Corporate Governance A view from the private equity world John Mackie Chief Executive

Agenda Introduction to private equity Prior to investment Post investment Key issues

Introduction to private equity

Largest market after US UK accounts for one third of total European investment £80 billion plus under management BVCA represents vast majority of private equity/venture capital in the UK (171full members and 154 associates) £6.2 billion invested in 1,597 companies in 2001

£millions Growth of investment by BVCA members in UK firms

Economic impact of private equity Private Equity backed companies create more jobs –People employed increase 23% p.a. –Almost 3 million people work in private equity backed companies Private Equity backed companies boost the UK economy –Sales rise by 30% p.a. –Exports grow by 20% p.a. (national growth rate 2.9%) –Investment increases by 25% (national growth rate 2.3%)

2001 Performance Measurement The net returns of private equity funds raised between 1980 and 2001 measured to One year - 7.1% Three year 13.0% pa Five year 15.7% pa Ten year 17.4% pa

Highlights of 2001 Performance Measurement Over one, three, five year and ten years outperformed the FTSE 100 and the FTSE All-Share Indices The overall long-term (since inception) net return to investors now stands at 16.2%

Prior to investment

Timescale 3-12 months Business plan – strategic – market – financials

Prior to investment Due diligence - legal - accounting - market - environmental

Prior to investment Management- references - change/supplement - new environment -financial commitment -equity upside

Prior to investment Milestones- financial - operational - drawdown

Prior to investment Shareholder agreement - remuneration - reporting - Board representation - acquisitions/disposals - borrowing - share issues

Prior to investment Exit planning- trade sale -IPO - refinancing -value maximisation

Prior to investment -A mass of detailed information about the business, its markets, management, opportunities, threats -A detailed agreement on governance, monitoring, decision taking, forward planning

Post investment

-Shareholder Director(s) -Independent Director/Chairman -Continuous monitoring

Post investment -Strategic input -Management change -Acquisitions

Post investment -Development capital -Growth -Exit planning

Key issues

Key Issues -Real shareholder involvement -Board representation -Management change/development

Key Issues Leverage Alignment of interests Good governance = more value