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CIMA CPD PRESENTATIONDebt & Equity Finance

DON HARRINGTONDirector,

GOODBODY CORPORATE FINANCE

19 October, 2010

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Macroeconomic Environment

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Key Irish deals include - AIB non-core disposals, Greenstar/Veolia, ESB purchase of NIE, Greencore sale of Malt division, C&C sale of spirits division to William Grant, Trintech sale of healthcare division, Acquisition of Skillsoft by PE consortiumH1 saw growth of 25% across Europe in M&A volumePredominantly cross border - companies acquiring for growth and market entry Industrials and chemicals, financial services & consumer most active sectorsMost PE retreating to mid-market – some up-tick in activity levels

Irish M&A market at low levels

Source: Ion Equity/NCB M&A Tracker Survey

Irish M&A Activity Value of Irish M&A Activity by Acquiror Type

Source: Ion Equity/NCB M&A Tracker Survey, Goodbody Analysis

Irish M&A Activity

5.86.7

5.3

10.4

7.9

14.6

4.5

1.7 1.5 2.0 2.2

0

2

4

6

8

10

12

14

16

H1 05 FY 05 H1 06 FY 06 H1 07 FY 07 H1 08 FY 08 H1 09 FY 09 H1 10

Valu

e of

Dea

ls (€

bn)

0

20

40

60

80

100

120

140

160

Volume

Value (€bn) Volume

Value of Irish M&A Transactions by Acquiror Type

0

500

1,000

1,500

2,000

2,500

3,000

3,500

Q108 Q208 Q308 Q408 Q109 Q209 Q309 Q409 Q110

Valu

e of

Dea

ls (€

m)

Irish quoted plc Other Irish company Irish PE Overseas company Overseas PE

2,886

1,578

1,245

473

1,277

212

993820

479

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M&A Deal Issues 2010

Most deals < €200m

More MAC clauses (poor earnings, broader industry / economic issues)

Corporate capital/liquidity driving M&A deals

View last year was that strategic buyers would represent > 80%, PE is making a comeback

Tough to negotiate indemnification caps/baskets, MAC clauses, holdbacks, exclusivity/”Go Shops”

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Primary debt issuance moving off the lows

European Senior Loan Volume

Source: Standard & Poors

H2 pipeline for mid-market deals better than H1Some underwriting back in the marketMajority of facilities contain significant amortising portionMargins in the 400-500 bpsTenors in the 5-7 year rangeMost deals are in the mid-market, bilateral and club deals Covenant relief costing 75-100 bps and margin uplift of 150 bps + further equity from sponsors

Senior New Issuance Volume

0

20

40

60

80

100

120

140

160

180

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

€bn

Q1 Q2 Q3 Q4

34

60

74

4148

66

119131

166

54

5 7

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Leverage multiples & equity contributions

Pro Forma Debt/EBITDA Ratios - Europe Acquisition Capital Structure

Senior Leverage multiples in the 3-4x range, up from 2009 levels

Total leverage up to 4.5x

Equity contributions north of 50%

Mezzanine (if used) accounts for 5% - 15% of deal structures

Source: Standard & Poors Source: Standard & Poors

Average Leverage Levels

3.4 3.4 3.5 3.6 3.9 4.3 4.63.8

3.2 3.4

0.7 0.71

1.31.2

1.4

1.3

0.9 0.70.7

0.0x

1.0x

2.0x

3.0x

4.0x

5.0x

6.0x

7.0x

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

First Lien/EBITDA Other Debt/EBITDA

Sponsors take on a higher share of buyout financing

0x

2x

4x

6x

8x

10x

12x

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Debt/EBITDA Equity/EBITDA Other/EBITDA

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PLC equity issues – IPO vs. follow-on/secondaries

UK Equity Market Issues 2000 – 2010 ytd

Financial fundraisings accounted for 75% of all equity raised in 2009 and 32% 2010 ytd2010 deals include IPO of Betfair, Kabel, Amadeus, Promethean20 PE backed IPOs have been pulled ytd and 50% of listings priced below the rangePublic market values not attractive for IPOsOver next 12 months, IPO focus will be on growth stories in healthcare, technology, energyNASDAQ and Asian markets generally more attractive (given growth criteria)

Source: Bloomberg

8 94 3 4

1117 17

5 6

1013

84

10

10

1418

32 41

7

10

5

10

15

20

25

30

35

40

45

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010YTD

£(bn

)

IPO Funds Raised Additional Equity Raised

18

22

12

7

14

21

31

3537

42

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Public market valuations

10 Year Forward Based P/E Valuations

Source: Factset

Irish market underperforming UK/USUK market trading at 10-11x P/E – close to 10 year lowsSovereign issues, as well as fears of further economic pressures weighing heavily on markets

0x

5x

10x

15x

20x

25x

30x

Oct-99 Oct-00 Oct-01 Oct-02 Oct-03 Oct-04 Oct-05 Oct-06 Oct-07 Oct-08 Oct-09 Oct-10

Forw

ard

P/E

S&P 500 FTSE All-Share

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UK Survey of 150 CEOs/CFOs

Survey of 150 CEOs/CFOs in UK

Majority of people believed that the funding environment was static (i.e. not improving)

59% felt that majority of financing would come from internal cash-flows for next 12 months

85% of respondents said that no government funding has filtered down to UK business

Banks are conservative, want increased security and higher lending costs

Relationships with banks are strained, time spent with bank has increased, trying to diversify lenders, terms renegotiated

Trends - Asset backed financing/ID - more capital efficient for banks (move away from overdrafts as companies charged for undrawn commitments)

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Mergermarket Restructuring Survey

125 legal/financial advisors interviewed across US/Europe and asked about environment for restructurings

50% believe that restructuring activity will increase

Primary driver of restructurings over next 12 months will be driven by banks – refinancing debt

Non-core asset sales set to increase

Real estate, financial services and retail sectors continue to be the sectors which are most distressed

Corporates continue to try and increase maturities of bank facilities (as banks push for restructurings)

Time for strategic buyers is good – as financial buyers struggle to hit returns because of lack of leverage

Even healthy companies are finding it difficult to refinance

Vast majority of leverage loan proceeds have been for refinancing in Europe c. 46%

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0%

2%

4%

6%

8%

10%

12%

2002 2003 2004 2005 2006 2007 2008e 2009f 2010f 2011f

% o

f dis

posa

ble

inco

me

Source: CSO, Goodbody estimates

Title:Irish household savings ratio

Cash Conservation in Ireland

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Irish Complacency?

Government credibility

Public sector spend

Real interest rates

ECB rate rises

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Irish Budgets & Banking Oversight?

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The new face of banking!

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Lenders in recovery mode

Will not solve other banks’ problems

Vendor financing

PE underwriting

Portfolio mode

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The Business Decline Curve

Hea

lth

Time

Earnings

Management Denial

Balance Sheet Strain

Cash Crisis

insolvency

ChangeConsensual Enforced

Options

Source: A Practical Guide to Insolvency – Kavanagh Fennell

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The Solutions

Hea

lth

Time

Profits Improvement Consultancy

Turnaround Management

Restructuring

Moratorium

Liquidation

ChangeConsensual Enforced

Options

Source: A Practical Guide to Insolvency – Kavanagh Fennell

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Managing your banking relationship

• Keep the bank in the loop

• Understand what the bank wants

• Take responsibility for the problem – and the solution

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Debt Facility Variables

• Term

• Margin

• Debt Service Cover Ratio

• Debt to equity ratio

• Debt repayment profile

• Swaps / accreting swaps

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• Extend maturity date

• Modify covenants

• Interest only payments

• Defer principal and interest payments

• Reduction in interest rate

• Forgiveness of principal and past due interest

• Debt to equity conversions

Restructuring a loan – the options

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Equity

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Company capital lifecycle

Start up Development/ Venture

Expansion/Growth

Maturity Decline

Capital Required

AngelsFounders/Promoters

E.I.Venture

International Venture

HNWsPre-IPO

Family OfficesFunds

InstitutionalRetailSWFs

BanksUK PE

BanksInstitutional

Capital Generated

Delta FountainKernel/SerobaDfJ EspritAtlantic BridgeBaldertonUB Diageo VF

Brokers• TVC • BES

Small cap funds BrokersPermira, Gresham

BoI,Ulster, Barclays, HSBC, Rabo(Food)

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Sources of equity

Friends & Family

HNW

BES

EI - HPSU

Delta, AIB Seed Capital Fund, Enterprise Equity, Kernel (inclSeroba), Fountain, DfJ Esprit, Atlantic Bridge

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Irish market

M&A levels still remain subduedSome domestic in-market consolidation (ESB/NIE, SWS/BG)Vendor financing increasingly evidentValue still an issue for sellers (resulting in pulled deals)

Some bank related restructurings (debt for equity swaps)Most banking is purely the refinancing of existing creditsBarclays/HSBC coming into syndicates in selective dealsInternationally focused companies in technology, pharma & medical devices sector more attractive for Banks to finance Number of providers of finance set to decrease (same new names appearing in the UK)

Domestic private buyout capital is seriously impairedGap presents itself in the market for those that are willing to commit capital to growth and buyout capital at smaller levelsGrowth capital deals with scale attractive to overseas investorsSome evidence that domestic VCs are active on earlier stage fundings

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Conclusions – look on the bright side

Take advice early

2011-2013 – challenges and opportunities

Markets will improve