Private equity 1.01
Brief introduction into private equity
6 April 2011
Introduction Roy Stegeman
 Partner KPMG Corporate Finance since May 2009
 Previously worked at ABN AMRO / RBS Corporate Finance
 Specialised in Private Equity related deals
HG International
Saval / Knowsley
CARe
Kirin Agribio
KPMG Corporate Finance
Royal Sanders
KPMG Corporate Finance
Brunotti
KPMG Corporate Finance
KPMG Corporate Finance
KPMG Corporate Finance
KPMG Corporate Finance
acted as deal manager and financial
advisor to Gilde Equity Management
Benelux on the acquisition of HG
International
acted as deal manager and financial
advisor to Bencis Capital Partners on
the acquisition of Saval and Knowsley
from Imtech
acted as deal manager and financial
advisor to AAC Capital Partners on the
acquisition of CARe from NPM Capital
acted as financial advisor to H2 Equity
Partners on the acquisition of Kirin
Agribio from Kirin Holdings
acted as financial advisor to Bencis
Capital Partners on the acquisition of
Royal Sanders
acted as deal manager and financial
advisor to the shareholders of Brunotti
Trade Mark on the sale to Greenfield
Capital Partners
August 2009
January 2010
February 2010
March 2010
August 2010
Pending
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Topics covered today
 How large is the private equity market in the Netherlands?
 What are the characteristics of a leverage buy out?
 Is it possible to acquire a 10% share in a company that is worth
EUR 100 million for EUR 1 million?
 Which companies are suitable for a buy out?
 What is the current status of private equity in the Netherlands?
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Question:
How large is the private equity market in the
Netherlands?
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Key facts private equity the Netherlands
 90 PE houses
 EUR 23.3 billion in funds
 1,300 portfolio companies
 Combined revenue of EUR 81 billion, 19% of GDP
 Employs over 320,000 FTE, 6% of the total working population in
the private sector
 In 57% of private equity investments the number of FTE grow
 308 private equity transactions in 2010
 Currently 3 to 4 billion available in equity
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Contact with private equity in our daily life
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Private equity landscape
Sector specific
Global /
incoming PE
EV >300m
Food / Retail
International PE
EV 80m – 300
Healthcare
Mid market PE
EV 20m – 100m
Power / Energy
Local PE
EV 0 – 20m
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Different type of funds
Independent funds
Captive funds
Family offices
Investment horizon
Investment
period investment
Divestment
period
No unified
horizon
5 year
2 year
5 year
2 year
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Investment structure of an independent private
equity fund
Limited Partners
(LP)
General
Partners (GP)
Fund
Bank
Management
Portfolio
company A
Bank
Management
Portfolio
company B
Bank
Management
Portfolio
company C
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Funds flow of an independent private equity
fund
Limited Partners
(LP)
General
Partners (GP)
Fund
Bank
The returns for the GP
consist of a
management fee of 2%
and proceeds of
carried interest
Management
Portfolio
company A
The bank is getting
paid interest on the
provided debt
financing
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Investment structure of a captive private equity
fund
Bank / Insurance company
Private equity house
Fund
Parcom Buyout
Fund
Portfolio companies
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Structure of a family office
Trust
Family office
Parent
company
Private
equity
Real
estate
Listed
companies
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Question:
What are the characteristics of a leverage buy
out?
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Characteristics Leveraged Buy out (LBO)
 Acquiring company is Newco
 Acquisition price also determined by debt capacity
 Strong incentives to management (shareholding & envy)
 Different types of debt funding
 Specific investment period
 Pursue growth strategy
 Good leaver / Bad leaver clause
 Drag & tag along rights
 Recaps
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Question:
Is it possible to acquire a 10% share in a
company that is worth EUR 100 million for
EUR 1 million?
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Netherlands. KPMG and the KPMG logo are registered trademarks of KPMG International.
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A numerical example of a leverage buy out
Example I
Without envy
Example 2
Envy = 2
Senior debt
50
Example 3
Envy = 5
Senior debt
50
Senior debt
50
Management pays EUR 1 million to acquire a
share of 10% in a company with an enterprise
Loan notes
value of EUR 100
million
25
Equity PE House
45
Equity management
5
EV = 100
EBITDA = 10
Multiple = 10x
SH = 90%
SH = 10%
Equity PE House
20
SH = 80%
Equity management
5
SH = 20%
EV = 100
EBITDA = 10
Multiple = 10x
Loan notes
40
Equity PE House
9
Equity management
1
SH = 90%
SH = 10%
EV = 100
EBITDA = 10
Multiple = 10x
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Returns LBO when growth is assumed
Enterprise value
Return
Management
Equity management
Investment
management
Equity PE house
Investment PE
Loan notes
Return PE
Mezzanine
Debt
Senior debt
4
0
Entry
Year
Exit
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Returns LBO when no growth is assumed
Enterprise value
Investment
management
Equity management
Return
Management
Equity PE house
Investment PE
Loan notes
Return PE
Mezzanine
Debt
Senior debt
4
0
Entry
Year
Exit
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Internal rate of return (IRR)
Entry year 1
Exit year 3
Senior debt
25
Loan notes
25
Senior debt
50
Equity PE House
64
Loan notes
25
IRR = 25.5%
Equity PE House
20
Equity management
16
Equity management
5
EV = 100
EBITDA = 10
Multiple = 10x
Growth in EBITDA assumed
No multiple growth
IRR = 47.6%
EV = 130
EBITDA = 13
Multiple = 10x
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Various debt instruments are used in a typical
buy-out structure
Instrument
Tenor
Margin
Amortisation
Investors
Term loan A
7 years
225 bp
Amortising
Banks
Term loan B
8 years
275 bp
Bullet
Banks
Term loan C
9 years
325 bp
Bullet
Banks
Revolver
7 years
225 bp
Revolving
Banks
2nd secured
Second lien
>9 years
>500 bp
Bullet
Banks
Subordinated
debt instruments
Mezzanine
10 years
>9%
Bullet
Investment funds
High Yield
>10 years
>9%
Bullet
Investment funds
Highly
subordinated
PIK Loans
>10 years
>18%
Bullet
Mezz investors
PIK Note
>10 years
>18%
Bullet
High yield investors
Shareholder loan
>10 years
>10%
Bullet
Financial sponsors
Equity
n/a
n/a
n/a
Financial sponsors
Preferred equity
n/a
n/a
n/a
Financial sponsors
Senior debt
instruments
Equity
instruments
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Other types of buy outs are based on the same
principle
Management
buy out (MBO)
Secondary Buy
Out
Leveraged Buy
Out (LBO)
BIMBO 'buy-in
management
buy-out'
Leveraged Buy
Out (LBO)
Equity Buyout
(EBO)
Initial Buyout
(IBO)
Management
Buy in (MBI)
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Growth Capital
 Minority investments
 Drag and tag along rights
 Goal: achieve growth, restructure shareholdings, release equity,
deleverage balance sheets
 Shareholders maintain control
 Both start-up as mature companies
 No complicated capital structure
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Question:
Which companies are suitable for a buy out?
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Which companies are suitable for a buy-out
Financing
capacity
(asset base)
Clear exit
possibility
Buy and
build
opportunities
Competent
management
Presence
operational
improvements
Limited
investment
requirements
Limited
operational
risk
Growth
potential
Attractive
market
position
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Typical MBO process
Initial assessment
of viability
Appointment of
financial adviser
Opportunity
Fund raising
Business Plan
Deal structuring
Negotiations
Heads of
Agreement
Negotiations
and legal
agreements
Completion
Add-on
acquisitions
Due Diligence
Exit
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Case study Catalpa
Waterland Private Equity acquires
50% for EUR 7 mln
1976
Foundation of
Catalpa
2001
Bencis, acquires 100%
for ca. EUR 50 mln
2003
Waterland acquires
the remaining 50%
2006
Acquisition Astrid
Lindgren
Acquisition B4 kids, Koetjeboe,
de Muzikantjes, Elan
Acquisition
Unieke
2007
2008
Acquisition
Octopus
2009
Acquisition
Combiwel
2010
2011
Providence
acquires Catalpa
for EUR 500 mln
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Case study Catalpa
Net sales grow th (2006 – 2010)
300
EBITDA grow th and margin (2006 – 2010)
Grow th – autonom ous
15%
20%
6%
6%
Grow th - acquisitions
11%
7%
25%
10%
60
30%
24.4%
250
23.3%
50
40
185
EURm
EURm
200
143
150
25%
21.6%
216
20%
14.5%
30
15%
11.8%
112
50.3
45.2
100
89
20
10%
30.8
50
10
0
0
5%
16.3
10.5
2006-A
Catalpa
2007-A
Astrid Lindgren
UK
2008-A
Octopus
B4Kids
2009-A
ELAN
Combiw el
2010-B
0%
2006-A
EBITDA
2007-A
2008-A
2009-A
2010-B
EBITDA margin
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Question:
What is the current status of private equity in
the Netherlands?
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Current status private equity market in the
Netherlands
Total funds raised in NL
Total investments & divestments in NL
4
2.9
3
4
2.4
1.9
2
2.3
3
1.8
1.3
1.3
0.6
2.6
2.4
3
2
2
1
4.0
4
EUR billion
EUR billion
5
1.7
1.5
1.7
1.9 1.8
1.4
1.2
1.0
0.8
1
0.5
0.7
1
0
0
2003 2004 2005 2006 2007 2008 2009 2010
2004
2005
2006
Investments
2007
2008
2009
2010
Divestments
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Questions
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Netherlands. KPMG and the KPMG logo are registered trademarks of KPMG International.
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