Slideshow Transcript

1. Slide 1: The Similarities & Differences Between The Tech Bubble Burst of 2000 & The Current Private Equity Markets: Are We On The Verge Of A PE Bubble Burst? David M. Rubenstein Co-Founder and Managing Director February 28, 2007 1
2. Slide 2: Bubble No one definition – “Know it when I see it”  Greater Fool Theory: “…speculation is justified because there  are enough fools to push prices further upward” – Barron’s “…whole communities suddenly fix their minds upon one  object, and go mad in its pursuit….” – Charles Mackay, Extraordinary Popular Delusions And The Madness Of Crowds, 1841 Source: Barron’s Dictionary of Finance and Investment Terms; Charles Mackay, Extraordinary Popular Delusions And The Madness Of Crowds, 1841 and preface, 1852 2
3. Slide 3: Famous Bubbles 1634 - 1638 “Tulipmania” (Netherlands)  Price for some single bulbs exceeded 10x average  annual income Crash of 93% of value  1710’s South Sea Company (England)  Promised 50%+ returns  Crash of 84%  1710’s Mississippi Scheme (France)  Promised 120% annual returns  Crash of 99%  Source: PBS; Charles Mackay, Extraordinary Popular Delusions And The Madness Of Crowds, 1841; Various 3
4. Slide 4: Famous Bubbles 1920 Ponzi’s Securities & Exchange Company  Promised 100% returns on 90 day notes  100% loss  1929 U.S. Stock Market  Dow up 250% in 2 years  Crash of 87%  1979 – 1982 Silver Market  Rose 700% in 3 years  Crash of 88%  1978 – 1986 Kuwaiti Stock Market  Rose 7,000% in eight years  Crash of 98%  Source: Various 4
5. Slide 5: Famous Bubbles 1987 Dow Jones Industrial Average  Dow up 200% in 5 years (real GDP up 20%)  October 19 collapse of 508 points (22.6%)  1998 Russian Ruble  Ruble went from 6 to 20 per dollar in a 2 week period  1999 Tech Bubble  $7 trillion loss of value  Source: Various 5
6. Slide 6: Bubbles Share Certain Characteristics Everyone expects increase; no downside caution  No economic justification or historic standard for increase  Bad news filtered out of popular thinking  Everyone wants to invest in whatever it is or get in on the  activity Stories of instant or fast wealth creation circulate  The words “once-in-a-lifetime opportunity” appear  frequently Anyone staying on the sidelines is seen as a fool  Smaller investors get involved  Some or many very smart / savvy investors stay or get  involved Sir Isaac Newton  6
7. Slide 7: Bubbles Share Certain Characteristics Capital flows to investments with no underlying assets /  value Discipline evaporates from the investment process  Prices increase far beyond historical norms or reasonably  estimable economic value People invest more than they can afford to lose  7
8. Slide 8: Certain Lessons Can Be Gleaned From Historical Bubbles If something seems to good to be true, it is not true  Upward trends always end, and the rate of decline  exceeds the previous rate of increase When fear is nowhere, it will soon be everywhere  Investors need diversification – no exceptions  Investors rarely gain great wealth  New big ideas produce “bubble amnesia” – investors  ignore these lessons 8
9. Slide 9: Tech Bubble Had Numerous Symptoms (In Retrospect) Ease of raising large amounts of capital for untested  business models Investors committed almost 3x as much money to  venture in the 4-years-ended 2000 than they had in the previous three decades Global venture fundraising: • $300 $247 $200 ($ bil) $88 $100 $0 1969 - 1996 1997 - 2000 Source: Thomson Venture Economics, data as of December 31, 2006 – includes partnerships and investment bank affiliated or subsidiary partnerships 9
10. Slide 10: Tech Bubble Had Numerous Symptoms (In Retrospect) Global number of $1 bil+ venture funds raised in the • 4-years-ended 2000 exceeded 4x the number raised in the previous three decades: 28 30 20 10 6 0 1969 - 1996 1997 - 2000 Source: Thomson Venture Economics, data as of December 31, 2006 10
11. Slide 11: Tech Bubble Had Numerous Symptoms (In Retrospect) Venture capital investors poured $440 million into  Webvan, an internet grocery deliver service 15x as much as Kleiner Perkins raised for its first • fund The company went public with $400,000 in revenue • and reached a market cap of $1.2 billion Two years later the stock had fallen from 34 dollars • to 6 cents Bankrupt two years later • 11
12. Slide 12: Tech Bubble Had Numerous Symptoms (In Retrospect) Priceline  Following 1999 IPO, market cap peaked at $14 • billion – more than the combined market cap of Continental, Delta, Northwest, and United – which totaled $12 billion at the time Current (2007) market cap ~ $2 billion • eToys  Revenue was $250 million or 1/44th of Toys “R” Us’s • revenue of $11 billion Market value was 3x greater than Toys “R” Us • Went bankrupt • 12
13. Slide 13: Tech Bubble Had Numerous Symptoms (In Retrospect) Internet Capital Group  Largest IPO of 1999 • Held investments in 47 e-commerce startups • – Valuations were 120x earnings Reached market cap $46 billion within 4 months – • more than General Motors Current (2007) market cap: $487 million • Detachment of prices from underlying revenue / economic  significance VA Linux  Sells computers running Linux operating system • Closed up 698% on the first day of trading • At one point, trading up 10x IPO price • Current (2007) market cap 1/8 of peak • 13
14. Slide 14: Tech Bubble Had Numerous Symptoms (In Retrospect) Corvis  Developer of long haul optical communications • equipment Zero trailing revenue at IPO • Raised $1.1 billion in IPO proceeds at a $12 billion • valuation in August 2000 Acquired in 2006 for $1.4 billion • Ariba  E-commerce software firm • IPO in June 1999 with $1 billion valuation • Peak valuation of $42 billion in September 2000 • (higher than Boeing, GM or Ford) Current (2007) market cap $759 million • 98% decline from peak valuation • 14
15. Slide 15: Tech Bubble Had Numerous Symptoms (In Retrospect) Kozmo.com  Internet delivery service with no service charge • Spent $280 million to build service • Bankrupt • Globe.com  Designed by two 23 year olds to sell ads on its • website Stock went from $9 / share to $97 / share • One of the largest first-day gains of any IPO • No longer in business • Excite@home  $35 billion of market cap at peak • Bankrupt • 15
16. Slide 16: Tech Bubble Had Numerous Symptoms (In Retrospect) Cisco  Peak market cap reached $555 billion – highest in • the world Price / earnings multiple reached 160x in March • 2000 Lost $400 billion of market cap • 16
17. Slide 17: Tech Bubble Had Numerous Symptoms (In Retrospect) ($ mil) Offer First-Day Year Company Business Value Return 1999 VA Linux Systems Computer Software $132 698% 1999 Foundry Networks Telecom Products 125 525% 2000 webMethods Internet Software 144 508% 1999 FreeMarkets Internet Retailing 173 483% 1999 Cobalt Networks Network Equipment 110 482% 1999 Akamai Technologies Internet Services 234 458% 1998 theglobe.com Internet Services 28 442% 1999 CacheFlow Network Equipment 120 427% 1999 Sycamore Networks Network Equipment 284 386% 2000 Avanex Telecom Products 216 378% Source: Forbes 17
18. Slide 18: Tech Bubble Had Numerous Symptoms (In Retrospect) ($ mil) Offer First-Day Year Business Value Return Company 2000 Selectical Internet Services $120 371% 1999 Ask Jeeves Internet Services 42 364% 1999 Finisar Telecom Products 155 357% 2000 FirePond Internet Services 110 356% 1999 Crossroads Systems Network Equipment 68 337% 1999 Priceline.com Internet Services 160 331% 1999 Andover.Net Internet Services 72 331% 1996 Intgrtd. Sys. Consultg. Consulting Services 13 330% 1999 Wireless Facilities Telecom Services 60 313% 2000 Neoforma.com Internet Services 91 303% Source: Forbes 18
19. Slide 19: Tech Bubble Had Numerous Symptoms (In Retrospect) Number of IPOs with first-day return of 50%+, 100%+,  200%+, 300%+, 400%+: 250 202 200 (Number of IPOs) 139 150 115 100 79 45 50 27 13 10 9 72 71110 7 30000 2000 0 10000 1 00 0 100 0 0 1999 2000 2001 2002 2003 2004 2005 2006 First-Day Return 50%+ First-Day Return 100%+ First-Day Return 200%+ First-Day Return 300%+ First-Day Return 400%+ Source: Renaissance Capital; IPO Monitor 19
20. Slide 20: Tech Bubble Burst Destroyed Staggering Amount Of Value Combined domestic market capitalization of NYSE and  NASDAQ declined $7.3 trillion Combined: (42%) $20,000 $17,496 $15,000 $10,204 NYSE: (24%) $11,244 ($ bil) $10,000 $8,490 NASDAQ: (73%) $5,000 $6,253 $1,714 $0 March 2000 September 2002 NASDAQ NYSE Source: World Federation of Exchanges 20
21. Slide 21: Tech Bubble Burst Destroyed Staggering Amount Of Value Europe  Neue Market established in 1997  Market value multiplied by 17x by March 2000  Market closed at 4% of peak  21
22. Slide 22: Tech Bubble Commonality With Classic Bubbles New big idea (with some validity) captured popular  imagination In this case - transformative power of technology /  computers / the internet Everyone wanted to participate or invest  Rapid price increases  Abandonment of downside caution  Rush of money toward concepts with no underlying assets  or revenues 22
23. Slide 23: Are We Repeating Tech-Bubble Situation In Private Equity? 23
24. Slide 24: Distributions To LPs from U.S. Buyout Market Remain High $50 $41 $41 $40 $30 $27 ($ bil) $24 $18 $20 $17 $17 $16 $15 $15 $13 $10 $0 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006E Source: Thompson Venture Economics, data for partnerships and investment bank affiliate or subsidiary partnerships; includes primary U.S. market buyout funds; 2006E is annualized estimate, data as of 9/30/06 24
25. Slide 25: U.S. Buyout Has Outperformed Public Markets (IRR %) 1-year 3-year 5-year 10-year 15-year 20-year U.S. Buyout 21.0 14.5 8.8 8.7 11.0 12.7 All Quartile NASDAQ 5.0 8.1 8.5 6.3 10.2 9.8 S&P 500 8.7 10.3 5.1 6.9 8.6 9.2 DJIA 10.5 8.0 5.7 7.1 9.4 9.9 Russell 3000 8.3 11.0 6.2 7.0 8.8 9.1 U.S. Buyout 35.7 24.8 20.0 23.2 27.2 41.5 Top Quartile U.S. $2 bil plus 37.2 Top Quartile Source: Thomson Venture Economics, PE data as of 9/30/06 and for partnerships and investment bank affiliate or subsidiary partnerships; Bloomberg, market data as of 6/30/06 25
26. Slide 26: Europe Buyout Has Outperformed Public Markets (IRR %) 1-year 3-year 5-year 10-year 15-year 20-year Europe Buyout 22.2 10.9 7.0 13.7 12.5 13.2 All Quartile FTSE 14.1 13.1 0.7 4.6 6.1 6.5 Europe Buyout 37.3 22.5 14.7 28.7 23.6 26.8 Top Quartile Source: Thomson Venture Economics, PE data as of 6/30/06 and for partnerships and investment bank affiliate or subsidiary partnerships; Bloomberg, market data as of 6/30/06 26
27. Slide 27: Reasons For Concern: More Money Than Ever Going Into U.S. Buyout Market 2006 vs. 1996  Fundraising: 4.1x  Investment: 1.7x  $150 $138 $122 $100 $79 ($ bil) $70 $60 $59 $57 $45 $43 $45 $50 $38 $35 $37 $34 $31 $28 $26 $28 $23 $26 $14 $14 $0 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 Fundraising Investment Source: Thompson Venture Economics, data for partnerships and investment bank affiliate or subsidiary partnerships; includes U.S. buyout firms 27
28. Slide 28: Reasons For Concern: More Money Than Ever Going Into Europe Buyout Market 2006E vs. 1996  Fundraising: 9.6x  Investment: 8.7x  € 77 € 80 € 72 € 61 € 60 € 48 € 47 € 40 (€ bil) € 35 € 37 € 40 € 28 € 29 € 25 € 28 € 24 € 28 € 27 € 25 € 20 € 20 € 20 € 15 € 10 € 8€ 7 €0 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006E Fundraising Investment Source: EVCA; 2006E is annualized estimate 28
29. Slide 29: Reasons For Concern: More Money Than Ever Going Into Asia Private Equity Market Asia (including Japan and Australia) trends:  $60.0 $50.7 $40.0 ($ bil) $25.2 $21.2 $16.6 $20.0 $14.3 $12.4 $9.8 $6.5 $5.9 $4.8 $4.3 $3.1 $0.0 2001 2002 2003 2004 2005 2006 Fundraising Investment Source: Asia Private Equity Review 29
30. Slide 30: Reasons For Concern: More Money Going Into Latin America Private Equity Market Latin America private equity activity remains below 1998  highs, but has increased:  2006 fundraising 150% above 2005 level  2006 investment 275% above 2005 level $3,885 $4,000 $3,209 $3,000 ($ mil) $2,000 $1,272 $714 $1,036 $996 $822 $710 $1,000 $600 $624 $417 $407 $0 2001 2002 2003 2004 2005 2006 Investment Fundraising Source: Venture Equity Latin America; includes real estate funds 30
31. Slide 31: Reasons For Concern: Investors Increasing Already Large Allocations ($ mil) Total % To Institution Assets Allocation PE California Public Employees’ Retirement System $207,100 $12,426 6% New York State Common Retirement Fund 128,000 11,520 9% Washington State Investment Board 69,900 10,835 16% ABP Investments 209,143 10,457 5% Florida State Board of Administration 130,000 10,400 8% GIC Special Investments 100,000 10,000 10% Oregon State Treasury 56,000 10,000 15% Canada Pension Plan Investment Board 80,891 8,089 10% Ontario Teachers’ Pension Plan Board 79,241 7,924 10% California State Teachers’ Retirement System 132,000 7,920 6% Michigan Department of Treasury 50,000 7,500 15% Source: Dow Jones – Private Equity Analyst, data as of July 2006 31
32. Slide 32: Reasons For Concern: Funds Bigger In U.S. Most Recent Fund versus Prior Fund $24 Average % increase: 130% $20.6(1) $18 $16.3(1) $15.2 $15.0 ($ bil) $12 $10.0 $10.0 $7.9 $8.0 $7.5 $7.5(1) $6.1 $5.8 $5.3 $5.3 $5.0 $6 $3.8 $0 le V um I TP IV rg I I Le e V lo V to IV bu VII pi VII ni m rly e I VI IX V II lo V X G ks e en niu VI V TH Le Ca rlyl lI W urg ne Ca al ol TP ac on e G ta in p it Ap M lle n TH Bl kst Ca b ol ar Ba Ca ar Ap ac i W KK R M ill in Bl Ba KK R Estimated target fund size. Source: Firm press releases; Citigroup Estimates; Capital IQ; PEI (1) 32
33. Slide 33: Reasons For Concern: Funds Bigger In Europe Most recent fund size vs. predecessor fund size:  € 15 Average % increase: 38% € 12 € 11.0 (€ in billions) €9 € 6.5 € 6.0 € 5.8 € 5.1 € 4.9 € 5.0 €6 € 4.4 € 4.4 € 4.3 € 4.0 € 3.0 €3 € 1.5 € 1.0 €0 Ci e n V ir I CV III rt rs ns IV ta II V IV rm a II IV en III pi l V V VI rs Pa tne Eu ope C v Ha son lV C on ur Cin a Pe ir nv ne CV Ca ita pe rm pe Par ax ur ht an ro an ap Fo rd Pe Ap x E th ug y H pe C Eu ope i Th ro an a y Do ht Ap r ro Eu ope Eu ug Do 3i BC Eur 3i BC Source: Firm press releases; Capital IQ; PEI 33
34. Slide 34: 34 ($ bil) CV $0.0 $1.0 $2.0 $3.0 C CV A si a C Source: Capital IQ As Pac ia if Pa ic I $0.8 ci fic II Ca rl $2.0 yl Ca e J rl ap yl an e Ja Pa pa rtn n Pa ers $0.5 rt I ne rs II Ca $1.9 rl yl Ca e A rl yl sia e As Par ia tn Pa er s $0.8 rt ne I rs II $1.8 CC M CC P C M ap i P Ca tal A pi ta sia $1.1 I lA si a II $1.6 Most Recent Fund versus Prior Fund Ne w b Ne rid g w br e A s id Reasons For Concern: Funds Bigger In Asia ge ia $0.7 As III ia Average % increase: 141% IV $1.5
35. Slide 35: Reasons For Concern: Deals Bigger – Size Not A Barrier in U.S. Number of $1+, $3+, $5+, and $10+ billion  sponsor-involved U.S. deals increasing: 57 60 45 36 (# of Deals) 29 30 25 14 12 15 9 9 9 7 6 3 2 2 100 000 00 00 0 2001 2002 2003 2004 2005 2006 > $1 billion > $3 billion > $5 billion > $10 billion Source: Dealogic, data for Sponsor-entry transactions with U.S. targets and as of December 31, 2006 35
36. Slide 36: Reasons For Concern: Deals Bigger – Size Not A Barrier in Europe Number of €1+, €3+, €5+, and €10+ billion  sponsor-involved Europe deals increasing: 49 50 40 34 (Number of Deals) 30 24 17 20 15 14 9 9 10 55 4 3 3 3 10 10 1 00 00 0 0 2001 2002 2003 2004 2005 2006 > €1 billion > €3 billion > €5 billion > €10 billion Source: Dealogic, data for Sponsor entry transactions and as of December 31, 2006 36
37. Slide 37: Reasons For Concern: Deals Bigger – Size Not A Barrier in Asia (incl. Japan) Number of $250+, $500+, $750+, and $1,000+  million sponsor-involved Asia deals increasing: 50 37 40 (# of Deals) 30 21 20 14 13 12 10 9 7 10 54 4 44 322 3 211 110 0 0 2001 2002 2003 2004 2005 2006 > $250 million > $500 million > $750 million > $1 billion Source: Dealogic, data for Sponsor-entry transactions with Asia (incl. Japan) targets and as of December 31, 2006 37
38. Slide 38: Reasons For Concern: Deals Bigger – Size Not A Barrier in Latin America Number of $100+, $200+, $300+, and $500+  million sponsor-involved Latin America deals increasing: 10 8 7 (# of Deals) 6 55 44 4 4 222 2 2 1111 1111 1 1 0000 0 2001 2002 2003 2004 2005 2006 > $50 million > $100 million > $150 million > $200 million Source: Dealogic, data for Sponsor-entry transactions with Latin America targets and as of December 31, 2006 38
39. Slide 39: Reasons For Concern: 2005-2007YTD: 9 of 10 Biggest U.S. Buyouts ($ bil) Date Value Target Location Acquirer $45.0 ‡‡ TXU 2007 United States KKR/TPG/GS ‡‡ 2006 36.0 EOP United States Blackstone 2006 32.7 HCA United States KKR/Bain/ML 1988 31.4 RJR Nabisco United States KKR ‡‡ 2006 25.7 Harrah’s United States Apollo/TPG ‡‡ 2006 25.7 Clear Channel United States Bain/Lee ‡‡ 2006 21.6 Kinder Morgan United States Carlyle/GS/AIG Blackstone/Carlyle/Permira/ 2006 17.6 Freescale United States TPG 2006 17.4 Albertson’s United States SuperValu/CVS/Cerberus 2005 15.0 Hertz United States Carlyle/Merrill/CDR Source: Dealogic; FT; WSJ; 2006-2007YTD Estimated, deal not closed ‡‡ 39
40. Slide 40: Reasons For Concern: 2005-2006: 7 of 10 Biggest Buyouts in Europe (€ bil) Date Value Target Location Acquirer Apax/Blackstone/KKR/Permira/ 2006 €12.8 TDC Denmark Providence 2005 12.1 Wind Telecom. Italy Weather Invest. AlpInvest/Blackstone/ 2006 9.2 VNU Netherlands Carlyle/Hellman/KKR/Lee ‡‡ 2006 7.9 AWG UK 3i/Colonial First State KKR/Silverlake/Apax/Bain/ ‡‡ 2006 7.4 Philips Semiconductor Netherlands Alpinvest 2006 7.7 ProSiebenSat Germany Permira/Saban 2003 5.7 Seat Pagine Gaille Italy BC/CVC/Permira 2002 5.6 Jefferson Smurfit sub. UK Madison Dearborn 2006 5.2 SUAL Holding Russia Renova Group 2002 5.0 Legrand France KKR/Wendel Source: Dealogic; 2005-2006 Estimated, deal not closed ‡‡ 40
41. Slide 41: Reasons For Concern: 2005-2006: 6 of 10 Biggest Asia (ex Japan, Australia) Buyouts ($ mil) Date Value Target Location Acquirer 2006 $2,582 ICBC China GS 2006 1,194 KEB Korea Lone Star 2005 1,019 Raffles Singapore Colony 1999 950 Anam Semicon. Korea Gilbert Global Equity 2006 932 China Network Sys. Taiwan MBK Partners 2006 900 Flextronics Software India KKR 2000 874 HDFC Securities India Warburg Pincus CVC/Fransisco/Court 2004 822 Hynix Semicon. Korea Square 2001 799 Omni Industries Singapore Onex 2006 721 Daewoo Electronics Korea Ripplewood Source: Dealogic; 2005-2006 Estimated, deal not closed ‡‡ 41
42. Slide 42: Reasons For Concern: 2005-2006: 6 of 10 Biggest Japan Buyouts ($ mil) Date Value Target Location Acquirer 2006 $3,155 Skylark Japan CVC/Nomura 2005 2,585 Sanyo Electric Japan GS/Daiwa/Sumitomo Mitsui GS/Newbridge/Ripplewood/T 2003 2,210 Japan Telecom Japan VG/PPM 2004 2,023 DDI Pocket/Willcom Japan Carlyle/Kyocera 2005 1,900 World Co. Japan Harbor Holdings 2005 1,516 Recruit Cosmos Japan Unison Capital 2005 1,390 Seibu Railway Co. Japan Cerberus/Nikko 2005 1,349 Fujita Corp. Japan GS/Mori Trust Ripplewood/ABN/ 1999 1,149 LTCB/Shinsei Bank Japan Bank of Nova Scotia/Citi Fukuoka Hawks Town 2003 915 (from Daiei) Japan Colony Capital Source: Dealogic; AVCJ; APER; 2005-2006 Estimated, deal not closed ‡‡ 42
43. Slide 43: Reasons For Concern: 2005-2006: 7 of 10 Biggest Latin America Buyouts ($ mil) Date Value Target Location Acquiror 2006 $500 Brasif Duty Free Shop Brazil Advent 2006 500 Avantel Mexico Blackstone/Soros/AIG 2006 466 Grupo Providencia Brazil AIG 2006 405 ESSBIO Chile Southern Cross 2003 350 CEMAR Brazil GP Investimentos 2002 285 Grupo Cinemex Mexico Oaktree/Onex 2004 280 OCA Argentina Advent 2005 200 COTEMINAS Brazil Heartland Industrial 2006 200 Controladora Milano Mexico Newbridge/Advent/Capital 2005 167 Banco Comercial Uruguay Advent Source: Dealogic; 2005-2006 43
44. Slide 44: Reasons For Concern: Credit Statistics Tighter in U.S. / Convenants More Favorable 6.0x 30% 52% 5.0x (34%) 4.0x (36%) 3.0x 2.0x 1.0x 0.0x Debt/EBITDA Senior EBITDA/Cash EBITDA - Debt/EBITDA Interest Capex/Cash Interest 2002 2003 2004 2005 2006 Source: Standard & Poor’s LCD; excludes Media and Telecom loans; data as of 4Q06 44
45. Slide 45: Reasons For Concern: Credit Statistics Tighter in Europe / Covenants More Favorable 6.0x 29% 26% 5.0x (13%) 4.0x (15%) 3.0x 2.0x 1.0x 0.0x Debt/EBITDA Senior EBITDA/Cash EBITDA - Debt/EBITDA Interest Capex/Cash Interest 2002 2003 2004 2005 2006 Source: Standard & Poor’s LCD; data as of 4Q06 45
46. Slide 46: Reasons For Concern: Strong Debt Markets Fueling Buyouts in U.S. Leverage for buyouts remains near 7 year high  Average Debt Contributions LBOs 70% 68% 66% 65% 65% 61% 60% 60% 55% 50% 2002 2003 2004 2005 2006 Source: Standard & Poor’s LCD; data for U.S., as of 4Q06 46
47. Slide 47: Reasons For Concern: Strong Debt Markets Fueling Buyouts in Europe Leverage for buyouts at 7 year high  Average Debt Contributions LBOs 70% 67% 66% 64% 65% 63% 61% 60% 55% 50% 2002 2003 2004 2005 2006 Source: Standard & Poor’s LCD; data for Europe, as of 4Q06 47
48. Slide 48: Reasons For Concern: EBITDA Multiples Rising in U.S. Acquisition multiples at a decade high levels  Average Purchase Price / Adjusted EBITDA Multiple 9.0x 8.8x 8.5x 8.0x 7.7x 7.3x 7.0x 7.0x 6.0x 5.0x 2002 2003 2004 2005 2006 Source: Standard and Poor’s M&A Statistics, July 2006; LBOs>$500 million, includes fees/expenses 2006 48
49. Slide 49: Reasons For Concern: EBITDA Multiples Rising in Europe Acquisition multiples at a decade high levels  Average Purchase Price / Adjusted EBTIDA Multiple 10.0x 9.3x 8.8x 9.0x 8.0x 7.7x 7.6x 7.5x 7.0x 6.0x 5.0x 2002 2003 2004 2005 2006 Source: Standard and Poor’s M&A Statistics, July 2006; LBOs > €500 million, data for Europe, includes fees/expenses 49
50. Slide 50: Reasons For Concern: Defaults Low High yield default rate:  14% 12% 10% 8% 6% 4% Average, 3.40% 2% Default Rate, 0.59% 0% 6 94 98 70 74 78 02 2 86 90 /0 8 19 19 19