Linkages between the Public & Private Markets Georgiana Fung Small Cap Strategist, MLPF&S · May 2007 Georgiana Fung Small Cap Strategist, MLPF&S · May 2007 Refer to important disclosures on slide Merrill Lynch does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.

Refer to important disclosures on slide Background  Public Market Structure  Relationship to Private Equity Private Equity Outlook  Investments  Exits Background  Public Market Structure  Relationship to Private Equity Private Equity Outlook  Investments  Exits Outline

Refer to important disclosures on slide BACKGROUND

Refer to important disclosures on slide For Every Large Cap, there are 10 Smaller Cap Names Source: Merrill Lynch Small Cap Research

Refer to important disclosures on slide The Linkages between the Public and Private Equity Markets Source: Merrill Lynch Small Cap Research

Refer to important disclosures on slide Similarities of Smaller Cap Stocks and Private Equity Characteristics of Smaller Cap stocks & Private Equity vs. Large Cap stocks  Less transparent  Less recognized  Less liquid  Faster growth Characteristics of Smaller Cap stocks & Private Equity vs. Large Cap stocks  Less transparent  Less recognized  Less liquid  Faster growth

Refer to important disclosures on slide Information Flow Reduces as Company Size Decreases Source: Merrill Lynch Small Cap Research, IBES

Refer to important disclosures on slide Managers of Less Liquid Assets are More Likely to Provide Value Added Source: Merrill Lynch Small Cap Research, Lipper

Refer to important disclosures on slide Smaller and Less Liquid Assets have Outperformed the S&P 500 Source: Merrill Lynch Small Cap Research, Venture Economics

Refer to important disclosures on slide PRIVATE EQUITY OUTLOOK

Refer to important disclosures on slide Private Equity Outlook Investments  Capital markets supportive of buyouts  Opportunities in smaller cap public equities Exits  IPOs expected to be healthy  M&A to remain a key driver Investments  Capital markets supportive of buyouts  Opportunities in smaller cap public equities Exits  IPOs expected to be healthy  M&A to remain a key driver

Refer to important disclosures on slide INVESTMENTS Capital markets supportive of buyouts

Refer to important disclosures on slide Fund Raising Has Gone from Strength to Strength Source: Merrill Lynch Small Cap Research, Venture Economics

Refer to important disclosures on slide Investors are Suspect over High Expectations among the Mega-50 Source: Merrill Lynch Small Cap Research, I/B/E/S

Refer to important disclosures on slide Anything but Large Source: Merrill Lynch Small Cap Research, Lipper, ML High Yield Strategy, Venture Economics (*) Bond issuance and PE data is Quarterly as of Q4/06.

Refer to important disclosures on slide Capital Markets to Facilitate Deal Making Source: Merrill Lynch Small Cap Research, Merrill Lynch High Yield Strategy

Refer to important disclosures on slide LBOs of Smaller Public Companies on the Rise Source: Merrill Lynch Small Cap Research, Securities Data Corp.

Refer to important disclosures on slide Relative Values are Not Extreme Source: Merrill Lynch Small Cap Research

Refer to important disclosures on slide Cost of Being Public Weighs on Smaller Companies Source: Merrill Lynch Small Cap Research

Refer to important disclosures on slide More Opportunities in Small Cap Stocks Source: Merrill Lynch Small Cap Research

Refer to important disclosures on slide EXITS IPOs likely to be healthy; M&A to remain the driver

Refer to important disclosures on slide IPOs Expected to be Healthy Risk taking to curtail appetites for IPOs in the near- term However, healthy markets, a lower cost of capital and rising issuance go hand in hand Risk taking to curtail appetites for IPOs in the near- term However, healthy markets, a lower cost of capital and rising issuance go hand in hand

Refer to important disclosures on slide Over 400 Companies were Sold by VCs in Each of the Past 3 Years, a Solid Figure Source: Merrill Lynch Small Cap Research, VentureOne

Refer to important disclosures on slide Risk Appetites Unwinding and will Continue Source: Merrill Lynch Small Cap Research, VentureOne

Refer to important disclosures on slide An Improving IPO Backdrop can Fuel a Spate of Additional Fund Raising Source: Merrill Lynch Small Cap Research

Refer to important disclosures on slide M&A a Key Driver Hunt for growth by larger firms through acquisition Especially true in Healthcare Hunt for growth by larger firms through acquisition Especially true in Healthcare

Refer to important disclosures on slide Healthcare Increasingly becoming a more Meaningful Part of the Consolidation Wave Source: Merrill Lynch Small Cap Research, Securities Data Corp.

Refer to important disclosures on slide Expectations for Large Pharma Continue to Grind Down Source: Merrill Lynch Small Cap Research, I/B/E/S

Refer to important disclosures on slide Micro Cap Healthcare Offers Higher Growth Source: Merrill Lynch Small Cap Research, I/B/E/S * Private Equity/Micro Cap Proxy

Refer to important disclosures on slide Smaller Biotech/Drug Sell Below Long-term Average Valuations Source: Merrill Lynch Small Cap Research

Refer to important disclosures on slide Large Cap Healthcare Companies are Hunting for Growth

Refer to important disclosures on slide Final Remarks Source: Merrill Lynch Small Cap Research PUBLIC PRIVATE

Refer to important disclosures on slide Disclaimers