North American Private Equity in Review - Hogan …The top buyout deal in the sector was the KKR led...

North American PrivateEquity in ReviewFebruary 2008

In association with:

MER 592 NA PE in Review V13.qxd 25/2/08 17:50

Contents

Bowne foreword 3Hogan & Hartson foreword 5Where now for private equity? 6Buyout and exit deal trends 8Industry trends 10North American private equity deals 14North American SBOs 16Private equity activity tables 17Financial advisor activity tables 19Legal advisor activity tables 21The public face of private equity 25Energy Holdings Corporation – resilient deal 26Hot Sector – private equity investments in finance services & real estate 27Appendix 28Contacts 30Notes 31


North American Private Equity in Review 3

Bowne is pleased to present the sixth edition of the North AmericanPrivate Equity in Review. This comprehensive report highlights thelatest trends within the North American private equity market, coversactivity across various industry sectors and provides an analysis ofbuyout and exit trends over the course of 2007. This report willprovide useful insights for dealmakers and their advisors.

The volatility of the North American economy in 2007 was certainlyevident in the private equity buyout market. On the one hand, 2007set another record for private equity with a total of $493bn in capitalhaving been invested by buyout firms. This represented nearly a 16% increase over 2006. However, a closer look reveals that adisproportionate level of activity occurred over the first half of theyear. Of the $493bn that was invested in 2007, $383bn was investedin the first two quarters alone. To most market observers, this dropoff can be largely attributed to the tightening credit markets in the USwhich happened as a result of the subprime mortgage crisis. As moreand more subprime borrowers defaulted on their loans, the impactwas felt across a wide range of financial institutions depending ontheir level of exposure to securitized subprime loans. This in turncaused a ripple effect throughout the market as the lendingenvironment became far more conservative and buyout firms werefaced with new challenges. The difficulty in financing acquisitionsresulted in the dramatic drop-off in activity over the last two quarters of the year. Nevertheless, the high level of activity over the first halfof 2007 was enough to carry private equity to another record year.

In terms of specific industry activity, Business Services was the sectorthat had the most buyout capital invested in it over the course of 2007with over $83bn worth of activity. As a result, Business Servicesaccounted for 17% of the overall LBO deal value in 2007. The topbuyout deal in the sector was the KKR led buyout of First Data Corpfor $26bn. Not surprisingly, the Telecoms sector, at $77bn in overallbuyout capital was a close second in accounting for 16% of 2007 LBOdeal value. However, of the $77bn invested, $48bn can be attributedto the mega buyout of Canada’s largest telephone company, BCE, bya private equity consortium including Teachers Private Capital,Madison Dearborn Partners, and Providence Equity Partners. The BCEbuyout was the largest ever in the Canadian market. The Energysector rounded out the top three as it accounted for 13% of overallLBO deal value. The most notable buyout for this sector was thehighly publicized $44bn buyout of TXU, which has since beenrenamed Energy Future Holdings Corp. This buyout was led by KKR,Texas Pacific Group and the private equity arm of Goldman Sachs, inaddition to a collection of minority investors. Despite a few initialhurdles and opposition by environmental activist groups, the

transaction was completed and is the largest ever forthe US Energy sector. In terms of volume activity, the Industrials& Manufacturing sector remained an attractive industry for buyoutinvestors as it accounted for 25% of all volume activity, havingregistered 221 deals over the course of 2007. The Consumer andBusiness Services sectors followed with 17% and 13% respectively.

While the buyout market saw significant fluctuation from one quarterto the next in 2007, the exit market remained steady for the year.Overall, there were 560 exits in 2007, down slightly from the 574 that were completed in 2006. The Defense sector witnessed thehighest volume of exit activity. It is interesting to note that theindustry only accounted for 1% of the total value of exits by industrysector. One possibility for the high volume could be the upcoming USpresidential election. It appears many investors are cashing out inadvance of November’s election, given the uncertainty of militaryspending that President Bush’s successor will have. In terms of thevalue of the exit deals, the trend was also relatively steady over thecourse of the year. The second quarter, however, was an exceptionas it spiked with just over $50bn in exits. Nevertheless, overall for theyear there was a total of $121bn earned by investors versus $103bnin 2006, an increase of 17.4%. Additionally, the secondary buyoutmarket remained active in 2007 with a total of 188 transactionshaving taken place over the year, an increase from the 168 SBOs that were recorded in 2006.

In changing times, finding the right deal looks set to become evermore complex and challenging. Bowne, the global leader in financialcommunications, has a great vantage for seeing, and solving, some of the logistical challenges faced by private equity firms, from fundraising through divestiture. Bowne Virtual Dataroom, our web-basedreplacement for the traditional paper dataroom, is designed toexpedite M&A due dillgence, with flexibility to customise to meeteach client’s specific needs.

If you would like more information about how we can help you execute your strategy, please visit our website atwww.bowne.com. Additionally, resources relating to recent regulatory developments affecting private equity and hedge funds can be obtained at Bowne’s Securities Connect website,www. securitiesconnect.com.

Bowne forewordIn 2007, the private equity buyout market met its first significant challenge in some time as the subprime

credit crisis in the US percolated over the second half of the year. For the time being anyway, it appears

the days of easy money, relaxed covenants and high leverage ratios are going to be a distant memory.

However, despite these new market conditions, private equity registered another record year.



2007 may be known as the year of two stories in the privateequity world. The first six months of the year set a new high forprivate equity deal making. North America saw 508 deals worth$383 billion in buyout deal value in H1 2007. The second half of2007, however, with the subprime issues as a catalyst, was adifferent story. Deal values, in particular, took a big hit, as thelatter half of the year saw 404 deals worth only $111 billion.

With the difficulty in securing financing, many of those megadeals announced in the first half ended up in court arguing overdeal terms and changing economic conditions. The $25 billionbuyout of Sallie Mae, by a JC Flowers–led consortium, broke up after a revised offer and many months in court. A similar fateoccurred for the $5 billion United Rentals buyout.

Perhaps spurred by fears that valuations would not be as high as previously expected, exits were also affected by this year’scredit tightening. There was a slight decrease in the total volumeof exits in 2007- 560 versus 576 in 2006. Nevertheless, the totalvalue of these deals, $122 billion, marks an increase over the$105 billion of 2006. The largest exit in 2007 was Blackstone’s $8 billion sale of Extended Stay America to Lightstone Group,announced last April.

Despite the deals which fell victim to the uncertain credit market,2007 still saw several massive buyout deals complete. Toppingthe chart was the $48 billion buyout of BCE, the CanadianTelecommunications company, by Teachers Private Capital,Madison Dearborn Partners, and Providence Equity Partners. This deal was closely followed by the $44 billion Energy FutureHoldings Corp (formally TXU) by a KKR-led consortium. It was a busy year for KKR, who also announced the deal of the thirdlargest buyout, the $26 billion buyout of First Data.

In terms of industry sectors, Industrials, Chemicals, andEngineering accounted for 25% of buyout volume, followed by Consumer with 17%, and Business Services with 13%.

In value terms, Business Services was the leading sector with$83 billion, followed by Telecommunications with $77 billion, and Financial Services with $64 billion. Technology, a sector thathistorically has not been very active for private equity, saw a totalof 52 deals announced in 2007.

The year will also go down on record for witnessing Blackstone’slandmark $4.75 billion IPO in June, in what seems now like aneternity ago given the volatility of the market in the past sixmonths. However, Blackstone’s share price has suffered in thesecond half of the year, with the stock falling 29% from the initialoffering price of $31 on June 22, to $22.13 on December 31, 2007.

Hogan & Hartson is an international law firm with more than1,100 lawyers practicing in 22 offices worldwide. Our privateequity practice brings a strong “sector approach” to dealstructuring, bringing to bear a legal team that couples trans-actional experience with our leading national and internationalregulatory lawyers. Through our private equity coordinating group,we exchange information across offices concerning bestpractices, transactions, industry knowledge, business contacts,deal opportunities, and document precedents. Our lawyersrecently have participated in leveraged acquisitions and venturecapital investments involving companies and private investmentfunds in the United States, Germany, the United Kingdom,France, Russia, Belgium, Poland, the Netherlands, Denmark,Mexico, China, and other parts of Asia. We have the substantivedepth to serve as special acquisition, financing, regulatory, andsecurities counsel, and strive to build relationships based uponthe simple principle that whatever the issue, we will deliver theanswers you need, when you need them.

Richard K.A. Becker, Partner

George A. Hagerty, Partner

Jeffrey M. Hurlburt, Partner

David A. Winter, Partner

Hogan & Hartson LLP

Hogan & HartsonforewordHogan & Hartson is pleased to present the full year 2007 edition of North American Private Equity in Review

in association with Bowne and mergermarket. This comprehensive report highlights the most recent trends

and developments in the North American private equity market, addressing deal activity across industry

sectors, as well as the value and volume trends for both buyouts and exits.


6 North American Private Equity in Review

The two largest buyouts were the $48bn for Canadian corporationBCE by an investment group led by Teachers Private Capital andthe $44bn LBO of Energy Holdings Corporation by TXU AcquisitionConsortium. TXU has completed and been financed, but BCE stillhas to finance the deal which is something far from guaranteed inthe current climate. Indeed, at time of writing Harrah’sEntertainment, which was purchased by Apollo Management andthe Texas Pacific Group for $27.2bn, has seen syndication of its$14bn debt package fail. This now leaves the underwriting bankssitting on a large tranche of the debt.

Harrah’s is a prime example of a deal to which a commitment had been made before the subprime crisis, at a time where theidea of a $100bn LBO did not seem out of the question. Now itappears the banks, as in other deals, are struggling to sell on theleveraged finance to third parties, presenting them with theprospect of big losses unless there is major reversal in the health of the debt market.

Not all LBO deals, however, have been so troublesome. Last year for instance, also saw the completion of another TPG dealin alliance with KKR – the $33.5bn LBO of Energy FutureHoldings (formerly TXU), the Texas-based energy services group.This deal did not face the same level of trouble, with syndicationof the debt completed in October 2007. However, once the creditcrunch hit, Citigroup - who backed KKR on the deal - did push torenegotiate the terms. In the end, loans to finance Energy FutureHoldings were priced at 99 cents on the dollar.

As mentioned, the level of unsyndicated debt floating around atthe moment has left banks questioning financing commitmentson other pending leveraged buyouts, one example being the$48bn for Canadian corporation BCE by an investment group ledby Teachers Private Capital, which is likely to now be highlychallenging. The banks providing debt on this deal are Citigroup,Deutsche Bank, the Royal Bank of Scotland (RBS) and TD BankFinancial Group. What happens with this deal is yet to be seen,but in the wake of several failed transactions recently (the latestbeing Reddy Ice Holdings takeover by GSO Capital which lapsed

in early February) it seems that nothing can be counted out.Another pending deal in the midst of financing negotiations is the Clear Channel Communications $27.9bn purchase by ThomasH. Lee Partners and Bain Capital Partners.

Furthermore, all this trouble with financing is inevitablydampening the appetite for new buyouts.

If this situation does continue and the market does not recuperatefrom the 2007 credit crunch, private equity could move more intothe mid market for the medium to long term. The full year 2007saw some 695 buyout deals in the mid market (less than $300m)in North America with a total value of $23.3bn. In 2006 thenumbers were fairly similar with 683 deals being completed at atotal value of $25.4bn. It will be worth noting whether or not thevolume of deals in this space increases in 2008.

Another possible trend which could emerge in the future is thefurther presence of buy & build strategic deals by private equityplayers. This is a relatively new development for private equity,but one which looks set to grow in importance. ApolloManagement, the US based private equity firm, for one, hasdemonstrated this strategy through its acquisition of the companyCEVA logistics, the Dutch logistics company, for $1.9bn in August2006. August 2007 then saw CEVA make a build through itsacquisition of Eagle Global Logistics Inc, the Texas based logisticscompany for $2bn.

Finally, it will be interesting to observe the impact of theemergence of sovereign wealth funds and what role they willplay on the market and within North American private equity.Recently, America saw the China Investment Corporation (CIC)injecting $3bn into the flotation of Blackstone, the Americanprivate equity group. The CIC has approximately $200bn availablefor such investments. Similarly, the Middle East, Russia andSingapore are also cash-rich countries with SWFs looking forinvestment opportunities. It is probable that sovereign wealthfunds will play a growing role in private equity and the widerM&A sphere.

Where now for private equity?Post credit crunch the future for large scale leveraged buyouts both in North America, and globally, is

extremely unclear at the moment. Indeed, the mid market appears to be the safest realm for the private

equity players. The market is so subdued at present that it is almost hard to imagine that the first half of

2007 saw some of the biggest LBOs ever announced.



Buyout and exit deal trends

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Buyout and exit trends by value

• Despite a dip in the second half of the year, total buyout activity in2007 reached 912 deals, representing 6% increase over the 2006 level of 865.

• Exit volumes decreased slightly in 2007 to 560 deals from 576 in2006. The first half started strong with 304 exits, but the remainder of the year posted only 256.

• After a spike in deal value of $265bn in Q2 2007, on the backs ofmega buyouts like TXU etc, the total value of deals dipped in Q3 andQ4. Nonetheless, the total value of $494.5bn for 2007 represents anincrease over the 2006 total of $426.5bn.

• Although there was a slight decrease in the total number of exits in2007, the total value rose to $122.1bn, over $104.6bn in 2006.

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• Of the 912 completed buyouts in 2007, 15% were deals between $15-$100m, while 14% of the deals were worth more than $500m. 10%of deals occupied the $101m-$250m range, and 6% of the deals filledout the $50m-$500m space.

• Buyouts in the above $500m range accounted for 91% of total dealvalue in 2007, which remain the same from 2006. Only two of the top20 largest deals occurred in second half of the year (Hilton Hotel for$25bn and Puget Energy Inc for $6.7bn) while H1 2007 saw megadeals including the $48bn BCE buy and $44bn TXU deal.


North American Private Equity in Review 9North American Private Equity in Review 9

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• Exits in the $15m-$100m range accounted 21% of the total in 2007.Exits worth $100m-$250m accounted for 13%. Exits in the $250m-$500m represent 11% as do those worth more than $500m.

• Exits worth more than $500m accounted for 66% of overall exits invalue terms. Exits worth $250m-$500m accounted for 20% of totalexit value. Next were the exits worth $100m-$250m, which accountedfor 11% and $15m-$100m exits which represented 6%.

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• 2007 saw a total of 188 secondary buyouts worth $36.3bn whichrepresents a sizeable increase on 2006, which saw 168 secondarybuyouts worth $31.8bn.

• Q1 2007 saw the most secondary buyouts at 53, and there was aslight, but steady decrease for the remainder of the year.

Buyout and exit deal trends



Business Services

Telco

Energy, Mining, Oil & Gas

Financial Services

Leisure

Industrials/Chemicals/Engineering

Consumer

Lifesciences/Healthcare

Technology

Media

Transport

Construction

Defense

Agriculture

17%

16%

13%

11%

10%

8%

7%

7%

4%

4%2% 1%


Consumer

Business Services


Financial Services

Technology

Media

Leisure


Construction

Telco

Transport

Agriculture

Defense

25%

17%

13%

9%

7%

6%

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5%

4%

4%

4% 1%

Sector split of buyouts by volumeSector split of buyouts by value

• In terms of total buyout deal value, five sectors formed the majority ofdeals for 2007. The Business Services sector led with 17% of deals interms of value, followed closely by Telecoms with 16%. Energy, MiningOil & Gas (13%), Financial Services (11%) and Leisure (10%) sectorsrounded out the top five.

• Deals such as the $26.9bn First Data buyout and the $48.1bn BCE buyout, helped put Business Services and Telecoms at the topof the chart.

• Three sectors dominated buyouts in 2007 in terms of the volume ofdeals. The Industrials, Chemicals & Engineering sectors attracted thegreatest number of deals this past year with 25% of total buyoutvolume, followed by the Consumer sector with 17% and BusinessServices with 13%.




Consumer

Technology

Business Services

Leisure

Financial Services

Media

Transport

Telecom

Defense

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Transport

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Telecom

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Leisure

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Sector split of exits by volume Sector split of exits by value

• Although there was an adequate representation from most sectors in terms of exit values, the Industrials, Manufacturing & Engineeringsector accounted for the most, with 15% of the total value. This wasfollowed closely by Life Science/Healthcare which accounted for 14% of the total value of exits. Energy, Mining, Oil & Gas, and Consumerboth represent 13%.

• Exits in terms of volume were dominated by five sectors. Defencecame in with the largest share, accounting for 21% of the total amount of exits for 2007. Financial Services followed with 19% and the Life Sciences/Healthcare accounted for 13% of the total amount of exits. The Transport (12%) and Consumer (11%) sectorround out the top five.

Industry trends



North American private equity deals

Top 20 private equity deals

Announced Target Company Target Sector Bidder Company Bidder Seller Company Deal Type Deal Value

Date Description ($m)

Jun-30-07 BCE Inc Telecommun- Teachers Private Private investment arm IBO,Take Private 48,059ications Capital; Madison Dearborn of the Ontario Teachers

Partners; and Pension Plan; US privateProvidence Equity equity firm; and US privatePartners Inc equity firm

Feb-26-07 Energy Future Energy, Mining TXU Acquisition Consortium of investors IBO,Take Private 44,161Holdings Corp Oil & Gas Consortium led by Kohlberg Kravis

Roberts & Co, TPG, and Goldman Sachs throughits private equity arm. Minority equity investors include Citigroup Inc, Citigroup Venture Capital Equity Partners Ltd, JPMorgan Chase & Co,Lehman Brothers Private Equity, Morgan Stanley, and Morgan Stanley AIP Private Markets

Apr-02-07 First Data Business Services Kohlberg Kravis Roberts US private equity firm; IBO,Take Private 26,964Corporation & Co Other providers of equity

finance include Goldman Sachs, Deutsche Bank AG, Credit Suisse, HSBC Holdings plc, Citigroup Inc, and GMIInvestment Partners Inc

May-20-07 Alltel Corporation Telecommun- GS Capital Partners; US private equity firms IBO,Take Private 26,862Inc ications and TPG

Jul-03-07 Hilton Hotels Leisure Blackstone Group US private equity firm IBO,Take Private 25,081Corporation Holdings

May-29-07 Archstone-Smith Financial Services Archstone-Smith A partnership sponsored IBO,Take Private 19,820Trust Acquisition Co by Tichman Speyer and

Lehman Brothers

Jun-19-07 HD Supply Business Services Bain Capital; Clayton US private equity firms The Home Depot Inc IBO,Take Private 8,500Dubilier & Rice Inc; and The Carlyle Group

Feb-26-07 Station Casinos Inc Leisure Fertitta Colony Partners An acquisition vehicle IBO,Take Private 8,462formed by Frank J. Fertitta III, Chairman and CEO of Station, Lorenzo J. Fertitta, Vice Chairman and President of Station, and Colony Capital

Jun-15-07 Penn National Leisure Fortress Investment US private equity firms IBO,Take Private 8,355Gaming Inc Group; and

Centerbridge Partners LP

Apr-18-07 Extended Stay Leisure Lightstone Group US based real estate Blackstone Group Exit 8,000America Inc company which owns Holdings

and manages a diversified portfolio apartments, office, industrial and retail properties

May-11-07 Nelson Canada; Media Apax Partners; and UK private equity firm; The Thomson Corporation IBO, Take Private 7,750and Thomson OMERS Capital Partners Canadian private Learning (Assets) equity firm

Note: The Top 20 Deals table continues on the next page.



Top 20 private equity deals (continued)

Announced Target Company Target Sector Bidder Company Bidder Seller Company Deal Type Deal Value


May-17-07 Alliance Data Business Services Blackstone Group Global private IBO, Take Private 7,687Systems Holdings investment and Corporation advisory firm

May-14-07 Chrysler Holding Industrials, Cerberus Capital US private investment Daimler AG IBI 7,448(80.10% stake) Chemicals Management LP and fund management

& Engineering firm

May-02-07 US Foodservice Inc Business Services Clayton Dubilier & Rice US private equity firms Royal Ahold NV IBO 7,100Inc; and Kohlberg Kravis Roberts & Co

Jun-04-07 Avaya Inc Technology Silver Lake Capital; US private equity firms IBO, Take Private 7,044and TPG

Mar-12-07 Dollar General Corp Consumer Kohlberg Kravis US private equity firm IBO, Take Private 6,958Roberts & Co

Oct-26-07 Puget Energy Inc Energy, Mining Puget Acquisition Consortium led by IBO, Take Private 6,724Oil & Gas Consortium Macquarie Infrastructure

Partners (MIP), the Canada Pension Plan Investment Board (CPPIB) and British Columbia Investment Management Corporation(bcIMC), and also includesAlberta Investment Management (AIM), Macquarie-FSS Infrastructure Trust (MFIT) and Macquarie Bank Limited

May-29-07 CDW Corporation Technology Madison Dearborn US private equity IBO, Take Private 6,467Partners investment firm

May-22-07 Crescent Real Financial Services Morgan Stanley US Real Estate management IBO, Take Private 5,884Estate Equities Real Estate division of Morgan StanleyCompany

Jul-02-07 Manor Care Inc Lifesciences The Carlyle Group US private equity firm IBO, Take Private 5,821& Healthcare

North American private equity deals



North American SBOs

Top 15 secondary buyouts

Announced Target Company Target Sector Bidder Company Bidder Seller Company Deal Value


Dec-21-07 Quintiles Life Sciences 3i Group Plc; Bain Capital; UK private equity firm.; One Equity Partners 3,000Transnational Corp & Healthcare Temasek Holdings US private equity firms;(undisclosed stake) Pte Ltd; and TPG Singapore-based investment

holding company

May-03-07 VWR Business Services Madison Dearborn US private equity investment firm Clayton Dubilier & Rice Inc 2,196International Partners

Feb-12-07 Pinnacle Foods Consumer Blackstone Group US private equity firm C Dean Metropoulos & Co; CCMP 2,160Group Inc Holdings Capital Advisors; and JW Childs

Associates LP

Feb-09-07 GNC Corporation Consumer Ares Management; US investment management and Apollo Management LP 1,650and Ontario Teachers private equity firm; Canadian Pension Plan pension plan responsible for

the retirement income of elementary and secondary school teachers, and retired teachers and their families

Jul-05-07 Samsonite Consumer CVC Capital Partners UK based private equity firm Ares Management; 1,536Corporation Limited Bain Capital; and Ontario

Teachers Pension Plan

May-11-07 US Investigations Business Services Providence Equity US private equity firm specializing The Carlyle Group; and 1,500Services Inc Partners in equity investments in Welsh, Carson, Anderson & Stowe

communications, entertainment and media companies

Jun-01-07 Niagara Holdings Industrials, CPQ Holdings Holding company and acquisition CCMP Capital Advisors 1,498Inc Chemicals & vehicle of The Carlyle Group, the

Engineering US based private equity firm

Jul-01-07 Global Tower Telecommun- Macquarie CommunicationsAustralia based company that invests Blackstone Group Holdings 1,425Partners ications Infrastructure Group; and in communications infrastructure

Macquarie Infrastructure such as broadcast transmission Partners towers, wireless communications

towers and satellite infrastructure; US based diversified fund focusing on infrastructure investments in United States and Canada.

Apr-02-07 Neff Corporation Financial Services GE Pension Trust; US pension fund; US private Odyssey Investment Partners 1,222Lightyear Capital; equity firmsNorwest Equity Partners

Mar-29-07 Advanstar Inc Media Citigroup Venture Capital US private equity firms; US based DLJ Merchant Banking Partners 1,142Equity Partners; New York private equity and mezzanineLife Capital Partners; and capital fund management companyVeronis Suhler Stevenson

May-31-07 Alliant Resources Financial Services Blackstone Group US private equity firm Lindsay Goldberg & Bessemer LP 1,100Group Inc Holdings

May-21-07 Sheridan Life Sciences Hellman & Friedman US private equity firm JW Childs Associates LP 925Healthcare Inc & Healthcare

Apr-16-07 Universal Hospital Life Sciences Bear Stearns US private equity arm of Bear JW Childs Associates LP; and The 712Services Inc & Healthcare Merchant Banking Stearns & Co Inc Halifax Group

May-14-07 TransFirst Business Services Welsh, Carson, US based private equity firm GTCR Golder Rauner 683Holding Inc Anderson & Stowe

Aug-01-07 Oakleaf Global Industrials, New Mountain Capital US based private equity firm Charterhouse Group International Inc 655Holdings Inc Chemicals &

Engineering



Private equity activity tables - buyouts

Buyouts - Volume

Rank Company Name Value ($m) Number of Deals

1 The Carlyle Group 28,691 17

2 Sun Capital Partners 665 17

3 American Capital Strategies 1,177 15

4 GS Capital Partners 77,579 11

5 Audax Private Equity Group 100 11

6 Providence Equity Partners 58,826 9

7 Blackstone 41,123 9

8 Platinum Equity 3,094 9

9 The Riverside Company – 8

10 TPG 82,448 7

11 Citigroup Venture Capital Equity Partners 55,737 7

12 Code Hennessy & Simmons 130 7

13 Kohlberg Kravis Roberts & Co 89,367 6

14 Lehman Brothers Private Equity 64,551 6

15 Bain Capital 17,245 6

16 H.I.G. Capital 464 6

17 Wind Point Partners 440 6

18 Allied Capital Corporation 60 6

19 Sentinel Capital Partners – 6

20 Madison Dearborn Partners 62,666 5

21 Hellman & Friedman 6,783 5

22 Wachovia Capital Partners 6,085 5

23 Oak Hill Capital Partners 1,728 5

24 Veronis Suhler Stevenson 1,712 5

25 Norwest Equity Partners 1,622 5

Buyouts - Value


1 Kohlberg Kravis Roberts & Co 89,367 6

2 TPG 82,448 7


4 Lehman Brothers Private Equity 64,551 6

5 Madison Dearborn Partners 62,666 5

6 Providence Equity Partners 58,826 9

7 Citigroup Venture Capital Equity Partners 55,737 7

8 Ontario Teachers Pension Plan 49,755 3

9 Morgan Stanley Private Equity 44,471 2

10 Blackstone Group Holdings 41,123 9


12 Clayton Dubilier & Rice 20,614 3


14 Fortress Investment Group 13,722 4

15 Apax Partners 11,003 4

16 Cerberus Capital Management 9,003 4

17 Warburg Pincus 8,862 4

18 Centerbridge Partners 8,855 3

19 Onex Partners 8,815 3

20 Temasek Holdings 8,800 3

21 OMERS Merchant Banking Group 8,500 2

22 Colony Capital 8,462 1

23 Silver Lake Partners 7,263 2

24 Merrill Lynch Global Private Equity 6,976 3


Note: The tables are based on private equity houses as the bidder on buyouts and buyins announced between 01/01/2007 and 12/31/2007, where the target is North American,excluding lapsed and withdrawn deals.

The Private Equity Activity Tables reflect the activity of buyout firms, venture capitalists, investment firms, financial institutions and all parties whose activities wholly involve, or includemaking private equity investments. Please note that the values in the 'Value' column do NOT reflect the equity contribution of the investors but represent the total values of deals theywere involved in.



Private equity activity tables - exits

Exits - Volume


1 Intel Capital 659 13


3 American Capital Strategies 1,084 9

4 CCMP Capital Advisors 5,773 7

5 Sequoia Capital 668 7

6 H.I.G. Capital 84 7


8 Oaktree Capital Management 6,162 6

9 TA Associates 692 6

10 Apax Partners 436 6



13 Metalmark Capital 2,410 5

14 3i Group 2,387 5

15 Odyssey Investment Partners 1,672 5

16 GTCR Golder Rauner 1,201 5

17 Cerberus Capital Management 1,175 5

18 Charterhouse Group International 1,160 5

19 Allied Capital 753 5

20 Insight Venture Partners 474 5

21 Norwest Equity Partners 388 5

22 Flagship Ventures 915 4

23 Accel Partners 785 4

24 New Enterprise Associates 780 4

25 Morgenthaler Partners 626 4

Exits - Value



2 Oaktree Capital Management 6,162 6

3 CCMP Capital Advisors 5,773 7




7 Ontario Teachers Pension Plan 4,090 3

8 Welsh, Carson, Anderson & Stowe 3,940 3

9 J.W. Childs Associates 3,797 3


11 One Equity Partners 3,575 2

12 Silver Lake Partners 3,500 1

13 Candover Investments 3,380 2

14 JMI Equity 3,121 3


16 ArcLight Capital Partners 2,758 3

17 Clayton Dubilier & Rice 2,566 2

18 HM Capital Partners 2,523 3

19 Apollo Management 2,442 3

20 Metalmark Capital 2,410 5

21 3i Group 2,387 5

22 C Dean Metropoulos & Co 2,160 1

23 Versant Ventures 2,042 3

24 ARC Energy Venture Funds 1,964 1

25 TPG 1,771 1

Note: The tables are based on private equity houses as the seller on exits announced between 01/01/2007 and 12/31/2007, where the target is North American, excluding lapsed and withdrawn deals.

The Private Equity Activity Tables reflect the activity of buyout firms, venture capitalists, investment firms, financial institutions and all parties whose activities wholly involve, or includemaking private equity investments. Please note that the values in the 'Value' column do NOT reflect the equity contribution of the investors but represent the total values of deals theywere involved in.



Financial advisor activity tables - buyouts

Buyouts - Volume


1 Goldman Sachs 23,069 32

2 Harris Williams & Co 1,847 26

3 Lehman Brothers 14,343 21

4 Credit Suisse 10,782 21

5 JPMorgan 11,836 18

6 William Blair & Company 1,326 17

7 Morgan Stanley 17,423 15

8 Banc of America Securities 15,826 13

9 Houlihan Lokey 1,104 13

10 UBS 3,095 12

11 Jefferies & Company 1,352 12

12 Robert W. Baird & Co 1,320 12

13 Lincoln International 711 12

14 Piper Jaffray & Co 497 11

15 CIBC World Markets 3,406 10

16 Wachovia Corporation 3,330 10

17 Merrill Lynch 19,384 9

18 Bear, Stearns & Co 13,408 9

19 Lazard 858 9

20 Goldsmith Agio Helms 151 9

21 RBC Capital Markets 3,450 8

22 Citigroup 8,065 6

23 Deutsche Bank 6,628 6

24 Lane, Berry & Co. International 725 6

25 BB&T Capital Markets – 5

Buyouts - Value
















15 UBS 3,095 12

16 Marathon Capital 2,015 1

17 TD Securities 1,964 1






23 CB Richard Ellis Services 1,075 2

24 HSBC Bank 925 1

25 Allen & Company 875 3

Note: The tables are based on financial advisors to the bidder on buyouts and buyins announced between 01/01/2007 and 12/31/2007, where the target is North American, excluding lapsedand withdrawn deals.



Financial advisor activity tables - exits

Exits - Volume











10 UBS 3,095 12



13 Lincoln International 711 12

14 Piper Jaffray & Co 497 11





19 Lazard 858 9

20 Goldsmith Agio Helms 151 9




24 Lane, Berry & Co. International 725 6

25 BB&T Capital Markets – 5

Exits - Value
















15 UBS 3,095 12

16 Marathon Capital 2,015 1

17 TD Securities 1,964 1






23 CB Richard Ellis Services 1,075 2

24 HSBC Bank 925 1

25 Allen & Company 875 3

Note: The tables are based on financial advisors to the seller/target on exits announced between 01/01/2007 and 12/31/2007, where the target is North American, excluding lapsedand withdrawn deals.



Legal advisor activity tables - buyouts

Buyouts - Volume


1 Kirkland & Ellis 107,846 89

2 Latham & Watkins 78,560 42

3 Weil Gotshal & Manges 131,350 36

4 Simpson Thacher & Bartlett 158,516 30

5 Jones Day 7,295 28

6 Ropes & Gray 23,499 23

7 O'Melveny & Myers 16,144 21

8 Goodwin Procter 9,937 21

9 Stikeman Elliott 35,204 20

10 Paul Weiss Rifkind Wharton & Garrison 8,848 20

11 Bingham McCutchen 3,521 20

12 Debevoise & Plimpton 64,102 19

13 Osler Hoskin & Harcourt 85,456 18

14 Skadden Arps Slate Meagher & Flom 32,976 18

15 Davis Polk & Wardwell 62,248 15

16 Paul Hastings Janofsky & Walker 1,214 15

17 Fried Frank Harris Shriver & Jacobson 63,941 13

18 Dechert 50,342 13

19 Blake, Cassels & Graydon 16,799 13

20 Sonnenschein Nath & Rosenthal 561 13

21 Goodmans 64,952 12

22 Vinson & Elkins 46,037 12

23 DLA Piper 20,069 12

24 Gibson Dunn & Crutcher 10,178 12

25 Hogan & Hartson 9,515 12

Buyouts - Value





4 Osler Hoskin & Harcourt 85,456 18

5 Cleary Gottlieb Steen & Hamilton 84,144 11


7 Goodmans 64,952 12




11 Wachtell Lipton Rosen & Katz 55,412 7

12 Dechert 50,342 13

13 Gowling Lafleur Henderson 48,283 2

14 McDermott Will & Emery 46,115 9


16 Covington & Burling 45,361 2

17 Stroock & Stroock & Lavan 44,566 3

18 Hunton & Williams 44,321 3

19 Baker Botts 44,161 2

20 Sullivan & Cromwell 44,063 9

21 Schulte Roth & Zabel 36,222 10


23 Freshfields Bruckhaus Deringer 34,417 5


25 Herbert Smith, Gleiss Lutz, Stibbe 32,913 2

Note: The tables are based on law firms advising the bidder on buyouts and buyins announced between 01/01/2007 and 12/31/2007, where the target is North American, including lapsedand withdrawn deals.



Legal advisor activity tables - exits

Exits - Volume






5 Jones Day 4,106 13

6 Cooley Godward Kronish 1,496 12

7 DLA Piper 871 11

8 Proskauer Rose 1,697 10

9 O'Melveny & Myers 703 10

10 Dechert 3,645 9


12 Willkie Farr & Gallagher 2,822 8

13 Bingham McCutchen 1,784 8

14 Wilson Sonsini Goodrich & Rosati PC 1,142 8



17 Morgan Lewis & Bockius 4,139 7

18 Mayer Brown 1,317 7

19 Gunderson Dettmer Stough Villeneuve Franklin & Hachigian 664 7





24 Heller Ehrman White & McAuliffe 518 6

25 White & Case – 6

Exits - Value






5 Ropes & Gray 5,940 4




9 Baker Botts 4,795 4



12 Morgan Lewis & Bockius 4,139 7

13 Jones Day 4,106 13

14 Dechert 3,645 9



17 Shearman & Sterling 3,016 2

18 Willkie Farr & Gallagher 2,822 8


20 WilmerHale 2,225 4


22 Cravath Swaine & Moore 2,002 2

23 Blake, Cassels & Graydon 1,964 2

24 Macleod Dixon 1,964 1

25 Clifford Chance 1,900 2

Note: The tables are based on law firms advising the seller/target on exits announced between 01/01/2007 and 12/31/2007 where the target is North American, including lapsedand withdrawn deals.



Two large, alternative investment firms, Fortress InvestmentGroup and The Blackstone Group, each of which includessubstantial private equity components, completed initial publicofferings (IPOs) of their management vehicles in the first half of2007. These events, the Blackstone IPO in particular for reasonsthat have been well-reported, generated substantialCongressional interest in the taxation of private equity firms andfunds, as well as hedge funds and managers. Congressionalinterest was fairly broad, and touched on the taxation of publicly-traded entities providing investment advice, the tax treatment ofcarried interest, and the use of offshore fund structurescommonly known as blockers. While the future stream of privateequity firm IPOs is hardly ordained, it would not catch many offguard if 2007 marked the beginning of an IPO trend.

In addition to the firms that engaged in IPOs, other alternativeinvestment firms sold minority interests to institutional investors.For example, CalPERS acquired a 10% interest in the ApolloManagement Group, while the Abu Dhabi Investment Authority(an example of what is becoming commonly known as asovereign wealth fund) acquired interests in Apollo and CarlyleGroup. Such acquisitions were not unique to 2007, but the yeardid see increased activity in the area. Moreover, this trendappears likely to continue as CalPERS, in early 2008, acquired a9.9% stake in Silver Lake. Public pension plan and sovereignwealth fund ownership of private equity firms likely will bringmore public scrutiny to the private equity world.

In 2007, sovereign wealth funds increased their presence in theglobal financial markets generally, and they appear to be a rapidlygrowing player in global finance. While there is no sovereignwealth fund model, it is no surprise that many are believed tohave a substantial allocation to private equity. Sovereign wealthfunds typically are not transparent and there exists concern

regarding the possible strategic aspects of their investments. Asprivate equity firms become more powerful and sovereign wealthfunds add to their private equity holdings, particularly if they takeinterests in private equity firm management companies, thisconcern is likely to grow.

As a result of private equity's prolonged period of success andthe new private equity firm stakeholders (the public through IPOs,public pension plans, and sovereign wealth funds), private equitycan now expect a regular seat in front of Congress and federaland state regulators. While it is not at all clear that additionalregulation and/or less advantageous taxation are imminent, itwould be surprising if these issues do not continue to surface inCongress and in front of regulators in the future.

Viewed from the future, the story of the new private equity firmstakeholders may even rival the credit market meltdown as thedefining aspect of the 2007 private equity world.

Richard K.A. Becker, Partner

George A. Hagerty, Partner

Jeffrey M. Hurlburt, Partner

David A. Winter, Partner

Hogan & Hartson LLP

The public face of private equity Despite the subprime debacle, private equity firms had much to point to in 2007 as evidence for another

successful year. The continued success of private equity led to a maturing of the private equity world in

the form of a growing class of new private equity firm stakeholders. In an effort to capitalize on their

success, leading private equity firms searched for additional capital in 2007, either to convert some of

the value that has built up in the firms into cash, or in some cases, to expand the reach of the firms.



It was a deal so big they had to rename it Energy HoldingsCorporation. It first began in February 2007 when the TXUAcquisitions consortium, consisting of KKR and TPG, two of thenation’s leading private equity firms, and Goldman Sachs, aleading global investment bank, made their approach to theenergy company. At the time when the deal was announced itwas the biggest LBO North America had every seen, although itwas soon beaten in June by the announcement of the $48bnbuyout of BCE, the Canadian telecommunications company.

There were several issues which stood in the way of the TXUdeal being completed. In July, one of TXU’s major shareholders,Franklin Resources (5% stake), opposed the buyout by the KKRled consortium because the price was too low at $69.25 pershare, despite the company urging shareholders to accept thedeal price. The company view appeared to be that it did notbelieve it could find a better price for the company. In August,Franklin Resources reversed its course and publicly announced itnow supported the approach from the private equity giants.

Around this time the ominous credit crunch hit US and UKmarkets, which generally had a massive dampening effect onprivate equity as a whole. There has been much coverage in themedia about the roll out of deals such as TXU, which werecommitted to before the subprime crisis. The problem being thatfinancing these ambitious mega deals was much more difficultand the banks began to get cold feet. Fears were not withoutbasis, judging by the number of transactions which fell apartduring this time. Moreover, there was press speculation aroundSeptember that KKR and TPG were looking at withdrawing fromthe TXU deal due to the difficulties in the credit markets.

No matter what the concerns were, the deal pushed on andtowards the end of September there was discussion about theprospect of syndicating the $37bn loan. At the time of writing,selling off loans to third parties is still a pressing issue, with TPGand Apollo Management’s buyout of Las Vegas Casino group,Harrah’s Entertainment, running into problems of syndication of$14bn worth of debt post-transaction. However, the TXU wentthrough the syndication process with more ease than expected.

In October 2007 the AARP, representing their 2.3m members inTexas, called on state regulators to reject the proposedsettlement of the buyout, due to concerns that Texas residentswould have to swallow the debt that would be used to fund thebuyout in electricity bills. However, despite this aversion, the dealgained approval from the Nuclear Regulatory Commission.

Finally, the merger agreement reached completion on theOctober 10, 2007, and TXU became Energy Holdings Corp. Thedeal was passed with overwhelming support from itsshareholders. If the rollout of the deal from here on in issuccessful, the transaction may be considered one of the verylucky ones given the current turbulent climate for private equity.

Energy HoldingsCorporation – resilient deal It seems nothing could get in the way to stop KKR and Texas Pacific Group (TPG) from completing one

of the largest private equity deals of 2007, the leveraged buyout of Energy Future Holdings Corporation,

formerly known as TXU Corporation for $44.1bn.



The acquisition of Archstone-Smith Trust, the US-based realestate operating company, marked one of the biggestprivatizations of a real estate investment trust. Furthermore, at time of completion the deal had to cope with the severedownturn in the US housing market. The purchase was not only a notable private equity deal due to its size, but it alsorepresents Lehman Brothers willingness to inject its own capital into a deal. Lehman and Tishman paid $60.75 share.

The Archstone deal was not the only of its kind in 2007. Itfollowed close upon a similar, albeit smaller, deal where MorganStanley paid $5.9bn for Crescent Real Estate Equities, the Texasinvestment trust founded by billionaire Richard Rainwater.Announced only one week prior, this deal also made it into theoverall top deals for private equity in 2007, clocking in at 19th.The precedent for both deals was Blackstone’s $37.8bn purchaseof Equity Office Properties Trust, the Chicago-based buildingowner and manager with a portfolio, from billionaire Sam Zell,which was announced in November 2006 and completed inFebruary 2007.

The next largest deal was outside of the Real Estate sphere, and saw Nuveen Investments, the US-based investment brokingcompany purchased by an acquisition vehicle led by MadisonDearborn Partners for $5.7bn.

It would incomplete to discuss the Financial Services sector andnot mention the Sallie Mae deal. A victim of the credit crunch, the$25bn JC Flower's led buyout fell apart after months in court.

Post credit crunch, and it is not just real estate companies thatare being targeted but some of the very Wall Street institutionswhich have bankrolled the private equity sector. Indeed, while nota conventional buyout, December saw Davis Selected Advisers,US-based investment firm, and Temasek Holdings, Singaporebased state-owned investment house buy a 12.1% stake inMerrill Lynch, the investment bank for $5.6bn. If the economicwoes caused by the enduring credit crunch continue into 2008,further investments in Wall Street titans are likely to materializefrom financial buyers and sovereign wealth funds. Moreover,private equity funds, in particular listed funds such as Blackstone,might find themselves in the cross-hairs of buyers. A case of the hunter becoming the hunted.

Hot sector – private equityinvestments in FinanceServices & real estate In value terms, private equity involvement in the Financial Services sector accounted for 11% of buyouts in

2007, and 7% in volume. In terms of exits, Financial Services accounted for 8% by value, and 19% in volume

terms. The top deal in the Financial Sector this year was the takeover of the Archstone-Smith Trust by the

Archstone-Smith Acquisition Co, a partnership sponsored by Tichman Speyer and Lehman Brothers, for

$19.8bn. Announced on May 29, 2007, the deal was the sixth biggest private equity deal of the year,

completed on October 5, 2007.



AppendixSource data

Buyout and Exit Trends

Period Volume of Deals Value ($m)

Q1 2003 11 2,573

Q2 2003 11 2,624

Q3 2003 12 2,281

Q4 2003 14 5,784

Q1 2004 29 8,301

Q2 2004 27 7,177

Q3 2004 35 10,544

Q4 2004 29 5,097

Q1 2005 29 3,201

Q2 2005 37 11,860

Q3 2005 37 6,766

Q4 2005 41 10,978

Q1 2006 35 4,366

Q2 2006 43 12,038

Q3 2006 57 9,893

Q4 2006 33 5,477

Q1 2007 53 8,867

Q2 2007 50 13,130

Q3 2007 49 8,196

Q4 2007 36 6,149

TOTAL 668 145,302

Secondary Buyout Trends

Buyouts Exits

Period Value ($m) Number Value ($m) Number

of Deals of Deals

Q1 2003 9,330 94 4,404 26

Q2 2003 11,964 94 4,156 29

Q3 2003 14,864 80 6,436 35

Q4 2003 18,767 110 13,209 50

Q1 2004 27,732 143 10,676 69

Q2 2004 29,941 146 12,810 71

Q3 2004 44,507 156 14,319 75

Q4 2004 28,213 157 14,784 86

Q1 2005 30,906 161 17,551 93

Q2 2005 33,038 189 32,048 102

Q3 2005 40,041 165 34,265 136

Q4 2005 45,043 178 35,880 110

Q1 2006 57,719 201 22,490 131

Q2 2006 81,004 226 30,357 169

Q3 2006 121,689 225 22,125 156

Q4 2006 166,069 209 29,620 118

Q1 2007 118,158 249 25,397 133

Q2 2007 265,275 259 50,194 171

Q3 2007 68,583 212 23,391 129

Q4 2007 42,509 192 23,132 127

TOTAL 1,255,352 3,446 427,244 2,016

Volume 2003 2004 2005 2006 2007

Not disclosed 115 220 343 401 475

< $15m 28 37 25 55 30

$15m - $100m 126 149 138 168 136

$101m - $250m 51 85 74 74 88

$251m - $500m 29 49 49 52 59

> $500m 29 62 64 111 124

TOTAL 378 602 693 861 912

Buyout Deal Size Data by Volume Buyout Deal Size Data by Value

Value 2003 2004 2005 2006 2007

< $15m 279 345 219 507 276

$15m - $100m 6,709 7,373 7,506 8,170 6,981

$101m - $250m 7,533 14,452 12,684 12,088 14,540

$251m - $500m 9,675 18,101 17,771 18,739 21,596

> $500m 30,729 90,121 110,847 386,976 451,131

TOTAL 54,925 130,392 149,027 426,480 494,524



Appendix: Source Data

Volume 2003 2004 2005 2006 2007

Not disclosed 26 79 130 201 225

< $15m 11 22 18 27 25

$15m - $100m 39 85 122 151 115

$101m - $250m 30 53 67 85 73

$251m - $500m 19 37 55 55 62

> $501m 15 25 49 55 60

TOTAL 140 301 441 574 560

Exit Deal Size Data by Volume

Value 2003 2004 2005 2006 2007

< $15m 126 191 162 263 232

$15m - $100m 2,257 4,482 6,118 7,922 6,578

$101m - $250m 4,497 9,416 10,805 14,212 12,311

$251m - $500m 6,756 13,373 19,711 18,928 21,880

> $501m 14,570 25,126 82,947 63,267 81,114

TOTAL 28,206 52,588 119,743 104,592 122,115

Exit Deal Size by Volume

Sector Value (USDm) Volume

Industrials/ Chemicals/ Engineering 41,334 221

Financial Services 56,335 66

Business Services 83,300 120

Consumer 34,225 156

Energy, Mining, Oil & Gas 64,628 36

Technology 22,185 52

Media 19,086 47

Telco 77,315 13

Leisure 50,976 43

Transport 8,403 32

Lifesciences/ Healthcare 33,393 82

Construction 2,879 36

Agriculture 313 4

Defense 335 3

TOTAL 494,707 911

Buyouts - Industry Breakdown

Sector Value (USDm) Volume

Agriculture 0 0

Business Services 12,304 73

Construction 206 10

Consumer 14,240 63

Defence 944 4

Energy, Mining, Oil & Gas 14,271 28

Financial Services 9,017 23

Industrials, Manufacturing & Engineering 16,427 106

Leisure 11,434 16

Lifesciences/Healthcare 15,675 67

Media 8,246 30

Technology 13,067 119

Telecom 3,105 9

Transport 3,179 12

TOTAL 122,115 560

Exits- Industry Breakdown

Note: Based on announced buyouts or buyins for the period January 1, 2007 to December 31,2007, excluding those that lapsed or were withdrawn.

Note: Based on announced exits for the period January 1, 2007 to December 31, 2007,excluding those that lapsed or were withdrawn.


Bowne Contacts

William P. PendersPresident Tel: +1 212 658 5828

Matt LaMuragliaExecutive Vice President, DirectorTel: +1 212 658 5850

Suzanne GreyExecutive Vice President, Director, SalesTel: +1 212 658 5807

Hogan & Hartson Contacts

Washington, D.C.David A. WinterTel: +1 202 637 6511Email: [email protected]

Northern VirginiaRichard K.A. BeckerTel: +1 703 610 6123Email: [email protected]

London/Washington, D.C.Jeffrey M. HurlburtTel: +44 (0)20 7367 0226Tel: +1 202 637 2868Email: [email protected]

DenverGeorge A. HagertyTel: +1 303 454 2464Email: [email protected]

Mergermarket Contacts

Erik WickmanHead of North American Sales, RemarkTel: +1 212 686 3329Email: [email protected]

Elias LatsisHead of ResearchTel: +44 (0)20 7059 6100Email: [email protected]

Abigail RobertsEditor, mergermarket AmericasTel:+ 1 212 686 6526Email: [email protected]

Analysis: Anna Henderson & Gwen CetonData: Gwen CetonEditor: Ed LucasProduction: Gwen Ceton & Steve Jeal


Contacts


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Notes

Notes

The following notes pertain to data contained inthis publication:

• Deals included are buyouts or exits where the dealvalue is greater than or equal to $5m.

• Where no deal value has been disclosed, deals areincluded if the turnover of the Target is greater thanor equal to $10m of if the Target employs more than100 people.

• Deals are included within the analysis, charts andgraphs for each section if the dominant geographyof the Target is North American.

• Please refer to individual notes beneath each ActivityTable for the precise criteria by which each table hasbeen run.

• The Sector Trend analysis is based on deals using thedominant industry of the target.


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North American Private Equity in Review - Hogan …The top buyout deal in the sector was the KKR led...

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