Current German Legislation on Improving the Financing Environment for German Enterprises

3rd Norface Seminar on „Entrepreneurial Finance“ Berlin, May 21st, 2007

Univ.-Prof. Dr. Christoph Kaserer Anlass Lehrstuhl für Finanzmanagement und Kapitalmärkte & Center for Entrepreneurial and Financial Studies (CEFS) TechnischeOrt, Datum Universität München

Technische Universität München Largest PE Firms worldwide by capital under management (2006)

CapitalVerwaltetes under No.Nr. Name Name Location Hauptsitz managementKapital in Mio. inUS-$ US$ mm 1 Carlyle Group, The Washington, DC 45.800 2 Goldman, Sachs & Co. New York, NY 42.577 3 Blackstone Group, L.P. New York, NY 41.363 4 Kohlberg, Kravis, Roberts & Co. (AKA: KKR) New York, NY 36.567 5 Texas Pacific Group Fort Worth, TX 26.178 6 , LLC New York, NY 23.010 7 Permira Advisers Limited (FKA: Schroder Ventures Europe) , UK 22.352 8 HarbourVest Partners LLC Boston, MA 22.196 9 Boston, MA 22.069 10 Partners, Inc. (FKA: Providence Ventures) Providence, RI 20.639 11 Apax Partners Worldwide London, UK 20.206 12 Oaktree Capital Management, LLC Los Angeles, CA 17.808 13 Apollo Management (FKA: Apollo Advisors L.P.) Purchase, NY 17.500 Klicken14 3i Group Sie, PLC um das Titelformat zu bearbeiten London, UK 17.374 15 Cinven, Ltd. London, UK 17.308 16 CVC Capital Partners London, UK 15.954 17 DLJ Merchant Banking Partners New York, NY 15.400 18 Welsh, Carson, Anderson & Stowe New York, NY 12.844 19 EQT Partners AB Stockholm, Sweden 12.719 20 PAI Partners (FKA: PAI Management) Paris, France 12.474

2 Largest European PE Firms by capital under management (2006)

CapitalVerwaltetes under No.Nr. Name Name Location Hauptsitz managementKapital in Mio. inUS-$ US$ mm 1 Permira Advisers Limited (FKA: Schroder Ventures Europe) London, UK 22.352 2 Cinven, Ltd. London, UK 17.308 3 3i Group PLC London, UK 16.892 4 Apax Partners Worldwide London, UK 16.114 5 CVC Capital Partners London, UK 15.954 6 EQT Partners AB Stockholm, Sweden 12.719 7 PAI Partners (FKA: PAI Management) Paris, France 12.474 8 BC Partners London, UK 11.945 9 Bridgepoint Capital, Ltd. (FKA: NWEP & NatWest Ventures Ltd) London, UK 9.830 10 Candover Investments PLC London, UK 7.982 11 Terra Firma Capital Partners, Ltd. London, UK 6.269 12 Carlyle Group, The Washington, DC 6.249 13 Doughty Hanson & Co, Ltd. London, UK 6.203 14 Partners Group Baar-Zug, Switzerland 5.811 Klicken15 ATP Sie,Private Equityum Partnedasrs Titelformat zu bearbeiten Copenhagen, Denmark 5.478 16 Nordic Capital (AKA: NC Advisory) Stockholm, Sweden 5.118 17 Charterhouse Capital Partners LLP London, UK 5.052 18 AXA Paris, France 4.984 19 Montagu Private Equity, Ltd. (FKA: HSBC Private Equity Ltd.) London, UK 4.921 20 Coller Capital London, UK 4.866

3 Largest VC Firms worldwide by capital under management (2006)

CapitalVerwaltetes under Nr.No. Name Name Location Hauptsitz managementKapital in in US$Mrd. bnEuro 1 Washington, USA 36,85 2 CSFB Private Equity London, UK 24,13 3 Warburg Pincus New York, USA 22,46 4 Panorama Capital Menlo Park, USA 19,97 5 Bain Capital Boston, USA 18,80 6 Apax Partners London, UK 16,64 7 J. & W. Seligman New York, USA 14,97 8 3i Group London, UK 11,75 9 Permira London, UK 11,00 10 Adams Street Partners Chicago, USA 10,57 11 General Atlantic Greenwich, USA 8,32 12 Investcorp New York, USA 8,32 13 TA Associates Boston, USA 8,32 Klicken14 New Sie, Enterprise um Associatesdas Titelformat zu bearbeiten Baltimore, USA 7,07 15 AXA Private Equity Paris, Frankreich 7,00 16 Oak Investment Partners Westport, USA 6,99 17 AIG Capital Partners New York, USA 6,69 18 J.H. Whitney & Co. Stamford, USA 6,11 19 OrbiMed Advisors New York, USA 5,24 20 Advent International Boston, USA 4,99

4 Largest European VC Firms by capital under management (2006)

CapitalVerwaltetes under Nr.No. Name NameLocation Hauptsitz managementKapital in in US$Mrd. bn Euro 1 CSFB Private Equity London, UK 24,13 2 AlpInvest Partners Amsterdam, Niederlande 20,00 3 Apax Partners London, UK 16,64 4 3i Group London, UK 11,75 5 Permira London, UK 11,00 6 AXA Investment Managers Private Equity Paris, Frankreich 7,00 7 UBS Capital London, UK 4,58 8 Montagu Private Equity London, UK 3,20 9 HgCapital London, UK 3,11 10 CapMan Group Helsinki, Finland 2,20 11 WestLB Equity Investments Düsseldorf, Deutschland 1,70 12 Baring Private Equity Partners London, UK 1,66 13 Credit Agricole Private Equity Paris, Frankreich 1,53 Klicken14 Sie, Gilde umInvestment das Management Titelformat zu bearbeiten Utrecht, Niederlande 1,50 15 Royal Bank of Scotland, Equity Finance Group Edinburgh, UK 1,47 16 AGF Private Equity Paris, Frankreich 1,30 17 Société Générale Asset Management Paris, Frankreich 1,20 18 TVM Capital München, Deutschland 1,16 19 GIMV Antwerpen, Belgien 1,15 20 Palamon Capital Partners London, UK 1,11

5 Private Equity Investment in Europe

CountrySitzland ofdes management Managements PrivatePrivate-Equity-Investitionen Equity investment 2005 2005 CountryZielland ofdes destination Kapitals Volume:Volumen: EUR EUR 47bn 47 Mrd. 4,1% 2,2% 14,4% GroßbritannienUnited Kingdom 4,7% 25,2% 5,0% FrankreichFrance 5,4% 5,7% SchwedenSweden DeutschlandGermany 6,1% 5,7% 50,7% SpanienSpain NiederlandeNetherlands 6,4% 6,4% ItalienItaly 16,3% DänemarkDenmark 9,1% 15,5% Klicken Sie, um das TitelformatÜbrigeother zu bearbeiten 11,8% 5,2%

Source: EVCA (2006) 6 Private Equity Fundraising in Europe

SitzlandCountry des of management Managements PrivatePE-Fundraising Equity fundraising 2005 2005 HerkunftslandCountry des of origin Kapitals Volumen:Volume: EUR EUR 71,8 71,8bn Mrd. 3,4% 4,6% 4,0% GroßbritannienUnited Kingdom 5,4% 5,6% USAUSA 28,9% 16,0% Sonstigesother Europe Europa 6,2% FrankreichFrance DeutschlandGermany 9,1% AsienAsia 13,0% 63,6% NiederlandeNetherlands Klicken Sie, um das TitelformatÜbrigeother zu bearbeiten 16,4% 23,7%

Source: EVCA (2006) 7 Private Equity Investment in Europe

VolkswirtschaftlicheEconomic Significance Bedeutung of vonPrivate Private Equity Equity 3,0% 8 Investitionen(Sitzland)/BIPInvestment(Mgmt)/GDP Investitionen(Zielland)/BIPInvestment(Dest.)/GDP Portfolio/Marktkap.Portfolio/Market Cap. PE-UmfeldPE Environ.(right (rechte Skala) scale) 2,5% 6

2,0% 4

1,5% 2

1,0% 0

0,5% -2 Klicken Sie, um das Titelformat zu bearbeiten 0,0% -4 k m h in n al z d n en en er) ic ena ne e ien nd ei e and tria ni d d e ni o tugal Italy a land an l s n r Sp rtugr tal nl wr hl Irland lgiumPolen EU 15Francek rozo zone o I n h c Irelandelgi Po Au Sweden Län Spa ur orwegNorwayP Finland ts BeB Greece rita Denmar 5 Po Fi Sc SchweDänemarkiederlande Fran EuE N Germany Österreich N SwitzeDeu troßbed Kingdo NetherlandsU (1 Griechenland G E Uni

Source: EVCA (2006), Eurostat 8 Equity Ratios in Europe

50

40

30 Small companies Mid-size 20 companies

10

0 Klicken Sie, um das Titelformat zu bearbeiten in d n n k k d iena ar lan de alienItaly lan n gium reich rtugaltugal e It panSp l k rlande o r w em S Finland Belgie France n Fin Be ran PPo chSweden F iede S DäDenmar utschGermany N Netherlands De

Source: BACH-Datenbank, Eurostat

9 Equity Ratios in Germany

1996 1997 1998 1999 2000 2001 2002 2003 Deutsche Bundesbank KleineSmall Unternehmen 4,1 3,0 8,4 8,1 4,3 4,2 5,8 MittlereMid-size Unternehmen 15,9 16,4 19,3 19,7 20,1 20,8 22,7 GroßeLarge Unternehmen 26,1 26,4 27,2 27,0 26,7 27,4 28,5 AlleAll companies Unternehmen 16,2 17,5 18,4 18,6 19,5 21,0 21,9

KfW-Bilanzdatenbank KleineSmall Unternehmen 14,1 13,9 15,4 MittlereMid-size Unternehmen 14,9 16,0 18,1 GrößereLarge Unternehmen 25,5 25,4 26,3 AlleAll companies Unternehmen 15,0 15,3 17,1

Klicken Sie, um das Titelformat zu bearbeiten

10 Importance of Geographical Distance (Martin et al. 2005)

WichtigkeitImportance der of geografischenclose distance Nähe for für Venture-Capital-GeberVenture Capital firms (Duchschnittswert) (mean)

PortfolioBeteiligungs- company unternehmen

KapitalgeberInvestors des Venture-Capital-Gebers

OtherAndere VC Venture- firms Capital-Geber

OtherAndere external Finanzgeber sources des of capitalBeteiligungsunternehmens for portfolio company

ResearchForschungsinstitute institutes

Klicken Sie, umLarge das urban TitelformatGrößerer area zu bearbeiten Ballungsraum

123456 Sehr Highlywichtig important Unimportant unwichtig DeutschlandGermany (N=107) (n=107) GroßbritannienUnited Kingdom (n=60) (N=60)

11 Employment Effects after Transactions

2,4%

BuyoutBuyout in in Familienunternehmen family firms 7,1%

SecondarySecondary Buyout Buyout 3,4%

Going-Private-BuyoutGoing private buyout 2,8%

Spin-off-BuyoutSpin off buyout 1,6%

KlickenTurnaroundTurnaround Sie, Buyout buyout um das-3,8% Titelformat zu bearbeiten

All buyout target companies

Source: CEFS (2005) 12 Median Return (IRR) and Risk of Private Equity Investments

25

20

15 All funds VC Buyout 10 Benchmark Return in % in Return

5

Klicken0 Sie, um das Titelformat zu bearbeiten 0 102030405060 Standard deviation in %

Source: CEFS (2005) 13 Median Return (PME) of Private Equity Investments

PME mean 2 Kaplan/Schoar 2005

Kaplan/Schoar 2005 value-weighted

1,5 Kaserer/Diller 2004 Sample Liq.

Kaserer/Diller 2004 Sample I

1 Kaserer/Diller 2004 Sample II

Kaserer/Diller 2004 Sample Liq. Value-w.

Kaserer/Diller 2004 Sample I value-w. 0,5 Kaserer/Diller 2004 Sample II value-w.

Phalippou/Zollo 2005 0 KlickenAll Sie, funds um das Titelformat VC zu BuyoutbearbeitenPhalippou/Zollo 2005 value-w.

-0,5

Source : CEFS (2005) 14 Valuation and Financial Structure in European LBOs

10

8

6

4

2

0

Klicken-2 1Q98 Sie,3Q98 1Q99 um 3Q99 das1Q00 Titelformat3Q00 1Q01 3Q01 zu1Q02 bearbeiten3Q02 1Q03 3Q03 1Q04 3Q04 1Q05 3Q05 1Q06 3Q06

Purchase Price Multiple Debt Multiple EU 25 GDP Growth in % Euro 10yr rate in % Leverage

Source: Standard&Poors (2006), Thomson Financial, Eurostat, CEFS 15 Valuation and Financial Structure in German LBOs

10

9 Purchase Price Multiple Europe 8 Purchase Price Mult. Germany 7 6 Debt Multiple Europe 5 Debt Multiple Germany 4 3 Leverage Germany 2 Leverage Europe 1 0 Klicken Sie,2001 um das2002 Titelformat2003 2004 zu2005 bearbeiten2006 (5) (6) (9) (18) (13) (12)

Source: Standard&Poors (2006), Thomson Financial, Eurostat, CEFS 16 Valuation and Financial Structure in European LBOs

50 P/E Frankfurt (left scale) 5 45 P/E London (left scale) 4,5 40 Equity Multiple (right scale) 4 35 3,5 30 3 25 2,5 20 2 15 1,5 10 1 5 0,5 0 0 Klicken Sie, um das Titelformat zu bearbeiten 1Q98 3Q98 1Q99 3Q99 1Q00 3Q00 1Q01 3Q01 1Q02 3Q02 1Q03 3Q03 1Q04 3Q04 1Q05 3Q05 1Q06 3Q06

Source: Standard&Poors (2006), Thomson Financial, Eurostat, CEFS 17 Taxation of

Land Taxation of Carried Interest Relevant tax rate France • Capital gains tax • 27 % Italy • Capital gains tax under certain conditions • 12,5 % (Fondo Chiuso) Luxembourg • Structure of Carried Interest rules tending • max. 39,33% towards capital gains and/or dividends. No taxation of capital gains, if shares are held longer than 6 months and do not represent a substantial amount (10%). Otherwise taxation as ordinary income

Netherlands • Taxation as ordinary income • max. 52 % Spain • Capital gains tax • 18 % Switzerland • Taxation as ordinary income • Tax rate dependent on region (Kanton) Klicken Sie, um das Titelformat zu bearbeiten(Maximum tax rate between about 24 % and 42 %) United • Taxation as ordinary income • 25% of capitals gains subject to income tax with Kingdom holding period of at least 2 years • (Maximum tax 40%), therefore Carried Interest is taxed at max. 10% with at least 2 years holding period (Source: EVCA (2006a))

18 VAT on Management Fees

Country VAT on management fees Germany • Yes. Exception § 4 Nr. 8 h UStG not applicable to Private Equity Funds. (GmbH & Co. KG) • Preliminary distribution of profits to managing shareholders is qualified as special compensation, if this payment results in a lower net income

United Kingdom • No VAT on additional share of profit of the general partner (EVCA 2006c). () Luxembourg • No VAT, Art. 38 of SICAR-Law in conjunction with Art. 44, § 1 d) of the Luxembourg (SICAR) VAT Law. France • No VAT, Art. 261 C 1°f) Code Général des Impots. (FCPR) Italy • No VAT (EVCA 2006c). (SGR) NetherlandsKlicken Sie, um• No VATdas (EVCA Titelformat 2006c). zu bearbeiten Switzerland • No VAT, Appendix to Art. 153 KAG i.c.w. Art. 18 Ziff. 19 f) of the Swiss VAT Law of 2 (KAG) Sep 1999.

Spain • No VAT, SGECR (Art. 20.1.18 (n)) of Spanish VAT Law. (Source: Local company and tax law, EVCA (2006c))

19 Recommendations for Taxation

9 Guaranteed tax transparency for Private Equity Funds. These funds may be structured in different legal forms as corporations or partnership.

9 Exemption from taxation for all services rendered between the fund as separate assets and its management companies, which will be comparable to EU-regulated OGAW / UCITS

9 Continuation of tax rules regarding Carried Interest with an internationally competitive tax rate

9 Amendment to § 8 Abs. 4 KStG (resp. § 8c KStG-E) to allow loss carry Klickenforward. Sie, um das Titelformat zu bearbeiten 9 Tax exemption for capital gains resulting from Seed- or Start-up-financing for a closely defined group of young technology companies and for specified holding periods

20 Recommendations for Company Law

9 Amendment and revision of UBGG

9 Minimum capital requirement of EUR 1 million.

9 Object of the company: Direct or indirect equity investments (including fund-of- funds) and

9 Restriction of each single investment to 30% of the fund’s assets (but not applying to the first three years from the funds’s )

9 Permit investments in listed companies, if at least 5% (2%) of nominal capital is acquired

9 Holding period restriction for investments (e.g. 12 years) Klicken Sie, um das Titelformat zu bearbeiten 9 After 5 years no single shareholder should own more than 40% of the fund

21 Recommendations for Sector Supervision

9 Registration (certification) of Private Equity Funds combined with

9 Registration of fund managers

9 Implementation of (voluntary) commitment of funds and fund managers to industry-wide common rules of conduct and continuing education

9 Supervision by central supervisory authority

9 Fund shares may be marketed to qualified investors only (e.g. minimum investment EUR 125k; EUR 10k in the case of fund-of-funds)

9 Revision of rules regarding a ’s ability to invest in alternative Klickenassets Sie, um das Titelformat zu bearbeiten

22 Technische Universität München

Center for Entrepreneurial and Financial Studies TU München | Arcisstrasse 21 | 80333 München Tel: +49 89 289 25483 Web: www.cefs.de www.ifm.wi.tum.de Email: [email protected]

Univ.-Prof. Dr. Christoph Kaserer Tel: +49 89 289 25489 Email: [email protected]

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