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Private Equity: Current Environment, Trends and ExpectationsPrivate Equity: Current Environment, Trends and ExpectationsMaterials for Discussion
May 26, 2011Eliot Kerlin, Bud Moore
AGENDA
CI. Current Environment
II. Recent PE Trends
III. Future of the Industry
IV. Contact Information
-1-
EXECUTIVE SUMMARY
Coming on the heels of a co ple lean ears the mergers and acq isition (“M&A”)• Coming on the heels of a couple lean years, the mergers and acquisition (“M&A”) environment was active in 2010
• While multiple factors drove the decline, financing markets were one of the primary external forcesprimary external forces
• Almost all companies now have a ‘blot on their record’ to sell through
• While memories of the recession are fresh, multiple factors are now creating a more robust M&A environment.
• There is a growing capital overhang pressuring financial sponsors to execute transactions
• Strategics are accumulating cash due to the now positive effects of operating leverage forced on them during the recession
• Lenders are ready to lend
While the economy has not fully recovered (read: ‘hope’/upside to buyers), the
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next 24 months could be a very good time for companies looking for monetization events
TOTAL US M&A ACTIVITY
• A recovery in the financing markets resulted in a general upturn in overall US M&A activity in 2010 following• A recovery in the financing markets resulted in a general upturn in overall US M&A activity in 2010, following two years of steady decline.
– Quarterly transaction activity has been relatively consistent since rebounding in Q4 2009 .
– Sponsor transactions have been a large contributor to the increase as firms once again begin to deploy capital.
– Middle market deals(defined as deals <$1.0B) also gained share in terms of deal volume and value.
• Buoyed by reinvigorated financing markets, LBOs posted their best quarter in over two years in Q4 2010. Mega-buyouts, however, remained scarce, with only two deals topping $5 billion in 2010.
TOTAL US M&A ACTIVITY – ($ in Billions) BREAKDOWN BY SIZE – (Value of Deals)
$1 16
$1.52 $1.51
$1.40
$1.60 CAGR 28% (31%)
41%30%
18% 24% 28% 28%40%
21%
41%
21%80%
90%
100%
$0.56
$0.80
$1.16
$0.92 $0.73 $0.79
$0 40
$0.60
$0.80
$1.00
$1.20
($ in
trill
ions
)
(21%)8%
49% 42%
36%41%
33%34%
38% 45%36%
52%
31%31%
47%
41% 40% 41% 45%
30%
40%
50%
60%
70%
80%
$0.00
$0.20
$0.40
2003 2004 2005 2006 2007 2008 2009 2010
23% 29%
49% 42% 35% 28% 24% 27% 27% 23%32%
0%
10%
20%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010Value of Deals < $1 billion $1 Billion < Value of Deals < $10 billion Value of Deals > $10 billion
Source: Thomson Reuters as of 12/31/10
-3-
MIDDLE MARKET MORE ATTRACTIVE
• In 2010, M&A activity in the middle market increased 54.9% and 48.4% in terms of total value and deal volume, ti l
US MIDDLE MARKET M&A ACTIVITY 2000 – Q1 2011 ($ in Billions)
respectively.
Note that the Average Deal Size has dropped since in 2007, driven by a shift from large financially engineered LBO’s toward smaller platforms with greater transformational upside.
8,000
400
$500Number of Deals
6,781
6,090
Deal Value ($ Billions)Deal Value<$50M$50-250M
Avg. Size ‘07:$103M Avg. Size ’10: $60M
4,000
6,000
3004,625
4,0094,233
4,524 4,461 4,535 4,5144,742
4,104
6,090
2,000100
200
1,459 1,284Deal Value
0 02000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Q1 '10 Q1 '11
512 263 454 109 116296 289 314 403 424 534 624 420$250-750M1 580 782 1 101 216 2601 009 889 1 064 1 218 1 268 1 293 1 331 1 196$50-250M
Number of Deals
-4-
1,580 782 1,101 216 2601,009 889 1,064 1,218 1,268 1,293 1,331 1,196$50 250M4,689 3,059 4,535 1,134 9083,320 2,831 2,855 2,903 2,769 2,708 2,559 3,126<$50M
$462 $235 $364$279 $258 $291 $351 $364 $419 $465 $356Deal Value
Source: Dealogic; William Blair Research
$81 $92
BUYER CATEGORY SUMMARY
• The Sponsor community continues to be an important part of US M&A activity and has seen its share• The Sponsor community continues to be an important part of US M&A activity, and has seen its share increase in recent months as firms ramp up new platform and add-on acquisition activities.
– PE-backed transactions peaked at ~20% of total M&A in 2007, before declining to 12% by 2009.
– Experienced a recovery in 2010 as the credit markets improved and valuations fell.
– The industry’s share is expected to grow in the next 12-18 months due to $490B of capital overhang.
• Following a challenging investment climate in 2008 and 2009, private equity groups re-entered the market in the summer of 2010 (both as buyers and sellers), resulting in a 63% Y/Y increase in total deal value.
$800
$652
80% PrivatePublicPE DealsForeign
PERCENT OF TOTAL M&A ACTIVITY US PRIVATE EQUITY DEAL VALUE ($ in Billions)
400
600
$249
$333
$581
$215
$290
40
60
(60%)
+63%
0
200
2000
$133
2001
$86
2002
$97
2003
$132
2004 2005 2006 2007 2008
$215
2009
$177
20100
20
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 LTM12% 12% 13% 14%9% 11% 12% 15% 14% 17% 20% 18%PE Deals
-5-
Source: Thomson Reuters as of 12/31/10
M&A BY TOP INDUSTRIES
• The distribution of domestic transactions by industry was largely unchanged from 2009 to 2010 although• The distribution of domestic transactions by industry was largely unchanged from 2009 to 2010, although private equity activity in certain sectors escalated
– The fastest growing private equity M&A categories 2008-2010 were Food / Beverage and Healthcare,
– Key troubled sectors that have experienced a decline in sponsor M&A include Finance and Telecom.
– Cyclical industries (e.g. construction) have been slow, but will start to pick up once the trough has passed.
• Going forward, we expect many firms will start to develop an industry focus or theme, in an attempt to improve deal sourcing and create a ‘story’ for future fund raising.
High Technology, 19%
Retail , 4%Consumer
Staples, 3% High Technology, 19%Real Estate, 5%
Retail, 3%Consumer Staples,
4%
TOP INDUSTRIES BY VOLUME – Q4 2009 TOP INDUSTRIES BY VOLUME – Q4 2010
19%
Media, Entertainment & Telecom, 11%
Energy & Power, 9%
Materials, 8%
Real Estate, 3%19%
Media, Entertainment &
Telecom, 9%Energy & Power, 10%
Materials, 9%
Real Estate, 5%
Industrials, 10%
Consumer Products &
Services, 9%Financials, 13%
Healthcare, 11%
Industrials, 10%
Consumer Products &
Services, 10%Financials, 11%
Healthcare, 9%
-6-
Source: Houlihan Lokey Equity Research
MULTIPLES BY TRANSACTION SIZE
• Transaction values in 2010 were slightly above the 10 year average of 9 1x driven by a both strategic and
U.S. EV / EBITDA MIDDLE MARKET MULTIPLES
• Transaction values in 2010 were slightly above the 10-year average of 9.1x, driven by a both strategic and private equity acquirers looking to deploy capital following the recession. Multiples for attractive, middle-market companies have experienced a dramatic increase due to increased competition among sponsors.
10
13 <$50M $50-250M $250-750M Middle Mrkt Avg.Peak (‘05-07): 10.1x Trough (2009): 7.1x
Reduced premium paid for large targets
8
3
5
02000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 LTM
8.3X 9.4X 10.9X 10.8X8.3X 9.4X 9.2X 10.5X 10.3X 11.0X 9.9X 7.9X$250-750M
Multiple by Size
-7-
7.3X 7.2X 9.7X 9.4X7.4X 7.3X 6.8X 8.6X 10.5X 9.6X 11.6X 10.1X$50-250M5.5X 3.9X 8.1X 7.7X6.1X 8.0X 7.2X 7.7X 7.0X 8.9X 8.8X 7.2X<$50M
Source: Dealogic; William Blair Research
IMPROVED CREDIT MARKETS
• Although leverage remains below 2007 levels multiples increased year over year in 2010
LARGE CORPORATE LEVERAGE LARGE LBO LEVERAGE
• Although leverage remains below 2007 levels, multiples increased year-over-year in 2010.
Generally, large LBOs in particular have commanded higher multiples, with the most aggressive LBOs carrying leverage upwards of 6.0x.
4 4x
4.3x 4.3x 4.4x4.9x
3.7x4.1x 3.9x
4.0x
6.0x
5 4
4.9x 5.3x 5.4x6.2x
4.9x4.0x
4.7x5.0x
7.5x
3.1x 3.6x 3.9x 4.4x3.3x 4.0x 3.6x
0.0x
2.0x
2004 2005 2006 2007 2008 2009 2010
Senior Leverage Subordinated Leverage
3.3x 4.0x 4.7x 5.4x4.1x 3.7x 4.4x
0.0x
2.5x
2004 2005 2006 2007 2008 2009 2010
Senior Leverage Subordinated Leverage
4 1x 4.3x 4.4x 4.8x4.3x
6.0x
4.3x 4.7x 4.7x5.6x
4.5x 4 3x
6.0x
MIDDLE MARKET CORPORATE LEVERAGE MIDDLE MARKET LBO LEVERAGE
3.5x 4.0x 4.0x 4.4x 3.6x 2.9x 3.2x
4.1x 4.3x 4.3x3.4x 3.7x
0.0x
2.0x
4.0x
3.5x 4.3x 4.2x5.2x
3.7x2.5x
3.4x
4.3x3.3x
4.3x
0.0x
2.0x
4.0x
-8-
2004 2005 2006 2007 2008 2009 2010
Senior Leverage Subordinated Leverage
2004 2005 2006 2007 2008 2009 2010Senior Leverage Subordinated Leverage
Source: Houlihan Lokey Equity Research
DECLINE IN DISTRESSED SITUATIONS
• Defaults reached a high in April 2009 stabilizing at 10 7% by 2009 year end and declining to 5 1% as of• Defaults reached a high in April 2009, stabilizing at 10.7% by 2009 year-end and declining to 5.1% as of December 2010
– Distressed M&A followed a similar path, but with a 6 month lag that peaked in the summer of 2009.
– 2010 bankruptcies / distress deal volume is down, but still higher than historical averages.
– The large number of credit facility “amend-and-extends” in 2008 and 2009 prevented a market meltdown.
• Despite the recent improvements, many businesses (particularly sponsor-led LBOs from 2007) remain over-leveraged and may require some type of restructuring once covenants begin to step down.
400400
DISTRESS M&A ACTIVITY (Number of Deals)
Will banks be less forgiving this time when ‘the music stops’?
12 5%
LEVERAGED LOANS IN PAYMENT DEFAULT
200
300
400
323 330
194
271
7.5
10.0
12.5%
7.0
9.9 10.0
7.4
10.7
8.3
6 1 6 1
100
200
42
163
194
46 4773
120
2.5
5.0
2.6
3.6
1.9
0.6
3.7
6.1 6.1
5.1
-9-
02000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
$4.0 $83.7 $89.9$31.7 $49.3 $46.0 $30.0 $8.7 $6.0 $18.1 $43.1Deal Value
Source: Dealogic; William Blair Research
0.02000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Q1-10 Q2-10 Q3-10 Q4-10
7.0% 10.7% 8.3% 6.1% 6.1% 5.1%9.9% 10.0% 7.4% 2.6% 3.6% 1.9% 0.6% 3.7%Default Rate
AGENDA
&I. M&A Market Update
II. Recent PE Activity
III. Future of the Industry
IV. Contact Information
-10-
STATE OF THE PRIVATE EQUITY
SITUATION OVERVIEWSITUATION OVERVIEW
• The state of the private equity industry is vastly improved from a low point in mid 2009, in which new deals where limited and portfolio companies were distressed. Still, the market remains challenged for several reasons, and the next 24 months will be critical in determining the groups and strategies capable of raising future funds.
KEY OPPORTUNITIESKEY OPPORTUNITIES
• Investing at the Trough: Historically speaking, funds that have deployed capital coming out of a recession have created strong gains for investors. We appear to be in the time now.
• Opportunities to Exit: As the markets improve, private equity groups are able to get liquidity on older investments either through a complete sale or dividend recapitalization.
• Better Quality Assets: During the downturn, there were limited attractive targets as most teams choose to focus on operations. Beginning in June 2010, sellers began to test the market and have shown a willingness to sell.
• Availability of Debt : The credit markets have experienced a significant improvement in recent quarters, and are allowing sponsors to offer more attractive valuations without sacrificing returns.
KEY CHALLENGES
• Competitive Landscape: The sponsor community grew significantly from 2005 to 2007, and as a result, there are a number of middle-market groups with a large amount of capital targeting the same set of companies
• High Valuation Multiples: As a result, valuation multiples have returned to near previous highs, despite continued softness in quarterly earnings and lower leverage ratios.
• Offsetting ‘Peak’ Deals: Across the industry, many of the transactions completed in 2006 and 2007 at the height of the market are generating poor returns, and must be offset by the remaining capital.
-11-
g g p , y g p
• Economic Uncertainty: Although the market appears to be healing, many cyclical sectors have yet to rebound, which makes it difficult to value new deals and an obstacle in getting full value for portfolio platforms.
OVERVIEW OF ECONOMIC CYCLE
• The Private Equity industry remains in the early stages of recovery from a time in which (i) new deal volume
The image cannot be displayed. Your computer may not have enough memory to open the image, or the image may have been corrupted. Restart your computer, and then open the file again. If the red x still appears, you may have to delete the image and then insert it again.
• The Private Equity industry remains in the early stages of recovery from a time in which (i) new deal volume plummeted, (ii) portfolio companies faced multiple challenges and (iii) the credit markets offered limited meanings of financing.
-12-
PE ACQUISITION ACTIVITY
• As corporate earnings trough and credit markets improve many firms have started to increase acquisition
US PRIVATE EQUITY ACQUISITION ACTIVITY 2000 – YTD 2011 ($ in Billions)
• As corporate earnings trough and credit markets improve, many firms have started to increase acquisition activity, which has also led to more competition and higher multiples. During the economic downturn, the industry reduced the amount of capital deployed despite record fund raising, resulting in a large overhang.
2,000
400
$500Number of Transactions
1,7961,907
Deal Value ($ Billions)Deal ValueUndisclosedMiddle Market>$750M
PE on sidelines:(85.4%) Decline
1,000
1,500
300
400
902
1,052
1,401 1,396
942
1,184
PE Recovery:92.8% Increase
500100
200
521612
742
254 296
0 02000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 YTD-10 YTD-11
12 14 49 11 108 17 24 48 49 91 108 27>$750M523 442 435 98 85256 324 369 522 619 710 589 547Middle Market
Number of Deals
367 486 700 145 201257 271 349 482 733 995 1,210 822Undisclosed$65.8 $69.8 $134.6 $16.6 $30.0$30.6 $61.0 $76.1 $151.1 $186.9 $477.1 $466.5 $100.2Deal Value
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Source: Dealogic; William Blair Research
ABILITY TO FINANCE IMPROVING
• The ability to finance leveraged buyout transactions has improved during the past 18 months but remains• The ability to finance leveraged buyout transactions has improved during the past 18 months, but remains well below the peak year of 2007.
– Senior debt (1st lien) has increased back above 3.0x, from a low of ~2.5x in mid-2008.
– Total leverage is generally in the ~4.00x – 4.25x range, with a emphasis on recurring revenue industries.
– During Q1-11, the market has continued to improve with healthy businesses garnering 4.5x and above.
• Equity as a percentage of transaction value saw an increase to an all time high in 2009, but declined in 2010 with the return of bank financing and less stringent lender closing conditions.
5.0X
4 0X 3 9X4.2X 4.3X
4.4X
4.9X
4 0X 4 0X
MIDDLE MARKET DEBT FINANCING PERCENT EQUITY CONTRIBUTION
50.0%
40.8 40 2
46.5
43.8
2.0
3.0
4.04.0X
3.7X 3.8X 3.9X 3.8X4.0X 3.9X 4.0X
20.0
30.0
40.0
30.0
34.2
29.6
36.1
31.0
36.3 36.7
32.4
37.9
31.5
35.4
29.9
34.1
30.332.1
38.340.2
38.336.6
33.0
0.0
1.0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Q4-10
First LienSecond LienOther Sr DebtSub Debt
0.0
10.0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Q1-11
>$50M EBITDA<$50M EBITDAFirst LienSecond LienOther Sr. DebtSub. Debt
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>$50M EBITDA<$50M EBITDA
Source: Houlihan Lokey Equity Research
DEBT PRICING REMAINS HIGH
• Interest spreads on highly leveraged loans remain ~150 bps above historical averages driven a relaxation of
AVERAGE PRICING OF HIGHLY LEVERAGED LOANS
• Interest spreads on highly leveraged loans remain ~150 bps above historical averages, driven a relaxation of credit quality among recent issuances and shift towards lower-rated loans. Moreover, in many instances, lenders continue to require LIBOR floors, which where first implemented during 2008 and 2009.
600bps
469488 487
542
49110 Yr Avg: 300bps2010a Avg: 450 bps
400
288 299
347334 326 318
329348
301 301
389
315295
313
364386
417
449469
436
2010a Avg: 450 bps
200
288268 278
244227 225 224
203191 187
176 175 168 176196 199
165 172
250231
253
0Q2'00
Q4'00
Q2'01
Q4'01
Q2'02
Q4'02
Q2'03
Q4'03
Q2'04
Q4'04
Q2'05
Q4'05
Q2'06
Q4'06
Q2'07
Q4'07
Q2'08
Q4'08
Q2'09
Q4'09
Q2'10
Q4'10
-15-
Spread over LiborLiborFloorBenefit
Source: Dealogic; William Blair Research
GROWTH IN NEW PLATFORMS
• As firms look to deploy 2006 2007 vintage year funds that will expire during the next 24 months we have
NEW PLATFORM VS. ADD-ON ACQUISITIONS 2000 – YTD 2011 ($ in Billions)
• As firms look to deploy 2006-2007 vintage year funds that will expire during the next 24 months, we have seen a significant increase in new platform investments, fueled by (i) better quality of available assets, (ii) lower valuation expectations among sellers, and (iii) recovery in the credit markets.
2,000Number of Deals
1,7961,907
PlatformAdd-on
1,000
1,500
902
1,052410
1,401 588687
473
1,396
942 425
1,184
500
261
641
902
194
521 163
612 227
515
742297
755991
1,208 1,220
923
313
629759
254 296
02000 2001
327
2002
449
2003
515
2004 2005 2006 2007 2008 2009 2010 YTD-10
16490
YTD-11
176
120
28.9% 33.2% 35.9% 64.6% 59.5%37.2% 26.6% 30.6% 28.2% 29.3% 32.7% 36.0% 33.9%% Add-On
-16-
% Add On
71.1% 66.8% 64.1% 35.4% 40.5%62.8% 73.4% 69.4% 71.8% 70.7% 67.3% 64.0% 66.1%% Platform
Source: Dealogic; William Blair Research
ESCALATING EXIT ACTIVITY
• During the downturn the PE industry spent a meaningful portion of its resources managing the portfolio
PRIVATE EQUITY EXIT ACTIVITY 2000 – YTD 2011 ($ in Billions)
• During the downturn, the PE industry spent a meaningful portion of its resources managing the portfolio, which resulted in delayed exits for many targets. With the recent improvement in earnings and multiples, many groups are now looking to realize returns on these older investments.
400
500 $80Number of Transactions
429
391
477
408
Deal Value ($ Billions)UndisclosedMiddle Market>$750M
Delayed Platform Exit (manage the portfolio)
300
400
40
60
291
253
100
200
20105 110 101
165193
6682
0 02000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 YTD-10 YTD-11
12 12 64 14 1011 4 12 24 47 28 66 16>$750M60 89 164 26 3659 62 107 177 223 171 184 105Middle Market
Number of Deals
-17-
33 92 180 26 3640 35 46 90 159 192 227 132Undisclosed$12.0 $12.0 $64.0 $14.0 $10.0$11.0 $4.0 $12.0 $24.0 $47.0 $28.0 $66.0 $16.0Deal Value
Source: Dealogic; William Blair Research
RETURN OF DIVIDEND RECAPS
• After a virtual disappearance during 2008 and 2009 leveraged recaps staged a comeback during 2010 as a
U.S. SPONSORED DIVIDEND RECAP LOAN VOLUME 1997 – 2010 ($ in Billions)
• After a virtual disappearance during 2008 and 2009, leveraged recaps staged a comeback during 2010 as a result of looser credit and the anticipation of increased capital gains taxes in 2011. Many firms still view this as the best near term liquidity option as valuation multiples remain lower than the 2007 peak.*
$40.0
$30 9
* Allows firms to return capital to investors without selling at a
valuation lower than 2007.
20 0
30.0
$20.4$22.9
$25.5 $25.1
$30.9
10.0
20.0
$6 3
0.01997
$1.5
1998
$0.8
1999
$3.8
2000
$1.1
2001
$1.1
2002
$1.9
2003
$6.3
2004 2005 2006 2007 2008
$1.2
2009
$0.4
2010
-18-
Source: Standard & Poor’s Q4’10 Leveraged Buyout Review
AGENDA
&I. M&A Market Update
II. Recent PE Activity
III. Future of the Industry
IV. Contact Information
-19-
LEARNING FROM OUR MISTAKES
• As we emerge from a challenging economic time it is important that the investment community reflect on the• As we emerge from a challenging economic time, it is important that the investment community reflect on the strategies and circumstances that have consistently created problems for us in past.
-20-
WHERE ARE WE GOING?
Situation
• The industry experienced a significant amount of new entrants from 2003 – 2007.
• Enjoyed record funding raising up until the markets collapsed in early / mid 2008.
• The vast majority of sponsors did not deploy large amounts of capital during the downturn.
• Also delayed exiting many platform companies when valuations where low in 2009.
• Now that financing and earnings have improved, Sponsor-led M&A has escalated.
• Large overhang of ‘dry powder’ is leading to more competition and higher valuations for good deals.
D it d bt il bilit it i diffi lt t fi d i t t ti d d l it l
Complication• Despite debt availability, it remains difficult to find proprietary transactions and deploy capital.
• The economic recovery remains uncertain, which has made it difficult to exit cyclical businesses.
• The fund raising market is weak (although improving), with LP’s waiting to commit new capital.
• Firms appear to be specializing (i.e. industry-focus, operation, etc.) to gain an advantage.pp p g ( y , p , ) g g
Questions
• Will sponsors be able to deploy capital in the next 12-24 months in deals that generate strong returns?
• Will this be enough to offset the likely poor returns on deals done at the peak of the market in 2007?
• Can firms differentiate themselves from other groups in the near term, and will this be effective?
• What is the right exit timing for older portfolio companies that are still in the early stages of recovery?
• How much capital will LPs be willing to invest once the next vintage year fund needs to be raised?
H th iDespite a challenging competitive landscape, sponsors that have a long track record of successfully
ti diff ti t d t t ill t t i d t i th t k t d ill
-21-
Hypothesis executing a differentiated strategy will generate outsized returns in the current market, and will ultimately be the beneficiaries of the LP community’s shift towards fewer, proven investment groups.
PRIVATE EQUITY “DRY POWDER”
• A significant amount of uninvested private equity capital is driving financial buyers to remain active in• A significant amount of uninvested private equity capital is driving financial buyers to remain active in uncertain market conditions.
Firms whose investment horizon expires in the next 12-24 months, may feel extreme pressure to underwrite to returns that are lower than historical averages.
$490.26
$155.53
$500$140
$160
US PRIVATE EQUITY CAPITAL OVERHANG 2003– 2010($ in Billions)
$130.05
$96.18
$400
$100
$120
$200
$300
$60
$80
$7.73
$17.87
$36.10 $44.19
$100
$20
$40
-22-
$2.62 $0$0
2003 2004 2005 2006 2007 2008 2009 2010
Cumulative Overhang Under $100M $100M-$250M $250M-$500M $500M-$1B $1B-$5B $5B+$ in Billion *As of 6/30/2010$ in Billion *As of 6/30/2010
CLOSING THOUGHTS
The M&A market is impro ing f eled b the a ailabilit of debt financing• The M&A market is improving fueled by the availability of debt financing, attractive targets and willing sellers.
• Despite the improved market situation the ability to consummate transactionsDespite the improved market situation, the ability to consummate transactions remains difficult due to a competitive landscape for quality assets.
q The Private Equity community has a large amount of un-deployed capital, hi h ill d i M&A l d l ti d i th t 2which will drive up M&A volume and valuations during the next 2 years.
q In an effort to invest their funds, many larger firms have been willing to over-equitizing smaller deals and appear to be underwriting to lower threshold returns.
• Sponsors that have a long track record of successfully executing a differentiated t t ill t t i d t i th t k tstrategy will generate outsized returns in the current market.
• As a result, the next round of major fund raising in 2012 and 2013 will be a flight to quality with similar LP dollars committed but much fewer groups
-23-
to quality, with similar LP dollars committed but much fewer groups.
AGENDA
&I. M&A Market Update
II. Recent PE Activity
III. Future of the Industry
IV. Contact Information
-24-
CONTACT INFORMATION
Bud MooreManaging DirectorValesco Industries
b @ l i d
Eliot KerlinPrincipal
Insight Equityk li @i i ht it [email protected]
214-880-8690 x 106325 N. St. Paul
Suite 3200D ll TX 75201
1400 Civic PlaceSuite 250
S thl k TX 76092 Dallas, TX 75201Southlake, TX 76092
-25-
INSIGHT EQUITY OVERVIEW
Insight Equity is an $825 million private equity fund that makes control investments inInsight Equity is an $825 million private equity fund that makes control investments in strategically viable, middle market companies underperforming their full potential
Established in 2002 by former Bain and Carlyle executivesHistory: Established in 2002 by former Bain and Carlyle executives
Control equity in complex, ‘storied’ and family ownership situations
Asset intensive and distribution companies in any industry:
History:
Investment:
Focus: Asset intensive and distribution companies in any industry:• Automotive and transportation• Construction• General industrial manufacturing• Building products
Focus:
Building products• Aerospace and defense• Chemicals, pulp and paper
Insight Equity’s experienced principals have acquired and managedInsight Equity s experienced principals have acquired and managed businesses with over $2B in aggregate revenue since 1998. Insight Equity is comfortable in complex or challenging situations and has the ability to execute quickly in circumstances where speed is a priority.
People:
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Deploy collaborative value creation model to take businesses to the next level
Philosophy:
VALESCO INDUSTRIES OVERVIEW
Established in 1990 Dallas TXHistory: Established in 1990, Dallas, TX
Control Equity, Minority Equity and Subordinated Debt Investments
Select growth oriented middle market businesses distinguished by
History:
Investment:
Focus: Select, growth oriented middle market businesses distinguished by• Exceptional management teams• Positive operating histories• Strong visions for the future
Focus:
Each managing director has over 25 years of experience in Private Equity and Sub-Debt investment
People:
Philosophy:Commitment to the long-term benefit of the businesses in which we invest
Philosophy:
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