Private equity 1.01 Brief introduction into private equity 6 April 2011

Private equity 1.01Brief introduction into private equity

6 April 2011

2© 2011 KPMG Advisory N.V., a subsidiary of KPMG Europe LLP and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in the Netherlands. KPMG and the KPMG logo are registered

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Introduction Roy Stegeman

HG InternationalKPMG Corporate Finance

August 2009

acted as deal manager and financial advisor to Gilde Equity Management

Benelux on the acquisition of HG International

Royal SandersKPMG Corporate Finance

August 2010

acted as financial advisor to Bencis Capital Partners on the acquisition of

Royal Sanders

CAReKPMG Corporate Finance

February 2010

acted as deal manager and financial advisor to AAC Capital Partners on the acquisition of CARe from NPM Capital

Partner KPMG Corporate Finance since May 2009Previously worked at ABN AMRO / RBS Corporate

FinanceSpecialised in Private Equity related deals

Saval / KnowsleyKPMG Corporate Finance

January 2010

acted as deal manager and financial advisor to Bencis Capital Partners on the acquisition of Saval and Knowsley

from Imtech

BrunottiKPMG Corporate Finance

Pending

acted as deal manager and financial advisor to the shareholders of Brunotti Trade Mark on the sale to Greenfield

Capital Partners

Kirin AgribioKPMG Corporate Finance

March 2010

acted as financial advisor to H2 Equity Partners on the acquisition of Kirin

Agribio from Kirin Holdings

http://www.care-schadeservice.nl/site/



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Consistent track record as leading advisor by number

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Topics covered today

How large is the private equity market in the Netherlands?

What are the characteristics of a leverage buy out?

Is it possible to acquire a 10% share in a company that is worth EUR 100 million for EUR 1 million?

Which companies are suitable for a buy out?

What is the current status of private equity in the Netherlands?



Question:

How large is the private equity market in the Netherlands?



Key facts private equity the Netherlands

90 PE houses

EUR 23.3 billion in funds

1,300 portfolio companies

Combined revenue of EUR 81 billion, 19% of GDP

Employs over 320,000 FTE, 6% of the total working population in the private sector

In 57% of private equity investments the number of FTE grow

308 private equity transactions in 2010

Currently 3 to 4 billion available in equity



Contact with private equity in our daily life

http://vorige.nrc.nl/

http://oc.hg.eu/index/home

http://www.fd.nl/

http://www.hunkemoller.nl/



Private equity landscape

Global / incoming PEEV >300m

Local PEEV 0 – 20m

International PEEV 80m – 300

Mid market PEEV 20m – 100m

Sector specific

Food / Retail

Healthcare

Power / Energy

http://www.gembenelux.com/








Different type of funds

Captive fundsIndependent funds Family offices

Investment horizon

5 year 2 year 5 year 2 year

Investment period Divestment periodNo unified investment horizon





Investment structure of an independent private equity fund

Limited Partners (LP)

General Partners (GP)

Fund

Portfolio company A

ManagementBank

Portfolio company B

ManagementBank

Portfolio company C

ManagementBank



Funds flow of an independent private equity fund

Limited Partners (LP)

General Partners (GP)

Fund

Portfolio company A

ManagementBank

The returns for the GP consist of a

management fee of 2% and proceeds of carried interest

The bank is getting paid interest on the

provided debt financing



Investment structure of a captive private equity fund

Bank / Insurance company

Private equity house

Fund

Portfolio companies

Parcom Buyout Fund



Structure of a family office

Family office

Parent company

Private equity

Real estate

Listed companies

Trust

http://www.avantium.com/

http://www.navitascapital.nl/



Question:

What are the characteristics of a leverage buy out?



Characteristics Leveraged Buy out (LBO)

Acquiring company is Newco

Acquisition price also determined by debt capacity

Strong incentives to management (shareholding & envy)

Different types of debt funding

Specific investment period

Pursue growth strategy

Good leaver / Bad leaver clause

Drag & tag along rights

Recaps



Question:

Is it possible to acquire a 10% share in a company that is worth EUR 100 million for

EUR 1 million?



A numerical example of a leverage buy out

Equity management5

Senior debt50

Example IWithout envy

Equity PE House45

EV = 100EBITDA = 10Multiple = 10x

SH = 90%

SH = 10%

Loan notes25

Example 2Envy = 2

Equity management5

Senior debt50

Equity PE House20


SH = 80%

SH = 20%

Loan notes40

Example 3Envy = 5

Equity management1

Senior debt50

Equity PE House9


SH = 90%

SH = 10%

Management pays EUR 1 million to acquire a share of 10% in a company with an enterprise

value of EUR 100 million



Returns LBO when growth is assumed

Senior debtMezzanine

Loan notes

Exit

0 4

Year

Debt

Equity PE house

Entry

Enterprise value

Equity management

Investment PE

Investment management

Return PE

ReturnManagement



Returns LBO when no growth is assumed

Senior debtMezzanine

Loan notes

Exit

0 4

Year

Debt

Equity PE house

Entry

Enterprise value

Equity management

Investment PE

Investment management

Return PE

ReturnManagement



Internal rate of return (IRR)

Loan notes25

Equity management5

Senior debt50

Equity PE House20


Loan notes25

Equity management16

Senior debt25

Equity PE House64


Growth in EBITDA assumed

Entry year 1 Exit year 3

IRR = 25.5%

IRR = 47.6%

No multiple growth



Various debt instruments are used in a typical buy-out structure

Instrument Tenor Margin Amortisation Investors

Term loan A 7 years 225 bp Amortising Banks

Term loan B 8 years 275 bp Bullet Banks

Term loan C 9 years 325 bp Bullet Banks

Revolver 7 years 225 bp Revolving Banks

Second lien >9 years >500 bp Bullet Banks

Mezzanine 10 years >9% Bullet Investment funds

High Yield >10 years >9% Bullet Investment funds

PIK Loans >10 years >18% Bullet Mezz investors

PIK Note >10 years >18% Bullet High yield investors

Shareholder loan

>10 years >10% Bullet Financial sponsors

Equity n/a n/a n/a Financial sponsors

Preferred equity n/a n/a n/a Financial sponsors

Senior debt instruments

2nd secured

Subordinated debt instruments

Highly subordinated

Equity instruments



Other types of buy outs are based on the same principle

Management buy out (MBO)

Leveraged Buy Out (LBO)

Leveraged Buy Out (LBO)

Secondary Buy Out

BIMBO 'buy-in management

buy-out'

Equity Buyout (EBO)

Initial Buyout (IBO)

Management Buy in (MBI)



Growth Capital

Minority investments

Drag and tag along rights

Goal: achieve growth, restructure shareholdings, release equity, deleverage balance sheets

Shareholders maintain control

Both start-up as mature companies

No complicated capital structure



Question:

Which companies are suitable for a buy out?



Which companies are suitable for a buy-out

Limited investment requirements

Buy andbuildopportunities

Growthpotential

Competent management

Financingcapacity

(asset base)

Clear exitpossibility

Limitedoperational

risk

Attractive market

position

Presence operational

improvements



Typical MBO process

Appointment of financial adviser

Business Plan

Initial assessment of viability

Fund raising

NegotiationsHeads of

Agreement

Deal structuring

Negotiations and legal

agreements

Due Diligence

Completion

Opportunity

Add-on acquisitions

Exit



Case study Catalpa

Foundation of Catalpa

Acquisition Astrid Lindgren

1976 2001 2003 2006 2007 2008 2009 2010 2011

Waterland Private Equity acquires 50% for EUR 7 mln

Waterland acquires the remaining 50%

Bencis, acquires 100% for ca. EUR 50 mln

Acquisition Unieke

Acquisition Octopus

Acquisition B4 kids, Koetjeboe, de Muzikantjes, Elan

Acquisition Combiwel

Providence acquires Catalpa for EUR 500 mln



Case study Catalpa

89

112

143

185

216

0

50

100

150

200

250

300

2006-A 2007-A 2008-A 2009-A 2010-B

EU

Rm

Catalpa Astrid Lindgren UK Octopus B4Kids ELAN Combiwel

Net sales growth (2006 – 2010)

11%Growth - acquisitions

Growth – autonomous 15%

7%

20%

25%

6%

10%

6%

10.516.3

30.8

45.250.3

11.8%

14.5%

21.6%

24.4%23.3%

0

10

20

30

40

50

60

2006-A 2007-A 2008-A 2009-A 2010-B

EU

Rm

0%

5%

10%

15%

20%

25%

30%

EBITDA EBITDA margin

EBITDA growth and margin (2006 – 2010)



Question:

What is the current status of private equity in the Netherlands?



Current status private equity market in the Netherlands

1.3

1.9

2.4 2.3

2.9

1.8

0.6

1.3

0

1

2

3

4

2003 2004 2005 2006 2007 2008 2009 2010

EU

R b

illio

n

1.7

2.62.4

4.0

1.8

0.8

1.41.2

1.51.7

1.9

1.0

0.50.7

0

1

1

2

2

3

3

4

4

5

2004 2005 2006 2007 2008 2009 2010

EU

R b

illio

n

Investments Divestments

Total funds raised in NL Total investments & divestments in NL



Questions

Documents

Private equity 1.01 Brief introduction into private equity 6 April 2011