1. Valuation for Beginners – check mate again

3. We aim to understand a range of valuation techniques – Company X Indicative and preliminary valuation range of EUR 1.9 billion to EUR 2.1 billion at this early stage of due diligence Indicative, preliminary valuation range EV EV/EBITDA 2006 1.8b - 2.2b 9.5x - 11.5x 1.9b - 2.1b 10.0x - 11.0x 1.8b - 2.3n 9.4x - 12.2x 1.5b - 1.7b 7.9x - 9.0x

4. We focused on Discounted Cash Flow… i.e. we need some basic understanding of accounting To understand cash flows, we also need to understand the profit & loss statement and the balance sheet To understand Free Cash Flows, we need to understand cash flows In order to derive to a Discounted Cash Flow, we need to develop an understanding about discounting (WACC) and about Free Cash Flows We applied a ‘bottom-up’ approach is assessing DCF

5. ...and by now understand the DCF overview = input = output MV of interest-bearing debt MV of minority interests Corporate value MV of financial fixed assets 1 Value of Operations Free Cash Flow WACC Terminal value Equity value MV of other financial liabilities 2 MV preferred equity Excess cash & marketable securities B/S P&L Cash Flow Accounting Notes: 1) including non-operating investments 2) including underfunded pension plans Enterprise value is the equivalent of Value of Operations

6. Background on net debt and other adjustments

14. Comparable Company Analysis

18. Step 2: Collecting financials - Example ADIDAS – year 2007 Price per shoe EUR 60 Production costs per shoe EUR 51 Amount of shoes sold 900x Marketing & salary EUR 6,000 Interest % 5% Tax 30% Share price EUR 20 Outstanding shares 650x Interest bearing debt EUR 1,000 Unfunded pensions EUR 700 Cash EUR 100 Fixed assets EUR 5,000 Inventory EUR 6,000 Receivables EUR 3,500 Payables EUR 600

19. Step 2: Collecting financials – Example (cont ’d) X EUR Adidas Sales xx COGS xx Gross margn xx SG&A xx EBIT xx Interest xx PBT xx Tax xx Net profit xx

20. Step 2: Collecting financials – Example (cont ’d) X EUR Adidas Sales 54,000 COGS 45,900 Bruto Winst 8,100 SG&A 6,000 EBIT 2,100 Interest 50 EBT 2,050 Tax 615 Net profit 1,435

23. Step 3: Calculating multiples – Enterprise value MV of financial fixed assets 1 Excess cash & marketable securities MV of interest-bearing debt MV of minority interests Equity value MV of other financial liabilities 2 MV preferred equity + + + + Enterprise value – – Notes: 1) including non-operating investments 2) including underfunded pension plans

24. Step 3: Calculating multiples Year 2007 Adidas Enterprise Value xx Sales xx EBIT xx Sales multiple xx EBIT multiple xx

25. Step 3: Calculating multiples (cont ’d) Year 2007 Adidas Enterprise Value 14,600 Sales 54,000 EBIT 2,100 Sales multiple 0.27x EBIT multiple 6.9x

26. For Company X the CCA was less relevant due to absence of directly comparable peers Differing growth levels, market positions and country dynamics result in a less relevant peer analysis

27. Comparable Transaction Analysis

30. CTA - Example Adidas Nike Company sold in year 2004 2006 Selling price: EUR 15,000 EUR 1,4000 Sales 2007 EUR 54,000 EUR 65,000 Sales 2006 EUR 50,000 EUR 63,000 Sales 2005 EUR 48,000 EUR 61,000 Sales 2004 EUR 45,000 EUR 58,000 EBIT 2007 EUR 2,100 EUR 1,500 EBIT 2006 EUR 2,000 EUR 1,700 EBIT 2005 EUR 1,900 EUR 1,200 EBIT 2004 EUR 1,800 EUR 1,100

31. CTA - Example Adidas Nike Enterprise value company xx xx Sales used xx xx EBIT used xx xx Sales multiple xx xx EBIT multiple xx xx

32. CTA – Output Adidas Nike Enterprise value company 15,000 14,000 Sales used 45,000 63,000 EBIT used 1,800 1,700 Sales multiple 0.33x 0.22x EBIT multiple 8.33x 8.24x

33. Company X CTA indicates 9.5 – 11.5x 2006 EBITDA Comparable transactions imply a valuation range of EUR 1.8bn to EUR 2.2bn

34. 4 Leveraged Buy Out valuation

35. 4a Introduction

37. First calculate target’s debt capacity which results from forecasted financials (bankers case) + + Maximum debt capacity + Debt financing Forecasted cash flows Historic financials Bankers ’ case Covenants

38. Second, the return for equity providers can be calculated depending on equity structure & consideration Internal Rate of Return + Forecasted financials Equity structure Consideration Exit multiple + +

39. 4b What really happens

44. 4c basic calculations

47. 2. Why calculate an IRR? 4 4 The higher the IRR, the higher your EBITDA will be after 2-6 years, the higher the absolute amount you will receive for the business Case 1 2008 2009 2010 2011 2012 EBITDA 100 110 121 133 146 IRR 10.0% 10.0% 10.0% 10.0% PV cash flow 100 100 100 100 Enterprise value 2007 400 NPV 0 Calculated entry multiple 4.0x = ( 400 / 100) Estimated exit multiple 4.0x Enterprise value 2011 584 = ( 4 * 146) Profit 184 = 584 - 400 Case 2 2008 2009 2010 2011 2012 EBITDA 100 130 169 220 286 IRR 30.0% 30.0% 30.0% 30.0% PV cash flow 100 100 100 100 Enterprise value 2007 400 NPV 0 Calculated entry multiple 4.0x = ( 400 / 100) Estimated exit multiple 4.0x Enterprise value 2011 1,144 = ( 4 * 286) Profit 744 = 1,144 - 400

48. 4d What about management?

51. Envy ratio - example In a flat priced deal, the envy on the ordinary shares is 1.0 Example of envy-calculation Management Investment Percentage Financial buyer Investment Percentage Ordinary shares EUR 3.0 10% Ordinary shares EUR 27.0 90% Preferred shares EUR 5.0 5% Preferred shares EUR 95.0 95% Shareholder loan EUR 200.0 100% Total EUR 8.0 Total EUR 322.0 ENVY ordinary shares 1.0x ENVY ordinaries plus prefs 1.7x ENVY total equity contribution 4.5x Management is offered the opportunity to invest in the equity at 4.5x more favorable terms than the financial buyer

52. 5 Capita Selecta

53. 5a Introduction

54. Closing date is Effective Date 2. Transaction structure and terms & conditions 4. New ownership 3. Arrangements between signing and completion 1. Exchange of information between buyer and seller Conditions precedent Covenants to completion Representations and warranties Indemnities Breach and damages Effective date? 31 Dec Last Accounts Date 1 Aug Price agreement & signing SPA 30 Sep Closing Date = Effective Date 28 Dec Closing Accounts as per Closing date final

59. 5b Working capital

65. 5c Net debt

66. Example – Net Debt Budget at signing Actual at closing Fixed Assets 100 Equity 100 Fixed Assets 150 Equity 100 Debtors 300 Debt 250 Debtors 300 Debt 300 Cash 50 Creditors 100 Cash 50 Creditors 100 Total 450 Total 450 Total 500 Total 500 No reference made to working capital Enterprise value for the company 2,000 Enterprise value for the company 2,000 Net debt (200) Net debt (250) Actual WC -/- reference WC (50) Actual WC -/- reference WC (50) Purchase price for the shares 1,750 Purchase price for the shares 1,700

67. 5d Performance relative to budget

70. 5c Unwanted sellers ’ actions

72. Example I – Paying out 50 mil in dividend Budget at signing Actual at closing Fixed Assets 100 Equity 100 Fixed Assets 100 Equity 50 Debtors 300 Debt 250 Debtors 300 Debt 300 Cash 50 Creditors 100 Cash 50 Creditors 100 Total 450 Total 450 Total 450 Total 450 Reference made to working capital of 250 Enterprise value for the company 2,000 Enterprise value for the company 2,000 Net debt (200) Net debt (250) Actual WC -/- reference WC (50) Actual WC -/- reference WC (50) Purchase price for the shares 1,750 Purchase price for the shares 1,700

73. Example II – Accelerated collecting of EUR 100m in debtors Budget at signing Actual at closing Fixed Assets 100 Equity 100 Fixed Assets 100 Equity 100 Debtors 300 Debt 250 Debtors 200 Debt 150 Cash 50 Creditors 100 Cash 50 Creditors 100 Total 450 Total 450 Total 350 Total 350 Reference made to working capital of 250 Enterprise value for the company 2,000 Enterprise value for the company 2,000 Net debt (200) Net debt (100) Actual WC -/- reference WC (50) Actual WC -/- reference WC (150) Purchase price for the shares 1,750 Purchase price for the shares 1,750

74. Example III – Stop paying creditors for a benefit of EUR 100m Budget at signing Actual at closing Fixed Assets 100 Equity 100 Fixed Assets 50 Equity 100 Debtors 300 Debt 250 Debtors 300 Debt 200 Cash 50 Creditors 100 Cash 50 Creditors 100 Total 450 Total 450 Total 400 Total 400 Reference made to working capital of 250 Enterprise value for the company 2,000 Enterprise value for the company 2,000 Net debt (200) Net debt (150) Actual WC -/- reference WC (50) Actual WC -/- reference WC (50) Purchase price for the shares 1,750 Purchase price for the shares 1,800

75. Example IV – Stop the budgeted EUR 50m investments Budget at signing Actual at closing Fixed Assets 100 Equity 100 Fixed Assets 100 Equity 100 Debtors 300 Debt 250 Debtors 300 Debt 150 Cash 50 Creditors 100 Cash 50 Creditors 200 Total 450 Total 450 Total 450 Total 450 Reference made to working capital of 250 Enterprise value for the company 2,000 Enterprise value for the company 2,000 Net debt (200) Net debt (100) Actual WC -/- reference WC (50) Actual WC -/- reference WC (150) Purchase price for the shares 1,750 Purchase price for the shares 1,750

77. 5d Other

79. 5e Adjustments

81. 6 Role financial advisor

82. Diagram Negotiation Process management Contact with lawyers, consultants, accountants, etc. Due Diligence Valuation Transaction structuring Client (Company) Corporate Finance Assistance & Advice

83. The end