Sponsor Based Leveraged Acquisition Market Overview Joseph V. Rizzi Amsterdam Institute of Finance October, 2014

Acquisition/Leveraged Finance Transaction: Buyout, Acquisition or Recapitalization Leverage: Resulting in highly leveraged (i.e., non investment grade) obligor – fD/EBITDA > 3X Subject to market availability and pricing (function of risk appetite Deal Types: Acquisition Recapitalization Refinance PTP (Public to Private) STS (Sponsor to Sponsor, aka Pass the Parcel) PE Importance: Provides 1/3 of all I/B Revenues and up to 25% of M&A Amsterdam Institute of Finance October, 2014

Global M&A (1H14) 7 Year High – 1.77T U.S. - 41% ROW - 59% Drivers Cash Balances Low Rates Exhausted Cost Cuts and Buybacks Pent-up Demand Positive Response Confidence Rising Stock Prices Increase in Hostile T/O 20% of total v single digits post crisis PE: Dog that didn’t bark – Strategic Acquirers crowd-out 20% of total v 27% 4 year average Reflects dearth of larger PTP deals Volume up 6% 2014 v double digit M&A increase PPX: 14X+ Drop in cash in favor of stock/stock + cash All cash at lowest level since 2001 Averages reflect return of the “big deal” Amsterdam Institute of Finance October, 2014

M&A Snapshot 1H14 Activity 1H14 1H13 Return of Strategic Acquiror Volume ($B) 1,768 1,023 Size (> 10B) 9 19 Return of Strategic Acquiror Holcim – LaFarge April, 2014: $39.5B Numericable – SFR March, 2014: $23.3B Facebook – WhatsApp February, 2014: $19.5B Suntory – Beam January, 2014: $15.7B Bayer – Merck Cons May, 2014: $14.2B Drivers Increased Stock Prices – Management confidence; Stock as Currency Positive Shareholder Reaction: One Day Indexed Buyer Stock Price Reaction 1H14 2.9% 2H13 3.6% 1H13 3.1% 2012 1.8% 2011 .3% 2010 .3% 2009 <1.9%> 2008 <1.3%> Source: S&P Capital IQ Amsterdam Institute of Finance October, 2014

Success Factors Timing Price Financing Consideration Buyer Execution Deal Size Timing Price Financing Consideration Buyer Execution Type Tests Best Owner Iron Law Amsterdam Institute of Finance October, 2014

Euro LBO 7/31/14 38.8 UK 28.57% 7/31/14 225 58.4 (Euro/B) Country 7/31/14 38.8 2013 63.7 2012 29.0 2011 43.9 2010 39.4 2009 9.0 2008 69.3 2007 152.3 2006 164.5 Country UK 28.57% France 19.10% Germany 12.59% Netherlands 10.83% Spain 6.45% European PE Dry Powder (Euro/B) – European Focused Fundraising 7/31/14 225 58.4 2013 190 88.8 2012 175 73.8 Key Buyout Stats – 7/31/14 PPX 9X Eq% 35% FDX 5X Source: S&P Capital IQ Amsterdam Institute of Finance October, 2014

Euro Market European LL Volume: Leverage Up: 5X+ Highest Level Post Crisis June/July YTD Volume €59.5B up 19% same period 2013/LY Includes M&A and PE Leverage Up: 5X+ Return of Cov-lite: Reduced Terms 2L Increasing CLO: Returning – 6 Mo 16 v 20 for YE13 Costs dropped from E+200 2013 to E+100 1H14 MEZ N/A: 2L Wipeout HYB (7/31/14): €61.3B v €47.2B LY Amsterdam Institute of Finance October, 2014

Value Creating Transactions: Questions & Framework 1. How will transaction achieve our goal? Acquisition Strategy 2. Which companies are good targets? Strategic Fit Search Screen 3. Best transaction types? M&A v Alliance JV and Minority Interests 4. Available Synergies? Scale, Scope and Skill Strategic and Due Diligence 5. What is target worth to us and potential bidders? DCF, Comps (trading, transaction) ROV 6. Target assessment? Shareholder value Economic profit, other 7. Risks? Cost of Capital Analysis Sensitivity, Scenario and Simulation 8. Deal Structure? Asset v Stock Cash v Stock Fixed v Contingent Integration Absorption v Preservation Symbiosis v Holding Negotiations Planning and Strategies Amsterdam Institute of Finance October, 2014

M&A Danger Signs CEO only believer: headstrong; magazine cover effect Only revenue synergies with no investment plan Prefunctory Due Diligence Reservation price changes during bidding Must close deal Failure to identify why buyer is best owner Emphasis on time, effort, cost and reputation sunk into deal Amsterdam Institute of Finance October, 2014

Private Equity Evolution Stone Age Bronze Age Silver Age Golden Age Back-to-the-Future Maturity (1974-84) (1985-90) (1990-2000) (2002-07) (2008-2012) (2013 - ?) Cottage Industry KKR Fund proliferation Goes global Shakeout/consolidation Exits Bootstrap deals High Yield Represents 40% higher equity levels Fund Raising of M&A smaller deals Dry Powder Mega Funds Operating improvements Diversification focus. Increase in PIPE and minority interests? Amsterdam Institute of Finance October, 2014

PE Sector PE Fund Performance Persistence – declining due to competition Access Networks Signaling Crowded (> 5,000) 2,200 funds seeking funds as of July, 2014 Raise $750B Dry Powder LP Selection Issues Strategy Returns Team Terms Relationship Amsterdam Institute of Finance October, 2014

Private Equity Value Chain (From Financial Engineering to Value Creation) Tax – Legal – Accounting Knowledge Network Management Industry Expertise Corporate Finance Delivery VALUE Fund Raising Investing Managing/ Monitoring Exit Amsterdam Institute of Finance October, 2014

Private Equity Value Added Buy Right: PPX Financial Engineering: FDX Operating Improvements: (pf) EBITDA Multiple Expansion: Exit X Amsterdam Institute of Finance October, 2014

Corporate v PE Acquirers Valuation WACC based DCF Equity returns and cost of equity based Debt Capacity Investment Grade (company determined) Maximum debt capacity (lender/market determined) Residual Value Growing Prep Exit X Value Added Synergies Financial Engineering Search Focused Opportunistic Affordability Dilution IRR on required equity Deal Size Large Depends Capital Structure Permanent Temporary Debt Structure Simple Complex Flexibility No financial covenants Cov-lite Horizon Long Term 5+ years Integration Risk High Low Thesis Strategic Transaction Amsterdam Institute of Finance October, 2014

Most Active Sponsors - LTM Sponsor Share CVC 10.13% Carlyle Group 5.06% Astorg Partners 5.06% Permira 5.06% Clayton, Dubilier & Rice 3.80% Goldman Sachs 3.80% Montagu Private Equity 3.80% Advent International 2.53% Bain Capital 2.53% Koch Industries 2.53% Cinven Ltd 2.53% Apollo Management 2.53% Bridgepoint Capital 2.53% Teachers’ Private Capital 2.53% Investcorp 2.53% Triton Managers 2.53% Ardian 2.53% Electra Partners 2.53% ATP Private Equity Partners 1.27% 3i pic 1.27% Source: S&P Capital IQ Amsterdam Institute of Finance October, 2014

Credit Cycle Impact on PE Investments and Performance Up Cycle Spreads Narrow Multiples Increase Leverage Increases Exits Accelerate Fundraising Dry Powder Characteristics Government Bond Rates High Yield Spreads Amsterdam Institute of Finance October, 2014

Wheel of (Mis)fortune Macro Financial Markets Deal market Superior returns Attracts capital Deals chase money Macro Financial Markets Disappoint returns Impacts fundraising Deal market Capital chasings deals Amsterdam Institute of Finance October, 2014

A Typical Private Equity Structure Diagram US Investors Fund manager US Exempt Investors General Partner Carried interest partner LP A LP B LP C Non-US Investors FUND Nominee Investment Investment Investment Investment CLO Hedge funds Leverage finance syndicate participants Hold Co. High Yield Investors Bank Hold Co. Mezzanine Investors Bridge finance Syndicate participants FLL SLL Operating Entity Amsterdam Institute of Finance October, 2014

Private Equity LBO Transaction Economics - $ millions - Now In 5 yrs EBITDA of Acquired Firm 125 188 (c) Sale value @ 8 x EBITDA 1,000 1,500 Financing Plan: Equity @ .20 200 Debt @ .80 800 Total Capital Raised 1,000 Fees 30 50 Net Sale Proceeds on Exit 1,450 Original Debt 800 Less: Debt pay down over 5 years 260 Debt at end of 5 years -540 540 Return of Original Equity -200 Net gain to be allocated 710 10% to mgmt options 71(a) 20% to general partner 142 70% to limited partners 497 (b) Total 710 Share to CEO 2% points or $14.2 x 1 = $14.2 Share to next 4 senior officers 1% points or $ 7.1 x 4 = $28.4 Share to next 8 key players 1/2% points or $ 3.6 x 8 = $28.4 Total Management share $71.0 (b) Equals a 28.4% compound annual rate of return on investment. (c) Assumes $12 taken out of cost structure immediately and 6.5% growth/year in EBITDA thereafter. Source: Casewriter – The Role of Private Equity Firms in Mergers & Acquisitions Transaction Harvard Business School case 9-206-1 Rev 10/16/06 Amsterdam Institute of Finance October, 2014

Pricing v Valuation V x x x Average Fit Line Price ≠ Value eventually converge, but… using price to justify M&A – increases overpaying Most valuations are really disguised Pricings Academic Surveys – DCF Reality – Name Only TV in DCF >60% Value TV calculated using market multiple Venture Capital Valuation Football Field: Flaw of Averages V x x x Average Fit Line Asset DCF Comp Comp Other Value Trade Trans (ROV?) Goose that Lays the Golden Egg Story: Price v Value Amsterdam Institute of Finance October, 2014

Anatomy of a Premium Stupidity & Bias Fantasy Competitive Necessity Outlook/Information Advantage Synergies Lower Buyer WACC Undervaluation ROT: Greater than 40% premium over pre-bid market price is difficult to justify for any sizeable acquisition. Amsterdam Institute of Finance October, 2014

LBO Analysis Focus on return: what is the maximum price I can pay based on given set of projections and earn X% return not risk adjusted? Tradition Valuation = Projected cash flows Discounted rate Terminal value LBO Perspective = IRR (Equity discount rate) Purchase Price Sale Price (Terminal Value) Debt Policy Ratings/Corp Value Transfer from LP’s Amsterdam Institute of Finance October, 2014

LBO Valuation (Pricing/Affordability) How much can I borrow (XEBITDA) Usually 4 - 6X depending on market Equity Percentage Required (% of PP) Usually 30% - 45% dependent on market Compare Market PPX IRR Adjustments FD Exit Multiple Equity PP EBITDA adjustment (pro forma EBITDA) Example – assume €100 EBITDA FDX – 5X Equity % - 35% Affordable bid 7500 or 7.5x EBITDA Amsterdam Institute of Finance October, 2014

Cash Flow Available for Debt Service (CFADS) DCF Net Income + Dep/Amt +/_ Change in deferred taxes +/- Other noncash items +/- Change in working capital Cash flow from operations +After tax interest (hypo Ƭ) CAPEX Unleveraged FCF CFADS Net Income Dep/Amt Change in deferred taxes Other non cash changes Change in working capital Cash flow from operations Non interest expense adjustment Capex Amsterdam Institute of Finance October, 2014

Converting IRR into Equivalent Multiple of Capital (MOIC) IRR Equivalent MOIC Over 6 Years 10% 1.8X 20% 3.0X 30% 4.8X 40% 7.5X 50% 11.4X Amsterdam Institute of Finance October, 2014

Venture Capital Future Value Ownership Need Market Size (Year 6) 1,000 Market Share 10% Revenue 100 Revenue Multiple 5 Value 500 Ownership Need Investment (today) 10 Required Return (40%) 7.5X Expected Exit Value 75 Today’s Ownership Requirement Projected Value 500 % Ownership 15% Amsterdam Institute of Finance October, 2014

Fixing the Broken Deal – Price and Structural Flex Increase spread Recycled Original issue discount Eliminate PIK Reduce debt Add a subordinate tranche More equity Add covenants Reduce Price Seller Paper Amsterdam Institute of Finance October, 2014