An introduction to private equity

1. An introduction to private equity Milan - November 2007

2. What is private equity? Essentially private equity is an alternative way of owning a company

3. What is private equity? Benefits • Works closely with management teams to ensure more efficient capital structures are in place • Away from the dividend requirements and short-termist gaze of the public sector, it allows meaningful strategic and operational changes to be made that benefit the longer term interests of the company • Provides facility to acquire businesses to merge with other portfolio companies, benefiting from cost efficiencies • Management’s long term interests are more closely aligned with the other private equity owners • Rewards are directly linked to the value created through buying, building and ultimately selling businesses

4. What is private equity? Common Myths and the Reality (…at least of the type of firms we invest with) 1. Private equity buys companies on the cheap, strips the assets and then sells them on for a quick profit Creates value for investors by buying at a fair price and building businesses, not stripping them down • Private equity leverages up companies with unsustainable levels of debt Ensures businesses can pay interest payments required based on the level of earnings the company produces on a deal by deal basis 3. Private equity operates in a shadowy and secret world Maybe true of yesteryear but firms are becoming more open

5. What is private equity?Categories of investment Private equity broadly refers to equity investment in companies that are not traded on public stock markets • Buy Outs/Buy Ins: either providing the capital to enable current operating management to acquire an existing business or enabling an external manager to buy into a company • Venture Capital: investments made at an early stage in a company’s life • Development Capital: financing provided for the growth or expansion of a company • Mezzanine Debt: typically debt capital giving the lender rights to convert to an ownership or equity interest if the loan is not paid back in time and in full

6. Private equityOutperformed other key asset classes over last five years 30 August 2002 to 31 August 2007. All Figures in USD. Source: Reuter’s Hindsight

7. Growth of private equity • The asset class has grown rapidly in recent years, with estimated global commitments increasing from USD18 billion in 1990 to around USD365 billion in 2006 • Record breaking deals over the last year – HCA, Equity Office, TXU • These mega-deals topped previous record of KKR’s USD31.3 billion buy out of RJR Nabisco in 1989 Source: Private Equity Intelligence; Financial News – Private Equity News

8. What the credit crunch means for private equity • Problems arose in higher risk credit markets causing a serious mispricing of risk. • Risk Repricing – Credit spreads widening – Significant backlog of loans to be cleared – Further corporate activity is halted until backlog is cleared – Fewer buyouts (particularly the larger ones) – Refinancings limited and exits may take longer than recent times

9. What the credit crunch means for private equity • Private equity firms can no longer rely on just cheap debt – Think innovatively • Leverage is still available (selectively!) – Small to mid sized deals can still be done • What of deals agreed prior to the “crunch”? – Not so much of an issue for the private equity investors

10. Private Equity – post credit crunch • 2005 and 2006 are considered vintage years for the sector, so has a peak in the cycle been reached? • Many of the factors behind the sector’s success in the last two years still apply: – company balance sheets remain healthy – further global economic growth is forecast – equity valuations still not expensive on a historical earnings basis • Opportunities can now be found in other parts of the capital structure

11. The extent of leverage Level of gearing • The amount of debt being put into buyouts has been increasing BUT • It is not near the highs of the 1980s • 1987 debt to equity ratio – 93:7 • 2006 debt to equity ratio – 70:30 • Interest coverage has improved • Interest rates are still historically low

12. Invest with the best – and know the market • Avoid private equity firms involved in over aggressive/unrealistic leverage and those paying too much for companies • Get a greater understanding of the whole market • From the lenders point of view – fixed income fund managers • From sellers point of view – public equity fund managers • A diversified approach is all important

13. Core HoldingExample – Candover Investments plc Largest Holdings: • Ferretti • Gala Group • DX SMS • Dakota, Minnesota & Eastern Railroad • Hiding Anders • Leading European house • Strong track record and portfolio • In addition to portfolio of private equity, Candover Investments wholly owns Candover Partners • Receives fee income on all other funds Candover Partners runs • A growing fund management business in itself • Focuses on larger European buyouts • Has enjoyed successful realisations since purchase • A good spread of investments by vintage and sector and successful refinancings prior to credit crunch

14. Satellite HoldingExample – Evolvence India Holdings Largest Holdings: • GW Capital India Value Fund II • Barings (India) Private Equity Fund II • IL&FS India Leverage Fund • IDFC Private Equity (Mauritius) Fund II • New York Life IM India Fund II • A fund of Indian private equity funds and co-investments • Experienced locally based team with hands on approach • Focus on mid-sized companies • Well diversified by vintage and geography • Major sectors of investment include: • Infrastucture • Engineering & Automotive • Construction • Technology • Life Sciences

15. How to invest in private equity? • Private equity funds are generally difficult to access for the everyday investor • Like hedge funds, investors face a series of obstacles: lack of access to funds, size of entry, ability to diversify and lack of investment expertise • Moreover, liquidity is extremely restrictive in this arena with private equity funds commonly implementing long lock-ins in excess of 3 – 5 years

16. Forsyth PartnersRegulatory matters This presentation is by Crosby Capital Partners Ltd, which is authorised and regulated by the Financial Services Authority in the UK, and which manages a range of offshore funds (“the Funds”). Application for shares in the Funds can only be made on the basis of the current Prospectuses.  The Funds are unregulated collective investment schemes in the UK and their promotion by authorised persons in the UK is restricted by the Financial Services and Markets Act 2000.  The price of shares and the income from them can go down as well as up and the value of an investment can fluctuate in response to changes in exchange rates.