EUROPEAN UPDATE INDUSTRY UPDATE │ SUMMER 2015 www.harriswilliams.com www.harriswilliams.de Harris Williams & Co. Ltd is a private limited company incorporated under English law having its registered office at 5th Floor, 6 St. Andrew Street, London EC4A 3AE, UK, registered with the Registrar of Companies for England and Wales under company number 7078852. Directors: Mr. Christopher Williams, Mr. Ned Valentine, Mr. Paul Poggi and Mr. Thierry Monjauze, authorised and regulated by the Financial Conduct Authority. Harris Williams & Co. Ltd Niederlassung Frankfurt (German branch) is registered in the Commercial Register (Handelsregister) of the Local Court (Amtsgericht) of Frankfurt am Main, Germany, under registration number HRB 96687, having its business address at Bockenheimer Landstrasse 33-35, 60325 Frankfurt am Main, Germany. Permanent Representative (Ständiger Vertreter) of the Branch Niederlassung: Mr. Jeffery H. Perkins. EUROPEAN UPDATE INDUSTRY UPDATE │ SUMMER 2015 HARRIS WILLIAMS & CO. CONTACTS CONTENTS Thierry Monjauze Managing Director QUARTERLY QUICK READ 63 Brook Street London W1K 4HS United Kingdom EUROPEAN ECONOMIC CLIMATE Phone: +44 20 7518 8901 [email protected] EUROPEAN M&A ENVIRONMENT Red Norrie Managing Director EUROPEAN INBOUND M&A ENVIRONMENT 63 Brook Street London W1K 4HS United Kingdom AEROSPACE, DEFENCE & GOVERNMENT SERVICES Phone: +44 20 7518 8906 [email protected] BUSINESS SERVICES Jeffery Perkins Managing Director CONSUMER Bockenheimer Landstr. 33-35 60325 Frankfurt Germany ENERGY & POWER Phone: +49 69 3550638 00 [email protected] HEALTHCARE & LIFE SCIENCES LONDON OFFICE 63 Brook Street INDUSTRIALS London W1K 4HS United Kingdom Phone: +44 20 7518 8900 TECHNOLOGY, MEDIA & TELECOM FRANKFURT OFFICE Bockenheimer Landstrasse TRANSPORTATION & LOGISTICS 33-35 60325 Frankfurt am Main Germany FEATURED THEME Phone: +49 69 3650638 00 FEATURED THEME – MOMENTUM IN ACQUISITIONS BY STRATEGIC BUYERS1 . Q2 2015 saw an accelerated growth in European acquisitions by strategic buyers, with a total of 965 deals in Q2 2015, up 15% on Q1 2015 and 14% on Q2 2014 . HW&Co. experienced a strong first half of 2015 with 14 acquisitions by strategic buyers 90% 89% Q2 2013 – Q2 2015 average: 87% a portfolio company of a portfolio company of 88% has been acquired by 87% has been acquired by has been acquired by 86% 85% 84% 83% a portfolio company of a portfolio company of a portfolio company of % Strategicof Investors 82% has sold its 81% aerospace assets to has been acquired by has been acquired by 80% Q2 2013 Q4 2013 Q2 2014 Q4 2014 Q2 2015 Source: S&P Capital IQ www.harriswilliams.com 1. Includes closed M&A transactions of majority stakes only, where deal value was undisclosed or between €25m – www.harriswilliams.de €650m, within the United Kingdom, Eire, France, DACH (Germany, Austria, Switzerland), Spain, Italy, Benelux (Belgium, the Netherlands, Luxembourg) and Scandinavia (Denmark, Norway, Sweden and Finland PAGE | 1 EUROPEAN UPDATE INDUSTRY UPDATE │ SUMMER 2015 QUARTERLY QUICK READ MANUFACTURING CONSUMER GDP2 CONSUMER PRICES3 CONFIDENCE3 CONFIDENCE3 EUROPEAN ECONOMIC +1.8% +0.6% -1.9 pts +0.6% ENVIRONMENT1 BUSINESS ENERGY & HEALTHCARE & ADG4 CONSUMER INDUSTRIALS5 TMT6 T&L7 SERVICES POWER LIFE SCIENCES Last Quarter (3.7%) (0.7%) (0.3%) (2.5%) (0.4%) 0.0% (1.2%) 0.1% EUROPEAN EQUITY Last Year 4.0% (1.1%) 3.6% (0.2%) (30.5%) 15.2% 7.9% 10.4% 8 MARKET Last 3 Years 45.6% 50.1% 41.6% 54.1% (29.3%) 0.0% 63.2% 68.8% EUROPEAN M&A DEAL VOLUME (61.5%) 55.7% (0.9%) (16.0%) 0.0% 37.6% (2.1%) 56.7% ACTIVITY9 INBOUND M&A DEAL VOLUME (80.0%) 5.6% 47.6% 0.0% (6.6%) 144.4% (7.8%) 0.0% TO EUROPE9 Sources: Eurostat, Bloomberg, Markit Economics, S&P Capital IQ . European middle market M&A activity increased by 11.9% in Q2 15, compared to Q2 14 with overall M&A transaction volumes up 12.5% Y-o-Y ENVIRONMENT . Healthcare, TMT and ADG attracted the highest relative level of international inbound M&A investment, at 22%, 21% and 20% of completed transactions in the quarter, respectively . The European Commission has approved €329m to co-fund air traffic management (ATM) projects in Europe, expected to support a total of €650m in public and private investment in ATM modernisation ADG . Shimtech Industries, the manufacturer of specialist gap management components for commercial and military aircraft, was acquired by Inflexion and Auctus Industries for $220m (€197m) . According to the Markit Index, Business Services growth reached a four year high in the second quarter, BUSINESS with growth accelerating in Germany, Italy and France SERVICES . The UK Business Services sector continued its trend of strong growth, rising sharply in June following the UK recent election results . Dutch grocery chain, Royal Ahold, and Belgian grocery chain, Delhaize, have agreed to a merger valuing CONSUMER the combined company at approximately €26bn (expected to close mid-2016) . In the UK, retail sales volume in May 2015 increased by 4.6% compared prior year, the 26th consecutive month of Y-o-Y growth. Global sales for the 3 months to May 2015 were up 2.1% from prior year . Norway has overtaken Russia as Western Europe’s top natural gas supplier. After recent political tension over the Crimea region, the EU has increased its efforts to become less dependent on Russian gas imports ENERGY & POWER . The heads of Europe’s six largest energy companies have signed an open letter on climate change, urging governments to take decisive action at December’s UN summit to encourage the installment of natural gas and carbon pricing systems . A £10 billion ‘megafund’ has been proposed by the Mayor of London, which would be used to increase HEALTHCARE & investment in the sector as financing for UK life science companies reached its highest level in ten years LIFE SCIENCES . Cinven has agreed to acquire Synlab, the second largest laboratory operator in Europe, from BC Partners for c.€1.8bn . Economic indicators posted mixed results in June with positive signs from the composite PMI, while the economic sentiment indicator in the Euro area decreased in the EU by 0.9 points to 105.5 INDUSTRIALS . US agrochemicals firm, Monsanto, announced plans to acquire Swiss rival, Syngenta, which would provide the Company with combined turnover of €28 billion and 40% of global corn-seed market share . Charter Communications has made an offer to acquire Time Warner Cable, the US-based media and entertainment company, valuing the business at c.$77.8bn TMT . According to IDC, the worldwide Internet of Things market will grow from $656bn in 2014 to $1.7tn by 2020, representing a CAGR of 17.2% . During Q2 15, two major transactions by US corporates caused a significant market shift in the European T&L TRANSPORT & market with FedEX acquiring TNT Express and XPO Logistics acquiring Norbert Dentressangle LOGISTICS . Q2 15 has seen increased M&A activity in the air transportation market with Aer Lingus being acquired by IAG and the Portuguese government selling 61% of TAP Portugal to a group of private investors Source: S&P Capital IQ For the purposes of this Quarterly Update, Europe is defined as: United Kingdom, Eire, France, DACH (Germany, Austria, Switzerland), Spain, Italy, Benelux (Belgium, The Netherlands, Luxembourg) and Scandinavia (Denmark, Norway, Sweden and Finland); Evolution calculation based on the quarter finishing 30 June, 2015; 1. For the countries based in the EU28; 2. Year-on- year GDP growth for Q1 2015; 3. PMI, CCI and CPI quarterly growth shown for March 2015 to June 2015; 4. Aerospace, Defence & Government Services; 5. Also includes Building Products and Paper & Packaging; 6. Telecom, Media & Technology; 7. Transportation & Logistics; Also includes Speciality Distribution; 8. For all listed companies based in the countries mentioned above and with a market cap greater than €50m; 9. Change from Q1 2015 to Q2 2015 PAGE | 2 EUROPEAN UPDATE INDUSTRY UPDATE │ SUMMER 2015 EUROPEAN ECONOMIC CLIMATE . Growth in Europe is strengthening with the eurozone’s GDP increasing for the sixth quarter having grown by 1.4% Y-o-Y in Q2 2015 . Eurozone countries have reached an agreement to discuss a third bailout of Greece worth up to €86bn . Euro area’s monthly inflation rate was 0.2% as of June 30, 2015 compared with 0.5% in June 2014 . In March, the European Central Bank began a €1.1 trillion bond buying program to stimulate the eurozone’s economy . The euro area seasonally-adjusted unemployment rate was 11.1% in May 2015, down from 11.2% in April 2015, and from 11.6% in May 2014. This is the lowest rate recorded in the euro area since April 2012 . Business activity in the eurozone rose at its fastest pace in four years in June, boosted by higher spending by consumers and businesses QUARTERLY REAL GDP GROWTH (% Y-O-Y FOR EU-28)1 % Y-O-Y Growth 4% Key Countries Q1 15A Q1 16E UK 2.9% 2.5% 2% Germany 1.0% 2.1% France 0.8% 1.1% Italy 0.1% 1.0% 0% Netherlands 1.5% 2.0% Spain 2.7% 3.0% (2%) Sweden 2.6% 1.7% Q1-10 Q3-10 Q1-11 Q3-11 Q1-12 Q3-12 Q1-13 Q3-13 Q1-14 Q3-14 Q1-15 Q3-15E Q1-16E Q3-16E Q1-17E . Industrial Production in the euro area decreased 0.8% in April 2015 compared to the same month in the previous year . The retail sales index increased by 2.4% in the euro area and by 3.0 % in the EU28 in May 2015 compared with May 2014 . After a continuous decrease of the long-term interest rate of the euro area from December 2013 to April 2015, long-term rate has increased over the last two months to reach 1.7% in June 2015 .