PricewaterhouseCoopersETIRA

Partnerships in Business : Joint Ventures, Mergers & Acquisitions

ETIRA „Members Only“- Meeting Frankfurt/Main, Germany – 25 January 2005Werner Suhl, PricewaterhouseCoopers

PricewaterhouseCoopersETIRA

Your considerations ?

Attractive markets / international partnerships

Other ... ?Management issues / Succession planning

Growth strategy / financial constraints

Focus on most profitable products

and services

Agenda

• Corporate Life-Cycle

• Financing Alternatives

• Private Equity

• Corporate Transactions(step by step)

• Valuation

• Practical Support, Don‘t Do‘s

• Questions

PwC

Agenda

• Corporate Life-Cycle

• Financing Alternatives

• Private Equity

• Corporate Transactions(step by step)

• Valuation

• Practical Support, Don‘t Do‘s

• Questions

PwC

PricewaterhouseCoopersETIRA

Attractive partnership /optimized exit Corporate life cycle

Time

Businessviability

Consolidation

Insolvency

Underperformance

Crisis

How to detect the ideal timing for a transaction ....

PricewaterhouseCoopersETIRA

Attractive partnership /optimized exit Corporate life cycle

Time

Businessviability

ConsolidationREBUILD

PROTECT

RELEASE

Restart

Turnaround

M&A

Fire sale

Insolvency

Underperformance

Crisis

Bankruptcy

Liquidation

... and how to recover from missed opportunities

Agenda

• Corporate Life-Cycle

• Financing Alternatives

• Private Equity

• Corporate Transactions(step by step)

• Valuation

• Practical Support, Don‘t Do‘s

• Questions

PwC

PricewaterhouseCoopersETIRA

Lack of liable capital / restricted supply of debtfor midsized corporates

0

5

10

15

20

25

30

0-10 10-25 25-50 50-100 100-250 250-500

Turnover Mio. EUR

Equi

ty(%

)

Equity capitalization

Quelle: IKB, 2003

PricewaterhouseCoopersETIRA

Financing Financing alternatives alternatives

Financial Investors

• Venture Capital

• Private Equity

• Initial Public Offering(IPO)

Equity Debt

StrategicInvestors

• Mergers and Acquisitions(M&A)

ClassicalInstruments

• Loans• Factoring• Leasing• Straight Bonds• Syndicated

Loans

StructuredConcepts

HybrideFinancing

• Participating Certificate

• Silent Partnership

• Convertibels / Warrants

• Loan with Profit Participation

Mezzanine

• Asset-Backed Finance

• StructuredLoans(Interest, Term, Currency)

• Acquisition-Finance

Financial Instruments

PricewaterhouseCoopersETIRA

Mezzanine-Fonds : examples

Agenda

• Corporate Life-Cycle

• Financing Alternatives

• Private Equity

• Corporate Transactions(step by step)

• Valuation

• Practical Support, Don‘t Do‘s

• Questions

PwC

PricewaterhouseCoopersETIRA

Private Equity-financing

Phases of Investment

* Investitionen in Deutschland 2002

Longterm developments

LBO22%

MBO22%

Start-up19%

Seed3%

Replacement capital

1%

Turnaround2%

Bridge1%

Expansion28%

MBI1%

* Investitionen in Deutschland 2002

1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002

LBOMBO/MBIBridgeTurnaroundReplacementExpansionStart-upSeedohne Angaben

PE investors demand controlling rights and influence on corporate decisions

Exit drives the total return – PE houses are partners for a limited period of time

PricewaterhouseCoopersETIRA

Private Equity deals 1991 – 2003 (Germany)Development of Investments and Divestments

4.451 4.435

537

1.211

541

2.4152.506

509 528 517 612

1.700

2.816

-820

-2.132-1.855

-1.262-770-538-728

-359-404-352-332-196-173

Investments (incl. funds in funds) Divestments

Valuein €m

1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

Source: BVK

High investments in 1999 - 2001, especially in early stage venture capitalTypical: Divestment peak tails after investment peak – nearly 40% write-offs in 2002

PricewaterhouseCoopersETIRA

Private equityinvestments as

% of GDP (2003)

0.12

0.21 0.23

0.39 0.39

0.580.63

0.7

0.6

0.5

0.4

0.3

0.2

0.1

Germany Italy Europe NL France Sweden UK

European Private Equity market

Source: EVCA Yearbook 2003

PricewaterhouseCoopersETIRA

2. United Kingdom 3. France 4. Italy 6. Germany 8. Netherlands 10. Sweden 14. Spain 17. Finland 20. Belgium

Western EuropeNorth America1. USA 9. Canada

Middle East & Africa13. Israel 18. South Africa

Central & South America

1%2%

25%

<1%Asia Pacific5. Japan 7. Korea 11. Australia 12. India 15. Hong Kong 16. Indonesia 19. China

Source: PwC / 3i

63%9%

Who is the world leader?

PricewaterhouseCoopersETIRA

Private Equity investors : examplesTurnaround Expansion capital

MBO-Investors

Agenda

• Corporate Life-Cycle

• Financing Alternatives

• Private Equity

• Corporate Transactions(step by step)

• Valuation

• Practical Support, Don‘t Do‘s

• Questions

PwC

PricewaterhouseCoopersETIRA

Transactions during a corporate life cycle

StructuringFunds

Structuring

OperationalDue Diligence

VendorDue Diligence

Commercial Due Diligence

Post-DealServices

Financial Due Diligence

Deal Origination /Fund Raising

Investing

DevelopingDisposing

Buy-Side Advise

Identifying opportunities

Sell-Side Advise

Add-on Acquisitions

PricewaterhouseCoopersETIRA

Transaction value chain

Strategic development

Makingdeals

successfulExecuting

dealsEvaluating

deals

Structuring acquisitions and

negotiating purchaseagreements

Structuring acquisitions and

negotiating purchaseagreements

Financing structureand origination

Financing structureand origination

Project managementProject management Initial Public OfferingInitial Public Offering

Target valuation Target valuation

Assessing employeebenefits &

information systems

Assessing employeebenefits &

information systems

Financial and taxdue diligence

Financial and taxdue diligence

Identification and validation of

synergies and costreduction opportunities

Identification and validation of

synergies and costreduction opportunities

Operationalimprovements and

cost reductions

Operationalimprovements and

cost reductions

Decision support,employee benefits,

measurement systems

Decision support,employee benefits,

measurement systems

Monitoring deal flow

Monitoring deal flow

Idea generation andevaluation via SDA

Idea generation andevaluation via SDA

Post deal integrationPost deal integration

Portfolio companymonitoring and

compliance

Portfolio companymonitoring and

compliance

Strategic alternativesanalysis via SDA

Strategic alternativesanalysis via SDA

Valuation servicesValuation services

Identifying and contacting targetsIdentifying and

contacting targets

Evaluation of sectorand target market

position

Evaluation of sectorand target market

position

“Sell side”due diligence

“Sell side”due diligence

Environmental andproperty review

Environmental andproperty review

Identificattion andevaluation of tax

saving opportunities

Identificattion andevaluation of tax

saving opportunities

Identificattion of taxstructuring opportunities

Identificattion of taxstructuring opportunitiesProactive

assessment of PPA-effects of transaction

Proactive assessment of PPA-effects of transaction

Purchase Price Allocation (PPA)Purchase Price

Allocation (PPA)

Value Communication Advice (VCA)

Value Communication Advice (VCA)

Identifyingdeals

Determination andassessment of exposures

Determination andassessment of exposures

Transactionvalue chain

PricewaterhouseCoopersETIRA

Overview of the disposal process

I. Strategy & indicative offer II. Due diligence III. Negotiations

& closing

PROJECT MANAGEMENT

Early identification of “hot spots” and

“most likely” purchasers

Identification of, and best solution to,

bottlenecks

Address key issues as they

arise

Conclusion ofthe process

PricewaterhouseCoopersETIRA

Phase I: Indicative offers and valuation

Research and background on acquirors

Deal structure to achieve optimum consideration

for shareholders

Issues which will arise during due diligence

Control and release of information

Preparation of a longlist on the basis of the criteria catalogue

Agree longlist with all shareholders

Preparation of a short profile and an Information Memorandum

Approach potential acquirors and provide the sales documents

Help to prepare responses to questions

Understand shareholders´objectives Selection of acquirors

Understand shareholders objectives

- SWOT analysis - Identification of key transaction

risks

Discuss sale strategy

Preparation of criteria catalogue for potential acquirors

Vendor due diligence, vendorassistence

Perform preliminary valuation

Receipt of indicative offers

- Understand potential acquirors‘ strategic acquisition and integration concept

- First indicative offer with assumptions

- Financing

Assess content of indicative offers and summarise them

Receipt and clarification of indicative offers

PricewaterhouseCoopersETIRA

Phase II: Selection of the best acquiror and strengthening of own position

Management presentation Data roomEvaluation

Assessment of the true content of the bid including:real price, timing of payment, nature of considerationsources of financeconsideration of necessary approvalsfuture conditions for management

Strengthen own position during data room through controlled release of information:early identification of “hot spots” and how to avoid the heatturning negatives into positives

Assistance in managment presentation

- Business development- Market position and competitors- Financial development- Organization- Attractions of company

Assist shareholders and management throughout due diligence with on site presence

Invite selected potential acquirors to data room

- Provide further information- Prepare responses to points arising- Provide a draft purchase agreement

Planning, organization and coordi-nationof data room and site visits

Verification and analysis of the indicative offers to establish true worth of the bids

Evaluate „conditionality“ of offers

Negotiate key terms and improve terms to shareholders

Decide with shareholders whichpotential acquirors will proceed to the next phase

PricewaterhouseCoopersETIRA

Phase III: Successful negotiations and closing

Negotiations and closingFinal offers Further due diligence

Tactics during negotiations of terms of purchase

agreement

Alternative approaches toacquirors’ demands

concerning representations and warranties

Final offers within a fixed time frame

- Comments or modifications to draft purchase agreement

- Explanation and discussion of the offers

Evaluation and summary of the final offers

Presentation of final offers to shareholders

Further negotiations of bids, if appropriate

Co-ordination of last minute information requests

Initiation and co-ordination of further due diligence requirements

- Commercial due diligence- Financial due diligence- Tax due diligence- Legal due diligence- Environmental due diligence

Contents of disclosure letter to minimise future

liabilities

Final approval of negotiation tactics

Support in negotiations

Negotiations concerning representations and warranties

Co-ordination and organisation of the closing of the transaction

Agenda

• Corporate Life-Cycle

• Financing Alternatives

• Private Equity

• Corporate Transactions(step by step)

• Valuation

• Practical Support, Don‘t Do‘s

• Questions

PwC

PricewaterhouseCoopersETIRA

Value driver : „Selling the story “

Leading MarketPosition

Good Client Relations

AttractiveProducts

Reliability of Dataduring DD

Restructuring Risks

Sustainable ProcuctsTechnology

Management

Strategic Price

Market-Consolidation „Selling the

story“

Shar

ehol

der V

alue

International Orientation

Bidding Process

New Technologies

EstablishedBrand

MAXIMIZING SHAREHOLDER VALUE

MaximizingShareholderValue...

…as well as minimizing potential risks

Historic Development / Actual Position Chances / Aktual Risks

PricewaterhouseCoopersETIRA

Advanced valuation techniques :Strategic Decision Advice (SDA) ….

Step 1 : Modeling of Uncertainties and Development Paths:• Business plan and status quo analysis• Identification of uncertainty factors, possible decisions and

development paths• Derivation of all possible scenarios as combinations of the

identified uncertainties• Estimation of factor variations and probabilities

Low

Nominal

High Enterprise

Value

Low

Nominal

High

etc.

Low

Nominal

High

Ongoing and FutureRestructuring Plans

Low

Nominal

High

Curremt R&D-Pipeline

Low

Nominal

High

Market PotentialNew Products

Low

Nominal

High

Potential ofCurremt Portfolio

Low

Nominal

High

Degree of Inter-nationalisation

Scenario I a

Growth Relativto Competitors

Low

Nominal

High a

Low

Nominal

High

etc.

Low

Nominal

High

Investment SubsidiesGermany

Scenario II b

Personnel CostsGermany

Low

Nominal

High b

Low

Nominal

High

SynergyPotentials

Scenario III

Proceeds fromPartial Sale

Other Scenarios

PossibleScenarios

PricewaterhouseCoopersETIRA

c’d …. Strategic Decision Advice (SDA)

Current R&D-pipeline

Ongoing and future restructuring plans

65 70 75 80 85 90 95 100 105 110

Growth relative to competitors

Degree of Internationalisation

Potential of current product portfolio

Market potential of new products

Enterprise Value

Step 2: Identification and Analysis of Key Value Drivers:• Sensitivity analysis: Identification of key value drivers• Tornado diagramm: Graphical illustration of valuation effects

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

300 400 500 600 700 800 900 1000 1100 1200 1300 1400

Cum

ulat

ive

prob

abili

ty d

istri

butio

n

Value of the competing strategies in Mio EUR

Risk profiles for two competing strategic alternativesStep 3: Valuation and Analysis of Valuation Results:• Risk profile: Illustration of valuation results• Answers questions such as:

• What is the expected value of the respective strategicalternative or investment project?

• Which strategic alternative is the least risky?• How high is the probability that the value of the

strategic option will be positive?• How high is the probabilty that the value will be

between X and Y?

Agenda

• Corporate Life-Cycle

• Financing Alternatives

• Private Equity

• Corporate Transactions(step by step)

• Valuation

• Practical Support, Don‘t Do‘s

• Questions

PwC

PricewaterhouseCoopersETIRA

Due diligence steps and integration

Due Diligence Support

• Financial

• Market/Commercial

• Operational

• Reporting & Controlling

• Information Technology

• Human Resources

• Tax

• Realization of Chances

“Value Driver Analysis”

• Management of Risks

Urgent ActionsMid-term solutions

Trans-formation:

100 Days Plan

Post Deal ServicesBusiness Due Diligence

• Strategic Review

• “Red Flag Due Diligence”

• Market Review

• Risks and Opportunities Paper

“Pre-Due Diligence”

PricewaterhouseCoopersETIRA

Readiness +Value + Market-Test

Readiness Assessment

Preliminary Longlist + Short Profile

Preliminary Value Indication

Corporate Valuation

Approach of potential Investors

Presentation of ResultsAgree further Steps

Vendor Assistance / Data Analysis

Vendor Due Diligence

Establish Data Room

Finalize Long List/Short List

Finalize Information-Memorandum

Approach Investors

Distribution of Information-Memo

Receive non-binding Bids

Management Presentation

Due Diligence

Negotiations and Closing

Illustrative project-timetable

M

Phase

ContentJan 05 Feb 05 Mrz 05 Apr 05 May 05 June/July 05

Establish Sales Steps / Initiate Process Negotiation Phase

PricewaterhouseCoopersETIRA

„Don‘t do‘s“ Konzernstandards zu Akquisitionsprozessen

Unclear definition of responsibilities and contacts

Un-focused project management

Intransparent transaction process

Under-estimation of timing contraints

Non-coordinated communication

Lack of confidentiality

Gap between management (owners) and functional responsibilities

....

PricewaterhouseCoopersETIRA

Q u e s t i o n s ?

Agenda

• Corporate Life-Cycle

• Financing Alternatives

• Private Equity

• Corporate Transactions(step by step)

• Valuation

• Practical Support, Don‘t Do‘s

• Questions

PwC

PricewaterhouseCoopers networkPricewaterhouseCoopers (www.pwc.com) provides industry-focused assurance, tax and advisory services for public and private clients. More than 120,000 people in 139 countries connect their thinking, experience and solutions to build public trust and enhance value for clients and their stakeholders. “PricewaterhouseCoopers” refers to the network of member firms of PricewaterhouseCoopers International Limited, each of which is a separate and independent legal entity.

Assurance

Tax

Financial Services

Technology, Media & Telecommunications

Global coverageServices Industries

AdvisoryConsumer & Industrial Products

Asia Pac

North America

120,000 people, 139 countries

Europe

Latin America Africa

PricewaterhouseCoopersETIRA

PricewaterhouseCoopersETIRA

Services benefiting you – PwC Advisory

TransactionsWe help our clients in mergers and acquisitions, including financial and operational due diligence, accessing the capital markets and valuing, negotiating and structuring deals. We also assist with divestments and developing exit strategies. Performance ImprovementWe help clients improve their performance. We use our deep understanding of finance, risk management / compliance, IT systems, operations and humanresources to help our clients identify and implement cost savings initiatives, improve management and control, identify and manage risk and improve quality. We also use our proven experience and expertise to provide hands-on assistance to improve financial under-performance and cash-flow management. Crisis ManagementWe help clients deal with critical events as they occur. We provide comprehensive services covering business recovery, restructuring, dispute analysis and forensic investigations.

PricewaterhouseCoopersETIRA

Your contact

Werner Suhl - Partner, Advisory, Frankfurt

Werner heads the German m&a practice within PwCs Deals Services offering and is part of the management of German Advisory service line with one thousand employees and partners

Before he spent 15 years at Deutsche Bank, Frankfurt as General Manager DB Morgan Grenfell and Managing Director Global Investment Banking

He serviced national and international clients in various industries regarding the purchase or sale of companies and shareholdings, joint ventures, corporate restructurings, management buyouts and in connection with public takeovers of listed companies. Overall he had management responsibility for more than 300 transactions with a total value of over € 150 billion

Werner is qualified as Chartered Accountant and Tax Advisor

Marie-Curie-Strasse 24-28 Phone +49-69-9585-565060439 Frankfurt am Main Mobil +49-160-8857567Germany E-Mail werner.suhl@de.pwc.com

Werner Suhl Photo