EcoValuScreen

EcoValuScreenDiscover value through a new lens.

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Enhancing due diligence

Why it matters: Expanding transactional environmental due diligence practices beyond the current focus on risk mitigation will help identify new opportunities for operational improvement & value creation.

How we did it: The Carlyle Group, Environmental Defense Fund & The Payne Firm*developed a flexible & scalable due diligence screen that enables investment professionals to identify environmental opportunities that improve operations, reduce costs & strengthen market positions of potential portfolio investments.

How it works: Investment professionals use the screen to evaluate how environmental management can enhance the value of a new acquisition, inform the bidding process & be incorporated into the post-acquisition management plan.

*For more information on Carlyle, EDF & Payne, see slide 14.

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Why it matters

Cost cutting

Efficiency & cost-cutting opportunities

Cost savings estimates

Operational improvement plan

Revenue growth

Revenue generation opportunities

Revenue growth estimates

Growth plan

Risk mitigation

Risk mitigation opportunities

Liability estimates

Risk management plan

Expanding transactional environmental due diligence practices beyond the current focus on risk mitigation will help identify new opportunities for operational improvement & value creation.

Today Future

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1. Portfolio analysis: Carlyle, EDF & Payne evaluated the relative environmental & business performance of 327 current & legacy Carlyle portfolio companies.

2. Correlation of common business activities with environmental impacts: The portfolio analysis revealed a high correlation between environmental impacts & 10 common business activities that occur most frequently across Carlyle’s investment sectors.

3. Opportunity identification: In addition, the analysis began to reveal specific initiativesto reduce environmental impacts of the common business activities while driving financial savings.

4. Integration with due diligence process: The new EcoValuScreen is designed to be flexible, broadly applicable & easily incorporated into Carlyle’s current due diligence practices.

Carlyle, EDF & Payne developed a flexible & scalable due diligence screen that enables investment professionals to identify environmental opportunities that improve operations, reduce costs & strengthen market positions of potential portfolio investments.

How we did it

The EcoValuScreen was developed through a four-step process:

1.

2.

3.

4.

5

How we did it

Portfolio analysis: Carlyle, EDF & Payne evaluated the relative environmental & business performance of 327 current & legacy Carlyle portfolio companies.

1.

1 Environmental impacts were evaluated across 5 key areas: greenhouse gas emissions, water use, waste production, forest product use & priority chemical use2 Business impacts were evaluated across the entire value chain: including supply chain, operations & facilities, distribution & fleet, product use & disposal

Aerospace & Defense

Automotive & Transportation

Consumer & Retail

Industrial

Healthcare

Telecom & Media

Technology & Bus. Services

Total (7)

Carlyle investment sectors

25

19

26

50

32

41

134

327

Portfolio Companies

Water Waste Forest Products

Priority Chemicals

GHGs

Operations & Facilities

Product Use & Disposal

Distribution & Fleet

Supply Chain

Environmental Impacts1

Business Impacts2

Low/Med/Highimpact

Portfolio Companies

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Correlation of common business activities with environmental impacts: The portfolio analysis revealed a high correlation between environmental impacts & 10 common business activities that occur most frequently across Carlyle’s investment sectors.

Aerospace & Defense

Automotive & Transport

Consumer & Retail Industrial Healthcare

Telecom & Media

Tech & Bus Srvc.

Resources, Ag, Raw Materials, Energy

Casting, Forging, Stamping & Melting

Chemical/Processing

Compounding

Assembly, Forming

Services, Technology

Construction

1.

2.

3.

4.

5.

6.

7.

Heavy Industrials

Light Manufact.

Services

Carlyle Investment Sectors

Business Activities

Fleet/LogisticsSourcingFacilities Mgmt.

8.9.10.

All Sectors

How we did it2.

Indicates high environmental

impact

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Opportunity identification: In addition, the analysis began to reveal specific initiatives to reduce environmental impacts of the common business activities while driving financial savings.


Casting, Forging, Stamping, & Melting

Chemical/Processing

Compounding

Assembly, Forming


Construction

1.

2.

3.

4.

5.

6.

7.

Business Activities

Fleet/LogisticsSourcing/ProcurementFacilities Management

8.9.10.

How we did it3.


Priority Chemicals

GHGs

Cost Savings Revenue Expansion Risk Mitigation

• Changes to fuel mix

• Waste heat recovery

• Right sizing of motors

• Plant layout improvements


• Redesigned supply chains


• Refrigeration

• R&D Labs

• Data center analysis

• Logistics software

• Improved maintenance

• HVAC, lighting, sensors

• On-site generation

• Excess tradable credits

• Co-generation

• Biofuels production

• Composting, production of soil nutrients

• Backhaul contracting

• GHG consulting services


• Emissions compliance

• Fuel & electricity supply







• Driver training

• Green procurement

• Lighting retrofits

• Supply chain

• Backhaul contracting • Car accident reduction

• Maintenance risk mitigation

Project opportunity areas

Heavy Industrials

Light Manufact.

Services

All Sectors

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Broad scan/issues & opportunity identification

Target selection

Key process grouping

Selective deep dives

Risk mitigation opportunities

Liability estimates

Risk mitigation plan

Efficiency & cost-cutting opportunities

Cost savings estimates

Operational improvement plan

Revenue generation opportunities

Revenue growth estimates

Growth plan

Management Plan

The Carlyle Group: Due diligence modules

Revenue growthCost cuttingEcoValuScreen:

How we did itIntegration with current due diligence process: The new EcoValuScreen is designed to be flexible, broadly applicable & easily incorporated into Carlyle’s current due diligence practices.

4.

Risk mitigation

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1. Scan: Scan the target company for relevant business activities.

2. Identify: Use relevant business activities to identify an actionable list of operational projects that will enhance environmental performance.

3. Assess: Quantify projects’ benefits & identify highest priority environmental & financial performance initiatives.

4. Implement: Integrate initiatives into the post-acquisition management plan & share lessons learned across deal teams & funds.

How it worksInvestment professionals use the screen to evaluate how environmental management can enhance the value of a new acquisition, inform the bidding process & be incorporated into the post-acquisition management plan.

The screen consists of a four-steps:

1.

2.

3.

4.

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Scan: Scan the target company for relevant business activities.

1.

• Powertrain casting division (Casting)

• Parts production, assembly line (Assembly, Forming)

• Distribution fleet (Fleet/Logistics)

• Sources 50% of parts from external vendors (Sourcing)

• 750 sales offices, 20,000 employees (Facilities)

How it works

Automotive sector target company example

Aerospace & Defense

Automotive & Transport

Consumer & Retail


Casting, Forging, Stamping & Melting

Chemical/Processing

Compounding

Assembly, Forming


Construction

1.

2.

3.

4.

5.

6.

7.

Carlyle Investment Sectors

Business Activities

Fleet/LogisticsSourcingFacilities Mgmt.

8.9.10.

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How it works

Identify: Use relevant business activities to identify an actionable list of operational projects that will enhance environmental performance.

2.

Casting, Forging, Stamping, Melting

Assembly, Forming

Fleet/Logistics

Sourcing/Procurement

Facilities Management


Priority Chemicals

GHGs

Cost Savings Revenue Expansion Risk Mitigation



• Improved maintenance

• HVAC, lighting, sensors


• On-site generation

• Excess tradable credits



• Right sizing of motors • Fuel & electricity supply

• Driver training

• Speed governors

• Green procurement • Supply chain

• Backhaul contracting • Car accident reductionRelevant business activities

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How it worksAssess: Quantify projects benefits & identify highest priority environmental & financial performance initiatives.

3.

Project DescriptionBest Case

($M)Reasonable Case ($M)

Worst Case ($M)

Prob. Of Success (%)

NPV Scenarios

Reuse scrap materials

Sell unused scrap

Shared material buying

$25M

$5M

$10M

$10M

$2.5M

$4M

$5M

$1M

$0

65

40

25

Driver training

Speed governors

Plant layout improvements

$30M

$10M

$10M

$20M

$5M

$8M

$10M

$4M

$6M

70

30

25

Motion-sensitive water nozzles $10M $8M $6M 90

TOTAL BENEFITS $100M $57.5M $32M

Waste

GHGs

Water

Best Case Worst Case

Environmental. Savings

10,000

10,000

5,000

2,000

2,000

0

25,000

20,000

10,000

8,000

9,000

6,000

15,000 8,000

Waste (tons)

GHGs(tons of CO2 eq.)

Water (gals)

• Waste (tons)

• GHGs (tons CO2 eq)

• Water (gals)

25,000

55,000

15,000

Total Environmental Savings

4,000

23,000

8,000

Best Case Worst Case

15,000

40,000

12,000

Reas. Case

Environmental & Financial performance initiativesProject: Automotive Company Example

The Payne Firm, Inc. Illustrative

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GHGs

Implement: Integrate initiatives into the post-acquisition management plan & share lessons learned across deal teams & funds.

4.

How it works

� Grow revenue 10% through Asia expansion

� Reduce cost 15% through supplier negotiation

� Invest additional 5% of sales into R&D

� Reduce waste and management costs 5%

• Reuse scrap materials

• Sell unused scrap

• Shared material buying

� Reduce fuel usage and costs 10%

• Driver training

• Speed governors


Management Plan

Project: Automotive Company Example

Project Description

Reuse scrap materials

Sell unused scrap

Shared material buying

$10M

$2.5M

$4M

Driver training

Speed governors

Plant layout improvements

$20M

$5M

$8M

TOTAL BENEFITS $49.5M

Waste

GHGs

Waste (tons)

(tons of CO2 eq.)

The Payne Firm, Inc.

Projected environmental

savings

6,000

6,000

3,000

15,000

15,000

10,000

Projected financial

savings $M

IllustrativeEnvironmental & Financial performance initiativesProject: Automotive Company Example

Illustrative

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For more information

The Payne Firm (Payne)

The Payne Firm, Inc. is an environmental consulting firm that provides full life cycle services to private equity sponsors to improve performance of their portfolio companies. The Payne Firm has served as the environmental deal advisor in over 175 transactions with enterprise value in excess of $100 billion. The Payne Firm is a member of the Inogen Environmental Alliance, a global network of 165 member offices in six continents with over 4,800 professionals world-wide. www.paynefirm.com

The Carlyle Group (Carlyle)

The Carlyle Group is a global private equity firm with $88.6 billion of assets under management committed to 67 funds as of December 31, 2009. Carlyle invests in buyouts, growth capital, real estate and leveraged finance in Africa, Asia, Australia, Europe, North America and South America focusing on aerospace & defense, automotive & transportation, consumer & retail, energy & power, financial services, healthcare, industrial, infrastructure, technology & business services and telecommunications & media.

Since 1987, the firm has invested $59.6 billion of equity in 952 transactions for a total purchase price of approximately $233.0 billion. The Carlyle Group employs more than 860 people in 19 countries. In the aggregate, Carlyle portfolio companies have more than $84 billion in revenue and employ more than 398,000 people around the world. www.carlyle.com

Environmental Defense Fund (EDF)

A leading national nonprofit organization, Environmental Defense Fund represents more than 700,000 members. Since 1967, EDF has linked science, economics, law and innovative private-sector partnerships to create breakthrough solutions to the most serious environmental problems.

EDF has a 20 year track record of success in partnering with business. To maintain its independence and credibility, EDF accepts no money from corporate partners; generous individuals and foundations fund its work. www.edf.org.