April 2012 Exits: Key Considerations for Private Equity Exits by - - PowerPoint PPT Presentation

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Presentation on Private Equity Exit Considerations April 2012 Exits: Key Considerations for Private Equity Exits by Year Exit Capital ($B) # of Exits VALUE $140 600 449 510 $120 434 500 420 $100 350 400 $80 ECONOMY TAX 300 207

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Presentation on Private Equity Exit Considerations April 2012

SLIDE 2

6.6x 7.4x 8.7x 8.5x 8.0x 9.9x 9.3x 6.9x 8.0x 8.6x 6.0x 7.0x 8.0x 9.0x 10.0x 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 $121 $120 $80 $40 $106 $104 449 510 350 207 434 420 100 200 300 400 500 600 $0 $20 $40 $60 $80 $100 $120 $140 2006 2007 2008 2009 2010 2011 Exit Capital ($B) # of Exits

Exits: Key Considerations for Private Equity

VALUE TAX TIMING FINANCING MORALE ECONOMY

Exits by Year Median Exit EBITDA Multiple

Source: Pitchbook & Grant Thornton, 2011.

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Plan Your Exit

Know How to Get Out Before You get In
Abundance of natural buyers?
Strategic acquiror?
Financial buyer?
IPO candidate?
Confidentiality issues?
Vendors, competitors, customers
Micro Analysis – Is Your Company

Ready?

If NO – nothing else matters
Execution of the investment thesis is key
Capex, acquisitions, asset sales, HR
Tangible success? ROI?
Opportunity cost – time / money /
utlook

ONEX – Sky Chefs EBITDA (1987-2000) IRR: 29.7% Multiple of Capital: 16.5x

25.6 46.0 107.0 20 40 60 80 100 120 1987 1994 2000 EBITDA ($MM) CAGR: 8.7% CAGR: 15.1%

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772 1,315 827 1,267 1,099 1,200 700

400 600 800 1000 1200 1400 2006 2007 2008 2009 2010 2011 2012 66 51 14 24 40 30

20 30 40 50 60 70 2006 2007 2008 2009 2010 2011

Exit Paths – IPO

Rarely a “mid-market” option
Typical market cap: $1 billion
The most “macro sensitive” option
IPO market can be shut (mid-late 2008)
Confidentiality is lowest
Profit margin disclosure
Hard to “exit” 100%
Exit in stages over time

Number of PE-Backed IPOs Average IPO Market Cap ($MM)1

1. Source: S&P Capital IQ. average value of sponsor backed offerings of at least 5% of shares offered with gross proceeds over $50 mm.

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Case Study – ONCAP/WIS International

Exit Paths – Auction vs. Targeted Sale

Case Study – ONCAP/WIS International Case Study – ONCAP/CSI

Auction Targeted Sale

The most common mid-market exit
Story needs broad appeal
Consumes time and management
Confidentiality “contained”
Effective for “natural fit”
Often involves unsolicited approach
Value not compromised
Confidentiality maximized

Date: November 2010 Buyer: Moody’s Corp. Rationale: Complimented global effort in regulation, risk management and education tools Result: 5.8x ROI / 57.2% IRR Date: January 2007 Calls Made: 18 Strategic / 52 Private Equity Buyer Interest: 7 Strategic / 36 Private Equity Preliminary Bids: 12 Private Equity Result: 8.1x ROI / 73.7% IRR

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Financing Considerations

Strong Debt Multiples = Strong PE Interest… …And High Equity Contributions Will Drive Values Higher

4.8x 4.7x 4.1x 4.0x 3.4x 3.9x 3.8x 4.2x 4.7x 4.7x 5.6x 4.5x 3.3x 4.2x 4.3x

3.0x 3.5x 4.0x 4.5x 5.0x 5.5x 6.0x '97 '99 '01 '03 '05 '07 '09 '11 Debt/EBITDA

7.0% 20.7% 26.2% 30.0% 37.8% 39.5% 33.6% 50.8%

0.0% 10.0% 20.0% 30.0% 40.0% 50.0% 60.0% '87 '90 '93 '96 '99 '02 '05 '08 '11 Equity Contribution to LBOs

Source: Lcdcomps.com

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Other Exit Considerations

Tax

Tax Considerations – Number of Exits (2010) Fundraising – Inventory of PE-owned Companies

LP’s like to see realizations
40% of PE-owned companies have

been held more than 5 years

2,223 2,894 3,678 4,549 5,164 5,435 5,745 5,968

1,000

2,000 3,000 4,000 5,000 6,000 7,000 '04 '05 '06 '07 '08 '09 '10 '11 Number of PE-Backed Companies

Tax rate fears drove activity in late

2010

83 104 84 163

40 60 80 100 120 140 160 180 Q1 Q2 Q3 Q4 Number of Exits (2010)