Trends in European M&As and areas of attention for successful cross-border M&As. Presented as part of the New York 2008 World Trade Week at Baruch College.

1. EUROPEAN CROSS BORDER M&As:
The Making Of Global Leaders and
Emerging Central­Eastern Europe
Pete Chatziplis, CFA, ACCA, CF
Weissman Center for International Business, Baruch College
World Trade Week, New York
May 22, 2008

2. Topics
Global M&A activity
Current M&A trends in Europe
European M&A Deal Analysis: sectors and sizes
Sources of financing: what’s the role of private equity?
Eastern Europe
Areas of importance in planning and executing an M&A
Q&A session
Pete Chatziplis, European Cross Border M&As, Baruch College, World Trade Week, New York, May 22, 2008 1

3. Global M&A Activity
2007 a record year for Global M&As:
– Total Global M&A Deal Value in 2007 $ 3.6 trillion ($3.7 trillion in 2006)
– North America: $ 1.58 trillion, 9% growth/ 4,950 deals
– Europe: $1.4 trillion, same as in 2006/ 6,290 deals
– Asia: $ 430 billion, 5% growth/ 2,700 deals
2007 Deal Value by Region 2007-2006 Deal Value
4,000
3,500 $440m $180
$430
3,000 $410m
*
Other, $180,
North 2,500
5% $1,400
America, $1,400m
$1,580, 44% 2,000
Asia-Pacific, 1,500
$430, 12%
1,000
$1,450m $1,580
500
Europe,
$1,400, 39% 0
2006 2007
Other includes: Latin America, Africa, Middle East. North America Europe Asia-Pacific Other
Source: Mergermarket, The Comprehenisve Review of North American Mergers & Acquisitions, Mergermarket Full Year 2007.
Pete Chatziplis, European Cross Border M&As, Baruch College, World Trade Week, New York, May 22, 2008 2

4. Top 2007 Deals Globally
• RBS-Fortis-BSCH/ABN Amro €71bn Banks
• Altria Group/Kraft $61 bn Consumer
• Enel&Acciona/Endesa €48 bn Energy
• Providence,Madison,Teachers/BCE $44 bn Telecoms
• KKR,TPG,GS/TXU Corp $44 bn Energy
• Rio Tinto/Alcan €32 bn Industrials
• Unicredit/Capitalia €22 bn Financials
• KKR&Pessina/Alliance Boots €18 bn Consumer
• KKR/First Data $27 bn Business Services
• TPG,GS/Alltel $27 bn Telecoms
• Blackstone/ Hilton $25 bn Leisure
• Bank of America/LaSalle €15 bn Financials
Pete Chatziplis, European Cross Border M&As, Baruch College, World Trade Week, New York, May 22, 2008 3

5. European M&A Activity
2007 close to 2006 at historical high:
– Slowdown in 2H’07 due to credit crunch
– Credit crisis affected mega deals but not volume; deals take longer time
– 1Q 2008 deal volume down by 10%
– Drivers: Strategic activity; cash availability in PEs; weakening US$
European Deal Value European Deal Volume
Source: Mergermarket, Deal Drivers, A Comprehensive Review of European M&A s, Full Year Edition 2006.
Pete Chatziplis, European Cross Border M&As, Baruch College, World Trade Week, New York, May 22, 2008 4

6. European M&A Activity – Deal Sizes
2007 a mega-deal year; middle market is strong:
– Continued increase in average size; deals over €500 m totaled €800 billion
(80% of total); 350 transactions
– Significant middle market activity: 700 deals for a total of €160 billion
2007 M&A Deal Split (Value) 2007 M&A Deal Split (Volume)
Source: Deal Drivers, The Comprehensive Review of North American Mergers & Acquisitions, Mergermarket Full Year 2007.
Pete Chatziplis, European Cross Border M&As, Baruch College, World Trade Week, New York, May 22, 2008 5

7. European M&A Activity – Countries
Growth and regulations are critical:
– UK traditionally with the bulk of the M&A activity
– France is viewed as the most protectionist country, followed by Italy, Germany
– Eastern Europe growing is perceived as the most attractive region
2007 Deal Value by Country 2007 Deal Volume by Country
Other UK & Other UK &
CEE 5.2% Ireland 7.3% Ireland
CEE
10.8% 25.0% 13.5% 25.1%
Nordic
6.1%
Nordic
Germany 12.2% Germany
Benelux
8.0% 10.1%
17.2% Benelux
France 8.9% France
Iberia Italy 9.3%
Iberia 8.4%
Italy 7.0% 6.5%
10.9%
8.5%
Source: Deal Drivers, The Comprehensive Review of North American Mergers & Acquisitions, Mergermarket Full Year 2007.
Pete Chatziplis, European Cross Border M&As, Baruch College, World Trade Week, New York, May 22, 2008 6

8. European M&A Activity – Sectors
Financial Services strong/Energy of growing importance:
−Financial: $99 bn acquisition of ABN AMRO by BSCH/Fortis/RBS
−Energy: $67 bn acquisition of Endesa by Enel SpA
−Consumer: $25 bn acquisition of Alliance Boots by KKR/Pessina
−Industrials: consolidation; Rio Tinto/Alcan, Akzo Nobel/ICI, Cerberus/Chrysler
8.40% 10.70%
4.80% Other
5.80%
12.00%
13.90% Life Sciences
15.70% 6.20%
TMT
14.20% 19.50%
Energy/Resources
10.30%
Consumer & Leisure
28.50%
Financial Services
33.60%
16.40% Manf'g & Bus.Serv.
Value Volume Source: Deal Drivers, The Comprehensive Review of North
Pete Chatziplis, European Cross Border M&As, Baruch College, World Trade Week, New York, May 22, 2008 American Mergers & Acquisitions, Mergermarket Full Year 2007. 7

9. Cross-Border M&A Activity
Cross Border activity grows:
– Record year in transatlantic deals; $330 billion (1,040 deals)
– Increase in European buyers
– Factors: Strategic activity; cash availability in PEs; weakening US$
– Significant Deals: Rio Tinto/Alcan, Thompson/Reuters
– Rise of Sovereign Wealth Funds
– Concerns over sectors of strategic importance and subsidized M&As
Transatlantic Deals (Value) Transatlantic Deals (Volume)
Source: Deal Drivers, The Comprehensive Review of North American Mergers & Acquisitions, Mergermarket Full Year 2007.
Pete Chatziplis, European Cross Border M&As, Baruch College, World Trade Week, New York, May 22, 2008 8

10. M&A Financing Sector
Increased importance of PEs
– Europe: €212 bn in 1,270 deals, 20% of total activity in 2007
– US: $490 bn in 910 buyouts in 2007; 35% of total activity;
– Asia: $42 bn, 700 deals (India $10 bn, China $9.5 bn, Taiwan $5.8 bn)
– PE investment patterns in Europe:
80% increase in targets’ value over 3.5 years mainly through revenue
growth and cost reduction
13% EBITDA growth vs. 21% in the US
EBITDA Improvements through geographical expansion, improved
selling/pricing/product mix, operational efficiency
IPO 3 times more likely exit in US than Europe; secondary sales 4 times
more frequent in Europe
Pete Chatziplis, European Cross Border M&As, Baruch College, World Trade Week, New York, May 22, 2008 9

11. European PE Activity
Increased importance of PEs
– Sectors: Consumer 24%, TMT 17%, Industrials 15%, Energy 11%, Business
Services 9%, Pharma 7%, Financial 5%
– Fall in confidence in 2H2007 and 2008 but still strong
– Focus on middle market and turnarounds, cash deals at discount
– Largest buyout ever: Boots/Pessina,KKR at €17.8 billion
PE Buyouts and Exits by Value Buyout Deals by Country
Other
Italy
1.7%
6.1% UK &
Iberia
6.5% Ireland
CEE 27.5%
6.9%
Benelux
11.7%
France
Nordic 13.8%
12.3% Germanic
13.6%
Source: European Private Equity in Review, Mergermarket, February 2008
Pete Chatziplis, European Cross Border M&As, Baruch College, World Trade Week, New York, May 22, 2008 10

12. M&A Pricing Trends
Median Enterprise Value to EBITDA Multiple
Medianvs. Financial Buyers - Global Deals
Strategic EV/EBITDA- Global
11.0x 10.5x
Increase in Valuations: 9.2x
9.6x
9.9x
9.0x
8.6x 8.9x
8.5x
average multiple reached 7.2x
7.6x 7.7x 7.9x
6.7x
10.5x in 2007 6.0x 5.6x
Higher multiples offered in 4.3x
3.5x
electronics and large deals
Higher multiples in CEE but 1.0x
2001 2002 2003 2004 2005 2006 2007
rationalizing Source: Thomson Financial
Strategic Buyers Financial Buyers
Includes only positive multiples less than 25x.
Median Enterprise Value to EBITDA Multiple
Median EV/EBITDA- Global < $250m
Strategic vs. Financial Buyers - Global Deals Less than $250mm
Cash rich PEs; average 11.0x
multiple increased from 4.3X to 9.1x
8.5x
8.2x
10.5X 8.5x
7.4x
7.7x 7.8x 7.7x
6.8x 7.0x
6.7x 6.5x
6.2x
Strategic and financial buyers 6.0x
5.2x
competing head to head 3.9x
3.5x
1.0x
2001 2002 2003 2004 2005 2006 2007
Pete Chatziplis, European Cross Border M&As, Baruch College, World Trade Week, New York, May 22, 2008 Strategic Buyers Financial Buyers 11
Source: Thomson Financial Includes only posit ive mult iples less t han 25x.

13. European M&As – Cultural Themes
Strong protectionist sentiments / cultural/ national sensitivities:
– Vary by sector: stronger in Banks, Utilities, and Infrastructure
– Vary by market (stronger in France, Germany, Italy)
Regulatory framework a critical factor:
– European Commission approvals; anti-monopoly regulation
– Foreign Corrupt Practices Act (“FCPA”)
– Sarbanes-Oxley considered as an obstacle
– Fair Value Accounting
Concern over Sovereign Wealth Funds
CEE in the focus; large PE have setup specialized teams
Pete Chatziplis, European Cross Border M&As, Baruch College, World Trade Week, New York, May 22, 2008 12

14. Successful M&As – Best Practices
Five Disciplines:
Establish Clarity of Purpose
Safeguard Parent Power
Know your Target
Provide Incentives to Execute
Integration Planning
Source: Deloitte, Making the Deal Work, Avoiding Merger Failure (page 5 and 17)
Pete Chatziplis, European Cross Border M&As, Baruch College, World Trade Week, New York, May 22, 2008 13

15. Damodaran – 7 sins in Acquisitions
1. Risk Transference: attributing acquiring company risk characteristics
to target firm
2. Debt subsidies: subsidizing target firm for the strengths of the acquirer
3. Auto-pilot Control: The “20% control premium” and other myths…
4. Elusive Synergy: Misidentifying and misvaluing synergy
5. It’s all relative: Transaction multiples, exit multiples..
6. Verdict first, trial afterwards: Price first, valuation to follow
7. It’s not my fault: Holding no one responsible for delivering results
Pete Chatziplis, European Cross Border M&As, Baruch College, World Trade Week, New York, May 22, 2008 14

16. Issues in M&A Due Diligence
Problem areas Remedial Action
“Deal fever” may lead to oversee Define a clear DD plan (team,
problems or try hide when too late objectives, methods, deadlines)
Unclear deadlines and priorities Structure effectively DD team and
Inefficient structure and coordination assign responsibilities, milestones and
among due diligence/deal teams incentives
“Ad hoc” approach and practices (error Prioritize: identify and focus on basics
prone/inefficient process) (“cost-benefit” trade-off)
Distraction and stress on deal team Use qualified staff/advisors, tested
technology and methods
Unavailability of information
Negotiate over problem areas early in
No performance monitoring, no the deal
accountability
“If it doesn’t look good, it’s not good”
Ignore country/industry-specific issues;
get trapped in “mind-sets”
Inefficiencies can cost significantly in dollars and reputation
Pete Chatziplis, European Cross Border M&As, Baruch College, World Trade Week, New York, May 22, 2008 15

17. Concluding Notes
Slowdown due to credit crisis; unavailability of debt financing (LBOs) increase in
the importance of strategic buyers
Markets believed to recover in a year; at least
Transatlantic deal flow increasing
Protectionism exists; an obstacle in cross-border deals
The most active sectors in cross border M&A Technology, Life Sciences and
Financial Services; the least Infrastructure and Energy
Growth expectations in Central-Eastern Europe
M&A activity in Europe to remain strong but
“Look before you leap” on cross-border M&As
Pete Chatziplis, European Cross Border M&As, Baruch College, World Trade Week, New York, May 22, 2008 16

18. Q&A ?
Pete Chatziplis, European Cross Border M&As, Baruch College, World Trade Week, New York, May 22, 2008 17

19. Pete Chatziplis, European Cross Border M&As, Baruch College, World Trade Week, New York, May 22, 2008 18