Issue 7 Mid-Year 2012 Edition Private Equity Focus September 2012

New York  London Freeman & Co. LLC

Inside this Issue: Uncertainty Abounds FIG PE Overview p. 2 If the past year has revealed anything about the private equity market, it’s that the Asset Management p. 3 slower levels of deal activity post-financial crisis remain, and there is scant evidence of a catalyst that would return us to an environment akin to the 2004-2007 boom that Banks & Brokerage p. 4 witnessed $10+ billion LBOs and an explosion in the number of transactions. Since our report last year at this time, titled Another New Normal, PE firms have continued to Business Services p. 5 raise modest amounts of new funds, have held onto portfolio companies slightly longer, extended out fund lives and selectively scooped up small/mid-sized bolt-on acquisitions Financial Technology p. 6 and non-performing assets. Within the sector, there is a growing trend of PE firms and hedge funds becoming interested in financial assets in addition to Insurance p. 7 standard investments in operating companies.

Specialty Finance p. 8 This report will cover several trends we have seen in the private equity market in general, with a particular focus on the financial services sector: Exit Strategies p. 9 1. Modest fundraising dominated by the largest PE firms, with continued capital Credit Outlook p. 10 overhangs (“dry powder”) and longer holding periods 2. Unique environment for financial services companies with both headwinds and rare General Private Equity p. 11 opportunities in many sub-sectors – this has brought an increase of credit/distressed funds due to global turmoil, especially regarding European assets F & Co. Publications p. 12 and Transactions 3. Significantly lower deal activity than 2004-2007, but similar levels to the preceding five-year period

Financial Institutions Private Equity Transactions(1,2)

Indices at August 31, 2012 $40 300 $34.8

DJIA 13,091 250 Transactions# of $30.2 $30 NASDAQ 3,067 200

$20 150 S&P 500 1,407 $16.5 150 155 $13.4

ansaction Value ($B) Value ansaction 100 r FTSE 100 5, 711 $10 99 50 10-yr US T-Bond 1.57% Total T 48 $0 0 USD per GBP 1.59 2009 2010 2011 1H 2012 Total Transaction Value ($MM) # of Transactions

USD per Euro 1.26 1) All deal statistics in this report include closed transactions only (entry and exit transactions) 2) All data in the report includes global deal activity for 202 private equity firms consistently tracked by Freeman & Co. Freeman & Co. believes the sample data is representative of total activity in financial institutions private equity

Eric Solash Managing Director + 1 (212) 830-6167 [email protected] Christopher Pedone, CFA Associate + 1 (212) 830-6166 [email protected] Matt Capers Analyst + 1 (212) 830-6172 [email protected] Mid Year 2012 Issue Page 2

As in the past, this report is divided into three main sections: • FIG PE Overview, including deal activity and entry/exit trends within private equity for financial institutions; • Sub-Sector Focus, including trends in Asset Management, Banks & Brokerage, Business Services, Financial Technology, Insurance and Specialty Finance; and • Current Topics, including topics important to PE investors in FIG such as the macro outlook, the general private equity environment, fundraising, credit and exit options. FIG PE Overview

There were 48 private eqqyuity transactions involving financial services companies (“FIG PE”) in 1H 2012 compared to 84 in 1H 2011 and 155 in full year 2011. Deal activity had been methodically increasing since sharply decreasing during the financial crisis, but the poor economic environment beginning in the fall of 2011 has somewhat stalled the comeback. Total FIG PE transaction value was just over $13.4 billion in 1H 2012, and taking into account slight seasonality, we expect approximately $30 billion in transactions for full year 2012 compared to $34.8 billion in 2011.

Deal Value by Sub-Sector The volatile macroeconomic and regulatory environment continues to cause $40 F&Co. considerable upheaval in the financial $34.8 2012 $35 Estimate services sector, especially among asset $30.2 $30.0 managers,banks,brokers,insurersand $30 1H 2012 $26.8 Annualized specialty finance companies – however, $25 there are many opportunities for PE firms in $20 alue ($B) alue these areas, as we will discuss in the sub- V $16. 5 $15 $13.4 sector focus sections on the following pages. Deal

$10 It is significant that eight of the top ten deals $5 in FIG PE over the past 12 months are entry transactions for PE firms (including a few $0 2009 2010 2011 1H 2012 sponsor-to-sponsor deals), as the largest AM BBD BNSS FT INS SPEC portfolio companies acquired during the boom years remain on the books of PE firms. Top Ten FIG PE Transactions LTM (all transactions are PE entries unless otherwise noted)

Rank Private Equity Firm Portfolio Company Date Value $MM Buyers: Blackstone 1 Emdeon 11/2/2011 $3,429 Sellers: General Atlantic, H&F (partial) Buyers: Advent Int'l, 2 TransUnion LLC 4/30/2012 $3, 310 Sellers: Madison Dearborn, Pritzker 3 Centerbridge (1) Green Tree Servicing 7/1/2011 $2,244 4 JC. Flowers & Co. (2) BTG Pactual S.A. 4/24/2012 $1,723 5 Advent International Oberthur Technologies 12/1/2011 $1,692 6 WL Ross & Co., others Bank of Ireland Group 7/29/2011 $1,500 7 Bridgepoint Capital, others FONCIA Groupe SA 7/15/2011 $1,419 Buyer: New Mountain Capital 8 AmWINS Group, Inc. 6/7/2012 $1,300 Seller: Parthenon Capital 9 Centerbridge, KKR, Warburg Pincus Santander Consumer USA, Inc. 10/20/2011 $1,150 Buyer: CVC Capital Partners 10 AlixPartners, LLC 6/29/2012 $1,000 Seller: H&F

(1) Exit (sale) (2) Exit (IPO)

Date: Closing date of transaction LTM: 12 Months Ending June 30, 2012 Source: Freeman & Co. Page 3 Private Equity Focus Sector Review: Asset Management

Private equity activity in the Asset Management sector is depressed in terms of total value and number of deals. Deal activity in 2012 is more similar to deal activity in 2010 than relatively strong 2011, when 26 deals were completed. However, didespite onlly $288 million of dldealscompldleted in 1H 2012, 1H 2011 experidienced an even smaller amount at $187 million – yet full year 2011 ended up being the most active year in the past several, in terms of deal value. A critical catalyst for deal activity in 1H 2012 and the near-to-medium term is the need for European banks to raise capital through divestitures of non-core asset management operations.

Thelargestassetmanagementtransactioninthepasttwelve months was Bridgepoint Capital and Eurazeo’s acquisition of FONCIA Groupe SA, a French provider of real estate investment trusts, property management, lease management and other real estate-related services, for $1.4 billion in July 2011. Bridgepoint and Eurazeo acquired the firm from Groupe BPCE, which retained a significant minority stake in the target. The transaction allowed Groupe BPCE to improve its Tier 1 Core Equity ratio and profitability.

Although portfolio acquisitions of asset managers are slow, we expect the trend of private equity firms acquiring asset management firms to diversify their own product offerings to continue. The focus of acquisitions at the firm level, rather than the fund level, should result in higher overall transactions activity in asset management but fewer available targets as traditional portfolio companies. Publicly Traded Asset Management Firms: Enterprise Value / LTM EBITDA Deal Activity

30x $3,000 30

25x $2,500 25 26 $2,226 Number of Transacti

20x $2,000 20

$1,500 15 15x $1,048 12 o ransaction Value ($MM) Value ransaction prise Value to LTM EBITDA LTM to Value prise $$,1,000 10 r ns 10x T

Ente $550 Total 7 $500 5 5x $288 3 $0 0 0x 2009 2010 2011 1H 2012 2006 2007 2008 2009 2010 2011 2012 Total Transaction Value ($MM) # of Transactions

Top Deals LTM (all transactions are PE entries unless otherwise noted)

Rank Private Equity Firm Portfolio Company Date Value $MM 1 Bridgepoint Capital FONCIA Groupe SA 7/15/2011 $1,419 2 TA Associates DNCA Finance 7/28/2011 $537 3 Bridgepoint Capital Quilter & Co. Limited 4/2/2012 $273 4 IPGL(1) Origin Asset Management 7/7/2011 $64 5 Aquiline Capital Partners Conning & Company 12/28/2011 $19 6 Carlyle (2) Boston Private Financial Holdings 2/28/2012 $15 7 Lovell Minnick (1) Atlantic Asset Management L.L.C. 12/31/2011 8Carlyle Avalon Advisors, LLC 8/30/2011 Buyer: Carlyle 9 Churchill Financial LLC 11/18/2011 Seller: Olympus Partners 10 Falfurrias Capital Partners Dorsey Wright & Associates, Inc. 11/15/2011 (1) Exit (sale) (2) Partial sale Does not include Carlyle’s acquisition of TCW Group, which was announced in August Note: private equity deals tracked in the Asset Management sector include portfolio company investments only

Source: CapitalIQ, Freeman & Co. Mid Year 2012 Issue Page 4 Sector Review: Banks & Brokerage

In the Banks & Brokerage sector, we continue to see participants adjust to the “new normal,” as we described in our Mid Year 2011 Private Equity focus. Deal activity in the banks and brokerage sector is steady with $3.3 billion of deals completed in 1H 2012 compared to 1H 2011’s total of $3.6 billion. One notable difference from 1H 2011 is that in 1H 2012 the average completed deal size was $366 million – 54% higher than the 1H 2011 average deal size of $237 million – fewer but larger completed deals.

The largest deal in 1H 2012 was BTG Pactual S.A.’s (BOVESPA:BBTG11) $1.7 billion IPO in April 2012. BTG Pactual, Brazil’s largest independent investment bank, was also the largest IPO on the BM&F Bovespa exchange in 1H 2012. JC Flowers & Co. is reported tohaveexitedduring the IPO while the firm’s management retained a significant minority stake in the company.

In the US, private equity remains active in the brokerage sector. Following the financial crisis, several PE firms funded start-up and re-start broker dealers, especially in the fixed income sector, to fill the void left by ailing large banks. As the banks repaid TARP and stabilized their balance sheets, they re-entered the fixed income market, causing some upheaval in the middle market space. Going forward, however, we see renewed opportunities for small and mid-sized independents as Basel III will start to weigh on big banks – on capital intensive businesses especially.

Broker-Dealer Financial Performance Deal Activity

70% $8,000 45 60% 40 $7,000 $6,558 $6,650 50% 38 35

40% $6,000 Number of Transactions

30% 32 30 $5,000 $4,579 20% 25 10% $4,000

% Change $3,291 20 0% $3,000 -10% 17 15

-20% Transaction tal Value ($MM) $2, 000 o 10 T -30% 10 $1,000 5 -40% $0 0 Jul-11 Jul-10 Jul-09 Jul-12 Jan-11 Jan-10 Jan-09 Jan-12 Mar-11 Sep-11 Nov-11 Mar-10 Mar-09 Mar-12 Sep-10 Nov-10 Sep-09 Nov-09 2009 2010 2011 1H 2012 May-11 May-10 May-09 May-12 Transaction Value ($MM) Number of Transactions AMEX BD Index DJIA S&P 500

Top Deals LTM (all transactions are PE entries unless otherwise noted)

Rank Private Equity Firm Portfolio Company Date Value $MM 1 JC Flowers & Co.(2) BTG Pactual S.A. 4/24/2012 $1,723 2 WL Ross & Co., others Bank of Ireland Group 7/29/2011 $1,500 Buyer: CVC Capital 3 AlixPartners, LLC 6/29/2012 $1,000 Seller: H&F Buyer:TPG Capital 4 Saxo Bank A/S 12/14/2011 $561 Seller: General Atlantic 5 Oaktree, Thomas H. Lee Partners, others First Bancorp 10/7/2011 $525 6Carlyy,le, Oak Hill, others FNB United Corp. 10/21/2011 $310 7 Warburg Pincus (1) Kotak Mahindra Bank Ltd. 3/26/2012 $272 8 WL Ross & Co. , others Amalgamated Bank 4/11/2012 $100 9 Fortress Investment Group, others Opus Bank 10/28/2011 $100 10 Aquiline, others BNC Bancorp 6/8/2012 $73 (1) Exit (sale) (2) Exit (IPO)

Date: Closing date of transaction LTM: 12 Months Ending June 30, 2012 Source: Bloomberg, Freeman & Co. Page 5 Private Equity Focus Sector Review: Business Services

Traditionally a stronghold of the private equity community, activity in the Business Services sector has been slightly weaker in terms of total deal value and demonstrably weaker in terms of number of deals compared to 2011. 2011 saw two very large dldealscompldleted – Blac kstone ’ssecondary buyout of EdEmdeon and Advent’ sacquiiiisition of Oberth ur Technologies, as the two deals totaled approximately $5 billion. The largest deal in 1H 2012 was Advent and Goldman’s secondary buyout of TransUnion from Madison Dearborn for $3.3 billion, and the remaining completed deals totaled less than $1 billion.

The largest deal in this sector over the last 12 months was the previously mentioned secondary buyout of Emdeon by Blacksto ne from Gene ra lAttalant tcic ((eHellma n & Friedma nretained a minootyrity stake in Emdeon).The dealwas finaacednced in part by $1.3 billion of senior secured credit facilities and a $750 million unsecured credit facility. Post-acquisition, Emdeon acquired JMI Equity portfolio company TC3 Health for $61 million, an insurance BPO focusing on claims management technology.

We continue to see private equity appetite for payment and transaction processing firms. Vantiv (formerly known as Fifth Third Processing Solutions) debuted on the public markets with a $500 million IPO in March 2012. In addition to private and public investor interest in the sector, we continue to see strategic appetite for such targets as technological trends like mobile payments drive consolidation in the processing sub-sector.

Deal Activity by Sub-Sector (LTM) Deal Activity

$12,000 $11,618 50

42 $10,000 40

$8,396 Number of Transactions Information Services $8,000 36 30 $4,246 31 38% $6,000 $5,033 20 $3,982 $4,000 otal Transaction Value Transaction otal Value ($MM)

T 10 Processing $2,000 6 $6,877 61% Insurance BPO $0 0 $61 2009 2010 2011 1H 2012 1% Total Transaction Value ($MM) Number of Transactions

Top Deals LTM (all transactions are PE entries unless otherwise noted)

Rank Private Equity Firm Portfolio Company Date Value $MM Buyers: Blackstone 1 Emdeon 11/2/2011 $3,429 Sellers: General Atlantic, H&F (partial) Buyers: Advent Int'l, Goldman Sachs 2 TransUnion LLC 4/30/2012 $3,310 Sellers: Madison Dearborn 3 Advent International Oberthur Technologies 12/1/2011 $1,692 4 Advent International (2) Vantiv, Inc. 3/21/2012 $500 5 Susquehanna Growth Equity, others (1) CashEdge, Inc. 9/14/2011 $465 6 KKR Ipreo 8/5/2011 $425 7 JMI Equity, TA Associates, TCV (1) Global 360, Inc. 7/13/2011 $260 8 Apax Partners (1) (partial) Bankrate Inc 12/6/2011 $219 9 GTCR BServ, Inc. 8/25/2011 $150 Buyer: Great Hill Partners 10 Plimus, Inc 8/8/2011 $115 Seller: Susquehanna Growth Equity

(1) Exit (sale) (2) Exit (IPO)

Source: Capital IQ, Freeman & Co. Mid Year 2012 Issue Page 6 Sector Review: Financial Technology

Financial Technology deal value is slightly lower this year with $1.1 billion in total disclosed deal value in 1H 2012 compared to $1.4 billion in disclosed deal value in 1H 2011. Notably, there were only six deals in our coverage universe compared to 13 in 1H 2011. DiDespite last summer’ssharp uptikick involililatility and trading actiiivity in August and September, we expect the downward trend of trading activity to continue.

The largest deal in Financial Technology in 1H 2012 was TA Associates and Sageview’s exit of GlobeOp Financial Services, a hedge fund administrator in June 2012. GlobeOp was acquired by SS&C (NASDAQ:SSNC), a financial technology firm that is partially owned by Carlyle. SS&C itself completed a public offering in July 2011, raising $134 million with a market capitalization over $1.5 billion.

Financial technology companies should remain attractive targets for growth-oriented private equity investors due to the gradual shift of the industry towards cloud-based and SaaS-oriented technologies and business models. Prospects for private equity activity in the space are positive as both strategic acquirers and private equity firms look to make investments in the space. Acquisitions by strategic acquirers should drive exit activity, while the more mature companies in the sector should attract private equity investment due to a combination of stable, recurring revenues and healthy margins afforded by SaaS business models and relatively short upgrade cycles. Although trading speed is becoming more commoditized in many markets, other new technologies will continue to evolve to create demand for financial-related technology, as big data and outsourcing are currently doing.

US Exchanges Shares Volume (1) Deal Activity

500 $3,000 30 s

$2,500 23 375 $2,290 $2,284 Number of Transaction

20 $2,000 20

250 $1,500 14

$1,111 $959 125 $1,000 10 l Transaction Value ($MM) rades in Equity (million Shares Equity in rades s a T 6 Tot $500 0 Number of $0 0 2009 2010 2011 1H 2012 NASDAQ OMX NYSE Euronext (US) Total Transaction Value ($MM) # of Transactions (1) Electronic order book trades

Top Deals LTM (all transactions are PE entries unless otherwise noted)

Rank Private Equity Firm Portfolio Company Date Value $MM 1 TA Associates, others (1) GlobeOp Financial Services 6/25/2012 $824 2 Advent International (1) Cetip SA 7/15/2011 $514 3 TA Associates (1) 2nd Story Software, Inc. 1/31/2012 $288 4 Lovell Minnick (1) ALPS Fund Services Inc. 10/31/2011 $250 5 Carlyle Group (2) SS&C Technologies Inc. 7/22/2011 $134 6 Summit Partners 360 Treasury Systems AG 6/29/2012 Buyer: General Atlantic 7 FNZ (UK) Ltd. 2/21/2012 Seller: HIG 8 Carlyle Group ITRS limited 9/26/2011 Buyer: H&F 9 OpenLink Financial, Inc. 10/31/2011 Seller: Carlyle 10 TCV (1) SolArc, Inc. 12/1/2011 (1) Exit (sale) (2) Exit (follow-on public offering)

Date: Closing date of transaction LTM: 12 Months Ending June 30, 2012 Source: World Federation of Exchanges, Freeman & Co. Page 7 Private Equity Focus Sector Review: Insurance

Private equity deal activity related to Insurance companies was extremely healthy in terms of total transactions as well as deal value in 1H 2012. There were 12 deals with a total disclosed value of $3.9 billion compared to 10 deals worth a total disc lose d transaction value of $2.8 billion for all of 2011. If thhepaceof dldeal actiiivity continues into 2H 2012, this will be the most active year in terms of disclosed deal value since 2008. Over the last 12 months, there have been a total of 14 closed deals with a total disclosed transaction value of $4.6 billion. The uptick of deal activity in 1H 2012 and the last 12 months is a confirmation of our July 2011 Insurance Industry Focus report, The Marriage of the Decade, where we note the complementary partnership that can exist between private equity and insurance companies.

Insurance companies are especially sensitive to the historically low global interest rates experienced over the past four years. Coupled with 2011’s record amount of catastrophe losses and a sluggish global economy, insurance carriers are in aggregate short on capital and we expect more investments from private equity firms and asset sales out of carriers.

The largest 1H 2012 deal in the sector was the secondary buyout/recapitalization of AmWINS, a specialty insurance broker, by New Mountain Capital (Parthenon Capital exited), for $1.3 billion. The company’s employees retained a significant minority stake in the company through the growth equity transaction.

The last 12 months have also seen a multitude of run off block sales, including Athene’s (backed by Apollo) $415 million purchase of Presidential Life in July 2012, Jackson National’s $621 million purchase of Swiss Re’s U.S. life business in May 2012 and Guggenheim’s $440 million purchase of EquiTrust Life from FBL Financial Group.

Entry vs. Exit Deals Deal Activity

$8, 000 60

$1,975 $7,000 $6,456 2009 50 $840

$6,000 Number of Trans

40 $5,000 $3,605 2010 $4,030 $4,000 $3,882 30 action Value ($MM) Value action a tion Value ($MM) s $2, 815 $3,000 $2,774 ctions $427 20 2011 $2,347 $2,000 12

Total Tran 15 8 10 Total Transac Total $1,000 10 $3,209 Exits/Sales 1H 2012 Entry Investments $1,973 $0 0 2009 2010 2011 1H 2012 Total Transaction Value ($MM) Number of Transactions

Top Deals LTM (all transactions are PE entries unless otherwise noted)

Rank Private Equity Firm Portfolio Company Date Value $MM Buyer: New Mountain Capital 1 AmWINS Group, Inc. 6/7/2012 $1,300 Seller: Parthenon Capital 2 Aquiline, New Mountain Capital, Vestar(2) Validus Holdings, Ltd. 2/15/2012 $947 3 Cinven AEGON UK (Guardian) 11/24/2011 $452 4 JMI, Spectrum Equity Investors(1) ARROWHEAD General Insurance Agency 1/9/2012 $403 5 Carlyle(3) Qualicorp 4/17/2012 $365 6 JC Flowers & Co. Fidea NV 3/30/2012 $335 7 Goldman Sachs EnStar Group 12/22/2011 $292 8 Bain Capital SquareTrade, Inc. 1/25/2012 $238 9 Warburg Pincus(2) Primerica, Inc. 5/26/2012 $150 10 Norwest Equity Partners GoHealth, LLC 6/7/2012 $50 (1) Exit (sale) (2) Share buyback (3) Exit (follow-on public offering)

Source: Freeman & Co. Mid Year 2012 Issue Page 8 Sector Review: Specialty Finance

Private equity deal activity in Specialty Finance has experienced markedly lower deal activity compared to 2011. 1H 2012 experienced nine deals with $822 million in total deal value compared to 19 deals with $8.2 billion in total deal value in 1H 2011 (however, CbCerberus ’s $6.3 billion exitof TD Auto Finance in 1H 2011 accounted for over hlfhalf of total deal value in 2011). Securitization issuance in 1H 2012 is lower than the same period in 2011, but non-residential ABS issuance, particularly auto ABS, has picked up considerably to $171 billion in 1H 2012.

Given the low interest rate environment, ABS is looking more and more attractive. One trend that we have noticed is the move towards more asset acquisitions versus portfolio company investments by private equity firms traditionally involved in the specialty finance sector. As long as specialty finance and alternative fixed income assets provide a relative advantage yield, we expect to see more interest and activity in this part of the market for those firms willing to explore non-traditional assets and transaction structures.

The largest deal in 1H 2012 was the $1.2 billion minority stake acquisition of Santander Consumer USA, Santander’s US consumer finance business. The investment was raised from a consortium led by Warburg Pincus, KKR and Centerbridge Partners. As part of the round, the investors acquired an aggregate 26.5% stake in the company. The deal is a prime example of opportunistic private equity investment in troubled European banks, as Santander was able to bolster its balance sheet by partially divesting a non-core business. In addition, the deal highlights the continued attractiveness of the auto finance sector.

Securitization Proceeds Deal Activity

$1,000 $14,000 70 $12,470 $12,000 60 $800

$10,000 50 Number of Transactio $600 $549 $550 $509 $476 $437 $8,000 40 182 98 $406 239 141 31 $400 122 $357 29 $6,000 30 123 171 Issuance ($B) ransaction Value ($MM) Value ransaction ns $200 368 411 T 310 316 335 $4,000 20 234 235

Total $2,582 $2,270 11 $0 $2,000 13 10 $822

$0 0 1H 2011 2H 2011

1H 2009 1H 2009 2H 2010 1H 2010 2H 2012 1H 2009 2010 2011 1H 2012 MBS ABS Total Transaction Value ($MM) Number of Transactions Top Deals LTM (all transactions are PE entries unless otherwise noted)

Rank Private Equity Firm Portfolio Company Date Value $MM 1 Centerbridge Partners (1) Green Tree Servicing 7/1/2011 $2,244 2 Centerbridge Partners, KKR, Warburg Pincus Santander Consumer USA, Inc. 10/20/2011 $1,150 3 Angelo, Gordon & Co. (1) Dealer Services Corporation 3/1/2012 $351 4 Oak Hill Capital Management, others NXT Capital, LLC 10/25/2011 $318 Buyer: Blackstone 5 Exeter Finance Corp. 8/12/2011 $277 Seller: Goldman Sachs Merchant Banking 6 Fortress Investment Group (2) Nationstar Mortgage LLC 3/7/2012 $233 7 TH Lee , Goldman Sachs (3) MoneyGram International Inc 11/17/2011 $150 8 Angelo, Gordon & Co., others (1) Gateway One Lending & Finance, LLC 11/30/2011 $115 9 HIG Capital A10 Capital, LLC 4/18/2012 $100 10 Palladium Equity Partners (2) Regional Management Corp. 3/27/2012 $63

(1) Exit (sale) (2) Exit (IPO) (3) Exit (follow-on public offering)

Date: Closing date of transaction LTM: 12 Months Ending June 30, 2012 Source: Freeman & Co. / Thomson Reuters Page 9 Private Equity Focus Exit Strategies

After a very strong 2011 driven by a positive macroeconomic environment in the first nine months of the year, sponsor- backed exits of portfolio companies have declined 21% in 1H 2012 on an annualized basis. This slowdown, however, is not as drastic as the drop in total sponsor-backed exits (across all industries), which are down 60% according to a recent study by the British Private Equity and Venture Capital Association. The slowdown in monetization of portfolio companies relates mainly to the entry prices at which currently held companies were acquired compared to where they could be sold now. On one hand, PE firms must sell portfolio companies for 2x to 3x what they paid in order to generate promised returns of 20%+ to investors. Considering average fund lives, this is a tough proposition as many currently held portfolio companies were acquired during a period of elevated asset prices in 2004-2007. Buyers, on the other hand, know that PE firms must sell eventually, and given mostobserversdon’tseeasharpreboundinassetpricesin the short term, are willing to hold out for advantageous deals. In the meantime, PE firms are focused on operationally improving their portfolio, making bolt-on acquisitions, and waiting for a potential market upswing.

The result, across all industries, is 7,500+ unsold companies carried at approximately $1.2 trillion (according to a recent Financial News study). Forty percent of portfolio companies acquired during the boom years are held below cost, and 75% below the hurdle rate eligible for performance fees (recent study by Bain & Co.). In any event, this stalemate can’t continue too much longer, with the likely outcome to be increased deal activity in the next few years, and potentially disappointing PE returns.

Exits by Year (1) Entry vs. Exit Deal Activity

75

$12,250 61 60 2009 $4,328 -21% ) (annualized) $23,748 45

36 $10,170

30 24 24

# of # of Transactions $20,057

2011 2010 $19,028 15 al Transaction Value ($MMValue al Transaction t To $7,138 0 Entry Investments $11,849 2009 2010 2011 1H 2012 2012 1H Exits/Sales Capital Markets Financial Strategic Top Exits Since 2009

Rank Private Equity Firm Portfolio Company Buyer Date Value $MM Exit Type(1) 1 Cerberus TD Auto Finance LLC TD Bank US Holding Company 4/1/2011 $6, 300 Strategic 2 H&F (partial), General Atlantic Emdeon Blackstone 11/2/2011 $3,429 Financial 3 Madison Dearborn TransUnion LLC Advent, Goldman Sachs 4/30/2012 $3,310 Financial 4 Centerbridge Partners Green Tree Servicing Walter Investment Management 7/1/2011 $2,244 Strategic CDP Capital, GCP Capital, H&F, New 5 Mountain, Stone Point, Vestar Paris Re Holdings Ltd. PartnerRe 12/7/2009 $1,975 Strategic 6 General Atlantic, Spectrum Equity, TCV RiskMetrics Group, Inc MSCI, Inc. 6/1/2010 $1,845 Strategic 7 JC Flowers & Co. BTG Pactual S.A. IPO 4/24/2012 $1,723 Capital Markets BAML Capital Partners, Diamond Castle, 8 Stone Point Alterra Max Capital Group 5/12/2010 $1,494 Strategic 9 H&F, JMI Vertafore, Inc. TPG 7/29/2010 $1, 400 Financial 10 Parthenon Capital AmWINS Group, Inc. New Mountain 6/7/2012 $1,300 Financial (1) Capital Markets: sale or partial sale of stake via equity capital markets (IPO or follow-on) Financial: sale or partial sale to another private equity firm Strategic: sale or partial sale to a strategic buyer

Source: Freeman & Co. Mid Year 2012 Issue Page 10 Credit Environment The credit markets have been volatile since the financial crisis and have had a significant impact on private equity, with $10+ billion mega LBOs largely disappearing and the prospects of obtaining $30 billion in leveraged loans and/or high yield bonds for a $40 billion public-to-private at this point seeming farfetched, whereas in 2006-2007 it was occurring quarterly. As uncommitted capital held by PE funds has grown steadily but deal activity has waned, an increasingly larger portion of equity has been deployed to finance acquisitions – not that PE firms have much choice in the matter as the large global banks that fueled the earlier PE boom have considerably pulled back their lending as they continue to repair their balance sheets and conform to Basel III’s guidelines. Alternati ve players have bgbegun toemerge, however – PE firms have bgbegun toraise dbtdebt fdfunds in hdhoards, bthboth to itinvest on the debt side of the capital structure alongside their equity investments, and also on a stand alone basis.

Hedge funds have also filled some of the lending void left Credit Spreads: US Govt. 10-Yr vs. IG Corp(1) by big banks. Lastly, smaller independent non-bank lenders have increased their presence (existing players that that 6.0 5.5 survived the crisis or start ups), many of which are backed 5.0 by private equity. 4.5 4.0 Recent credit and mezzanine funds include: 3.5 • Apollo European Credit, L.P., established in 2011, has 3.0 $5.3 billion in commitments 2.5 2.0 Spread % • Blackstone/GSO’s second $4 billion mezzanine fund, 1.5 which also transitioned to a prepure mezzanine struct ure 101.0 0.5 • Carlyle’s first energy mezzanine fund, which has raised 0.0 at least $500 million as of Q3 2012 Jul-11 Jul-06 Jul-07 Jul-08 Jul-09 Jul-10 Jul-12 Jan-11 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-12 • KKR Mezzanine Partners I, which raised over $1 billion (1) US Generic 10 Year Index yield versus BLP Active in 3Q 2011 Investment Grade US Corporate Bond Index YTM Global Debt Issuance Global Debt Issuance (Monthly Breakdown)

$6,000 $5,746 $600 $547 $4,922 $497 $5,000 $500 $4,408 $453 $4,059 $411 $4,000 $400 $374 $382 $355 $353 $3,411 $345$336 $3,314 $330 $320

$3,131 ($B) $310 ($B) $296 e e $3,000 $300 $265 $274 $2,327 $2,289 $214 $1,831 $2,000 Issuanc $200 $178 Issuanc

$1,000 $100

$0 $0 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 -11 -11 -11 -11 -11 -11 -11 -11 -12 -12 -12 -12 l-11 t-11 r-11 r-11 r-12 r-12 y v c b g p n n y b n n u c 1H a p J A O Ja Ju Ap Ja Ju Fe M Au Se No De Fe Ma Ma Ma Syndicated Loans HY Bonds CDOs Syndicated Loans HY Bonds CDOs

Date: Closing date of transaction LTM: 12 Months Ending June 30, 2012 Source: Bloomberg, Freeman & Co. / Thomson Reuters Page 11 Private Equity Focus General Private Equity Statistics Fees Paid on PE Deals Fundraising

$12, 000 $600 1H 2012 Annualized $526 $512 $10,000 $9,295 $500

$420 $8,000 $7,576 $400 $3,441 $6,560

$6,000 $2,950 $300 $283 ed ($B) ed es Paid es Paid ($MM) s e $2, 994 F $4,000 $3,631 $200 $181 $189 $2,262 $3,280 $159 $1,962 $1,534

$2,000 Rai Funds $1,257 $1,812 $100 $1,020 $1,089 $197 $1,107 $1,047 $452 $413 $244 $0 $0 2009 2010 2011 1H 2012 2006 2007 2008 2009 2010 2011 1H 2012 Buyouts Financing Exits Portfolio Company Activity PE Early/Seed Mezz/Distressed FoF Secondary PE Buyyyouts by Deal Size (1) Portfolio Comppyany Activit yyy by Deal T ype

700 600

600 496 530 540 500 500 431 400 400 378 336

ctions 300 sactions a 300 300 283 413 239 232 390 195 # of # of Tran 200 200 168

# of # of Trans 231

100 100 45 156 69 83 0 41 0 12 2006 2007 2008 2009 2010 2011 1H 2012 2009 2010 2011 1H 2012

<$100mm $100mm-$25 0mm $25 0mm-$00$500mm $00$500mm-$1bn $1bn+ Divestitures Acquisitions (1)Includes deals with disclosed deal value only FIG Buyouts as % of Total Buyouts FIG Investment Banking Fees as % of Total

20.0% Spike due 100% to bank 17.5% rescues 90% 17.5%

s 80% 15.0% 14.1% 70%

12.5% 60%

9.9% 50% 10.0% 9.1% 8.2% 40% 7.5% 6.9% 30% 5.6% % of Total Buyout Buyout Deal Value % of Total

5.0% FeeBankinglobal Investment 20%

FIG FIG 10% 2.5% 0%

0.0% % of TotalG 2007 2008 2009 2010 2011 1H 2012 2006 2007 2008 2009 2010 2011 1H 2012 FIG GIG TMT All other industries

Date: Closing date of transaction LTM: 12 Months Ending June 30, 2012 Source: Freeman & Co. / Thomson Reuters GIG: General Industrial Group TMT: Technology, Media & Telecom Recent Publications by Freeman & Co. Private Equity Focus AssetManagementReports • Another New Normal (September 2011) • The Roller Ride Coaster Continues (August 2012) • Show Me the Money (September 2010) • The Year that Wasn’t (December 2011) • Waiting for the Turn (September 2009) • Slowly but Surely Coming Back… (January 2011) • Where Have You Gone LBO? (September 2008) • Slogging through the Mud (September 2010) • TheStampedeRumblesOn(September 2007) • Putting the Pieces Back Together (April 2010) • Inaugural Issue: Buyouts Breakout (August 2006) • Humpty Dumpty Had a Big Fall (September 2009) • Can a Third Shoe Drop? (March 2009) Insurance • Harder Markets Ahead (June 2012) Financial Technology Focus • Where Do We Go From Here (January 2012) • Who is Buying (or Not Buying) What… (December 2011) • The Marriage of the Decade (July 2011) • Convergence: Servicing the Trader, PM and Back Office (April 2011) • Damned if You Don’t (January 2011) • Out of the Frying Pan and into Regulatory Reform (September 2010) • To Arms, To Arms: The Regulators are Coming! (July 2010) Securities Industry Reports Specialty Finance & Assets • Light Through the Trees (June 2012) • There are Still Riches in Niches (September 2012) • Post-Crisis: A Rapidly Changing Environment (October 2011) • The Spotlight is on Shadow Banking (May 2012) • Filling the Void in the Middle Market (January 2011) • Low Interest Rates – Issues and Opportunities (February 2012) • Securities Industry at Major Inflection Point (March 2009) • Special Education (March 2011) Select Freeman & Co. Private Equity Activity

$32,000,000 $400 million investment $50 Million investment in

by has raised $225,000,000 from NYSE Alternext: HNB led investor group has acquired has sold a minority interest to has received a $32,000,000 investment from an MatlinPatterson Global Opportunities Partners II, L.P. Investor Group

Fairness Opinion for Broadpoint’s Board of Directors Financial advisor to CRT Capital Group, LLC Financial advisor to Security Benefit Co‐manager for Herald National Bank Financial advisor to Leerink Swann & Company August 2010 July 2010 March 2010 2008 July 2007 Freeman & Co. Securities LLC Freeman & Co. Securities LLC Freeman & Co. Securities LLC Freeman & Co. Securities LLC Freeman & Co. Securities LLC

$5.5 billion AUM $24 billion AUM $1.7 billion AUM

have merged has been recapitalized and received a growth equity investment from its holding company

has sold a miiinority interest to and has completed an equity to form c recapitalization by c have been acquired by Undisclosed Financial Sponsor

Financial advisor to ESP Technologies, LLC Financial advisor to K2 Advisors LLC Financial advisor to Ceres Capital Partners Financial advisor to GTCR Financial advisor to Ursa Capital May 2007 April 2007 January 2007 October 2006 September 2006 Freeman & Co. Securities LLC Freeman & Co. Securities LLC Freeman & Co. Securities LLC Freeman & Co. Securities LLC Freeman & Co. Securities LLC

th Freeman & Co. LLC 645 Fifth Avenue 9 Floor Tel: +1 212 830 6161 “Independent Financial Services Advice” New York, NY 10022 Fax: +1 212 265 4998