Presentation on Private Equity Exit Considerations April 2012
Presentation on Private Equity Exit Considerations April 2012
Presentation on Private Equity Exit Considerations April 2012
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<str<strong>on</strong>g>Presentati<strong>on</strong></str<strong>on</strong>g> <strong>on</strong> <strong>Private</strong> <strong>Equity</strong> <strong>Exit</strong> C<strong>on</strong>siderati<strong>on</strong>s<br />
<strong>April</strong> <strong>2012</strong>
<strong>Exit</strong>s: Key C<strong>on</strong>siderati<strong>on</strong>s for <strong>Private</strong> <strong>Equity</strong><br />
<strong>Exit</strong>s by Year<br />
$140<br />
$120<br />
$100<br />
$80<br />
$60<br />
$40<br />
$20<br />
$0<br />
<strong>Exit</strong> Capital ($B) # of <strong>Exit</strong>s<br />
449 510<br />
434 420<br />
350<br />
207<br />
$121 $120 $80 $40 $106 $104<br />
2006 2007 2008 2009 2010 2011<br />
600<br />
500<br />
400<br />
300<br />
200<br />
100<br />
0<br />
ECONOMY<br />
VALUE<br />
TAX<br />
Median <strong>Exit</strong> EBITDA Multiple<br />
10.0x<br />
9.9x<br />
9.3x<br />
MORALE<br />
TIMING<br />
9.0x<br />
8.0x<br />
7.4x<br />
8.7x 8.5x<br />
8.0x<br />
8.0x<br />
8.6x<br />
FINANCING<br />
7.0x<br />
6.6x<br />
6.9x<br />
6.0x<br />
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011<br />
Source: Pitchbook & Grant Thornt<strong>on</strong>, 2011.<br />
1
EBITDA ($MM)<br />
Plan Your <strong>Exit</strong><br />
• Know How to Get Out Before You get In<br />
• Abundance of natural buyers?<br />
• Strategic acquiror?<br />
• Financial buyer?<br />
• IPO candidate?<br />
• C<strong>on</strong>fidentiality issues?<br />
• Vendors, competitors, customers<br />
• Micro Analysis – Is Your Company<br />
Ready?<br />
• If NO – nothing else matters<br />
• Executi<strong>on</strong> of the investment thesis is key<br />
• Capex, acquisiti<strong>on</strong>s, asset sales, HR<br />
• Tangible success? ROI?<br />
• Opportunity cost – time / m<strong>on</strong>ey /<br />
outlook<br />
120<br />
100<br />
80<br />
60<br />
40<br />
20<br />
0<br />
ONEX – Sky Chefs EBITDA (1987-2000)<br />
25.6<br />
46.0<br />
CAGR: 8.7%<br />
107.0<br />
CAGR: 15.1%<br />
1987 1994 2000<br />
IRR: 29.7%<br />
Multiple of Capital: 16.5x<br />
2
<strong>Exit</strong> Paths – IPO<br />
• Rarely a “mid-market” opti<strong>on</strong><br />
• Typical market cap: $1 billi<strong>on</strong><br />
• The most “macro sensitive” opti<strong>on</strong><br />
• IPO market can be shut (mid-late 2008)<br />
• C<strong>on</strong>fidentiality is lowest<br />
• Profit margin disclosure<br />
• Hard to “exit” 100%<br />
• <strong>Exit</strong> in stages over time<br />
70<br />
60<br />
50<br />
40<br />
30<br />
20<br />
10<br />
-<br />
1400<br />
1200<br />
Number of PE-Backed IPOs<br />
66<br />
51<br />
40<br />
30<br />
24<br />
14<br />
2006 2007 2008 2009 2010 2011<br />
Average IPO Market Cap ($MM) 1<br />
1,315<br />
1,267<br />
1,200<br />
1,099<br />
1000<br />
800<br />
772<br />
827<br />
700<br />
600<br />
400<br />
200<br />
-<br />
2006 2007 2008 2009 2010 2011 <strong>2012</strong><br />
1.<br />
Source: S&P Capital IQ. average value of sp<strong>on</strong>sor backed offerings of at least 5% of shares offered with gross proceeds over $50 mm.<br />
3
<strong>Exit</strong> Paths – Aucti<strong>on</strong> vs. Targeted Sale<br />
Aucti<strong>on</strong><br />
• The most comm<strong>on</strong> mid-market exit<br />
• Story needs broad appeal<br />
• C<strong>on</strong>sumes time and management<br />
• C<strong>on</strong>fidentiality “c<strong>on</strong>tained”<br />
Targeted Sale<br />
• Effective for “natural fit”<br />
• Often involves unsolicited approach<br />
• Value not compromised<br />
• C<strong>on</strong>fidentiality maximized<br />
Case Study – ONCAP/WIS Internati<strong>on</strong>al<br />
Case Study Case – Study ONCAP/WIS – ONCAP/CSI Internati<strong>on</strong>al<br />
Date: January 2007<br />
Calls Made: 18 Strategic / 52 <strong>Private</strong> <strong>Equity</strong><br />
Buyer Interest: 7 Strategic / 36 <strong>Private</strong> <strong>Equity</strong><br />
Preliminary Bids:<br />
12 <strong>Private</strong> <strong>Equity</strong><br />
Result:<br />
8.1x ROI / 73.7% IRR<br />
Date: November 2010<br />
Buyer:<br />
Rati<strong>on</strong>ale:<br />
Result:<br />
Moody’s Corp.<br />
Complimented global effort in<br />
regulati<strong>on</strong>, risk management<br />
and educati<strong>on</strong> tools<br />
5.8x ROI / 57.2% IRR<br />
4
Financing C<strong>on</strong>siderati<strong>on</strong>s<br />
6.0x<br />
Str<strong>on</strong>g Debt Multiples = Str<strong>on</strong>g PE Interest…<br />
60.0%<br />
…And High <strong>Equity</strong> C<strong>on</strong>tributi<strong>on</strong>s Will Drive<br />
Values Higher<br />
5.5x<br />
5.6x<br />
50.0%<br />
50.8%<br />
5.0x<br />
4.8x<br />
4.7x<br />
4.7x 4.7x<br />
40.0%<br />
37.8%<br />
39.5%<br />
4.5x<br />
4.0x<br />
4.1x<br />
4.0x<br />
3.9x<br />
3.8x<br />
4.2x<br />
4.5x<br />
4.3x<br />
4.2x<br />
30.0%<br />
20.0%<br />
20.7%<br />
26.2%<br />
30.0%<br />
33.6%<br />
3.5x<br />
3.4x<br />
3.3x<br />
10.0%<br />
7.0%<br />
3.0x<br />
'97 '99 '01 '03 '05 '07 '09 '11<br />
0.0%<br />
'87 '90 '93 '96 '99 '02 '05 '08 '11<br />
Debt/EBITDA<br />
<strong>Equity</strong> C<strong>on</strong>tributi<strong>on</strong> to LBOs<br />
Source: Lcdcomps.com<br />
5
Number of <strong>Exit</strong>s (2010)<br />
Number of PE-Backed Companies<br />
Other <strong>Exit</strong> C<strong>on</strong>siderati<strong>on</strong>s<br />
Tax C<strong>on</strong>siderati<strong>on</strong>s – Tax Number of <strong>Exit</strong>s (2010)<br />
Fundraising – Inventory of PE-owned Companies<br />
180<br />
160<br />
140<br />
120<br />
100<br />
80<br />
60<br />
40<br />
83<br />
104<br />
84<br />
163<br />
7,000<br />
6,000<br />
5,000<br />
4,000<br />
3,000<br />
2,000<br />
2,223<br />
2,894<br />
3,678<br />
4,549<br />
5,164<br />
5,435<br />
5,745<br />
5,968<br />
20<br />
1,000<br />
-<br />
Q1 Q2 Q3 Q4<br />
-<br />
'04 '05 '06 '07 '08 '09 '10 '11<br />
• Tax rate fears drove activity in late<br />
2010<br />
• LP’s like to see realizati<strong>on</strong>s<br />
• 40% of PE-owned companies have<br />
been held more than 5 years<br />
6