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    1. 1. The Emergence of Private Equity & Alternative Financing… Promoting M&A Activity Tel Aviv, Israel June 2005 David Farina Co-Head of Technology Investment Banking
    2. 2. A Unique Strategic Cooperation Agreement <ul><li>70 years of experience with US equity, and mergers and acquisitions markets </li></ul><ul><li>Extensive knowledge of the Israeli Market </li></ul><ul><li>100% integrated, full coverage for languages, time zones and capabilities </li></ul><ul><li>Strong distribution capabilities (US, Europe and Israel) </li></ul><ul><li>Complementary Investment Banking and Commercial Banking solutions </li></ul><ul><li>Long-term commitment to provide best-of-breed resources to service Israeli clients </li></ul>P:DTPNNew Business20054-05PuyanicWBC-PCM Slides 9-10-04 v3.ppt 04/1/05 6:38 pm 1
    3. 3. Significant Israeli Related Deal Traction <ul><li>Five Transactions Completed In The Last Nine Months </li></ul>Building momentum by delivering on expectations 2 $133,831,000 Follow-On September 2004 $50,500,000 has been acquired by Eastman Kodak March 2005 $64,400,000 Initial Public Offering March 2005 $401,280,000 Follow-On March 2005 $60,500,000 has been acquired by Retalix, Ltd. April 2005
    4. 4. William Blair & Company Overview <ul><li>100% owned by active partners </li></ul><ul><ul><li>Entrepreneurial with an intense client focus </li></ul></ul><ul><ul><li>Senior bankers actively lead each transaction </li></ul></ul><ul><ul><li>Continuity and consistency for 70 years </li></ul></ul><ul><ul><li>Reputation for integrity, independence and quality </li></ul></ul><ul><li>Relationship-driven investment bank </li></ul><ul><ul><li>Successful transactions/repeat business </li></ul></ul><ul><ul><li>Sophisticated wealth management services </li></ul></ul><ul><ul><li>Lowest turnover in industry </li></ul></ul><ul><li>Investment banking expertise </li></ul><ul><ul><li>Leading middle market M&A advisor, advised on $11.8 billion of completed transactions in 2004 </li></ul></ul><ul><ul><li>Comprehensive public company experience and proven positioning expertise of sector leaders </li></ul></ul><ul><ul><li>Ranked #1 for aftermarket performance of managed public equity offerings </li></ul></ul><ul><ul><li>Breadth of industry coverage – in-depth, quality research </li></ul></ul><ul><li>Execution excellence </li></ul><ul><ul><li>Name brand credibility and reputation </li></ul></ul><ul><ul><li>Proven access to strategic and financial acquirers worldwide </li></ul></ul><ul><ul><li>Dedicated global transaction team </li></ul></ul>A tradition of growth since 1935 Data as of January 5, 2005. 3 CHICAGO LONDON SAN FRANCISCO TOKYO HARTFORD ZURICH VADUZ ISRAEL (Poalim Capital)
    5. 5. The Middle Market’s Leading Investment Bank Number of Transactions Transaction Value ($ Millions ) More Than $36 Billion in Merger and Acquisition Transactions Since 2000 (1) <ul><li>Excludes $4.5 billion for the sale of Keebler to Kellogg; Blair represented the WK Kellogg Foundation. </li></ul><ul><li>Includes $7.2 billion sale of Concord to First Data Corporation. </li></ul><ul><li>Includes closed and announced transactions as of May 20, 2005. </li></ul><ul><li>Publicly traded and privately held companies </li></ul><ul><li>Sell-side advisory and divestitures </li></ul><ul><ul><li>65.1% of sell-sides to strategic acquirers since 2000 </li></ul></ul><ul><li>Buy-side advisory </li></ul><ul><li>Special Committee advisory </li></ul><ul><li>Recapitalizations, stock repurchases, and strategic alternative reviews </li></ul><ul><li>Shareholder rights plans </li></ul><ul><li>Fairness opinions </li></ul><ul><li>Broad geographic and industry experience </li></ul><ul><li>Proven ability to access foreign and domestic strategic and financial buyers </li></ul>(3) (2) Customize – Midwest vs. Middle Market 4
    6. 6. Why It Is a Good Time To Sell Your Business
    7. 7. M&A Market Summary <ul><li>Corporate confidence is on the rise </li></ul><ul><ul><li>24.9% of the 7,000 public companies increased dividends in 2004 </li></ul></ul><ul><ul><ul><li>Most hikes since 1998 and 3rd year in a row of improvement </li></ul></ul></ul><ul><ul><li>Businesses created 1.7 million jobs in 2004 </li></ul></ul><ul><li>Earnings outlook for companies across many sectors has improved </li></ul><ul><li>Financing market has improved markedly </li></ul><ul><li>1,300 private equity firms today vs. 500 in 1992: $100+ billion in dry powder </li></ul><ul><li>Private equity firms are accepting lower IRRs </li></ul><ul><li>Transaction valuations are being driven to more attractive levels for sellers </li></ul><ul><li>Robust, high quality deal flow in the market </li></ul>5
    8. 8. M&A Market Overview <ul><li>The M&A market continues to gain solid upward momentum </li></ul><ul><ul><li>Dollar value of transactions has exceeded $50 billion for seven of the last twelve months and $100 billion for two of the last three months </li></ul></ul><ul><li>Appetite among private equity funds in the U.S. and abroad is extremely strong and sponsors are competing successfully with strategic acquirers for growth and/or profitability </li></ul><ul><li>M&A valuations overall are improving </li></ul><ul><li>Sarbanes-Oxley and related issues put a premium on very thorough, very prepared approaches to due diligence – proactive rather than reactive </li></ul><ul><li>Return of the “Mega Deal”: 14 $5 billion plus deals announced since December </li></ul><ul><li>Challenges remain, but the outlook is very positive </li></ul>JDL Updated 03/17/05 6
    9. 9. Valuation Trends <ul><li>Private equity firms are accepting lower IRR’s and pressured to put money to work </li></ul><ul><li>Strategic buyers are returning and for highly strategic deals can pay outlier valuations </li></ul><ul><li>Playing field has leveled and financial buyers are winning </li></ul><ul><li>Heated competition coupled with access to debt is driving outlier valuations by sponsors </li></ul>Two Years Ago Today Financial 6.0x 6.5x 7.0x 7.5x 8.0x 8.5x 9.0x One Year Ago 7 Strategic Financial Strategic Financial Strategic
    10. 10. Recent M&A Activity Total Deals Total Deal Value ($ in billions) Source: Mergerstat Review. Total Deals Total Deal Value 44.4% 15.0% 8
    11. 11. Comparison of Market Trends 9
    12. 12. M&A Activity – Long Term Trends Announcements $ Volume <ul><li>In retrospect, 1997 to 2002 was an outlier period </li></ul><ul><li>We have returned to normalized trend of historical volume levels </li></ul>Source: Mergerstat Review. 10
    13. 13. Payment Method Continues to Shift <ul><li>Cash consideration was king in 2004 </li></ul><ul><ul><li>Low interest rate environment </li></ul></ul><ul><ul><li>Perceived lower stock valuation (especially in first half of year relative to historic highs) </li></ul></ul><ul><ul><li>Increased activity of financial buyers with cash as only currency </li></ul></ul><ul><ul><li>End of pooling in 2001 eliminated certain accounting advantages of using stock </li></ul></ul>Form of Payment Source: Mergerstat Review 11
    14. 14. M&A Activity – Recent History <ul><li>Largest year-over-year increase came from big deals </li></ul><ul><li>Middle market ($50 - $500 million) fairly robust </li></ul><ul><li>Low-end of market ($10 - $50 million) was challenging </li></ul>Source: Mergerstat Review. 12
    15. 15. Corporate Earnings Growth <ul><li>Significant improvement in operating results somewhat slower than exuberant expectations </li></ul><ul><li>Economic recovery is continuing at a reasoned pace </li></ul><ul><li>Right direction </li></ul>Growth Source: FactSet Research Systems as of January 10, 2005. 13 1999 2000 2001 2002 2003 2004 2005
    16. 16. State of Private Equity Investing <ul><li>Explosion of number of funds and assets under management </li></ul><ul><li>New entrants – hedge funds, distressed debt investors, pipe investors </li></ul><ul><li>Over $100 billion of dry powder to invest with pressure to put money to work </li></ul><ul><li>Business owners now educated as to the value of competitive process </li></ul><ul><li>Corporate scrutiny limits non-competitive divestitures </li></ul><ul><li>Greater percentage of transactions are done via competitive processes </li></ul><ul><li>Proprietary deal flow and one off transactions are very rare, few “bargains” </li></ul><ul><li>Rapidly maturing asset class and very efficient and competitive market </li></ul>16
    17. 17. Buyout Fund Universe (>$250 million) 17
    18. 18. Increased Activity of Private Equity Firms <ul><li>Private equity firms represented 11% of all U.S. M&A activity in the second half of 2003 </li></ul><ul><li>Highest % in nearly 10 years </li></ul><ul><li>Extreme pressure to put money to work ($200+ billion in dry powder) </li></ul><ul><li>The high-yield debt market is the most receptive in years, allowing buyout firms to stretch valuations and win auctions </li></ul>$ in billions Source: Dealogic Global M&A NewsSheet 18 1995 1996 1997 1998 1999 2000 2001 2002 2003
    19. 19. Debt Capital Markets Conditions are Driving Current M&A Valuations <ul><li>Market conditions have changed dramatically in a relatively short timeframe </li></ul><ul><ul><li>Covenants continue to loosen </li></ul></ul><ul><ul><li>Maturities continue to increase </li></ul></ul><ul><ul><li>Loan pricing has declined, especially at higher leverage levels </li></ul></ul><ul><ul><li>Default rates are approaching historic lows </li></ul></ul><ul><ul><li>Cash flow lenders are active once again </li></ul></ul><ul><ul><li>Institutional investors are liquid and active </li></ul></ul><ul><ul><li>New middle-market lenders have entered the market </li></ul></ul><ul><li>For larger, sponsored leveraged financings, debt leverage is approaching levels last seen in the late 1990s </li></ul>Historical Total Debt / EBITDA Multiples * Rounding. Source: Portfolio Management Data. * * Debt Market Overview 88
    20. 20. Average Equity Contribution to Leveraged Buyouts Source: S&P/Portfolio Management Data. 20
    21. 21. Trans-Atlantic M&A Trends <ul><li>U.S. acquisitions of European targets more than doubled in 2003 to $75 billion </li></ul><ul><ul><li>G.E.’s $9 billion purchase of Amersham PLC (U.K.) </li></ul></ul><ul><ul><li>P&G’s $5 billion purchase of Wella AG (Germany) </li></ul></ul><ul><ul><li>United Technologies’ $1 billion purchase of Chubb PLC (U.K.) </li></ul></ul><ul><li>Even more surprising due to the significantly weakening U.S. dollar during this period </li></ul><ul><li>Reflects strengthening U.S. economy and confidence of domestic CEO’s vs. global counterparts </li></ul>Announcements $ Volume Source: Thomson Financial 21
    22. 22. M&A Market – The Challenges <ul><li>Due diligence rigor is excruciating </li></ul><ul><li>Enhanced regulatory scrutiny </li></ul><ul><li>Boards and management teams are nervous given recent scandals and their more visible corporate responsibilities </li></ul><ul><li>Financing can still be somewhat challenging for companies < $30 million EBITDA </li></ul><ul><li>Time to close has been extended and certainty has been reduced </li></ul>22