The document summarizes a presentation by Alvarez & Marsal on opportunities in the European market. It discusses 1) the current state of the European sovereign debt crisis and its impact on private equity and distressed markets, 2) middle market opportunities including financial institutions selling non-performing assets and distressed debt investing, and 3) potential pitfalls for private equity investors to avoid. The presentation also reviews M&A trends and outlook by country and sector. Key takeaways are the availability of portfolio and corporate carve-out deals, and the need for private equity investors to thoroughly understand business fundamentals and have contingencies planned.
2. TOPICS
I. Alvarez & Marsal Perspectives on the Current State of
European Market [Sovereign / PE / Distress]
II. Middle Market Opportunities
III. Pitfalls [Do’s and Don’ts]
1
5. INTERCONNECTEDNESS
Italy – owes 1.4 trillion
• Owes Germany 190 billion Euros
• Owes France 511 billion Euros (20% of France GNP)
• Owes England 77 billion Euros
Spain – owes 1.1 trillion (unemployment 20%!)
• Owes Germany 238 billion Euros
• Owes France 220 billion Euros
• Owes England 114 billion Euros
Ireland – owes 867 billion
• Owes Germany 184 billion Euros
• Owes France 60 billion Euros
• Owes England 188 billion Euros
Greece – owes 236 billion (plus banks also under water)
• Owes Germany 45 billion Euros
• Owes France 75 billion Euros
• Owes England 15 billion Euros
4
6. TOPICS
I. Alvarez & Marsal Perspectives on the Current State of
European Market [Sovereign / PE / Distress]
II. Middle Market Opportunities
III. Pitfalls [Do’s and Don’ts]
5
7. 150
600 40
30 100
100 400
20
200 50
10
0 0 0 0
EUROPEAN M&A: PERCEIVED RISKS IN EUROPE
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
06 06 06 06 07 07 07 07 08 08 08 08 09 09 09 09 10 10 10 10 11 11 11 11 12 12 12* 06 06 06 06 07 07 07 07 08 08 08 08 09 09 09 09 10 10 10 10 11 11 11 11 12 12 12*
SO DEAL VOLUME DOWN 37%
Total value Mid-market value Total volume Mid-market volume Buyout value Exit value Buyout volume Exit volume
(AUG YTD: €330B VS €519B)
EUROPEAN M&A ANNUAL TREND EUROPEAN M&A ANNUAL PRIVATE EQUITY TREND
1,200 8,000 300 1,600
7,000 1,400
1,000 250
6,000 1,200
Number of deals
Number of deals
800 200
Value (€bn)
Value (€bn)
5,000 1,000
600 4,000 150 800
3,000 600
400 100
2,000 400
200 50
1,000 200
0 0 0 0
2006 2007 2008 2009 2010 2011 YTD 2012* 2006 2007 2008 2009 2010 2011 YTD 2012*
Total value Mid-market value Total volume Mid-market volume Buyout value Exit value Buyout volume Exit volume
Monthly M&A Insider 22
6
8. France France
Nordic Nordic
6.2% 8.5%
Germany Germany
10.4%
Benelux Benelux
12.9%
EUROPEAN M&A: FOCUS ON SPECIFIC SECTORS
Italy Italy
7.9% 8.2%
Switzerland 5.3% Switzerland
Others Others
4.8%
12.7% 14.0% 11.5%
" 2/3rds of total deals by value being done in four sectors:
8.4%
– Energy, mining, utilities (27%)
– Industrials and chemicals (15%)
– Financial Services (13%)
– Consumer (11%)
EUROPEAN M&A SECTOR BREAKDOWN YTD 2012
VALUE VOLUME
1.4%
0.3% 1.8% 1.0%
4.8% 0.3%
2.1% 2.9% 14.7% 3.5%
Industrials & Chemicals 3.6% Industrials & Chemicals
1.7% 23.4%
Consumer 3.7% Consumer
5.0%
Business Services 3.7% Business Services
2.7%
10.7% Technology Technology
5.2% 5.5%
Financial Services Financial Services
Energy, Mining & Utilities Energy, Mining & Utilities
4.8%
Pharma, Medical & Biotech 6.8% Pharma, Medical & Biotech
Construction
16.3% Construction
5.2%
Transportation 7.6% Transportation
27.2% Leisure Leisure
12.6%
Media 9.5% Media
11.9%
Real Estate Real Estate
Telecommunications Telecommunications
Agriculture Agriculture
Defence
7
9. EUROPEAN M&A: POCKETS OF VALUE
" Opportunities are based around a several specific themes:
§ #1: Financial institutions – selling portfolios of (non)performing
assets
§ #2: Distressed debt investing – loan-to-own
§ #3: Corporate carve-outs / divestitures of non core assets
§ #4: Bolt-ons for existing PE portfolio companies
8
10. TOPICS
I. Alvarez & Marsal Perspectives on the Current State of
European Market [Sovereign / PE / Distress]
II. Middle Market Opportunities
III. Pitfalls [Do’s and Don’ts]
9
11. PORTFOLIOS & DUE DILIGENCE CONSIDERATIONS
III. Implications for TPG
Conclusions
Ø Cash
Ø Management quality
Ø Understand the business & the true value drivers and sensitivities
Ø Planning and execution is key
Ø Contingencies – build a Plan B
Ø Gain Stakeholder support before you need it
10