ARGOS EPSILON INDEX ____________ Release of 2006 benchmark for Euro - - PowerPoint PPT Presentation

ARGOS EPSILON INDEX

____________

Release of 2006 benchmark for Euro zone mid-market private company market values

Press conference, 27 March 2007

Press conference, 27 March 2007

• 1. Methodology
• 2. The 2006 Argos Epsilon Index
• 3. Trade buyers v. LBO funds
• 4. Conclusion: outlook for 2007

Appendix: Sample overview ARGOS EPSILON INDEX

Press conference, 27 March 2007

• 1. Methodology - The Argos Epsilon Index
• Argos Epsilon Index:
• M&A deals studied: 80% trade buyers, 20% LBO’s
• Mid market: Equity Value (*) between €15 and €150m
• Target based in the Euro zone
• Since 01/01/2004 (3 year historical record)
• Carried out by mid market professionals
• Argos Soditic: independent European private equity group, active in the LBO mid

market since 1990

• Epsilon Finance: independent research house providing financial analysis on private

M&A deals

• Strict methodology, meaning the index is:
• Rigorous: based on in-depth research, analysis and financial calculations
• Relevant: based on the multiples used by Corporate Finance professionals
• Transparent: verifiable methodology and information sources
• Stable: Six-monthly Index, rolling 12 month basis, since 01/01/2004

(*) Equity Value for 100% of the target

A yardstick for European private company valuations

Press conference, 27 March 2007

• 1. Methodology – Sources

Sources Proprietary databases Transaction analysis reports Publicly available information

• [170.000+ deals]

[1000+ reports] Professional databases distributed by Epsilon Finance: CorpfinDeals (M&A, LBO deals),

CompanyQuery and Worldscope (company accounts)

Epsilon Multiple Analysis Tool™ (ε-MAT), since 2006 Analysis of principle small-mid market private company

deals by Epsilon’s financial analysts

Cross-checking and re-calculation of financials to

establish multiples

An innovative tool, accessible on-line, to help establish

a private company’s market value

Company accounts Annual reports (acquirers / vendors) Transaction press releases Press articles, deal participant websites

EMAT

Press conference, 27 March 2007

• Period: 01/2004 – 12/2006 (announced transactions)
• Acquisition of a majority stake
• Target based in a Euro zone country
• Mid market – deal value (Equity Value) between €15m and €150m
• Deals excluded if target activity is banking/ insurance, property investment or hi-

tech/ biotech

• Only companies for which financial results are available can be selected for

multiple calculation Sample of 434 transactions

• 1. Methodology – Deal selection

Selection criteria for the deals in the sample analysed

Press conference, 27 March 2007

• 2321

817 434 500 1000 1500 2000 2500 Number of deals identified Number of deals with price Retained sample

Sample over 3 years

• Number of mid market / Euro zone transactions in the sample
• !

Deals for which financial information is available

• 1. Methodology – Transaction sample

611 215 122 801 282 143 909 320 168 200 400 600 800 1000 2004 2005 2006

Sample of deals studied / retained

Number of deals identified Number of deals with price Retained sample

Press conference, 27 March 2007

• The deal samples making up the index have remained stable, in terms of:
• 1. Methodology – Sample stability

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Press conference, 27 March 2007

• 1. Methodology – which transaction multiples are retained?
• Multiples studied: EV/CA, EV/EBITDA, EV/EBIT, P/E, Price to Book

representative of companies’ operating performance and profitability.

• Multiples calculated based on historic accounts (N-1 = last balance sheet date

before transaction announcement, can be pro-forma) and current (N = year of announcement)

• Principal restatements made:
• Exceptional items
• Goodwill amortisation included
• For French deals, staff incentive schemes included in salary costs
• Pro forma (when half year accounts available / non-audited accounts)
• EV/EBITDA: the best multiple for a European index
• Value not influenced by different accounting practices (depreciation, provisioning,

etc.)

• Best approximation of operating cash flow, key criteria in determining a

company’s value

Press conference, 27 March 2007 /

• 1. Methodology
• 2. The 2006 Argos Epsilon Index
• 3. Trade buyers v. LBO funds
• 4. Conclusion: outlook for 2007

Appendix: Sample overview ARGOS EPSILON INDEX

Press conference, 27 March 2007

• Argos Epsilon Index 2004-2006

8.4 x 7.8 x 7.6 x 6.9 x 9.0 x

6.0 x 7.0 x 8.0 x 9.0 x 10.0 x 2004 30/06/05 2005 30/06/06 2006

x EBITDA (rolling 12m median)

• 2. Argos Epsilon Index 2004 – 2006
• 2006 multiples are at an historic high
• 0+123 !. " )!)!$ .

Press conference, 27 March 2007

• 6.9 x

6.2 x 7.6 x 6.4 x 7.8 x 6.7 x 8.4 x 7.1 x 9.0 x 7.4 x 0.0 x 2.0 x 4.0 x 6.0 x 8.0 x 10.0 x 2004 30/06/05 2005 30/06/06 2006

Compartive evolution of the EBITDA x

Historic EBITDA x Current EBITDA x

• EBITDA multiples: historic v. current
• 2. A similar trend can be found in other indicators

Press conference, 27 March 2007

• 1.3 x

1.0 x 0.7 x 10.0 x 7.7 x 5.7 x 11.4 x 10.5 x 7.8 x 0.00 x 2.00 x 4.00 x 6.00 x 8.00 x 10.00 x 12.00 x Sales EBITDA EBIT

• Industry Comparison

Historic Median Multiples 2004 - 2006

Medical Total Transport

• But closer examination is necessary, leaving aside the overall trend
• 2. A similar trend can be found in other indicators

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Press conference, 27 March 2007

• 1. Methodology
• 2. The 2006 Argos Epsilon Index
• 3. Trade buyers v. LBO funds
• 4. Conclusion: outlook for 2007

Appendix: Sample overview ARGOS EPSILON INDEX

Press conference, 27 March 2007

• 3. Factors underlying the rise in the index

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Press conference, 27 March 2007

• 7.4 x

8.1 x 9.1 x 10.7 x 0.0 x 4.0 x 8.0 x 12.0 x EBITDA EBIT

• Historic Median Multiples 2004 - 2006

LBO Trade

• 3. The role of trade buyers
• By their nature trade buyers can pay higher prices…

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Press conference, 27 March 2007

• Comparative change in EBITDAx

LBO v. Trade

7.7 x 7.7 x 7.6 x 7.1 x 9.3 x 8.4 x 7.9 x 7.4 x 8.5 x 8.2 x 7.7 x 7.3 x 5.0 x 6.0 x 7.0 x 8.0 x 9.0 x 10.0 x 30/06/2005 2005 30/06/2006 2006 LBO Trade Multiple 18m

• 3. The role of trade buyers
• … and appear to have pushed up multiples in 2006

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Press conference, 27 March 2007

• 4.8% 4.4%

6.4% 8.0% 9.4% 9.6% 1 2.2% 1 4.4% 1 4.1 % 1 6.7% 1 4.7% 1 5.5% 1 4.1 % 1 1 .4%

0.0% 5.0% 10.0% 15.0% 20.0% 2000 2001 2002 2003 2004 2005 2006

Change in LBO share (by vol.)

• f all M&A, Euro zone

Global market Mid Market

• 3. The role of trade buyers
• Are LBO funds being squeezed out of the market?

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Press conference, 27 March 2007

• 3. The role of trade buyers
• Are LBO funds being squeezed out of the market?

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Press conference, 27 March 2007 /

• 1. Methodology
• 2. The 2006 Argos Epsilon Index
• 3. Trade buyers v. LBO funds
• 4. Conclusion: outlook for 2007

Appendix: Sample overview ARGOS EPSILON INDEX

Press conference, 27 March 2007

• 4. Outlook for 2007
• What choices do LBO funds face?

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Press conference, 27 March 2007

• Comparison of quoted/ non-quoted

historic EBITDA multiples 8.6 x 7.2 x 5.9 x 8.1 x 8.3 x 8.1 x 8.4 x 6.9 x 7.6 x 7.8 x 9.0 x 4.0 x 5.0 x 6.0 x 7.0 x 8.0 x 9.0 x 10.0 x 2003 2004 S1-2005 2005 S1-2006 2006 4 5 6 7 8 9 10 ID MidCaps Multiple Argos Epsilon Index

Source:

• 4. Outlook for 2007
• 2006: the Argos Epsilon Index remains higher than ID MidCaps stock market benchmark

Index variation compared to mid market quoted company multiples

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Press conference, 27 March 2007

• 4. Outlook for 2007
• How will the Index move in 2007?

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Press conference, 27 March 2007

• 4. Argos Epsilon Index – To follow
• An ongoing measure of variations in private company transaction prices

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For further information on the index:

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Press conference, 27 March 2007

• Contacts

The participants

Grégoire BUISSON, President and t co-founder of EPSILON FINANCE

• An independent research and analysis bureau with offices in France and the UK, specialising in the European

private company M&A/ LBO market

• A European client base of small-mid market players: Private Equity firms, corporate finance professionals, corporates
• Since 2005, Epsilon has established a unique offering to assist clients in valuing private companies on the basis of

“fair market value”, including:

• The first ever database of analysis reports (including multiple calculations) for small & mid-market transactions
• A tailored service for regular Private Equity portfolio valuations

Gilles MOUGENOT, President of ARGOS SODITIC

• Founded in 1989, Argos Soditic is an independent European private equity group.
• With offices in Paris, Geneva and Milan, Argos Soditic seeks out and structures equity investments in medium sized

companies based in Continental Europe.

• For over 15 years, the team has been backing managers in corporate deals including MBO’s (Buffet Crampon, Oxbow,

Kermel), MBI’s (Eau Ecarlate) and BIMBO’s (Saime). They have structured over 40 deals for companies with a combined turnover of over 3 billion euros.

• Active funds (Euroknights IV and Euroknights V) represent cumulated committed funds of more than 400 million

euros.

Press conference, 27 March 2007

• 1.Methodology
• 2. The 2006 Argos Epsilon Index
• 3. Trade buyers v. LBO funds
• 4. Conclusion: outlook for 2007

Appendix: Sample overview ARGOS EPSILON INDEX

Press conference, 27 March 2007

• Appendix: Sample overview
• The sample has remained stable in terms of deal type/ size

48.4% 27.0% 24.6% 51.7% 25.9% 22.4% 45.0% 32.0% 23.1% 0% 20% 40% 60% 80% 100% 2004 2005 2006

Breakdown of deals by size

[15-49] m€ [50-99] m€ [100-150] m€

• 68.0%

32.0% 78.3% 21.7% 79.9% 20.1% 0% 20% 40% 60% 80% 100% 2004 2005 2006

Breakdown by deal type Acquisition LBO

Press conference, 27 March 2007

• Sample stability – Enterprise value and average turnover

Appendix: Sample overview

87.2 85.0 84.2 75.2 77.7 0.0 20.0 40.0 60.0 80.0 100.0 2004 30/06/05 2005 30/06/06 2006

Turnover (ave. €m)

• 68.8

70.1 72.2 70.5 66.6 0.0 20.0 40.0 60.0 80.0 2004 30/06/05 2005 30/06/06 2006

Enterprise Value (ave. €m)

Press conference, 27 March 2007

• Breakdown by country also stable

Appendix: Sample overview

29% 23% 18% 13% 10% 7% 28% 31% 8% 9% 14% 9% 28% 15% 12% 16% 10% 18%

0% 20% 40% 60% 80% 100% 2004 2005 2006

Country breakdown, Argos Epsilon Index France Germany Italy Benelux Spain Other

Press conference, 27 March 2007 /

• Balanced split in business sectors

Appendix: Sample overview

15% 14% 12% 11% 10% 9%

8% 5% 5% 5% 5% 4% 4%

9% 2% 7% 20% 13% 8%

3% 7% 6% 6% 5% 7% 6%

9% 7% 11% 12% 10% 6%

12% 1% 4% 6% 2% 11% 8% 0% 20% 40% 60% 80% 100% 2004 2005 2006

Healthcare-Ph Agro-food Energy and raw Industrial equip Business and Transport IT services & te Chemicals Consumer pro Building, const Media, Comm Software Wholesale, ret

Press conference, 27 March 2007

• Appendix: ID Midcaps sample overview

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