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Challenges facing M&A in2010

PierpaoloMaio

Amsterdam,20/21May2010

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I hear and I forgetI see and I rememberI do and I understand

(Confucius)

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Whatsupintheworld?(1)

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Whatsupintheworld?(2)

Liquidityinexcess(bail-outofprivate/publiccompaniesandofenGrecountries)

LowInterestrates(centralbankswillconGnuetokeeptheseaslowaspossible) PoliGcalissues(EuropeinparGcular)Sovereigndebt(themotherofallthebubbles?)

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Liquidityinexcess

(bail-outof

private/publiccompaniesand

ofenGre

countries)

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LowInterestrates

(CentralBanks

willconGnuetokeepthese

aslowas

possible)

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Source:TheEconomist

Poli;calissues(Europein

parGcular)

andSovereign

debt(the

motherofallbubbles?)

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theaQermathoffinancialcrisestendstobe

nasty,bruGshandlong.

Thatis,financialcrisesaretypicallyfollowedbydeep

recessions,andthese

recessionsarefollowedby

slow,disappoinGng

recoveries.

[PaulKrugman]

Consequencesofthecrisis

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Consequencesofthecrisis

Therecentfinancialcrisishascreatedunexpected

strategicopportuniGesfor

mergersandacquisiGonsfor

companieswithstrongcash

posiGonsthatareprepared

toactandquicklysince

thisopeningcouldcloseas

signsofarecovering

economybecomemore

evident

[MarkL.Sirower,RobertL.Grossman

andVirendraPalande]

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Healthyconsequencesof

thecrisis MoreefficientreallocaGonoftheassets

Fasterwaytogrow Sinergywiththecompanyacquired(verGcalintegraGon,

increaseduGlizaGonofproducGon

technology,taxsavings)

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Newlegisla;onswillhelpM&AinEuropean

insurancesectorduringnextyears

BaselIIisasetofrecommendaGonsonbankinglawsandregulaGonsissuedbytheBaselCommi[eeonBankingSupervision.ThepurposeofBaselII,whichwasiniGallypublishedinJune2004,is

tocreateaninternaGonalstandardthatbankingregulatorscanusewhencreaGngregulaGonsabouthowmuchcapitalbanksneedto

putasidetoguardagainstthetypesoffinancialandoperaGonal

risksbanksface.AdvocatesofBaselIIbelievethatsuchaninternaGonalstandardcanhelpprotecttheinternaGonalfinancial

systemfromthetypesofproblemsthatmightariseshouldamajor

bankoraseriesofbankscollapse.InpracGce,BaselIIa[emptsto

accomplishthisbyse_nguprigorousriskandcapitalmanagement

requirementsdesignedtoensurethatabankholdscapitalreservesappropriatetotheriskthebankexposesitselftothroughitslending

andinvestmentpracGces.enerallyspeaking,theserulesmeanthatthegreaterrisktowhichthebankisexposed,thegreaterthe

amountofcapitalthebankneedstoholdtosafeguard

itssolvencyandoveralleconomicstability.

SolvencyIIisasetofregulatoryrequirementsforinsurancefirmsthatoperateintheEU.Itisscheduledtocomeintoeffectlate2012.

TheraGonaleforEUinsurancelegislaGonistofacilitatethedevelopmentofaSingleMarketininsuranceservicesinEurope,

whilstatthesameGmesecuringanadequatelevelofconsumerprotecGon.Thethird-generaGonInsuranceDirecGvesestablishedan

"EUpassport"(singlelicence)forinsurersbasedontheconceptof

minimumharmonisaGonandmutualrecogniGon.

BaselII

SolvencyII

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MAINSECTORS:

Content/entertainmentCommunicaGonsPharma

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Pharma

Merck/Schering:value$41Billion

Pfizer/Wyeth:value$68Billion

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Creative industries

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CleanEnergy

Wind:NorthAmericaandAsiasettogrowdramaGcally

Solar:two-folddynamic(technologyprovidersand

upstreamplayers)

Smartrid:giantsarejumpingin(Cisco,IBM,ABB,E)

TrendsinM&A

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EUROPE April2010,theworstmonthinM&AinEuropeinmorethandecade

Only15%oftheglobaltotalvalueofthedeals

Intheperiodfrom2005toMarch2010,theaveragemonthlyproporGonoftotalM&Abyvalue

representedbyEuropehasbeen

36%

UK,theonlycountrywithsignsofrecoveryinbuyouts(foravalueof

5Billioninfirstquartervs5.9

Billionin2009)