January 2007 Financial Advisory Central European Private Equity Confidence Survey Central European - Private Equity Confidence Survey These materials and the information contained herein are provided by Deloitte Advisory s.r.o. and are intended to provide general information on a particular subject or subjects and are not an exhaustive treatment of such subject(s). Accordingly, the information in these materials is not intended to constitute accounting, tax, legal, investment, consulting, or other professional advice or services. The information is not intended to be relied upon as the sole basis for any decision which may affect you or your business. Before making any decision or taking any action that might affect your personal finances or business, you should consult a qualified professional adviser. 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Deloitte Advisory s.r.o. will not be liable for any special, indirect, incidental, consequential, or punitive damages or any other damages whatsoever, whether in an action of contract, statute, tort (including, without limitation, negli- gence), or otherwise, relating to the use of these materials or the information contained therein. 2 Central European - Private Equity Confidence Survey Introduction Welcome to the latest Deloitte Central Europe Private Equity Confidence Survey. In the past 6 months funds have cashed in on higher exit multiples. We now expect that to turn to more of a buying focus. This is confirmed by the findings of our survey as the focus on new investments is reaching its all time high. We are already seeing evidence of this with recent work Deloitte has done for and is currently discussing with private equity. We expect interest in Central European private equity to continue to grow strongly and we are gearing up our Mergers & Acquisitions Transaction Services team to become the advisor of choice to private equity in Central Europe. 2006 was a great year for Private Equity in Central Europe. I hope you all had a good rest over Christmas and have an even more successful 2007! Garret Byrne Partner M&A Transaction Services Leader Deloitte Central Europe January 2007 Central European - Private Equity Confidence Survey Overview Results Key findings Economic climate n Buying at low multiples and selling higher is no longer enough – adding value is now a necessary element Short-term expectations by private equity professionals confirm medium and long-term forecasts for improving economic n Continuing optimism regarding economic performance activity in Central Europe. Countries of the reviewed region should outperform old EU member states. n Previous focus on new investments only strengthened For this period, I expect the overall economic climate to: n Significant buying dominates investors’ activities 80 74% 80 69% 70% 69% 70 Taking public companies private 64% 70 60 56% 53% 53% 60 50 47% The Central European market is maturing - something which 44% 50 can be further seen in the increase in number of management 40 37% 36% 31% 40 30 26% 26% buyouts and the introduction of taking-public companies 30 private. 20 13% 13% 20 10% 10 4% 4% 0% 0% 0% 0% 10 BorsodChem (Hungarian-listed polymer producer) is currently 0 Mar. Sep. Mar. Sep. Mar. Sep. Mar. Oct. 0 being taken private by Permira. Press reports from November 2003 2003 2004 2004 2005 2005 2006 2006 2006 valued BorsodChem equity at EUR 847m and enterprise value at 1,056m. In Poland, Oaktree Capital Management 80 80 launched a successful offer to increase its stake in Polmos 70 Improve Remain the same Decline 100 70 Lublin SA, the distillery company, and are now delisting it. The 60 60 80 deal valued equity of Polmos at EUR 47m. Deloitte supported 8050 70 both these transactions. Investors’ focus 50 40 40 60 6030 Debt finance After successful fundraising and many exits in 2006, the focus 30 50 20 is now40 on new investments. 20 40 10 The leverage available for private equity deals has advanced 10 30 0 rapidly in the last three years and offerings are now close to 20 0 20 For this period, I expect to spend the majority of my time those in more mature markets with keen competition for larger 10 focusing0 on: deals. 0 For this period, I expect the availability of debt finance to: 100 88% 80 80% 86% 77% 8080 74% 8070 69% 80 70 60 80 70 60 53% 70 60 50% 50 70 67% 67% 60 62% 60 60% 61% 50 5040 60 40 30% 31% 52% 50% 24% 30 50 47% 48% 40 22% 19% 40 50 46% 17% 12% 17% 42% 20 12% 40 40% 39% 30 8% 3020 40 38% 7% 4% 6% 7%7% 33% 33% 0% 30 20 2010 30 0 Mar. Sep. Mar. Sep. Mar. Sep. Mar. Oct. 0 20 10 10 20 2003 2003 2004 2004 2005 2005 2006 2006 10 11% 0 0 10 4% 0 0% 0% 0% 0% 0% 0% 0 Raising New Funds Portfolio Management New Investments 80 Mar. Sep. Mar. Sep. Mar. Sep. Mar. Oct. 80 80 2003 2003 2004 2004 2005 2005 2006 2006 70 70 70 80 60 60 60 70 Increase Remain the same Decrease 50 50 50 100 60 40 40 80 40 50 30 30 80 70 30 40 20 20 60 20 30 60 10 10 50 10 0 0 20 40 40 0 10 30 80 0 20 20 70 10 80 0 60 0 70 50 80 60 40 70 50 30 40 80 60 80 20 30 50 70 70 10 20 60 60 040 10 50 50 30 0 40 40 20 30 30 10 0 20 20 80 10 10 0 0 70 60 50 80 40 70 80 30 60 70 20 50 60 10 40 50 0 30 40 20 30 10 20 0 10 0 80 70 60 50 40 30 20 10 0 80 80 70 70 60 60 50 50 40 40 30 30 20 20 10 10 0 0 Central European - Private Equity Confidence Survey 100 80 80 70 60 60 80 50 80 70 70 40 40 60 30 60 Size of transactions Investments50 efficiency 20 20 50 40 40 10 0 30 Expectations regarding the size of transactions are more 30 0 For20 this period, I expect the efficiency of my financial balanced as the year saw several big deals in 2006 - as was 20 80 investments10 to: stated80 in our summer survey. 10 70 0 70 0 60 80 80 77% Entries:60 69% 50 � BorsodChem70 Rt. EUR 1,065m 70 68% 67% 50 63% 61% 40 � Radiokomunikace,60 a.s. EUR 1,190m 60 57% 40 53% 30 50 100 30 50 41% 80 20 Exits: 40 40 20 33% 33% � 8031% 30% 28% 31% 70 10 Karneval30 EUR 323m 10 30 � 80 23% 60 0 Kablo Elektro EUR 112m 80 0 20 2060 16% 70 50 70 10 10 7% 6% 4% 40 For60 this period, I expect the average size of transactions to: 40 2% 0% 0% 0% 0 60 0 50 30 50 Mar. Sep. Mar. Sep. Mar. Sep. Mar. Oct. 20 2003 2003 2004 2004 2005 2005 2006 2006 20 40 100 40 80 10 80 0 30 72% 70 30 Improve Remain the same Decline 0 80 70 68% 80 20 6057% 20 60 56% 56% 70 10 52% 53% 60 50 50% 10 50 44% 60 0 40% 38% 40% 40 37% 36% 0Investors’80 activities 80 40 40 50 30 28% 70 30 70 21% 40 20 20 Due60 to success in raising new funds in 2006 and as new funds60 20 30 11% 11% 12% 10 8% enter50 Central Europe, the region should experience strong 10 7% 50 0 20 3% 0% 0% activity40 in private equity. Expectations are clearly indicating 1000 0 40 80a focus10 on buying new investments. Mar. Sep. Mar. Sep. Mar. Sep. Mar. Oct. 30 30 0 80 2003 2003 2004 2004 2005 2005 2006 2006 70 20 20 60 10 10 80 80 60 For this period, I expect to: Increase Remain the same Decrease 50 0 0 70 70 40 80 40 60 60 80% 80 70 30 50 50 68% Market20 activity 70 67% 60 20 62% 80 40 40 60 54% 50 10 52% 70 30 30 50% 0 50 40 0 42% 44% 60 20 20 38% For this period, I expect the overall market activity to: 40 32% 32% 50 10 10 30 26% 30 25% 22% 23%23% 40 0 0 20 20 13% 13% 10 10% 11% 30 80 74% 80 10 6% 7% 20 80 0 0% 70 70 0 62% Mar. Sep. Mar. Sep. Mar. Sep. Mar. Oct. 10 70 60 56% 56% 80 53% 56% 52% 60 2003 2003 2004 2004 2005 2005 2006 2006 0 60 7050 48% 47% 47% 44% 44% 44% 50 50 38% 6040 40 40 31% Buy more Buy and sell equally Sell more 5030 26% 30 30 80 40 20 16% 20 20 70 30 10 6% 10 10 60 20 0% 0% 0% 0% 0% 0% 0 0 0 50 10 Mar.