Sponsor Based Leveraged Acquisition Market Overview and Participants

Sponsor Based Leveraged Acquisition Market Overview and Participants Joseph V. Rizzi Amsterdam Institute of Finance December, 2015

Acquisition/Leveraged Finance Transaction: Buyout, Acquisition or Recapitalization Leverage: Resulting in highly leveraged (i. e. , non investment grade) obligor – FD/EBITDA > 3 X Subject to market availability and pricing (function of risk appetite Deal Types: Acquisition Recapitalization Refinance PTP (Public to Private) STS (Sponsor to Sponsor, aka Pass the Parcel) PE Importance: Provides 1/3 of all I/B Revenues and up to 25% of M&A Amsterdam Institute of Finance December, 2015 2

Global M&A (3 Q 15) Amsterdam Institute of Finance December, 2015 Near Record 2007 pre crisis– $3. 2 T U. S. - 48% ROW - 52% Drivers Cash Balances Low Rates Exhausted Cost Cuts and Buybacks - Activist Pent-up Demand Positive Response Confidence Rising Stock Prices Increase in Shareholder Activism PE: Dog that didn’t bark – Strategic Acquirers crowd-out Lowest % of M&A in years Reflects dearth of larger PTP deals Volume down 2015 v double digit M&A increase Average deal size: € 375 mln v € 600 mln + 2007 peak PPX: 14 X + Strategic; 10 X + PE Drop in cash in favor of stock/stock + cash All cash rebound since August, 2015 correction 3

M&A Snapshot 9 mos 2015 Mega Deals (>10 B) – Record $1. 19 T Return of Strategic Acquiror Drivers Increased Stock Prices – Management confidence; Stock as Currency Positive Shareholder Reaction: Pre Crisis Reaction Pre Crisis: Negative 2012 – 1 H 15: 3 -4% 3 Q 15: <0. 65%> Source: S&P Capital IQ Amsterdam Institute of Finance December, 2015 4

Exhibit I Top 10 EMEA Involvement Announced Deals 1/1/15 – 9/30/15 Target Acquirer Size $ BG Group Allergan Perrigo Baxalta Chubb Cablevision P&G Co – Beauty O 2 PLC Alcatel Lucent Delhalz Royal Dutch Teva Mylan Shire ACE Altke Coty Hutchison Nokia Ahold 61 B 40. 5 B 35. 6 B 33. 7 B 28. 5 B 18. 1 B 16. 9 B 15. 3 B 13. 7 B 11. 6 B Amsterdam Institute of Finance December 2015 5

Impact of August Correction Reduced Investor Risk Appetite Pricing Structuring Arrangers: Troubled syndications with more upward flex Issuers/Acquirers: Reluctance to acquire or use stock PPX: Too early to tell Amsterdam Institute of Finance December, 2015 6

Success Factors Tests Amsterdam Institute of Finance December, 2015 Deal Size Timing Price Financing Consideration Buyer Execution Type Best Owner Iron Law 7

Euro LBO (Euro/B) 9 M 15 2014 28. 0 49. 0 2012 29. 0 2013 63. 7 2011 43. 9 2010 39. 4 2009 2008 2007 2006 9. 0 69. 3 152. 3 164. 5 Country (Portfolio Concentrations %) Germany 21 UK 17 Netherlands 10 France 11 Spain Amsterdam Institute of Finance December, 2015 8 European PE Dry Powder (Euro/B) – 300 B Euro Focused Fundraising : 9 mos 2015 € 87 B v € 108 B in 2014 Key Buyout Stats – 9/30/15 PPX 9. 3 Eq% 41. 8 FDX 4. 8 Source: S&P Capital IQ 8

Euro Market Leveraged Loans – 9 Mo – Continued Sluggishness Buyouts M&A 2015 € 17 € 12 € 29 2014 € 16 € 21 € 37 Change 5% <39%> <20%> Leverage – Regulatory Restrictions – Staying Below 5 X : 4. 8 X Cov – Lite: 45% of all Euro LL 2 L: Weak Issuance CLO: Flat (€ 66 B v U. S. $414 B AUM) HYB: 40% Off Prior Year Mez: Replaced by HYB, unitranche and 2 L Equity: 40% + Forwarded Calendar: Stronger in U. S. Amsterdam Institute of Finance December, 2015 PPX: 9 X v 10. 3 X in U. S. 9

Collateralized Loan Obligations (CLO) Represent 50% of institutional loan investors U. S. : Euro: $417 B AUM $ 65 B AUM Restructure following great recessions: CLO 2. 0 Losses/Outflows Dodd Frank Retention Rules Driving force beyond 2 L and Cov Lite Trading Amsterdam Institute of Finance December, 2015 1 0

Value Creating Transactions: Questions & Framework Question Framework 1. How will transaction achieve our goal? Acquisition Strategy 2. Which companies are good targets? Strategic Fit Search Screen 3. Best transaction types? M&A v Alliance JV and Minority Interests 4. Available Synergies? Scale, Scope and Skill Strategic and Due Diligence 5. What is target worth to us and potential bidders? DCF, Comps (trading, transaction) ROV 6. Target assessment? Shareholder value Economic profit, other 7. Risks? Cost of Capital Analysis Sensitivity, Scenario and Simulation 8. Deal Structure? Asset v Stock Cash v Stock Fixed v Contingent 9. Integration Absorption v Preservation Symbiosis v Holding 10. Negotiations Amsterdam Institute of Finance December, 2015 Planning and Strategies 1 1

M&A Danger Signs CEO only believer: headstrong; magazine cover effect Only revenue synergies with no investment plan Prefunctory Due Diligence Reservation price changes during bidding Must close deal Failure to identify why buyer is best owner Emphasis on time, effort, cost and reputation sunk into deal Amsterdam Institute of Finance December, 2015 1 2

Private Equity Evolution • Timeline Stone Age Bronze Age Silver Age Golden Age (1974 -84) (1985 -90) (1990 -2000) Cottage Industry KKR Fund proliferation Goes global Bootstrap deals High Yield (2002 -07) Back-to-the-Future (2008 -2012) Shakeout/consolidation Represents 40% higher equity levels Maturity (2013 - ? ) Exits Fund Raising of M&A smaller deals Dry Powder Mega Funds Operating improvements Diversification focus. Increase in PIPE and minority interests? • Public PE Firms – disappearing returns; lower valuations KKR Carlyle • 3 Q 15 Loss: 286 mln – first since 2011 3 Q 15 Loss: 84 mln Joint Venture 3 G/Berkshire Hathaway Amsterdam Institute of Finance December, 2015 1 3

PE Sector PE Fund Performance Persistence – declining due to competition – used to be Access Networks Signaling Crowded (> 5, 000) 2, 200 funds seeking funds as of 3 Q 15 Dry Powder € 300 B LP Selection Issues Strategy Returns Team Terms Relationship Amsterdam Institute of Finance December, 2015 1 4

Private Equity Value Chain (From Financial Engineering to Value Creation) Tax – Legal – Accounting Knowledge Network Management Industry Expertise VALUE Corporate Finance Delivery Fund Raising Amsterdam Institute of Finance December, 2015 Investing Managing/ Monitoring Exit 1 5

Private Equity Value Added • Buy Right: PPX • Financial Engineering: FDX • Operating Improvements: (pf) EBITDA • Multiple Expansion: Exit X Amsterdam Institute of Finance December, 2015 1 6

What Private Equity Firms Say They Do (Gompers, Kaplan and Mukharlyamov) USE IRR and MOIC not DCF for valuation Use comparable company multiples to calculate exit values not DCF Use flat hurdle rates (20 – 25%) not risk adjusted or CAPM based Use market timing not static tradeoff theory to set capital structure Opportunistic Exits Strategic Buyer – 50% Financial Buyer – 30% IPO – 20% Value business model and competitive position over management Emphasize growth or cost cuts Amsterdam Institute of Finance December, 2015 1 7

Corporate v PE Acquirers Corporate PE Valuation WACC based DCF Equity returns and cost of equity based Debt Capacity Investment Grade (company determined) Maximum debt capacity (lender/market determined) Residual Value Growing Prep Exit X Value Added Synergies Financial Engineering Search Focused Opportunistic Affordability Dilution IRR on required equity Deal Size Large Depends Capital Structure Permanent Temporary Debt Structure Simple Complex Flexibility No financial covenants Cov-lite Horizon Long Term 5+ years Integration Risk High Low Thesis Strategic Transaction Amsterdam Institute of Finance December, 2015 1 8

Most Active Sponsors – Top 20 LTM – 9/30/15 Sponsor CVC Apax Partners Bridgepoint Capital Onex Corp Cinven Ltd Bain Capital Nordic Capital Apollo Management Wendel Investissement Investindustrial Clayton, Dubilier and Rice 3 i pic Ardian Equistone Partners EQT Partners Permira Antin Infrastructure Partners SAS Mid Europa Partners LLP Kohlberg, Kravis & Roberts Amsterdam Institute. Charterhouse Group International of Finance December, 2015 Share 10. 50% 5. 30% 3. 90% 2. 60% 2. 60% 1. 30% Source: S&P Capital IQ 1 9

Credit Cycle Impact on PE Investments and Performance Up Cycle Spreads Narrow Multiples Increase Leverage Increases Exits Accelerate Fundraising Dry Powder Characteristics Government Bond Rates High Yield Spreads Amsterdam Institute of Finance December, 2015 2 0

Wheel of (Mis)fortune Superior returns Attracts capital Deals chase money Macro Financial Markets Disappoint returns Impacts fundraising Amsterdam Institute of Finance December, 2015 Deal market Capital chasings deals 2 1

A Typical Private Equity Structure Diagram US Investors Fund manager US Exempt Investors General Carried interest LP LP LP Non-US Partner partner A B C Investors FUND Nominee Investment CLO Leverage finance Hedge funds syndicate participants Investment Hold Co. Bank Bridge finance FLL Syndicate participants SLL Amsterdam Institute of Finance December, 2015 Investment High Yield Investors Hold Co. Operating Entity Mezzanine Investors 2 2

Private Equity LBO Transaction Economics Now EBITDA of Acquired Firm Sale value @ 8 x EBITDA 125 1, 000 Financing Plan: Equity @. 20 Debt @. 80 Total Capital Raised 200 800 1, 000 Fees - $ millions - 188 (c) 1, 500 30 50 Net Sale Proceeds on Exit 1, 450 Original Debt Less: Debt pay down over 5 years Debt at end of 5 years Return of Original Equity Net gain to be allocated 10% to mgmt options 20% to general partner 70% to limited partners Total (a) Share to CEO Share to next 4 senior officers Share to next 8 key players Total Management share In 5 yrs -540 -200 71(a) 142 497 (b) 710 2% points 1/2% points or or or 800 260 540 $14. 2 x 1 = $14. 2 $ 7. 1 x 4 = $28. 4 $ 3. 6 x 8 = $28. 4 $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. Amsterdam Institute of Finance December, 2015 2 3 Source: Casewriter – The Role of Private Equity Firms in Mergers & Acquisitions Transaction Harvard Business School case 9 -206 -1 Rev 10/16/06

Pricing v Valuation Price ≠ Value eventually converge, but… using price to justify M&A – increases overpaying Most valuations are really disguised Pricings Academic Surveys – DCF Reality – Name Only TV in DCF >60% Value TV calculated using market multiple Venture Capital Valuation Football Field: Flaw of Averages V x Asset Value x DCF x Comp Trade x Comp Trans x Average Fit Line Other (ROV? ) Goose that Lays the Golden Egg Story: Price v Value Amsterdam Institute of Finance December, 2015 2 4

Anatomy of a Premium Stupidity & Bias Fantasy Competitive Necessity Outlook/Information Advantage Synergies Lower Buyer WACC Undervaluation ROT: Greater than 40% premium over pre-bid market price is difficult to justify for any sizeable acquisition. Amsterdam Institute of Finance December, 2015 2 5

LBO Analysis Focus on return: what is the maximum price I can pay based on given set of projections and earn X% return (not risk adjusted)? Tradition Valuation = Projected cash flows Discount rate Terminal value LBO Perspective = IRR (Equity discount rate) Projected cash flows Purchase Price Sale Price (Terminal Value) Debt Policy Ratings/Corp Value Transfer from LP’s Amsterdam Institute of Finance December, 2015 2 6

LBO Valuation (Pricing/Affordability) How much can I borrow (XEBITDA) Usually 4 - 6 X depending on market Equity Percentage Required (% of PP) Usually 30% - 45% dependent on market Compare Market PPX IRR Adjustments FD Exit Multiple Equity PP EBITDA adjustment (pro forma EBITDA) Example – assume € 100 EBITDA FDX – 5 X Institute Equity % - 35% Affordable bid 7500 or 7. 5 x EBITDA Amsterdam of Finance December, 2015 2 7

Cash Flow Available for Debt Service (CFADS) DCF CFADS Net Income + Dep/Amt +/_ Change in deferred taxes +/- Other noncash items +/- Change in working capital Cash flow from operations +After tax interest (hypo Ƭ) - CAPEX - Unleveraged FCF Net Income Dep/Amt Change in deferred taxes Other non cash changes Change in working capital Cash flow from operations Non interest expense adjustment Capex CFADS Amsterdam Institute of Finance December, 2015 2 8

Converting IRR into Equivalent Multiple of Capital (MOIC) IRR 10% 20% 30% 40% 50% Amsterdam Institute of Finance December, 2015 Equivalent MOIC Over 6 Years 1. 8 X 3. 0 X 4. 8 X 7. 5 X 11. 4 X 2 9

(Ad)Venture Capital Future Value Market Size (Year 6) 1, 000 Market Share 10% Revenue 100 Revenue Multiple 5 Value 500 Ownership Need Investment (today) 10 Required Return (40%) 7. 5 X Expected Exit Value 75 Today’s Ownership Requirement Expected Exit Value (6) Projected Value (6) % Ownership Amsterdam Institute of Finance December, 2015 75 500 15% 3 0

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 Originators Increase Hold Amsterdam Institute of Finance December, 2015 3 1

International Valuation Convert foreign cash flows into home currency using forecast FX rates; discount using the home rates Majority method due to accounting translation focus Use local cash flows and rates; spot into home currency Terminal value growth rate at local inflation rate Complications Taxes – home and foreign Political risk – Venz, Russia Inflation and FX rates (A) Forecast foreign currency cash flows (B) Discount rate -same rate for domestic home currency -convert domestic rate to foreign by multiplying risk free rate differential - IRS -local rates (C) Resulting PV is FX – convert to domestic/home using spot Amsterdam Institute of Finance December, 2015 3 2

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Special Purpose Acquisition Companies Blank Check LBO Section 1 Form entity to make unidentified acquisitions within finite time period (e. g. 18 mos) Return funds / cancel commitments if no acquisition occurs Charge fees and get carried interest Conflicts abound Amsterdam Institute of Finance December, 2015 3 4

Private Debt Problem for Euro SMEs as banks retreat post crisis Europe over reliance on banks v U. S. % Banks % Non Bank Private Debt Europe 80 10 U. S. 35 55 Other 10 10 Private Debt flows into Europe growing $25 B Dry Powder Regulators 2019 single market project Amsterdam Institute of Finance December, 2015 3 5

Exchange Rates and Cross Border M&A Does USD appreciation against Euro make Euro zone targets cheap? Pay less for Euro assets But receive less – depreciated future Euro cash flows converted back into USD Companies continue to get confused by translation accounting or are they speculating in FX Amsterdam Institute of Finance December, 2015 3 6

Foreign Currency Debt Borrowing in Foreign currency different from home currency Borrower attracted by Foreign currencies with lower rates - carry trade Borrow USD Spot into home currency Risk if home currency weakens against USD – unless hedged Taking deal risk Interest rate parity ensures no free lunch Borrow in country where assets and cash flow are located to create natural hedge Beware speculating in FX using company balance sheet Amsterdam Institute of Finance December, 2015 3 7