PitchBook. Annual Private Equity Breakdown Better Data. Better Decisions. Private Equity: Data News Analysis

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1 PitchBook Annual Private Equity Breakdown 2011 Better Data. Better Decisions.

2 Table Of Contents Private Equity Deal Flow... 3 Deals by Region & Industry... 4 Transactions by Amount & Deal Count... 5 Equity Percent Used & Add-On Deals... 6 Deal Flow By Industry... 7 Deal-Related League Tables... Portfolio Company Overhang Private Equity Exit Flow Private Equity Fundraising Selected 2011 Vintage & Open Funds About PitchBook COPYRIGHT 2011 by PitchBook Data, Inc. All rights reserved. No part of this publication may be reproduced in any form or by any means graphic, electronic, or mechanical, including photocopying, recording, taping, and information storage and retrieval systems without the express written permission of PitchBook Data, Inc. Contents are based on information from sources believed to be reliable, but accuracy and completeness cannot be guaranteed. Nothing herein should be construed as any past, current or future recommendation to buy or sell any security or an offer to sell, or a solicitation of an offer to buy any security. This material does not purport to contain all of the information that a prospective investor may wish to consider and is not to be relied upon as such or used in substitution for the exercise of independent judgment. [ 2 ]

3 Private Equity Deal Flow U.S. Private Equity Deal Flow by Year The U.S. private equity industry, by many measures, turned in one of its best years in 2010, despite the overall poor economic conditions and turbulent financial markets. There was a steady increase in PE investment during the year culminating with $50 billion invested during 4Q, 6.25x more than the low of $ billion invested during 2Q 200. In total, $132 billion was invested by PE firms in U.S. companies during 2010 the fifth highest one-year total on record. Deal flow was up 11% from 200 with a total of 1,4 PE deals during One of the more notable trends that developed during the year was an increase in appetite for larger deals, which was driven by the increased availability of leverage. The 2 U.S. PE deals over $500 million in 2010 was the third highest number on record. Fundraising remains very difficult for U.S. private equity firms. Only 5 funds reached a final close during 2010 on a total of $4 billion in commitments the lowest amount since The capital overhang of approximately $45 billion continues to make fundraising difficult, as does the PE-backed company overhang. PE firms currently own almost 6,000 companies, a third of which have been held for 5 years or longer and need to be exited in order to generate returns for the firms limited partners. Fortunately, exits are on the rise thanks to recovering financial markets, strengthening company fundamentals and rising valuations. The past year presented private equity firms with a number of challenges, but still the industry managed to bounce back surprisingly fast from last year s lows. Having now turned the corner, look for the positive trends that developed in 2010 around deals and exits to continue in While a number of challenges do remain such as fundraising and availability of financing, the outlook for 2011 appears to be bright. U.S. Private Equity Deal Flow by Quarter [ 3 ]

PE Investments by Region Private equity investment activity continues to be widely

The Midwest was the most active region in 2010 with a total of 313 deals, 4 more than

The Southeast and West Coast were the next most active with 271 and 251 deals,

The Southwest and Northeast were the only regions to see a relative decrease in PE

PE Investments by Industry The Business Products & Services and Consumer Products &

4 PE Investments by Region Private equity investment activity continues to be widely spread across the United States. The Midwest was the most active region in 2010 with a total of 313 deals, 4 more than its 200 total. The Southeast and West Coast were the next most active with 271 and 251 deals, respectively. The Southwest and Northeast were the only regions to see a relative decrease in PE investment activity in 2010 from 200. PE Investments by Industry The Business Products & Services and Consumer Products & Services industries continue to dominate private equity investment with a combined 53% of deal flow. During 2010, the B2B industry experienced the biggest increase in deals from 200, but it was the Materials & Resources industry that saw the biggest percentage increase with a 57% jump to 77 deals in 2010 from 4 in 200. Other industries that saw a rise in deal flow during 2010 included Financial Services and Healthcare. Build your own customi able charts using PitchBook s on-the-fly deal charting. Request a Demo Sales: [ 4 ]

PE Transactions ($ Amount) by Deal Size One major development in 2010 was the return of

In 200, deals larger than $500 million represented 55% of the total capital invested.

The $41 billion invested during 2010 in deals between $500 million and $1 billion

In another sign of the returning availability of leverage for private equity transactions

PE Tr ansactions (Count) by Deal Size The lower end of the market and the middle market

Deals under $250 million made up over 70% of the deal flow in 2010, but it was actually

Evidence of private equity s returning appetite for bigger deals shows up again with the

5 PE Transactions ($ Amount) by Deal Size One major development in 2010 was the return of significant amounts of leverage, and with it, an increase in large PE deals. In 200, deals larger than $500 million represented 55% of the total capital invested. In 2010, that number jumped to almost 70%. The $41 billion invested during 2010 in deals between $500 million and $1 billion represented the second highest total on record for the deal range. In another sign of the returning availability of leverage for private equity transactions there were 24 deals above $1 billion 2.5x more than in 200. PE Tr ansactions (Count) by Deal Size The lower end of the market and the middle market continue to make up the majority of private equity deal flow. Deals under $250 million made up over 70% of the deal flow in 2010, but it was actually the lowest portion of deal flow seen by the lower-middle market since before Evidence of private equity s returning appetite for bigger deals shows up again with the stat that deals over $500 million made up 16% of 2010 s deal flow, beating out 2007 s 15% for the record in terms of portion of deal flow. ustom searches, analytics, and downloads all with the Pitch ook Pla orm. Request a Demo Sales: [ 5 ]

Equity Percent Used In PE Buyouts The percentage of equity used in private equity buyouts held relatively steady in 2010, sticking close to 200 and 200 levels.

6 Equity Percent Used In PE Buyouts The percentage of equity used in private equity buyouts held relatively steady in 2010, sticking close to 200 and 200 levels. As would be expected, the smaller and middle-market deals, which have less access to leverage, use almost 10% more equity than larger deals. The amount of equity used in large transactions seems to have settled around an average of 42% during the past four years. Conversely, the amount of equity used for deals under $1 billion has steadily risen over the last five years from a 10-year low in 2006 of 41%. Equity percentages in buyout deals both big and small will be one of the many interesting data points to monitor in order to gauge the direction and health of the PE industry in the year to come. Private Equity Add-on Activity Add-ons as a percentage of private equity buyouts climbed for the sixth straight year in 2010 to account for 41% of all U.S. buyouts. The 442 completed add-on deals in 2010 constitute the fifth-highest total on record and had a total value in excess of $.5 billion. The median value of add-on deals also increased from $25 million in 200 to $51.5 million in The trend shows that private equity firms are continuing to find consolidation investment opportunities and have made the best of the economic recession by acquisitively growing their portfolio companies through add-ons of struggling competitors and complimentary new businesses. The top industry sectors for add-ons in 2010 were Commercial Services with 6, Commercial Products with 44 and Healthcare Services with [ 6 ]

Business Products & Services (B2B) The Business Products & Services (B2B) industry, which includes the Commercial Products, Commercial Services and Transportation

The most active sector in the B2B industry during 2010 was Commercial Services with 236 deals, which was led by the Business Media & Information Services sub-sector

Consumer Products & Services (B2C) The Consumer Products & Services (B2C) industry, which includes the Apparel, Consumer Durables and Non-Durables, Media,

In total there were 323 completed 2010 deals, only a slight increase over 200 s total of 316.

Healthcare The Healthcare industry, which includes the Medical Devices & Supplies, Medical Technology Systems, Pharmaceuticals & Biotechnology and Medical Services

7 Business Products & Services (B2B) The Business Products & Services (B2B) industry, which includes the Commercial Products, Commercial Services and Transportation sectors, had 133 completed PE investments during 4Q 2010 and a total of 475 in all of The 133 4Q deals mark a 41% increase in deals from 200 s 3Q low of 4. The most active sector in the B2B industry during 2010 was Commercial Services with 236 deals, which was led by the Business Media & Information Services sub-sector with 53 deals. Consumer Products & Services (B2C) The Consumer Products & Services (B2C) industry, which includes the Apparel, Consumer Durables and Non-Durables, Media, Restaurants, Hotels & Leisure, Retail, Transportation and Consumer Non-Financial Services sectors, saw a final count of completed U.S. deals for 4Q 2010, a 3% increase from 3Q In total there were 323 completed 2010 deals, only a slight increase over 200 s total of 316. The most active sector in the B2C industry in 2010 was Consumer Non-Durables with 67 PE investments, which was driven by its sub-sector Food Products with 41 deals. Healthcare The Healthcare industry, which includes the Medical Devices & Supplies, Medical Technology Systems, Pharmaceuticals & Biotechnology and Medical Services sectors, finished 2010 with a total of 12 completed deals. The year-end total represented about a 10% increase from 200. The most active sector was Medical Services with its 106 deals in Clinics, Hospitals and Elder & Disabled Care service providers. The median deal value for Healthcare deals in 2010 was $50 million, 3.5x more than 200 s of $14.4 million. [ 7 ]

Information Technology The Information Technology (IT) industry, which includes the Communications and Networking, IT Hardware, Semiconductors, IT Services and Software sectors, saw 12 completed U.S. deals in 2010.

It was the Communications and Networking sector though with $4.2 billion in investments that saw the most capital invested during the year.

The most active sector in 2010 for the industry was Commercial Banks with 51 completed deals, the most popular type being Regional Banks, which saw 35 investments during the year.

8 Information Technology The Information Technology (IT) industry, which includes the Communications and Networking, IT Hardware, Semiconductors, IT Services and Software sectors, saw 12 completed U.S. deals in Investment has remained relatively steady in the IT industry over the last two years. The most popular sector by far was Software, which accounted for almost 50% of the total IT deal flow for It was the Communications and Networking sector though with $4.2 billion in investments that saw the most capital invested during the year. Financial Services The Financial Services industry, which includes the Capital Markets Institutions, Commercial Banks and Insurance sectors, ended 2010 with a total of 135 completed U.S. deals, representing a 27% increase in deal flow from last year. The most active sector in 2010 for the industry was Commercial Banks with 51 completed deals, the most popular type being Regional Banks, which saw 35 investments during the year. Commercial banks also accounted for over half of the invested capital in the Financial Services industry with $7 billion of investments during Energy The Energy industry, which includes the Equipment; Exploration, Production & Refining; Energy Services and Utilities sectors, ended 2010 with a total of 114 deals, eight more than were completed in 200. The 2 completed deals in 4Q 2010 represent a 33% increase from the previous quarter and a 64.7% increase from the low of 17 deals in 2Q 200. Investment in the Energy industry was led by the 47 investments in Exploration, Production & Refining companies. The median deal amount in the Energy industry during 2010 was $130 million, up from $5 million last year. [ ]

9 Most Active Private Equity Investors in 2010 By Number of Closed Investments Investor Name The Blackstone Group H.I.G. Capital The Carlyle Group TPG Capital Sun Capital Partners Warburg Pincus Stone Point Capital Thoma Bravo Apollo Global Management GS Capital Partners Metalmark Capital The Riverside Company Golden Gate Capital Platinum Equity Marlin Equity Partners Oaktree Capital Management Wind Point Partners Kayne Anderson Capital Advisors Leonard Green & Partners The Gores Group Audax Group Bain Capital Catterton Partners GTCR Golder Rauner Kohlberg Kravis Roberts Riverstone Holdings Silverhawk Capital Partners Welsh Carson Anderson & Stowe ABRY Partners Bush O'Donnell Centerbridge Partners Court Square Capital Partners Francisco Partners Hellman & Friedman Huntsman Gay Global Capital Kohlberg & Company Lightyear Capital Oak Hill Capital Partners Providence Equity Partners Summit Partners American Securities Capital Partners Ares Management Arsenal Capital Partners CCMP Capital Advisors Crestview Partners General Atlantic Deal Count Most Active Private Equity Service Providers in 2010 By Number of Deals Serviced Top Law Firms in Private Equity 1 Kirkland & Ellis Jones Day Weil Gotshal & Manges Skadden Arps Slate Meagher & Flom Simpson Thacher & Bartlett Latham & Watkins Dechert Sullivan & Cromwell Shearman & Sterling Paul Weiss Rifkind Wharton & Garrison 1 by counsel provided on closed transactions Top Investment Banks & Advisors 2 Bank of America Goldman Sachs Harris Williams & Co. Jefferies & Company Houlihan Lokey Howard & Zukin Morgan Stanley JP Morgan Lincoln International Robert W Baird Moelis & Company Lazard William Blair & Company Imperial Capital 2 by number of advisory roles in closed transactions Top Lenders in Private Equity 3 GE Capital Bank of America Wells Fargo Madison Capital Funding Fifth Third Bank U.S. Bancorp Fifth Street Finance PNC Financial Services Group Ares Capital Golub Capital Triangle Capital Prospect Capital 3 by number of financings provided [ ]

Current Private Equity Portfolio Overhang Private equity firms owned an all-time high 5,4 U.S. companies at the end of 2010, according to the PitchBook Platform.

The growth has slowed over the last few years due to a decrease in deal flow but still managed to increase by almost 5% in 2010.

10 Current Private Equity Portfolio Overhang Private equity firms owned an all-time high 5,4 U.S. companies at the end of 2010, according to the PitchBook Platform. The number of private equity-owned companies has been steadily building over the last five years with an annual average growth rate of 1%. The growth has slowed over the last few years due to a decrease in deal flow but still managed to increase by almost 5% in The number of PE-owned companies really began its ascent as the investment boom kicked into high gear, tripling from 1,620 in 2003 to 4,0 by the end of These totals represent companies majority-owned by PE firms and exclude add-on companies. This portfolio company overhang is the result of buyouts consistently outpacing exits over the last decade as new money continued to flow in and profits were reinvested. The hold time of investments by PE firms has also been steadily rising over the last few years. In 2010, the median hold time for all companies exited was over 5 years, up considerably from the 3 ½ year hold time seen in The mismatch of new investments to Median Holding Period of Exits exits, as well as increasing company hold times, means that this overhang of portfolio companies is likely to persist for a number of years, which could potentially pose a structural challenge to the recovering PE industry. The fact that over 66% of these 5,4 companies are investments older than 3 years and 30% are older than 5 years is a potentially troubling sign. This overhang is going to command a lot attention from both PE firms and their limited partners as they look for liquidity. Given an average of about 450 exits per year, there is currently a 4-year backlog consisting of just those PE investments older than 5 years. Clearly PE firms are going to have to increase their exits significantly over the next few years but luckily a number of positive trends are currently developing around exits. [ 10 ]

Private Equity Exit Activity One of the most important developments during 2010 for the private equity industry was an increase in exits, which were up 3.

These exits are crucial, because as was previously discussed, there are nearly 1,00 investments that have reached the point where they need to be sold to generate liquidity for fund investors.

overhang is driving more and more secondary sales (PE firm to PE firm deals) and at record sale amounts.

11 Private Equity Exit Activity One of the most important developments during 2010 for the private equity industry was an increase in exits, which were up 3.x from the low of 3 during 1Q 200 to 14 during 4Q In fact, the second half of 2010 alone had more exits than 200 as a whole. These exits are crucial, because as was previously discussed, there are nearly 1,00 investments that have reached the point where they need to be sold to generate liquidity for fund investors. Fortunately, strategic acquirers (corporations) continue to be big buyers of PE-backed companies, IPOs again appear to be a viable option for a lot of companies and the $45 billion PE capital overhang is driving more and more secondary sales (PE firm to PE firm deals) and at record sale amounts. Percent of Exits (Count) by Deal Type Median Exit ($) This chart shows the changes in exit preferences that occurred during 2010 with a shift back to secondary sales and IPOs. Secondary sales returned in a big way with 3x more deals in 2010 than in 200, though the chart shows that the 2% of exits they currently make up is relatively close to the long-term average. IPOs continued to be an option, although most of the 57 completed were mainly for the purpose of company capital-raising rather than investor liquidity. The patience of private equity firms paid off as median PE sale amounts were at record levels in Companies sold to strategic acquirers (corporate acquisitions) sold for a median of $211 million, 2.6x 200 s median sale. The most dramatic statistic, though, is the $32 million median sale amount for PE-to-PE deals (secondary transactions), representing an all-time high by $132 million. The increase was driven by a number of factors, including changes in exit preferences, company sizes and multiples. [ 11 ]

Private Equity Fundr aising U.S Private Equity Fundr aising by Year U.S. private equity fundraising struggled in 2010 with only 5 funds reaching final closes, raising a total of $4 billion.

As a result of the difficult market, the average fund size was down significantly in 2010 to $11 million from $1.5 billion just two years ago.

12 Private Equity Fundr aising U.S Private Equity Fundr aising by Year U.S. private equity fundraising struggled in 2010 with only 5 funds reaching final closes, raising a total of $4 billion. The second half of the year was the worst 6-month stretch for PE fundraising since 2003 with only $30 billion raised by 33 funds. As a result of the difficult market, the average fund size was down significantly in 2010 to $11 million from $1.5 billion just two years ago. Fundraising has lagged behind deal flow by about a year in showing the effects of the financial crises, meaning 2H 2010 will likely represent a bottom for fundraising. A number of factors are currently causing a drag on private equity fundraising, including the current $45 billion private equity overhang, limited partners (LPs) at the top of their allocations and a preference by many LPs to wait for more liquidity from current funds before committing to new ones. However, there were bright spots in private equity fundraising during 2010, such as the strong showing by middlemarket funds, which raised almost 0% of the total capital. Firms with strong historical track records were also able to raise capital quickly and in some cases even exceed their targets. It was also a good year for mezzanine funds, which had their fifth-best year with a total of $6.5 billion raised by 14 funds. Fundraising in 2011 has strong potential to be much better than Firstly, there are over 660 funds currently on the fundraising trail, and a number of top performing funds are expected to bring new funds to market in 2011 as well. Secondly, as the market continues to recover, portfolio valuations and distributions will increase again, making the asset class more attractive. Finally, after making limited commitments during the past few years, LPs will need to invest to maintain allocation targets and recommit to existing top managers raising new funds. U.S Private Equity Fundr aising by Quarter [ 12 ]

Capital R aised by Fund Size Fund Count by Fund Size Average Fund Size ($M) Average

fifth-highest on record at $11 million but well below the high of $1.

The drop in fund size came as PE fund managers opted to close funds short or at the

Distressed/Restructuring funds had the highest average fund size in 2010 at $1.

The average time spent fundraising by funds closed in 2010 was 1 months, a 1%

13 Capital R aised by Fund Size Fund Count by Fund Size Average Fund Size ($M) Average Time to Close The average size of 2010-vintage private equity funds was the fifth-highest on record at $11 million but well below the high of $1.5 billion set by the 200 vintage. The drop in fund size came as PE fund managers opted to close funds short or at the low end of their target range rather than face another year on the fundraising trail. Distressed/Restructuring funds had the highest average fund size in 2010 at $1.7 billion, followed by Buyout funds with $74 million. The average time spent fundraising by funds closed in 2010 was 1 months, a 1% increase from 200 s average and almost double the time spent by 2007 and 200 vintage funds. Distressed/Restructuring funds had the shortest fundraising period this year at 10 months on average vintage mezzanine funds had the longest average fundraising period at 24 months buyout funds took an average of 1 months to reach their final close. [ 13 ]

14 Largest Closed Funds Fund OCM Opportunities Fund VIII Energy Capital Partners II Madison Dearborn Capital Partners VI Alinda Infrastructure Fund II OCM Principal Opportunities Fund V Carlyle Asia Partners III Centerbridge Special Credit Partners Apollo European Principal Finance Fund Avista Capital Partners II Latin America Private Equity Fund V Littlejohn Fund IV Veritas Capital Fund IV AG Capital Recovery Partners VII Wellspring Capital Partners V Carlyle Global Financial Services Partners Selected Open Funds Fund Centerbridge Capital Partners II TCW Energy Fund XV KSL Capital Partners III Behrman Capital IV Jefferies Capital Partners V Capital Z Partners Balderton Capital Fund IV DAG Ventures IV ComVest Investment Partners IV Prairie Capital V Investor Oaktree Capital Management Energy Capital Partners Madison Dearborn Partners Alinda Capital Partners Oaktree Capital Management The Carlyle Group Centerbridge Partners Apollo Global Management Avista Capital Partners Advent International Littlejohn & Company Veritas Capital Angelo Gordon & Company Wellspring Capital Management The Carlyle Group Investor Centerbridge Partners TCW Group KSL Capital Partners Behrman Capital Jefferies Capital Partners Capital Z Partners Balderton Capital DAG Ventures The ComVest Group Prairie Capital Amount ($M) 4,400 4,335 4,100 4,000 3,300 2,550 2,000 1,400* 1,00 1,650 1,340 1,225 1,200 1,200 1,100 * Euros Target Amount ($M) 3,750 2,500 1,500 1, [ 14 ]

Your Single Source for Quality Private Equity Data Only PitchBook tracks the entire private equity lifecycle and every party involved: limited partners, inancial sponsors & investors, target

Additionally, it actively researches target companies the entire time they are in an investor s portfolio so you ll always be up-to-date on the crucial details of a transaction and the company s

15 Your Single Source for Quality Private Equity Data Only PitchBook tracks the entire private equity lifecycle and every party involved: limited partners, inancial sponsors & investors, target companies, service providers and key professionals. By dynamically linking these parties, PitchBook makes it easy to identify relationships and networks. Additionally, it actively researches target companies the entire time they are in an investor s portfolio so you ll always be up-to-date on the crucial details of a transaction and the company s progress. Broad Private Equity Coverage The PitchBook Platform contains information on over 25,000 private equitybacked companies, investors, and service providers, across every industry segment, every deal size and every private equity deal type from announcement to exit. Deep Level of Detail PitchBook s mission is to provide hard-to- ind information on private equity: the details you can only ind through direct contact with key players and painstaking background research. PitchBook researches deal amounts and valuations, target company inancials and price multiples, capitalization structures, deal terms, investor information and service provider contact information. It also tracks deal stakeholders and participants not just inancial sponsors and investors, but also the many other inancial, legal, and advisory irms associated with taking a deal through to completion. What Makes PitchBook Different Deal monitoring and research through the entire lifecycle. Without exception, PitchBook actively researches and reports on companies from announcement to inal exit. PitchBook captures the full inancing story, much more than just a snapshot of the deal s announcement. Full spectrum coverage. PitchBook covers the full spectrum of private equity deals: all sizes, all industries, and all types. No cutting corners. It takes meticulous research to produce complete, consistent, timely, and accurate information, and we devote the manpower and resources necessary to make this happen. The PitchBook Platform Places Powerful Intelligence at Your Fingertips: Request a Demo Detailed Reports Customizable Dashboard Sortable Results Excel Downloads Advanced Searches* *Advanced Searches allow selecting criteria from more than 130 search options Visit us at [ 15 ]

Breakdown 4Q The Private Equity. Total Private Equity Deal Flow

Breakdown 4Q The Private Equity. Total Private Equity Deal Flow The Private Equity Breakdown 4Q 20 U.S. private equity activity continues to build with 31 completed investments totaling $2 billion, completed exits for an aggregate $1. billion, and 1 closed PE funds