Winchester Capital M&A Advisor Symposium 2015

I. THE SPECIAL RELATIONSHIP

Whether in times of peace or war, throughout modern history the special relationship between the and the United States will always be characterised by a formidable military and economic alliance like no other in the free world.

It has been estimated that on the basis of military comparisons, the Navy of the Republic of China is comprised of 308 ships and the Russian Navy has approximately 283 ships in service for a total of 591 ships. By contrast the US Navy and the Royal Navy combined have active fleets of 356 ships.

The United States and the United Kingdom maintain very close ties and work together across multiple military and national defense issues. The United Kingdom has been the largest supporter of the US led actions in Iraq and Afghanistan, as well as the strongest ally of the US in the global war on terror.

In addition to our ancestry and military alliances, the US and UK have a strong tradition of transatlantic investment. This is rooted in our shared foundation of the common law, responsible corporate governance and investor protection which pervades not only statutory law in the United Kingdom and the United States but also Commonwealth countries.

Whilst the combined Chinese and Russian naval fleets may be larger, the developing capital markets within these countries are dwarfed when their combined market capitalisations are compared to that of the US and the UK which hold the highest concentration of global investment. The New York Stock Exchange, the American Stock Exchange, The NASDAQ and the combined equals approximately $42.31trillion, or roughly 3.3 X the size of the Hong Kong, Shanghai, Shenzhen, Micex, and RTS Exchanges combined.

Investor confidence in these markets resides in the free flow of capital and repatriation of dividends between the countries, common legal principles which embrace investor disclosure and bilateral investment treaties that assure protection on both sides of the Atlantic and the presence of willing lenders ready to provide acquisition funding due to the absence of sovereign risk in the UK and the US.

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Since 2000, it is estimated that $572.4bn has been invested by US corporations in mergers and acquisitions into the United Kingdom and approximately $535.1bn by UK Companies in mergers and acquisitions of US companies. Since 2000, 1,386 US companies, subsidiaries, divisions or assets have been acquired by British firms and 1,986 UK companies, subsidiaries, divisions or assets have been acquired by US firms.

II. US / UK CROSS BORDER M&A ACTIVITY

Given the US and UK’s strong historical and cultural ties it is no surprise that acquisition activity by US firms of UK companies and vice versa has continued to be a strong source of M&A deal flow. US and UK companies that wish to expand their product or service markets, or enter the international stage very often seek an acquisition in the other guided by common language, practice, consumer tastes and legal requirements. This is not to say that the US and UK do not have their differences; however the barriers to expansion remain relatively low as compared to moving into another country where language, and factors of culture create additional barriers.

Acquisitions in the US by UK firms were unleashed following the removal of UK exchange control restrictions in 1979. In the year immediately following the removal of restrictions, many large acquisitions of US companies by UK firms took place. In the recent past, this trend has continued. Below is a list of the largest acquisitions of UK targets by US buyers and US targets by UK buyers in terms of total acquisition size, from 2000 through 2014.

Table I: Top 10 Acquisitions of UK Targets by US Buyers (By Value) ‘00 – ‘14 Transaction Date Target Buyer Value (MMs) Feb - 2010 Cadbury Limited Mondelez International, Inc. $22,342 Jun - 2007 Alliance Holdings Limited KKR & Co. LP $21,467 Apr - 2010 Thomson Reuters UK Limited Thomson Reuters Corporation $18,794 Dec - 2006 Pfizer Consumer Healthcare Busi- Johnson & Johnson $16,600 ness Feb - 2008 Rio Tinto plc Alcoa, Inc. $14,139 Oct - 2011 Autonomy Corp. plc Hewlett-Packard Company $11,036 May - 2000 CWC ConsumerCo Virgin Media, Inc. $9,925 Apr - 2004 General Electric Company $9,846 Apr - 2003 Carnival plc Carnival Corporation $9,357 Mar - 2006 Telewest Global Inc. Virgin Media, Inc. $9,337

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Table II: Top 10 Acquisitions of US Targets by UK Buyers (By Value) ‘00 – ‘14 Transaction Date Target Buyer Value (MMs) Apr - 2000 Atlantic Company, Inc. BP plc $34,638 Jun - 2013 Virgin Media, Inc. Liberty Global plc $24,817 Oct - 2000 Best Foods, Inc. Unilever plc $23,637 Dec - 2006 Freescale Semiconductor, Inc. Permira Advisers Ltd. $18,447 Jun - 2007 MedImmune, LLC AstraZeneca plc $15,720 Mar - 2003 Household Financial HSBC Holdings plc $15,607 Dec - 2002 UnitedGlobalCom, Inc. Liberty Global plc $14,849 Aug - 2007 KeySpan Corporation National Grid plc $12,085 Dec - 2005 Innovene Inc. INEOS Enterprises Limited $10,700 Jan - 2002 Niagara Mohawk Holdings, Inc. National Grid plc $8,899

Below these mega transactions, according to publicly available data, there have been 1,088 deals on a cross border basis from 2000 through 2014 in the mid-market sector, being defined as acquisitions with a Total Enterprise Value of between USD $50m and $500m.

III. US / UK MID-MARKET TRANSACTIONS HISTORY:

2014 was a strong year for mid-market cross border M&A activity between the United States and the United Kingdom. Total cross border value grew from $17.6bn to $21.6bn, or an increase of 23%. The total transaction volume grew to 107 from 100 transactions, or an increase of 7.0%.

US / UK Cross Border M&A 2014 in 2014 acquisitions of US companies by UK based buyers Consumer 68 in the mid-market increased in total value from $5.1bn to 88 299 Discretionary 1,156 $7.4bn or an increase of 44.4% YoY. IN aqddition to the Consumer Staples 50 increase in value, total deal volume rose 3.4% from 29 to 30 Energy 2,818 1,186 transactions. The divergence between the larger increase Financials 3,649 in value and a lower level of increase in volume indicates Healthcare that 2014 witnessed multiple mega deals whcih caused the 2,245 avergae size if transactions to rise. Industrials 8,459 Information Technology Materials 1,630

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Acquisitions of US companies by UK based buyers in the mid-market increased in total value from $5.1bn to $7.4bn or an increase of 44.4%. While total value increased, total deal volume increased 3.4% from 29 to 30 transactions. The slight disconnect between rising value and a lower increase in volume indicates that 2014 had multiple mega deals.

There are a number of transactions on both sides of the Atlantic which reach the top end of the mid-market range. In 2014, the largest acquisition within the mid-market of a UK company by a US firm was Blackstone’s acquisition of Alban Gate for $497m. Similarly, in 2014, the largest acquisition of a US company by a British firm was the acquisition of Numeric Investors LLC by Man Group plc for $494m.

In 2014, the total volume of UK acquisitions of US firms increased from 29 transactions to 30. The total amount of the investment was approximately $5.8bn within the mid-market, representing about 37% of the value of US acquisitions into Britain, which totaled $15.8bn in 2014.

Within the United Kingdom, total value of transactions that included a UK target and a US buyer increased from $12.9bn to $15.8bn or a total advance of 22%, and the number of transactions increased from 71 transactions to 77 from the previous year, an increase of 8.0%.

The trend for US acquisitions of UK companies has tended to provide empirical evidence that, within the mid-market, US companies are acquiring more UK targets, with higher average Total Enterprise Values than in previous years.

IV. US / UK CROSS BORDER M&A INDUSTRY BREAKDOWN

Overwhelmingly, in cross border M&A between the United States and United Kingdom, the financial sector represents the largest sector in which deals are conducted within the mid-market. From 2000 through 2014, financials witnessed total M&A value of $43.3bn. The next largest sector was Information Technology, with $36.6bn. Overall, Financials represent 23.2% of total deal value within the mid-market.

Following Financials and Information technology, the top five sectors are rounded out by Industrials with $29.4bn, Consumer Discretionary with $27.8bn and Healthcare with $18.6bn. These five sectors account for a total of $155bn of total deal value from ’00 – ’14, representing 83.5% of all cross border M&A in the mid-market.

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US / UK Mid-Market M&A by Value (’00 –’14)

$9,000 $8,000 $7,000 $6,000 $5,000 $4,000 $3,000

In USD (MMS) $2,000 $1,000 $0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Consumer Discretionary Consumer Staples Energy Financials Healthcare Industrials Information Technology Materials N/A Telecommunication Services Utilities

When comparing the US and UK in the mid-market over the same time period (’00 – ’14), US companies have acquired a much higher total value of companies in the UK than UK buyers have acquired in the US. Between 2000 and 2014, US buyers acquired a total of $123.5bn worth of UK companies and assets. By contrast, UK companies acquired $63.0bn of US companies, in a proportion of approximately 2:1. However, by contrast, the GDP of the US is 6 times greater than the United Kingdom so these figures demonstrate the degree of scale and priority of the cross border relationships.

Coincidentally, this same ratio holds true in the number of transactions completed within the mid-market. US Companies acquired 706 UK companies across the time period under review, while UK companies acquired 382 US firms. While the total numbers remain disproportionate with the US leading, the average and median sizes of transactions tell another story. Across the same time period from 2000 to 2014, the average and median sizes of a transaction with a US buyer acquiring a UK company were $175m and $133m, respectively. For UK buyers acquiring US targets, the average acquisition size was actually smaller, i.e. $165m and the median was $117m. As the median is lower than the mean, we can infer that more transactions take place in the lower levels of the mid-market, with transaction sizes between $50m and $250m.

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V. Conclusions

We can conclude that the state of the M&A union between the United Kingdom and the United States remains strong and constant. A number of US companies prefer the United Kingdom and Ireland as first points of entry into the European Union. We also believe the UK/US market is poised for further growth as the UK and several states within the US are undertaking significant economic and tax incentives to attract in-bound acquisitions and strategic investment. We believe that the UK/US mid-market will remain the most active segment in terms of the number of transactions in the foreseeable future.

Winchester Capital is a private cross-border boutique investment banking firm specialised in international advisory and asset man- agement. Located in North America and Europe, we apply intellectual discipline and cross cultural experience to deliver bespoke solutions to our Clients. We provide detailed global valuation research, expert diligence and transaction advisory and execution services. Our Clients in- clude banks, family offices, firms and other public and private companies. We offer a service which is tailored to the strategic needs of each client. We concentrate on international mergers & acquisitions, including both buy-side and sell-side mandates. We have transacted in 40 countries and have a reputation for being exceptionally skilled in cross border transactions. We accept that true value is only created by our four pillars of integrity, heritage, insight and perseverance, which hacve yielded successful results. For further information, please visit our website at www.winchestercapital.com or contact Pippa Smith, Director of Corporate Communications at [email protected].

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