citigroup lbo

Everything You Always Wanted To Know About LBOs

Investment Banking

November 09, 2006

Table of Contents

Career at Citigroup5.

The Analyst’s Role in a Leveraged Buyout4.

Leveraged Buyouts in Practice3.

Concept of Leveraged Buyouts2.

Citigroup at a Glance1.

1. Citigroup at a Glance

45.4

47.147.5

51.1

54.858.1

60.8

61.663.5

63.7

68.573.2

76.4

79.784.9

87.9

88.096.2

103.7

106.6129.5

171.1

191.9194.9

0 50 100 150 200 250

Fannie Mae

Lloyds TSB

U.S. Bancorp

Deutsche Bank

American Express

Credit Suisse

Merrill Lynch

HBOS

Goldman Sachs

Morgan Stanley

Barclays

Mizuho

ING Group

BNP Paribas

Banco Santander

RBOS

Wachovia

Wells Fargo

UBS

Mitsubishi UFJ

JPMorgan

HSBC

Bank of America

CitigroupWorld‘s largest financial service provider

Operations in more than 100 countries

More than 294,000 employees, of which 6,856 work in Germany

More than 6,000 branches, of which 330 in Germany

Highest placement capacity of all financial service provider; more than 200 million customers

Equity exceeding €95.0bn; total assets exceeding€1,261bn; net income of €20.5bn(1)

Founded in 1812 and since 80 years present in Germany

Largest foreign bank in Germany

(1) As of 31/12/05; Euro values calculated on exchange ratio of 1.2 US$/€; Equity including trust securities.

Largest Financial Institution as to Market Cap (in €bn)Key Facts

Net Income Contribution of Business Segments (2005)

The World’s Largest Financial Services Provider …

Global Consumer

53%Corporate & Investment

Banking34%

Alternative Investment

7%Global Wealth Management

6%

Source: Datastream as of 30/10/06; Euro values calculated on exchange ratio of 1.2 US$/€.

Main Competitors Investment BankingCitigroup

1 Citigroup at a Glance

… with a Broad Range of Offered Services …

Independent research division reporting directly to the CEO of CitigroupGlobal sector based coverage

Corporate brokingEquity capital marketsEquity-linkedEquity-based derivativesSales & trading operations

Equity Research

Equities

Capital raising & lendingRisk managementTransaction servicesLeasingCash managementFX and futuresInvestment servicesTrade finance & servicesCorporate credit cards

Financial advisory services, in particular M&AAcquisition financeCapital raising, i.e. IPO

Fixed Income

Debt capital marketsRatings advisory servicesAsset-backed financeHigh yieldSales & trading operationsFixed income derivativesCapital structuring, project finance, securitisation

Corporate BankingInvestment Banking

Capital Markets Global Banking

Global Corporate & Investment Bank Global Investment Management

Global Consumer Group


… an Exceptional Global Presence …

Citigroup’s expansive footprint provides its clients unique access to opportunities in over 100 countries around the globe

Citigroup’s unparalleled market expertise, customer relationship commitment and integrated solutions, combined with its global accessibility, make it the premier investment bank for all corporate finance needs… anywhere

Loan SyndicationsWorking Capital Facilities

Asset Management

Asset SecuritisationStructured Finance

Venture CapitalAsset Backed Finance

Structured Lending & LeasingReal Estate Finance

Commercial FXFX Options

FX DerivativesEquity / Fixed Income Derivatives

Integrated HedgingCash Management

Cross- Border CollectionsSecurities Services

Trade ServicesPrivate Banking

Loan SyndicationsWorking Capital Facilities

Asset Management

Asset SecuritisationStructured Finance

Venture CapitalAsset Backed Finance

Structured Lending & LeasingReal Estate FinanceAsset FinanceAsset FinanceCommercial FXFX Options

FX DerivativesEquity / Fixed Income Derivatives

Integrated HedgingCash Management

Cross- Border CollectionsSecurities Services

Trade ServicesPrivate Banking

M&A AdvisoryRestructurings

Hostile DefensesJoint Ventures

Minority InvestmentsDivestitures

Initial Public OfferingsSecondary Equity Offerings

Block TradesInvestment – High Yield Debt

Preferred StockConvertible PreferredLiability Management

Hybrid Bonds144A Offerings

Acquisition FinanceLiquidity Management

Pension Fund Management

M&A AdvisoryRestructurings

Hostile DefensesJoint Ventures

Minority InvestmentsDivestitures

Initial Public OfferingsSecondary Equity Offerings

Block TradesInvestment – High Yield Debt

Preferred StockConvertible PreferredLiability Management

Hybrid Bonds144A Offerings

Acquisition FinanceLiquidity Management

Pension Fund ManagementRetail Brokerage


AdvisorRank Value

(€bn) RankMkt.

ShareDeutsche Bank 109.7 1 52.9% 28Citigroup 104.1 2 50.5% 20JP Morgan 88.9 3 42.9% 18Merrill Lynch 78.5 4 37.8% 13Lehman Brothers 65.6 5 31.8% 10BNP Paribas 61.4 6 29.9% 5HSBC 61.2 7 29.7% 5Morgan Stanley 53.2 8 25.4% 18Credit Suisse 47.5 9 23.0% 19Goldman Sachs 37.3 10 17.9% 19Industry Total 207.9 - 100.0% 1,683

Number of Deals Advisor

Rank Value (€bn) Rank

Mkt.Share

Citigroup 340.6 1 35.6% 134JP Morgan 307.0 2 32.1% 150Morgan Stanley 292.3 3 30.6% 118Merrill Lynch 274.7 4 28.7% 82Goldman Sachs 260.2 5 27.2% 107Deutsche Bank 241.8 6 25.3% 107BNP Paribas 228.2 7 23.9% 77UBS 220.3 8 23.0% 122Rothschild 210.4 9 22.0% 215HSBC 177.1 10 18.5% 51Industry Total 956.6 - 100.0% 9,414

Number of Deals

… and a Superior Track Record to Serve Our Clients’ Needs

Source: Thomson Financial, as of September 30, 2006.

Germany Announced M&A Ranking YTD European Announced M&A Ranking YTD

Pending 2006

has announced its intention to merge with

in a transaction valued€565 million

Citigroup acted as financial advisor to MobilCom

Pending 2006

has launched a public offer for

for €47.5 billion

Citigroup acted as defence advisor to Endesa

July 2006

has acquired

for €16.3 billion

Citigroup acted as financial advisor to Bayer

June 2006

has bought back a 25.1% stake held by

€4.5 billion

Citigroup acted as financial advisor to Bertelsmann

May 2006

has sold

to

for €3.3 billion

Citigroup acted as financial advisor to Volkswagen

Pending 2006

has announced its intention to sell its division Bayer Healthcare-

Diagnostic to

for €4.2 billion

Citigroup acted as financial advisor to Bayer

Pending 2006

has announced its intention to merge its networks business group with the carrier related

operations of

Undisclosed amount

Citigroup acted as financial advisor to Nokia

Source: Thomson Financial, as of September 30, 2006.

Pending 2006

has announced its intention to sell its stake in

to five investors advised byJ.C. Flowers

for €1.25 billion

Citigroup acted as financial advisor to WestLB

Pending 2006

has announced its intention to sell

Germany - Internetto

for €675 million

Citigroup acted as financial advisor to Time Warner

May 2006

has sold

to

for an undisclosed amount

Citigroup acted as financial advisor to Investcorp


2. Concept of Leveraged Buyouts

LBO Concept In a Leveraged Buyout the purchase price is primarily financed through different debt instruments that are paid down with future operating cash flows of the acquired company.

Entry Exit

Equity

Debt Layer 5

Debt Layer 4

Debt Layer 3

Debt Layer 2

Debt Layer 1

Year 1 Year 2 Year 3 Year 4 Year 5

Equity

Debt

Equity

Debt Layer 5

Debt Layer 4

Debt Layer 3

Debt Layer 2

Equity

Debt Layer 5

Debt Layer 4

Debt Layer 3

Equity

Debt Layer 5

Debt Layer 4

Equity

Debt Layer 5

Debt Repayment through OCF

Entry & RefinancingCapital Structure – 75% Debt – 25% Equity

Management participates to achieve full motivationSponsor provides management expertise and potentially raises synergies with other companies in his portfolioAll cash flows to repay debt; no dividends demanded

Exit & RefinancingIRR: 25%-30%Proceeds for management and sponsor

Value Creation

5 Concept of Leveraged Buyouts

Key Return Drivers of Financial Investors

3. Increased firm value through multiple expansion between time of investment and exit

The key return drivers can be categorised in four main groups.

2. Increased firm value through EBITDA growth between time of investment and exit

Evolving industry fundamentals (e.g. cyclicality of industry)

Quality of asset

Enhanced organic growth outlook

Improved equity capital market conditions

Sustainable earnings growth (internal growth and via “cheap” acquisitions)

Cost control

Possibly restructuring upside or synergies with other companies in the portfolio of the financial investor

4. Limited duration of investment

Willing to buy in weak markets

Exit during robust M&A and equity market within a 3-7 years period

Trade off between time to exit, total proceeds and IRR

1. Leverage on acquisition and subsequent debt pay down

Maximising of free cash-flow through strict capex, R&D and working capital discipline

Typical financing structure using up to 75% debt to finance deal


LBO Capital Structure: Revolving Credit Facility

Equity

(Senior) Term Debt

Revolving Credit

Term: 5+ years

Size: 5%-15% of total

Interest: Prime plus 2.0%-2.5%. Cash interest only. Credit spread tied to level and quantity of current assets as well as to financial performance and risk measures

Seniority: Senior secured claim against assets. Usually secured by inventory and accounts receivable (the most liquid operating assets)

Main Lenders: Commercial banks, commercial paper investors

Uses: Used to finance investments in working capital, capital expenditures, general liquidity support

Flexibility: Rather flexible, tailor-made loan contracts with varying collateral and covenant packages

Other: Restrictive covenants; pre-payable at par

Revolving Credit Facility is a flexible debt financing instrument and normally undrawn at closing.

(Subordinated) High-Yield and

PIK Notes

Acquisition financing


LBO Capital Structure: Senior Term Debt

Term: 5-10 years


Interest: Prime plus 2%-3%. Credit spread tied to the appraised fair market value of the land and building, enterprise value as well as the liquidation value of machinery and equipment

Seniority: Senior Term debt is usually the second-lowest-cost financing because it is secured by assets and is structurally senior to other debt layers and equity

Main Lenders: Commercial and Investment banks, mutual funds, structured investment funds, finance companies

Uses: Issued to finance property and equipment as well as other long-lived assets (land, machinery, etc.), acquisitions, buyouts, redemptions, stock repurchases

Flexibility: Tailor-made loan contracts with varying collateral and covenant packages, as well as amortization schedules

Other: Several tranches, consisting of amortising debt and bullet payment at maturityEquity

(Senior) Term Debt

Revolving Credit

Senior Term debt is the main financing source in Leveraged Buyouts.


PIK Notes



LBO Capital Structure: High-Yield and PIK Notes

Term: 6-10 years. Matures after Senior debt


High-Yield debt if structured with yearly payment of interest and repayment of principals at maturity

PIK notes are structured with repayment of principal and accrued interest at maturity. PIK notes may include an upside participation

For both instruments credit spreads are tied to cash flows

Interest: Prime plus 4%-7%. PIK notes may include an upside participation (equity-linked instruments), giving higher overall returns. More expensive than Senior debt due to greater degree of risk

Seniority: Subordinate to Senior debt in rights and remedies

Main Lenders: Pension funds, insurance and finance companies, debt and mutual funds, hedge funds, other institutional and private investors. High-Yield debt usually publicly traded

Flexibility: Flexible instrument, can be structured as a debt security with a fixed coupon and equity-linked features (e.g. warrants)Equity


PIK Notes

(Senior) Term Debt

Revolving Credit

High-Yield debt / PIK note financing is an additional, but more expensive source if senior debt financing is used up.



LBO Capital Structure: Equity


Exit Strategy: 3-7 years

Composition of Equity: 2/3 shareholder loans, 1/3 shareholders’ equity

Equity holders preserve voting, dividend, control, and information rights in the company

Dividend and liquidation rights are subordinated to the interests of the debt lenders

Management often invests in the equity together with an LBO sponsor

Sponsors will typically seek a 25%-30% compounded annual total return over five years

Equity

(Senior) Term Debt

Revolving Credit

Usually the Equity stake in a LBO comprises 20% to 40% of total capital.


PIK Notes



Sponsors

Suppliers / Counterparties

Parties Involved

Try to get as much cheap debt as possible– Secured debt sources – High-Yield and PIK instrumentsTry to minimise company‘s cash needs– Squeeze working capital– Minimise capexTry to keep equity contribution as low as possible

Do not want to take company’s risk by holding its – Payables – Any other form of credit

Draw covenants to protect their money, i. e.– Requirement of minimum equity level– Definition of max. debt the target can bear (coverage

ratios, debt participation ceilings, etc.)Require certain debt repayment before sponsor exitMonitor principal repayments

Interests

LBO Capital Structure: Parties Involved and Interests

The capital structure of a Leveraged Buyout is impacted by unequal interests of the parties involved.

Debt Equity

ManagementTry to use sponsor expertise Strategic orientation beyond sponsor exit

HighModerateLow

NWC / Capex

Debt Provider

Financing Operations


Summary of Practical Implications

Is the company a good LBO candidate?Stable cash flows, defensive industry, available collateral, low EBITDA multiples, moderate leverage

What capital structure will be feasible? Optimise capital structure though a large bank loan / high-yield tranche and low equity stake

Is capital readily available? At what terms?Narrowing credit spreads, favourable interest rates, low LBO backlog, high risk appetite

Can I pay interest and principal over 8-10 years?Stable operating cash flows, sufficient for capital expenditures and principal payment

Can I exit in 3-7 years? At what multiple?Good refinancing prospects, value added though improved strategy and management

What is my IRR / cash multiple / “equity ticket”?Equity investors would like to see a minimum of 25% -30% IRR on their participation and a cash multiple of 2.0x


3. Leveraged Buyouts in Practice

97 102

54

7794

182

321

7684

65

89

123

159

279

0

50

100

150

200

250

300

350

1999 2000 2001 2002 2003 2004 2005

LBO

Vol

umes

(US

$bn)

USA Europe

LBO Market Development

Since 2002, the US and the European Market for LBOs have seen doubled digit growth rates.

Source: SDC.Note: Target as well as acquiring companies are included in regional split.

CAGR 99-05: 22.1%

CAGR: 99-05: 24.3%

LBO Volume Development Comments

USA and Europe are the major markets for Leveraged Buyouts worldwide

Together they account for about 87% of total volume

Since 2002, both key LBO markets increased significantly

These strong growth rates of Leveraged Buyouts are in particular related to a favourable micro and macro economic environment

Significant capital inflow from outside the USA and Europe (“Petro-Dollars”)

Restructuring of conglomerates in Europe – focus on core competencies

Recovery in the equity markets since 2002

13 Leveraged Buyouts in Practice

151.1 167.3 185.2

651.1

108.9292.6

522.6

147.2

12.2% 13.4%15.7%

22.3%

6.5%4.9%4.6%

19.1%

0100200300400500600700

1999 2000 2001 2002 2003 2004 2005 2006YTD

Vol

ume

(US

$bn)

0%

5%

10%

15%

20%

25% % of G

lobal Volum

e

LBO Volumes in % of Global M&A Volume

LBO Market Development (cont’d)

Established 25 years ago, Leveraged Buyouts started as a niche product and developed to a mainstream instrument.

Source: SDC.

LBOs contributed about 26% of global M&A volume in 3Q 2006, lifting its share of 2006YTD volume to an all-time high of c.22%

Sponsor-related deals in 2006 spanned a wide range of sectors, but in particular Healthcare, Technology, Consumer, Industrials

Recently, sponsors have been targeting companies outside the U.S. and Europe in greater frequency

LBO Contribution to Global M&A Volume

Comments

In the 1980’s, Leveraged Buyouts were based on acquiring undervalued, undercapitalised and stable companies

In the early 1990’s, sponsors started to actively encourage or intervene to achieve improved operative performance

In the late 1990’s, sponsors are more and more looking for “growth stories”

And today?

Market Trends


11

4

3 3

2

0

1

2

3

4

5

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006YTD

# LB

O T

rans

actio

ns

>$5bn, <$10bn >$10bn

3 32

6

01234567

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006YTD

# LB

O T

rans

actio

ns

>$5bn, <$10bn >$10bn

Growth in LBO Size

# of LBO’s > US$5bn in USA # of LBO’s > US$5bn in Europe

No “Mega” LBOsNo “Mega” LBOs

Top 10 US LBO Deals – 2006 YTD

5.1IndustrialsKKR, GS Capital Partners… / Kion

30.1TransportationFerrovial, GCI, Caisse de Depot / BAA

10.4UtilityOsprey Acquistions / AWG

4.0IndustrialsHenderson Fund Mgmt Plc / John Laing

4.6HealthcareEQT, Investor AB / Gambro

5.8HealthcareNordic Capital / Altana – Pharma Unit

9.5TechnologyKKR, Silverlake, AlpInvest, Bain, … / Philips Semi

4.6TelecomBabcock & Brown Capital / Eircom

6.1IndustrialGS, Borealis… / Associated British Port Holdings

11.6MediaKKR, Blackstone, TH Lee, Carlyle… / VNU

Value(US$bn)IndustryAcquirer / Target

Top 10 Europe LBO Deals – 2006 YTD

25.6RecreationApollo, TPG / Harrah‘s Entertainment

17.4ConsumerSuperValu, CVS, Cerberus / Albertson’s13.4MediaSaban, Madison, Providence, TPG, TH Lee /

Univision8.2ConsumerMgmt, JPM, Warburg, TH Lee, GS / ARAMARK

32.1HealthcareBain, KKR, ML Global Equity / HCA

4.8Real EstateBlackstone / CarrAmerica Realty

7.9Fin. InstitutionsCerberus / GMAC

27.5PowerMgmt, GS, AIG, Carlyle, Riverstone / Kinder Morgan

6.0ConsumerBain, Blackstone / Michaels Stores

17.5TechnologyBlackstone, Carlyle, Permira, TPG / Freescale

Value(US$bn)IndustryAcquirer / Target

“Mega” LBOs are the recent phenomenon.(1)

Source: SDC.(1) The US$31bn RJR/Nabisco transaction, completed in 1989, is the exception.


60%

80%

100%

120%

140%

160%

Jan-02 Oct-02 Aug-03 May-04 Mar-05 Dec-05 Oct-06

S&P 400 MidCap Russel 2000 Dow Jones Industrials

93 92130

238

300

050

100150200250300350

2002 2003 2004 2005 2006E

Vol

ume

(US

$bn)

Total Funds Raised

Factors Driving Larger LBO Transactions

Source: Datastream, S&P, Venture Economics, Private Equity Interactive.

7% 3% 3% 1% 2%

32% 34% 33% 33% 31%

0%

10%

20%

30%

40%

% o

f LB

O T

otal

Sou

rce

… less Equity Required …

Developments on the equity and the debt capital markets in the last three to four years led to favourable environment for larger Leveraged Buyouts.

… more Equity Available …Underperforming Large Caps ...

4.2x 4.4x 4.6x5.2x 5.5x

3.0x3.1x3.5x3.5x3.2x

0.0x

2.0x

4.0x

6.0x

2002 2003 2004 2005 1H 2006Ave

rage

Pro

For

ma

Adj

uste

d C

redi

t Sta

tistic

s

Debt / EBITDA EBITDA / Cash Interest

... and more Debt as well as Lower Cost of Debt

37% 36% 34% 32%

80# LBOs 117 158 86

2003 2004 2005 1H 2006

Contributed Equity Retained Earnings / Vendor Financing

55.2%57.7%

20.6%

2002

39%68


LBOs Offer Incredible Profits …

… making the sponsors involved “filthy” rich ...

Doughty [Hanson & Co.] buys Moeller from Advent […] on a secondary buyout that values the company at €1.1 billion […].Advent bought the company with a €50 million investment and got the 19 creditor banks to roll over existing debt. It injected a further $50 million equity [...] Strategic disposals generated an additional €100 million of cash.

The Deal.com, 21 July 2005

”Blackstone macht RAG-Kohle zu Gold”Wie in dreieinhalb Monaten von $200 Mill. mehr als $650 Mill. werden […] Das Unternehmen ging für knapp $1 Mrd. an ein Konsortium aus Blackstone (42%), First Reserve (42%), […] Das Wichtigste: Die 1-Mrd.-Dollar-Offerte speiste sich nur zu $200 Mill. aus Eigenkapital. Kaum vier Monate später kommt das Unternehmen an die Börse. Die Kapitalerhöhung spült zwar netto min. $400 Mill. in die Kasse. Via Sonderdividende werden aber $350 Mill. direkt an die Alteigentümer zurückgeleitet. [...] der Anteil am Grundkapital repräsentiert bei $18 Emissionspreis weitere $307 Mill. [...]. Börsen-Zeitung, 23 November 2004

Selected Transactions

Blackstone has already earned back the $650 million it invested in Celanese in 2004, when it took the company, […], private in a $4.0 billion leveraged buyout. […].All told, Blackstone has raked in about $2.3 billion, or about 3.5 times its original money. Including its remaining unrealised stake, the investment has in increased in value fivefold. The Deal.com, 11 May 2006

Source: Factiva.

[…] BC Partners has bought industrial and specialty chemicals distributor Brenntag from Bain Capital for an undisclosed sum […]. A source close to the matter said the deal was worth slightly more than 3 billion euros. […] It is a quick turnaround for Bain, which bought Brenntagfrom Deutsche Bahn in 2004, funding the buyout with 1.2 billion euros of debt. Since then, Brenntag has been a regular visitor to the debt markets, first with a deal to fund a 200 million euro dividend payment in November 2004, then with a 1.89 billion euro recapitalisation […]. That recapitalisation allowed for a further dividend payment to the owners of about 450 million euros.

Reuters, 25 July 2006


Strong Management Incentives in LBOs

… as well as the management of the target companies …

Source: SEC Filings & Citigroup.

Significant Equity Incentives in Post-LBO Companies

SunGuard 2.3%

Select Medical 2.7%

AMC 2.5%

Transdigm 4.2%

PanAmSat 0.5%

Sponsors have a keen interests to align management interests with their own strategy

Participation of the management in the equity of the target company are considered to be crucial

In addition, sponsors incentivise through high payouts

Due to sensitivity of information, details on management incentives are not often disclosed

Public available information of payouts and participations however show strong monetary incentives

Ways for monetary incentivising include:

– Stock options

– Restricted stocks / stock units

– Company plan bonus

– Retention / success fee

As a % of Deal Value

Comments

142

25 26 3111

103

37 29 18

120

50

100

150

200

250

300

SunGuard Select Medical

AMCEntertainment

Transdigm PanAmSat

in U

S$m

CEO Other Top 5 Executives

246

62 5649

22


1.6x2.0x

1.6x0.9x

5.6x4.9x 4.9x

0.0x

1.5x

3.0x

4.5x

6.0x

-4Q -3Q -2Q -1Q +1Q +2Q +3Q

Tota

l Deb

t / E

BIT

DA

Quartely Relative to LBO

Post LBO Performance

… and create value for the companies.

Source: SEC Filings; Citigroup Financial Strategy Group publication (Nov. 2006).

EBITDA margin (%)Quartely Sales (US$m)

735 745781

721779

847

1,003

600

700

800

900

1,000

1,100

-4Q -3Q -2Q -1Q +1Q +2Q +3Q

Qua

terly

Sal

es (U

S$m

)


3.7% 3.9%

5.7%

3.3%4.4% 4.1% 3.8%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

-4Q -3Q -2Q -1Q +1Q +2Q +3Q

Cap

ex /

Sal

es (%

)


Capex / Sales (%)Total Debt / EBITDA (LTM)

15.6%14.7%

16.7%

14.4% 15.2% 15.6%

20.4%

10.0%

15.0%

20.0%

25.0%

-4Q -3Q -2Q -1Q +1Q +2Q +3Q

EB

ITD

A M

argi

n (%

)



12.2%13.4%

15.7%

19.1%

10%

15%

20%

25%

30%

2002 2003 2004 2005 2006E 2007E

LBO

in %

of G

loba

l M&

A

20.0

16.515.0 14.5 14.1

10.1 10.0 10.0 10.0 10.0

6

10

14

18

22

BS KKR Carlyle TPG Permira AM GS Provid. Silver Bain

2006

Fun

d S

ize

($bn

)

Fund Size

Outlook

Leveraged Buyouts are expected to play an even more important role in the global M&A market in the coming years.

Source: SDC, Citigroup, Factiva.(1) Funds are still in the market and therefore, sizes are estimated.

LBO Contribution to the M&A Market

“Mega”-Fundraising

(1) (1)

Increasing importance in the M&A marketPrivate equity accounts for c.23% of global M&A volume (in 3Q 2006, LBO contribution increased to 26%)

“Mega”-FundraisingMore and large private equity funds

2006 funds raised $600bn in equity; total firepower of $1,700bn

Shift of international reserves into private equity investment

“Giant”-LBOs2005 was marked as “The Year of the Giant” LBO, with 2006 already exceeding 2005 level

In 2007, buyouts of around $40bn - $50bn are expected

Syndicates (Club deals)Sponsors form consortiums of three to seven firms

Top consortium deals contributed more than $14bn in equity

Favourable DCM Environment Substantial extension of the Fixed Income markets

Corporate defaults are considered to remain below the average

2006YTD22.3%

(1) (1) (1)


4. The Analyst’s Role in a Leveraged Buyout

The Analyst’s Role in a LBO Buy-side

A LBO buy-side will confront you with a variety of demanding tasks within in a very dynamic project environment.

Industry analysisPeer group analysisPress / news searches

Comparable companiesComparable transactionsAnalyse market research

Organise internal / client meetingsOrganise internal / client conference callsInternal administration

Timeline

Outside-in Valuation 1st Round Bid Due Diligence 2nd Round Bid Closing

Research

Valuation / Modelling

Work Flow Management

Processing

Leveraged Buyout Discounted cash flowSum-of-the-partsOperational benchmarking

TombstonesClosing diner

Presentation buildingTimetableClient meetings

Due diligence Dataroom analysisSite visitsExpert meetings

Presentation buildingClient meetings

Communication with Leverage Finance departmentCommunication with relevant industry group

Fundamental valuation adjustments

21 The Analyst’s Role in a Leveraged Buyout

5. Career at Citigroup

Citigroup Application Process

What about 2006 / 07 Opportunities (Corporate Finance / M&A)?

Investment Banking Full-time Applications for Frankfurt / London

Citigroup is inviting applications for our analyst programme within the Investment Banking Division in Frankfurt and London

We are looking for highly motivated individuals with a very good academic performance, strong communication and interpersonal abilities as well as outstanding quantitative skills

Key attributes of a qualified candidate are the ability to work independently and in a team, strong organisational skills, a high degree of self-motivation and initiative, with leadership potential

Investment Banking Internship Applications for Frankfurt / London

Our internship programme is an integral part of our graduate recruitment drive

We devote considerable time and resources as we regard it as an invaluable way to get to know you

It also gives you the chance to explore whether you would enjoy a career in Investment Banking and particularly with Citigroup

Every year we advise on the biggest mergers & acquisitions globally. Do you want to be a part of it?

22 Career at Citigroup

Citigroup Application Process (cont’d)

Deadlines for Full-time Positions and Internships

Full-time Position Application

Frankfurt: Throughout the whole year – however early applications are recommended

London: November 2006

Internship Application

Frankfurt: Throughout the whole year

London: 31st January 2007

Recruiting Contacts

In Frankfurt: Myriam Tantz; +49 (0)69 1366 5081; [email protected]

In London: Anna Collins; +44 (0)20 7508 7075; [email protected]

We currently offer opportunities for both full-time positions and internships.

All applications must be submitted online via the website www.citigroup.com. Please follow the “careers” link.


Business Contacts

Robert WitteVice President German Investment Banking

Citigroup CentreCanada SquareLondon E14 5LBUnited KingdomTel: +44 (0)20 7986 8622Fax: +44 (0)20 7986 [email protected]

For any questions, please do not hesitate to contact us.

Alexander BeckerAssociate German Investment Banking

Citigroup CentreCanada SquareLondon E14 5LBUnited KingdomTel: +44 (0)20 7500 6882Fax: +49 (0)69 2715 [email protected]

Christopher TubeilehAnalyst German Investment Banking

Frankfurter WelleReuterweg 1660323 Frankfurt am Main GermanyTel: +49 (0)69 1366 5687Fax: +49 (0)69 2715 [email protected]


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Any terms set forth herein are intended for discussion purposes only and are subject to the final terms as set forth in separate definitive written agreements. This presentation is not a commitment to lend, syndicate a financing, underwrite or purchase securities, or commit capital nor does it obligate us to enter into such a commitment, nor are we acting as a fiduciary to you. By accepting this presentation, subject to applicable law or regulation, you agree to keep confidential the existence of and proposed terms for any transaction contemplated hereby (a “Transaction”).

Prior to entering into any Transaction, you should determine, without reliance upon us or our affiliates, the economic risks and merits (and independently determine that you are able to assume these risks) as well as the legal, tax and accounting characterizations and consequences of any such Transaction. In this regard, by accepting this presentation, you acknowledge that (a) we are not in the business of providing (and you are not relying on us for) legal, tax or accounting advice, (b) there may be legal, tax or accounting risks associated with any Transaction, (c) you should receive (and rely on) separate and qualified legal, tax and accounting advice and (d) you should apprise senior management in your organization as to such legal, tax and accounting advice (and any risks associated with any Transaction) and our disclaimer as to these matters. By acceptance of these materials, you and we hereby agree that from the commencement of discussions with respect to any Transaction, and notwithstanding any other provision in this presentation, we hereby confirm that no participant in any Transaction shall be limited from disclosing the U.S. tax treatment or U.S. tax structure of such Transaction.

IRS Circular 230 Disclosure: Citigroup Inc. and its affiliates do not provide tax or legal advice. Any discussion of tax matters in these materials (i) is not intended or written to be used, and cannot be used or relied upon, by you for the purpose of avoiding any tax penalties and (ii) may have been written in connection with the "promotion or marketing" of the Transaction. Accordingly, you should seek advice based on your particular circumstances from an independent tax advisor.We are required to obtain, verify and record certain information that identifies each entity that enters into a formal business relationship with us. We will ask for your complete name, street address, and taxpayer ID number. We may also request corporate formation documents, or other forms of identification, to verify information provided.

Any prices or levels contained herein are preliminary and indicative only and do not represent bids or offers. These indications are provided solely for your information and consideration, are subject to change at any time without notice and are not intended as a solicitation with respect to the purchase or sale of any instrument. The information contained in this presentation may include results of analyses from a quantitative model which represent potential future events that may or may not be realized, and is not a complete analysis of every material fact representing any product. Any estimates included herein constitute our judgment as of the date hereof and are subject to change without any notice. We and/or our affiliates may make a market in these instruments for our customers and for our own account. Accordingly, we may have a position in any such instrument at any time.

Although this material may contain publicly available information about Citigroup corporate bond research or economic and market analysis, Citigroup policy (i) prohibits employees from offering, directly or indirectly, a favorable or negative research opinion or offering to change an opinion as consideration or inducement for the receipt of business or for compensation; and (ii) prohibits analysts from being compensated for specific recommendations or views contained in research reports. So as to reduce the potential for conflicts of interest, as well as to reduce any appearance of conflicts of interest, Citigroup has enacted policies and procedures designed to limit communications between its investment banking and research personnel to specifically prescribed circumstances.

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