KPMG Corporate Finance

Global Dealmonitor Survey 2004

A survey of over 100 global and major corporations’ attitudes towards the evaluation, financing and consummation of transaction opportunities

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Key Findings

Recent M&A transactions exhibit the following characteristics:– Conducted through one on one negotiations, are between trade buyers and are for

strategic reasons– Take 4 to 8 months from identification of target to completion– Benefits are derived from increased market share and better geographical spread /

more attractive market– The most important reasons for divestments are businesses being historically non-

core and the expectation of future losses or under performance

76% (51% in 2003) of the corporations surveyed record confidence in the M&A market as 6 out of 10 or better

M&A activity is driven by the accessibility of acquisition opportunities (87% of respondents), accessible debt finance (50% of respondents) and accessible equity finance (49% of respondents)

Strategic buyers are impeded in making acquisitions by a scarcity of ideal opportunities (69% of respondents) and due to focusing on internal issues (51% of respondents)

Emerging markets

China is the most popular country for planned investment in the next 3 years with the rest of Asia and Central / Eastern Europe a distant second and third, respectively

Latin America and Russia are not as popular, reflecting a consensus that an unpredictable business environment is the most troubling risk for investors in emerging markets

Overview

3KPMG Corporate Finance

Key findings

Fairness opinions are increasingly performed by investment banks and Big 4 accounting firms

DCF is the primary method for determining value, but reliance is greater in acquisitions than in divestments

This is consistent with NPV and IRR being the most common criteria for investment/divestment decisions

75% of the population adjust the discount rate for political / country risk with broadly 50% adjusting for the size of the enterprise and its stage of development

50% of the population view earnings based multiples as of high importance

Other important methods are APV, expected value / scenario analysis

Techniques

More than 50% of the population regularly review (i.e. more than once a year) their financial leverage

Leverage levels are company specific but the trend is for a marginal increase in the next 24 months

Debt instruments vary but cost is the dominating (90% of respondents) influence

Financial leverage and debt

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Contents

Question / IssuePage number

Confidence in the M&A market 2003 and 2004 5

Key drivers of recent M&A activity 6

Key impediments for strategic buyers in making acquisitions 7

What drives private equity firms or financial sponsors in their investment decisions

8

Key characteristics of recent M&A transactions 9

Key characteristics of recent acquisitions 10

Key characteristics of recent divestments 12

Do you have a general policy… 13

Investing in emerging markets 14

Valuation methodology 18

Criteria for investment decisions 20

Debt instruments 21

Catalysts for change in financial leverage 22

How is financial leverage changing 23

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40% 30% 20% 10% 0% 10% 20% 30% 40%

1

2

3

4

5

6

7

8

9

10

Confidence in the M&A market 2003 and 2004Level of confidence in the M&A market 12 months ago and today? (10 optimistic, 1 pessimistic)

2003 2004

Score out of 10

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High Medium Low

Not relevant

Low interest rates

Stable equity capital markets

Strong GDP growth rates

Buoyant IPO markets

Low inflation

Accessible debt finance

Accessible equity finance

Accessibility of acquisition opportunities

Political stability

Key drivers of recent M&A activity

80% to 100% of respondents

60% to 80% of respondents

40% to 60% of respondents

20% to 40% of respondents0% to 20% of respondents

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0% 10% 20% 30% 40% 50% 60% 70%

Corporate governancemodels / auditcommittees

Constraints of debtfinance

Contraction of equitycapital markets finance

Constraints of long termvaluations

Focus on internal issues

Scarcity of idealopportunities

% of respondents recognising impediment

Key impediments for strategic buyers in making acquisitions

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0% 5% 10% 15% 20% 25%

Less risk averse buyingdecisions

An excess of uninvestedcapital

Ability to restructure thecost base

Lower costs of capital

Financial opportunism

The ability of suchinvestors to finance dealswith large amounts of debt

% of respondents recognising driver

What drives private equity firms or financial sponsors in their investment decisions

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77%

23%

No

Yes

74%

4%

22%One on one

Limited Auction

Wide auction

0%

10%

20%

30%

40%

50%

1 month to4 months

4 to 8months

8 to 12months

12 to 18months

more than18 months

70%

30%

No

Yes

Key characteristics of recent M&A transactions

As percentages of the total number of acquisitions

Negotiation process

Was the vendor a private equity firm / financial sponsor?

Did you use an external corporate finance advisor for your acquisitions?

How long did it take from identification of the target to completion?

As percentages of the total number of acquisitions

As percentages of the total number of acquisitions

As percentages of the total number of acquisitions

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0% 10% 20% 30% 40% 50% 60% 70% 80%

Other

Defensive move / protection of assets

Great management / people

Better margin / profitability model

Extra brand / intellectual property

New technology / platform

Particular asset acquisitions

New customers / clients

Good size / critical mass

Interesting geography / location

Strategic imperative / accelerator

% of the total number of acquisitions

Key characteristics of recent acquisitions (1)Reasons for acquisitions

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0% 10% 20% 30% 40% 50% 60% 70%

None

Other

Strengthened balance sheet

Greater internal confidence

Increased share price

Reduction of risk

Portfolio diversification

Improved financial results post acquisition

Economies of scale

Better geographical spread

Increased market share

% of the total number of acquisitions

Key characteristics of recent M&A acquisitions (2)Perceived Benefits

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0% 10% 20% 30% 40% 50%

Subject to regulatory attack or public scrutiny

None of the above

Subject to increased or unacceptable market risk

Poor or dysfunctional management

Operating in a hostile or shrinking market

Attractive sale price or terms

Sale prompted by need for cash or restructuring

Business expected to become non-core

History of losses or underperformance

Expectation of future losses orunderperformance

Business historically non-core

% of the total number of divestments

79%

21%

No

Yes

Key characteristics of recent divestments

Key reasons for divestments Was the purchaser a private equity firm / financial sponsor?

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82%

18%

No

Yes

Do you have a general policy…

% of the population

We will not invest in anything less than a 100% interest

We will invest in a majority (>50%) interest

We will invest in joint ventures where each party has a strict 50% interest

We will invest in a significant interest (>25% but <50%) but only if no other party has a majority (>50%) interest

We will invest in a significant interest (>25% but <50%) in any circumstance

We will invest in a minority (<25%) interest

We have no general corporation policy on acquiring less than 100% stakes in a business

Other

… on acquiring less than 100% stakes in a business… on prohibiting the sale of businesses to an in-house management team

= Company XXX

% of respondents

80% to 100% of respondents

60% to 80% of respondents

40% to 60% of respondents

20% to 40% of respondents0% to 20% of respondents

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0% 10% 20% 30% 40% 50% 60%

Other

None

Russia

Latin America

Central and Eastern Europe

Asia, excluding China

China

% of respondents indicating investment plans for country

Investing in emerging markets (1)Which emerging countries do you plan to invest in during the next three years?

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47%

4%

31%

12%

6%

Expanding into a new market

Strategic opportunities

Reducing manufacturing costs

Other

Business diversification

0% 10% 20% 30% 40% 50% 60% 70% 80%

Other

Undeveloped infrastructure

Unstable political systems

Undeveloped legal system

Unpredictable business environment

% of respondents recognising risk

Investing in emerging markets (2)

Most troubling risks when investing in emerging markets

Impetus for investing in emerging markets:

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Valuation methodology (1)

High Medium LowNot

relevant

Discounted Cash Flow

Earnings based multiples

Asset based multiples

Adjusted present value

Real options

Expected value / scenario analysis

Industry specific / rule of thumb

High Medium LowNot

relevant

Discounted Cash Flow

Earnings based multiples

Asset based multiples

Adjusted present value

Real options

Expected value / scenario analysis

Industry specific / rule of thumb

Acquisitions

Divestments

80% to 100% of respondents

60% to 80% of respondents

40% to 60% of respondents

20% to 40% of respondents0% to 20% of respondents

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0% 10% 20% 30% 40% 50% 60% 70% 80%

Other

Size of enterprise

Start up nature of the enterprise

Political / country risk ofenterprise

% of respondents recognising factor

Valuation methodology (2)Factors adjusted for in the discount rate in a DCF analysis

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Criteria for investment decisions

High Medium LowNot

relevant

Hurdle rate

Internal rate of return

Net present value

Economic value added

Return on investment

Return on capital employed

Residual income

Earnings per share

Cash pay back period

80% to 100% of respondents

60% to 80% of respondents

40% to 60% of respondents

20% to 40% of respondents0% to 20% of respondents

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8123743

Debt instruments

High Medium LowNot

relevant

Cost

Advisors

Shareholders / investors

Internal hurdles

Industry / peer group

Availability

Key factors for the choice of debt instrument

80% to 100% of respondents

60% to 80% of respondents

40% to 60% of respondents

20% to 40% of respondents

0% to 20% of respondents

% of the population

Senior

Structured

Subordinate

Quasi equity

Other

No debt

Debt instrument

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High Medium LowNot

relevant

Relative cost of finance

Advisors

Shareholders / investors

Industry / peer group

Changes in economic market climate

Academics

Diversification

Catalysts for change in financial leverage

80% to 100% of respondents

60% to 80% of respondents

40% to 60% of respondents

20% to 40% of respondents0% to 20% of respondents

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4%

37%

25%

20%

14%

Very likely

Somewhat likely

Undecided

Not very likely

Not at all likely

49%

34%

17%

No

Don't know

Yes

38%

33%

26%

3%

No change

Increase financial leverage

Decrease financial leverage

Other

2%15%

30%

53% More than once in every year

No set review date

Once a year

Once every two years

How is financial leverage changing

What changes will you make to your financial leverage in the next 24 months?

How regularly do you review your financial leverage?

Are you contemplating a share buy-back programme in the next 12 months?

What is the likelihood that you will approach the debt finance markets in the next 12 months?