1. BARRIERS TO AND OPPORTUNITIES FOR INVESTMENT IN EUROPE John Arney – Managing Partner

2. BORN OUT OF A DISTRESSED SITUATION 2 2011 MBO Today 1980 - 2011

3. INVESTMENT PARTNERS INDUSTRIAL PARTNERS INNOVATIVE 4 + 4 MODEL GP owned and led by a meld of Investment and Industrial Partners Sir George BuckleyDr Fredrik Arp Dr Peter Goode Anders Pettersson 3 John ArneyMark DickinsonNils Stoesser Javier Abad

4. BUILDING COMPANIES ACROSS THE ENR SUPPLY CHAIN 4 Mid market, control LBOs of businesses with or capable of having international operations

5. ARLE’S DEFINITION OF ‘DISTRESS’ Does not = turnaround of loss making businesses with ‘also-ran’ market position Does = Neglected, under capitalised businesses that could be better run and better invested Businesses owned by a parent (individual, corporate, fund, bank or government) experiencing operational and/or financial difficulties Commonly find a need for: >Refreshed strategy >Strong leadership >Heightened operational focus >Increased capital investment i.e. a good company with a bad balance sheet or a troubled parent 5

6. PAST BUYOUTS EMANATING FROM DISTRESS 6 LSE 6.9x 63% IRR Upstream Oil & Gas 4.1x 97% IRR 2.3x 58% IRR 5.7x 472% IRR

7. OPPORTUNITY IN EUROPE The sovereign backdrop European governments have become heavily over-levered in the past six years 7 Maastricht requirement of total debt – less than 60% Source: Eurostat

8. INVESTORS FLOWING TO DISTRESSED FUNDS European-based firms have raised €75bn for investment in distressed situations No shortage of firepower 8 Investing through equity Investing through debt Trend Source: Prequin, €75 billion raised over 10 years

9. SOURCES OF SUPPLY But barriers to a strong flow of investment opportunities 9 Prone to ‘kick the can down the road’ Slow deleveraging process, banks aided by ECB’s liquidity measures Some selected disposals on structured asset sales High cash balances, low borrowing costs and ease of refinancing have reduced the need to sell non-core assets Reluctance to sell assets in ‘fire- sale’ for short-term liquidity Selective sales at local and central level, e.g. Afandou sale in Greece, Civil Service properties for sale in UK Raft of failed exits shows firms are looking to realise at full value 70% of private equity’s AuM – (highest ever) tied up in portfolio assets Source: Pitchbook

10. BANKS – THE PRIME OBSTACLE TO FLOW Banks have adjusted slowly to the need for constructive financing 10 Causes Spread and severity of ‘08 crisis necessitated triage Regulatory and political pressure Long-term benign interest rate environment Europe heavily ‘over-banked’ with ‘Continental drift’ vs. the more regionalised US banking sector Effects Problems on balance sheet larger than US counterparts Sub-optimal refinancings (‘zombies’) Bond market rapidly filling the lending void Down cycle prolonged by not taking pain early Overall drag on economic growth Real GDP Growth 2012-2017 Euro area1.2% United States2.5% Source: OECD

11. SO WILL THE FLOW PICK UP? 11 Sources: Deloitte, Financial Times, PwC Deloitte’s European Bank Survey, 2012 De-leveraging timeframe for European banking sector Financial Times, March 2013 “European banks will need to shed as much as another €3.4tn from their balance sheets over the coming years by reducing lending and selling assets” Banks remain the most significant potential source but also obstacle

12. IN CONCLUSION 12 Macro suggests high potential in Europe Plenty of hot money to fund investment But actual supply strangled by constraints Flow of opportunity should increase … but do not hold your breath