Private Equity In Germany: Response To The Crisis, Munich

Roundtable Discussion

Private Equity in Germany: Response to the Crisis Munich

Q3 2009 Sponsors

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Roundtable Discussion

02

PRIVATE EQUITY IN GERMANY: RESPONSE TO THE CRISIS

Contents Speakers around the table

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Transcription of the discussion

04

Duff & Phelps: Where the debt breaks

08

Latham & Watkins: National legal safeguards against risks associated with private equity investments

10

Historical data

13

Roundtable Discussion

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Speakers around the table Robert A. Bartell CFA

Michael H. Bork

Managing Director

Managing Director

Duff & Phelps

Barclays Private Equity Germany

Dr. Jörg Kirchner

Sotiris T.F. Lyritzis

Office Managing Partner

Managing Director

Latham & Watkins LLP

Summit Partners

Artur Meinzolt

Catherine Raisig

Senior Manager

Managing Editor

Management Consulting - Strategy, M&A, Accenture

Remark, The Mergermarket Group

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Roundtable Discussion

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With current M&A and corporate finance related activity in Germany low, this roundtable event held in Q3 2009 in Munich examined how the German market has reacted to the financial crisis. The following is an edited transcript of the discussion.

What has been the impact of the financial crisis on private equity? Michael Bork (MB): MB: There is no doubt that the private equity industry and our day-to-day business has changed a lot in the last 18 months. Deal flow in the mid-cap and large segments is low, although the lower end of the market is doing well. The financing environment has improved, but the banks are still not financing many deals and we have seen very few transactions taking place. At the beginning of the crisis, we concentrated on our portfolio and used tools that would help recover, or improve, existing portfolio businesses. We feel quite comfortable now – it is a different kind of play, but it is quite interesting as well.

Sotiris Lyritzis (SL):

Artur Meinzolt (AM):

SL: We have spent a lot of time with our portfolio companies, helping them to understand the impact of the changes and how they need to change their own plans, from budgeting to recruiting, and operational standpoints. I think portfolio work is always very important, but in times of crisis it is even more so and funds that spend a lot of time with their portfolios will reap the rewards over the longer term. It is correct that deal flow is limited and difficult, but sometimes you have to be a little bit more creative when looking at transactions and structure them differently so that you can make them work. Other times, you just have to be patient, identify the good companies and stay in touch with them until they’re ready to take an investment. In difficult periods like these, we notice that the owners of many of the more attractive businesses prefer to wait instead of taking an investor in.

AM: We see three value creation levers for private equity funds going forward: financial engineering; operational levers; and strategic levers, such as opening up new revenue opportunities by taking an established technology to a new market.

Dr. Jörg Kirchner (JK): JK: As an adviser, we see that deal flow has gone down and that the industry has focussed on portfolio companies. However, private equity firms focussed on restructurings and investments in stressed and distressed debt are very busy. As far as the general market is concerned, I would say two things: firstly, times have changed and overall there are fewer bidders out there. We are faced with scenarios where the seller knows that he has to work with the buyer in order to get to a closing and that can mean sharing the risk. It is a totally different atmosphere to negotiating a deal two years ago. Secondly, the financing environment is very tough and leverage continues to be difficult to obtain, it is possible, but you sometimes need to be creative.

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Robert Bartell (RB): RB: We are now in a new time where things that would never have been considered a couple of years ago are being thought about carefully. Many companies are confronted with a decline in revenues and, as a result, there is more attention paid to things like costs. Sponsors and their advisers are looking carefully at what drives a business and what can be cut. However, this needs to be carefully thought out because there’s a risk you’re going to do damage to the future business.

How have deal structures changed in the aftermath of the financial crisis? JK: Deal structures need to tackle the two main problems the private equity industry currently faces: firstly, it should be noted that the business outlook of most target companies is relatively unpredictable and, consequently, it is hard to find the right purchase price. It is difficult to find business plans that are totally plausible and convincing. Secondly, the issue of financing needs to be addressed, but there are all kinds of creative solutions. It is still available for mid-cap transactions, but there needs to be negotiation with quite a large number of banks with each underwriting a piece of the debt. Deals can still be done.

Roundtable Discussion

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SL: I agree that you have to try a little harder to find ways to get to the same spot as before. In addition to the things mentioned, I should add that structures are now more focussed on earnouts or earn-out type constellations. The only way to get around a situation in which a management team insists that they will grow a business 50% over the next five years, despite there having been no growth in the last three years, is to say: let’s put something in place that rewards you if you manage that, but that doesn’t punish us if you don’t. You have to now think about aligning interests and incentivising management over the longer term rather than a clean deal where everything is wrapped up from day one. MB: I think deals are structured in a better way than they were before. Twelve or 18 months ago, we were more or less asked to buy very complex businesses with our eyes virtually closed. Buying a business is different from buying a car, and therefore the risk should be shared in a more effective way.

In the absence of credit, can private equity funds still offer above-market average returns on investment? RB: Duff & Phelps recently tested out hypothetical scenarios of private equity. Even with 33% leverage, the net returns to LPs were on average, with no operational improvements, still 13-17% higher than the market. This is low compared to what we know private equity can do, but higher than returns offered by indices, be they European indices; the S&P 500; or the AsiaPacific markets. The point is that even with none or very modest leverage, the returns that private equity generates is superior to historical returns in the public markets. Furthermore, managers are starting to realise that if they can remove the serious financial risk, which tends to be binary, then they can really focus on operations and growth. AM: By taking more time to get to know the business, to get to know the market, I’m sure that you can find the right targets and make the right investments to realise the superior returns that we have seen in the past.

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SL: The stage at which private equity invests is typically earlier than the public markets and so there is perhaps more scope for rapid growth. If you do your work well and identify the right opportunities, manage to invest at decent valuations, and manage the investments well, then you can generate very attractive returns for your investors. JK: A fund at the end of its lifetime which invested heavily during the boom phase will probably show a smaller return than other funds. However, funds that are beginning to be invested today face a very interesting time – if a private equity house makes profitable investments right now, and is creative, they will be able to show a very substantial return in the future. MB: We are really looking at businesses that will grow to a level that they have never achieved before. If we want to sell at high valuations, we have to deliver something which is substantially better than it was before.

What are the primary challenges and opportunities for private equity investors in the German market? SL: Germany is an attractive market and, because of its size, companies can grow very quickly and significantly. It is a technologically advanced economy and there are a lot of companies with world-class products that have the ability to be dominant global players. The challenges are very similar to those that are seen everywhere else. Investors need to make sure that the company they are investing in has a product that is robust and a firm that has made the right plans to expand out of their domestic market. Most of these businesses are competing in a global marketplace and being strong in the domestic economy is a very good starting point. MB: Germany is a very interesting market, because there is activity across a number of industry sectors. We have a lot of innovative people working here and much of the money is invested in research and development, this is quite intriguing for the world market. RB: The principal challenge is managing investments in sectors that are in decline, or facing regulatory issues. Private equity funds

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“If you do your work well and identify the right opportunities, manage to invest at decent valuations, and manage the investments well, then you can generate very attractive returns for your investors.” Sotiris Lyritzis

that have expertise and networks in growth industries are well positioned for the next cycle, I say this as it probably can’t get any worse than it has been for the last 12 plus months. AM: In Germany, you have to be an active investor and take a more entrepreneurial role post-deal, fully engaging all the stakeholders in a company. This means you might have to put in more effort at portfolio company level, but our clients have told us that you can achieve better by putting in this effort. It also results in a much broader strategy and business plan, which can benefit the growth of a company. This is obviously to everyone’s benefit.

Roundtable Discussion

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Calls for regulation are coming up because there seem to have been some private equity funds that operated in a more secretive way towards their LPs than they would have desired. This arrangement works well as long as the private equity house is reporting good news and sending cheques. It obviously breaks down when you have bad news to report. One of the things that will come out of this crisis is that private equity funds will have to be a little more transparent with their investors and a lot clearer on portfolio structure, valuation and overall levels of leverage. LPs can then continue to feel comfortable with the asset class, even at times such as now where it is obviously under pressure.

What kinds of regulations are appropriate and necessary to govern the activity of private equity funds? JK: I think we need to differentiate between different layers of regulation and their objectives. There is a need for tax reform, especially where outside investors raise funds in Germany and invest in the domestic market. We also need to address the relationship between the funds and investors, as well as increasing the credibility of the private equity industry in the market. This will be addressed by the draft EU directive which covers elements such as transparency, reporting requirements and corporate governance. I do not think we need regulation to protect the investors, since they are all very mature investors and are aware of what they are doing. It is also important to distinguish between the different sorts of alternative investment vehicles; the current EU directive does not make a distinction between hedge funds and buyout funds, and these obviously have very different characteristics and regulatory requirements. SL: In relation to the previously mentioned EU directive, private equity is a global business and a regional directive can only do so much for it. However, I feel that with greater transparency in the reporting arrangements between GPs and LPs, you can hopefully bypass the need for particularly heavy central legislation and regulation of the industry.

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Roundtable Discussion

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Where the Debt Breaks Robert A. Bartell, CFA (Managing Director, London) and Dr. Christian Aders (Managing Director, Munich)

Income approach

Market multiple approach

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

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

• Challenges in estimating the Cost of Capital - Which risk-free rate should be used? - What is the proper equity risk premium? - How did the collapse in the financial industry affect my firm’s beta? • Assessing the reasonableness of financial projections - Are the projections aggressive or conservative given the current environment? - How do we treat the Net Operating Losses, a tax asset, of a company? - What is the amount of “new money” necessary for a company to achieve its business plan?

• Should a valuation use current, historical or projected multiples? • Is the current EBITDA appropriate for applying to the multiple? • Will the historical peak-to-trough cycle of a company match the future peak-to-trough?

The “Red Zone”

Positive Equity Value

Low Multiple

Senior Debt

High Multiple

Second Lien Term Loan / Mezzanine Debt

Enterprise Value

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Valuation-driving market multiple selections are even more critical if the value falls within the ‘Red Zone’ in which slight adjustments could dramatically affect a conclusion.

To assess the financial viability of a company, long-term projected performance needs to be reviewed in conjunction with the current situation. Companies that look solvent today may not be solvent tomorrow. A simple example comparing two companies with similar free cash flow but different capital structures demonstrates the importance of not only measuring the current health of a company but also estimating its future strength.

Step 2: Cash Flows Assess Company Liquidity Can cash flows pay debt obligations?

Which company is in a better position? Step 1: Balance Sheet Assessing Where the Debt Breaks Is enterprise value greater than outstanding debt? (€ in 000s) Company 1 Enterprise Value

€300,000

Debt Securities Senior Debt

(125,000)

Second Lien Term Loan / Mezzanine Debt

(100,000)

Aggregate Equity Value Surplus/(Deficit)

€75,000 1 2

(€ in 000s)

EBITDA Capex: Taxes FCF1

250 10 25 215

Principle Due: Interest Due: Total Fixed Charges

200 85 285

Fixed Charge Coverage Ratio2:

0.75x

EBITDA Capex: Taxes FCF1

250 10 25 215

Principle Due: Interest Due: Total Fixed Charges

100 85 185

Fixed Charge Coverage Ratio2:

1.16x

Free Cash Flow “FCF” = EBITDA - Cash Taxes - Capital Expenditures Fixed Charge Coverage Ratio = FCF/Fixed Charges

Step 3: Conclude Which Company is in Better Position?

Company 2 Enterprise Value

Roundtable Discussion

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€140,000

Debt Securities Senior Debt

(125,000)

Second Lien Term Loan / Mezzanine Debt

(100,000)

Aggregate Equity Value Surplus/(Deficit)

-€85,000

In the first scenario, Company 1’s enterprise value exceeds the outstanding debt but Company 1 may not have the ability to refinance in the current environment.

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

Solvency Tests Balance Sheet: Pass Cash Flow: Fail

Solvency Tests Balance Sheet: Fail Cash Flow: Pass

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

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Roundtable Discussion

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National legal safeguards against risks associated with private equity investments Dr. Jörg Kirchner and Dr. Liane Bednarz

Introduction On 30 April 2009, the European Commission published a proposal for a Directive of the European Parliament and Council on Alternative Investment Fund Managers (AIFM) (AIFMDirective Proposal). In this proposal, Alternative Investment Funds are defined as funds that are not regulated under the envisaged recast of the Directive on the coordination of laws, regulations and administrative provisions relating to undertakings for collective investment in transferable securities (UCITS-Directive). Hence, private equity funds and their managers would fall within the scope of the AIFM-Directive. The AIFM-Directive Proposal aims to create a regulatory and supervisory framework for AIFM in the European Union, thereby addressing certain risks of the financial system which crystallised during the financial crisis. While acknowledging that – different from hedge funds – private equity funds did not contribute to the recent increase of macro-prudential risks, the AIFM-Directive Proposal, nevertheless, perceives an EUwide regulation of private equity funds as necessary, because the latter recently “experienced challenges relating to the availability of credit and the financial health of their portfolio companies.” It is doubtful to what extent an EU-wide regulatory and supervisory framework for the private equity industry is actually needed. The various national legal systems within the EU already contain a high level of protection against the risks which are typically associated with private equity investments. Using the example of certain key jurisdictions of the EU (France, Germany, Italy, Spain and the United Kingdom; together are the “Key Jurisdictions”), this article will show that these typical risks of private equity investments have been previously minimised on a national level. As for the types of limited liability companies, this article is based on the national legal regimes for the various types of limited liability companies which are used for large and medium-sized companies, as these are the key targets for private equity investors. Such legal forms are the Société Anonyme (SA) (France), Gesellschaft mit beschränkter Haftung (GmbH), Aktiengesellschaft (AG) (Germany), Società per azioni (SpA), Società a responsabilità limitata (Srl) (Italy), Sociedad Anónima (SA), Sociedad de Responsabilidad Limitada (SL) (Spain), Private company limited by shares (Ltd.) and the Public company limited by shares (Plc) (United Kingdom).

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This article will summarise: (i) The legal and tax regimes for “asset stripping” from limited liability companies; (ii) The protection of limited liability companies against undue financial assistance and other forms of upstream loans/security imposed by their shareholders; (iii) The protection of listed limited liability companies against secret stake building and; (iv) The transparency requirements relating to a significant divestment of assets vis-à-vis the employees of a portfolio company. All Key Jurisdictions contain extensive legal provisions covering these aspects.

Asset Stripping 1. Legal regime Asset stripping for the purpose of this article shall be (i) the disposal of core assets by a company followed by the subsequent distribution of the resulting proceeds of the disposal to its shareholders as well as (ii) the unduly high distribution of liquid assets to the shareholders, e.g. to pay off acquisition debt incurred by the shareholders as part of a leveraged finance transaction, even when such disposal and distribution risk could be materially detrimental to the company. All Key Jurisdictions contain strict safeguards under corporate or capital markets laws in order to prevent such asset stripping. Creditors and minority shareholders are thereby protected against the adverse effects of the actual asset stripping instead of being merely referred to insolvency laws. Such preventive regulations against asset stripping govern both (i) the initial sale of core assets and (ii) the unduly high distribution of the proceeds resulting from the disposal or of any other liquid assets to the shareholders (whether in the form of a profit distribution, buyback of own shares or a reduction of share capital). a) Initial sale of core assets Most Key Jurisdictions contain restrictions on the legal bodies of a limited liability company (executive board/advisory board/ shareholders) with respect to the sale of the assets of a company. Preventive regulations include measures such as the requirement of shareholder resolutions prior to the sale of a substantial part of the assets. A sale without a prior approval of the shareholder meeting might be void and might have to be rescinded, unless the buyer acts in good faith. Moreover,

most Key Jurisdictions impose a strict liability on the legal representatives of the company in case they sell assets without such prior consent of the shareholder meeting. Another widely spread safeguard against the sale of a substantial part of assets are national provisions according to which a (majority) shareholder must not act to the detriment of a subsidiary, for instance by instructing the company to sell its core assets even if such sale is not in the best interests of the company. If a (majority) shareholder or his representatives violate such rules, they may be held personally liable. b) Distributions to the shareholders In all Key Jurisdictions the distribution of assets (i.e. profit distributions, buybacks of own shares and reductions of the share capital) to the company’s shareholders is restricted by capital maintenance rules. In the event that assets of the company have been sold to the detriment of the interests of the remaining shareholders, creditors or employees, the provisions on distribution of assets still contain very strict rules for payments which are effected with the purpose to distribute the proceeds from such sale to the shareholders. In particular, the restrictions on the payment of dividends are very effective. In all limited liability companies falling within the scope of the Second Company Law Directive (Directive 77/91/ EEC as amended by Directive 2008/68/EC), a distribution of dividends can only be effected if after such distribution both the registered capital and any mandatory capital reserves are covered by assets, the book value of which corresponds to such registered capital and mandatory capital reserves. As such, provisions protect creditors because they are mandatory and cannot be set aside by a unanimous resolution of the shareholders. Such requirements have been fully implemented into all Key Jurisdictions. 2. Asset stripping and Taxation Most European member states levy ordinary tax rates on capital gains from the disposal of assets and business units, as well as certain duties on fair market values of transferred assets. On the basis of current tax laws, asset stripping strategies are therefore unattractive precisely because they trigger a considerable tax burden. Only share deals may provide for an exemption to these rules, often due to the participation exemptions introduced in a number of member states. With a view of the lack of attractiveness of asset stripping strategies, European member states have in the past consequently not seen any reason to provide for specific anti avoidance provisions for asset stripping rules.

Roundtable Discussion

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National legal safeguards against undue financial assistance and other forms of upstream loans/security imposed by the shareholders to the target company Also, Key Jurisdictions contain strict safeguards against undue financial assistance and other forms of upstream loans, and security imposed by the shareholder to the target company. 1. Financial assistance Financial assistance for the purpose of this article shall mean the assistance given by a company for the purchase of its own shares, or the shares of its parent company by an investor. Such assistance can be given in different ways, for instance by an advance payment, a direct loan, or a guarantee or other security for a loan by financing banks in order to support the investor’s acquisition debt. All Key Jurisdictions implemented the strict restrictions on financial assistance of public limited liability companies required by the wording of Art. 23 of the Second Company Law Directive (Directive 77/91/EEC) prior to its amendment. Most Key Jurisdictions not only implemented Art. 23, but also enacted additional limitations, namely provisions governing by-passing structures and transactions with the same effect as the transactions listed in Art. 23. Moreover, many Key Jurisdictions also enacted restrictions on financial assistance of private limited liability companies, thereby going beyond the applicability scope of Art. 23 Directive 77/91/EEC. Art. 23 was recently deregulated by Directive 2008/68/EC, as the European legislator intended to ease changes in the ownership while at the same time stipulating strict safeguards protecting both shareholders and creditors. As a result, the protection level for the latter continuous to be high.

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2. Upstream loans/security All Key Jurisdictions contain a variety of limitations on upstream loans/security to a parent company or a third party which do not qualify as financial assistance. Upstream loans for the purpose of this article are post-acquisition loans which the target company grants to its parent company and which do not qualify as financial assistance. The term upstream security encompasses security for a loan which a third party has granted to the parent company. The national safeguards in place comprise (i) restrictions on related party agreements, (ii) the requirement that the granting of the loan/security must comply with the target company’s corporate purpose and interest, (iii) the prohibition to affect the non-distributable reserves when granting the loan/security, (iv) the test whether the claim against the borrower is fully realisable and (v) the necessity to point out the reasons for granting the loan/security. 3. National legal safeguards against secret stake building in listed target companies All Key Jurisdictions contain provisions in order to protect listed companies against secret stake building, in particular through notification requirements. Such provisions also govern secret stake building through certain financial instruments. As a general rule, the aforementioned national provisions are based on the implementation of the Transparency Directive (Directive 2004/109/ EC) and its substantiating Directive 2007/14/EC. According to Art. 13 (1) Directive 2004/109/EC, certain financial instruments also have to be considered for the purpose of the voting rights thresholds. In some Key Jurisdictions, this also includes cash settled equity swaps. Furthermore, certain Key Jurisdictions also require shareholders reaching certain voting right thresholds (e.g. 10 %) to disclose their intentions and plans for the company.

Transparency requirements with respect to a significant divestment of assets visà-vis the employees The recent AIFM-Directive Proposal, mentioned at the beginning of this article, sets forth certain information obligations with respect to a significant divestment of assets,

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which the AIFM needs to fulfil towards the representatives of the employees of a target company, provided the AIF managed by such AIFM hold a controlling influence, as further defined in the AIFM-Directive Proposal. The term significant divestment of assets is not defined in the AIFM-Directive Proposal. The AIFMDirective Proposal stipulates that the Member States shall ensure that the AFIM includes into the annual report of each AIF a statement on significant divestment of assets. The AIFM shall provide such annual report and hence, the statement on significant divestment of assets to all representatives of the employees of the company concerned, no later than four months following the end of the respective financial year. This envisaged disclosure requirement vis-à-vis the representatives of the employees does not seem to be necessary. Most Key Jurisdictions not only contain similar requirements with respect to the annual report, but also comprise disclosure requirements which relate to specific cases of asset disposals. Hence, the employees will be informed about such transactions before, or immediately after, they have been executed. This level of protection is significantly higher than a mere disclosure of a significant divestment of assets in the annual report, which subsequently has to be made available to the employees’ representatives. Moreover, all Key Jurisdictions have implemented the so-called Acquired Rights Directive (Directive 2001/23/EC dated March 12, 2001 on the approximation of the laws of the Member States relating to the safeguarding of employees’ rights in the event of transfers of undertakings, businesses or parts of undertakings or businesses); or have adopted similar provisions which provide for the transparency vis-à-vis the employees in certain cases of a transfer of assets which entangles a transfer of employees.

Roundtable Discussion

13 Historical data Top 20 German M&A transactions, Q1-Q3 2009 Ranking Announced Status Target company date

Target sector

Target country

1

Jun-09

C

Germany SoFFin

2

Mar-09

C

3

Jan-09

C

4

May-09

P

Financial Services Industrials & Chemicals Financial Services Energy, Mining & Utilities

5

Jun-09

P

E.ON AG (13 hydro power plants in Bavaria)

6

Jan-09

C

RWE Westfalen Weser Ems AG (20.03% stake)

7

Feb-09

C

8

Feb-09

C

9 10

Jul-09 Aug-09

C C

11

Aug-09

C

Danisco Sugar A/S (Anklam factory) Mitteldeutsche Braunkohlengesellschaft mbH IDS Scheer AG Deutsche Schiffsbank AG (12.00% stake) Porsche Automobil Holding SE (5.00% stake)

12

Apr-09

P

Stadtwerke Bremen AG (25.90% stake)

13

Apr-09

C

DAWAG

14

Sep-09

C

BRAHMS AG

15

Jun-09

P

Stadtwerke Bremen AG (25.10% stake)

16

Sep-09

P

Easycash GmbH

17

Jun-09

C

RMG Group

18

Feb-09

C

19

Jul-09

P

20

Aug-09

C

Hanseatische VerlagsBeteiligungs AG (23.00% stake); Kieler Nachrichten (24.50% stake); Leipziger Verlags-und Druckerei GmbH & Co. KG (44.90% stake); Luebecker Nachrichten GmbH (49.00% stake) Infineon Technologies AG TMT Germany Golden Gate (Wireline Communications Capital business) Kalle GmbH Industrials Germany Silverfleet Capital & Partners LLP Chemicals

Hypo Real Estate Holding AG (81.00% stake) Daimler AG (9.10% stake) Commerzbank AG (25.00% stake) VNG-Verbundnetz Gas AG (47.90% stake)

Bidder company

Bidder country

Seller country

Germany

Deal value (€m) 2,960

Germany Aabar United Arab Investment PJSC Emirates

1,954

Germany SoFFin

1,770

Germany

Germany EnBW Energie Germany BadenWuerttemberg AG Germany Oesterreichische Austria Elektrizitaetswirtschaft AG Germany RWE AG Germany

Energy, Mining & Utilities Energy, Mining & Utilities Consumer Germany Suiker Unie Energy, Mining & Utilities TMT Financial Services Industrials & Chemicals Energy, Mining & Utilities Real Estate

Seller company

Germany J&T Finance Group AS; Severoceske Doly Germany Software AG Germany Commerzbank AG Germany Qatar Holding LLC Germany EWE AG

Germany

1,200

E.ON AG

Germany

1,000

Municipal communities Germany (Germany)

800

Netherlands Nordzucker AG

Germany

730

Czech Republic

NRG Energy Inc; URS Corporation

USA

404

Germany Germany

HypoVereinsbank AG

Germany

401 400

Qatar Germany

Germany Meravis Wohnungsbauund Immobilien GmbH Pharma, Germany Thermo Fisher Medical & Scientific Inc Biotech Energy, Germany EWE AG Mining & Utilities Business Germany Ingenico SA Services Industrials Germany Honeywell & International Inc Chemicals TMT Germany Verlagsgesellschaft Madsack GmbH & Co KG

EWE AG

Piech family (private Germany investors); Porsche family (private investors) Freie Hansestadt Germany Bremen (City of Bremen)

390 360

Germany

Vereinte Dienstleistungsgewerkschaft

Germany

USA

HBM BioVentures AG

Switzerland 330

Germany

Germany

320

France

Freie Hansestadt Bremen (City of Bremen) Warburg Pincus LLC

USA

290

USA

Triton Partners

United Kingdom

286

Germany

Axel Springer AG

Germany

263

USA

Infineon Technologies AG

Germany

250

United Kingdom

Montagu Private Equity Germany GmbH

213

360

C = Completed; P = Pending; L = Lapsed

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Roundtable Discussion

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Top 20 private equity buyout and exit transactions, Q1-Q3 2009 Ranking Announced Status Target company date

Target sector

Target country

Bidder company

Bidder country

Seller company

1

Sep-09

C

BRAHMS AG

Germany

Thermo Fisher Scientific Inc

USA

HBM BioVentures Switzerland 330 AG

2

Sep-09

P

Easycash GmbH

Germany

Ingenico SA

France

3

Jun-09

C

RMG Group

Germany

USA

Jul-09

P

USA

Infineon Technologies AG

5

Aug-09

C

Infineon Technologies AG (Wireline Communications business) Kalle GmbH

Honeywell International Inc Golden Gate Capital

Warburg Pincus LLC Triton Partners

4

Medical, Pharma & Biotech Business Services Industrials & Chemicals TMT

6

Aug-09

P

Aleo Solar AG

Industrials & Germany Chemicals Industrials & Germany Chemicals

Silverfleet Capital Partners LLP Robert Bosch GmbH

United Kingdom Germany

7

Jul-09

C

LEWA GmbH

Industrials & Germany Chemicals

Nikkiso Co Ltd

Japan

8

Jun-09

P

Neumayer Tekfor GmbH

Industrials & Germany Chemicals

9

Apr-09

P

10

Aug-09

C

TMD Friction Holdings GmbH Actebis Holding GmbH

11

Jul-09

C

Industrials & Germany Chemicals Business Germany Services TMT Germany

AXA Private Equity; USA Barclays Private Equity Ltd; Fifth Third Bancorp; Gartmore Direct Fund II Scottish LP; ING; Landesbank Baden-Wuerttemberg; Nationwide Private Equity Fund LLC; NIBC Bank NV Pamplona Capital United Management LLP Kingdom Droege Capital GmbH Germany

Montagu Private Germany Equity GmbH Germany HANNOVER Finanz GmbH; Marius Eriksen (private investor) Germany Deutsche Beteiligungs AG; Quadriga Capital Services GmbH

12

Jan-09

C

13

Aug-09

P

14

Apr-09

C

15

Jul-09

C

16

Mar-09

C

innovatis AG

17

Feb-09

C

18

Sep-09

P

Integrata AG (91.04% stake) EliteMedianet GmbH (36.93% stake)

19

Mar-09

C

20

Jan-09

C

Germany

CeDo Folien und Haushaltsprodukte GmbH ddp Deutscher Industrials & Germany Depeschendienst GmbH; Chemicals Evotape S.p.A; Rohner AG; The BEA Group Hallhuber GmbH Consumer Germany Heinrich Berndes Haushaltstechnik GmbH & Co. KG (34.30% stake) Samas GmbH & Co KG (94.00% stake)

Pro2 Anlagentechnik GmbH Meade Instruments Europe GmbH & Co. KG

Consumer

Germany

Consumer

Germany

Pharma, Medical & Biotech Business Services TMT

Germany

Germany

Industrials & Germany Chemicals Consumer Germany

C = Completed; P = Pending; L = Lapsed

Private Equity in Germany: Response to the Crisis www.mergermarket.com/events/

Germany

Rutland Fund II BLUO SICAV SIF

Change Capital Fund II LP Inc Palace Park Investments Ltd

Deal value (€m)

USA

290

United Kingdom Germany

286 250

213 192

172

172

TMD Friction Luxembourg 100 Luxembourg Sarl ARQUES Germany 93 Industries AG Delton AG Germany 61

United Kingdom Luxembourg ARQUES Industries AG United Kingdom United Kingdom

Seller country

Stefanel GmbH

Germany

30

Italy

25

CFC Industrie Germany 23 Beteiligungen GmbH & Co KGaA Samas NV Netherlands 20

Innovation Change Germany GmbH; Samas GmbH & Co KG (MBO Vehicle) Roche Diagnostics Ltd Switzerland Ventizz Capital Partners Advisory AG Cornerstone Equity USA Logica plc Investors Tomorrow Focus AG Germany Burda Digital Ventures GmbH; EliteMedianet Beteiligungs GbR Deutsche KWKUSA Alkane Energy plc Gesellschaft mbH Bresser GmbH Germany Meade Instruments Corporation

Germany

15

United Kingdom Germany

15

United Kingdom USA

13

9 9

Roundtable Discussion

15 German M&A trends All German M&A

German buyouts

Period

Volume

Value(€m)

Q1 2004 Q2 2004 Q3 2004 Q4 2004 Q1 2005 Q2 2005 Q3 2005 Q4 2005 Q1 2006 Q2 2006 Q3 2006 Q4 2006 Q1 2007 Q2 2007 Q3 2007 Q4 2007 Q1 2008 Q2 2008 Q3 2008 Q4 2008 Q1 2009 Q2 2009 Q3 2009 Total

132 157 140 183 134 149 183 196 155 151 177 198 173 156 174 174 143 154 155 113 115 96 92 3,500

11,591 16,455 10,359 19,066 14,810 38,950 13,670 26,740 26,375 10,428 18,720 27,641 14,693 31,450 24,943 12,215 4,983 16,886 48,384 14,271 6,616 7,411 3,662 420,319

Avg. deal size (€m) 88 105 74 104 111 261 75 136 170 69 106 140 85 202 143 70 35 110 312 126 58 77 40

German exits Period

Volume

Value(€m)

Q1 2004 Q2 2004 Q3 2004 Q4 2004 Q1 2005 Q2 2005 Q3 2005 Q4 2005 Q1 2006 Q2 2006 Q3 2006 Q4 2006 Q1 2007 Q2 2007 Q3 2007 Q4 2007 Q1 2008 Q2 2008 Q3 2008 Q4 2008 Q1 2009 Q2 2009 Q3 2009 Total

12 9 15 17 18 16 16 16 16 15 19 29 25 26 21 23 11 24 20 5 9 10 10 382

3,322 3,325 1,397 3,240 4,329 1,708 3,995 3,211 847 3,185 3,571 7,617 7,203 7,647 5,502 3,253 1,348 4,088 2,045 147 52 317 1,303 72,652

Avg. deal size (€m) 277 369 93 191 241 107 250 201 53 212 188 263 288 294 262 141 123 170 102 29 6 32 130

Period

Volume

Value(€m)

Q1 2004 Q2 2004 Q3 2004 Q4 2004 Q1 2005 Q2 2005 Q3 2005 Q4 2005 Q1 2006 Q2 2006 Q3 2006 Q4 2006 Q1 2007 Q2 2007 Q3 2007 Q4 2007 Q1 2008 Q2 2008 Q3 2008 Q4 2008 Q1 2009 Q2 2009 Q3 2009 Total

22 28 28 40 25 33 40 44 41 44 40 58 38 35 38 39 34 48 37 17 16 17 17 779

1,276 6,886 5,806 5,250 2,596 8,293 5,702 8,911 2,178 4,663 5,609 14,605 6,213 7,124 4,058 2,105 1,566 10,831 3,242 193 63 303 662 108,135

Avg. deal size (€m) 58 246 207 131 104 251 143 203 53 106 140 252 164 204 107 54 46 226 88 11 4 18 39

German M&A all sector analysis YTD 30 September 2009 Sector Financial Services Energy, Mining & Utilities Industrials Consumer TMT Business Services Pharma, Medical & Biotech Real Estate Construction Defence Leisure Transportation Agriculture Total

Value (€m) 5,489 4,530 3,601 1,115 969 968 462 393 142 20

Sector

Volume

Industrials Consumer Business Services TMT Energy, Mining & Utilities Financial Services Pharma, Medical & Biotech Construction Leisure Transportation Real Estate Defence Agriculture

90 47 36 35 27 26 19 7 6 6 2 1 1 303

17,689

Notes: Based on announced deals, excluding lapsed and withdrawn bids Based on dominant geography of target being Germany Based on dominant sector of target YTD 2009 is from 01 January to 30 September

Private Equity in Germany: Response to the Crisis

www.mergermarket.com/events/

GERMan M&a trends

70

16,000

50,000

60

14,000

40,000 150 30,000 100 20,000

12,000

50 number of deals

number of deals

200

60,000

value of deals ( m)

250

German private equity buyout trends

10,000 40 8,000 30 6,000 20

50

10,000

0

0

volume

4,000

10

2,000 0

0

value( m)

volume

German M&A sector split by volume, Q1 2004-Q3 2009

value( m)

German M&A sector split by value, Q1 2004-Q3 2009

German M&A sector split by volume, Q1 2004-Q3 2009

German M&A sector split by value, Q1 2004-Q3 200

<1% 2% 2%

<1%

<1%

2%

2%

Industrials

6%

5%

Consumer

29%

3%

<1%

<1% Financial Services

5%

Business Services

32%

9%

Energy, Mining & Utilities

Consumer

6%

Financial Services

TMT

Pharma, Medical & Biotech

9%

Business Services

Construction

Pharma, Medical & Biotech

Leisure Transportation

Real Estate

20%

Real Estate

12%

Defence

Agriculture

26%

12%

German private equity exit trends 35

German private equity exit trends

9,000 8,000

30

6,000

20

5,000

15

4,000 3,000

10

2,000 5

1,000

0

0

volume

value( m)

Private Equity in Germany: Response to the Crisis www.mergermarket.com/events/

value of deals ( m)

7,000 25 number of deals

Construction

Defence

16%

Energy, Mining & Utilities Industrials

TMT

value of deals ( m)

Roundtable Discussion

16

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