private equity in germany: response to the crisis, munich

Private Equity in Germany: Response to the CrisisMunich

Q3 2009

www.mergermarket.com/events/

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PRIVATE EQUITY IN GERMANY: RESPONSE

TO THE CRISIS

Contents

Speakers around the table 03

Transcription of the discussion 04

Duff & Phelps: Where the debt breaks 08

Latham & Watkins: National legal safeguards against risks associated with private equity investments 10

Historical data 13

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Private Equity in Germany: Response to the Crisiswww.mergermarket.com/events/

Speakers around the table

Robert A. Bartell CFA

Managing Director

Duff & Phelps

Dr. Jörg Kirchner

Office Managing Partner

Latham & Watkins LLP

Artur Meinzolt

Senior Manager

Management Consulting - Strategy, M&A, Accenture

Michael H. Bork

Managing Director

Barclays Private Equity Germany

Sotiris T.F. Lyritzis

Managing Director

Summit Partners

Catherine Raisig

Managing Editor

Remark, The Mergermarket Group

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With current M&A and corporate finance related activity in Germany low, this roundtable event held in Q3 2009 in Munich examined how the German market has reacted to the financial crisis. The following is an edited transcript of the discussion.

Sotiris Lyritzis (SL):

SL: We have spent a lot of time with our portfolio companies, helping them to understand the impact of the changes and how they need to change their own plans, from budgeting to recruiting, and operational standpoints. I think portfolio work is always very important, but in times of crisis it is even more so and funds that spend a lot of time with their portfolios will reap the rewards over the longer term. It is correct that deal flow is limited and difficult, but sometimes you have to be a little bit more creative when looking at transactions and structure them differently so that you can make them work. Other times, you just have to be patient, identify the good companies and stay in touch with them until they’re ready to take an investment. In difficult periods like these, we notice that the owners of many of the more attractive businesses prefer to wait instead of taking an investor in.

Dr. Jörg Kirchner (JK):

JK: As an adviser, we see that deal flow has gone down and that the industry has focussed on portfolio companies. However, private equity firms focussed on restructurings and investments in stressed and distressed debt are very busy.

As far as the general market is concerned, I would say two things: firstly, times have changed and overall there are fewer bidders out there. We are faced with scenarios where the seller knows that he has to work with the buyer in order to get to a closing and that can mean sharing the risk. It is a totally different atmosphere to negotiating a deal two years ago. Secondly, the financing environment is very tough and leverage continues to be difficult to obtain, it is possible, but you sometimes need to be creative.

Artur Meinzolt (AM):

AM: We see three value creation levers for private equity funds going forward: financial engineering; operational levers; and strategic levers, such as opening up new revenue opportunities by taking an established technology to a new market.

Robert Bartell (RB):

RB: We are now in a new time where things that would never have been considered a couple of years ago are being thought about carefully. Many companies are confronted with a decline in revenues and, as a result, there is more attention paid to things like costs. Sponsors and their advisers are looking carefully at what drives a business and what can be cut. However, this needs to be carefully thought out because there’s a risk you’re going to do damage to the future business.

HOW HAVE dEAL STRUCTURES CHANGEd IN THE AfTERMATH Of THE fINANCIAL CRISIS? JK: Deal structures need to tackle the two main problems the private equity industry currently faces: firstly, it should be noted that the business outlook of most target companies is relatively unpredictable and, consequently, it is hard to find the right purchase price. It is difficult to find business plans that are totally plausible and convincing. Secondly, the issue of financing needs to be addressed, but there are all kinds of creative solutions. It is still available for mid-cap transactions, but there needs to be negotiation with quite a large number of banks with each underwriting a piece of the debt. Deals can still be done.

Michael Bork (MB):

MB: There is no doubt that the private equity industry and our day-to-day business has changed a lot in the last 18 months. deal flow in the mid-cap and large segments is low, although the lower end of the market is doing well. The financing environment has improved, but the banks are still not financing many deals and we have seen very few transactions taking place. At the beginning of the crisis, we concentrated on our portfolio and used tools that would help recover, or improve, existing portfolio businesses. We feel quite comfortable now – it is a different kind of play, but it is quite interesting as well.

WHAT HAS BEEN THE IMPACT Of THE fINANCIAL CRISIS ON PRIVATE EQUITY?

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SL: I agree that you have to try a little harder to find ways to get to the same spot as before. In addition to the things mentioned, I should add that structures are now more focussed on earn-outs or earn-out type constellations. The only way to get around a situation in which a management team insists that they will grow a business 50% over the next five years, despite there having been no growth in the last three years, is to say: let’s put something in place that rewards you if you manage that, but that doesn’t punish us if you don’t. You have to now think about aligning interests and incentivising management over the longer term rather than a clean deal where everything is wrapped up from day one.

MB: I think deals are structured in a better way than they were before. Twelve or 18 months ago, we were more or less asked to buy very complex businesses with our eyes virtually closed. Buying a business is different from buying a car, and therefore the risk should be shared in a more effective way.

IN THE ABSENCE Of CREdIT, CAN PRIVATE EQUITY fUNdS STILL OffER ABOVE-MARKET AVERAGE RETURNS ON INVESTMENT? RB: Duff & Phelps recently tested out hypothetical scenarios of private equity. Even with 33% leverage, the net returns to LPs were on average, with no operational improvements, still 13-17% higher than the market. This is low compared to what we know private equity can do, but higher than returns offered by indices, be they European indices; the S&P 500; or the Asia-Pacific markets. The point is that even with none or very modest leverage, the returns that private equity generates is superior to historical returns in the public markets. Furthermore, managers are starting to realise that if they can remove the serious financial risk, which tends to be binary, then they can really focus on operations and growth.

AM: By taking more time to get to know the business, to get to know the market, I’m sure that you can find the right targets and make the right investments to realise the superior returns that we have seen in the past.

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“If YOU dO YOUR WORK WELL ANd IdENTIfY THE RIGHT OPPORTUNITIES, MANAGE TO INVEST AT dECENT VALUATIONS, ANd MANAGE THE INVESTMENTS WELL, THEN YOU CAN GENERATE VERY ATTRACTIVE RETURNS fOR YOUR INVESTORS.” Sotiris Lyritzis


SL: The stage at which private equity invests is typically earlier than the public markets and so there is perhaps more scope for rapid growth. If you do your work well and identify the right opportunities, manage to invest at decent valuations, and manage the investments well, then you can generate very attractive returns for your investors.

JK: A fund at the end of its lifetime which invested heavily during the boom phase will probably show a smaller return than other funds. However, funds that are beginning to be invested today face a very interesting time – if a private equity house makes profitable investments right now, and is creative, they will be able to show a very substantial return in the future.

MB: We are really looking at businesses that will grow to a level that they have never achieved before. If we want to sell at high valuations, we have to deliver something which is substantially better than it was before.

WHAT ARE THE PRIMARY CHALLENGES ANd OPPORTUNITIES fOR PRIVATE EQUITY INVESTORS IN THE GERMAN MARKET?SL: Germany is an attractive market and, because of its size, companies can grow very quickly and significantly. It is a technologically advanced economy and there are a lot of companies with world-class products that have the ability to be dominant global players. The challenges are very similar to those that are seen everywhere else. Investors need to make sure that the company they are investing in has a product that is robust and a firm that has made the right plans to expand out of their domestic market. Most of these businesses are competing in a global marketplace and being strong in the domestic economy is a very good starting point.

MB: Germany is a very interesting market, because there is activity across a number of industry sectors. We have a lot of innovative people working here and much of the money is invested in research and development, this is quite intriguing for the world market.

RB: The principal challenge is managing investments in sectors that are in decline, or facing regulatory issues. Private equity funds

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that have expertise and networks in growth industries are well positioned for the next cycle, I say this as it probably can’t get any worse than it has been for the last 12 plus months.

AM: In Germany, you have to be an active investor and take a more entrepreneurial role post-deal, fully engaging all the stakeholders in a company. This means you might have to put in more effort at portfolio company level, but our clients have told us that you can achieve better by putting in this effort. It also results in a much broader strategy and business plan, which can benefit the growth of a company. This is obviously to everyone’s benefit.

WHAT KINdS Of REGULATIONS ARE APPROPRIATE ANd NECESSARY TO GOVERN THE ACTIVITY Of PRIVATE EQUITY fUNdS?JK: I think we need to differentiate between different layers of regulation and their objectives. There is a need for tax reform, especially where outside investors raise funds in Germany and invest in the domestic market.

We also need to address the relationship between the funds and investors, as well as increasing the credibility of the private equity industry in the market. This will be addressed by the draft EU directive which covers elements such as transparency, reporting requirements and corporate governance. I do not think we need regulation to protect the investors, since they are all very mature investors and are aware of what they are doing.

It is also important to distinguish between the different sorts of alternative investment vehicles; the current EU directive does not make a distinction between hedge funds and buyout funds, and these obviously have very different characteristics and regulatory requirements.

SL: In relation to the previously mentioned EU directive, private equity is a global business and a regional directive can only do so much for it. However, I feel that with greater transparency in the reporting arrangements between GPs and LPs, you can hopefully bypass the need for particularly heavy central legislation and regulation of the industry.

Calls for regulation are coming up because there seem to have been some private equity funds that operated in a more secretive way towards their LPs than they would have desired. This arrangement works well as long as the private equity house is reporting good news and sending cheques. It obviously breaks down when you have bad news to report. One of the things that will come out of this crisis is that private equity funds will have to be a little more transparent with their investors and a lot clearer on portfolio structure, valuation and overall levels of leverage. LPs can then continue to feel comfortable with the asset class, even at times such as now where it is obviously under pressure.

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WHERE THE dEBT BREAKSRobert A. Bartell, CFA (Managing Director, London) and Dr. Christian Aders (Managing Director, Munich)

Senior Debt Second Lien Term Loan / Mezzanine Debt Enterprise Value

The “Red Zone”

Positive Equity Value

Low Multiple High Multiple

INCOME APPROACH The income approach faces limitations in the current economic environment, including:

• Challenges in estimating the Cost of Capital - Which risk-free rate should be used?

- What is the proper equity risk premium? - How did the collapse in the financial industry affect my firm’s beta?

• Assessing the reasonableness of financial projections - Are the projections aggressive or conservative given the

current environment? - How do we treat the Net Operating Losses, a tax asset, of a company? - What is the amount of “new money” necessary for a company to achieve its business plan?

MARKET MULTIPLE APPROACHThe market multiple approach has a multitude of questions as well:

• Should a valuation use current, historical or projected multiples?

• Is the current EBITDA appropriate for applying to the multiple?

• Will the historical peak-to-trough cycle of a company match the future peak-to-trough?

Valuation-driving market multiple selections are even more critical if the value falls within the ‘Red Zone’ in which slight adjustments could dramatically affect a conclusion.

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To assess the financial viability of a company, long-term projected performance needs to be reviewed in conjunction with the current situation. Companies that look solvent today may not be solvent tomorrow. A simple example comparing two companies with similar free cash flow but different capital structures demonstrates the importance of not only measuring the current health of a company but also estimating its future strength.

WHICH COMPANY IS IN A BETTER POSITION?

Step 1: Balance Sheet Assessing Where the debt BreaksIs enterprise value greater than outstanding debt?

Step 2: Cash flows Assess Company LiquidityCan cash flows pay debt obligations?

Step 3: Conclude Which Company is in Better Position?

In the first scenario, Company 1’s enterprise value exceeds the outstanding debt but Company 1 may not have the ability to refinance in the current environment.

In the second scenario, Company 2’s enterprise value is less than the outstanding debt but Company 2 should have the ability to service upcoming payments.

Solvency TestsBalance Sheet: PassCash Flow: fail

Solvency TestsBalance Sheet: failCash Flow: Pass

Duff & Phelps is well positioned to provide a debtor, creditor or security trustee an independent going concern business enterprise value and expert testimony. We are confident in assessing and defending ‘where the debt breaks’ in connection with negotiations amongst various stakeholders.

(€ in 000s)

Company 1

Enterprise Value €300,000

debt Securities Senior Debt (125,000)

Second Lien Term Loan / Mezzanine Debt (100,000)

Aggregate Equity Value Surplus/(Deficit) €75,000

(€ in 000s)

Company 2

Enterprise Value €140,000

debt Securities Senior Debt (125,000)

Second Lien Term Loan / Mezzanine Debt (100,000)

Aggregate Equity Value Surplus/(Deficit) -€85,000

EBITDA 250Capex: 10Taxes 25FCF1 215

Principle Due: 200Interest Due: 85Total Fixed Charges 285

Fixed Charge Coverage Ratio2: 0.75x

EBITDA 250Capex: 10Taxes 25FCF1 215

Principle Due: 100Interest Due: 85Total Fixed Charges 185

Fixed Charge Coverage Ratio2: 1.16x

1 Free Cash Flow “FCF” = EBITDA - Cash Taxes - Capital Expenditures2 Fixed Charge Coverage Ratio = FCF/Fixed Charges

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NATIONAL LEGAL SAfEGUARdS AGAINST RISKS ASSOCIATEd WITH PRIVATE EQUITY INVESTMENTS

Dr. Jörg Kirchner and Dr. Liane Bednarz

INTROdUCTIONOn 30 April 2009, the European Commission published a proposal for a Directive of the European Parliament and Council on Alternative Investment Fund Managers (AIFM) (AIFM-Directive Proposal). In this proposal, Alternative Investment Funds are defined as funds that are not regulated under the envisaged recast of the Directive on the coordination of laws, regulations and administrative provisions relating to undertakings for collective investment in transferable securities (UCITS-Directive). Hence, private equity funds and their managers would fall within the scope of the AIFM-Directive.

The AIFM-Directive Proposal aims to create a regulatory and supervisory framework for AIFM in the European Union, thereby addressing certain risks of the financial system which crystallised during the financial crisis. While acknowledging that – different from hedge funds – private equity funds did not contribute to the recent increase of macro-prudential risks, the AIFM-Directive Proposal, nevertheless, perceives an EU-wide regulation of private equity funds as necessary, because the latter recently “experienced challenges relating to the availability of credit and the financial health of their portfolio companies.”

It is doubtful to what extent an EU-wide regulatory and supervisory framework for the private equity industry is actually needed. The various national legal systems within the EU already contain a high level of protection against the risks which are typically associated with private equity investments. Using the example of certain key jurisdictions of the EU (France, Germany, Italy, Spain and the United Kingdom; together are the “Key Jurisdictions”), this article will show that these typical risks of private equity investments have been previously minimised on a national level. As for the types of limited liability companies, this article is based on the national legal regimes for the various types of limited liability companies which are used for large and medium-sized companies, as these are the key targets for private equity investors. Such legal forms are the Société Anonyme (SA) (France), Gesellschaft mit beschränkter Haftung (GmbH), Aktiengesellschaft (AG) (Germany), Società per azioni (SpA), Società a responsabilità limitata (Srl) (Italy), Sociedad Anónima (SA), Sociedad de Responsabilidad Limitada (SL) (Spain), Private company limited by shares (Ltd.) and the Public company limited by shares (Plc) (United Kingdom).

This article will summarise:(i) The legal and tax regimes for “asset stripping” from

limited liability companies;(ii) The protection of limited liability companies against

undue financial assistance and other forms of upstream loans/security imposed by their shareholders;

(iii) The protection of listed limited liability companies against secret stake building and;

(iv) The transparency requirements relating to a significant divestment of assets vis-à-vis the employees of a portfolio company. All Key Jurisdictions contain extensive legal provisions covering these aspects.

ASSET STRIPPING1. Legal regimeAsset stripping for the purpose of this article shall be (i) the disposal of core assets by a company followed by the subsequent distribution of the resulting proceeds of the disposal to its shareholders as well as (ii) the unduly high distribution of liquid assets to the shareholders, e.g. to pay off acquisition debt incurred by the shareholders as part of a leveraged finance transaction, even when such disposal and distribution risk could be materially detrimental to the company. All Key Jurisdictions contain strict safeguards under corporate or capital markets laws in order to prevent such asset stripping. Creditors and minority shareholders are thereby protected against the adverse effects of the actual asset stripping instead of being merely referred to insolvency laws. Such preventive regulations against asset stripping govern both (i) the initial sale of core assets and (ii) the unduly high distribution of the proceeds resulting from the disposal or of any other liquid assets to the shareholders (whether in the form of a profit distribution, buyback of own shares or a reduction of share capital).

a) Initial sale of core assetsMost Key Jurisdictions contain restrictions on the legal bodies of a limited liability company (executive board/advisory board/shareholders) with respect to the sale of the assets of a company. Preventive regulations include measures such as the requirement of shareholder resolutions prior to the sale of a substantial part of the assets. A sale without a prior approval of the shareholder meeting might be void and might have to be rescinded, unless the buyer acts in good faith. Moreover,

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most Key Jurisdictions impose a strict liability on the legal representatives of the company in case they sell assets without such prior consent of the shareholder meeting. Another widely spread safeguard against the sale of a substantial part of assets are national provisions according to which a (majority) shareholder must not act to the detriment of a subsidiary, for instance by instructing the company to sell its core assets even if such sale is not in the best interests of the company. If a (majority) shareholder or his representatives violate such rules, they may be held personally liable.

b) distributions to the shareholdersIn all Key Jurisdictions the distribution of assets (i.e. profit distributions, buybacks of own shares and reductions of the share capital) to the company’s shareholders is restricted by capital maintenance rules. In the event that assets of the company have been sold to the detriment of the interests of the remaining shareholders, creditors or employees, the provisions on distribution of assets still contain very strict rules for payments which are effected with the purpose to distribute the proceeds from such sale to the shareholders. In particular, the restrictions on the payment of dividends are very effective. In all limited liability companies falling within the scope of the Second Company Law Directive (Directive 77/91/EEC as amended by Directive 2008/68/EC), a distribution of dividends can only be effected if after such distribution both the registered capital and any mandatory capital reserves are covered by assets, the book value of which corresponds to such registered capital and mandatory capital reserves. As such, provisions protect creditors because they are mandatory and cannot be set aside by a unanimous resolution of the shareholders. Such requirements have been fully implemented into all Key Jurisdictions.

2. Asset stripping and TaxationMost European member states levy ordinary tax rates on capital gains from the disposal of assets and business units, as well as certain duties on fair market values of transferred assets. On the basis of current tax laws, asset stripping strategies are therefore unattractive precisely because they trigger a considerable tax burden. Only share deals may provide for an exemption to these rules, often due to the participation exemptions introduced in a number of member states. With a view of the lack of attractiveness of asset stripping strategies, European member states have in the past consequently not seen any reason to provide for specific anti avoidance provisions for asset stripping rules.

NATIONAL LEGAL SAfEGUARdS AGAINST UNdUE fINANCIAL ASSISTANCE ANd OTHER fORMS Of UPSTREAM LOANS/SECURITY IMPOSEd BY THE SHAREHOLdERS TO THE TARGET COMPANYAlso, Key Jurisdictions contain strict safeguards against undue financial assistance and other forms of upstream loans, and security imposed by the shareholder to the target company.

1. financial assistanceFinancial assistance for the purpose of this article shall mean the assistance given by a company for the purchase of its own shares, or the shares of its parent company by an investor. Such assistance can be given in different ways, for instance by an advance payment, a direct loan, or a guarantee or other security for a loan by financing banks in order to support the investor’s acquisition debt.

All Key Jurisdictions implemented the strict restrictions on financial assistance of public limited liability companies required by the wording of Art. 23 of the Second Company Law Directive (Directive 77/91/EEC) prior to its amendment. Most Key Jurisdictions not only implemented Art. 23, but also enacted additional limitations, namely provisions governing by-passing structures and transactions with the same effect as the transactions listed in Art. 23. Moreover, many Key Jurisdictions also enacted restrictions on financial assistance of private limited liability companies, thereby going beyond the applicability scope of Art. 23 Directive 77/91/EEC. Art. 23 was recently deregulated by Directive 2008/68/EC, as the European legislator intended to ease changes in the ownership while at the same time stipulating strict safeguards protecting both shareholders and creditors. As a result, the protection level for the latter continuous to be high.

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2. Upstream loans/securityAll Key Jurisdictions contain a variety of limitations on upstream loans/security to a parent company or a third party which do not qualify as financial assistance. Upstream loans for the purpose of this article are post-acquisition loans which the target company grants to its parent company and which do not qualify as financial assistance. The term upstream security encompasses security for a loan which a third party has granted to the parent company. The national safeguards in place comprise (i) restrictions on related party agreements, (ii) the requirement that the granting of the loan/security must comply with the target company’s corporate purpose and interest, (iii) the prohibition to affect the non-distributable reserves when granting the loan/security, (iv) the test whether the claim against the borrower is fully realisable and (v) the necessity to point out the reasons for granting the loan/security.

3. National legal safeguards against secret stake building in listed target companiesAll Key Jurisdictions contain provisions in order to protect listed companies against secret stake building, in particular through notification requirements. Such provisions also govern secret stake building through certain financial instruments. As a general rule, the aforementioned national provisions are based on the implementation of the Transparency Directive (Directive 2004/109/EC) and its substantiating Directive 2007/14/EC. According to Art. 13 (1) Directive 2004/109/EC, certain financial instruments also have to be considered for the purpose of the voting rights thresholds. In some Key Jurisdictions, this also includes cash settled equity swaps. Furthermore, certain Key Jurisdictions also require shareholders reaching certain voting right thresholds (e.g. 10 %) to disclose their intentions and plans for the company.

TRANSPARENCY REQUIREMENTS WITH RESPECT TO A SIGNIfICANT dIVESTMENT Of ASSETS VIS-à-VIS THE EMPLOYEESThe recent AIFM-Directive Proposal, mentioned at the beginning of this article, sets forth certain information obligations with respect to a significant divestment of assets,

which the AIFM needs to fulfil towards the representatives of the employees of a target company, provided the AIF managed by such AIFM hold a controlling influence, as further defined in the AIFM-Directive Proposal. The term significant divestment of assets is not defined in the AIFM-Directive Proposal. The AIFM-Directive Proposal stipulates that the Member States shall ensure that the AFIM includes into the annual report of each AIF a statement on significant divestment of assets. The AIFM shall provide such annual report and hence, the statement on significant divestment of assets to all representatives of the employees of the company concerned, no later than four months following the end of the respective financial year.

This envisaged disclosure requirement vis-à-vis the representatives of the employees does not seem to be necessary. Most Key Jurisdictions not only contain similar requirements with respect to the annual report, but also comprise disclosure requirements which relate to specific cases of asset disposals. Hence, the employees will be informed about such transactions before, or immediately after, they have been executed. This level of protection is significantly higher than a mere disclosure of a significant divestment of assets in the annual report, which subsequently has to be made available to the employees’ representatives.

Moreover, all Key Jurisdictions have implemented the so-called Acquired Rights Directive (Directive 2001/23/EC dated March 12, 2001 on the approximation of the laws of the Member States relating to the safeguarding of employees’ rights in the event of transfers of undertakings, businesses or parts of undertakings or businesses); or have adopted similar provisions which provide for the transparency vis-à-vis the employees in certain cases of a transfer of assets which entangles a transfer of employees.

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Ranking Announced date

Status Target company Target sector

Target country

Bidder company

Bidder country

Seller company

Seller country

deal value (€m)

1 Jun-09 C Hypo Real Estate Holding AG (81.00% stake)

Financial Services

Germany SoFFin Germany 2,960

2 Mar-09 C Daimler AG (9.10% stake) Industrials & Chemicals

Germany Aabar Investment PJSC

United Arab Emirates

1,954

3 Jan-09 C Commerzbank AG (25.00% stake)

Financial Services

Germany SoFFin Germany 1,770

4 May-09 P VNG-Verbundnetz Gas AG (47.90% stake)

Energy, Mining & Utilities

Germany EnBW Energie Baden-Wuerttemberg AG

Germany EWE AG Germany 1,200

5 Jun-09 P E.ON AG (13 hydro power plants in Bavaria)


Germany Oesterreichische Elektrizitaets-wirtschaft AG

Austria E.ON AG Germany 1,000

6 Jan-09 C RWE Westfalen Weser Ems AG (20.03% stake)


Germany RWE AG Germany Municipal communities (Germany)

Germany 800

7 Feb-09 C Danisco Sugar A/S (Anklam factory)

Consumer Germany Suiker Unie Netherlands Nordzucker AG Germany 730

8 Feb-09 C Mitteldeutsche Braunkohlengesellschaft mbH


Germany J&T Finance Group AS; Severoceske Doly

Czech Republic

NRG Energy Inc; URS Corporation

USA 404

9 Jul-09 C IDS Scheer AG TMT Germany Software AG Germany 40110 Aug-09 C Deutsche Schiffsbank AG

(12.00% stake)Financial Services

Germany Commerzbank AG

Germany HypoVereinsbank AG Germany 400

11 Aug-09 C Porsche Automobil Holding SE (5.00% stake)

Industrials & Chemicals

Germany Qatar Holding LLC

Qatar Piech family (private investors); Porsche family (private investors)

Germany 390

12 Apr-09 P Stadtwerke Bremen AG (25.90% stake)


Germany EWE AG Germany Freie Hansestadt Bremen (City of Bremen)

Germany 360

13 Apr-09 C DAWAG Real Estate Germany Meravis Wohnungsbau- und Immobilien GmbH

Germany Vereinte Dienstleistungs-gewerkschaft

Germany 360

14 Sep-09 C BRAHMS AG Pharma, Medical & Biotech

Germany Thermo Fisher Scientific Inc

USA HBM BioVentures AG Switzerland 330

15 Jun-09 P Stadtwerke Bremen AG (25.10% stake)


Germany EWE AG Germany Freie Hansestadt Bremen (City of Bremen)

Germany 320

16 Sep-09 P Easycash GmbH Business Services

Germany Ingenico SA France Warburg Pincus LLC USA 290

17 Jun-09 C RMG Group Industrials & Chemicals

Germany Honeywell International Inc

USA Triton Partners United Kingdom

286

18 Feb-09 C Hanseatische Verlags-Beteiligungs AG (23.00% stake); Kieler Nachrichten (24.50% stake); Leipziger Verlags-und Druckerei GmbH & Co. KG (44.90% stake); Luebecker Nachrichten GmbH (49.00% stake)

TMT Germany Verlagsgesell-schaft Madsack GmbH & Co KG

Germany Axel Springer AG Germany 263

19 Jul-09 P Infineon Technologies AG (Wireline Communications business)

TMT Germany Golden Gate Capital

USA Infineon Technologies AG

Germany 250

20 Aug-09 C Kalle GmbH Industrials & Chemicals

Germany Silverfleet Capital Partners LLP

United Kingdom

Montagu Private Equity GmbH

Germany 213

TOP 20 GERMAN M&A TRANSACTIONS, Q1-Q3 2009

HISTORICAL dATA

C = Completed; P = Pending; L = Lapsed

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Ranking Announced date

Status Target company Target sector

Target country

Bidder company

Bidder country

Seller company

Seller country

deal value (€m)

1 Sep-09 C BRAHMS AG Medical, Pharma & Biotech

Germany Thermo Fisher Scientific Inc

USA HBM BioVentures AG

Switzerland 330

2 Sep-09 P Easycash GmbH Business Services

Germany Ingenico SA France Warburg Pincus LLC

USA 290

3 Jun-09 C RMG Group Industrials & Chemicals

Germany Honeywell International Inc

USA Triton Partners United Kingdom

286

4 Jul-09 P Infineon Technologies AG (Wireline Communications business)

TMT Germany Golden Gate Capital USA Infineon Technologies AG

Germany 250

5 Aug-09 C Kalle GmbH Industrials & Chemicals

Germany Silverfleet Capital Partners LLP

United Kingdom

Montagu Private Equity GmbH

Germany 213

6 Aug-09 P Aleo Solar AG Industrials & Chemicals

Germany Robert Bosch GmbH Germany HANNOVER Finanz GmbH; Marius Eriksen (private investor)

Germany 192

7 Jul-09 C LEWA GmbH Industrials & Chemicals

Germany Nikkiso Co Ltd Japan Deutsche Beteiligungs AG; Quadriga Capital Services GmbH

Germany 172

8 Jun-09 P Neumayer Tekfor GmbH Industrials & Chemicals

Germany AXA Private Equity; Barclays Private Equity Ltd; Fifth Third Bancorp; Gartmore Direct Fund II Scottish LP; ING; Landesbank Baden-Wuerttemberg; Nationwide Private Equity Fund LLC; NIBC Bank NV

USA 172

9 Apr-09 P TMD Friction Holdings GmbH


Germany Pamplona Capital Management LLP

United Kingdom

TMD Friction Luxembourg Sarl

Luxembourg 100

10 Aug-09 C Actebis Holding GmbH Business Services

Germany Droege Capital GmbH Germany ARQUES Industries AG

Germany 93

11 Jul-09 C CeDo Folien und Haushaltsprodukte GmbH

TMT Germany Rutland Fund II United Kingdom

Delton AG Germany 61

12 Jan-09 C ddp Deutscher Depeschendienst GmbH; Evotape S.p.A; Rohner AG; The BEA Group


Germany BLUO SICAV SIF Luxembourg ARQUES Industries AG

Germany 30

13 Aug-09 P Hallhuber GmbH Consumer Germany Change Capital Fund II LP Inc

United Kingdom

Stefanel GmbH Italy 25

14 Apr-09 C Heinrich Berndes Haushaltstechnik GmbH & Co. KG (34.30% stake)

Consumer Germany Palace Park Investments Ltd

United Kingdom

CFC Industrie Beteiligungen GmbH & Co KGaA

Germany 23

15 Jul-09 C Samas GmbH & Co KG (94.00% stake)

Consumer Germany Innovation Change GmbH; Samas GmbH & Co KG (MBO Vehicle)

Germany Samas NV Netherlands 20

16 Mar-09 C innovatis AG Pharma, Medical & Biotech

Germany Roche Diagnostics Ltd Switzerland Ventizz Capital Partners Advisory AG

Germany 15

17 Feb-09 C Integrata AG (91.04% stake)

Business Services

Germany Cornerstone Equity Investors

USA Logica plc United Kingdom

15

18 Sep-09 P EliteMedianet GmbH (36.93% stake)

TMT Germany Tomorrow Focus AG Germany Burda Digital Ventures GmbH; EliteMedianet Beteiligungs GbR

Germany 13

19 Mar-09 C Pro2 Anlagentechnik GmbH


Germany Deutsche KWK-Gesellschaft mbH

USA Alkane Energy plc United Kingdom

9

20 Jan-09 C Meade Instruments Europe GmbH & Co. KG

Consumer Germany Bresser GmbH Germany Meade Instruments Corporation

USA 9

TOP 20 PRIVATE EQUITY BUYOUT ANd ExIT TRANSACTIONS, Q1-Q3 2009

C = Completed; P = Pending; L = Lapsed

Rou

ndta

ble

Dis

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15

GERMAN M&A TRENdS

Period Volume Value(€m) Avg. deal size (€m)

Q1 2004 132 11,591 88Q2 2004 157 16,455 105Q3 2004 140 10,359 74Q4 2004 183 19,066 104Q1 2005 134 14,810 111Q2 2005 149 38,950 261Q3 2005 183 13,670 75Q4 2005 196 26,740 136Q1 2006 155 26,375 170Q2 2006 151 10,428 69Q3 2006 177 18,720 106Q4 2006 198 27,641 140Q1 2007 173 14,693 85Q2 2007 156 31,450 202Q3 2007 174 24,943 143Q4 2007 174 12,215 70Q1 2008 143 4,983 35Q2 2008 154 16,886 110Q3 2008 155 48,384 312Q4 2008 113 14,271 126Q1 2009 115 6,616 58Q2 2009 96 7,411 77Q3 2009 92 3,662 40Total 3,500 420,319


Q1 2004 12 3,322 277Q2 2004 9 3,325 369Q3 2004 15 1,397 93Q4 2004 17 3,240 191Q1 2005 18 4,329 241Q2 2005 16 1,708 107Q3 2005 16 3,995 250Q4 2005 16 3,211 201Q1 2006 16 847 53Q2 2006 15 3,185 212Q3 2006 19 3,571 188Q4 2006 29 7,617 263Q1 2007 25 7,203 288Q2 2007 26 7,647 294Q3 2007 21 5,502 262Q4 2007 23 3,253 141Q1 2008 11 1,348 123Q2 2008 24 4,088 170Q3 2008 20 2,045 102Q4 2008 5 147 29Q1 2009 9 52 6Q2 2009 10 317 32Q3 2009 10 1,303 130Total 382 72,652


Q1 2004 22 1,276 58Q2 2004 28 6,886 246Q3 2004 28 5,806 207Q4 2004 40 5,250 131Q1 2005 25 2,596 104Q2 2005 33 8,293 251Q3 2005 40 5,702 143Q4 2005 44 8,911 203Q1 2006 41 2,178 53Q2 2006 44 4,663 106Q3 2006 40 5,609 140Q4 2006 58 14,605 252Q1 2007 38 6,213 164Q2 2007 35 7,124 204Q3 2007 38 4,058 107Q4 2007 39 2,105 54Q1 2008 34 1,566 46Q2 2008 48 10,831 226Q3 2008 37 3,242 88Q4 2008 17 193 11Q1 2009 16 63 4Q2 2009 17 303 18Q3 2009 17 662 39Total 779 108,135

Sector Value(€m)

Sector Volume

Financial Services 5,489 Industrials 90Energy, Mining & Utilities 4,530 Consumer 47Industrials 3,601 Business Services 36Consumer 1,115 TMT 35TMT 969 Energy, Mining & Utilities 27Business Services 968 Financial Services 26Pharma, Medical & Biotech 462 Pharma, Medical & Biotech 19Real Estate 393 Construction 7Construction 142 Leisure 6Defence 20 Transportation 6Leisure Real Estate 2Transportation Defence 1Agriculture Agriculture 1Total 17,689 303

All German M&A

German exits

German buyouts

GERMAN M&A ALL SECTOR ANALYSIS YTd 30 SEPTEMBER 2009

Notes:Based on announced deals, excluding lapsed and withdrawn bidsBased on dominant geography of target being GermanyBased on dominant sector of targetYTD 2009 is from 01 January to 30 September

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16

32%

26%

20%

6%

5%

5% 3%

2% <1% <1%

German M&A sector split by value, Q1 2004-Q3 200

Financial Services


Industrials

Consumer

TMT

Business Services

Pharma, Medical & Biotech

Real Estate

Construction

Defence

0

10,000

20,000

30,000

40,000

50,000

60,000

0

50

100

150

200

250

valu

e of

dea

ls (

m)

num

ber o

f dea

ls

volume value( m)

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

0

10

20

30

40

50

60

70

valu

e of

dea

ls (

m)

num

ber o

f dea

ls

volume value( m)

GERMAN M&A TRENdS

GERMAN PRIVATE EQUITY ExIT TRENdS

GERMAN PRIVATE EQUITY BUYOUT TRENdS

GERMAN M&A SECTOR SPLIT BY VOLUME, Q1 2004-Q3 2009

GERMAN M&A SECTOR SPLIT BY VALUE, Q1 2004-Q3 2009

29%

16%

12%

12%

9%

9%

6%

2%

2% 2%

<1%

<1%

<1%

German M&A sector split by volume, Q1 2004-Q3 2009

Industrials

Consumer

Business Services

TMT


Financial Services

Pharma, Medical & Biotech

Construction

Leisure

Transportation

Real Estate

Defence

Agriculture

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

0

5

10

15

20

25

30

35

valu

e of

dea

ls (

m)

num

ber o

f dea

ls

German private equity exit trends

volume value( m)

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