April 3, 2008 1
The Private Equity Value Proposition
How Real Is It ?
Moderator
Peter WolkenVice Chairman, Executive Advisory Board
Thunderbird Private Equity Center (TPEC)
April 3, 2008 2
Frog on the Golf Course
April 3, 2008 3
Panelists
Jonathan E. Cole, Partner
Edwards Angell Palmer & Dodge LLP
Frederic Sicre, Executive Director
Abraaj Capital, LLC
John Vester, Partner Transaction Advisory
Services, Ernst & Young
April 3, 2008 4
Jonathan E. Cole, Partner
Edwards Angell Palmer & Dodge LLP
36 years experience Leveraged buyouts Emerging technology Brown University Harvard Law School
April 3, 2008 5
Frederic Sicre, Executive DirectorAbraaj Capital, LLC, Dubai, UAE
16 years experience
Established World Economic Forum in Africa & Middle East
Managing Director of WEF
MBA, IMD, Switzerland
BS Villanova University
Stanford University Fellow
April 3, 2008 6
John Vester, PartnerTransaction Advisory Services, Ernst & Young
20 years of experience
Now at E & Y on US East Coast
Former Head of Corporate Development at Xerox
Management Consultant at McKinsey
MBA Cornell University
MS Electrical Engineering from Yale
BS Industrial Engineering, Northwestern
April 3, 2008 7
Topics of Discussion
Do VC and PE “Buyout” firms add value to their portfolio companies?
To Society? Impact on labor, taxes, corporate
governance and innovation Does PE strengthen business?
April 3, 2008 8
Venture Capital Firms
VC Firms clearly add value
Most of the job creation has been the result of VC funded entrepreneurial start-ups, especially in information technology
Over 10 million industrial jobs created in the past 30 years by VC funded start-ups
One new job in industry creates another
ten in the service sectors, so the vast majority of new jobs are created by VCs.
April 3, 2008 9
Do PE Buyouts add value? The jury is still out on recent mega-
buyout deals However, the panelists will support the
premise that significant value is being added
Over 85% of investment has gone into the buyout sector
Returns on buyouts can be much quicker than early-stage VC deals
And the risk is much lower when investing in established companies
April 3, 2008 10
Market Cap of Recent US Venture Backed IPO’s
VM Ware VMW $ 16.4 Billion ! NetSuite N $ 1.32 Billion Data Domain DDVP $ 1.32 Billion Cavium Networks CAVM $ 675 Million eHealth EHTH $ 551 Million CommVault CVLT $ 469 Million Acme Packet APKT $ 463 Million Mellanox MLNX $ 424 Million DivX DIVX $ 248 Million
March 31, 2008
April 3, 2008 11
VM Ware VMW
Palo Alto, California firm Started in 1998 CEO is Diane Greene Has 5,000 employees Virtualization Software Market Cap is $ 16 Billion Was $ 40 Billion that at the peak,
3 months after the IPO
April 3, 2008 12
Global IPO Activity at Record High in 2007
Over $ 255 Billion Raised in 1739 IPOs
Asia Pacific EMEAN. AmericaROW
April 3, 2008 13
European Venture Backed IPOs in 2007
38 firms raised € 894 million Down 49% from 2006 Median amount raised was € 15.8
million Median pre-valuation was € 59
million Median time from initial financing
to IPO was 6.9 years
April 3, 2008 14
M & A Activity Robust in 2007 Cisco acquiring again
Signal Works $ 14 M Linksys $ 500 M Arroyo Video $ 92 M Actona $ 82 M Reactivity $ 135 M P-Cube $ 200 M Navini Net $ 330 M Securent $ 100 M NetSolve $ 128 M Fine Ground $ 70 M DynamicsSoft $ 55 M IronPort Sys $ 830 M Perfigo $ 74 M Meetinghouse $ 44 M Orative $ 32 M Protego Net $ 65 M Sheer Net $ 97 M Airespace $ 450 M Scientific Atlanta $ 6.9 B Topspin $ 250 M WebEx $ 3.2 B
Total, 21 firms $ 13.6 Billion
Source: PricewaterhouseCoopers/NVCA Money Tree Report, February 2008
April 3, 2008 15
What This Means
So, VC and Buyouts both represent good opportunities if purchased right
We have seen the data and both asset classes have outperformed
I’ll kick off the discussion with a few questions for the panelists
Then we welcome your questions
April 3, 2008 16
Next Steps
Please direct your questions to one of the panelists or to the group
e mail me if you wish to send questions after the session