibres sourced from well-managed sustainable forest reserves and bleached without the use of chlorine. The production mill for this paper operates to EMAS, ISO 14001 environmental and ISO 9001 quality standards.
Front cover: Shanghai World Trade Centre, Apax Partners’ new China headquarters
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The development of Apax Partners
Total funds raised At 31.12.2008
The history of Apax Partners is interwoven with the development of the private equity asset class on both sides of the Atlantic. Throughout its 30 year history, the firm has successfully raised and advised Funds which invested across all investment stages, and through several complete economic cycles. The firm’s focus on buyouts is rooted in a culture that has always been outward looking, pioneering and committed to growing businesses.The deep understanding of the five sectors in which its Funds invest has been at the core of Apax Partners’ strategy, giving it early access to investment opportunities and an ability to add value quickly to portfolio companies.
1976 Sir Ronald Cohen’s Multinational Management Group and Alan Patricof Associates join forces.
At 31.12.2008 At 31.12.2008
1999:The firm raises its first panEuropean fund, having integrated the management companies of its European and Israeli offices.
2001: Apax Europe V raised The largest European private equity fund at the time.
2007: Apax Europe VII raised The largest European private equity fund.
€1.8bn
€4.4bn
€11.2bn
€26.6bn £25.7bn US$36.9bn
2008 China Shanghai office opens 2004 Sweden Stockholm office opens
1980: Excelsior Fund The US firm raises its first fund
1994 Israel Tel Aviv office opens
2006 India Mumbai office opens
US$25.53m 1981: Apax Venture Capital Fund The UK firm raises its first fund
1989 Spain Madrid office opens
£10.15m
2000 Italy Milan office opens
1990 Germany Munich office opens
2002: European and US operating companies merge to become Apax Partners LLP built quity firm Private e
1976
1980
2005 China Hong Kong office opens
sectors industry around
2004: Succession Martin Halusa elected CEO to succeed founder Sir Ronald Cohen
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Find out how we got here Apax Partners timeline under the flap
Apax Partners Annual Report 2008
Apax Partners is an independent global partnership focused solely on private equity. Funds advised by Apax Partners typically invest in large companies with a value between €1bn and €5bn. The Funds invest in five sectors: Tech & Telecom, Retail & Consumer, Media, Healthcare, Financial & Business Services. Apax Funds provide the capital and expertise that help excellent management teams release the full potential of their businesses. Companies backed by Apax Funds have a strong track record of growing by investing in research and development, exports and sales and by growing employment. About us
Our mission Our
mission is to release the untapped potential of companies, management teams and portfolio company employees in order to generate superior returns for the millions of individuals whose pension funds and investment plans commit to our Funds.
1
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Apax Partners Annual Report 2008
2
3
2008 Performance highlights
New investments in 2008 Deal name
Location
Germany
D+S europe
Total amount invested in 2008 (€)
Key realisations in 2008 Deal name
Location
US
Audible
Emap
UK
Bezeq
Israel
TriZetto
US
Intelsat
US
Weather
Italy
Princeton Softech
US
1.84bn Total amount realised in 2008 (€)
1.07bn
Average portfolio profit growth 2008
11% 16% Average portfolio profit growth, last ten years
Investor breakdown by type
In Apax Partners funds returns to Investors
Public pension funds
31.77%
Private pension funds
14.16%
Funds of funds
11.14%
High net worth individuals
10.28%
>270,000
0%
15 year
Total portfolio enterprise value (€)
68bn
18.3%
0.1%
Equity : Debt ratio in the Apax Funds live portfolio MSCI Europe
Net IRR top decile benchmark 2
10% Investor breakdown by type
1
20%
Net IRR – Apax Europe Funds
4.52%
5.7%
Gatekeepers
30%
MSCI Europe
5.18%
23.4%
Sovereign funds
Net IRR top decile benchmark 2
6.14%
28.1%
7.05%
Endowments
30.1%
9.76%
Banks
of which is top line growth;
Acquisitions Monthly Winner Exit of the year Mölnlycke
of which is operational improvement. Dow Jones/Private Equity News Awards Winner European fundraising of the year Winner European large buyout of the year Winner European exit of the year Intelsat
FinancialTimes-Mergermarket European M&A Awards 2008 Winner Private Equity Firm of the Year
Total portfolio staff 2008
Net IRR – Apax Europe Funds1
Insurance
40%
46% 54%
Award winning private equity
10 year
1 At 31 December 2008. 2 Benchmark is the top decile buyout cumulative vintage year annual IRR as of March 2009 (latest available for 2009) for AEVI and all private equity IRR for other funds.10 year and 15 year benchmarks are the cumulative composite vintage year IRRs over each period. Source:Thomson Financial. MSCI data as of 31 December 2008.
31:69 Net debt/EBITDA multiple
5.1x
European Venture Capital Journal Awards 2008 Winner Fundraising of theYear
Financial News/Private Equity News Awards for Excellence in Private Equity Winner European Private Equity Personality of theYear – Martin Halusa
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Apax Partners Annual Report 2008
4
5
Apax Funds live portfolio summary
Tech &Telecom
Apax Funds live portfolio value by sector at 31 December 2008 Retail & Consumer
29.73%
Tech & Telecom
27.25%
Healthcare
17.17%
Media
13.54%
Financial & Business Services
12.31%
Retail & Consumer
Media
†
*
Healthcare
Financial & Business Services
*
* Portfolio equity value
*
*
*
Sale agreed July 2008, completed March 2009
*Walker: UK compliant †BVK: Germany compliant
*
*
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1
Section 1 Overview 10
Chief Executive’s letter from Martin Halusa
14
Investment strategy
19
Our global reach
20
China – opportunities and challenges
7
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Apax Partners Annual Report 2008
9
Strategy Our investment strategy is clearly focused on identifying opportunities where our in-house resources and expertise can add value. Our sole focus is, and always has been, excellence in private equity investing. We do not do anything else. Within private equity, we focus on five industry sectors, which together account for around 50% of the economy. Our Funds have invested in the same five sectors for over 25 years and our team is made up of industry experts who are dedicated to generating unique investment opportunities within these sectors. We believe this strategy was right at the top of the market and is the right one to employ in this unusual and difficult market.
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Apax Partners Annual Report 2008
10
11
Chief Executive’s letter
Why are we reporting? Welcome to the second Apax Partners Annual Report. The aim of the Report is to provide greater transparency on Apax Partners and the portfolio companies in which its Funds invest. We recognise that, as the industry expands and matures, it has an obligation to increase the quality of its transparency and disclosure. Apax Partners has been at the forefront of discussions about how to achieve this on an industry-wide basis and is fully committed to conforming to the Walker Guidelines in the UK and the transparency guidelines of the BVK in Germany, as well as the Private Equity Council guidelines on responsible investment.
Martin Halusa, CEO Apax Partners
>270,000 employees in portfolio companies Source: Apax Partners
How does the current economic turmoil impact Apax Partners? Given the dramatic events in the financial services industry and the global economy during 2008, I would like to start by stating clearly that we believe the private equity ownership model is robust and relevant in these turbulent and worrying times. In the last decade, private equity has become an established and viable alternative to public market and family ownership, and we believe that this shift is here to stay. It is our view that companies will continue to alternate between public and private ownership in accordance with their funding needs and the ability of the public markets to value them correctly, fund their growth and deal with significant changes in strategy, which may impact short-term performance. The private equity model is characterised by a strong alignment of interests between the shareholders, management and employees and by a long-term investment horizon, which in our case stretches to an average of five years. This governance model will always be an attractive solution for those public companies which have multitudes of short-term shareholders with conflicting motivations. The quarterly reporting schedule and the distraction of a fluctuating share price, which is so often unrelated to company fundamentals, represents a constant distraction for management. It is an equally applicable model for those family owned companies which are struggling with succession issues and a lack of clear management incentive and for whom a public listing is not a viable alternative. In our view the private equity model is well suited to help companies through this difficult period. The ability to act quickly and decisively with an eye to the long-term health of company fundamentals, rather than short-term concerns about the share price, is critical. This is a view shared by the World Economic Forum, whose findings in a recent report show that private equity is best suited to make the difficult decisions to manage companies effectively in a downturn. So far, private equity is proving to be one of the most stable elements of the financial services industry. In terms of results, when we look back at this crisis, we believe that the leading firms will have outperformed the top players in other asset classes. There is now significant evidence that the best firms in the industry are able to sustain their performance by continuing to help management teams, and we think that the current downturn will further emphasise this trend.
On the other hand, this industry will face considerable challenges over the next few years. The market for raising new capital will be more difficult because the pension funds and other institutional investors that are the main backers of the asset class will themselves have less liquidity and may well cut back on the number of firms in which they choose to invest. Ultimately, this could lead to a considerable amount of consolidation. The availability of debt financing is expected to continue to be limited, which puts more emphasis on private equity firms being able to deliver operational value-add. This, in return, presents a personnel challenge as the skill sets needed in private equity shift from financing to operational expertise.
11% 16% average growth rate 2008
average annual growth rate over the past 10 years. Source: Apax Partners
What are we doing? The number one priority for Apax Partners at the moment is ensuring that our Funds’ existing portfolio companies are in a robust position to weather the stormy economic climate. While our Funds’ portfolio overall is in good shape, the severity and speed of the current downturn is unprecedented and is impacting certain sectors and companies more severely than others. We are mobilising internal and external resources to help and support portfolio companies that are feeling the effects of the current downturn. However, while we cannot account for all future scenarios, we believe that we will be able to contain the impact on our Funds’ portfolio overall. At present, the average debt level across our Funds’ portfolio is relatively modest at 5x annual profits, and the first significant re-financing is not due until 2012. Despite the economic slowdown last year, the 36 major companies in our Funds’ portfolio achieved increased profits (EBITDA) of 11% and, of these companies, 30 were on or above our original investment plan for 2008. The ability to grow the companies in which our Funds invest and to release their full potential is more important at this time than it has ever been. Over the past 18 months, in anticipation of this downturn, we have recruited several senior industrialists to our Portfolio Support Group, which now numbers ten professionals. This team supports the investment staff, providing a wealth of operational and finance expertise. Additionally, the senior Partner group has an average of 13 years’ private equity experience and has been through challenging recessions before. Around 80% of the investment team has a background in industry and consultancy, rather than investment banking and transaction management. It is this team strength and experience that will help our portfolio, as well as Apax Partners, emerge out of the current difficulties in a robust position. The governance structure with private equity firms in general and with Apax Partners in particular has never been more crucial, for example, our Funds remain unleveraged, we remain focused on one core business and are rewarded only on a long-term basis. We have a governance model that has, to a large degree, insulated us from many of the problems that financial services companies are facing today, which have been caused by inadequate checks and balances, by a short-termist culture of uncontrolled and excessive risk taking, by misalignments of interest, and by expansion into new business areas where risks were improperly understood and governance structures poorly defined.
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Chief Executive’s letter continued
Growth in the Global Private Equity market Buyout value (US$bn)
Number of buyouts
700
700
3,000
600 2,500 500 2,000 400 1,500 300 1,000 200
500
0
Source: Dealogic
2007
2008
2005
2006
2003
2004
2002
2001
2000
1999
1998
100
0
In contrast to the compensation schemes that have been widely criticised at banks and other financial services companies, we are only rewarded if our Funds’ investments are successful. Our reward scheme is aligned with the investors in our Funds; we do not participate in the capital gains of the Funds until the pension funds, endowments and insurance companies that are our main backers have been paid back in full and have received the agreed return on their capital. Our horizons are also long-term, the Funds that we advise typically have a life-span of ten years or more. We have a relatively simple model. We are a ‘pure play’ private equity firm, G whose Funds make investments in large companies operating in five industry sectors. We provide the backing for companies that operate in the ‘real’ economy across the world: companies that provide mobile phone infrastructure in Greece and Pakistan, milk and dairy products in Israel and Romania and operate hospitals in India. We stuck to this strategy when there was ample opportunity to expand our business, and fully intend to stick to it in this more challenging environment. We remain a focused investment manager rather than an ‘asset gatherer’ and we believe that the governance structures that we have put in place to manage our business globally are amongst the best in class (see pages 28–31 for more detail). What next? We have been expecting a downturn in the credit market and a slowdown in the economy for the last three years and have invested accordingly. Clearly it has been deeper than we predicted and, at the time of writing, we expect it to get worse before it gets better. We clearly saw valuations become over-inflated in the years leading up to August 2007, and we invested accordingly; now we think that confidence is dropping to the extent where we will see a period of significant over-compensation. Looking at valuations with an historic perspective, we are seeing good companies with strong fundamentals being mis-priced by the public markets. In this environment, where banks have scaled back their lending, the percentage of our own equity that our Funds use to back companies will increase. Indeed, many investments will be equity only. We will see more situations where our Funds invest alongside established corporate players, such as our partnership with the Guardian Media Group in Emap and Trader Media or investments like Weather, where our Funds took a minority stake in a larger growth company to enable it to fully benefit from the recovery. What hasn’t changed is our commitment to helping companies release their full potential in terms of growth, profitability and long-term sustainability. In its 30 year history, Apax Partners has never been focused on distressed situations and ‘turnarounds’ or trying to take advantage of cyclical fluctuations in the market. From our earliest days, when our Funds invested in small high growth businesses, we have always sought to back excellent management teams in companies with growth potential. Our Funds continue to back the same excellent companies and provide the industrial expertise that will enable them to prosper in these difficult times.
Key events for Apax As part of a long-term plan to expand our presence in Asia, last year we opened an office in Shanghai, our first in mainland China. We were also pleased to welcome Richard Zhang to the Firm to lead our push into Greater China. Coinciding with Richard’s arrival, several of our senior European and US based partners have relocated to the China office. Richard’s account of the challenges and opportunities that present themselves as we continue our expansion follows on page 21 of this Report. It remains our long-term ambition to have equivalent sized teams in Europe, the US and Asia. In terms of investments, 2008 was very much a year of two halves. In the first half of the year, our funds were active investors, backing four companies: Emap, D+S europe, TriZetto and Weather Investments. In the second half we did not make any new investments due to the extraordinary economic turbulence. In terms of divestments, the highlights were the sale of satellite operator Intelsat at the very start of the year and the agreed sale of grocery chain Somerfield to the Co-Operative Group in July. Both illustrate how we are able to help companies release their full potential. The case of Somerfield is a good example of how a period of private equity ownership can breathe new life into a public business that is lacking strategic direction. Intelsat was a very successful consolidation play in an industry sector where our team had a very deep prior understanding. The skill sets, governance model and alignment of interests in private equity will continue to create out-performance relative to the public markets. However, in the short term, the industry will have to deal with a challenging fundraising environment and portfolio companies which are suffering in the current recession. Fortunately, Apax Partners is well positioned on both counts. The companies in which our Funds invest continue to perform well in a tough market. We also have a large team of industry specialists and the capital necessary to support the few companies in our portfolio which are struggling as a result of the recession. Although there will inevitably be consolidation in the industry, in the long term those firms that can create value through these difficult times will enjoy a very attractive future.
Martin Halusa Chief Executive
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Investment strategy Overview
Apax Funds have a proven strategy of sector focused investing, looking for opportunities where capital, experience and insight can release the potential of businesses and lead to significant growth.The firm has successfully pursued this strategy since 1990. Our sector focus, combined with an established network of local offices and a global platform, represents the foundation of Apax Partners’ strategy.
Sector focus Apax Funds invest across five global growth sectors: Tech & Telecom, Retail & Consumer, Media, Healthcare, Financial & Business Services. Funds advised by Apax Partners have invested successfully in these sectors over the last 25 years, giving us genuine insight into the businesses in which our Funds invest. The team at Apax Partners is geared toward this strategy of sector-focused investing, with 80% of investment professionals having prior relevant sector expertise. Local presence Our offices have been established for an average of 13 years each and are primarily staffed by local nationals. Close relationships with decision makers in the countries in which we operate helps us to unearth new investment opportunities and understand the market in which portfolio companies operate. Global reach Apax Partners has an established global presence, with ten offices in nine countries across three continents. Our global platform enables us to grow businesses by spotting emerging trends early, supporting the growth of global companies and using the world’s stock markets most effectively. As the private equity market matures, we believe that some of the best-performing firms will be those with genuine global reach and financial scale.
10 5
Apax Partners has ten offices in nine countries across three continents.
Apax Partners focuses on five industry sectors bringing deep expertise and experience to management.
Investment focus The five sectors in which Apax Funds invest follow different business cycles, which can also vary by country. Apax Funds do not pre-allocate capital to sectors or countries but invest according to the prospects for each sector and economy as well as the detailed strategies developed by each Apax Partners sector team. Investments are structured around the growth needs of the specific business. Apax Partners believes that investments in companies which are typically valued between €1bn and €5bn are best suited to its experience and expertise. In our view, these larger businesses offer more established and resilient business models, more opportunities to create value, greater attraction for excellent management teams, and more diverse exit options than smaller businesses and yet still maintain the growth characteristics that are more difficult to realise in the very largest businesses. These are also businesses that often benefit from Apax Partners’ extensive global platform and presence in multiple markets and its ability to deploy a large amount of experienced resources in complex international transactions. Responsible Investment Apax Partners is focused on advising the Apax Funds on managing the portfolio risks as well as the risks of the individual companies in which the Funds invest. Apax Funds take a responsible attitude toward the capital structures in the portfolio companies in which they invest to avoid over-leveraging a business. The average debt level in Apax Funds’ live portfolio is 5.1x EBITDA. Value creation Throughout its 30+ year history, Apax Partners has been committed to helping businesses through all stages of their development. Apax Funds continue to look for opportunities where they can use their insight into the growth drivers of the underlying business. We believe that this is a more robust source of returns, over the business cycle, than a sole reliance on financial leverage or multiple arbitrage. Over the last ten years, the cumulative annual growth rate of profits across the Apax Funds portfolio was 16% per annum.
How do we grow businesses? Typically, Apax Partners attempts to grow businesses by acting as a catalyst for change.
How we help businesses grow
Step 1
Define the full potential Step 2
Develop the business plan Step 3
Accelerate performance Step 4
Harness the talent Step 5
Focus on company results Step 6
Optimise returns on equity As well as ensuring that the financial structure is appropriate, Apax Partners has recently embedded non-financial principles for responsible investment into its investment process (see page 32–33). In the case of virtually every investment, at least one Apax Partners executive will join the board of a portfolio company in a non-executive capacity to bring broad experience to bear and to give the company access to the international resources that Apax Partners can provide. This can assist Apax Funds portfolio companies with matters as diverse as acquisition opportunities, IPO planning, key management hires, understanding competitive threats and opportunities, international expansion and benchmarking Key Performance Indicators against best practice. Apax Partners believes that having its own executives perform this role is key to driving value creation. The Apax Partners representative will also monitor non-financial aspects of portfolio companies such as corporate governance, corporate social responsibility and compliance with the Apax Partners values.
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Investment strategy How do we select our investments?
17
Investment strategy Global reach
Apax Partners deal selection criteria
Question 1 US Established: 1969
Is the company in one of our five sectors of industry expertise?
UK Established: 1981
Sweden Established: 2004
Germany Established: 1990
China: Shanghai Established: 2008
Question 2
Do we have any particular insight into the risks and opportunities for growth? Question 3
Is it a market leader with significant growth potential within our targeted size range?
10 45 13 offices
Question 4
Does the company have untapped potential to grow?
partners worldwide
Question 5
Is it a global company or does it have the potential to be?
years average partner experience in private equity
Question 6
Is the company well managed? Can we add value to the management and governance of the business? We generate a huge amount of investment ideas across our global platform. Each of these initial ideas is subject to rigorous assessment by the investment team, who will often call on external analysis to support their deal hypothesis. When the investment is sufficiently well developed, it is brought before our internal investment committees who assess the opportunity based on the criteria highlighted above.
China: Hong Kong Established: 2005
Of a total of 1,531 investment ideas logged in our system since the start of 2005, 11% made it to the point where they were under serious consideration and only 3% made it to the next stage. Of all of the investment opportunities that we looked at around the world, we completed just 30. We invest a significant amount of internal and external resources in those investments that do reach completion. The research involves all areas of the company’s performance, management
and market, as well as non-financial aspects such as environmental impact, CSR policies and governance structures. On average, we spend over eight months looking at an opportunity before it reaches completion, and in virtually every one of these investments we will have a prior relationship with the management before the deal even makes it on to the system.
Spain Established: 1989
Apax Partners’ offices have been established for an average of 13 years each and are primarily staffed by local nationals. Close relationships with decision makers in the countries in which we operate gives us an advantage in terms of finding new investment opportunities and understanding the market in which Apax Funds’ portfolio companies operate.
Italy Established: 2000
Apax Partners has an established global platform with ten offices in nine countries across three continents. This breadth enables it to spot emerging trends early, support the growth of companies and use the financial markets most effectively. As the private equity market matures, we believe that some of the best-performing firms will be those with genuine global
Israel Established: 1994
India Established: 2006
reach and financial scale. Apax Partners is one of a small group of private equity firms to have embraced the challenge of globalisation.
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Investment strategy How we support our portfolio
Sector Expertise
One of Apax Partners’ core strengths is that our Funds only invest in companies in five industry sectors. As a result, the expertise we have built up over the years gives us the understanding
necessary to help our management teams develop and grow their firms in good times as well as bad.
Management Support
A key part of the strategy to invest along sector lines is Apax Partners’ panel of operating partners – seasoned industrialists who offer a wealth of managerial experience and specialist expertise. The members of this panel can be used to help
tackle particular situations and projects or, in exceptional circumstances, can take the helm at businesses that might be facing specific issues for which the existing management is not adequately equipped.
100-Day Planning
Actions taken by an investor during the first few months with a new portfolio company are critical in determining the success of the business. Apax Partners has refined its approach to this process. An enormous amount of time is invested in gathering information and assessing the
experience within the business and codifying this to accelerate the pace of change. We make sure that the right people and incentive structures are in place in our Funds’ portfolio companies. And we perfect the detailed plan that will guide the business well into the future.
FinancingTeam
In such turbulent times it is inevitable that some of the companies in which our Funds invest will face significant financing challenges and in many cases the existing management teams will not have faced such tough trading conditions before. Apax Partners’ Financing Team can be made available to help navigate a path through the
difficult conditions, working both in-house and directly with investee managers. The team can also exploit the silver linings that come with this territory, working with the companies to make use of the ultra-low interest rate environment and the value-creation opportunities it offers.
Portfolio Recruitment Centre
With over 100 companies in the current portfolio employing hundreds of senior managers, Apax Partners’ Portfolio Recruitment Centre provides a key support function. The team, which manages a 30,000-strong database of contacts, undertakes
the search and selection function for strategically important managerial and advisory positions within the portfolio, sourcing and liaising with specialist outsourcing firms where necessary.
Secondments
Apax Partners also seeks to provide support via the seconding of investment team members into portfolio firms. Given the current economic conditions, this makes for a win-win situation: our portfolio companies benefit from additional
high-level support, while the investment team members gain invaluable hands-on experience in a tough operating environment.
Sector Expertise
100-Day Planning Centre of excellence
Secondments
Portfolio Support Group
Portfolio Recruitment Centre
Management Support
FinancingTeam
The Portfolio Support Group harnesses the varied array of talents within the firm to deliver the best mix of services to the companies in which our funds invest.
As well as helping portfolio companies deal with today’s challenging market conditions, the Group identifies longer-term opportunities that may have been lost by management as they deal with pressing short-term operational issues.
The Group delivers focused support in a number of different ways as explained in the diagram and descriptions on this page.
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China: opportunities and challenges Richard Zhang Apax Partners Greater China
China and beyond The opening of Apax Partners’ first office in mainland China was one of the key highlights for the Firm in 2008. It followed nearly three years of methodical preparation after the opening of a beachhead in Hong Kong in 2005, and represents the continuation of a deliberate and consistent globalisation strategy. By transferring senior professionals from across our network and making highly selective new hires in China, we now have seven investment professionals including three Partners based in Greater China. The team is headed by me, Richard Zhang, a native Chinese and a former Director of McKinsey who, over 15 years of consulting experience with the firm, played a key role in building its China practice. Apax Funds’ initial investment focus is mainland China, Hong Kong and Taiwan while being opportunistic in South East Asia (primarily Singapore and Korea). The Funds will follow the same proven investment strategy and apply the same investment principles and criteria as they do across our global platform. We want our Funds to be seen as not just a financial sponsor, but a ‘strategic partner’. Greater China In terms of the market, the Greater China economies are all profoundly shaped by mainland China. For instance, roughly 60% of the Hong Kong stock exchange market capitalisation comes from pure mainland Chinese companies and a listing in Hong Kong has become a gateway to the world for Chinese champions with global aspirations. Many of Taiwan’s
technology and consumer goods giants are also the market leaders in the mainland, and recent political change in Taiwan has accelerated the speed of this integration. Investments can be completed in Hong Kong or Taiwan, which have more investor friendly regulatory regimes, while still being able to tap into the mainland growth. Regardless of where the transactions actually take place, developing truly deep China-specific insights, relationships, and networks to spot attractive assets and make them actionable is a critical factor of success across Greater China markets. The impact of the global slowdown While
the current economic events have had no bearing whatsoever on the timing of our entry into mainland China, this is certainly a critical moment for China’s potential rise as an economic superpower. After 30 years of reform, liberalisation and astonishing economic growth, China is undergoing one of its most challenging periods as a result of the global financial crisis; proving there is no such thing as decoupling. The dramatic slowdown in exports has almost halved China’s GDP growth from a peak of 13% in 2007 to only 6.8% in the final quarter of 2008. The first half of 2009 is likely to continue this downward trend. Yet it is difficult to think of anywhere in the world today where you can sense more hope and positive energy, not least in the vast upsurge of entrepreneurial activity that has been unleashed.
The Chinese government’s response to the crisis has been swift, massive and continuous. It is primarily aimed at boosting domestic investment and consumption to counterbalance export losses. We are already starting to see limited signs of progress. Retail sales grew about 15% in the first two months of 2009 compared to the same period a year ago, and automobile sales in particular hit a record high of over 1 million units in March 2009. Credit has steadily become more widely available since November 2008; new loans quadrupled to reach RMB1.89 trillion in March 2009 from only RMB470 billion back in November. Chinese banks remain highly liquid and profitable, having suffered minor bruises from the subprime loss. More importantly, China’s longer term fundamentals remain strong, as continued urbanisation will create another 200 million new consumers and possibly over a dozen mega cities (each with a population in excess of 10 million) in the next 2–3 decades. Danger or opportunity Despite the enormous promise, China is never an easy market, and we are fully aware of the need for patience and prudence. However, growth was, is and will remain a fundamental theme of China, notwithstanding the current crisis. Incidentally the Chinese word for ‘crisis’ literally consists of two characters -‘wei’ meaning danger, and ‘ji’ meaning opportunity – the marriage of danger and opportunity.
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2
Section 2: Governance 26
Operational structure
28
Governance and compliance
32
Our values
34
The wider community
23
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Stability The private equity model is characterised by an alignment of interests between the private equity firm, the investors in its funds and the portfolio company management. In contrast to many other financial services models, our investment horizons are long-term and we are only rewarded for success after our investors have been repaid. Apax Partners has consistently sought the highest possible standards in corporate governance and transparency. Our rigorous internal processes are supported by external advisory boards to ensure that interests remain aligned and any conflicts are dealt with quickly and efficiently.
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How we are run Operational structure
Apax Partners Executive Committee
The Executive Committee is responsible for the day-to-day management of Apax Partners worldwide. The group meets on a monthly basis to discuss matters of strategic importance for the global organisation.
Martin Halusa Worldwide CEO (London) Martin joined Apax Partners in 1990. He is Chairman of the global Executive Committee and Investment Committee and a member of the Approval, Exit and Portfolio Review Committees.
John Megrue (New York) John initially joined Apax Partners in 1988, then left to co-found his own private equity firm and returned with his team in 2005. He is a member of the Approval, Investment, and Portfolio Review Committees.
Michael Phillips (Munich) Michael joined Apax Partners in 1992. He leads the Financial & Business Services team globally and is a member of the Approval, Investment, Portfolio Review and Exit Committees.
Stephen Grabiner (London) Stephen joined Apax Partners in 1999. He leads the Media team globally and is a member of the Investment, Portfolio Review and Exit Committees.
Investment Committees
Below the Executive Committee are a further four sub-committees that oversee the investment process from initial idea through due diligence and throughout the life of the investment to its eventual exit. At every stage in the process, the investment is subject to a rigorous process of scrutiny by these committees.
1
2
3
4
Approval Committee Chaired by Peter Englander, the Approval Committee acts as a sounding board to the deal teams and ensures that the best opportunities are pursued across our sectors and geographies.
Investment Committee Chaired by Martin Halusa, the Investment Committee makes the investment recommendations to the investment manager.
Portfolio Review Committee Chaired by Peter Englander, the Portfolio Review Committee periodically monitors individual portfolio companies to assess ways in which Apax Partners can add further value or to iron out potential problems.
Exit Committee Chaired by Paul Fitzsimons, the Exit Committee reviews exit options for specific portfolio companies.
Five specialist sectors
Sector teams work across our global network of offices, using extensive in-house knowledge and access to business networks. We are able to quickly identify global trends within a sector and maximise the business opportunities.
Tech & Telecom Pioneers in Technology and Telecommunications investing with companies on both sides of the Atlantic.
Retail & Consumer One of the leading global investors in the Retail and Consumer sector over several decades. Over €2.4bn of equity invested in retail businesses.
Media One of the largest and longest-established teams in the industry. The team has a wide variety of industry, consulting, private equity and banking experience, with focus on niche sub-sectors.
Healthcare Strong scientific background, with many members having achieved academic success in their specialist field before moving into industry, consulting or private equity directly.
Financial & Business Services Worldwide, the FABS team is made up of 18 investment professionals located across Apax Partners’ office network. The team has a broad range of expertise spanning industry, consulting and investment banking.
Portfolio Support Group
The Portfolio Support Group harnesses a varied array of talents within the firm to deliver the best mix of services to the companies in which our funds invest.
Sector expertise We only invest in the five sectors in which we have specialist experience and expertise.
Management support Our panel of seasoned industrialists are experts at working with the management of our portfolio companies to maximise growth potential.
100 Day Planning Our process of early-day planning is critical to the success of our investments.
Financing team Our finance team offer portfolio companies unrivalled experience, which is proving crucial during the current economic downturn.
Portfolio Recruitment Centre Our 30,000-strong database of experienced management personnel offers our portfolio companies unrivalled recruitment resources.
Support operations
Compliance
Funds Administration/Finance
Investor Relations
Communications
Tax
IT
Human Resources
Ensures the business complies with governance regulations.
Provides administrative operations to ensure the smooth financial running of the business and timely and accurate investor reporting.
Manages the relationships with our investors.
Manages the dialogue between the firm and its stakeholders.
Manages reporting of information to investors to allow them to comply with their own tax filing obligations.
Provides and manages the technology infrastructure.
Manages all aspects of the firm’s relationship with its employees.
Ensures the business complies with external regulations and the Apax Partners internal code of conduct.
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How we are run Governance and compliance
The Company’s approach to corporate governance Apax Partners LLP (‘Apax Partners’) is the holding company for the worldwide Apax partnership and is the lead investment adviser to the most recent Apax Funds. In the UK, it is regulated by the Financial Services Authority (FSA) and advises Apax Partners Europe Managers Limited (APEM) which is also regulated by the FSA. APEM is owned by the firm’s UK-based senior partners and manages the assets of the most recent Apax Funds. Apax Partners is committed to maintaining the highest business standards consistently across all of its offices. Although the firm is only subject to formal registration and regulation in some of the markets in which it operates, it is nonetheless governed on a global basis and applies the same business principles and compliance procedures to all of its operations. As such, Apax Partners has consistently sought to lead good practice in corporate governance and transparency within the private equity sector. The business of Apax Partners is operated and managed through a small number of committees whose respective terms of reference clearly define responsibilities and accountability.
2
4
3 1
Executive Committee 1. Martin Halusa Chairman 2. Stephen Grabiner 3. Michael Phillips 4. John Megrue
Sub-committees Below the Executive Committee are a further four subcommittees that oversee the investment process from initial idea through due diligence and throughout the life of the investment to its eventual exit. At every stage in the process, the investment is subject to a rigorous process of scrutiny by these committees. Investment process
1
2
3
4
Approval Committee
Investment Committee
Portfolio Review Committee
Exit Committee
Chair Peter Englander
Chair Martin Halusa
Chair Peter Englander
Chair Paul Fitzsimons
Terms of reference Source of guidance to deal teams. Approval of deal expense budgets. Provision of advice to European Investment Committee.
Terms of reference Provide investment recommendations to the investment manager.
Terms of reference Review of progress of portfolio company compared to 100 Day Plan. Forum for discussion of likely ongoing funding requirements and for exit opportunities. Recommendation of management changes to the deal team.
Terms of reference Reviews exit options for specific portfolio companies.
Fund Advisory Boards As well as the internal corporate governance bodies, Apax Partners has a well-established structure of external advisory boards. Each of the Funds managed or advised by Apax Partners has a Board of Advisers. Representatives of up to 15 of Apax Funds’ Investors are invited to become members of the Board. The independence of the Board is maintained because it is always chaired by one of our investors, who are appointed every two years. The Board is currently chaired by Wim Borgdorff, managing partner at AlpInvest Partners, Europe’s largest investor in private equity. The responsibility of the Chairman is to set the agenda and ensure that the Board of Advisers complies with its terms of reference. The Board of Advisers meets twice a year and is consulted by the General Partner on certain of the affairs and operations of the Funds, in particular, issues relating to conflicts of interest and review of the valuations at which investments are carried in the notes to the accounts. Debt Apax Funds are managed with zero leverage. At the portfolio company level, average leverage is 5.1x.
Executive Committee The Executive Committee is responsible for the
day-to-day management of Apax Partners worldwide. The group meets on a monthly basis to discuss matters of strategic importance for the global organisation. It is also responsible for setting standards on remuneration and recruitment and oversees the governance of the firm in each of the countries in which it operates.
Compliance Compliance reports periodically to the Executive Committee on results of monitoring and other issues and on an ad hoc basis as necessary. The Partner with the responsibility for the oversight of Apax Partners’ compliance is Martin Halusa.
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How we are run Governance and compliance continued
Global business standards The Compliance department has developed a series of principles and procedures to guide and support the global firm. The key principles are communicated through regular training and visits to all offices and are regularly monitored to ensure that the standards are being adhered to. The main areas of focus are as follows: Conflicts of interest Apax Partners maintains policies concerning potential conflicts of interest not only to comply with its FSA regulatory obligations but in particular to identify and manage those conflicts. Typically, conflicts are managed by obtaining consent, refraining from taking action and by disclosure. Detailed procedures are in place to manage conflicts, for example co-investment, remuneration, carried interest, allocation and responsibility of Directors. There are also policies designed to manage personal conflicts such as personal share and securities dealing, the receipt of gifts and entertainment, and external non-Apax activities. Each Fund has a Board of Advisers, made up of the major investors in that fund to which potential conflicts can be referred for guidance. The scope of this Board is set out in its terms of reference and in the Fund’s partnership agreement. Senior management arrangements Certain positions and functions within Apax Partners require key individuals to receive approval from regulatory bodies before they can be appointed: these include all Partners and Directors, and certain key support functions such as Compliance and Finance. As an Approved Person, those individuals are required to conduct themselves in a manner consistent with a specified set of principles and are personally accountable to the Regulator for their actions. Confidentiality Members of the Apax Partners team recognise the trust that is placed in them, both by investors and by the companies that the Funds are looking to invest in. Confidential information received by any Apax Partners representative is treated as such and all reasonable practical steps are taken to restrict access by unauthorised persons. Everyone is required to sign an undertaking reminding them of their obligations on joining the firm and annually thereafter.
Personal responsibilities Apax Partners prides itself on the honesty and integrity of the people it employs, and recognises its duty to make all employees aware of their responsibilities. The Compliance department provides guidance to all members of the team on how they should conduct themselves and the consequences of their behaviour, and encourages all members of the team to voice any concerns that they might have. All employees are required to sign an undertaking confirming that they will adhere to the standards which are available to everyone via the Apax Partners’ Intranet site and also brought to their attention as appropriate. Apax Partners recognises that an individual may act in a way which places them in direct conflict with the interests of the business and it has adopted a strict personal account dealing procedure and requires all members of the global team to obtain prior approval from Compliance before carrying out any personal transaction. Compliance maintains a restricted list and permission to deal will not usually be granted where the transaction relates to a company on that list. Anti-money laundering Apax Partners considers it unlikely that parties will seek to use their relationship with Apax Partners in connection with money laundering or terrorist financing. Nevertheless it views its responsibilities in the area of anti-money laundering seriously and has worked with the BVCA and the FSA to contribute to the standards currently in place within the private equity industry in the UK. Custody APEM is appointed by the General Partner of the Apax Funds to act as custodian of the assets of the Apax Funds. This is a regulated activity in the UK. Its activities as Custodian are specifically reported on by external auditors to the FSA. Since its appointment, APEM has only received unqualified audit reports in respect of this activity. Risk management The responsibility for risk management within Apax Partners rests with the Executive Committee. The overriding culture within the organisation is always to adopt the highest standards in all areas of the business and demand the same from all third parties who perform activities on our behalf. Where specific risks within the business have been identified, appropriate controls are in place to mitigate those risks from occurring wherever possible.
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Our values
What is important to us? Our values are built into every aspect of our business. Because private equity is such a long-term business, and depends on the trust it receives from investors, business owners and management teams, the values of integrity and sustainability are crucial in everything we do. We apply these values equally across our business in all of the countries in which we operate. They inform our interactions with employees, portfolio companies, suppliers, investors and the local communities in which we operate. Apax Funds are long-term stewards of over US$35bn of our investors’ capital, which has been entrusted to us on the basis of our values and uncompromising integrity. Apax Funds predominantly invest in growth companies within our five sectors of expertise. The Apax Funds do not invest in companies involved in firearms, pornography or that derive significant revenues from the production or sale of tobacco.
We are long-term investors with the aim of building robust and sustainable businesses. We employ a rigorous screening process before we make any investment, which includes an assessment of the environmental, ethical and social impact of that business. These aspects of the business are then assessed on an ongoing basis as part of the portfolio review process and are analysed by the whole team on a twice-yearly basis. Portfolio companies are encouraged to take an active lead in terms of corporate social responsibility partly because we believe that this will enhance the reputation and long-term prospects of the business and help to reduce potential liabilities. We are proud of what we do: backing management to release the full potential of their businesses through insight and patient long-term investment. We are very aware of our responsibilities and at all times are guided by our values.
Our five core values 1. Integrity We apply the highest standards of integrity across our worldwide business in our dealings with all of our stakeholders. 2. Safeguarding our environment We run environmentally sound operations which aspire to create minimal damage to the environment. We seek to drive down the environmental impact of operations by reducing waste, emissions and discharges and by using energy efficiently. Following an
independent assessment by the Carbon Neutral Company, Apax Partners has offset its carbon emissions to become carbon neutral across all its offices. We continue to work to reduce our carbon footprint wherever possible. 3. Supporting communities We act with respect and consideration for the quality of life and economic and social progress of the communities within which we operate.
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4. Building long-term relationships We conduct business on a long-term, sustainable and transparent basis, looking to create relationships founded on mutual advantage which are capable of enduring beyond a single transaction. 5. Putting people first We treat people with dignity and respect, as we would wish to be treated ourselves. We only recruit, select and
advance employees on merit, irrespective of age, gender, nationality, disability, religious belief or sexual orientation. We do not tolerate abusive, harassing or offensive conduct in the workplace. The welfare of our employees and those of Apax Funds’ portfolio companies is a top priority. We aspire to have no accidents, no harm to people and not to subject anyone to unnecessary risks at work.
Shaping our industry’s values We are committed to working with the industry on corporate responsibility issues including environmental, social and governance best practice, as well as raising the standard of transparency and disclosure to all our stakeholders. As such, we were engaged from the earliest stages in the development of the Walker Guidelines on Transparency and Disclosure in the UK, and are involved with industry associations in other countries in their creation of similar codes. In addition, this year we signed the Private Equity Council’s Guidelines for Responsible Investment, and again were involved from the start of the project. Working with our investors and the Private Equity Council in the US, we helped devise nine principles for the private equity industry, guided by the UN Global Compact’s Principles and the UN Principles for Responsible Investment. We are formally embedding these Guidelines into our investment process. See the PEC website for the full list at www.privateequitycouncil.org
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How we are run The wider community
The Apax Foundation is a UK-registered charity and is the channel for Apax Partners’ corporate giving globally. In 2008/09,The Foundation made grants of £1.2m. Given the wide range of good causes that exist and the difficulty of choosing between them, we have continued to focus our major grant-giving on the very specific area of social entrepreneurship. Social entrepreneurship is a natural fit with what Apax Partners does commercially and is also an area where several of our team, including some of the Apax Foundation’sTrustees, have significant experience.This provides us with a steady flow of introductions to leading charities in the field, both from within the firm and from our wider network. The Foundation has also continued its commitment to our staff ‘matching’ scheme and the private equity community’s collective charity, the Private Equity Foundation. The Apax Foundation is chaired by Sir Ronald Cohen and itsTrustees are drawn from the senior ranks of the firm: Peter Englander (CEO of the Foundation), Martin Halusa, Khawar Mann, David Marks, John Megrue, Michael Phillips and Richard Wilson. Social entrepreneurship is a wide field covering all enterprises that have a social purpose rather than being purely profit-driven. The Apax Foundation concentrates on organisations that are working to promote employment in disadvantaged communities. We have extended the range of charities we support this year and added three significant new sponsorships to our existing portfolio: Emmaus, Ashoka and the Bridges Social Entrepreneurs Fund. Social entrepreneurship: Ashoka is a global organisation which identifies leading social entrepreneurs around the world and provides financial backing to enable them to develop their enterprises. The Apax Foundation wanted to support an Ashoka Fellow whose business matched our specific focus on enterprises which stimulate employment in deprived communities and selected Norbert Kunz. Norbert’s project aims to establish self-employment as a viable option for disadvantaged, unemployed young people in deprived regions of Germany. He created a support system for young, small-business entrepreneurs offering advice, training, infrastructure, financing and mentoring in what he calls a ‘one-stop shop’. The project has so far enabled 1,000 formerly unemployed young entrepreneurs to set up their own small businesses and created 1,300 jobs.The Apax Foundation’s three year funding commitment to Norbert via Ashoka will enable him to continue his work and build on the existing success of the project.
www.ashoka.org
Social entrepreneurship: Bridges Social Entrepreneurs Fund As one of the founders
of Bridges Ventures in 2002, Apax Partners maintains a close relationship with the organisation and is keen to be involved in its development. Bridges is a venture capital firm with a social mission – it invests in businesses which will generate a social return as well as a financial return. Many social enterprises need capital to develop but find it difficult to raise investment. Bridges’ latest initiative is the Bridges Social Entrepreneurs Fund, which aims to fill this need by providing funding specifically to enable successful social enterprises to grow. In 2008 the Apax Foundation became one of the Founder Partners of the Social Entrepreneurs Fund with a three-year funding commitment to the Bridges CharitableTrust, which is establishing the new fund. www.bridgesventures.com Social entrepreneurship: Emmaus is an international movement which creates communities for the homeless, offering a home, work and the chance to rebuild their lives in a supportive family environment. The communities aim to be self-sustaining – the Emmaus model is that, alongside the living quarters and pastoral care, each community runs a business operation providing work for the residents, all of whom are required to sign off primary state benefits.The revenue from this business goes to maintain the community.The ethos combines self-help with awareness of the needs of others. Emmaus has created a virtuous circle where existing, successful communities give from their profits to help communities at the early stage of development to get up and running. We were introduced to Emmaus by its President,Terry Waite, whose experience as a captive in Beirut made him particularly sensitive to the isolation of people living outside mainstream society.
“It was then I experienced what many people go through. I endured the misery, the sense of isolation, fear, boredom, the despair and that sense of helplessness and exclusion from ordinary, everyday life, which is so much part of both captivity and homelessness”. TerryWaite President, Emmaus UK In 2008 the Apax Foundation agreed a three year grant to Emmaus which will go towards the development of communities in the UK, US and India. www.emmaus.org.uk www.emmaus-international.org
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Emmaus Andy’s story Andy worked as a carer for children and adults. In 1996 he went to work in Bosnia and was deeply traumatised by what he saw there. Shortly after he returned to the UK, his wife and children were killed in a road accident. Until a year ago Andy lived at Emmaus Greenwich (UK).
“After I heard about my family, I locked myself in my flat. I don’t know how I got through it. My doctor then told me I couldn’t do care work anymore because of an old back injury that had flared up again. That was the final straw. I lost track of time for a while. I slept on the streets in Victoria for four months. When I arrived at Emmaus Greenwich it was as if I had been looking for a place like that all my life. It felt safe and I could relax at last. My room was an expression of me. I had flowers in my room. Living at Emmaus Greenwich gave me the chance to think about what had happened to me and to work out what to do next. When I felt strong enough to leave, the Community helped me move out into a shared house. I delivered leaflets, worked as a cleaner – at one point I had three part-time jobs!
One of these was for a company providing pet medication, and they offered me full-time employment. Recently I was promoted to store manager, which I’m really enjoying. The skills I picked up at Emmaus have helped me. I don’t want to lose my links with Emmaus Greenwich and I want to continue to help them because they helped me. I go into the Community from time to time and help out in the kitchen. I make cakes and pastries. I am taking each day as it comes, but on the whole I feel optimistic about the future. Emmaus gave me the breather I needed. They gave me support, even when I thought I didn’t need it. I feel so much stronger now. The loneliness inside me has gone. There should be more Emmaus Communities. It’s a system that works”.
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How we are run The wider community continued
The ‘matching’ scheme Many of our team give their time and skills to charitable causes close to their hearts. Apax Partners supports and encourages this spirit of giving through a ‘matching’ scheme. Under this scheme, the Apax Foundation makes a grant of at least £5,000 to every charity that benefits from the significant, active involvement of a member of the Apax Partners team. Apax Foundation matching scheme Irene Liebler, HR Manager, Apax Partners Munich office, and Khawar Mann, Partner, Apax Partners London office, supporting Room to Read Room to Read is an international organisation which builds schools in the developing world in partnership with local communities. Irene Liebler and her husband, Hans, helped to establish Room to Read in Germany in 2006. As they had already been sponsoring the education of two girls in Nepal for some years, they chose that country for the new school which their Room to Read division would support. As well as continuing to organise fundraising activities for the school in Nepal and now a second school in Vietnam, Irene has activated her network to inspire others to become involved and, as a result, a new Room to Read division is being established in Frankfurt. Separately, Khawar Mann and some friends from business school got together to fund a school in Vietnam in the Room to Read programme.They have raised funds for the construction of the school, teacher training and materials, and ongoing maintenance of the school, and their involvement also extends to providing guidance about what they would like the school to achieve. www.roomtoread.org
The Private Equity Foundation (PEF) is the collective charity for the European private equity community. It focuses on the issue of NEETs (young people not in education, employment or training) and invests both money and expertise from the private equity community to help charities working in this area achieve a step-change in their impact. As well as backing the Private Equity Foundation financially, Apax Partners staff play an active role in the work of the charity. Isabelle Probstel from Apax Partners’ Munich office has been instrumental in establishing the Private Equity Foundation’s operations in continental Europe, overseeing all of the charity’s activities in Germany. Under her leadership, the PEF made its first grant in mainland Europe this year, to the Hamburger Hauptschulmodell (HHM), an organisation working to optimise the career opportunities of young people who leave school having completed only the most basic level of education. In the UK, ten members of the Apax Partners London team swapped their suits for overalls to add the finishing touches to a new community centre in Newham, East London.They worked alongside teams from other private equity firms to complete the project, which was funded by the Private Equity Foundation in partnership with Community Links. In addition, Apax Partners’ London office hosted a summer reception for the PEF to bring together their supporters and portfolio charities.
Apax Foundation matching scheme Mia Saunders, Personal Assistant, Apax Partners London office, supporting The Samaritans Mia has regularly manned a helpline for The Samaritans, covering either an evening shift after work from 6-10pm or the 10pm-3am night time slot. She underwent training in order to qualify for this work counselling people in vulnerable emotional states, for whom The Samaritans acts quite literally in some cases as a lifeline. www.samaritans.org
Opportunities for young people: Business in the Community Apax Partners is a member of Business in the Community and we welcomed 30 students from John Kelly Boys and Girls Schools to Apax Partners’ London headquarters through Business in the Community’s mentoring programme, Mosaic.The students spent a day learning about the work of the different departments in the firm to open their minds to career opportunities they might not have been aware of, and some students then returned for more focused work experience later in the year.
“I spent my work experience with Iain Katimbo [Fund Accountant] – he showed me everything he does and was really helpful. I’m still in touch with Iain and he gives me great advice”. Usman Mirza Student, John Kelly Boys’Technology College, Neasden Opportunities for young people: Social Mobility Foundation Separately, we are supporters of the Social Mobility Foundation’s placement programme. The programme aims to inspire able students from less privileged backgrounds by broadening their outlook on potential career opportunities. In 2008, a group of students from the Social Mobility Foundation joined our existing work experience programme.They were based in the Media team and, in addition to their project work there, had ‘lunch and learn’ sessions to give them a view of a variety of office functions.The students were encouraged to explore and to draw on help across the firm: the Apax team enjoyed the experience of being unexpectedly waylaid by enthusiastic teenagers bursting with questions; an exercise particularly enjoyed by the students was the challenge to find potential bolt-on acquisitions for the firm’s portfolio companies.
“This work experience has given me bigger ambitions and dreams for the future. I didn’t have any links into the financial industry before and this experience has made me even more determined to work hard to achieve my goals”. Anish Shah Student, Claremont High School, Kenton
Apax Foundation matching scheme Stephen Grabiner, Partner, and Steven Dyson, Principal, Apax Partners London office, supporting Building Bridges Dr Mark Berelowitz, Consultant Psychiatrist at the Royal Free Hospital, London, had an idea to foster understanding in areas of conflict by bringing young doctors from both sides of a troubled region to London to train together at the Royal Free, a leading London teaching hospital. He talked about it to Stephen Grabiner and Steven Dyson at Apax Partners, and they decided to work with him to translate the idea into reality. A few months later the Building Bridges
Apax Foundation matching scheme project is under way, with four young orthopaedic surgeons, two Israeli and two Palestinian, working side by side at the Royal Free with the support of Mr Nicholas Goddard, Consultant Orthopaedic Surgeon. An important component of the model is that, as well as working together, the doctors should also live together for the duration of their stay in London to deepen their understanding of each other’s culture and perspective. The project is not limited to Israel/Palestine and it is hoped that in time it could be developed to other regions damaged by conflict.
Mitch Truwit, Partner, and Mike Gallagher, Associate, Apax Partners New York office, supporting StreetSquash Mitch serves as a board member of StreetSquash, a charity in Harlem, New York providing support to underprivileged children. At risk children are selected by their schools to join the programme, which teaches the children squash and also, more importantly, improves their academic and social prospects through one-to-one mentoring and involvement in community service projects. To date, every one of the high school
students to have gone through the programme has graduated or is on course to graduate in the standard four years and all have gained acceptance to college. Mitch’s enthusiasm for the programme was clearly infectious and Mike Gallagher, a colleague in the New York office, volunteered as a mentor this year, working with a 12-year old boy both on a one-to-one basis and at group events with other children taking part in the programme. www.streetsquash.org
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Section 3: Our sector expertise 42
Sector review Tech & Telecom
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Sector review Retail & Consumer
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Sector review Media
70
Sector review Healthcare
80
Sector review Financial & Business Services
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Our sector expertise
Tech & Telecom Apax Funds are pioneers in technology and telecoms investing. They have backed companies on both sides of the Atlantic from the very first days of the venture capital industry and were among the first to apply the skills forged in these venture capital deals to the buyout arena.
Top Tech & Telecom investments Weather Investments
Investment year
NXP
Investment year
Enterprise value at time of investment
2006
$11.0bn
TDC
Investment year
Enterprise value time of investment
Enterprise value at time of investment
Bezeq
Investment year
Tim Hellas
Investment year
Intelsat/ PanAmSat
Investment year
Enterprise value at time of investment
2005
$11.6bn
2008 €21.3bn
2005 €11.3bn
2005 2005
Enterprise value at time of investment
€4.3bn Enterprise value at time of investment
€1.9bn
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Our sector expertise Tech & Telecom partners
7 1
9
2
5 4
10
1. Borja Martinez
6. Nico Hansen
Office Madrid
Office New York
Board seats Panrico, Wisdom-LaNetroZed, DMR Consulting, Fractus, Electro-Stocks (observer).
Board seats TriZetto, Xerium, Kabel Deutschland, Versatel.
Background Joined Apax Partners in 2000. Prior experience at BCG and Goldman Sachs. BSc in Business Administration from ESADE. MBA from Harvard Business School.
Background Joined Apax Partners in 2000 from McKinsey, where he specialised in telecoms. PhD in Economics from the University of Bonn, MA in Economics from the University of Göttingen.
2. Roy Mackenzie
7. Jason Wright
Office London
Office New York
Board seats Frontier Silicon, King.com, Tideway Systems, NXP (observer).
Board seats Realpage, Plex Systems, Planview
Background Joined Apax Partners in 2003. Prior experience at McKinsey & Company, Psion Computers and Microsoft Corporation. M.Eng in Electrical Engineering from Imperial College, London. MBA from Stanford Graduate School of Business (Arjay Miller Scholar).
Background Joined Apax Partners in 2000. Prior experience at GE Capital and Accenture. BA in Economics from Tufts University. MBA from the Wharton School of the University of Pennsylvania.
3. Giancarlo Aliberti 3
Office Milan
6 8
Board seats Farmafactoring, Azimut, Tim Hellas, Sisal. Background Joined Apax Partners in 2000. Prior experience at Monitor Company and Montedison. Economics Degree from University of Rome, Italy. MBA from Harvard Business School.
8. Andrew Sillitoe Office London Board seats Intelsat, TDC. Background Joined Apax Partners in 1998. Prior experience at LEK. MA in Philosophy, Politics and Economics from St. John’s College, Oxford. MBA from INSEAD. 9. Neeraj Bharadwaj Office Mumbai
4. Salim Nathoo Office London Board seats Weather Investments, SMART Technologies, Tim Hellas, Promethean Technologies, Mobifon, Inmarsat. Background Joined Apax Partners in 1999 from McKinsey & Company. MA in Mathematics from St. John’s College, Cambridge University. MBA from INSEAD.
Board seats Apollo Hospitals, JAMDAT Mobile, WiderThan, NXP Background Joined Apax Partners in 1999. Previously with McKinsey & Company, Goldman Sachs, and Morgan Stanley. BSc in Economics from the Wharton School of the University of Pennsylvania. MBA from the Harvard Business School. 10.Torsten Krumm Office Munich
5. Richard Wilson Office London Board seats Weather Investments, TDC, NXP, Inmarsat, Mobifon, Jazztel, Autonomy. Background Joined Apax Partners in 1995. Prior experience at Scientific Generics and Marconi Space Systems. BA (Hons) in Engineering from Gonville & Caius College, Cambridge University. MBA from INSEAD. Chartered Engineer (MIMechE).
Board seats Suse,Tropolys, Versatel, Q-Cells, Acol, Onespin Solutions Background Joined Apax Partners in 2002 from Intel as a Director of Intel Capital Europe. Graduate diploma (MA) in electrical communication engineering and computer science, and corporate MBA programme from INSEAD.
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Our sector expertise Tech & Telecom review
Overview Apax Funds are pioneers in Technology and Telecommunications investing. They have backed companies on both sides of the Atlantic from the very first days of the venture capital industry and were among the first to apply the skills forged in these venture capital deals to the buyout arena. Nowadays Apax Partners focuses purely on buyouts and larger growth investments, but still offers a unique sector-focused capability, with the growth DNA and industry expertise remaining a core feature of one of the largest sector teams in the business. This capability has led to a number of buyout investments having been made ‘ahead of the curve’, or in non-obvious areas. The 25-strong team comes from a variety of backgrounds in industry, consultancy and banking and each person specialises in different niche subsectors. This pool of industry knowledge can be rapidly deployed across Apax Partners’ global platform according to the needs of the specific investment. The team has advised Apax Funds on more than €3.8bn of investment in the last 15 years. Marketplace/trends and drivers Telecom: We segment the telecom sector into incumbents, altnets, cable and mobile. This segmentation reflects the differing challenges and opportunities faced by each type of operator as the trend towards convergence marches forward. Though not immune to recessionary conditions, the changes that are happening as a result of convergence mean that competitive market structures and regulatory regimes are the most important determinants of the medium-term health of any national or regional telecom market. Marketplace/trends and drivers Technology: We segment the technology sector into components, systems, software and services, each with their own dynamics. In contrast to the telecom sector, the macroeconomic environment is likely to dominate the effect of any structural changes occurring in the technology sector over the coming quarters. That said, difficult macroeconomic times will accelerate some of these changes (for example, the delivery of software as a service and industry consolidation) and it is the companies that are best placed to benefit from these changes that will emerge stronger from the current downturn.
Strategy Telecom: As discussed above, the dynamics in the telecom market differ quite considerably from country to country. As a result, our investment strategy is predicated on a detailed analysis of i) the competitive and regulatory dynamics in any given country and ii) the identification of those operators and management teams who are best placed to benefit from the secular shifts towards data, mobility and applications such as video or have exceptional marketing and segmentation skills. Strategy Technology: In technology, we are focused on those companies whose fundamentals ensure that they will emerge from the current difficult times in a position of strength. These companies typically possess strong franchise value – derived, for example, from distribution, intellectual property and brand – as well as being active in sub-sectors in which the secular growth trends offset macroeconomic downforces – for example the increasing recognition of the benefits of technology in the classroom. Outlook The telecom space is characterised by a relatively high degree of short-term predictability, but with important medium-term effects that are largely independent of the current macroeconomic difficulties, yet will have a lasting effect on the various market participants. In technology, the short-term predictability is significantly less. It is nevertheless highly likely that the process of consolidation that is underway will ensure that the leaders emerge from the downturn with a strengthened position.
Andrew Sillitoe
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”We carried out a highly detailed due diligence exercise – taking Intelsat’s global capacity and building up a supply and demand model, region by region, band by band and application by application. Our analysis showed that supply and demand were coming into balance and we saw real scope to reverse revenue declines and to improve operational efficiency.” Andrew Sillitoe Apax Partners’ head of Tech & Telecom
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Our sector expertise Tech & Telecom continued
Case study: Tech & Telecom
Intelsat
Making communications closer, by far Intelsat is the world’s leading provider of fixed satellite services (FSS). Based in Bermuda, the firm became the first to launch a commercial communications satellite in 1965 and, four years later, transmitted images around the world of man’s first steps on the moon. Over 40 years on, it runs a global network of satellites and terrestrial infrastructure which serves over 200 countries and territories and is setting the standard for the advanced transmission of video, data and voice services. Why this deal? Intelsat initially came onto Apax Partners’ radar screen at the end of 2003, after Apax Funds had completed the first leveraged acquisition of a satellite business (Inmarsat). Back then, according to Apax Partners’ Andrew Sillitoe, head of the Tech & Telecom sector, Intelsat faced some challenges: “Intelsat had been hit particularly hard by overcapacity in the FSS market following the tech boom – and its revenues had been declining as a result.” But despite this, the business still posted strong and predictable cash flows and Apax Partners was able to see the potential for growth thanks, in part, to the expertise and relationships it had built during the Inmarsat process. In January 2005, Apax Funds acquired Intelsat for $5.2bn together with a consortium of investors including Apollo, Madison Dearborn and Permira. What has happened since the deal completed? This transaction represented a turning point for the company and under the stewardship of a new CEO – Dave McGlade, who joined the business in March 2005 from UK mobile operator O2 – its fortunes began to improve rapidly. Most significantly, Intelsat agreed in August 2005 to acquire rival operator PanAmSat in a $6.4bn transaction. The deal, which brought Intelsat added video market expertise, an advanced satellite fleet and a blue-chip media customer base, created the industry’s largest satellite operator with the broadest customer base. It also resulted in a new COO for the combined business in the form of PanAmSat’s Jim Frownfelter. Commenting on the PanAmSat transaction McGlade says: “The plan was to use the acquisition of PanAmSat as a vehicle to accelerate change and improve performance. Literally, the day after we announced the deal we began a rigorous integration process aimed at creating a more balanced business. One of the key early priorities was to make use of the significant synergies that existed in terms of both operating and capital expenditures.” What about the future? The next task for Intelsat’s management team, aided by a Principal from Apax Partners who had been seconded to the company on a full-time basis, was to develop a clear growth strategy. This strategy was to be based on three core principles: firstly to maximise revenues on a satellite by satellite basis; secondly to identify and make selective investments in key growth areas; and finally to generate a strong pipeline of incremental business development opportunities. The initiatives undertaken by the management team with the support of its backers showed clear and early signs of success, with strong growth in revenues and profits and a real improvement in its competitive position. In light of this, the decision was taken by the backers to launch a sale process and in June 2007 the investors signed an agreement to sell Intelsat to BC Partners.
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“We have very strong management which will not let the market dictate to us. We are currently concentrated on EBITDA and free cash flow across the group and on reducing debt. On the more offensive side, I think there will be lots of potential acquisition targets out there in the next couple of years”. Naguib Sawris, CEO, Weather Investments
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Our sector expertise Tech & Telecom continued
Case study: Tech & Telecom
Weather Investments
A strategic partnership for global growth Weather Investments is a global
telecommunications company offering mobile, fixed-line, internet and international communication services to over 100 million subscribers in Southern Europe, North Africa and Asia. The company operates through its subsidiaries Wind Telecomunicazioni, Wind Hellas and Orascom Telecom Holding. Wind Telecomunicazioni is the third largest mobile and second largest fixed
operator in Italy. Wind Hellas (formerly TIM Hellas) is the number three mobile and fixed operator in Greece and a former Apax Europe VI portfolio company. OrascomTelecom Holding is a Cairo listed holding company of leading mobile
operators in North Africa and Asia. Why this deal? Apax Partners had long been attracted to the company because of the balance between the high growth characteristics of the emerging market portfolio and the cash flow stability of the more mature, Western European businesses. In June 2008, Funds advised by Apax Partners together with two other firms, won a limited auction to buy a minority stake in Weather for €1.1bn, and a further investment later in the year increased the consortium’s stake. Why Apax Partners? Apax Partners’ strong prior relationship with founder and CEO Naguib Sawiris was instrumental in ensuring that it secured the opportunity to invest, as Sawiris explains: “The reasons why we went with Apax were trust, chemistry and integrity. I initially came across them when I was trying to buy Wind Telecom in 2005 and, although the opportunity to work together on that did not materialise, we kept in touch and at the end of 2007 we were in contact again when Weather Investments acquired TIM Hellas from Apax. We did that deal from start to finish in three weeks and subsequently became very close to them through that deal”. What about the future? Sawiris, who founded the company from scratch to become the world’s 11th largest telecom provider in terms of customer numbers, has clear ambitions for Weather. “Today, we are 11th largest, but my ambition is to be among the five or six biggest telecom providers globally. I believe that having a critical mass of subscriber numbers is crucial because in the future more products and services will be run through the phone. Banking for us is a big potential revenue stream and we already have 100 million potential customers. In terms of payment, we own these relationships whereas a VISA or Mastercard do not”. The growth achieved by Orascom and Wind in recent years is due in large part to the skills of the company’s management team in acquiring and integrating assets well and driving value. The current economic downturn provides both threats and opportunities for the group. Apax Partners has supported Weather on a number of initiatives on the strategic, operational and financial side to optimise the capital structure. Commenting on the relationship to date, Sawiris concludes: “The relationship is strong, but they are tough and know the space well. They put our people under pressure and have ensured that the reporting discipline is in place across the group”.
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Our sector expertise
Retail & Consumer We have been one of the leading global investors in the Retail and Consumer sector over several decades. During this time we have invested €2.4bn in retail businesses, backing a diverse range of retail, consumer and leisure businesses across our global platform. Top Retail & Consumer investments Tnuva
D+S europe
Investment year
Enterprise value at time of investment
2008
$1.4bn
Investment year
Enterprise value at time of investment
2008 Sisal
Investment year
2006 Tommy Hilfiger Investment year
2006
Somerfield
Panrico Donuts
€0.6bn Enterprise value time of investment
€1.2bn Enterprise value time of investment
€1.2bn
Investment year
Enterprise value at time of investment
2005
£1.8bn
Investment year
Enterprise value at time of investment
2005 New Look
€0.9bn
Investment year
Enterprise value at time of investment
2004
£0.8bn
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Our sector expertise Retail & Consumer partners
2 1
9 3
5
7
1. Zehavit Cohen
6. Amedeo Carassai
Office Tel Aviv
Office Milan
Board seats Tnuva, Bezeq.
Board seats Weather Investments, Farmafactoring, Sisal.
Background Joined Apax Partners in 2006. Prior experience as Executive VP and CFO of the IDB Group (Israel’s largest investment company) and VP of Chase Manhattan. MA from the Wharton School, University of Pennsylvania; MBA from the University of Pittsburgh. Lecturer in Finance and Accounting at the Wharton School, University of Pennsylvania. Fellow of the University of Pennsylvania.
Background Joined Apax Partners in 2003. Prior experience at McKinsey, Procter & Gamble, Syntek Capital. Laurea in Ingegneria Elettronica (Electrical Engineering, Operations Research) from Universita’ La Sapienza, Rome, Italy. MBA from Sloan School of Management, MIT, Boston. 7. Alex Fortescue
2. Oriol Pinya Office Madrid Board seats Panrico, Electro-Stocks, Vueling, Itevelesa.
8
Background Joined Apax Partners in 1999. Prior experience at BCG and Merrill Lynch. BBA from ESADE. Master CEMS from HEC. MBA from Harvard Business School.
Office London Board seats Plantasjen, Somerfield, New Look. Background Joined Apax Partners in 1999 from OC&C Strategy Consultants. BEng in Electrical and Electronic Engineering from Imperial College, London. MBA from INSEAD. 8. Matthew Brockman
4
6
3. Alex Pellegrini Office New York Board seats Advanced Homecare, MagnaCare Holdings, Spectrum Laboratory Network, Voyager HospiceCare, Rue21.
Office London Board seats Hit Entertainment, New Look, Healthcare at Home, Merlin Entertainments.
Background Joined Apax Partners in 2000. Prior experience at Merrill Lynch. BA in Finance with Honors from the Pennsylvania State University.
Background Joined Apax Partners in 2000. Prior experience at LEK Consulting. BEng in Mechanical Engineering from Imperial College, London. MBA from Harvard Business School.
4. John F. Megrue, Jr.
9. David Kim
Office New York
Office New York
Board seats Bob’s Discount Furniture, Tommy Hilfiger Corp., MagnaCare, Rue21.
Board seats Tommy Bahama, Spyder Active Sports, Contech Construction Products, Norcraft Cabinets.
Background Originally joined Apax Partners in 1988, then left to co-found his own private equity firm and returned with his team in 2005. BS in Mechanical Engineering from Cornell University. MBA from the Wharton School of the University of Pennsylvania. 5. Christian Näther Office Munich Board seats Tank & Rast, Phillips van Heusen/Calvin Klein, LR Health & Beauty Systems, Tommy Hilfiger, CBR, D+S europe AG. Background Joined Apax Partners in 2001 after 8 years as a Partner in Consumer & Retail at McKinsey. Degree in business administration and PhD in Strategic Management from the Ludwig Maximilian University in Munich.
Background Joined Apax Partners in 2000. Prior experience at Butler Capital Corporation. BS in East Asian Studies from West Point. MBA from Harvard Business School. Graduate of the U.S. Army Airborne and Ranger schools.
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Our sector expertise Retail & Consumer review
Overview Apax Funds have been one of the leading global investors in the Retail and Consumer sector over several decades, during which time they have invested €2.4bn of equity in retail businesses. Apax Funds have backed a diverse range of retail, consumer and leisure businesses across their global platform: companies such as Somerfield and New Look in the UK; Plantasjen in Scandinavia; CBR in Germany; Sisal and Panrico in Southern Europe and Tommy Bahama, Spyder and Life Time Fitness in the USA as well as global brands such as Tommy Hilfiger and PVH/Calvin Klein. The Retail & Consumer team is made up of 23 investment professionals globally, including nine partners, spread throughout North America, Europe and Asia. The team has a range of professional backgrounds and wide experience across many segments within retail, consumer and leisure. Marketplace trends and drivers During the course of 2008 the global macroeconomic environment deteriorated sharply, pushing many developed economies into recession. Retail and consumer facing businesses have been amongst the first and worst affected by this. An all time low in consumer confidence, increasing (fear of) unemployment, significantly reduced credit availability and tumbling asset prices, especially housing, have contributed to falls in consumption. Emerging markets, which many had thought would prove more resilient, are now also showing major signs of weakness. An unprecedented level of policy response, with low interest rates, spending programmes and quantitative easing take us into uncharted waters in terms of how consumption and GDP will respond. The hope is clearly that these policies begin to boost demand during 2009, the danger is that they lead to inflation, inefficiency and ultimately stagnation. However, the current economic slowdown is not hitting all areas of retail and consumer equally and evidence from previous recessions suggests that whilst certain sub-sectors are hit hard others are relatively insulated. Even within individual cyclical sub-sectors, there remain winners and losers and particularly in a tough environment, performance levels polarise. Consumer companies need to remain responsive to over-riding market trends whilst also reacting to changes caused by the current environment. These trends include: Polarisation Individuals are increasingly discerning in their choices as they weigh up every purchasing decision. Value for money is now the key purchase criterion and in their increasing search for this, consumers are showing willingness to alter their purchasing habits – trading down to value offers to make savings on some items, whilst also investing in premium quality for others. Winning propositions are those that offer distinctive value to consumers either through price, product or service and are able to deliver and communicate this consistently.
Interruption of some long-term consumer trends Whilst the downturn is mostly accelerating certain long-term channel or consumer trends, there is also evidence that it is temporarily disrupting others. In recent years, there has been significant growth in higher priced products offering maximum convenience or strong health and sustainability credentials. The downturn is forcing consumers to go ‘back to basics’, trading chilled ready meals for home cooked recipes, expensive trips abroad for ‘staycations’, lattes from coffee shops for instant coffee, and organic smoothies for cheap soft drinks. Acceleration of channel shifts with value at the forefront of many consumers’ minds, the relative pricing transparency and convenience of home shopping provided by the internet is transferring share online at an increasing rate. Increasing reach and scale of multiple grocers: in every major Western country there is a very large and typically concentrated grocery sector which has considerable influence on a number of food and non-food consumer and retail categories. Whilst genuine category killers are able to compete effectively with the grocers, variety retailers are increasingly struggling to keep up. Although sector valuations dropped dramatically throughout the year, the swift deterioration in trading and lack of visibility in outlook meant Apax Funds took a very cautious view on investing, with completed investments limited to contexts where clear secular trends underpinned growth. A good example of this approach is the acquisition of D+S europe, an e-tail fulfilment business. The opportunity was also taken to realise the investment in food retailer Somerfield, which operates in one of the most defensive categories in the consumer space, via a trade sale. Retail & Consumer strategy Apax Funds’ investment strategy in the sector is to focus on growth driven by exposure to underlying positive trends (some of which are outlined above). Apax Partners’ local market presence, combined with a global reach, enables it to understand the themes from around the world and adapt them to local market circumstances. It also allows Apax Partners to build relationships with, and Apax Funds to invest behind, the very best international retail, consumer and leisure sector management. Outlook The Apax Partners sector strategy will remain focused on global sub-sectors which will exhibit growth, backing strong management teams executing within the context of the secular trends identified above. The uncertain consumer environment and lack of bank debt will inevitably be reflected in the nature of deals undertaken. Liquidity issues, over-levered balance sheets and under-valued cyclical businesses are likely to generate continued investment opportunities.
Alex Fortescue
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“Since the acquisition by Apax Funds, we have introduced a culture of value creation and efficiency to the company which, as a cooperative, had not previously been part of its thinking”. Zehavit Cohen Apax Partners
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Our sector expertise Retail & Consumer continued
Case study: Retail & Consumer
Tnuva
Adding value to Israel’s food industry Tnuva is the largest food manufacturer and distributor in Israel and one of its most well-known companies. It owns seven out of the ten most known food brands in Israel and accounts for over 14% of shelf space in supermarkets. Tnuva was formed over 80 years ago as an agricultural cooperative of 620 farming communities across the country, who were also the company’s suppliers of raw milk and produce. Over the years it had been seen by many investors as an attractive proposition but due to the complex ownership structure it was out of reach to potential buyers. The deal Aware of a potential economic downturn, Apax Partners was attracted to Tnuva because of its stable business model: the majority of the company’s food products are basic staples (65% dairy-related plus meat, poultry, eggs, fish, frozen vegetables) and so the company was felt to be well placed to weather a recession. Why Apax Partners? In 2006, Tnuva opened itself up to a limited auction.
Although the Apax Fund’s bid was not the highest in financial terms, it was nonetheless perceived as the most attractive. The management and board of the company explained their decision to accept the third highest bid by saying that the expertise and professionalism displayed by the Apax Partners team during the four month due diligence process prior to the Fund’s bid had convinced them that Apax Partners would be the best partner for the future growth of the company. Apax Partners’ ability through its local presence to understand the different stakeholders’ needs and address them appropriately was also critical to the success of the Fund’s bid. Post completion Following the auction there was a lengthy and complex process of negotiation with the agricultural owners of the business, which took almost two years, and necessitated a change in the law and the introduction of new tax codes. The transaction closed in January 2008, with the Apax Europe VII Fund and its co-investor Mivtach Shamir gaining a 77% stake in Tnuva for an enterprise value of $1.4bn. What about the future? Apax Partners believes that the first year after an acquisition is critical to the success of a business and the deal team put a great deal of time into learning more about Tnuva’s business and working out where Apax Funds could add value. By the end of the first year following acquisition, many of the planned changes at Tnuva had been completed. These included sales of some of unused real estate; turning around the fresh meat business, which became profitable in the second half of 2008; hiring new talent and creating a new organisational structure which is expected to enhance synergies across the group. Led by Zehavit Cohen, who became Chair of Tnuva, the Apax Fund deal team is continuing to work through the numerous projects which were identified as areas where our Funds can add value, as well as exploring strategic alternatives for non-core subsidiaries and potential add-on opportunities.
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“The partnership has already borne fruit. In collaboration with Apax, we are benefiting from its financial strength and its broad international network. This network is serving to pave the way for partnerships and business relations. In addition, D+S is gaining access to potential customers at the highest level”. Achim Plate CEO, D+S europe
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Our sector expertise Retail & Consumer continued
Case study: Retail & Consumer
D+S europe
Fashioning a successful investment in a growth sub-sector D+S europe AG is a leading international e-commerce and customer service provider listed on the Deutsche Börse. The company’s e-commerce division provides the tools that enable some of the world’s biggest fashion names to maintain their competitive edge in the online sphere. The business looks after all of the elements involved in ensuring that customers get the best online treatment, including the design and operation of online shops, warehousing, delivery of goods, and payment processing. The customer service division provides essential call centre support to some of Germany’s largest companies and is now the country’s third-largest provider of value-added telephony services. As an early mover in the supply of e-commerce solutions to the fashion industry, D+S europe has seen very rapid growth in this part of the business, and now dominates the European market in this very high-growth field. In 2007, fashion was the fastest-growing segment of the online retail market and D+S’s management expects the segment’s growth to continue at a double-digit pace, despite the general economic climate. This sector trend opened up enormous opportunities for D+S europe; so in late 2007, the company began looking for a partner who could offer the know-how and requisite financial strength to take advantage of this potential. Why Apax? Apax Funds stood out because of their experience in the fashion industry through investments such as Tommy Hilfiger, CBR Group and Calvin Klein, as well as their experience in the IT and business services sectors and focus on growth buyouts. As a result, D+S’s management team engaged with Apax Funds on an exclusive basis and in April 2008, the current Apax Europe VII fund acquired the shares of several legacy shareholders and at the same time submitted a voluntary acquisition tender to all other shareholders. The offer was unanimously recommended by the D+S Board and in early 2009 Apax Funds became the majority shareholder in D+S europe, holding over 90% of the company’s shares. What about the future? Since the investment,CEO Achim Plate and his team have driven D+S europe’s growth in both lines of business: In 2008 total revenues rose by 29 per cent to €299 million. In addition to growing the existing e-commerce customers, the business has launched online sites for new customers including Hugo Boss and C&A. Around 40 new websites for fashion players are scheduled to launch in 2009, including the online shop for another Apax Funds portfolio company, Tommy Hilfiger. In the field of call centre services, the company entered into a strategic partnership with Deutsche Telekom in 2008, under which Germany’s largest telecommunications company is transferring considerable customer service and back office operations to D+S. The call centres also serve as the foundation for corporate social responsibility activities at D+S. For years, the company has been one of the major sponsors of the Students Helping Life (SHL) non-profit initiative, which conducts its Social Day annually in Germany. On this day, students work for companies or private individuals for a good cause – in 2008, some 200,000 students from over 1,000 schools participated in this campaign, which was organised with the aid of a D+S call centre.
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Media The 20-strong Media team is one of the largest and longestestablished in the industry. The team has a wide variety of industry, consulting, private equity and banking experience, with members focusing on niche sub-sectors of the market. In the last ten years, the team has advised Apax Funds on the investment of €3.4bn of equity. Top Media investments Emap
Cengage Learning
Investment year
Enterprise value at time of investment
2008
£1.2bn
Investment year
Enterprise value at time of investment
2007
$7.3bn
Trader Media Group
Investment year
2007
£1.4bn
CME
Investment year
Enterprise value at time of investment
2006
$2.8bn
Enterprise value at time of investment
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Our sector expertise Media partners
6 2 3 5
1. Jacqueline Reses
4.Tom Hall
Office New York
Office London
Board seats Cengage Learning, Nelson Education, Hit Entertainment, The Learning Annex, NEP Broadcasting.
Board seats Trader Media Group, Truvo, The Stationery Office, Zeneus Pharma, 20 Minutes, Thomson Directories.
Background Joined Apax Partners in 2001. Previously at Goldman Sachs. BSE from the Wharton School, University of Pennsylvania.
Background Joined Apax Partners in 1998. Previously at S.G.Warburg and Deutsche Bank. MA from Cambridge University.
2. Stephen Grabiner
5. Irina Hemmers
Office London
Office London
Board seats Emap, Travelex, Incisive Media, Bezeq, PCM, Yell.
Board seats Emap, Trader Media Group, Incisive Media, World Directories, PCM, Sulo/Cleanaway.
4
1
Background Joined Apax Partners in 1999. Previously at On Digital and The Daily Telegraph. BA in Economics from University of Sheffield. MBA from Manchester Business School.
Background Joined Apax Partners in 2001. Previously at McKinsey. MA in International Economics from University of Innsbruck/Tulane University. MPA in Public Administration from Harvard.
3. Christian Stahl Office New York Board seats Cengage Learning, Central European Media Enterprises (CME), Tommy Hilfiger, World Directories, 20 Minutes, Telcast Media Group, Thomson Directories, The Stationery Office. Background Joined Apax Partners in 1999. Previously at Bain & Company. Diplom Kaufmann and BA in Business Administration from Europaeisches Studienprogramm fuer Betriebswirtschaftslehre (ESB), Reutlingen/London. MBA from INSEAD.
6. Paul Fitzsimons Office London Board seats Cengage Learning, Hit Entertainment, Hub International, Kabel Deutschland Group, Future Publishing, Stage Three Music. Background Joined Apax Partners in 1992. Previously at Arthur Andersen. Chartered Accountant (ACA).
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Our sector expertise Media review
Overview The 20-strong Media team is one of the largest and longestestablished in the industry. The team has a wide variety of industry, consulting, private equity and banking experience, with members focusing on niche subsectors of the market. In the last ten years, the team has advised Apax Funds on the investment of €3.4bn of equity. In the last five of those years, Apax Funds have led eight investments in the sector, of which four have been in noncompetitive situations. Marketplace/trends and drivers The two main forces driving change in the media sector are the economic climate and rapid technological change. The severity of the current recession has hit nearly all parts of the media sector as businesses across the economy slash marketing budgets. Advertising revenues are being most severely affected. In traditional media channels we are seeing year-on-year declines of up to 30%. In online businesses, where search advertising has until now been a significant growth driver, advertising spend has fallen from high double digit to single digit growth. There are certain business models however, such as those based on subscriptions or with more stable end users such as the public sector, which are proving more resilient to the downturn. In parallel, the internet has led to a revolution in the way media content is distributed. This technology shift has led to falling costs of distribution and storage and consequently to lower costs of entry; in other instances the impact of digital content has changed the game for incumbent suppliers. The pace of technological change is having a profound impact across the media space and has been accelerating in the current economic climate, as customers focus on cheaper channels with the clearest return on investment. Widespread penetration of digital media across multiple channels including cable television, broadband internet and mobile internet has led to changes in consumer behaviour with regard to media consumption. In the UK, for instance, the number of households connected to broadband internet shot up to 58% in 2008 from just 1% in 2001. This has corresponded with a rapid increase in usage. In the three years to 2006, internet usage across Europe rose by 28% against a backdrop of falling circulations in more traditional media formats like newspapers and magazines. Digitisation has led to its own changes in the radio, TV and music landscapes. Across Europe, the old incumbent TV and radio channels are seeing their viewing figures fall as new digital competitors take market share. In the music space, the major record labels are struggling to find business models that fit the new world of digital publishing.
Media strategy On a positive note, the fast-paced technological change affecting the industry has led to a sustained increase in media consumption. While the current economic downturn means that it is difficult to translate a growth in consumption into a growth in revenues, this trend provides commercial opportunities and a favourable long-term outlook for those companies that are able to understand and exploit sub-sector dynamics. Working in conjunction with Apax Partners’ Tech & Telecom team, the Media team is well positioned to react and continue to advise on investments that are ‘ahead of the curve’. Our funds are looking to invest in situations where businesses are seeking to build out an online platform or in situations where brand strength and market leadership can enable companies to operate across various media platforms successfully. Outlook The impact of the current economic climate and technological change is having a variable impact across the sector. This will continue to be the case, and the prospects for the various sub-sectors will consequently differ widely according to how they are affected. In segments such as consumer book publishing and outdoor advertising, the impact of technological change is relatively low; in others, like business-to-business publishing, recorded music and newspapers it will continue to have a massive impact. Finally, for some, such as professional or academic publishers and information service providers, changes in media consumption and technological innovation represent a significant opportunity for growth. Understanding the uptake of new technology across different geographies and how this will impact the various sub-sectors within the media space will continue to be the key to successful investing.
Stephen Grabiner
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Our sector expertise Media continued
Case study: Media
Emap
Backing best of breed in a challenging environment Emap is one of the UK’s leading business information providers serving the retail/fashion, public services, construction, media and automotive industries. The Company provides information to its customers through four key formats: print and online magazines (35% of 2007 revenues); exhibitions and festivals (32%); digital information services (27%); and conferences (6%). As well as publishing, the business also organises three of the top four UK trade exhibitions, has the leading publication in most of its core market segments, runs the pre-eminent international advertising festival (Cannes Lions) and, with WGSN (a provider of digital information to the fashion industry), has a high-growth and market-leading information services business. Approximately 75% of revenue is generated in the UK and 25% from international sources including the highgrowth Middle Eastern market. The company’s business model has evolved from being largely reliant on print advertising to being far more diverse and resilient and thus able to tap different corporate budgets other than advertising. Close to 75% of Emap's brands are number one or number two in their market. Because of this leadership, the brands are highly valued by customers and enjoy high renewal rates. They also benefit from a flight to quality in a more challenging trading environment when customers will cut budgets on second tier brands rather than reducing spend on the market leader. The Investment Apax Funds, alongside corporate partner Guardian Media Group, acquired the business as a result of the three-way break-up of Emap plc at the end of 2007. The break-up led to the sale of the consumer publishing and radio divisions to Bauer Media, a large German media conglomerate, while Apax Funds and GMG took private the remaining B2B division and umbrella “plc” organisation. The strong existing partnership between Apax Funds and GMG through their joint ownership of Trader Media Group in the UK proved to be a decisive competitive advantage in securing the coveted B2B titles. Apax Partners also had a strong ‘angle’ because of its existing investment in the B2B sector with Incisive Media. Progress In the nine months to December 2008, Emap's revenue grew 3% year on year. This growth was achieved against the back-drop of a difficult trading environment in Emap's core UK market where the key end markets it serves, retail and construction, experienced a significant downturn. This was partly compensated for by a strong performance in its public sector end market. In comparison to other media companies, Emap has shown a good degree of resilience, largely as a result of having a streamlined portfolio of market leading products that benefit from customers concentrating budget spend on the market leader. Since the initial investment, which completed at the beginning of the year, Apax Funds and GMG have worked with the company to complete the senior management team, including hiring David Gilbertson as buy-in CEO from Informa. The Group has also been fundamentally restructured along product lines, with new reporting lines put in place and a new set of performance indicators introduced.
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Our sector expertise
Healthcare The Healthcare team at Apax Partners comprises 17 dedicated investment professionals based in Europe, the US and India. The team is characterised by its very strong scientific background, with many of the members having achieved academic success in their specialist field before moving into industry, consulting or private equity directly.
Top Health investments TriZetto
Investment year
2008
$1.5bn
General Healthcare Group
Investment year
Enterprise value at time of investment
2006
£2.5bn
Enterprise value at time of investment
Capio
Investment year
Mölnlycke Health Care
Investment year
2006 2005
Enterprise value at time of investment
€2.9bn Enterprise value at time of investment
€1.3bn
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Our sector expertise Healthcare partners
1
4 3
1. Bill Sullivan
4. Khawar Mann
Office New York
Office London
Board seats TriZetto, Spectrum Laboratory Network, MagnaCare Holdings.
Board seats General Healthcare Group, Capio, Unilabs, Celldex.
Background Joined Apax Partners in 2007. Prior experience at MagnaCare Holdings, Inc., Oxford Health Plans and Lincoln HN Life. Bachelors of Finance and Banking from Suffolk University in Boston.
Background Joined Apax Partners in 2003. Prior experience at Weston Medical Group PLC and Linklaters. MA in Medical Sciences and Law and LL.M from Girton College, Cambridge University. MBA from the Wharton School, University of Pennsylvania.
2. Buddy Gumina
5. Cathrin Petty
Office New York
Office New York
Board seats TriZetto, Qualitest Pharmaceuticals, Spectrum Laboratory Network, Encompass Home Health, Voyager HospiceCare, Magnacare Holdings.
Board seats Qualitest Pharmaceuticals, Affymax Inc., Intercell AG, Zymogenetics Inc, Xanodyne Inc., Zeneus Pharma Ltd.
Background Joined Apax Partners in 1998. Prior experience at Donaldson, Lufkin & Jenrette Merchant Banking Partners. BA in Political Science from Yale University. MBA from Harvard Graduate School of Business Administration. 3. Ian Jones Office London Board seats General Healthcare Group, Mölnlycke Health Care Group, Regent Medical, Medlock Medical, Hansen Transmissions, PureWafer. 5 5
2
Background Joined Apax Partners in 1997 from Coopers & Lybrand. Degree in Mathematics and Computer Science from Cambridge University. MBA from Warwick Business School. Chartered Accountant (ACA).
Background Joined Apax Partners in 2000 from Schroder Ventures, and previously worked at Schroders Investment Management. MSc in Natural Sciences (immunology) from New Hall, Cambridge University with a post graduate in Management Studies from the Judge Institute, Cambridge.
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Our sector expertise Healthcare review
Overview The Healthcare team at Apax Partners comprises 17 dedicated investment professionals based in London, New York, Madrid, Milan, Munich and Mumbai. The team is characterised by its very strong scientific background, with many of the members having achieved academic success in their specialist field before moving into industry, consulting or private equity directly. Led from London by Ian Jones, it is a stable team, with the core members having advised the last three Apax Funds. The Healthcare group focuses exclusively on buyouts and has advised Apax Funds on equity investments of over €2.2bn in companies such as Apollo Hospitals, General Healthcare Group, Capio, Unilabs, Mölnlycke Health Care Group, TriZetto and Qualitest Pharmaceuticals. Marketplace trends and drivers The Healthcare team focuses specifically on three core areas globally: medical products, devices and supplies; speciality and generic pharmaceuticals and healthcare service providers and in addition, in the US, on the healthcare IT space. Dynamics are different in each sub-sector. The key drivers in the medical products space are innovation, consolidation and globalisation. There are pressures on many large medical product companies to divest non-core assets. In our opinion the medical products sub-sector has attractive LBO characteristics, displaying long-term growth prospects with good margins and cash flow characteristics. The pharmaceuticals space is characterised by increased commercial pressures driving a re-examination of the business model. Ongoing consolidation amongst the major pharmaceutical companies will drive portfolio rationalisation and create opportunities for more nimble competitors. In the generics space, we are witnessing continued strong growth in demand, balanced by consolidation and aggressive competition; the sector remains an attractive area for the team to focus on. Across the broad sweep of companies that are covered by the healthcare providers tag, the key dynamics are ageing populations, consumer awareness and patient choice. Healthcare costs are forcing payers to re-assess the level of future provision and the financing of care. New reimbursement models are emerging including ‘pay by performance’ rather than ‘pay by procedure’. The sector is also becoming increasingly regulated and specialised management teams are emerging on a global basis, which are well equipped to deal with a rapidly changing part of the healthcare sector.
Healthcare IT is becoming increasingly important for providers, professionals and patients. New models of healthcare delivery are increasingly IT intensive. Further, there is broad recognition, especially in the US, that data analytics and customer-facing technologies will be critical to future success. The team is interested in segments of the market benefiting from exposure from these drivers and led the US$1.5bn public-to-private of TriZetto in the US during the summer of 2008. Healthcare strategy The Healthcare team has specialists in each of the three key areas of focus outlined above. It is focused on making investments in growth areas where it has a proprietary angle, derived from its sector knowledge and expertise. The primary focus of the team is on European and US opportunities but there are significant opportunities for transatlantic and global transactions, reflecting the global nature of the healthcare industry. Outlook We believe that the healthcare sector remains dynamic and will see increasing changes in how healthcare is provided and sourced. As a result of these changes, we anticipate that there will be far-reaching consequences in the healthcare sub-sectors that we focus on. We continue to concentrate on areas where rapid change and dislocations in the market are producing interesting opportunities.
Ian Jones
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“I feel that we are already seeing an improvement in our strategic planning – specifically in our ability to look further into the future and make decisions which will help us achieve the greatest impact – and this is largely thanks to the support we receive from Apax on the strategic and financial planning side”. Jeff Margolis, CEO, TriZetto
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Our sector expertise Healthcare continued
Case study: Healthcare
TriZetto
Towards Integrated Healthcare Management Based in Newport Beach, California, the TriZetto Group Inc. develops, licences and manages software solutions that link together constituents in the healthcare supply chain to improve the coordination of benefits and care for healthcare consumers. The company, which was founded in 1997 and achieved an IPO on NASDAQ two years later, has approximately 2,000 staff and sells its software systems to over 350 separate customers in the US health insurance and benefits administrator markets; all in all, TriZetto technology touches approximately half the insured population of the US. The deal In August 2008, Apax Europe VII and Apax US VII joined forces with two of TriZetto’s core customers – Blue Cross Shield of Tennessee and Regence Group – to take the company private in an investment worth approximately US$1.5bn. On the decision to de-list TriZetto, founder and CEO Jeff Margolis says: “Although the management team felt that TriZetto had a very strong profile as a listed business, we also saw a major opportunity to secure the investment that would get us closer to achieving our ultimate goal of Integrated Healthcare Management. Clearly, the state of the public markets was also a factor: we had predicted an extended period of volatility on the markets and wanted to avoid the potentially destructive situation where management resources are diverted away from the objectives of a business to deal with PR issues. The option of a take-private by a strong backer offered us the chance to secure real value for our shareholders and customers”. Why Apax Partners? As far as the choice of partner was concerned Margolis explains that the options had been varied: “There was significant interest in TriZetto in late 2007 and into 2008, with something like 20 unsolicited approaches from trade and financial bidders. We had already crossed paths with Apax before, whilst analysing a potential acquisition, and on this occasion we were immediately impressed by the team’s grasp of the long-term vision for the business and their willingness to buy into this vision and trust the strengths of the company. In the end, this, plus their relationship with two of our key clients, gave them the edge and the three parties combined to win the bid.” Since the deal completed In the few short months since the completion of the deal the transition from public to private has been a seamless one. What is more, as Margolis points out, the change has not affected the company’s performance. What about the future? The TriZetto and Apax Partners teams strongly believe that healthcare systems in the US and elsewhere continue to suffer from poor coordination and the company’s ultimate goal is to optimise benefits and care via the principle of Integrated Healthcare Management. To achieve this, the primary objective must be to continue to make investments that fuel growth, both in terms of the development of TriZetto’s existing technology and services, and via acquisitions that bolster the company’s footprint, increase its range of offerings and, perhaps, expand its geographical coverage.
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“Given the current market conditions, there are certainly opportunities out there. They genuinely understand the business and although India is a different culture, the fundamental business model of operating a hospital doesn’t change that much and the experience they have as owners of hospitals elsewhere will be beneficial as we continue to grow.The results of the partnership so far have been good and they have given the company the freedom to take decisive action”. Suneeta Reddy, Finance Director, Apollo Hospitals
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Our sector expertise Healthcare continued
Case study: Healthcare
Apollo
Bringing focused expertise to an Indian leader Treating over three million patients every year, Apollo Hospitals is the largest private healthcare provider in Asia. Apollo was established as a public company in 1979 by Dr P C Reddy, and has been a pioneering force in Indian healthcare ever since. Today it operates a network of 44 hospitals with around 7,000 beds. In addition to its hospitals business, Apollo owns and operates one of the largest pharmacy chains in India as well as primary care clinics, nursing homes, a health insurance business and one of India’s largest medical outsourcing businesses. The deal In mid 2007, Apollo was looking to raise equity capital in order to expand. Suneeta Reddy, Apollo’s Finance Director, explains the rationale: “We had a very clear sense that Apollo was poised for growth. Demand in the Indian healthcare sector was, and still is, far greater than supply, the stock markets were doing well and we wanted to capitalise on the opportunity.” Why Apax Partners? As part of this sales process, the Apollo Management team met with five or six other investors and ultimately chose Funds advised by Apax Partners. Apax was always well placed due to its knowledge of the healthcare sector in general and specific experience with hospital investments such as Capio and General Healthcare Group in Europe. It also benefited from a strong prior relationship with the company and with the Reddy family stretching back to an initial meeting in the US in 2004. Reddy continues: “We were looking for a strategic partner that could really help the business maximise the opportunities that we saw. Most of the others could provide the financing, but we felt that Apax understood the hospital business much better and would also have the strategic know-how that we were looking for. In terms of process, they were extremely thorough; they had commissioned an external study and had a deep understanding of the market. They were also able to complete the diligence very quickly and with a very high level of understanding.” Since the deal completed in October 2007, Apax Funds’ deal team has advised management on a number of initiatives such as budgeting and performance monitoring in the group, operational improvements and assessment of potential acquisition targets. “We haven’t seen eye-to-eye on everything”, says Reddy, “but they have been a surprisingly useful sounding board for the business and their questioning approach has helped to get the best out of our team and, at the end of the day, our interests are very closely aligned. “They have also been effective at benchmarking our business against performance in their European investments and have challenged us to drive through operational improvements without compromising on clinical excellence. The team have risen to this challenge and, as a consequence, the business has become more profitable.” What about the future? As more people demand a higher standard of medical care, the growth potential for Apollo remains strong. The private hospitals market is diverse and there is scope for further consolidation as well as organic growth. The group also has ambitious plans to grow the number of pharmacies it operates from 700 to 1,200 by 2010.
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Our sector expertise
Financial & Business Services Worldwide, the FABS team is made up of 18 investment professionals located across Apax Partners’ office network. The team has a broad range of expertise spanning industry, consulting and investment banking that enables Apax Partners both to identify opportunities and to work deeply with portfolio companies across the sector. Top Financial & Business Services investments Hub International
Investment year
2007
$2.0bn
Farmactoring
Investment year
Enterprise value at time of investment
2006
Enterprise value at time of investment
€224m
Travelex
Investment year
Enterprise value at time of investment
2005
£1.1bn
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Our sector expertise Financial & Business Services partners
1
5 2 3
4
1. Mitch Truwit
4. Massimiliano Belingheri
Office New York
Office London
Board seats Hub International
Board seats Farmafactoring, Azimut, Smart Technologies, Yell, PCM.
Background Joined Apax Partners in 2006. Previously President and Chief Executive Officer of Orbitz Worldwide, Chief Operating Officer of priceline.com and Head of Corporate Development for Oxford Health Plans. BA in Political Science from Vassar College. MBA from Harvard Graduate School of Business Administration.
Background Joined Apax Partners in 2001. Prior experience at McKinsey and Morgan Stanley. Laurea in Economia in Government, Business & Economics from Universita’ Commerciale Bocconi, Milan, Italy. MBA from Harvard Business School (Baker Scholar). 5. Ralf Gruss
2. Michael Phillips Office Munich Board seats Xerium, Sulo, IFCO, PVH, Tommy Hilfiger. Background Joined Apax Partners in 1992. Prior experience at Ciba-Geigy Ltd. and Otto Waste Management Ltd. BSc Honours in Engineering Chemistry from Queen’s University, Kingston, Canada. MBA from INSEAD. 3. Frank Ehmer Office London Board seats CME, Emap, Tommy Hilfiger, Authentos, Bundesdruckerei, Wind Hellas. Background Joined Apax Partners in 2000. Prior experience at the hedge fund Highbridge in New York. Diploma from Universität Mannheim. MBA from Harvard Business School.
Office Hong Kong Board seats IFCO, Kabel Deutschland, LR Health & Beauty Systems. Background Joined Apax Partners in 2000 from Arthur D. Little. Degree in Financial Economics and Industrial Engineering from the University of Karlsruhe. Studied Financial Economics and Business Administration at the London School of Economics and the University of Massachusetts (Boston).
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Our sector expertise Financial & Business Services review
Overview The Financial & Business Services (‘FABS’) sector represents a substantial portion of the global economy, with approximately 18% of the market capitalisation of the MSCI Global Index in the sector. The sector itself encompasses a diverse range of businesses, from diversified global financial institutions to international business services companies, and countless regional, national and local players. Worldwide, the FABS team is made up of 18 investment professionals located across Apax Partners’ office network. The team has a broad range of expertise spanning industry, consulting and investment banking that enables Apax Partners both to identify opportunities and to work deeply with portfolio companies across the sector. Apax Funds have invested €1.4bn in the sector over the past 15 years.
Marketplace/trends and drivers The financial services sector has been one of the main beneficiaries of the long term globalisation and deregulation process that has transformed the global economy over the past 30 years. This long term trend will continue, despite the current credit crisis. After the global correction in asset values and a re-basing of GDP levels, normal growth will return, as will the need for financial services in both developed and developing regions. We remain confident that the financial services sector will out-perform GDP growth in the future. However, whenever the speed of new product innovation and product complexity outstrip the limits of the available regulatory framework and risk control systems, an imbalance is created. In this instance, the imbalance allowed a surplus of cheap liquidity to misprice risk in ‘repackaged’ sub-prime real estate assets and other financial debt products. The crisis was further fuelled by the issuance of derivatives and insurance products in the form of credit default swaps and credit wraps, without adequate requirements for regulatory capital. What appeared to be free money now burdens the financial markets with losses that cannot be financed. The only solution to stabilise the financial markets has been strong government intervention and the elimination of loopholes in the regulatory framework of the banking sector. This process will continue through 2009 and the effects will be felt for years to come. We expect the financial services sector to be reshaped in the years to come as financial services conglomerates (some of them government owned) sell high quality non-core businesses to raise capital to restore their balance sheets, repay government support and retrench to their core markets. While asset management, asset gathering, insurance and support services will go through a cyclical downturn, the viability of wholesale funded business will be severely tested. We expect the new wave of legislation and regulation to restrict entry into the sector, increase core capital requirements and protect the profitability of the existing institutions.
In business services, the main drivers continue to be the implications of outsourcing and globalisation. In a recession, companies are looking to outsource more of their non-core functions, and are increasingly seeking partners that are able to fulfil these functions across their entire network. This will lead to continuous growth within the sector to counterbalance the impact of the global recession. Governments’ commitments to free trade should support the globalisation of the sector and its consolidation as business services firms strive to meet their clients’ needs around the world. Strategy The team pursues different strategies for financial services and business services, reflecting the unique dynamics of each sector. In financial services, we target businesses that own strong customer-facing franchises and have the potential to strongly benefit from a rebound in the economy. We aim to support solid institutions to take advantage of the scarcity of available capital to pursue growth through acquisition in their vertical segments of operation. In business services, we believe that as the market tends to be characterised by relative fragmentation there exists a substantial opportunity to build and develop businesses of scale through organic growth and acquisition. Our goal is therefore to acquire strong platforms that can be used to drive growth both within their own markets and overseas and be positively exposed to a rebound in the global economy. Outlook The trends underlying both the financial services and business services industries mean that they are likely to continue to be highly geared to an economic rebound, and present attractive investment opportunities for the Apax Funds. Within financial services, scarcity of capital will present a unique flow of investment opportunities as large groups seek to exit non-core businesses and geographies and business models get redefined. Continued turbulence in the capital markets will create opportunities as firms seek strategic partners to help them through the downturn. In business services, globalisation and consolidation will continue to present opportunities for investment in the sector.
Michael Phillips
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Our sector expertise Financial & Business Services continued
Case study: Financial & Business Services
Farmafactoring
Farmafactoring S.p.A. is the leading provider of credit management services to suppliers to the Italian public healthcare system, the Servizio Sanitario Nazionale (‘SSN’). The company was founded in 1985 by a group of Italian and multinational pharmaceutical and biomedical companies to alleviate the cash-flow difficulties of the SSN’s suppliers, who were affected by the traditionally long payment cycles of its constituent health authorities. Farmafactoring purchases and manages the collection of its clients’ receivables, allowing them to completely outsource their accounts receivables management function. In addition to providing non-recourse factoring, Farmafactoring also provides receivables management services for clients who choose to retain them on their own balance sheets. Farmafactoring’s strong relationships with the SSN’s local health authorities across Italy and deep knowledge of their payment patterns allows the company to price its products very competitively, while its scale gives it a strong bargaining position when negotiating payments from the health authorities. The deal The company was attractive to Apax Funds as it is the clear market leader with a defensible competitive position in a growing sector. Historically, growth in public healthcare expenditure has not been impacted by the economic cycle and, in addition, the company has identified several growth opportunities, including providing its services to a wider range of suppliers to the SSN and to other parts of the Italian public sector, launching new products to its existing clients, and expanding internationally. Why Apax Partners? In December 2006, the Apax Europe VI fund won an auction to acquire a 91.7% stake in Farmafactoring. The Apax deal team had been developing an understanding of Farmafactoring’s business and prospects for some time prior to the decision by the company’s shareholders to begin the sale process, and their extensive knowledge of the business provided a key competitive advantage during the auction process. What about the future? Since the acquisition, the business has continued to perform strongly and the Apax deal team has advised the company’s management to put in place preemptive measures to counter any shocks resulting from the volatility of the credit markets. In addition, a series of initiatives has been launched to optimise the key value drivers of the business, including targets to encourage the collection of as much default interest as possible from the existing book of business, buying portfolios of receivables outside the existing client base, and improvements to the funding structure of the business. Finally, the company has completed the necessary groundwork to expand its operations to Spain to leverage its expertise with public healthcare payers in a market with similar dynamics to Italy.
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4
Section 4: Our investors 90
Investors review
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Current portfolio listing
100
Apax Partners international offices
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Total funds raised At 31.12.2008 At 31.12.2008 At 31.12.2008
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Apax Partners Annual Report 2008
Our Investors
David Whitehouse Partner, Investor Relations
Nadia Preston Head of IR Client Services
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The development of Apax Partners
Our investors are our clients and the relationship with our investors is at the heart of our business and indeed drives our business. Advising the Apax Funds to which our investors have committed, understanding what they are looking for from their investment, and working with them to provide enhanced returns drives the Apax Partners strategy and that of the Investor Relations (IR) team. The IR team places significant emphasis on three key areas: (i) investor communication; (ii) relationship development and (iii) content improvement. The primary principle applied across the three areas is to be transparent, by providing detailed and frequent information through formal and informal communication channels. Emilio Voli Partner, Investor Relations
€26.6bn £25.7bn US$36.9bn
Investor communications The IR team advise our Guernsey office on communications with our investors. This includes quarterly reports and activity updates (or press releases) upon the occurrence of significant events such as the making or disposal of an investment. Formal reporting is sent directly to investors and there is also a secure Extranet providing online access to financial, legal and reporting information for investors, as well as copies of presentations given to investors at the Annual Meeting, Boards of Advisers Meetings, as well as Minutes of the Boards of Advisers Meetings. In addition to the above, the Funds Administration team provides quarterly Capital Statements to Investors and audited Financial Statements for the Apax Fund Partnerships and can assist in answering more technical and accounting queries from investors. A specialist tax team is also available to assist in the provision of tax reporting information. Relationship development The IR team manages a thorough relationship development programme ensuring investors receive relevant updates as well as access to senior investment professionals across the firm. The opportunity for oneon-one meetings is regularly offered to current and potential investors in the funds and meetings are taken by both the IR team and the investment professionals. P The IR team is keen to develop long-serving relationships with investors and seeks to understand through these relationships what investors are looking for, how best to deliver this, and make ongoing proposals to investors as appropriate. Content improvement Apax Partners recognises that investors’ demands and requirements for information are constantly evolving. Therefore Apax Partners has built an appropriate infrastructure to collect information to support investor needs, as well as to be able to communicate to investors on topical issues as they emerge. Investors have the opportunity to pose ad-hoc questions via the IR team and we ensure they receive a timely response.
Investor breakdown by type Public pension funds
31.77%
Private pension funds
14.16%
Funds of funds
11.14%
High net worth individuals
10.28%
Insurance
9.76%
Banks
7.05%
Endowments
6.14%
Sovereign funds
5.18%
Gatekeepers
4.52%
How the Funds have evolved The history of Apax Partners is interwoven In with the development of the private equity asset class on both sides of the Atlantic. Throughout its 30-year history, Apax Funds have successfully invested across all investment stages, and through several complete economic cycles. The firm’s current focus on large buyouts is rooted in a culture that has always been outward looking, pioneering and committed to growing businesses. The deep understanding of the five sectors in which its Funds invest has been at the core of Apax Partners’ strategy, giving it early access to investment opportunities and an ability to add value quickly to portfolio companies.
Year of first investment
Total amount raised (m)
UK I Apax Venture Capital Fund Apax Ventures II Apax Ventures III Apax Ventures IV Apax UK V Apax UK VI
1982 1984 1987 1990 1995 1997
£10.15 £30.12 £75.00 £109.60 £164.00 £313.20
Pan-European Apax Europe IV Apax Europe V Apax Europe VI Apax Europe VII
1999 2001 2005 2007
€1,803.15 €4,404.30 €4,310.33 €11,204.27
Germany APA German European Ventures Apax Germany II
1992 1997
€49.39 €133.20
Israel Israel Growth Fund Apax Israel II
1994 1999
US$40.05 US$102.50
United States Excelsior Fund Excelsior II Excelsior Jersey The P/A Fund Excelsior III P/A Fund II Excelsior IV P/A Fund III Excelsior V Excelsior VI Apax US VII SKM Equity Fund I SKM Equity Fund II SKM Equity Fund III
1981 1985 1985 1987 1989 1993 1995 1997 1998 2000 2006 1993 1996 2000
US$25.53 US$109.13 US$29.82 US$40.40 US$175.00 US$60.61 US$265.15 US$100.00 US$406.00 US$1,100.00 US$856.34 US$300.00 US$516.00 US$720.00
Japan Apax Globis Japan Fund
1999
¥20,000.00
Other Apax European Buy-In Fund
1989
€300.00
Fund
Investor breakdown by type
Investor breakdown by geography US
40.21%
Continental Europe
24.54%
UK
13.98%
Canada
11.59%
Asia
8.13%
Oceania
1.56%
Investor breakdown by geography
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The firm believes that private equity has the ability to deliver excellent returns to investors by bringing better governance to companies, by improving operational performance and by ensuring full alignment of interest between investors and company management.
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Our Investors
Case study: Investor
AlpInvest
AlpInvest Partners independently manages the private equity investments for two of the world’s largest pension funds: Dutch ABP and PFZW. The pension funds’ beneficiaries are civil servants, teachers and healthcare workers, all participating in sector based defined benefit schemes. While ABP and PFZW had successful histories as private equity investors, the funds concluded that their long-term commitment to the market would best be served by an independent, dedicated and full-scale private equity organisation. AlpInvest Partners became the exclusive private equity manager for these funds in 1999 and bears full discretionary power over all investment decisions. AlpInvest Partners is one of the few private equity investors with the financial scale and global reach to partner with the world's largest private equity firms as well as the specialised high-performers. With €40bn of assets under management, AlpInvest Partners has the ability to provide substantial commitments to partners’ funds and also to support them with meaningful equity and mezzanine co-investment in their portfolio companies. In portfolio construction AlpInvest Partners takes a long-term investment perspective by analysing the global economic trends effecting private equity. AlpInvest Partners follows a deliberate allocation process: top-down segment analysis and bottom-up partner selection. The top-down approach includes analysis of the general characteristics, size and growth of all private equity market segments. In investment selection the fund investments team performs extensive due diligence in order to be able to identify the best-in-class general partners based on the desired geography, industry focus and stage of life focus. In conducting this due diligence, the team leverages AlpInvest Partners’ firm-wide resources and intelligence. With first-hand knowledge collected from the co-investments team along with the market visibility of the secondary investments team, AlpInvest Partners is able to quickly and efficiently identify trends, integrate knowledge and capture opportunity. AlpInvest Partners’ success is driven by partnering with experienced private equity investors, operating within well structured teams with solid investment histories. This requires our partners to be responsible owners of their portfolio companies. AlpInvest Partners is engaged in the discussions on implementation of the UN Principles for Responsible Investment in the private equity space and promotes portfolio companies to subscribe to the UN Global Compact principles.
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Some relationships, such as the Commonfund-Apax relationship, date back two decades to the very first commitments made outside of the US by Commonfund Capital. Commonfund Capital places a high value on these relationships, seeking to be a trusted partner and adviser to select, high quality general partners.
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Case study: Investor
Commonfund
Commonfund Capital LP Founded in 1971, Commonfund is a non-profit investment management company devoted to enhancing the financial resources of non-profit institutions and social enterprises including educational endowments, foundations, hospitals and healthcare systems, cultural, social service and faithbased organisations and other charities located in the US, Canada, the United Kingdom and elsewhere. Commonfund Capital is the private capital arm of Commonfund. Since the founding of Commonfund Capital in 1988, the mission has remained the same: to provide organisations with a total solution for private capital investing – venture capital, private equity and natural resources. With offices in Wilton, Connecticut and London, UK, Commonfund Capital is staffed by more than 40 investment professionals and serves over 700 institutional investors from the non-profit community. Since the formation of Commonfund Capital, the group has managed 37 fund-of-fund programmes totalling over US$11bn in private capital commitments. Within these programmes, Commonfund has forged partnerships with 188 direct private capital management groups around the globe. There are several fundamental factors that continue to testify to the strength and success of the private capital industry that distinguish the private capital model in any environment, weak or strong. These advantages include strong competitive urgency, long-term horizon, strong governance, aligned incentives, focus on strong management talent, stable shareholder base and efficient capital structures. From a portfolio allocation standpoint, the key to potential success in this asset class is to partner with top tier private capital managers in a diversified programme in order to access the vast and largely distinct opportunity set private companies represent. The manager selection process for a private capital programme considers such fundamental issues as the quality and experience of the manager's team, investment philosophy and past performance. Assessment includes the strategic fit of the manager’s investment approach with investment objectives of the organisation and conduct of a number of qualitative and quantitative analyses. More specifically, this could be a review of factors such as quality of team, investment strategy, investment and exit experience, alignment of interest, ability to add value to portfolio companies, commitment/motivation, firm culture, due diligence expertise, deal sourcing, firm governance, prior track record and distribution policies. This work, accompanied by structured risk management, legal negotiation and documentation in the commitment phase, is key to building a private capital programme. After the commitment period, the focus becomes ongoing monitoring and dialogue with the manager during the investment life of manager commitments. Commonfund Capital works on advisory boards for private capital managers around the world.
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Our partnership with Apax Partners is now in its third decade, and is an impressive example of the high-quality relationships which GIC SI seeks to establish globally.
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Case study: Investor
GIC
GIC The Government of Singapore Investment Corporation (GIC) has been the manager of Singapore’s foreign reserves since 1981. The GIC Group strives to achieve good long-term returns on assets under its management, to preserve and enhance Singapore's reserves. Owned wholly by Singapore’s Ministry of Finance but reporting to its own Board of Directors, GIC operates as a private fund management company with the sole objective of generating financial returns through its main subsidiaries: Public Markets, Real Estate and Special Investments (SI). GIC is today one of the largest investment management organisations in the world, investing well over US$100 billion in multiple asset classes in more than 40 countries. GIC SI’s team of 70 investment professionals operates from offices in Singapore, London, New York, Silicon Valley and Beijing, and adopts a globally integrated approach in its selection of fund manager and direct investments. The GIC SI portfolio includes limited partner interests in leading global and regional funds focused on investments in buyouts, venture capital, infrastructure and mezzanine. Minority equity and mezzanine investments are also made directly in well-run companies. GIC SI further invests directly in infrastructure assets worldwide. GIC SI’s investment team adds value to fund managers and investee companies by providing advice and access to a global network of business links which GIC SI has developed over the years. The GIC perspective is that of a long-term investor over various economic cycles. For over 25 years, the firm has identified and invested with outstanding private equity fund managers and grown with them over time. Our partnership with Apax Partners is now in its third decade, and is an impressive example of the high-quality relationships which GIC SI seeks to establish globally.
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Current portfolio Following is a complete list of all live Apax Funds portfolio companies.
Tech & Telecom
Year of initial investment
Bezeq The Israel Telecommunication Corp
2005
BitBand Inc
2003
BlueArc Corporation
2000
Centerbeam
2000
Composite Software
2002
Corvil Networks Limited
2003
Crescendo Networks Limited
2003
Starhome BV
2004
Streamserve Inc
1999
Synetrix Holdings Limited
2004
TDC A/S
2005
Tideway Systems Limited
2004
Transera Communications
2004
Versatel AG
2005
Weather Investments SpA
2008
Wisair Inc
2002
Media
Year of initial investment
Cengage – Nelson Education
2007
Cengage Learning
2007
Central European Media Enterprises Ltd
2006
Emap*
2007
HIT Entertainment*
2005
Incisive Media Limited*
2006
Quartermaster
2005
CSG Solar AG
2005
SportsMyx Holdings
2005
Dialog Semiconductor Plc
1998
Stage Three Music Limited
2004
Digital Fuel Technologies Inc
2005
Elliptec Resonant Actuator AG
2004
Frontier Silicon Holdings Limited
2003
Handmark
2001
InnovaLight
2004
Iris Financial Engineering Holdings Ltd
2003
mFoundry
2003
Midasplayer/King.com
2005
Mobixell Networks
2000
Nanomix
2002
NXP
2006
OnePath Networks Limited
1997
Onespin Solutions GmbH
2005
Peregrine Semiconductor
1997
Pictage
2006
Power Paper Limited
2005
PowerID Limited
2007
Printar Limited
2004
Promethean Ltd
2004
RaySat, Inc.
2005
Red-M Group
2001
SMART Technologies
2007
Retail & Consumer
Year of initial investment
Ale House Holdings
2004
Bob’s Discount Furniture
2005
Café Rio
2004
Comark
2005
D+S europe AG
2008
Home Organizers
2000
LR Health & Beauty Systems GmbH
2004
New Look Group*
2004
Norcraft Companies
2003
Ollie’s Bargain Outlet
2003
Panrico, S.A.
2005
Plantasjen
2007
rue21
1998
S.B. Restaurant
2000
Savaria Corporation
1998
Sisal S.p.A.
2006
Somerfield Ltd*
2005
Spyder Active Sports
2004
Teavana Holdings Tnuva
2004 2008
Tommy Hilfiger Corp
2006
Xerium Technologies
1999
Telcast Media Group GmbH
2001
The Learning Annex
2006
The NewsMarket
2000
Trader Media Group*
2007
Truvo/World Directories
2004
VoodooVox
2001
Healthcare
Year of initial investment
Aerovance
2004
Affymax Pharmaceuticals
2001
AngioDynamics
1999
Apollo Hospitals Enterprise Ltd
2007
Ascent Healthcare
2000
Astex Technology Ltd/Metagen GmbH
2001
Cadent
2000
Capio AB
2006
Celldex Therapeutics
2003
Dune Medical Devices Limited
2004
General Healthcare Group Limited*
2006
Magnacare Holdings
2002
Novacea
2004
Orexo AB (Biolipox AB)
2002
Procognia Limited
2002
Prometheus Laboratories
1999
Qualitest Pharmaceuticals
2007
Senex Financial
2004
Sense Proteomic Ltd/Procognia
1998
SkinMedica
2003
Spectrum Holding Company
2005
The TriZetto Group
2008
Voyager HospiceCare
2004
Wilex AG
1998
Xanodyne Pharmaceuticals
2005
ZymoGenetics
2000
*UK Walker-compliant portfolio companies Emap Emap is the UK’s leading business information provider. The company provides information to its customers through four key formats: print and online magazines, exhibitions and festivals, digital information services, and conferences. The initial investment from Apax Funds was made by Apax Europe VII in 2007. Turnover (year to 31 March 2008)
£283.3m 1,588
Number of employees
New Look Group New Look is a retailer of value fashion clothing and the third largest womenswear retailer in the UK. The company has nearly 600 stores in the UK and over 270 stores trading under the MIM format in France. The initial investment in this company was made by the Apax Europe IV and Apax Europe V funds in 2004. Turnover (53 weeks to 29 March 2008) Number of employees
£1,169.1m 20,405
Somerfield Somerfield is the fifth largest grocery retailer in the UK, operating out of small, local stores to serve the ‘convenience shoppers’ market. In July 2008, funds advised by Apax Partners agreed the sale of Somerfield to the Co-operative Group for £1.565bn.
Bolero.net
2000
Builders TradeSource
2003
General Healthcare Group Limited General Healthcare Group is the leading provider of independent health care services in the UK. Its primary businesses are BMI Healthcare and Netcare UK. The initial investment in this company was made by the Apax BMI Healthcare is the acute care private hospital division and Europe VI fund in 2005. Netcare UK provides specialised clinical services to patients Turnover (year to 30 April 2008) under contract to the National Health Service. The initial investment in this company was made by the Apax Europe VI fund in 2006. Number of employees
Contech Construction
2006
Turnover (year to 30 Sept. 2008)
CorMine
2005
Financial & Business Services
Electro – Stocks Grup S.L.
Year of initial investment
2007
Farmafactoring S.P.A.
2006
Hub International
2007
IFCO Systems N.V.
2003
L3
2000
PlanView
2004
Plexus Systems
2006
RealPage
2003
Travelex Holdings Limited*
2005
Number of employees
Year of initial investment
Applied Tech
1997
Basic Energy Services
2005
Precision Partners
1998
Trader Media Group Trader Media Group is one of Europe’s largest specialist multimedia publishers, with market-leading automotive classified websites, over 70 leading classified titles and a high-volume printing business.
HIT Entertainment Hit Entertainment is the world's largest independent owner and distributor of pre-school children's content. Hit owns brands such as Thomas and Friends, Bob the Builder, Barney the Dinosaur, Pingu, Fireman Sam and Angelina Ballerina. The initial investment in this company was made by the Apax Europe VI fund in 2005.
The initial investment in this company was made by the Apax Europe VII fund in 2007.
Turnover (year to 31 July 2008)
Turnover (year to 31 March 2008)
Number of employees
Other
£772.6m 8,473
£4,221.4m 40,855
US$273.8m 384
Autotrader is the leading player in the UK automotive print classified market and autotrader.co.uk is the leader in the online segment.
Number of employees
£309.1m 3,527
Incisive Media Limited Incisive Media is a business-to-business information provider. The business operates across the main areas of financial services, with leading brands in the financial, legal, accountancy, real estate and IT sectors. The initial investment in this company was made by the Apax Europe VI fund in 2006.
Travelex Holdings Limited Travelex is the world's largest non-bank provider of commercial foreign exchange services, providing integrated payment solutions for business customers globally. Travelex operates over 700 retail foreign exchange branches around the world. The initial investment in this company was made by the Apax Europe V and Apax Europe VI funds in 2005.
Turnover (year to 31 Dec. 2008 – unaudited)
Turnover (year to 31 Dec. 2008)
Number of employees
£224.7m 1,899
Number of employees
£583.7m 5,554
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100
Apax Partners international offices
China
Italy
Apax Partners Hong Kong Ltd 16th Floor Nexxus Building 41 Connaught Road Central Hong Kong People’s Republic of China T: +852 2297 2313
Apax Partners S.r.l. Palazzo Gallarati Scotti Via A. Manzoni, 30 Milan 20121 Italy T: +39 02 762 1191
China
Apax Investment (Shanghai) Company Ltd 65th floor Shanghai World Financial Center 100 Century Avenue Pudong New District 200120, Shanghai People’s Republic of China T: +86 21 5198 5656
Apax Partners India Advisers Private Limited 2nd Floor Devchand House Shivsager Estate Dr Annie Besant Road Worli Mumbai – 400018 India T: +91 22 4050 8400
Germany
Spain
Apax Partners Beteiligungsberatung GmbH Possartstrasse 11 Kopernikustrasse 81679 Munich Germany T: +49 89 998 9090
Apax Partners España, S.A. Velázquez 10-5° 28001 Madrid Spain T: +34 91 423 1000
Guernsey
Third Floor Royal Bank Place 1 Glategny Esplanade St Peter Port Guernsey GY1 2HJ T: +44 (0)1481 810 000 Israel
Apax Partners (Israel) Ltd Museum Tower 4 Berkowitz Street Tel Aviv 64238 Israel T: +972 3 777 4400
For any questions on this Report please contact Ben Harding in the UK office.
India
UK
Apax Partners UK Ltd 33 Jermyn Street London SW1Y 6DN United Kingdom T: +44 (0)20 7872 6300 USA
Apax Partners, L.P. 53rd Floor 153 East 53rd Street New York, NY 10022 USA T: +1 212 753 6300
For any questions on this report please contact Ben Harding in the UK office.
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Page 1
Apax Partners Annual Report 2008
www.apax.com
What’s in this Annual Report? Table of contents
Apax Partners Annual Report 2008
2
Performance highlights
4
Apax Funds live portfolio summary
1 10
Section 1: Overview Chief Executive’s letter from Martin Halusa
14
Investment strategy
19
Our global reach
20
China – opportunities and challenges
2
Section 2: Governance
26
Operational structure
28
Governance and compliance
32
Our values
34
The wider community
3
Section 3: Our sector expertise
42
Sector review Tech & Telecom
52
Sector review Retail & Consumer
62
Sector review Media
70
Sector review Healthcare
80
Sector review Financial & Business Services
4 90
Section 4: Our investors Investors
98
Current portfolio
100
Apax Partners international offices
Designed and produced by RadleyYeldar Photography by Matt Mawson (Mosaic: Benedict Johnson – Emmaus: Henry Thomas) Printed by CTD (FSC and ISO 14001 certified) Printed on Challenger Laser Matt comprising of fibres sourced from well-managed sustainable forest reserves and bleached without the use of chlorine. The production mill for this paper operates to EMAS, ISO 14001 environmental and ISO 9001 quality standards.
Front cover: Shanghai World Trade Centre, Apax Partners’ new China headquarters
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