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Asia-Pacific Capital BriefingMonthly insights and intelligence on capital market trends

August 2015

Capital Briefing has been designed to help you remain current on capital market trends.

It captures key insights from subject-matter professionals across EY, and distils this intelligence into a succinct and user-friendly publication.

Capital Briefing delivers perspectives on both recent developments and the longer-term outlook across M&A, cross-border deal flows, IPOs, private equity, debt and bond markets.

Please feel free to reach out to any of the subject-matter contacts listed on the reverse of this document if you wish to discuss any of the topics covered.

Contents

Section 1 Economic overview: Asia-Pacific 4

Section 2 M&A 5

Section 3 IPOs 7

Section 4 Private equity 8

Section 5 Loans 9

Section 6 Bonds 10

Appendices

Appendix A M&A activity monthly flash 12

Appendix B M&A multiples and bid premium 13

Appendix C Capital Confidence Barometer (CCB) 14

1. Economic overview: Asia-Pacific

Executive summary

• China’s economy saw some green shoots in July, though downward pressure lingers.

• Japan’s economic activity continued to struggle, spurring expectations of further policy easing.

• India seems to be turning the corner with improvement across economic indicators.

• Australia’s economy gathered pace in July, however near-term growth will likely remain below-trend.

Current state China

• China’s economy witnessed some green shoots in July, though concerns of a slowdown still loom. GDP growth in 2Q15 outdid market expectations (holding steady at 7% YOY), and recent readings for industrial output, retail sales, and fixed-asset investment also witnessed improvement. However, manufacturing activity fell to a two-year low in July and exports posted an unexpectedly steep decline, following which policy-makers devalued the Chinese yuan against the US dollar, raising concerns around a potential global currency war.

• Chinese authorities also took other measures to support the economy, with the Central Bank and the Finance Ministry jointly injecting nearly US$109b in banks that lend money to trade, agriculture and infrastructure sectors, to boost targeted sectors. In addition, the People’s Bank of China pumped in US$8.1b into the money markets via open market operations to ensure liquidity in the system, as a wide sell-off in the nation’s stock markets, the most recent biggest one-day drop since 2007, stoked concerns around financial stability in the economy.

Japan

• Japan’s economy is still struggling to recover from the impact of last year’s sales tax hike which pushed the economy into a brief recession. We saw household spending slumped and core inflation stagnated, increasing pressure on policy-makers to expand the existing monetary stimulus measures. However, on a more positive note, retail sales witnessed modest improvement and exports jumped.

India

• India’s economy is looking more positive, suggesting the Government reforms are beginning to take effect. Industrial output rose and manufacturing PMI accelerated to a six-month high in July on the back of rise in new orders. In addition, consumer inflation slowed down to the lowest level in past eight months, which suggests there may be bandwidth for further monetary easing if this trend continues.

Australia

• Monetary easing in Australia looks to be bearing fruit, with its economy gathering pace over recent weeks. Retail sales and exports rose, and job gains outdid expectations. However, consumer confidence took a hit as Greece’s bailout negotiations and the fall in Chinese stocks triggered a sell-off in the nation’s financial markets.

Singapore

• Real GDP in 2Q15 shrank by 4.6% (annualized) QOQ, versus a 4.2% growth in 1Q15, as weak global demand and government restrictions on foreign labour weighed on the manufacturing sector. Furthermore, subdued exports and persistent deflation continue to pressure policy-makers to ease monetary policy further later this year.

Environment and horizon China

• Economic expansion in China is likely to settle at around 7% in 2015 but downside risks are increasing amid a property market only beginning to show signs of a turn-up from its year-long weakness, factory overcapacity and rising government debt. The recent sell-off in the nation’s stock markets, coupled with falling commodity prices, is expected to exert a drag on 3Q15 economic activity. Against this backdrop, we expect to see additional stimulus measures in 2H15.

Japan

• With Japan’s existing aggressive monetary easing having seen only a limited impact on economic recovery, the Bank of Japan (BoJ) may expand the base of monetary stimulus further in 2H15 to support the economy.

India

• The overall outlook for the Indian economy remains positive amid upbeat investor confidence and supportive government policies. On the monetary policy front, markets anticipate further easing from the Reserve Bank of India, if inflation continues to soften at its current pace.

Australia

• Economic growth will likely improve in 2015 but looks set to remain below trend, with activity hindered by lower mining investment, a slow pick-up in non-mining activity and an elevated currency. Nonetheless, monetary policy is likely to remain accommodative in the near term, and should provide a cushion to the struggling economy.

Estimated annual real GDP growth

% change year on year (YOY) Source: Oxford Economics

Real GDP growth — quarterly

% change YOY Source: Oxford Economics

4

High-frequency indicators Source: Oxford Economics

2.7%

4.3%

7.4%

-0.1%

7.1%

2.7% 2.6%

4.4%

6.6%

1.0%

7.5%

2.6%

-2%

0%

2%

4%

6%

8%

10%

World Asia-Pacific China Japan India Australia

2014 2015E

-4%

-2%

0%

2%

4%

6%

8%

10%

4Q14 2Q15 4Q15 2Q16 4Q16 2Q17

China Japan India Australia

GDP Industrial production CPI

2Q15 YOY

2Q15 quarter on

quarter (QOQ)

2Q15 YOY

2Q15 QOQ

2Q15 YOY

2Q15 QOQ

World 2.6% 0.6% 2.2% 3.3% 3.2% 0.7%

China 7.0% 9.4% 5.8% 15.6% 1.4% 0.3%

Japan 1.1% 0.3% 0.9% 0.0% 0.2% 0.4%

India 7.0% -5.7% 3.4% -5.4% 5.1% 1.6%

Australia 2.3% 0.6% 2.7% -0.1% 1.5% 0.7%

World (2014)

2Q15 YOY: 2Q15/2Q14

2Q15 QOQ: 2Q15/1Q15

Capital Briefing

-10%

-5%

0%

5%

0% 20% 40% 60%

Current state • The second half of 2015 has seen a very solid start for global M&A.

Consolidation in many sectors, such as oil and gas, insurance and life sciences, as well as a continuation of spin-offs, pushed the announced and intended deal value in July to US$514b (excluding real estate asset acquisitions) — the highest monthly value on record.

• However, with just 2,792 deals announced in July, YTD deal volumes are trending down due to reduced activity in lower-value bands (deals with undisclosed value or with a disclosed value of less than US$50m).

• This year has set an impressive record for megadeals. With 8 deals over US$10b announced in July, we now have 37 such deals so far in 2015 — exceeding the previous YTD high of 33 in 2007. These megadeals have been spread across sectors, with life sciences leading the pack (7), followed by technology (5). Consumer products and retail, insurance, and oil and gas (4 each) were other prominent sectors. Geographically, assets based in the US accounted for over three-quarters of the volume (28).

• Life sciences continued to make headlines, with Teva Pharmaceutical Industries Ltd. dropping its hostile bid for Mylan Inc. and entering an agreement to acquire Allergan plc’s generic pharmaceuticals business for US$40.5b. The transaction would create a leader in the branded generics space with a product portfolio that leads the industry in terms of differentiation and durability, and offers promising growth opportunities.

• M&A fever continued in the US health insurance sector, with the month witnessing one megadeal announcement and an acceptance of a previously rejected bid. However, these mergers will face scrutiny from US antitrust regulators, as the combined entities will result in further concentration.

• The health insurer Aetna, Inc. agreed to acquire its smaller rival Humana Inc. for US$35b to offer “a broad choice of affordable, consumer-centric health care products, helping to constrain cost growth, improve health outcomes, and promote wellness.”

• Anthem, Inc. finalized an agreement to acquire Cigna Corporation for US$54.2b to become an industry leader with enhanced diversification and capabilities to advance the transformation of health care delivery. In June, Cigna rejected Anthem’s offer, quoting it as inadequate and not in the best interests of Cigna’s shareholders.

• The M&A upturn also extended into the casualty insurance segment, with ACE Limited, a Swiss insurance giant, entering an agreement to buy Chubb Corporation for US$28.9b to create one of the biggest property-casualty insurance companies in the world.

Environment and horizon • Global M&A activity is expected to remain strong in the coming months,

despite recent volatility in the Eurozone and China. Companies globally are confident about their businesses, and the C-suite is looking at M&A as the first choice for future growth. A range of factors, including low financing cost, healthy cash balances, increasing sector convergence and a fear among executives of being left behind rivals who strike deals, will help continue to drive M&A activity.

• US dealmaking should continue to lead the way in 2H15. Companies are becoming more aggressive in making acquisitions, as achieving growth remains at the forefront of boardrooms’ agendas. Furthermore, resilient stock markets, healthy economic fundamentals and an increasing number of sellers coming off the sidelines should provide sustenance to high level of M&A activity in the near term.

• European markets should see steady M&A activity in the coming months, driven by continued access to equity and debt financing, and lower levels of funding costs on the back of ongoing quantitative easing (QE) by the European Central Bank (ECB). Moreover, progress on Greece’s bailout has led to further improvement in investor confidence. However, concerns remain over the longer-term sustainability of this arrangement, due to sluggish economic recovery and high debt levels in peripheral countries.

• M&A activity in Asia-Pacific is expected to hold its ground, despite recent turbulence in Chinese capital markets, with the Chinese authorities taking steps to improve the liquidity situation in the system. The BoJ is continuously focusing on infusing liquidity through an aggressive monetary policy, which should assist deals involving Japanese companies, especially outbound M&A. Indian dealmaking should continue to gain momentum, driven by a promising economic outlook and the Government’s efforts to promote India as a “preferred place to invest.”

Deal environment: by area (YOY % change)

Last 12 months (LTM) to July 2015 versus LTM to July 2014 Source: Dealogic and EY analysis

Deal environment: by target sector and target area (% share of global value)

LTM to July 2015 Source: Dealogic and EY analysis; excludes real estate asset transactions.

Note: because of rounding, percentages may not add up to total.

Top 10 announced deals by value, July 2015 Source: Dealogic

M&A analysis as at 3 August 2015.

Note: data is continuously updated and therefore subject to change.

5

Executive summary

• July saw the highest monthly announced deals by value on record, driven by a wave of US$10b+ megadeals.

• A record level of megadeals (37) registered in the year-to-date (YTD), with the US accounting for over three-quarters (28) of them.

• The US health care insurance sector continues to feature in M&A headlines.

• Global M&A activity should remain firm, with the US leading the way in global dealmaking.

2. M&A

Target Sector Country Acquiror Value (US$m)

PayPal Holdings Inc. Technology US eBay’s shareholders (spin-off)

49,164

Allergan plc (generic-drug business unit)

Life sciences US Teva Pharmaceutical Industries Ltd.

40,500

Humana Inc. Insurance US Aetna, Inc. 35,042

Chubb Corporation Insurance US ACE Limited 28,901

MarkWest Energy Partners, L.P.

Oil and gas US Marathon Petroleum Corporation

19,684

Baxalta Inc. Life sciences US Baxalta Inc.’s shareholders (spin-off)

17,152

Procter & Gamble Co. (P&G Beauty Business)

Consumer products and retail

US Parentes Holding SE 14,911

Columbia Pipeline Group Power and utilities US NiSource, Inc.’s shareholders

11,495

Asciano Limited Automotive and transportation

Australia Brookfield Infrastructure Partners, L.P.

9,582

K+S AG Diversified industrial products

Germany Potash Corp of Saskatchewan Inc.

9,321

Value

Vo

lum

e

Americas

EMEA

Global

Asia-Pacific

Americas Asia-Pacific EMEA Total

Oil and gas 9% 1% 3% 14%

Life sciences 10% 1% 1% 12%

Technology 7% 3% 2% 12%

Consumer products and retail 4% 2% 3% 10%

Diversified industrial products 3% 3% 4% 9%

Insurance 5% 0% 1% 6%

Media and entertainment 4% 1% 1% 5%

Automotive and transportation 2% 2% 2% 5%

Banking and capital markets 2% 1% 2% 5%

Others 9% 7% 7% 23%

All sectors 54% 22% 24% 100%

Capital Briefing

2.i. M&A: cross-border deal flow

Key cross-border M&A deal flow (LTM to July 2015) (Total = US$1.25t)

N America to: W Europe – $161b

UK&I – $89b L America – $23b

Japan to: N America – $33b W Europe – $12b

Greater China - $12b

UK&I to: N America – $30b W Europe – $25b

L America to: W Europe – $4b N America – $4b

Greater China to: UK&I – $27b

W Europe – $27b N America – $18b W Europe to:

N America – $158b UK&I – $92b

Latin America – $23b

Cross-border M&A deal flow (LTM to July 2015)

(US$m)

Key

>$100b >$50b >$15b

Note: all figures are in US$

# Acquiror refers to acquiror ultimate holding company.

$ Greater China includes mainland China, Hong Kong, Macau, Mongolia and Taiwan.

M&A analysis as at 3 August 2015.

Source: Dealogic. All Rights Reserved.

Note: data is continuously updated and therefore subject to change.

Key >US$100b >US$50b >US$15b

Intra-area cross-border deals

Target Acquiror# Africa SE Asia (including Korea)

Greater China $

Russia, CIS and CSE

W Europe (excluding UK&I)

India Japan Latin America

Middle East

North America

Oceania UK&I Inbound total

% versus PTM

Africa 552 74 892 40 1,736 165 856 - 1,455 3,396 230 3,343 12,738 -35%

SE Asia (including Korea)

- 7,042 7,925 0 1,558 8 5,285 19 5,581 4,524 597 523 33,062 -10%

Greater China $ 87 2,706 28,748 20 1,570 12 11,603 - 9,113 4,993 1,791 448 61,089 29%

Russia, CIS and CSE 48 3,276 1,862 4,555 12,176 3 250 34 1,681 5,642 291 2,855 32,674 0%

W Europe (excluding UK&I)

258 1,921 27,429 858 95,490 525 12,370 4,220 4,038 161,009 2,819 24,972 335,908 12%

India - 1,184 535 - 567 - 1,425 - 753 3,001 76 228 7,769 -54%

Japan - 329 1,085 - 413 25 - - - 3,902 9 316 6,079 -45%

Latin America 40 1,444 383 61 22,799 0 711 6,204 1,070 23,379 935 5,100 62,126 6%

Middle East 1,708 726 2,377 31 363 39 27 120 125 4,231 3 177 9,926 31%

North America 959 7,622 17,945 953 157,813 2,034 33,324 3,839 49,293 99,555 12,158 29,865 415,359 84%

Oceania 47 3,111 4,789 - 995 304 7,183 1,258 87 15,389 901 1,020 35,083 -11%

UK&I 6,059 1,312 27,461 3,364 91,914 7 4,528 1,916 2,599 88,921 5,945 3,473 237,500 216%

Outbound total 9,757 30,747 121,431 9,883 387,394 3,122 77,559 17,608 75,794 417,943 25,755 72,319 1,249,313 44%

% versus previous 12 months (PTM)

50% -16% 39% -2% 53% -44% 25% -56% 199% 96% 59% -37% 44%

6 Capital Briefing

3. IPOs

Executive summary

• Global IPO activity was subdued in July as a result of a slowdown in activity across regions.

• US IPO activity was subdued, but is set to increase toward the end of 2H15, after a traditionally quiet third quarter.

• The China Securities Regulatory Commission (CSRC) has suspended IPOs on Mainland China exchanges in order to stabilize the country’s volatile stock markets.

• Despite this, overall global market sentiment remains positive.

7

Current state • Global IPO activity slowed in July, registering a decline of 32% and 49% in

deal volume and proceeds, respectively, against July 2014. This was due to a slowdown in activity across all major regions, and the suspension of IPOs on Mainland China exchanges.

• The CSRC shelved new share sales on Mainland China exchanges in early July, in response to the country’s volatile stock markets, which plunged nearly 30% in three weeks. This move is expected to be a short-term measure, and came after repeated attempts by regulators to stabilize markets failed to have the desired effect — including an interest rate cut, a relaxation of margin-lending rules and additional bank liquidity.

• Despite this, Asia-Pacific continued its dominance of the listing landscape, largely due to slower activity in other parts of the world. With 59 IPOs raising US$5.4b, the Asia-Pacific region accounted for 60% of total global volume and nearly 45% of global value. However, the region faced a 23% and 35% YOY decline in terms of deal volume and proceeds, respectively.

• US IPO activity was subdued, witnessing a drop of 48% in deal volume and 60% in proceeds against July 2014, resulting from a slow start to the month as we saw pipelines rebuilding after a record deal volume last month. As we move further into the third quarter of the year, which is traditionally slow for the region, US activity is expected to maintain this pace, before picking up toward the end of 3Q15.

• EMEA activity dropped in July, by 43% and 65% YOY in terms of deal volume and proceeds, respectively, with some companies postponing IPOs owing to market volatility in the region. However, on a positive note, we saw Germany raise its highest monthly proceeds since June 2007, accounting for the only US$1b+ IPO for the month, the US$1.3b listing of German bank Deutsche Pfandbriefbank AG.

Environment and horizon • Our outlook for global IPO activity remains positive, supported by a

stable pipeline of IPO-ready companies across regions. Although there may be a temporary lull in listing activity in Asia-Pacific due to the suspension of IPOs on Chinese exchanges, overall global market sentiment is positive, underpinned by strong investor confidence and an increasingly healthy diversification of listing activity across different sectors.

• US IPO activity is set to increase toward the end of 2H15, after the traditionally quiet third quarter, backed by a robust pipeline and strong investor confidence. These factors are expected to lead to a strong close to the year, though it is unlikely to be as high as the blockbuster levels we saw in 2014. While improving economic fundamentals are bolstering market confidence, the prospect of monetary tightening poses a downside risk. Also, while PE- and VC-backed companies will continue to feed the IPO pipeline, some companies, particularly in the technology sector, may wait longer for exits, due to the easy availability of private funding options.

• Europe is likely to see steady activity in 3Q15. The overall environment has been improving, with the economic and financial conditions increasingly favorable, and we anticipate a rebound in investment. Also, equity markets continue to strengthen due to QE efforts by the ECB. However, while investor confidence has improved after the Greece situation was successfully diffused, concerns remain regarding the bailout deal’s implementation and strict conditions.

• Greater China is expected to see low level of IPO activity in 3Q15 as a result of the CSRC’s move. However, IPO levels are expected to recover soon, as the regulator indicated that these measures are likely to be short-term, and remains committed to longer-term market-oriented reforms. Also, Chinese companies are now looking toward listings on Hong Kong stock exchange, with many US$1b+ deals expected in the coming months.

• Other parts of Asia-Pacific should experience healthy activity. We expect strong activity in Japan, driven by aggressive stimulus policies and a robust pipeline. IPO activity in Australia is also anticipated to rise as pricing remains firm, and we continue to see strong appetite from institutions as well as retail investors. With the Securities and Exchange Board of India (SEBI) rolling out many reforms, such as relaxed listing norms for start-ups and an electronic IPO system, we are likely to see gradually increasing IPO activity in India as well.

IPO activity by area (YOY % change)

(LTM to July 2015 versus LTM to July 2014) Source: Dealogic; regional classification on the basis of issuer nationality.

Top 10 IPOs by proceeds, July 2015 Source: Dealogic

Issuer name Issuer location

Sector Exchange Proceeds (US$m)

Deutsche Pfandbriefbank AG

Germany Banking and capital markets

Deutsche Borse

1,282

Blue Buffalo Pet Products, Inc.

US Consumer products and retail

NASDAQ

778

TerraForm Global, Inc. US Power and utilities NASDAQ

675

Flow Traders N.V. Netherlands Banking and capital markets

Euronext (Amsterdam)

661

Dexerials Corporation Japan Diversified industrial products

Tokyo

637

North Bangkok Power Plant Block 1 Infrastructure Fund - EGAT

Thailand Power and utilities Thailand

617

Universal Medical Financial & Technical Advisory Services Company Limited

China Other sectors Hong Kong

471

Guolian Securities Co., Ltd. China Banking and capital markets

Hong Kong

457

ADO Properties S.A. Germany Real estate Deutsche Borse

450

Costa Group Holdings Limited

Australia Consumer products and retail

Australia

407

IPO activity by sector and area (% share of global proceeds)

LTM to July 2015 Source: Dealogic; regional classification on the basis of issuer nationality.

Note: because of rounding, percentages may not add up to total.

Americas Asia-Pacific EMEA Total

Technology 2% 15% 2% 19%

Banking and capital markets 3% 8% 4% 16%

Real estate 3% 6% 3% 12%

Consumer products and retail 2% 4% 3% 9%

Life sciences 1% 2% 4% 7%

Automotive and transportation 3% 2% 2% 7%

Diversified industrial products 1% 3% 1% 6%

Power and utilities 1% 4% 0% 6%

Telecommunications 0% 1% 3% 4%

Others 5% 7% 3% 15%

All sectors 21% 52% 26% 100%

-40%

-20%

0%

20%

40%

60%

-40% -20% 0% 20% 40% 60% 80%

Value

Vo

lum

e

US

Americas (inc. US)

EMEA

Global

Asia-Pacific

Capital Briefing

Sector YTD 2015 value (US$b)

Industry share

YTD 2015 volume

Industry share

Real estate 27.18 24.2% 40 3.7%

Consumer goods 21.95 19.5% 152 13.9%

Industrials 19.71 17.5% 94 8.6%

Technology 18.82 16.7% 243 22.2%

Financials 11.74 10.4% 79 7.2%

Health care 9.38 8.3% 96 8.8%

Consumer services 8.93 7.9% 153 14.0%

Materials 6.89 6.1% 140 12.8%

Retail 5.04 4.5% 71 6.5%

Telecom 4.03 3.6% 17 1.6%

Oil and gas 3.61 3.2% 24 2.2%

Utilities 2.43 2.2% 25 2.3%

0

50

100

150

0

40

80

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Jul15

Value (US$b) (LHS) Volume (RHS)

PE M&A exits by month (in US$b) Source: Dealogic

0

200

400

600

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015YTD*

0

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Commitments (US$b) (LHS) Number of funds (RHS)

0

150

300

0

50

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Value (US$b) (LHS) Volume (RHS)

Global PE fund-raising by month (in US$b) Source: Preqin

PE acquisitions by month (in US$b) Source: Dealogic

4. Private equity

Executive summary

• Buyout fund-raising rose 35% in July versus a year ago, to US$48.3b; YTD is 2% ahead of last year’s pace.

• PE investment in July was flat versus last year, with aggregate deal value totalling US$22.7b; YTD is down 18%.

• Deal value for PE-backed M&A exits in July 2015 rose 21%, due to performance in the Americas and Asia-Pacific; YTD is down 17%.

• The lack of large PE-backed IPOs in July 2015 led to a 74% decrease in deal value to US$2.8b. YTD fell 42%.

Current state Fund-raising

• The need to finance energy infrastructure projects led to infrastructure being a focus of the PE industry in July. These funds accounted for 3 of the top 10 investment vehicles. Overall, buyout fund-raising climbed 35% to US$48.3b in July from a year earlier, although the number of funds fell 36%. July’s robust fund-raising pushed the YTD total to US$285.6b, 2% better than a year earlier.

• The completion of two megafunds helped average fund sizes in July (one infrastructure and one diversified buyout), which hit a record high of US$1.15b. The only other time the average passed the US$1b-mark was in April 2009, when it reached US$1.03b.

Acquisitions

• Consolidation in the transportation industry, and market conditions in some real estate markets in Europe, helped PE acquisitions in July to remain at broadly the same levels as we saw in the same period last year. PE-backed deal value for July totaled US$22.7b, only slightly less than the US$22.9b in July 2014. YTD deal value currently trails last year’s pace by 18%; there have been 1,134 PE acquisitions with a disclosed value of US$139.7b so far this year, led by investments in real estate and consumer goods.

Exits

• China’s Hainan Traffic Control Holding Co Ltd’s expansion plans contributed to a 21% YOY increase in PE-backed M&A exit deal value in July, to US$35.2b — despite a 26% drop in volume. Activity in the Americas saw an 83% rise in deal value, and Asia-Pacific posted an 87% improvement, albeit from a lower base. Efforts in these two regions more than offset the 41% decrease in EMEA’s deal value. YTD overall deal value for PE M&A exits trails last year’s levels (US$206.1b versus US$247.7b), largely because of limited M&A activity in Asia-Pacific.

• PE firms continue to restock their IPO pipelines, and so the lack of large PE-backed IPOs in July 2015 led to a 74% YOY decrease in deal value, to US$2.8b. YTD deal value is also down 42%, with fewer PE-backed companies going public (108 versus 147) as 2014 was an active exit route for the industry. The largest PE-backed IPO in July 2015 involved Invus Group LLC raising US$778m for taking Blue Buffalo Pet Products, Inc. public. The pet food company’s shares change hands on Nasdaq under the name of BUFF. There were three PE-backed IPO offerings worth at least US$1b in July 2014.

Environment and horizon • The PE industry will likely see more consolidation as larger firms look to

smaller players to improve their position in growth areas. The likely consolidation is also a response to more limited partners (LPs) reducing their G.P. relationships. In July 2015, Ares Management, L.P. and Kayne Anderson Capital Advisors, L.P. agreed to merge to form Ares Kayne Management, L.P., which will have a combined US$113b in assets under management when the deal closes at the end of the year. The combination would rank the new firm the fourth largest in the industry. The merger will bolster Ares Management’s energy and infrastructure investments, and will give the firm access to Kayne Anderson’s extensive contacts within the family office and high net worth segment, seen as a key area of growth by the PE industry.

• Valuations remain a key area of concern across many markets. In the US, PE entry multiples topped 10x EBITDA for the first time on record in 1H15, eclipsing even 2007. Active strategic acquirors and high public equity prices have created a significant impediment to PE deal activity. PE firms remain cautious and opportunistic in new acquisitions — wary of overpaying, they are becoming increasingly vocal about their willingness to step back and wait for better pricing, which could potentially mean fewer PE investments until entry multiples go down.

• The second half of 2015 could be more active for PE-backed IPO exits because the last few weeks have seen a number of large boom-year investments file to go public. Univision Holdings Inc. (acquired by TPG, Thomas H. Lee Partners LP, Providence Equity Partners, and Madison Dearborn Partners LLC for US$13.7b in 2007) filed on 2 July. Albertsons Cos. Inc. (acquired by Cerberus Capital Management LP for US$9.6b in 2005) filed on 8 July. First Data Corp. (acquired by Kohlberg Kravis Roberts & Co. LP for US$29b in 2007) filed on 20 July.

8

Global PE dry powder (in US$b) Source: Preqin

Note: we seperated real estate transactions from financials to provide better clarity on where PE is investing.

*YTD as of 31 July 2015

Top PE acquisitions by sector, YTD July 2015 (US$b) Source: Dealogic

Capital Briefing

5. Loans

Executive summary

Current state • After a three-week pause in new issuance, the European high-yield market

exploded into action in the final third of July as uncertainty surrounding the Greek debt crisis receded. In total, €8.6b came to market from 15 borrowers during the month, taking YTD supply to €54.4b, down 11% versus the same period last year. Of the July total, €3.3b was issued in cov-lite form — the highest reading since July 2014. Global issuance of high-yield loans rose to US$73.67b YTD.

• A pick-up in M&A activity drove total European leveraged loan volume to a four-month high of €6.5b in July, up from €6.1b in June. Within the July total, €5.5b funded M&A, the highest reading in six months, up from €3.9b in June.

• The largest offering of the month came from Japanese telecoms company Softbank, which placed €2.25b into Europe as part of a five-part, dual-currency transaction, which also included US$2b into the US and Asian markets.

• Sterling denominated syndicated loan volume stands at US$101.5b in 2015 YTD, up 11% on the US$85.4b borrowed in 2014 YTD. Average deal size is also up 11% YOY, posting the highest YTD average since 2008.

• The bank lending survey (BLS) reported a net easing of credit standards on loans to enterprises in 2Q15 (a net percentage of -3%, after -10% in the previous quarter), which was stronger than banks’ expectations in the previous survey round. Net demand for loans to enterprises increased substantially, owing mainly to the general level of interest rates.

• The Securities and Exchange Commission provided guidance that collateralized loan obligations (CLOs) issued prior to 24 December 2014 will be able to refinance debt tranches under certain conditions after the rule takes effect in December 2016, without being subject to risk retention.

Environment and horizon • Although primary activity increased in late July, following strong months

in May and June, market players do not expect issuance to match last summer’s surge, despite the Greek debt crisis seemingly resolved. YOY June–July issuance lags 2014 by 26% YOY, at €43.5b to €59b respectively. This trend is likely to be maintained through the typical summer slowdown in August.

• Previously noted trends in reduced cov-lite deals reversed in July, with €3.3b of cov-lite high-yield loans issued in July. This over the 2Q15 figure of €3.1b, pointing to a rebound in cov-lite financings moving through 3Q15.

Opportunities • Demand for lending from small businesses increased significantly in

2Q15, while demand from large corporations also increased and was unchanged from medium-sized companies. Demand is expected to increase for all businesses in 3Q15.

Global investment-grade loans (US$b) Source: Thomson ONE

Global high-yield loans (US$b) Source: Thomson ONE

Top arrangers ranking, YTD 2015 (US$b) Source: Thomson ONE

Global loan issuance by industry, YTD 2015 Source: Thomson ONE

Proceeds Issues

Bank of America Merrill Lynch 139.0 776

J.P. Morgan 127.8 628

Wells Fargo & Company 94.2 599

Mitsubishi UFJ Financial Group 93.2 763

Citigroup Inc. 90.8 416

All loans by region, YTD 2015 (US$b) Source: Thomson ONE

Market share Proceeds Issues

Americas 56.4% 1,311.0 2,363

EMEA 23.3% 540.9 902

Asia-Pacific 11.9% 275.7 752

0

100

200

300

400

500

0

200

400

600

800

3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15(QTD*)

Proceeds (US$b) (LHS) Number of issues (RHS)

0

500

1,000

1,500

2,000

2,500

3,000

0

300

600

900

1,200

3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15(QTD)


0 200 400 600

Energy and power

Financials

Industrials

Materials

Retail

Health care

High technology

Real estate

Consumer products and services

Consumer staples

Media and entertainment

Telecommunications

Government and agencies

Proceeds (US$b)

9

• The European high-yield loan market returned to activity after a three-week pause, with €8b from 13 borrowers in the penultimate week of July.

• This was the busiest week on record for both volume and the number of issuers accessing the market.

• Strong M&A continues to support loan market activity, particularly in Europe where a record €5.5b of M&A transactions were funded by loan issuances in the month.

• Covenant-lite (cov-lite) deals bounced back with €3.3b of cov-lite high-yield loans issued in July alone.

Capital Briefing

*QTD — Quarter-to-date

0 100 200 300

Energy and power

Industrials

Health care

High technology

Consumer staples

Telecommunications

Materials

Real estate

Media and entertainment

Retail

Consumer products and services

Proceeds (US$b)

Executive summary

• Oil, natural gas and other commodities such as copper and gold have deteriorated further, affecting corporate bonds and high-yield markets.

• High-yield issuances witnessed a sharp declined in July, with totals for the month falling to US$10b compared with US$21.2b in June.

• The crisis in Greece appears to have stabilized after finance ministers of the 19 Eurozone countries voted to grant, in principle, a third bailout package in the range of €86b.

Current state • In July, issuances in the high yield-bond market showed a significant

slowdown to just US$10b of monthly volume, compared with US$21.2b in the month of June.

• After three weeks of positive inflow, fund flows in to the high-yield bond market turned deeply negative with a net outflow of US$1.7b in the last week of July.

• The investment-grade bond market witnessed higher issuances of US$130b on a YOY basis, primarily due to increased M&A activities. Charter Communication was the highest issuer with US$15.5b, as it sought funds to complete its US$80b acquisition of Time Warner Cable.

• Some of the largest bond deals in the market came from the media, retail and health care sectors, with Charter Communications’ issuance of US$15.5b, CVS Health’s US$15b and United Health’s US$10.5b.

• The European high-yield funds market showed inflows in the last two weeks of July, after two consecutive weeks of outflows. The net inflow in the European high-yield market stood at €85m.

• So far this year, European investors have been pouring funds into higher-yielding US bonds, buoyed by the divergence in central bank policy between the two regions.

• In July, Fitch ratings increased its 2015 US high-yield default outlook to 2.5%-3%, from 1.5%-2%, reflecting the impact of deteriorating oil prices, weak coal demand and increased regulations on energy and metals and mining companies, during the first half of the year.

Environment and horizon • In addition to the third bailout, Greece secured a US$7.2b bridge loan

from the European Commission, most of which was immediately used to repay some of its debt to the ECB and the International Monetary Fund, and domestic banks opened after three consecutive weeks of closure. This resolution will restore a measure of confidence in the European markets, with investors continuing to be bullish, citing restored confidence and a strong M&A pipeline.

• The first US Federal Reserve (Fed) interest rate hike in nearly a decade is expected to come as early as September. Speculation about the rate rise is already showing signs of strengthening the US dollar and increasing the yields on Treasury bills, which should continue as the likelihood of a rate rise increases.

• In Europe, the fall in commodity prices and limited wage pressures suggests low inflation will continue, while the recent rally in European government bonds has reduced yields.

Opportunities • In view of the looming Fed rate hike cycle, issuances in the bond market

are expected to remain high as companies execute their issuance plans before the interest rate rise.

• As the economic cycles and monetary policy approaches within the Eurozone, US, China and Japan begin to diverge, opportunity may present in currency fluctuations, and investors may be able to use this opportunity to extract higher return by moving their funds through these zones.

Euro bond issuances Source: Thomson ONE

US bond issuances Source: Thomson ONE

Top 10 corporate bond issuers, YTD 2015 (US$b) Source: Thomson ONE

YTD 2015 global bond issuance Source: Thomson ONE

Issuer Nation Industry Proceeds

Actavis Funding SCS Luxembourg Health care 21.0

AT&T Inc. US Telecommunications 20.3

Apple Inc. US High technology 19.8

AbbVie, Inc. US Health care 16.7

Charter Communications, Inc.

US Media and entertainment

15.5

CVS Health Corporation US Retail 15.0

The H. J. Heinz Company US Consumer staples 13.5

Valeant Pharmaceuticals International, Inc.

US Health care 11.1

Microsoft Corporation US High technology 10.8

UnitedHealth Group Inc. US Health care 10.5

0

50

100

150

200

250

0

50

100

150

200

250

Aug14

Sep14

Oct14

Nov14

Dec14

Jan15

Feb15

Mar15

Apr15

May15

Jun15

Jul15


10

0

100

200

300

400

500

0

100

200

300

400

Aug14

Sep14

Oct14

Nov14

Dec14

Jan15

Feb15

Mar15

Apr15

May15

Jun15

Jul15


6. Bonds

Capital Briefing

Appendices

Appendix A M&A activity monthly flash

Volume Value Volume Value

Calendar YTD

YTD % ∆ Calendar YTD

YTD % ∆ LTM LTM % ∆ LTM LTM % ∆

2015 (to July 15)

versus 2014 (to July 14)

2015 (to July 15)

versus 2014 (to July 14)

LTM (to July 15)

versus PTM (to July 14)

LTM (to July 15)

versus PTM (to July 14)

M&A activity by areas and regions

Global 20,791 -9% 2,536,287 43% 36,840 -2% 3,985,272 41%

Americas 8,520 -3% 1,612,208 58% 14,521 1% 2,450,674 50%

Canada 1,434 2% 144,915 61% 2,282 2% 227,660 68%

MeCAR 152 -12% 12,271 -38% 291 2% 24,992 -14%

SA region 652 -1% 32,313 -42% 1,155 1% 78,605 -40%

US 6,919 -4% 1,499,044 68% 11,801 1% 2,245,025 59%

EMEA 7,851 -13% 777,582 26% 14,168 0% 1,255,680 29%

Africa 361 -12% 18,937 25% 642 -4% 45,663 42%

BeNe 549 -4% 150,135 249% 942 11% 176,111 142%

CIS 710 -46% 13,673 -50% 1,668 -21% 30,145 -67%

CSE 680 22% 20,305 -23% 1,195 34% 40,092 -10%

FraLux 1,354 -10% 103,190 -30% 2,313 3% 161,862 -14%

GSA 1,305 -13% 143,902 -25% 2,371 0% 252,444 -1%

Israel 144 -10% 56,089 681% 236 -4% 60,347 461%

Mediterranean 941 -6% 107,731 49% 1,645 3% 196,534 53%

MENA 199 -7% 27,336 17% 360 5% 39,632 14%

Nordics 834 -16% 43,117 -20% 1,476 -6% 78,274 -10%

UK&I 1,874 -1% 269,756 48% 3,207 4% 401,598 67%

Asia-Pacific 6,695 -9% 642,936 55% 12,045 -5% 1,044,713 48%

ASEAN 1,028 -12% 29,581 -37% 1,860 -9% 64,683 -18%

Greater China 1,991 -20% 391,904 115% 3,980 -10% 665,073 103%

India 772 4% 31,113 -22% 1,197 -1% 46,252 -17%

Japan 1,741 -4% 86,415 17% 2,943 -2% 121,532 1%

Korea 676 18% 69,346 25% 1,187 16% 94,369 10%

Oceania 912 -10% 68,078 23% 1,624 -9% 103,229 20%

M&A activity by sectors

Aerospace and defense 221 -10% 21,667 -9% 407 1% 33,715 5%

Automotive and transportation 1,360 -14% 160,200 83% 2,468 -5% 247,070 64%

Banking and capital markets 1,456 -10% 166,314 17% 2,595 -4% 285,101 19%

Consumer products and retail 3,144 -11% 354,284 37% 5,651 -4% 526,100 43%

Diversified industrial products 2,683 -13% 272,510 38% 4,899 -5% 465,380 55%

Government and public sector 431 0% 10,819 -1% 744 4% 19,581 -2%

Insurance 628 10% 237,649 306% 1,105 16% 293,355 196%

Life sciences 1,340 1% 326,533 38% 2,288 2% 529,374 70%

Media and entertainment 1,419 -14% 179,464 7% 2,537 -5% 244,576 20%

Mining and metals 1,151 -18% 63,502 -19% 2,010 -17% 103,214 -16%

Oil and gas 770 -36% 306,237 63% 1,538 -26% 587,104 69%

Other sectors 2,603 -12% 91,431 16% 4,732 0% 144,142 13%

Power and utilities 775 -20% 118,960 15% 1,480 -11% 187,887 4%

Provider care 659 -2% 32,211 19% 1,107 4% 52,363 8%

Real estate 1,984 -12% 192,794 73% 3,574 -5% 302,325 70%

Technology 5,273 8% 390,793 103% 8,809 16% 537,450 73%

Telecommunications 504 5% 119,706 -33% 910 9% 207,241 -46%

Wealth and asset management 557 -15% 127,417 190% 971 -14% 143,780 145%

12

Regions’ M&A numbers represent a summation of domestic, inbound and outbound M&A activity involving the region. Sectors’ numbers represent involvement from either side, i.e., target or acquiror, except in the case of wealth and asset management, where only target-side involvement has been mapped. M&A analysis as at 3 August 2015. Source: Dealogic. All Rights Reserved. Note: data is continuously updated and therefore subject to change.

Capital Briefing

2014 2015

J F M A M J J A S O N D J F M A M J J A S O N

2013 2014 2015

F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J

Appendix B M&A multiples and bid premium

Deal multiples greater than 30x and bid premium greater than 100% have been excluded from calculation of median. M&A analysis as at 3 August 2015. Source: Dealogic. All Rights Reserved. Note: data is continuously updated and therefore subject to change.

13

Median deal multiple — EV / EBITDA

Global Americas Asia-Pacific EMEA

LTM (to July 15)

PTM (to July 14)

LTM (to July 15)

PTM (to July 14)

LTM (to July 15)

PTM (to July 14)

LTM (to July 15)

PTM (to July 14)

Aerospace and defense 11.5x 7.5x 23.1x 7.5x 11.5x NA 10.6x NA

Automotive and transportation 9.7x 10.0x 8.1x 12.6x 11.0x 9.4x 9.8x 9.8x

Consumer products and retail 11.8x 11.3x 14.0x 12.6x 11.8x 11.0x 11.3x 10.5x

Diversified industrial products 10.9x 11.8x 11.0x 15.6x 11.3x 10.8x 9.6x 9.6x

Government and public sector 14.6x 8.9x 15.6x 19.0x 8.7x 8.5x 11.1x 19.7x

Life sciences 15.1x 13.7x 19.2x 13.5x 17.5x 13.4x 11.6x 14.6x

Media and entertainment 12.4x 11.7x 10.7x 8.1x 14.1x 11.9x 11.1x 12.9x

Mining and metals 8.8x 7.1x 8.8x 5.9x 9.1x 6.6x 8.2x 8.3x

Oil and gas 6.8x 8.2x 6.4x 8.1x 11.1x 8.0x 6.2x 11.3x

Other sectors 9.5x 8.6x 10.0x 8.7x 10.0x 10.2x 8.2x 7.2x

Power and utilities 11.1x 8.0x 11.6x 9.1x 13.1x 8.7x 8.2x 6.7x

Provider care 12.0x 10.2x 12.0x 15.8x 10.4x 7.7x 12.6x 9.8x

Real estate 10.4x 11.5x 10.3x 11.8x 12.2x 13.6x 9.7x 9.0x

Technology 10.6x 10.7x 17.1x 18.3x 9.9x 10.0x 10.2x 10.1x

Telecommunications 10.5x 8.8x 10.5x 9.1x 12.3x 8.8x 7.9x 7.4x

Total 10.6x 10.2x 11.4x 11.8x 11.1x 9.8x 10.0x 9.8x

Median bid premium to four-week stock price

Global Americas Asia-Pacific EMEA

LTM (to July 15)

PTM (to July 14)

LTM (to July 15)

PTM (to July 14)

LTM (to July 15)

PTM (to July 14)

LTM (to July 15)

PTM (to July 14)

Aerospace and defense 26% 3% NA NA 32% 3% 13% NA

Automotive and transportation 15% 18% 7% 24% 15% 13% 17% 33%

Consumer products and retail 18% 18% 27% 20% 13% 18% 17% 15%

Diversified industrial products 15% 17% 23% 21% 13% 14% 28% 26%

Government and public sector 21% 7% 23% 8% 21% 6% 5% 9%

Life sciences 25% 27% 34% 30% 19% 21% 21% 32%

Media and entertainment 19% 17% 39% 18% 12% 16% 17% 21%

Mining and metals 25% 25% 23% 33% 25% 21% 22% 23%

Oil and gas 21% 19% 21% 20% 20% 15% 34% 39%

Other sectors 25% 26% 27% 32% 22% 18% 28% 40%

Power and utilities 10% 23% 12% 23% 8% 10% 8% 33%

Provider care 12% 25% 30% 27% 28% 29% 2% 18%

Real estate 21% 18% 29% 23% 19% 18% 8% 16%

Technology 21% 23% 27% 36% 18% 17% 21% 27%

Telecommunications 15% 11% NA 18% 15% 13% 17% 4%

Total 20% 20% 27% 28% 17% 17% 18% 25%

Capital Briefing

Appendix C Capital Confidence Barometer (April 2015): by area

Respondents who expect their company to pursue acquisitions in the next 12 months

35% 31% 31%

40%

56%

0%

25%

50%

75%

100%

Apr 13 Oct 13 Apr 14 Oct 14 Apr 15

32%

39%

28%

34%

57%

0%

25%

50%

75%

100%


28% 30% 32% 33%

49%

0%

25%

50%

75%

100%


Global Americas EMEA

27%

33%

26%

57%

45%

0%

25%

50%

75%

100%


Asia-Pacific China Germany

19%

26% 23%

28%

51%

0%

25%

50%

75%

100%


Japan UK US

27%

37%

26%

16%

58%

0%

25%

50%

75%

100%


29%

41%

29% 33%

61%

0%

25%

50%

75%

100%


14 Capital Briefing

26% 31% 33%

56%

43%

0%

25%

50%

75%

100%


23%

35%

16%

68%

51%

0%

25%

50%

75%

100%


Notes

15 Capital Briefing

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