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Quest ™

Quest ™. M&A Hot Spots – Pan Europe. 21st June 2012. Quest™ helpline +44 (0)20 7523 8493 quest@canaccordgenuity.com. Nigel Sedgley +44 (0)20 7523 8497 nsedgley@canaccordgenuity.com. M&A: Another way of thinking about value (LBO FCF yields).

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Quest ™

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  1. Quest™ M&A Hot Spots – Pan Europe 21st June 2012 Quest™ helpline +44 (0)20 7523 8493 quest@canaccordgenuity.com Nigel Sedgley +44 (0)20 7523 8497 nsedgley@canaccordgenuity.com

  2. M&A: Another way of thinking about value (LBO FCF yields) • Equity investors are not buying but others are starting to take a view • Buyers – Corporates, overseas buyers, pockets of private equity, activists – selected sectors “Valuations in Europe are making a lot of sense to us….. In times of crisis, people become much more short-term focused. [We are taking] a long-term view”Carlos García Moreno, CFO of América Móvil. Re Stakebuilding in KPN, Telekom Austria Global (debt + other)/EBITDAR Corporate sector debt is low Global free cash flow yield And cash flows are cheap to buy! Free cash after interest, tax and net capex but before acquisitions and dividends Page 1

  3. M&A Pan-Euro Hot Spots and themes • UK technology 3 takeovers by North American counterparts in a year: Logica/CGI (19% LBO FCF Yield), Autonomy/HP, Misys/Vista Equity Partners Sector has high Cash flow returns + net cash. Top 30 US tech have potential US$430bn of cash outside US. Enough for top 10 European tech names twice inc. 30% premium. Deal rationale varies. To save on R&D, scale – global customer base, synergies, valuation. Other tech - SAP – cloud acquisitions, Dell cloud acquisition. • Health Care Buffett backed US dialysis clinic DaVita acquiring HealthCare Partners. Fresenius buying Rhoen Klinikum €3.1bn. • Telecoms Carlos Slim (America Movil stakebuilding – offer for 28% in KPN (€8 a share), + buying 23% Telekom Austria. Vodafone – Cable & Wireless Worldwide 12% LBO FCF yield. Private equity interest (Apax?) in VMed, Everything Everywhere (£8bn UK JV T-Mobile and Orange). Euro Telecoms: 4G auctions + high capex in next-generation networks (4G auctions). Traditional Revenues under pressure. • Overseas buyers BRIC Buying: China Three Gorges – EDP, Camargo (Brazil)/Cimpor (Portgual), Genivar (Canada)/WSP (11%), Alimentation Couche-Tard (Canada)/Statoil Fuel/Retail, Hong Kong Ex/LME US Tech buying UK Tech, Walgreen/Alliance Boots (KKR est making 2.7x investment) Hotels: Nelson Peltz/Stake in Intercontinental Hotels, Accor – Motel 6 chain sold to Blackstone • Consumer Buying Emerging growth: Pfizer Infant Nutrition (Nestle outbid Danone), Brand add-ons Diageo – Brazilian Cachaca maker • ResourcesGlencore/Xstrata, PTT (RD Shell)/Cove, Cairn/ Nautical Petroleum • Retail Plenty of Speculation but not many deals - Knight Vinke/Kesa • Financials Quiet • Others Elect Equip: Eaton Corp $12.6bn purchase of Cooper industries (9%)Pharma: Watson buying Actavis GDF Suez – International Power, UPS buying TNT express (19% FCF yield) Areas of high/Increasing activity Areas oflow activity Page 2

  4. Hot spots are often characterised by strong cash flows, low debt The Finance Director’s dilemma: • What to do with the cash? Increase investment – Capex or M&A (just in time capex) Remain cautious – Hoard/run ungeared balance sheet Return to shareholders – Increased dividends / buybacks • M&A route tempting, especially where organic growth is under pressure Global (debt+other)/EBITDAR Global CFROC +12m Page 3

  5. Value tools: Quest™ LBO FCF yields & screen High level screening metric of the type favoured by private equity – identifies pre-tax cash flow yield on EV. Assesses cash flow available to prospective purchasers, after meeting its operating and capex needs but before financing costs or tax May be compared with required rates of return to see if company initially meets its funding cost Uses historic and consensus forecasts of EBITDA, capex and working capital needs to estimate ‘normalised’ cash flow Good track record when there is a pick-up in M&A activity (first introduced by Quest™ in 2002 - Newsletter #11) Plenty of high (Double digit) yields DIY private equity toolkit – LBO superscreen - Identify companies which could generate significant value either off or on-market LBO FCF yield calculation • LBO spreadsheet data updated weekly Page 4

  6. Pan-Euro sector LBO FCF yields inc pension 6 June Page 5

  7. LBO Screens - Technology UK: 3 takeovers by North American counterpart in a year: Logica/CGI (19% LBO FCF Yield), Autonomy/HP, Misys/Vista Equity PartnersDeal rationale varies. To save on R&D, scale – global customer base, synergies, valuation. Page 6

  8. LBO Screens - Telecoms Telecoms Carlos Slim (America Movil stakebuilding – offer for 28% in KPN (€8 a share), + buying 23% Telekom Austria Vodafone – Cable & Wireless Worldwide 12% LBO FCF yield. Private equity interest (Apax?) in VMed, Everything Everywhere (£8bn UK JV T-Mobile and Orange). Euro Telecoms: 4G auctions + high capex in next-generation networks (4G auctions). Traditional Revenues under pressure. Page 7

  9. LBO Screens – Media – convergence? Page 8

  10. LBO Screens – Health Care • Health Care Buffett backed US dialysis clinic DaVita acquiring HealthCare Partners Fresenius buying Rhoen Klinikum €3.1bn. Page 9

  11. LBO Screen Industrials – top yields Page 10

  12. LBO Screen Selected yields in other sectors Page 11

  13. LBO framework: Summary of considerations Page 12

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