April 2008
PANEL 2: FINANCING THE DEAL
Zoltan Kurali, CFA
Director, Emerging Europe Debt Capital Markets, Deutsche Bank
Mergers & Acquisitions Conference
Sofia, 23 April 2008
Histroical data on M&A financing in CEE
… in line with the M&A transactions have the bond issuance increasing
The value and number of M&A transactions have increasing continously…
6000
12000
11000
10000
9000
8000
7000
6000
5000
4000
3000
2000
1000
0
(EUR mio)
5000
4000
3000
2000
1000
*
0
Al
B
Bg
Cr
Cz
Hu
Lv
Lt
Mk
Pl
Ro SCG Sk
Sl
(EUR mio)
Bg
Cr
Cz
2005
2005
2006
2007
2008 YTD
Hu
2006
*: PL 2005: EUR 10 0016mio
Lv
2007
Lt
Mk
Pl
Ro
Sk
Sl
2008 YTD
Source: Deutsche Bank Analysis
Source: Deutsche Bank Analysis
EV/ EBIDTA values of M&A transactions in several industries
Auto/Truck
Chemicals
Electronics
Construction/Building
Finance
Food & Beverage
Healthcare
Insurance
Metal & Steel
Oil & Gas
Professional Services
Publishing
Retail
Telecommunications
Textile
Transportation
Utility & Energy
2005
17,82
11,72
57,09
13,58
461,63
12,13
8 113,12
14,32
4,05
6,58
15,21
13,68
32,52
19,95
6,22
2006
37,17
9,09
61,71
19,16
23,72
14,24
139,30
16,78
19,47
6 683,23
344,23
22,04
11,41
26,64
11,98
24,57
2007
56,17

Since Summer 2007, the loan market has been challenged by volatility,
limited capacity and significant widening of credit spreads

Current fears of recession, and of the resultant increase in default rates a
recession could cause, are adding to already poor investment sentiment
53,40

4,05
8,89
Although the liquidity constraint has been more pronounced in the
financial sector, large acquisition financings can still be done at the right
price and structure

Few of the most recent jumbo transactions have gone to the wider
general syndication market as most were placed among relationship
banks only
15,64
8,75

Banks focus on fast de-risking via disposals, take-outs and sub
underwriting/ general syndication
Source: Deutsche Bank Analysis
2
Credit markets update
80
60
40
20
0
(20) Aug-06
(40)
(60)
Dec-06
Mar-07 Jun-07
UK
US
Oct-07 Jan-08
EU
Apr-08
Due to rate
cuts the all-in
funding cost
has not
dramatically
risen
180
158
157
12
18
416%
38
35
77
35
19
753%
349%
85
338%
74
349%
312%
956%
376%
bps
127
14
Apr-07
Citi
Oct-07
Jan-08
Apr-08
iTraxx Europe 125
9
7.0
5.0
3.0
1.0
Apr-00 Apr-01 Apr-02 Apr-03 Apr-04 Apr-05 Apr-06 Apr-07 Apr-08
5yr € Swap rates
DB
Jul-07
…however all-in funding cost are at reasonable levels
…with banks credit spreads widening…
67
Jan-07
Source: Deutsche Bank Global Markets
Source: Bloomberg
200
180
160
140
120
100
80
60
40
20
0
180
160
140
120
100
80
60
40
20
0
Oct-06
iTraxxSnr financials
(%)
spread to bank rates(bps)
3M Libor rates spreads over central bank rates
120
100
Unusually,
banks credit
spreads are
the same as
corporates. A
more protracted
restructuring of
banks’ balance
sheets carries
with it significant
threat to general
economic growth
bps
Money markets rates are spiking yet again ……
Rate cuts in the US
together with liquidity
injections by the Fed,
ECB and BOE have
somewhat eased the
immediate effects of the
sub prime crisis and
restored a measure of
liquidity.
Due to the continued
uncertainty in the credit
markets, inter-bank
lending spreads which
previously eased off
have spiked yet again
reflecting nervousness in
the global financial
markets
Banks have been
particularly hit by
the market
turbulence and
credit spreads have
widened
significantly
resulting in a
dramatic increase in
their funding costs
…and further still a banking sector financing crisis
still looms….
CS
JPM
01-Jul-07
Lehman
ML
MS
All-in funds cost
RBS
Iboxx non-fin € spreads
07-Apr-08
Source: Bloomberg
Source: Deutsche Bank Global Markets
3
Credit markets update (continued)
….but European net debt/EBITDA levels are relatively low
versus historic iBx spikes …
250
spread to libor (bps)
Post summer
corporate
bond spreads
have widened
and are most
likely to drift
wider as the
impact of the
credit crunch
continues
200
386%
463%
150
1160%
100
50
0
06/07 07/0708/07 09/07 10/07 11/07 12/07 01/08 02/08 03/08 04/08
iBx € Corp AA
iBx € Corp A
iBx € Corp BBB
One of the
reasons that
non-financial
spreads to
Libor are well
off their
previous cycle
wides is
because the
fundamentals
within the credit
universe are
strong
spread to libor
Corporate bond spreads have widened steadily
300
2.5x
250
2.0x
200
1.5x
150
1.0x
100
0.5x
50
0
2000
0.0x
2001
2002
2003
2004
2005
2006
2007
iBx € Corp AA Daily
iBx € Corp A Daily
iBx € Corp BBB Daily
net debt/Ebitda
2008
Source: Deutsche Bank Global Markets
Source: Deutsche Bank Global Markets
Crossover
467
470
Main 125
85
60
Snr financial
75
40
145
90
HIVol
Source: Deutsche Bank Global Markets
100,000
50,000
0
General
Mar-07
Mar-08
140
Feb-07
Feb-08
241
Jan-07
Jan-08
Euro BBB
150,000
Dec-06
Dec-07
90
Nov-06
Nov-07
213
Oct-06
Oct-07
Euro A
200,000
Sep-06
Sep-07
60
Aug-06
Aug-07
170
250,000
Jul-06
Jul-07
Euro AA
Low volumes
continued in
March with a
limited number of
corporates
accessing the
bank market only
on a must-do
basis, whilst
banks continued
to focus on
repairing their
balance sheets
Jun-06
Jun-07
DB forecast
(1 year)
May-06
May-07
07 Apr-08
levels
Apr-06
Apr-07
Here are our
forecasts for a
broad selection
of credit indices
from our
research team
showing how far
technical factors
are impacting
market prices
…the post credit crunch is reflected in the loan volume
development
(US$m)
… whilst CDS spreads are expected to remain at wider levels,
IG cash levels may tighten …
Acquisition
Source: Loanware
4
Emerging Markets Environment
EM Outlook for 2008
Even if the US
economy does enter a
recession in the
coming months, we
believe it would be
shallow and would not
seriously impact the
global economy
Commodity prices
remain supportive,
supporting the
performance on EM
assets going forward

Although external factors play a significant role in the
performance of EM asset class, their own fundamentals
remain similarly important going forward

Our analysts retain a positive outlook for EM assets albeit
with increased caution

The external environment facing EM remains uncertain, with
downside risks to both US economy and credit markets

However the ongoing strength of the global economy, the
massive liquidity generated by Asian and oil exporters and
the high commodity prices continue supporting EM assets

The two main risks for EM are rising inflation and tighter
global credit conditions
EM Credit Spreads keeping in step with US and
European Spreads
EM private sector credit growth not yet slowing
International Debt Financing in EM is slowing
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