Transcript
Everything You Always Wanted To Know About LBOs
Investment Banking
November 09, 2006
Table of Contents
Career at Citigroup5.
The Analyst’s Role in a Leveraged Buyout4.
Leveraged Buyouts in Practice3.
Concept of Leveraged Buyouts2.
Citigroup at a Glance1.
1. Citigroup at a Glance
45.4
47.147.5
51.1
54.858.1
60.8
61.663.5
63.7
68.573.2
76.4
79.784.9
87.9
88.096.2
103.7
106.6129.5
171.1
191.9194.9
0 50 100 150 200 250
Fannie Mae
Lloyds TSB
U.S. Bancorp
Deutsche Bank
American Express
Credit Suisse
Merrill Lynch
HBOS
Goldman Sachs
Morgan Stanley
Barclays
Mizuho
ING Group
BNP Paribas
Banco Santander
RBOS
Wachovia
Wells Fargo
UBS
Mitsubishi UFJ
JPMorgan
HSBC
Bank of America
CitigroupWorld‘s largest financial service provider
Operations in more than 100 countries
More than 294,000 employees, of which 6,856 work in Germany
More than 6,000 branches, of which 330 in Germany
Highest placement capacity of all financial service provider; more than 200 million customers
Equity exceeding €95.0bn; total assets exceeding€1,261bn; net income of €20.5bn(1)
Founded in 1812 and since 80 years present in Germany
Largest foreign bank in Germany
(1) As of 31/12/05; Euro values calculated on exchange ratio of 1.2 US$/€; Equity including trust securities.
Largest Financial Institution as to Market Cap (in €bn)Key Facts
Net Income Contribution of Business Segments (2005)
The World’s Largest Financial Services Provider …
Global Consumer
53%Corporate & Investment
Banking34%
Alternative Investment
7%Global Wealth Management
6%
Source: Datastream as of 30/10/06; Euro values calculated on exchange ratio of 1.2 US$/€.
Main Competitors Investment BankingCitigroup
1 Citigroup at a Glance
… with a Broad Range of Offered Services …
Independent research division reporting directly to the CEO of CitigroupGlobal sector based coverage
Corporate brokingEquity capital marketsEquity-linkedEquity-based derivativesSales & trading operations
Equity Research
Equities
Capital raising & lendingRisk managementTransaction servicesLeasingCash managementFX and futuresInvestment servicesTrade finance & servicesCorporate credit cards
Financial advisory services, in particular M&AAcquisition financeCapital raising, i.e. IPO
Fixed Income
Debt capital marketsRatings advisory servicesAsset-backed financeHigh yieldSales & trading operationsFixed income derivativesCapital structuring, project finance, securitisation
Corporate BankingInvestment Banking
Capital Markets Global Banking
Global Corporate & Investment Bank Global Investment Management
Global Consumer Group
2 Citigroup at a Glance
… an Exceptional Global Presence …
Citigroup’s expansive footprint provides its clients unique access to opportunities in over 100 countries around the globe
Citigroup’s unparalleled market expertise, customer relationship commitment and integrated solutions, combined with its global accessibility, make it the premier investment bank for all corporate finance needs… anywhere
Loan SyndicationsWorking Capital Facilities
Asset Management
Asset SecuritisationStructured Finance
Venture CapitalAsset Backed Finance
Structured Lending & LeasingReal Estate Finance
Commercial FXFX Options
FX DerivativesEquity / Fixed Income Derivatives
Integrated HedgingCash Management
Cross- Border CollectionsSecurities Services
Trade ServicesPrivate Banking
Loan SyndicationsWorking Capital Facilities
Asset Management
Asset SecuritisationStructured Finance
Venture CapitalAsset Backed Finance
Structured Lending & LeasingReal Estate FinanceAsset FinanceAsset FinanceCommercial FXFX Options
FX DerivativesEquity / Fixed Income Derivatives
Integrated HedgingCash Management
Cross- Border CollectionsSecurities Services
Trade ServicesPrivate Banking
M&A AdvisoryRestructurings
Hostile DefensesJoint Ventures
Minority InvestmentsDivestitures
Initial Public OfferingsSecondary Equity Offerings
Block TradesInvestment – High Yield Debt
Preferred StockConvertible PreferredLiability Management
Hybrid Bonds144A Offerings
Acquisition FinanceLiquidity Management
Pension Fund Management
M&A AdvisoryRestructurings
Hostile DefensesJoint Ventures
Minority InvestmentsDivestitures
Initial Public OfferingsSecondary Equity Offerings
Block TradesInvestment – High Yield Debt
Preferred StockConvertible PreferredLiability Management
Hybrid Bonds144A Offerings
Acquisition FinanceLiquidity Management
Pension Fund ManagementRetail Brokerage
3 Citigroup at a Glance
AdvisorRank Value
(€bn) RankMkt.
ShareDeutsche Bank 109.7 1 52.9% 28Citigroup 104.1 2 50.5% 20JP Morgan 88.9 3 42.9% 18Merrill Lynch 78.5 4 37.8% 13Lehman Brothers 65.6 5 31.8% 10BNP Paribas 61.4 6 29.9% 5HSBC 61.2 7 29.7% 5Morgan Stanley 53.2 8 25.4% 18Credit Suisse 47.5 9 23.0% 19Goldman Sachs 37.3 10 17.9% 19Industry Total 207.9 - 100.0% 1,683
Number of Deals Advisor
Rank Value (€bn) Rank
Mkt.Share
Citigroup 340.6 1 35.6% 134JP Morgan 307.0 2 32.1% 150Morgan Stanley 292.3 3 30.6% 118Merrill Lynch 274.7 4 28.7% 82Goldman Sachs 260.2 5 27.2% 107Deutsche Bank 241.8 6 25.3% 107BNP Paribas 228.2 7 23.9% 77UBS 220.3 8 23.0% 122Rothschild 210.4 9 22.0% 215HSBC 177.1 10 18.5% 51Industry Total 956.6 - 100.0% 9,414
Number of Deals
… and a Superior Track Record to Serve Our Clients’ Needs
Source: Thomson Financial, as of September 30, 2006.
Germany Announced M&A Ranking YTD European Announced M&A Ranking YTD
Pending 2006
has announced its intention to merge with
in a transaction valued€565 million
Citigroup acted as financial advisor to MobilCom
Pending 2006
has launched a public offer for
for €47.5 billion
Citigroup acted as defence advisor to Endesa
July 2006
has acquired
for €16.3 billion
Citigroup acted as financial advisor to Bayer
June 2006
has bought back a 25.1% stake held by
€4.5 billion
Citigroup acted as financial advisor to Bertelsmann
May 2006
has sold
to
for €3.3 billion
Citigroup acted as financial advisor to Volkswagen
Pending 2006
has announced its intention to sell its division Bayer Healthcare-
Diagnostic to
for €4.2 billion
Citigroup acted as financial advisor to Bayer
Pending 2006
has announced its intention to merge its networks business group with the carrier related
operations of
Undisclosed amount
Citigroup acted as financial advisor to Nokia
Source: Thomson Financial, as of September 30, 2006.
Pending 2006
has announced its intention to sell its stake in
to five investors advised byJ.C. Flowers
for €1.25 billion
Citigroup acted as financial advisor to WestLB
Pending 2006
has announced its intention to sell
Germany - Internetto
for €675 million
Citigroup acted as financial advisor to Time Warner
May 2006
has sold
to
for an undisclosed amount
Citigroup acted as financial advisor to Investcorp
4 Citigroup at a Glance
2. Concept of Leveraged Buyouts
LBO Concept In a Leveraged Buyout the purchase price is primarily financed through different debt instruments that are paid down with future operating cash flows of the acquired company.
Entry Exit
Equity
Debt Layer 5
Debt Layer 4
Debt Layer 3
Debt Layer 2
Debt Layer 1
Year 1 Year 2 Year 3 Year 4 Year 5
Equity
Debt
Equity
Debt Layer 5
Debt Layer 4
Debt Layer 3
Debt Layer 2
Equity
Debt Layer 5
Debt Layer 4
Debt Layer 3
Equity
Debt Layer 5
Debt Layer 4
Equity
Debt Layer 5
Debt Repayment through OCF
Entry & RefinancingCapital Structure – 75% Debt – 25% Equity
Management participates to achieve full motivationSponsor provides management expertise and potentially raises synergies with other companies in his portfolioAll cash flows to repay debt; no dividends demanded
Exit & RefinancingIRR: 25%-30%Proceeds for management and sponsor
Value Creation
5 Concept of Leveraged Buyouts
Key Return Drivers of Financial Investors
3. Increased firm value through multiple expansion between time of investment and exit
The key return drivers can be categorised in four main groups.
2. Increased firm value through EBITDA growth between time of investment and exit
Evolving industry fundamentals (e.g. cyclicality of industry)
Quality of asset
Enhanced organic growth outlook
Improved equity capital market conditions
Sustainable earnings growth (internal growth and via “cheap” acquisitions)
Cost control
Possibly restructuring upside or synergies with other companies in the portfolio of the financial investor
4. Limited duration of investment
Willing to buy in weak markets
Exit during robust M&A and equity market within a 3-7 years period
Trade off between time to exit, total proceeds and IRR
1. Leverage on acquisition and subsequent debt pay down
Maximising of free cash-flow through strict capex, R&D and working capital discipline
Typical financing structure using up to 75% debt to finance deal
6 Concept of Leveraged Buyouts
LBO Capital Structure: Revolving Credit Facility
Equity
(Senior) Term Debt
Revolving Credit
Term: 5+ years
Size: 5%-15% of total
Interest: Prime plus 2.0%-2.5%. Cash interest only. Credit spread tied to level and quantity of current assets as well as to financial performance and risk measures
Seniority: Senior secured claim against assets. Usually secured by inventory and accounts receivable (the most liquid operating assets)
Main Lenders: Commercial banks, commercial paper investors
Uses: Used to finance investments in working capital, capital expenditures, general liquidity support
Flexibility: Rather flexible, tailor-made loan contracts with varying collateral and covenant packages
Other: Restrictive covenants; pre-payable at par
Revolving Credit Facility is a flexible debt financing instrument and normally undrawn at closing.
(Subordinated) High-Yield and
PIK Notes
Acquisition financing
7 Concept of Leveraged Buyouts
LBO Capital Structure: Senior Term Debt
Term: 5-10 years
Size: 25%-50% of total
Interest: Prime plus 2%-3%. Credit spread tied to the appraised fair market value of the land and building, enterprise value as well as the liquidation value of machinery and equipment
Seniority: Senior Term debt is usually the second-lowest-cost financing because it is secured by assets and is structurally senior to other debt layers and equity
Main Lenders: Commercial and Investment banks, mutual funds, structured investment funds, finance companies
Uses: Issued to finance property and equipment as well as other long-lived assets (land, machinery, etc.), acquisitions, buyouts, redemptions, stock repurchases
Flexibility: Tailor-made loan contracts with varying collateral and covenant packages, as well as amortization schedules
Other: Several tranches, consisting of amortising debt and bullet payment at maturityEquity
(Senior) Term Debt
Revolving Credit
Senior Term debt is the main financing source in Leveraged Buyouts.
(Subordinated) High-Yield and
PIK Notes
Acquisition financing
8 Concept of Leveraged Buyouts
LBO Capital Structure: High-Yield and PIK Notes
Term: 6-10 years. Matures after Senior debt
Size: 20%-40% of total
High-Yield debt if structured with yearly payment of interest and repayment of principals at maturity
PIK notes are structured with repayment of principal and accrued interest at maturity. PIK notes may include an upside participation
For both instruments credit spreads are tied to cash flows
Interest: Prime plus 4%-7%. PIK notes may include an upside participation (equity-linked instruments), giving higher overall returns. More expensive than Senior debt due to greater degree of risk
Seniority: Subordinate to Senior debt in rights and remedies
Main Lenders: Pension funds, insurance and finance companies, debt and mutual funds, hedge funds, other institutional and private investors. High-Yield debt usually publicly traded
Flexibility: Flexible instrument, can be structured as a debt security with a fixed coupon and equity-linked features (e.g. warrants)Equity
(Subordinated) High-Yield and
PIK Notes
(Senior) Term Debt
Revolving Credit
High-Yield debt / PIK note financing is an additional, but more expensive source if senior debt financing is used up.
Acquisition financing
9 Concept of Leveraged Buyouts
LBO Capital Structure: Equity
Size: 20%-40% of total
Exit Strategy: 3-7 years
Composition of Equity: 2/3 shareholder loans, 1/3 shareholders’ equity
Equity holders preserve voting, dividend, control, and information rights in the company
Dividend and liquidation rights are subordinated to the interests of the debt lenders
Management often invests in the equity together with an LBO sponsor
Sponsors will typically seek a 25%-30% compounded annual total return over five years
Equity
(Senior) Term Debt
Revolving Credit
Usually the Equity stake in a LBO comprises 20% to 40% of total capital.
(Subordinated) High-Yield and
PIK Notes
Acquisition financing
10 Concept of Leveraged Buyouts
Sponsors
Suppliers / Counterparties
Parties Involved
Try to get as much cheap debt as possible– Secured debt sources – High-Yield and PIK instrumentsTry to minimise company‘s cash needs– Squeeze working capital– Minimise capexTry to keep equity contribution as low as possible
Do not want to take company’s risk by holding its – Payables – Any other form of credit
Draw covenants to protect their money, i. e.– Requirement of minimum equity level– Definition of max. debt the target can bear (coverage
ratios, debt participation ceilings, etc.)Require certain debt repayment before sponsor exitMonitor principal repayments
Interests
LBO Capital Structure: Parties Involved and Interests
The capital structure of a Leveraged Buyout is impacted by unequal interests of the parties involved.
Debt Equity
ManagementTry to use sponsor expertise Strategic orientation beyond sponsor exit
HighModerateLow
NWC / Capex
Debt Provider
Financing Operations
11 Concept of Leveraged Buyouts
Summary of Practical Implications
Is the company a good LBO candidate?Stable cash flows, defensive industry, available collateral, low EBITDA multiples, moderate leverage
What capital structure will be feasible? Optimise capital structure though a large bank loan / high-yield tranche and low equity stake
Is capital readily available? At what terms?Narrowing credit spreads, favourable interest rates, low LBO backlog, high risk appetite
Can I pay interest and principal over 8-10 years?Stable operating cash flows, sufficient for capital expenditures and principal payment
Can I exit in 3-7 years? At what multiple?Good refinancing prospects, value added though improved strategy and management
What is my IRR / cash multiple / “equity ticket”?Equity investors would like to see a minimum of 25% -30% IRR on their participation and a cash multiple of 2.0x
12 Concept of Leveraged Buyouts
3. Leveraged Buyouts in Practice
97 102
54
7794
182
321
7684
65
89
123
159
279
0
50
100
150
200
250
300
350
1999 2000 2001 2002 2003 2004 2005
LBO
Vol
umes
(US
$bn)
USA Europe
LBO Market Development
Since 2002, the US and the European Market for LBOs have seen doubled digit growth rates.
Source: SDC.Note: Target as well as acquiring companies are included in regional split.
CAGR 99-05: 22.1%
CAGR: 99-05: 24.3%
LBO Volume Development Comments
USA and Europe are the major markets for Leveraged Buyouts worldwide
Together they account for about 87% of total volume
Since 2002, both key LBO markets increased significantly
These strong growth rates of Leveraged Buyouts are in particular related to a favourable micro and macro economic environment
Significant capital inflow from outside the USA and Europe (“Petro-Dollars”)
Restructuring of conglomerates in Europe – focus on core competencies
Recovery in the equity markets since 2002
13 Leveraged Buyouts in Practice
151.1 167.3 185.2
651.1
108.9292.6
522.6
147.2
12.2% 13.4%15.7%
22.3%
6.5%4.9%4.6%
19.1%
0100200300400500600700
1999 2000 2001 2002 2003 2004 2005 2006YTD
Vol
ume
(US
$bn)
0%
5%
10%
15%
20%
25% % of G
lobal Volum
e
LBO Volumes in % of Global M&A Volume
LBO Market Development (cont’d)
Established 25 years ago, Leveraged Buyouts started as a niche product and developed to a mainstream instrument.
Source: SDC.
LBOs contributed about 26% of global M&A volume in 3Q 2006, lifting its share of 2006YTD volume to an all-time high of c.22%
Sponsor-related deals in 2006 spanned a wide range of sectors, but in particular Healthcare, Technology, Consumer, Industrials
Recently, sponsors have been targeting companies outside the U.S. and Europe in greater frequency
LBO Contribution to Global M&A Volume
Comments
In the 1980’s, Leveraged Buyouts were based on acquiring undervalued, undercapitalised and stable companies
In the early 1990’s, sponsors started to actively encourage or intervene to achieve improved operative performance
In the late 1990’s, sponsors are more and more looking for “growth stories”
And today?
Market Trends
14 Leveraged Buyouts in Practice
11
4
3 3
2
0
1
2
3
4
5
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006YTD
# LB
O T
rans
actio
ns
>$5bn, <$10bn >$10bn
3 32
6
01234567
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006YTD
# LB
O T
rans
actio
ns
>$5bn, <$10bn >$10bn
Growth in LBO Size
# of LBO’s > US$5bn in USA # of LBO’s > US$5bn in Europe
No “Mega” LBOsNo “Mega” LBOs
Top 10 US LBO Deals – 2006 YTD
5.1IndustrialsKKR, GS Capital Partners… / Kion
30.1TransportationFerrovial, GCI, Caisse de Depot / BAA
10.4UtilityOsprey Acquistions / AWG
4.0IndustrialsHenderson Fund Mgmt Plc / John Laing
4.6HealthcareEQT, Investor AB / Gambro
5.8HealthcareNordic Capital / Altana – Pharma Unit
9.5TechnologyKKR, Silverlake, AlpInvest, Bain, … / Philips Semi
4.6TelecomBabcock & Brown Capital / Eircom
6.1IndustrialGS, Borealis… / Associated British Port Holdings
11.6MediaKKR, Blackstone, TH Lee, Carlyle… / VNU
Value(US$bn)IndustryAcquirer / Target
Top 10 Europe LBO Deals – 2006 YTD
25.6RecreationApollo, TPG / Harrah‘s Entertainment
17.4ConsumerSuperValu, CVS, Cerberus / Albertson’s13.4MediaSaban, Madison, Providence, TPG, TH Lee /
Univision8.2ConsumerMgmt, JPM, Warburg, TH Lee, GS / ARAMARK
32.1HealthcareBain, KKR, ML Global Equity / HCA
4.8Real EstateBlackstone / CarrAmerica Realty
7.9Fin. InstitutionsCerberus / GMAC
27.5PowerMgmt, GS, AIG, Carlyle, Riverstone / Kinder Morgan
6.0ConsumerBain, Blackstone / Michaels Stores
17.5TechnologyBlackstone, Carlyle, Permira, TPG / Freescale
Value(US$bn)IndustryAcquirer / Target
“Mega” LBOs are the recent phenomenon.(1)
Source: SDC.(1) The US$31bn RJR/Nabisco transaction, completed in 1989, is the exception.
15 Leveraged Buyouts in Practice
60%
80%
100%
120%
140%
160%
Jan-02 Oct-02 Aug-03 May-04 Mar-05 Dec-05 Oct-06
S&P 400 MidCap Russel 2000 Dow Jones Industrials
93 92130
238
300
050
100150200250300350
2002 2003 2004 2005 2006E
Vol
ume
(US
$bn)
Total Funds Raised
Factors Driving Larger LBO Transactions
Source: Datastream, S&P, Venture Economics, Private Equity Interactive.
7% 3% 3% 1% 2%
32% 34% 33% 33% 31%
0%
10%
20%
30%
40%
% o
f LB
O T
otal
Sou
rce
… less Equity Required …
Developments on the equity and the debt capital markets in the last three to four years led to favourable environment for larger Leveraged Buyouts.
… more Equity Available …Underperforming Large Caps ...
4.2x 4.4x 4.6x5.2x 5.5x
3.0x3.1x3.5x3.5x3.2x
0.0x
2.0x
4.0x
6.0x
2002 2003 2004 2005 1H 2006Ave
rage
Pro
For
ma
Adj
uste
d C
redi
t Sta
tistic
s
Debt / EBITDA EBITDA / Cash Interest
... and more Debt as well as Lower Cost of Debt
37% 36% 34% 32%
80# LBOs 117 158 86
2003 2004 2005 1H 2006
Contributed Equity Retained Earnings / Vendor Financing
55.2%57.7%
20.6%
2002
39%68
16 Leveraged Buyouts in Practice
LBOs Offer Incredible Profits …
… making the sponsors involved “filthy” rich ...
Doughty [Hanson & Co.] buys Moeller from Advent […] on a secondary buyout that values the company at €1.1 billion […].Advent bought the company with a €50 million investment and got the 19 creditor banks to roll over existing debt. It injected a further $50 million equity [...] Strategic disposals generated an additional €100 million of cash.
The Deal.com, 21 July 2005
”Blackstone macht RAG-Kohle zu Gold”Wie in dreieinhalb Monaten von $200 Mill. mehr als $650 Mill. werden […] Das Unternehmen ging für knapp $1 Mrd. an ein Konsortium aus Blackstone (42%), First Reserve (42%), […] Das Wichtigste: Die 1-Mrd.-Dollar-Offerte speiste sich nur zu $200 Mill. aus Eigenkapital. Kaum vier Monate später kommt das Unternehmen an die Börse. Die Kapitalerhöhung spült zwar netto min. $400 Mill. in die Kasse. Via Sonderdividende werden aber $350 Mill. direkt an die Alteigentümer zurückgeleitet. [...] der Anteil am Grundkapital repräsentiert bei $18 Emissionspreis weitere $307 Mill. [...]. Börsen-Zeitung, 23 November 2004
Selected Transactions
Blackstone has already earned back the $650 million it invested in Celanese in 2004, when it took the company, […], private in a $4.0 billion leveraged buyout. […].All told, Blackstone has raked in about $2.3 billion, or about 3.5 times its original money. Including its remaining unrealised stake, the investment has in increased in value fivefold. The Deal.com, 11 May 2006
Source: Factiva.
[…] BC Partners has bought industrial and specialty chemicals distributor Brenntag from Bain Capital for an undisclosed sum […]. A source close to the matter said the deal was worth slightly more than 3 billion euros. […] It is a quick turnaround for Bain, which bought Brenntagfrom Deutsche Bahn in 2004, funding the buyout with 1.2 billion euros of debt. Since then, Brenntag has been a regular visitor to the debt markets, first with a deal to fund a 200 million euro dividend payment in November 2004, then with a 1.89 billion euro recapitalisation […]. That recapitalisation allowed for a further dividend payment to the owners of about 450 million euros.
Reuters, 25 July 2006
17 Leveraged Buyouts in Practice
Strong Management Incentives in LBOs
… as well as the management of the target companies …
Source: SEC Filings & Citigroup.
Significant Equity Incentives in Post-LBO Companies
SunGuard 2.3%
Select Medical 2.7%
AMC 2.5%
Transdigm 4.2%
PanAmSat 0.5%
Sponsors have a keen interests to align management interests with their own strategy
Participation of the management in the equity of the target company are considered to be crucial
In addition, sponsors incentivise through high payouts
Due to sensitivity of information, details on management incentives are not often disclosed
Public available information of payouts and participations however show strong monetary incentives
Ways for monetary incentivising include:
– Stock options
– Restricted stocks / stock units
– Company plan bonus
– Retention / success fee
As a % of Deal Value
Comments
142
25 26 3111
103
37 29 18
120
50
100
150
200
250
300
SunGuard Select Medical
AMCEntertainment
Transdigm PanAmSat
in U
S$m
CEO Other Top 5 Executives
246
62 5649
22
18 Leveraged Buyouts in Practice
1.6x2.0x
1.6x0.9x
5.6x4.9x 4.9x
0.0x
1.5x
3.0x
4.5x
6.0x
-4Q -3Q -2Q -1Q +1Q +2Q +3Q
Tota
l Deb
t / E
BIT
DA
Quartely Relative to LBO
Post LBO Performance
… and create value for the companies.
Source: SEC Filings; Citigroup Financial Strategy Group publication (Nov. 2006).
EBITDA margin (%)Quartely Sales (US$m)
735 745781
721779
847
1,003
600
700
800
900
1,000
1,100
-4Q -3Q -2Q -1Q +1Q +2Q +3Q
Qua
terly
Sal
es (U
S$m
)
Quartely Relative to LBO
3.7% 3.9%
5.7%
3.3%4.4% 4.1% 3.8%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
-4Q -3Q -2Q -1Q +1Q +2Q +3Q
Cap
ex /
Sal
es (%
)
Quartely Relative to LBO
Capex / Sales (%)Total Debt / EBITDA (LTM)
15.6%14.7%
16.7%
14.4% 15.2% 15.6%
20.4%
10.0%
15.0%
20.0%
25.0%
-4Q -3Q -2Q -1Q +1Q +2Q +3Q
EB
ITD
A M
argi
n (%
)
Quartely Relative to LBO
19 Leveraged Buyouts in Practice
12.2%13.4%
15.7%
19.1%
10%
15%
20%
25%
30%
2002 2003 2004 2005 2006E 2007E
LBO
in %
of G
loba
l M&
A
20.0
16.515.0 14.5 14.1
10.1 10.0 10.0 10.0 10.0
6
10
14
18
22
BS KKR Carlyle TPG Permira AM GS Provid. Silver Bain
2006
Fun
d S
ize
($bn
)
Fund Size
Outlook
Leveraged Buyouts are expected to play an even more important role in the global M&A market in the coming years.
Source: SDC, Citigroup, Factiva.(1) Funds are still in the market and therefore, sizes are estimated.
LBO Contribution to the M&A Market
“Mega”-Fundraising
(1) (1)
Increasing importance in the M&A marketPrivate equity accounts for c.23% of global M&A volume (in 3Q 2006, LBO contribution increased to 26%)
“Mega”-FundraisingMore and large private equity funds
2006 funds raised $600bn in equity; total firepower of $1,700bn
Shift of international reserves into private equity investment
“Giant”-LBOs2005 was marked as “The Year of the Giant” LBO, with 2006 already exceeding 2005 level
In 2007, buyouts of around $40bn - $50bn are expected
Syndicates (Club deals)Sponsors form consortiums of three to seven firms
Top consortium deals contributed more than $14bn in equity
Favourable DCM Environment Substantial extension of the Fixed Income markets
Corporate defaults are considered to remain below the average
2006YTD22.3%
(1) (1) (1)
20 Leveraged Buyouts in Practice
4. The Analyst’s Role in a Leveraged Buyout
The Analyst’s Role in a LBO Buy-side
A LBO buy-side will confront you with a variety of demanding tasks within in a very dynamic project environment.
Industry analysisPeer group analysisPress / news searches
Comparable companiesComparable transactionsAnalyse market research
Organise internal / client meetingsOrganise internal / client conference callsInternal administration
Timeline
Outside-in Valuation 1st Round Bid Due Diligence 2nd Round Bid Closing
Research
Valuation / Modelling
Work Flow Management
Processing
Leveraged Buyout Discounted cash flowSum-of-the-partsOperational benchmarking
TombstonesClosing diner
Presentation buildingTimetableClient meetings
Due diligence Dataroom analysisSite visitsExpert meetings
Presentation buildingClient meetings
Communication with Leverage Finance departmentCommunication with relevant industry group
Fundamental valuation adjustments
21 The Analyst’s Role in a Leveraged Buyout
5. Career at Citigroup
Citigroup Application Process
What about 2006 / 07 Opportunities (Corporate Finance / M&A)?
Investment Banking Full-time Applications for Frankfurt / London
Citigroup is inviting applications for our analyst programme within the Investment Banking Division in Frankfurt and London
We are looking for highly motivated individuals with a very good academic performance, strong communication and interpersonal abilities as well as outstanding quantitative skills
Key attributes of a qualified candidate are the ability to work independently and in a team, strong organisational skills, a high degree of self-motivation and initiative, with leadership potential
Investment Banking Internship Applications for Frankfurt / London
Our internship programme is an integral part of our graduate recruitment drive
We devote considerable time and resources as we regard it as an invaluable way to get to know you
It also gives you the chance to explore whether you would enjoy a career in Investment Banking and particularly with Citigroup
Every year we advise on the biggest mergers & acquisitions globally. Do you want to be a part of it?
22 Career at Citigroup
Citigroup Application Process (cont’d)
Deadlines for Full-time Positions and Internships
Full-time Position Application
Frankfurt: Throughout the whole year – however early applications are recommended
London: November 2006
Internship Application
Frankfurt: Throughout the whole year
London: 31st January 2007
Recruiting Contacts
In Frankfurt: Myriam Tantz; +49 (0)69 1366 5081; myriam.tantz@citigroup.com
In London: Anna Collins; +44 (0)20 7508 7075; anna.collins@citigroup.com
We currently offer opportunities for both full-time positions and internships.
All applications must be submitted online via the website www.citigroup.com. Please follow the “careers” link.
23 Career at Citigroup
Business Contacts
Robert WitteVice President German Investment Banking
Citigroup CentreCanada SquareLondon E14 5LBUnited KingdomTel: +44 (0)20 7986 8622Fax: +44 (0)20 7986 8251robert.witte@citigroup.com
For any questions, please do not hesitate to contact us.
Alexander BeckerAssociate German Investment Banking
Citigroup CentreCanada SquareLondon E14 5LBUnited KingdomTel: +44 (0)20 7500 6882Fax: +49 (0)69 2715 98867alexander.becker@citigroup.com
Christopher TubeilehAnalyst German Investment Banking
Frankfurter WelleReuterweg 1660323 Frankfurt am Main GermanyTel: +49 (0)69 1366 5687Fax: +49 (0)69 2715 99092christopher.tubeileh@citigroup.com
24 Career at Citigroup
© 2006 Citigroup Global Markets Limited. Authorized and regulated by the Financial Services Authority. All rights reserved. CITIGROUP and the Umbrella Device are trademarks and service marks of Citigroup or its affiliates and are used and registered throughout the world.
Any terms set forth herein are intended for discussion purposes only and are subject to the final terms as set forth in separate definitive written agreements. This presentation is not a commitment to lend, syndicate a financing, underwrite or purchase securities, or commit capital nor does it obligate us to enter into such a commitment, nor are we acting as a fiduciary to you. By accepting this presentation, subject to applicable law or regulation, you agree to keep confidential the existence of and proposed terms for any transaction contemplated hereby (a “Transaction”).
Prior to entering into any Transaction, you should determine, without reliance upon us or our affiliates, the economic risks and merits (and independently determine that you are able to assume these risks) as well as the legal, tax and accounting characterizations and consequences of any such Transaction. In this regard, by accepting this presentation, you acknowledge that (a) we are not in the business of providing (and you are not relying on us for) legal, tax or accounting advice, (b) there may be legal, tax or accounting risks associated with any Transaction, (c) you should receive (and rely on) separate and qualified legal, tax and accounting advice and (d) you should apprise senior management in your organization as to such legal, tax and accounting advice (and any risks associated with any Transaction) and our disclaimer as to these matters. By acceptance of these materials, you and we hereby agree that from the commencement of discussions with respect to any Transaction, and notwithstanding any other provision in this presentation, we hereby confirm that no participant in any Transaction shall be limited from disclosing the U.S. tax treatment or U.S. tax structure of such Transaction.
IRS Circular 230 Disclosure: Citigroup Inc. and its affiliates do not provide tax or legal advice. Any discussion of tax matters in these materials (i) is not intended or written to be used, and cannot be used or relied upon, by you for the purpose of avoiding any tax penalties and (ii) may have been written in connection with the "promotion or marketing" of the Transaction. Accordingly, you should seek advice based on your particular circumstances from an independent tax advisor.We are required to obtain, verify and record certain information that identifies each entity that enters into a formal business relationship with us. We will ask for your complete name, street address, and taxpayer ID number. We may also request corporate formation documents, or other forms of identification, to verify information provided.
Any prices or levels contained herein are preliminary and indicative only and do not represent bids or offers. These indications are provided solely for your information and consideration, are subject to change at any time without notice and are not intended as a solicitation with respect to the purchase or sale of any instrument. The information contained in this presentation may include results of analyses from a quantitative model which represent potential future events that may or may not be realized, and is not a complete analysis of every material fact representing any product. Any estimates included herein constitute our judgment as of the date hereof and are subject to change without any notice. We and/or our affiliates may make a market in these instruments for our customers and for our own account. Accordingly, we may have a position in any such instrument at any time.
Although this material may contain publicly available information about Citigroup corporate bond research or economic and market analysis, Citigroup policy (i) prohibits employees from offering, directly or indirectly, a favorable or negative research opinion or offering to change an opinion as consideration or inducement for the receipt of business or for compensation; and (ii) prohibits analysts from being compensated for specific recommendations or views contained in research reports. So as to reduce the potential for conflicts of interest, as well as to reduce any appearance of conflicts of interest, Citigroup has enacted policies and procedures designed to limit communications between its investment banking and research personnel to specifically prescribed circumstances.
top related