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Martin Halusa CEO, Apax Partners

Chief Executive’s overview continued

All of these companies are in one of the five sectors in which Apax has specialised for the last 20 years: Epicor/Activant, iGATE/Patni and Orange Switzerland were all completed by our Tech & Telecom team; Golden Jaguar and Takko were Retail and Consumer Investments; and the Media and Healthcare teams completed one investment each in Trader Corp and KCI. In every one of the investments made in 2011 it was our deep knowledge of the sector and the amount of previous work that our teams had done on the companies and their markets that gave us a competitive advantage.

Realisations

In terms of portfolio company transactions, 2011 was also a successful year, with the Funds realising €2.1bn of value through several transactions, including share sales in Tnuva, Capio, Bankrate, Weather Investments and Trader Media. Apax Funds typically invest in businesses for around five years with a view to improving them and selling them once the investment thesis has been realised. The Funds primarily create value for investors by building better businesses that have clear long-term potential. The sophisticated buyers that are the next owners of these businesses will not pay a premium unless this is the case.

Delivering on strategy

Against a challenging economic backdrop in 2011, funds advised by Apax Partners (Apax) have invested €2.7bn of capital in seven new companies. Falling company valuations and the continued availability of debt finance provided a strong environment for new investments enabling us to invest at our predicted rate during 2011. Our Funds have invested in these companies because we think they are excellent businesses with the potential to expand their operations significantly during the four to five  years investment period.

Investments

Geographically, in the last couple of years we have moved from being a firm that is largely focused on investments in Europe and the US, to the firm we are today, which analyses opportunities on a truly global basis. The companies in which Apax Funds invested in 2011 reflect this shift and are spread across our network in Asia, Europe and the US.

18 Apax Partners Annual Report 2011

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19Apax Partners Annual Report 2011

Every four to five years, the performance of the Apax Funds are evaluated by our investors as we look to raise a new fund. Because of the very large sums of money that are involved, this evaluation is understandably very rigorous and if the investors do not like what they see, they will not entrust us with their money. Apax Funds invest money on behalf of pension funds and money managers around the world and the success of the Apax Funds ultimately benefits the millions of individual policy-holders who are saving for their retirement. It is that simple.

Many of our investors have had less capital to invest this time round because they are still feeling the effects of the downturn. Others, such as banks, have been prevented from investing in private equity for regulatory reasons. At the same time, we are faced with a very competitive market in which many of our peers are competing for the same shrinking pool of capital. Against this backdrop, we see this fundraising progress to date as a vote of confidence in our team and our strategy and are thankful for the continued support and trust of those who have backed us.

Challenges

The year was not without its challenges; the severe global economic downturn that started in 2008 continued to create difficulties for some of our portfolio companies. Marken in particular was impacted by difficult trading conditions during the year. It is a clinical trials logistics business that has been hit by consolidation in the pharmaceuticals market and a drop in the number of trials being undertaken. We are working very closely with management to try to ensure that the business maintains its market leading position and has a sustainable future.

Gaining the support of our investors

Apax VIII, the latest fund to be advised by Apax, is seeking commitments of around €9bn to help invest in businesses in the next four to five years. In March 2012 the fund announced a ‘first close’ on €4.3bn. Apax is very pleased with the level of support the fund has received from both existing and new investors.

Martin Halusa CEO, Apax Partners

Chief Executive’s overview continued

Turning to Asia and South America, these markets are characterised by cyclical public markets that have already priced in growth expectations. While the public markets will continue to fluctuate, we believe that overall these markets will continue to grow as a result of domestic demand.

What does this mean for private equity investment?

Historically, times of recession have ultimately yielded the best returns for private equity because our funds invest in companies when their valuations are low. We see no reason why this should not be the case now.

The investment period for Apax VIII will coincide with a prolonged period of economic uncertainty with correspondingly reduced valuations significantly below long-term averages. We are seeing plenty of cases where strong company fundamentals are not reflected in the share price. I believe this will present a good opportunity for public-to-private transactions as under-valued companies seek to fulfil their long-term growth plans away from the short-term demands of quarterly reporting and the scrutiny of analysts

Operating in a challenging market

We are going through a period of unprecedented global economic dislocation, the impact of which will be felt for many years to come.

Over the course of 2011, the banking/financial crisis in Europe escalated into a sovereign debt and political problem in the eurozone, which will have a medium term drag on growth in the core countries and a more profound longer-term impact on those at the periphery. We believe that the economic fundamentals of the core eurozone countries remain strong. We think that a collapse of the euro is extremely unlikely, and in our opinion the more likely scenario is the emergence of a more unified political entity. This will be a painful process, but I am sure that, in the longer term, this market of 350m consumers will return to being an economic powerhouse.

The US is already faring better than Europe but, again, deleveraging and subdued consumer demand will constrain a return to strong growth in the medium-term.

TTTTTThhhhhheeeeee eeeeeexxxxxxpppppppeeeeeerrrrrriiiiiieeeeeennnnnncccccceeeeeedddddd tttttteeeeeeaaaaaammmmmm tttttthhhhhhaaaaaatttttt wwwwwweeeeee hhhhaaavvveee bbbbuuuiiiillllttt aaannndddd aaa ccclllleeeaaarrr aaannndddd wwweeellllllll uuuunnnnndddddeeeeerrrrrssssstttttooooooooooddddd ssssstttttrrrrraaaaattttteeeeegggggyyyy wwwwiiiiillllllllll aaaaallllllllllooooowwww uuuussss ttttoooo sssseeeeiiiizzzzeeee tttthhhheeee ooooppppppppoooorrrrttttuuuunnnniiiittttiiiieeeessss pppprrreeessseeennnttteeeddd ddduuurrriiinnngggg ttthhheee nnneeexxxttt ffeeww yyeeaarrss..Martin Halusa CEO, Apax Partners

20 Apax Partners Annual Report 2011

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21Apax Partners Annual Report 2011

The experienced team that we have built and a clear and well understood strategy will allow us to seize the opportunities presented during the next few years.

In higher growth markets, such as China, India, Brazil, Russia and Turkey, we are witnessing increased opportunities to acquire controlling stakes in companies that fulfil our size criteria. In 2011 our Funds acquired a majority stake in restaurant chain Golden Jaguar, in one of the largest deals of its kind ever completed in China. The Funds also made a significant acquisition in India by investing through Nasdaq listed iGATE to acquire Indian competitor Patni Computers.

Investments of this scale, where our funds are able to acquire majority stakes, have only recently become available in China and India; as the private equity markets in these countries mature, we believe that many more such opportunities will become available.

Reputation Matters

Finally, we anticipate that the image and reputation of private equity will continue to be intensely scrutinised in the run up to the US presidential election in November. Contrary to what these politically motivated attacks assert, we believe that private equity has a strong record in terms of its alignment of interest with investors and its ability to drive superior returns. In terms of the wider social picture, studies show that private equity has a strong record in terms of value and job creation and a crucial role to play in the economic recovery in the US and elsewhere. Private equity represents a vital source of long-term investment in a time of acute capital constraint and we feel that policies that restrict this flow of capital will ultimately damage the chances of recovery.

Martin Halusa CEO, Apax Partners

and media. As well as continuing to see companies move from public markets and into private hands, we are likely to see large listed conglomerates sell off non-core assets in order to repair their own stressed finances.

At the same time, low interest rates mean that the cost of debt finance for our investments is at an historic low. While debt markets will continue to fluctuate, the low interest rate environment will fuel demand for high-yielding leverage loans and bonds for solid underlying assets.

Why is Apax well placed to capitalise on this opportunity?

Flexibility will be key to benefiting from future investment opportunities. Being a global investor allows us to focus our resources on the best opportunities wherever they may be.

Our team has spent many years identifying sub-sectors and companies that we believe will generate the highest returns and where our sector teams can help to add most value. As valuations fall many of these companies are now looking increasingly attractive.

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