Update on the global and US M&A market for 2007 and small commentary on IFRS relevance to M&As. Presented at the NY/NJ/CT Chapter of ACCA.

1. ACCA, NY/NJ/CT Chapter Meeting
2007 M&A Update
Pete Chatziplis
Williams Club, New York
April 2, 2008

2. Topics
Global M&A activity
Current M&A trends in the US
US M&A Deal Analysis: sectors and sizes
Sources of financing: what’s the role of private equity?
Areas of importance in planning and executing an M&A
IFRS and M&As
Q&A session
M&A Update: ACCA Chapter Meeting, April 2, 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.
M&A Update: ACCA Chapter Meeting, April 2, 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
M&A Update: ACCA Chapter Meeting, April 2, 2008 3

5. North American M&A Activity
2007 a record year in the US:
– Q2 ’07 the highest M&A value ever ($600 billion)
– Slowdown in 2H’07 due to credit crunch
– Main Sectors: Financial Services (17%), Energy & Mining (16.5%),
Industrials (16%), TTM (17%); life sciences (8%)
– Northeast, West, Midwest, Southeast the more active regions
North American Deal Value North American Deal Volume
Source: Mergermarket, Deal Drivers, A Comprehensive Review of European M&A s, Full Year Edition 2006.
M&A Update: ACCA Chapter Meeting, April 2, 2008 4

6. North American M&A Activity – Deal Size
2007 a mega-deal year; middle market is strong:
– Continued increase in average size; deals over $500 m totaled $1.35 trillion
(85% of total); 495 transactions
– Significant middle market activity: 720 deals for a total of $170 billion
– largest LBO ever: KKR,TPG,GS/TXU at $45 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.
M&A Update: ACCA Chapter Meeting, April 2, 2008 5

7. 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
Transatlantic Deals (Value) Transatlantic Deals (Volume)
Source: Deal Drivers, The Comprehensive Review of North American Mergers & Acquisitions, Mergermarket Full Year 2007.
M&A Update: ACCA Chapter Meeting, April 2, 2008 6

8. North American M&A Activity-PE
PE sector critical but in crisis:
$500 billion in buyouts in 2007; 35% of total activity
Record activity in 1H ‘07, slowdown thereafter
Many mega-deals canceled
Fall in valuations due to credit tightening
Blackstone IPO
Buyouts and Exits by Value Buyout deal size by value
Source: North American Private Equity in Review, Mergermarket, February 2008.
M&A Update: ACCA Chapter Meeting, April 2, 2008 7

9. M&A Pricing Trends
Median Enterprise Value to EBITDA Multiple
Median EV/EBITDA- US
Increase in Valuations: 12.0x
U.S. Deals
11.1x
10.6x
10.4x 10.2x
10.0x
average multiple reached 11x 10.0x
9.9x
in 2007 8.5x 8.4x 8.5x 8.4x
8.0x
Higher multiples offered in
electronics and large deals 6.0x
Cash rich PEs; average 4.0x
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
multiple from 4.2X to 8.5X Source: Thomson Financial Includes only posit ive mult iples less than 25x.
Median Enterprise Value to EBITDA Multiple
Strategic buyers buy at a Median EV/EBITDA- US < $250m
Strategic vs. Financial Buyers - U.S. Deals Less than $250mm
14.0x
premium over PE 11.2x
11.0x
10.4x 10.6x
10.5x
Mainly cash-deals 8.8x 8.7x
8.4x 8.5x
7.6x 7.6x
7.2x
7.0x
5.0x
4.2x 4.0x
3.5x
0.0x
2001 2002 2003 2004 2005 2006 2007
Strategic Buyers Financial Buyers
M&A Update: ACCA Chapter Meeting, April 2, 2008 Source: Thomson Financial Includes only positive multiples less t han 25x.
8

10. North American M&A Activity-Themes
Credit crunch; unavailability of debt financing (LBOs)
Many deals were aborted (“the year of the MAC”); mortgage /real
estate sector seriously hit:
– Sallie Mae/ JC Flowers, BofA, JPMChase, $25 bn
– Clear Channel/ Bain, Thomas Lee, $19.5 bn
– Home Depot/ Bain, Carlyle, Clayton Deubilier & Rice $10.3 bn
– PHH/ Goldman Sachs, $1.8 bn
Fall in valuations (EV/EBITDA)
Markets believed to recover in a year
Cross-border activity gaining pace
Deals take longer time
M&A Update: ACCA Chapter Meeting, April 2, 2008 9

11. M&A Update: ACCA Chapter Meeting, April 2, 2008 10

12. 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
M&A Update: ACCA Chapter Meeting, April 2, 2008 11

13. Successful M&As – Best Practice
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)
M&A Update: ACCA Chapter Meeting, April 2, 2008 12

14. M&As and IFRS - Background
Increasing importance of IFRS:
– Most of major economies have or will adopt IFRS (at least for listed
companies) by 2011
– SEC endorsed IFRS for foreign issues, considering for all
A large part of M&As in IFRS domiciles
– More than 40% (Europe, China)
Increasing level of cross-border M&As:
– Transatlantic
– Asia
M&A Update: ACCA Chapter Meeting, April 2, 2008 13

15. The World of IFRS
Canada
2011 Russia & CIS
Europe 2006
2005
US
Foreign Listed Japan,
China
2007 S. Korea
2007
2010-11
Caribbean Middle East
India
Central America 2011
South East Asia
Brazil
2010
Australia
2005
South
South Africa
America
2005
Required/Permitted Not Permitted
Source: www.iasplus.com and Deloitte analysis.
To be introduced No information available
M&A Update: ACCA Chapter Meeting, April 2, 2008 14

16. IFRS & Capital Markets
Most stock exchanges already under IFRS
– 31 stock exchanges, 44% of global market cap
Capitalization of Exchanges (2006-2007) Exchanges by Capitalization
Non IFRS, $2.3 tr, 4% IFRS, $27.7 tr, 44%
IFRS domiciles 2007
6.0
NYSE out of scale IFRS domiciles 2006 US, $19.9 tr, 32%
MCap07(’06) $15.7 ($15.4)tr
Non-IFRS domiciles 2007
5.0
Non-IFRS domiciles 2006
IFRS-to be adopted,
4.0 $12.7 tr, 20%
US$ tr
3.0
Number of Exchanges
Non IFRS, 10, 20%
2.0
US, 3, 6%
IFRS, 31, 60%
1.0
IFRS-to be adopted, 7,
0.0 14%
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M&A Update: ACCA Chapter Meeting, April 2, 2008 15

17. IFRS Statements with implications in M&As
IFRS 3: Purchase Price Allocation
– Significant part of Intangibles in PPAs
– P/E, Capitalization issues
IAS 36 (impairment test)
IAS 38 (intangibles)
Fair Value (under discussion)
M&A Update: ACCA Chapter Meeting, April 2, 2008 16

18. Q&A ?
M&A Update: ACCA Chapter Meeting, April 2, 2008 17