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									Mid-Market – Greater Juice for the
Greater Risk?
17 May 2007

C5 Subordinated Debt Conference, London




David Bernard
david.bernard@thomson.com
Private Equity Firms Are of Increasing Importance to Bankers




 Source: Thomson Financial / Freeman & Co                      1
Fees Generated from LBOs Surpassed Exit Fees in 2006




 Source: Thomson Financial / Freeman & Co              2
  Growth in All Segments



European sponsor-backed syndicated loans,                      European sponsor-backed syndicated loans,
   total principal amount in USD million                                 total number of issues


   350,000                                                           600

   300,000
                                                                     500

   250,000
                                                                     400
                                                  above $1bn
   200,000
                                                  $500m to $1bn
                                                                     300
   150,000                                        $100m to $500m
                                                  below $100m
   100,000                                                           200


    50,000                                                           100


        0
                                                                      0
             2000 2001 2002 2003 2004 2005 2006                            2000   2001   2002   2003   2004   2005   2006




   Source: Thomson Financial                                                                                         3
Perception vs. Reality of Leverage Levels

       European Buyout Transactions



                      10
                                                                                                    Average leverage on
                                                                                                     buyout transactions is
                                                                                                     going up slightly to 5.3x
Debt / EBITDA Ratio




                       8
                                                                               Private Equity
                                                                               Max                  Average Net Debt /
                       6                                                                             EBITDA in the European
                                                                               Private Equity        stock market stands at
                                                                               Average
                                                                                                     3.4x
                       4
                                                                               Private Equity
                                                                               Min
                       2
                                                                               Public Equities
                                                                               Average

                       0

                           2003   2004         2005         2006



        Source: Thomson Financial
        NB: Based on calculated or reported ratios, for transactions were the data was available                          4
 Are Companies Affordable?


                Evolution of P/E Ratios, European public equity markets
                Forward values based on aggregate mean broker estimates

                                                                                                                                                                                                                                                                                                                                                                                                                                                                  P/E Ratios in the
30



                                                                                                                                                                                                                                                                                                                                                                                                                                                                   European stock market
25
                                                                                                                                                                                                                                                                                                                                                                                                                                                                   have been around 15 for
                                                                                                                                                                                                                                                                                                                                                                                                                                                                   the last 3 years
20


                                                                                                                                                                                                                                                                                                                                                                                                                                                                  Brokers anticipate
15                                                                                                                                                                                                                                                                                                                                                                                                                                                                 earnings to grow more
                                                                                                                                                                                                                                                                                                                                                                                                                                                                   rapidly that stock prices,
10
                                                                                                                                                                                                                                                                                                                                                                                                                                                                   leading to a target P/E of
                                                                                                                                                                                                                                                                                                                                                                                                                                                                   11.3 in 3 years’ time
 5
     F e b -1 9 9 7


                        A u g -1 9 9 7


                                         F e b -1 9 9 8


                                                          A u g -1 9 9 8


                                                                           F e b -1 9 9 9


                                                                                            A u g -1 9 9 9


                                                                                                             F e b -2 0 0 0


                                                                                                                              A u g -2 0 0 0


                                                                                                                                               F e b -2 0 0 1


                                                                                                                                                                A u g -2 0 0 1


                                                                                                                                                                                 F e b -2 0 0 2


                                                                                                                                                                                                  A u g -2 0 0 2


                                                                                                                                                                                                                   F e b -2 0 0 3


                                                                                                                                                                                                                                    A u g -2 0 0 3


                                                                                                                                                                                                                                                     F e b -2 0 0 4


                                                                                                                                                                                                                                                                      A u g -2 0 0 4


                                                                                                                                                                                                                                                                                       F e b -2 0 0 5


                                                                                                                                                                                                                                                                                                        A u g -2 0 0 5


                                                                                                                                                                                                                                                                                                                         F e b -2 0 0 6


                                                                                                                                                                                                                                                                                                                                          A u g -2 0 0 6


                                                                                                                                                                                                                                                                                                                                                           F e b -2 0 0 7


                                                                                                                                                                                                                                                                                                                                                                            A u g -2 0 0 7


                                                                                                                                                                                                                                                                                                                                                                                             F e b -2 0 0 8


                                                                                                                                                                                                                                                                                                                                                                                                              A u g -2 0 0 8


                                                                                                                                                                                                                                                                                                                                                                                                                               F e b -2 0 0 9


                                                                                                                                                                                                                                                                                                                                                                                                                                                A u g -2 0 0 9
                      Source: Thomson Financial                                                                                                                                                                                                                                                                                                                                                                                                                                         5
Long-Term Performance of the Private Equity Asset Class
is Still Strong, Fuelling Fund Raising
European Private Equity Funds Formed 1980-2006
Investment Horizon Returns and Cumulative Returns for period ending 31-Dec-2006, Net of Fees




 Fund Size                1 YR       3 YR       5 YR      10 YR      20 YR         Since       Minimum
                                                                                 Inception     Value Top
                                                                                                Quarter
 All Buyout Funds        26.9%      13.2%       7.2%      13.6%      13.8%        13.7%         15.9%

 Buyout Funds below      26.7%      6.4%        2.1%       9.4%      10.7%        10.5%         15.4%
 $100m
 $100m - $500m           34.4%      11.1%       6.5%      17.3%      15.8%        15.8%         18.4%

 $500m - $1bn            -24.7%     -0.3%      -3.3%      19.1%      19.8%        19.8%         15.5%

 $1bn and above          23.9%      17.1%      10.5%      10.4%      10.4%        10.4%         15.0%




  Source: Thomson Financial on behalf of EVCA                                                              6
Private Equity and Public Market Comparators


10-Year Rolling IRR for 2000-2006
                                                                                    Morgan Stanley Euro Equity

           20                                                                       HSBC Small Company
                                                                                    JP Morgan Euro Bonds
                                                                                    European Private Equity
           15


           10
   IRR %




           5


           0
                 2000         2001          2002         2003         2004         2005         2006

           -5

 *Comparators are Internal Rates of Return (IRR). IRRs for public market indices are calculated by investing the equivalent cash
 flows that were invested in private equity into the public market index. Then an equivalent IRR is calculated for each index.
 Source: Thomson Financial
                                                                                                                            7

								
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