Joseph V. Rizzi Amsterdam Institute of Finance December, 2013 Sponsor Based Leveraged Acquisition Market Overview

Stone Age Bronze Age Silver Age Golden Age Back-to-the-Future ( ) ( ) ( ) ( ) ( ??) Cottage Industry KKR Fund proliferation Goes global Shakeout/consolidation Bootstrap deals High Yield Represents 40% higher equity levels of M&A smaller deals Mega Funds Operating improvements focus. Increase in PIPE and minority interests Regulation Amsterdam Institute of Finance December, 20132

 Macro Uncertainty  Banks  CLO  IPO Window Amsterdam Institute of Finance December,

Volumes – Leveraged Finance Volume < – % Mkt 2013% MktYOYΔ LBO Loan Volume4.0B 7%18.0B 15% 368% Non LBO Loan Volume 20.86B 37%30.5B 33% 90% Total € 24.9B 44% € 58.4B 49% 135% Senior Sec Bds 13.3B 24% 28.6B 24% 115% Senior Unsec Bds 16.6B 29% 26.3B 24% 71% Subord Bds 0.6B 1% 4.9B 4% 656% Total € 30.5B 54% € 61.8B 51% 102% Mez € 1.0B 1.8% 0.1B 0.2% Total € 56.4B €120.4B 113% Amsterdam Institute of Finance December, 20134

3 Q 13  Strongest Quarter in 3 yrs  Germany leading - € 98 double UK; France and Sweden weak  Springer- BC Partners- € 3.3B  ISTA- CVC- € 3.1B  CeramTec- Cinven- € 1.49B  Pipeline  Exits – ATC – Hg Capital € 300 mln trade sale  Amsterdam Institute of Finance December, 20135

 UK26.5%  Germany18.2%  Netherlands15.7%  France10.5%  U.S. 9.3%  Denmark 5.3%  Poland 5.0%  Luxembourg 1.7%  Sweden 1.7%  Norway 2.6%  Italy 1.5%   Source Standard & Poor’s Financial Services LLC. All rights reserved Amsterdam Institute of Finance December, 20136

 Most Active Sponsors   SponsorShare   CVC8.62%  Carlyle Group8.62%  Bain Capital6.90%  Advent International5.17%  BC Partners3.45%  Cinven Ltd3.45%  Bridgepoint Capital3.45%  Kolhberg, Kravis & Roberts3.45%  Permira3.45%  Charterhouse Equity Partners3.45%  PAI Management3.45%  Joh. A. Benckiser1.72%  3i plc1.72%  Golden Gate Capital1.72%  Insight Ventures1.72%  Clayton, Dubilier & Rice1.72%  Silver Lake Partners1.72%  Pamplona Capital Management1.72%  EQT Partners1.72%  Blackstone Group1.72%  Investcorp1.72%  OMERS Capital Partners1.72%  Nordic Capital1.72%  TowerBrook Capital Partners1.72%  Cobepa1.72% Amsterdam Institute of Finance December, 20137

Europe U.S. RC 10.7%16.1% T / LA 22 % 1.1% T / LB 62.6% 71.7% 2L 0.4% 10.9% Other 4.3% 0.2% Source: Standard & Poor’s Financial Services LLC. All rights reserved  Amsterdam Institute of Finance December, 20138

 Volume (€) ◦ 2000 – 1.35B2007 – 32.20B ◦ 2001 – 5.24B2008 – 11.18B ◦ 2002 – 3.09B2009 – 0.38B ◦ 2003 – 3.68B2010 – 1.41B ◦ 2004 – 5.92B2011 – 0.86B ◦ 2005 – 11.05B ◦ 2006 – 35.49B2013 (Jan-Oct) 4.83B Source: Standard & Poor’s Financial Services LLC. All rights reserved Amsterdam Institute of Finance December, 20139

Structure and Spreads Pre Crisis – 70%AAA -< 50 BP 10% AA 3% A 7%BBB Post Crisis –90%AAA - > 125 BP Bid / Ask (% of Par) BidAsk 4 Q Q Q Source: Standard & Poor’s Financial Services LLC. All rights reserved Amsterdam Institute of Finance December,

 2013 (9 mo.) 58.9         Amsterdam Institute of Finance December,

PE Firm  General  Limited Seller Financing  Banks  CLO  Bonds  Mez Professionals  Lawyers  Accountants  Advisers Amsterdam Institute of Finance December,

 Institution Investors47.4%  European Banks37.3%  U.S. Banks 5.5%  Securities Firms 5.1%  Asian Banks 2.9%  Canadian Banks 1.2%  Other Banks 0.6% Amsterdam Institute of Finance December,

Asset Classes  Sovereign  Corporate  Equity  Alternatives Styles  Value  Momentum  Carry  Volatility Risks  Economic Growth  Inflation  Liquidity  Tail Amsterdam Institute of Finance December,

Fund manager Carried interest partner General Partner LP A LP B LP C US Investors US Exempt Investors Non-US Investors FUND Investment Hold Co. Operating Entity Bank Bridge finance Syndicate participants Leverage finance syndicate participants Nominee High Yield Investors Mezzanine Investors FLL SLL CLO Hedge funds 15 Amsterdam Institute of Finance December, 2013

NowIn 5 yrs EBITDA of Acquired Firm (c) Sale 8 x EBITDA1,0001,500 Financing Plan: Total Capital Raised1,000 Fees Net Sale Proceeds on Exit1,450 Original Debt 800 Less: Debt pay down over 5 years 260 Debt at end of 5 years Return of Original Equity -200 Net gain to be allocated % to mgmt options 71(a) 20% to general partner % to limited partners 497 (b) Total 710 Amsterdam Institute of Finance December, (a)Share to CEO2% pointsor $14.2 x 1 = $14.2 Share to next 4 senior officers1% pointsor $ 7.1x 4 = $28.4 Share to next 8 key players1/2% pointsor $ 3.6x 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 Rev 10/16/06 - $ millions -

Amsterdam Institute of Finance December, Tax – Legal – Accounting Knowledge Network Management Industry Expertise Corporate Finance Delivery Fund Raising Investing Managing/ Monitoring Exit VALUE

Increased Debt (lower taxes) Bargain Purchase Operating Improvements Improved Governance Bondholder Value transfer Opportunistic Sale Restructuring Skills Private Equity Value Added 18 Amsterdam Institute of Finance December, 2013

Focus on return: what is the maximum price I can pay based on given set uf projection and earn X% return? Tradition Valuation = Projected cash flows Discounted rate Terminal value LBO Prespective =IRR (Equity discount rate) Projected cash flows Purchase Price Sale Price (Terminal Value) Amsterdam Institute of Finance December,

DCF Net Income + Dep/Amt +/_ Change in deferred taxes +/- Other noncash items +/- Change in working capital Cash flow from operations +After tax interest - CAPEX - Unleveraged FCF Amsterdam Institute of Finance December, CFADS Net Income Dep/Amt Change in deferred taxes Other non cash changes Change in working capital Cash flow from operations No interest expense adjustment Capex CFADS

IRREquivalent MOC Over 6 Years 10%1.8X 20%3.0X 30%4.8X 40%7.5X 50%11.4X Amsterdam Institute of Finance December,

Amsterdam Institute of Finance December, Bull Market Menu Bear Market Menu As the credit curve shifts, the menu that is available to Issuers / Arrangers changes Holding Company PIK Tranche Term Loans Covenant Light High Yield Debt Bridge Loans Second Lien Hybrid Preferred Cross Lien Facilities Asset Carve-outs OPCO/PROPCO Recapitalizations Stretch Senior Seller Notes Senior Notes Private Placements Equity R/C Lite Mezzanine Smaller floors Sweeps Prepayment penalties covenants Issuer Friendly Investor Friendly

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

Credit Accounting Tax Regulation Excess Capacity Fundraising Fund Structure Returns LPs Public GPs Amsterdam Institute of Finance December,

 Fundraising Dry Powder  2013 (9 mo)69190        Source: Standard & Poor’s Financial Services  Amsterdam Institute of Finance December,

Amsterdam Institute of Finance December, Deal market Disappoint returns Impacts fundraising Deals chase money Superior returns Attracts capital Capital chasings deals Macro Financial Markets