Rising upAs the mega deal pipeline starts to materialize, the European private equity market has seen a surge in deal values this quarter

Multiple Q3 2013

Private EquityTransaction Advisory Services

“ So far in 2013, private equity houses have faced greater challenges due to European market conditions. So, the low level of deal completions has not always reflected market activity. As several key deals successfully completed in the last three months, this quarter feels like a more accurate reflection of what we are seeing in the market.

“ In the last quarter, the private equity (PE) market saw a significant increase in deal values, as mega deals are firmly back on the agenda: 129 deals worth €20.0b completed, the highest value since Q4 2010.

“ We saw the pipeline in Germany start to materialize and, with deal value reaching €9.0b, the last quarter was the second-highest German quarter ever recorded. As the activity levels across Europe become more uneven, Germany is the first market to really threaten the UK’s long-standing lead position.”Sachin Date, Europe, Middle East, India and Africa (EMEIA) Private Equity Leader, EY, UK

Contents

Headlines 1Market watch 2Pipeline 3Deal dynamics 4Current conditions 8Contacts 10

About MultipleMultiple is a quarterly publication summarizing trends in buyouts* across Europe.

EY and Equistone Partners Europe are proud to sponsor the Centre for Management Buyout Research (CMBOR), whose data is analyzed in Multiple.

The following analysis and commentary is based on research recorded by CMBOR.

Countries covered: Austria, Belgium, Czech Republic, Denmark, Finland, France, Germany, Hungary, Ireland, Italy, Netherlands, Norway, Poland, Portugal, Romania, Spain, Sweden, Switzerland, Turkey and the UK.

*�Buyouts:�CMBOR�defines�buyouts�as�over�50%�of�shares�changing�ownership�with�management�or�private�equity,�or�both�having a controlling stake upon deal completion. Equity funding must primarily be from private equity funds and the bought-out�company�must�have�its�own�financing�structure,�e.g.,�management�buyout�(MBO)�or�management�buy-in�(MBI).

For full details on the CMBOR methodology, please refer to page 9.

Strongest quarter by value for three years• With nearly €20.0b of deals completed, the third quarter of

2013�has�been�the�strongest�since�Q4�2010�(€21.5b).�Up�129%�from�Q2,�this�quarter�has�almost�equaled�the�total�value�of�the�first�half�of�2013.�However,�the�number�of�deals�(129)�is the lowest since the fourth quarter of 2009, although only 10 deals lower with 119 deals and a combined value of €6.3b. This emphasizes the current dominance of mega deals.

Second-highest quarter ever recorded in Germany• The quarter saw a resurgent buyout market in Germany, with

close to €9.0b of completed deals. This is almost twice the quarterly�value�of�€5.2b�in�the�UK.�Following�a�low�performance�in�Q2�2013�(€252m),�the�return�to�high�values�cements the country’s position as the second-most active market in Europe by value. If the pipeline of mega deals in Germany continues to materialize this could challenge the UK’s long-standing lead position. A strong fourth quarter in Germany�could�see�it�overtake�the�UK�for�the�first�time.

Uneven performance across the continent • The picture across Europe was unbalanced. Spain saw the

fifth-largest�deal�of�the�quarter�push�it�into�the�top�four�by�value in Q3 (€1.2b). Despite a consistent performance in terms of deal volumes, the UK market lost ground to Germany in terms of deal value due to its low level of mega deal activity. The French market is looking particularly weak, especially when compared with its 2011 levels. However, it managed to more than double its value in Q3 2013 (€2.8b) compared with the previous quarter (€1.2b). Sweden experienced low levels of activity; from 2010 to 2012, there was a lot of deal activity, and�PE�firms�now�need�to�invest�and�grow�their�portfolio�companies in order to exit these assets in 2014 to 2016. This is resulting in lower activity at present.

Mega-buyouts lead the way• Transactions in the €1b-plus range have held up well, with the

top three in the quarter originating in Germany during Q3 2013.�In�all,�five�deals�with�a�combined�value�of�€10.1b�completed in the third quarter, bringing the number of mega deals up to nine for the year to date.

Exit values remain higher than new deal values • So�far�this�year,�there�have�been�288�exits,�returning�€51.7b�

to�investors,�compared�with�€55.4b�for�the�whole�of�2012.�This also compares favorably with the value of new deals (€41.5b),�as�the�backlog�of�portfolio�companies�needing�to�show a return to investors begins to clear. The modest number of exits in Q3 2013 (82), suggests that PE houses are seeking out the right buyers for their assets. They want buyers who value strong strategic synergies and are willing to pay for these assets accordingly.

Refinancings highest for six years • At�€31.6b,�the�value�of�refinancing�during�2013�has�now�

reached�its�highest�point�since�2007�(€46.5b).�This�suggests�that PE backers have been taking advantage of the liquid debt markets�to�refinance�the�existing�debt.�Often,�this�refinanced�debt has portability provisions, making the eventual exit easier.

Headlines

1 | Multiple Q3 2013

Q3 2013

129 deals €20.0bQ2 2013

131 deals €8.7bQ3 2012

145 deals €14.8b

Total number Total value (€m)

Q1

Q2

Q3

Q40

50

100

150

200

250

Q1

Q2

Q3

Q4

Q1

Q2

Q3

Q4

Q1

Q2

Q3

Q4

Q1

Q2

Q3 0

5,000

10,000

15,000

20,000

25,000

2009 2010 2011 2012 2013

€m

Tota

l num

ber

European buyouts — value and volume (quarterly)

Source: CMBOR; Equistone Partners Europe; EY — year 2013 to end Q3 only

2 | Multiple Q3 2013

Largest European deals, Q3 2013

Company name Country Deal month Investor Value (€m) Value type

Springer Science & Business Media Deutschland Germany 8 BC Partners 3,300 Actual

Ista Germany 7 CVC Capital Partners 3,100 Actual

CeramTec Germany 9 Cinven 1,490 Actual

Vue Entertainment UK 8 Alberta Investment and OMERS PE 1,094 Actual

Befesa Spain 7 Triton Advisers 1,075 Actual

Allflex France 7 BC Partners 985 Actual

R&R Ice Cream/R&R UK 7 PAI Partners 831 Actual

Maisons du Monde France 8 Bain Capital 650 Estimated

Host Europe Corporation (Webfusion)/HEG UK 8 Cinven 512 Actual

Armacell Enterprise Germany 8 Charterhouse Capital Partners 485 Actual

TSL Education UK 8 TPG 468 Estimated

Chesapeake UK 8 Carlyle Group 468 Actual

Flexitallic (FDS Group) France 8 Bridgepoint Capital 450 Actual

FTE Automotive Germany 8 Bain Capital 338 Actual

Doc Generici Italy 7 Charterhouse Capital Partners 330 Estimated

Ideal Stelrad UK 8 Bregal Capital 269 Actual

Trescal France 7 Axa Private Equity 250 Actual

Plasma Resources UK/PRUK UK 7 Bain Capital 232 Actual

Marelli Motori/Marelli Overseas Italy 8 Carlyle Group 212 Actual

Alloheim Senioren-Residenzen Germany 8 Carlyle Group 180 Actual

Source: CMBOR; Equistone Partners Europe; EY — year 2013 to end Q3 only

During the third quarter of 2013, some 129 deals with a combined value of €20.0b completed. The value is more than double the previous three months and almost the same as the combined total for the�first�half�of�the�year.�This�brings�the�total�value�of�completed�deals�to�€41.5b,�only�€12.3b�less�than the whole of 2012. If activity continues on this trajectory, buyouts in 2013 should, at the very least, equal the value of 2012, if not surpass it.

However, although the values may be improving, the volume of deals has fallen quarter on quarter during�the�course�of�the�year.�The�first�quarter�saw�133�deals�complete,�only�2�more�than�in�Q2�with 131 deals. But, in the third quarter of the year, only 129 transactions completed.

By�value,�the�market�in�Q3�2013�was�dominated�by�Germany�as�its�deal�pipeline�finally�started�to�materialize. Nearly €9.0b of deals completed in the German market, almost €4.0b more than in the UK.�Three�of�the�five�largest�deals�in�the�quarter�were�German,�including�the�quarter’s�largest�deal,�the €3.3b secondary buyout at Springer Science & Business Media Deutschland. This is the largest deal so far in 2013, and is likely to be the largest deal of the year. This was in marked contrast with Germany’s�previous�quarter,�which�only�saw�€252m�of�completed�deals.

If the upsurge in German activity continues into the fourth quarter, it is possible that it could overtake the UK’s position as the largest European buyout market by value. By volume, the UK remains�consistent�and�dominant.�So�far�this�year,�139�deals�have�completed�in�the�UK,�with�53�recorded in the third quarter. This compares with Germany’s 44 to date (12 deals in Q3).

The secondary buyout at Vue Entertainment, the cinema group, was the largest UK transaction during the third quarter. Valued at €1.1b, it is only the second €1b-plus deal to compete this year in the UK market. The lack of other big deals could result in the UK losing its crown as the biggest PE market in Europe.

France�was�the�second-most�active�market�by�volume,�with�75�completed�transactions�so�far�in�2013.�There�were�21�deals�completed�during�the�third�quarter,�including�Allflex,�the�animal�identification�company,�which�completed�in�July�and�valued�at�€985m.

By�value,�France�is�still�ranked�as�the�third-largest�market,�with�€5.8b�of�transactions�in�the�first�nine months of 2013. Although €2.8b of this came during the third quarter of the year, in terms of deal�value,�France�is�significantly�trailing�behind�Germany�and�the�UK.�Sweden,�which�was�ranked�fourth in terms of value last year, has so far this year only recorded €690m of transactions. This is probably�a�reflection�of�its�buyout�cycle,�having�gone�through�a�particularly�busy�period�in�2011.

There has been little change across all sectors in terms of deal volumes. But some stand-out deals have�driven�a�significant�pick-up�in�value,�namely�in�the�telecommunications,�media�and�technology�(TMT) sector, business and support services and manufacturing. Deal value in the TMT sector had

Market watch

picked�up�in�the�second�quarter�and�has�accelerated�in�Q3,�with�€5.1b�from�26�deals.�Business�and�support�services�also�saw�a�sharp�increase�from�Q2,�with�15�deals�valued�at�€1.2b�increasing�to�16�deals�worth�€4.7b�this�quarter.�Deal�value�in�manufacturing�almost�doubled�from�€2.1b�from�35�deals�to�€4.1b�from�42�deals.

3 | Multiple Q3 2013

Pipeline €21b from 18 deals

“ It is encouraging to see the deal pipeline still growing, and a number of deals should complete this year, particularly in Germany. However, whether this upsurge in activity means that the European PE industry is back in full recovery mode remains to be seen, but the signs are certainly positive.”Sachin Date EMEIA Private Equity Leader, EY, UK

Pipeline prospectsEuropean market conditions during 2013 so far mean that the process of moving a deal from offer to completion�is�more�difficult�and�taking�longer.�However,�the�pipeline�of�prospective�transactions�is�in�good shape, with a number of expected completions and exits anticipated during the remaining months of 2013 and into 2014.

UK�PE�house�3i�has�offered�to�purchase�the�50%�stake�it�does�not�already�own�in�Nordic�ferry�company Scandlines (source: www.3i.com), while Pamplona Capital Management is set to acquire French�funeral�firm�OGF�(source:�Reuters,�1�August�2013).

EWOS, an aquaculture feed and nutrition company, is to be sold to Altor and Bain Capital (source: www.ewos.com),�while�Bridgepoint’s�€585m�acquisition�of�AHT�Cooling,�an�Austrian�refrigeration�equipment manufacturer, is expected to complete in October 2013 (source: www.bridgepoint.eu).

In the UK, CVC is expecting to receive approval for its acquisition of Domestic & General Group, the domestic appliance extended warranty company.

The exit pipeline also offers promise for the remainder of 2013. Numericable, the European cable operator�backed�by�Carlyle,�Cinven�and�Altice,�is�expected�to�float�in�November�(source:�FT.com).�Meanwhile,�TPG�and�DLJ�Merchant�Banking�Group�have�agreed�to�sell�their�stake�in�Grohe�Group,�a�sanitary�fittings�company,�to�LIXIL�and�Development�Bank�of�Japan�for�€3.1b�(source:�www.grohe-group.com).�The�deal�is�expected�to�complete�in�the�first�quarter�of�2014.

4 | Multiple Q3 2013

Deal dynamicsPost-crisis deals now exitingReflecting�PE’s�ability�to�deliver�good�returns�for�its�investors,�a�number�of�deals�completed�since�2009�have�now�exited.�In�the�UK,�5�out�of�the�top�10�exits�were�from�post-2009�deals,�showing�how PE has been able to buy at good prices and weather poor market conditions to grow their assets�and�successfully�exit�in�a�three-�to�five-year�period.

A more settled economic backdrop, with increased funding and debt availability, now points to further successful exits by the end of the year. This will see cash returned to PE investors in readiness for further rounds of fund-raising.

IPO window still openThe IPO markets are still providing a viable exit route for PE houses, although momentum has slowed in Q3 (two IPOs) compared with Q2 (six IPOs). However, the pipeline for PE-backed IPO activity indicates that this activity will continue for the foreseeable future. The two PE-backed IPOs completed in Q3 2013 were Foxtons and Bargain Booze, both in the UK, with Foxtons’ exit value�of�€769m�featuring�in�the�top�10�largest�exits�for�Q3.�These�two�deals�bring�the�total�to�11�PE-backed IPOs in 2013, widening the increase from one PE-backed IPO in the whole of 2012 and only�five�in�2011.�

Refinancing at pre-crisis levelsSo�far�this�year,�some�€31.6b�of�refinancing�has�taken�place�in�the�buyout�market.�If�the�current�pace�continues,�the�market�could�be�looking�at�€40.0b-plus�in�refinancing,�back�to�levels�last�seen�in�2007.

Increasing debt-to-equity ratiosAcross�Europe,�there�has�been�a�significant�increase�in�the�debt-to-equity�ratio.�In�the�€100m-plus�sector,�the�contribution�of�debt�is�the�highest�since�2007.�Many�larger�deals�are�being�done�with�60%�debt,�boosted�by�new,�non-conventional�players�entering�the�market.

Overall,�buyout�activity�has�benefited�from�a�combination�of�an�easing�debt�market�and�increased�availability of equity funding.

“Generally the current credit markets are very positive and there were no real negative shocks over the summer. If you look at across the European markets around two thirds of all debt transactions are related to financial sponsor activity and when you break that down around two thirds of that is refinancings and recapitalizations, with only a third of transactions reflecting new acquisitions. As we see large PE houses exiting their portfolio assets we will see further de-gearing of leveraged loan balance sheets and that should result in more transactions in 2014.”Chris Lowe Debt and Capital Advisory Partner, EY, UK

5 | Multiple Q3 2013

2013 (year to 8 Oct)

288 deals €51.7bQ3 2013

82 deals €20.0bQ2 2013

109 deals €18.6b

Exits

2013 (year to 8 Oct)

393 deals €41.5bQ3 2013

129 deals €20.0bQ2 2013

131 deals €8.7b

Buyouts PE-backed IPO activity

2013 (year to 8 Oct)

11 IPOs€11.3bQ3 2013

2 IPOs €846mQ2 2013

6 IPOs €7.7b2012

1 IPO€3.7b

6 | Multiple Q3 2013

Deal dynamics (continued)

Mega deals dominate

Transactions�valued�at�€1b-plus�held�up�well�across�Europe�with�five�deals�of�a�combined�value�of�€10.1b. However lower mid-market deals (up to €100m) decreased with 101 deals, equating to €2.1b, completed in Q3, compared with 111 deals and €2.0b recorded in the previous quarter.

This underlines the growing trend of fewer, but higher-value, deals as PE investors searched for pan-European, global businesses that are less likely to be affected by regional economic factors.

Deal size

H2 2012 H1 2013 Q2 2013 Q3 2013

€1b-plus 7 4 1 5

€500m–€1b 10 6 3 4

€100m–€500m 41 38 16 19

Up to €100m 224 216 111 101

Total number of deals 282 264 131 129

Largest European exits, Q3 2013

Company name Country Exit month PE vendor Exit value

(€m) Exit type

Springer Science & Business Media Deutschland Germany 8 EQT Partners 3,300 Secondary buyout

Ista Germany 7Charterhouse Capital Partners and CVC Capital Partners

3,100 Secondary buyout

Gambro Sweden 9 Investor AB and EQT Partners 3,059 Trade sale

Vue Entertainment UK 8 Doughty Hanson 1,094 Secondary buyout

Allflex UK 7 Fleming Ventures 971 Secondary buyout

Richmond Foods/R&R Ice Cream/ R&R (Ruby Acquisition)

UK 7 Oaktree Capital Management 831 Secondary buyout

Foxtons UK 9 BC Partners 769 Floatation

Maisons du Monde France 8 LBO France Gestion and Apax Partners 650 Secondary buyout

Host Europe Corporation (Webfusion)/HEG UK 8 Montagu Private Equity 512 Secondary buyout

Armacell International Germany 8 Investcorp 485 Secondary buyout

TSL Education UK 8 Charterhouse Capital Partners 468 Secondary buyout

Chesapeake UK 8 Irving Place Capital and Oaktree Capital 468 Secondary buyout

FDS Group France 8 Eurazeo and Capzanine 450 Secondary buyout

Sunseeker International UK 8 FL Partners and Souter Investments 374 Trade sale

FTE Automotive Germany 8 PAI Partners 338 Secondary buyout

ATC Group Netherlands 7 Hg Capital 303 Trade sale

ISG Holdings UK 8 Warburg Pincus 269 Secondary buyout

Trescal France 7 3i and TCR Capital 250 Secondary buyout

1st The Exchange (Exchange FS)\Avelo UK 8 LDC 246 Trade sale

Alloheim Senioren-Residenzen Germany 8 STAR Capital Partners 180 Secondary buyout

Source: CMBOR; Equistone Partners Europe; EY — year 2013 to end Q3 only

7 | Multiple Q3 2013

There is a growing sense of stability in the European economies. The German election caused little disruption, with the country’s strengthening economy boosting investor confidence.�Perhaps�the�only�surprise�is�that�this�has�not�happened�sooner.

Fears�of�contagion�from�any�country-specific�euro�crisis�have�also�dissipated,�supported�by�the�presence of overseas investors and acquirers in the European market. The presence of these investors is helping to chip away at the backlog of portfolio companies looking for an exit.

Exits are also being helped by the reopening of the IPO markets — a�clear�third�alternative�exit�route�has�been�firmly�established,�helped�by�renewed�interest�in�the equities markets.

Current conditions“Germany is being viewed as a safe haven for investment and is ticking all the necessary quality boxes for investors. Its economy is sound and the recent elections passed without any real cause for concern.

“The low level of mega deal activity in the UK is somewhat of a conundrum. The capital and debt markets are healthy, and the UK has access to some of the best leveraged finance in Europe, which should result in more deal activity at this level.

“With strong competition for assets from corporate buyers, PE houses may be finding themselves unable to compete for these high-value assets. The recent Lucozade and Ribena deal is a clear example of where a strategic corporate buyer was successful, despite strong interest from PE.” Sachin Date EMEIA Private Equity Leader, EY, UK

8 | Multiple Q3 2013

9

CMBOR methodologyThe data only includes the buyout stage of the PE market (management buyout (MBO), management buy-in (MBI), institutional buyout (IBO), buy-in management buyout (BIMBO)) and does not include any other stage, such as seed, start up, development or expansion capital.

Unless otherwise stated, the data includes all buyouts, whether PE backed or not, and there is no size limit to deals recorded.

In�order�to�be�included�as�a�buyout,�over�50%�of�the�issued�share�capital�of�the�company�has to change ownership with either management or a PE company or both jointly having a controlling stake upon deal completion.

Buyouts and buy-ins must be either management led or led by a PE company using equity capital primarily raised from one or more PE funds.

Transactions that are deemed not to adhere to the PE or MBO/MBI model are not included.

Transactions that are funded from other types of funds, such as real estate and infrastructure,�are�not�included.�Deals�in�which�a�PE�firm�buys�property�as�an�investment�are not included.

In order to be included, the target company (the buyout) must have its own separate financing�structure�and�must�not�be�held�as�a�subsidiary�of�a�parent�holding�company�after�the buyout.

Firms�that�are�purchased�by�companies�owned�by�a�PE�firm�are�treated�as�acquisitions�and are not included in the buyout statistics. However, these deals are recorded in the “acquisitions by buyout companies” statistics.

All quoted values derive from the total transaction value of the buyout (enterprise value) and include both equity and debt.

The buyout location is the location of the headquarters of the target company, and it is not related to the location of the PE company.

The quarterly data only counts information on transactions that formally close in that quarter, and does not include announced deal information.

9 | Multiple Q3 2013

Marketing:Katherine SquierTransaction Advisory Marketing+�44�20�7951�8531ksquier@uk.ey.com

Sachin DateEMEIA Private Equity Leader+�44�20�7951�0435sdate@uk.ey.com

Country contacts:Marc GunsBelgium+�32�2�774�9419marc.guns@be.ey.com

Peter WellsCentral and Southeast Europe+�420�225�335�254peter.wells@cz.ey.com

Leonid SavelievCommonwealth of Independent States+�7�495�705�9702leonid.saveliev@ru.ey.com

Laurent MajubertFrance +�33�1�55�61�06�29laurent.majubert@fr.ey.com

Klaus SulzbachGermany, Switzerland and Austria+ 49 6196 996 26186klaus.sulzbach@de.ey.com

Umberto NobileItaly+�39�028�066�9744umberto.nobile@it.ey.com

Alain KinschLuxembourg+�352�42�124�8355alain.kinsch@lu.ey.com

Maurice van den HoekNetherlands+�31�88�40�70434maurice.van.den.hoek@nl.ey.com

Michel ErikssonNordics+�46�8�520�593�54michel.eriksson@se.ey.com

Pedro Rodriguez FernandezSpain+�34�915�727�469pedro.rodriguezfernandez@es.ey.com

Demet OzdemirTurkey+�90�212�368�5264demet.ozdemir@tr.ey.com

Sachin DateUnited Kingdom and Ireland+�44�20�7951�0435sdate@uk.ey.com

For more information, please visit www.ey.com/multiple

Contacts

10 | Multiple Q3 2013

Further insights

Eurozone forecastHow is the Eurozone performing?�Which�of�the�17�nations should corporates be looking to invest in? Find out in the latest EY forecast.

Rapid-growth markets forecastEmerging markets are the new engines of growth. Before venturing into brave new worlds, beat the pack with�July’s�EY�forecast.�Find�out about Turkey on page 49.

Capital InsightsHow do top dealmakers set the right strategy, recognize the right target and achieve the best synergies through a merger? Find out in Capital Insights.

Exceptional magazineThe latest edition of our award-winning Exceptional magazine,�July–December�2013, provides exclusive interviews with a selection of�the�finest�market�leaders,�CEOs and entrepreneurs from around the world; capturing their success story in their words, and sharing their insight into fast-growth success whatever the market conditions.

European real estate assets investment trend indicatorAlthough the future may remain uncertain for many asset classes, the climate is looking more favorable for real estate investment. But what is driving�this�confidence?�Find�out in our new report with a special on Turkey on page 38.

11 | Multiple Q3 2013

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