danske markets corporate finance
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May 2009
The anatomy of the Financial Crisis
1
Danske Markets Corporate Finance
Leading Nordic investment banking franchise
Corporate Finance offers a wide range of value-adding investment
banking services focused on:
Mergers & acquisitions
Divestments
Equity capital market transactions
Long-term client relationships with Nordic and international
companies, private equity firms, governments and institutional
investors
We identify and add long-term value for clients:
Deep knowledge of the Nordic markets in combination with the broad platform of Danske Bank
Extensive transaction experience
Innovative solutions and outstanding execution
More than 50 professionals based in Copenhagen, Helsinki, Oslo and Stockholm
International M&A and ECM partnership networks
Introduction
2
Danske Markets
More than Corporate Finance
Acquisition & Leveraged Finance
Rating AdvisoryDebt Capital Markets
Equities & Research Trading Financial Markets
Corporate Finance
Equity Capital Markets
Initial public offerings (IPOs) Follow-on offerings Private placements Privatisations Block trades Share buybacks
Mergers & Acquisitions
Exclusive sales and divestitures Acquisitions Mergers and restructuring Public takeovers Private equity and venture capital
transactions Defence advisory Fairness opinions Auction processes
3
Danske Markets is a leading investment bank in the Nordic region
Mergers & Acquisitions (M&A) and Equity Capital Markets (ECM)
Danish M&A sell-side advisory 2004-2008 by €m volume
We build client relationships through continuous dialogue with both existing and future clients, and work in partnership with our clients to achieve their strategic goals
Sources:Mergermarket; Advising Target/Seller; Completed deals in Denmark since 1/1/2004;Dealogic; Completed deals as bookrunner since 1/1/2004; Values apportioned; Excluding investment management companies and listings on First North
Danske Markets ranks #1 by value in both M&A and ECM among Nordic investment banks
Rank Adviser No. of deals Value (€m)
1 Goldman Sachs 5 16,261
2 Danske Markets 28 13,857
3 Nordea 15 7 ,836
4 Dresdner Kleinwort 4 5 ,530
5 Deutsche Bank 6 5 ,197
6 Credit Suisse 5 4 ,987
7 Carnegie 27 4 ,575
8 JPMorgan 9 4 ,430
9 Deloitte 25 3 ,835
10 Morgan Stanley 7 3 ,716
Danish ECM transactions 2004-2008 by €m volume
Rank Bookrunner No. of deals Value (€m)
1 Danske Markets 21 2 ,921
2 Nordea 12 1,948
3 Morgan Stanley 3 1,448
4 Lehman Brothers 2 1,362
5 BNP Paribas 1 1,118
6 Goldman Sachs 4 852
7 ABN AMRO 6 781
8 Citi 2 632
9 SEB Enskilda 7 507
10 FIH Partners 3 311
4
Select healthcare & biotech transactions by Danske Markets
Overview of notable biotech and healthcare related offerings in which Danske Markets has recently participated:
The leading investment bank in Nordic Health Care offerings
Unparalleled track record within healthcare, pharmaceutical & biotech companies
DKK 6.0 billion
Buyback ofLundbeck sharesJoint Bookrunner
DKK 91 million
Rights issue of Pharmexa sharesSole Bookrunner
DKK 409 million
Rights issue of LifeCycle Pharma sharesJoint Bookrunner
DKK 771 million
Rights issue of NeuroSearch sharesGlobal Coordinator
DKK 64 million
Private placement of new Pharmexa sharesJoint Bookrunner
DKK 557 million
IPO ofLifeCycle PharmaJoint Bookrunner
DKK 360 million
Offering of primary TopoTarget sharesJoint Bookrunner
DKK 400 million
IPO of ExiqonSole Bookrunner
DKK 397 million
Rights issue of NeuroSearch sharesGlobal Coordinator
DKK 90 million
Placing of NeuroSearch shares
Joint Global
Coordinator
SEK 1.5 billion
Rights issue of Getinge sharesSole Lead Manager
SEK 1.5 billion
Rights issue of Meda sharesSole Lead Manager
5
Overview of notable biotech and healthcare related offerings in which Danske Markets has recently participated:
Amount undisclosed
Sale of Carmetec to NNEFinancial Adviser
Select healthcare M &A transactions by Danske Markets
... and is a leading investment bank in Health Care M&A
Unparalleled track record within healthcare, pharmaceutical & biotech companies
SEK 875 million
Acquisition of Carlsson Research by NeuroSearchFinancial Adviser
DKK 108 million
Acquisition ofApoxisFinancial Adviser
DKK 4.4 billion
Public takeover of Radiometer by Danaher Securities Adviser
SEK 158 million
Public offer for Diffchamb by RaisioFinancial Adviser
EUR 210 million
Acquisition of Tamro by Phoenix Pharmahandel Financial Adviser
EUR 105 million
Acquisition of Orion by Kronans DroghandelFinancial Adviser
EUR 125 million
Instrumentarium’s sale of its optical retail division to PearleFinancial Adviser
EUR 80 million
Schering’s divestment of Leiras to NycomedFinancial Adviser
EUR 175 million
BioTie Therapies’ merger with Contral Pharma and CarbionFinancial Adviser
Amount undisclosed
Acquisition of 51% stake in Meddoc by RemediumFinancial Adviser
Amount undisclosed
Sale of AB BIODISK to bioMérieux S.A.Financial Adviser
6
The anatomy of a financial crisis and consequences for biotech
Why is this relevant for biotechs ? What will happen next ?What is going on ?
Credit crisis
Re-financing crisis
Liquidity crisis
Earnings crisis
Credibility crisis
Share crisis
-40%
-30%
-20%
-10%
0%
10%
20%
30%
40%
Jan
-01
Jul-
01
Jan
-02
Jul-
02
Jan
-03
Jul-
03
Jan
-04
Jul-
04
Jan
-05
Jul-
05
Jan
-06
Jul-
06
Jan
-07
Jul-
07
Jan
-08
Jul-
08
Jan
-09
Ind
ex m
ark
et c
ap
dev
elo
pm
ent
20
01
=1
00
0
5
10
15
20
25
30
35
40
45
P/E
Market cap. development P/ E
T
tt
to
WACC
FCFNPV
1 1
95 100 10186
6755 53 49 44 43
89 85 84
87
72
67 67 7167 62
0
20
40
60
80
100
120
140
160
180
200
Q4 2
006
Q1 2
007
Q2 2
007
Q3 2
007
Q4 2
007
Q1 2
008
Q2 2
008
Q3 2
008
Q4 2
008
28/0
4/2009
DK
K b
n
Rest of EU 5 largest companies
Upstart &
Venture
IPO hopefuls
Listed
Companies
7
Healthcare pricing development what happening
Jan 01 –Jul 02
Average PE 30X
Increasing Earnings
Jul 02 .- Jan 07
Average PE at 22X
Increasing earnings
Jan 07 – Jul 08
Average PE at 18X
Zero earnings growth
Jul 08- now
Average PE at 12X
Declining earnings growth
Highlights MSI EU Healthcare P/E Index
-40%
-30%
-20%
-10%
0%
10%
20%
30%
40%
Ja
n-0
1
Ju
l-0
1
Ja
n-0
2
Ju
l-0
2
Ja
n-0
3
Ju
l-0
3
Ja
n-0
4
Ju
l-0
4
Ja
n-0
5
Ju
l-0
5
Ja
n-0
6
Ju
l-0
6
Ja
n-0
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Ju
l-0
7
Ja
n-0
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Ju
l-0
8
Ja
n-0
9
Ind
ex
ma
rket
ca
p d
evelo
pm
en
t 2
00
1=
10
0
0
5
10
15
20
25
30
35
40
45
P/E
Market cap. development P/ E
8
Price development since 2007 – anatomy of a crisis
Jan -07 – Dec 07
Equities decline
Bonds increase slightly
Jan 08 - Jul 08
Equities decline
Bonds increase
Aug 08- Dec 08
Equities free fall
Bonds decline
Jan 09 – now
Equities flat
Bonds increase
Highlights Share price development (1/1/2007 – Today)
0
25
50
75
100
125
150
Jan-07 Apr-07 Jul-07 Oct-07 Jan-08 Apr-08 Jul-08 Oct-08 Jan-09 Apr-09
Jan 0
7 =
Index 1
00
OMX COPENHAGEN 20 INDEX NASDAQ 100 STOCK INDX
FTSE 100 INDEX NORDIC GOVERNMENT BONDS
9
European biotech – market value development
Value under pressure
Full group has fallen 43%
Top Five companies has fallen 30%
Rest has fallen 56%
1.1.07 4% of companies has MC below1 bn DKK
Now:47% has MC below 1 bn DKK
Approximately 30% of companies trading or below cash position
Conclusions
Market Cap. as of 28/04 2009 (DKKbn)
7.9
7.2
3.7
3.4
3.4
2.5
2.3
2.3
2.1
1.4
1.4
1.3
1.1
1.1
0.9
0.8
0.8
0.8
0.6
0.6
0.5
0.5
0.4
0.4
0.3
0.2
0.1
0.1
0.1
0.1
0.1
0.7
0.4
0.3
0.3
0.6
1.3
1.9
3.2
4.8
9.7
Acthelion
Genmab
Crucell
Intercell
Stallergenes
Basilea
ALK -Abello
Jerini
Nicox
Transgene
Morphosys
Biovitrum
Active Biotech
Thrombogenics
AntiSoma
Bavarian Nordic
Prostrakan
NeuroSearch
Medigene
Galpagos
Devgen
Santhera
Medivir
Karo Bio
Orexo
ExonHit
PhotoCure
LifeCyclePharma
Evotec
Exiqon
Renovo
GPC Biotech
Pharming group
Innate
Wilex
Cytos
TopoTarget
Alizyme
Vernalis
Arpida
BioXell
Pharmexa
33.7
Market cap European biotech (DKKbn)
95 100 10186
6755 53 49 44 43
89 85 84
87
72
67 67 7167 62
0
20
40
60
80
100
120
140
160
180
200
Q4 2
006
Q1 2
007
Q2 2
007
Q3 2
007
Q4 2
007
Q1 2
008
Q2 2
008
Q3 2
008
Q4 2
008
28/0
4/2009
DK
K b
n
Rest of EU 5 largest companies
Market Cap. as of 01/01 2007 (DKKbn)
9.9
6.0
10.0
14.8
1.7
2.2
3.0
3.9
2.6
2.1
4.3
1.9
1.8
1.6
2.5
1.5
0.7
1.1
1.6
2.6
2.8
1.2
2.8
5.3
3.1
2.4
1.6
1.6
3.2
1.5
0.9
16.0
3.8
7.4
2.4
4.7
1.3
1.4
1.5
3.0
1.9
Acthelion
Genmab
Crucell
Intercell
Stallergenes
Basilea
ALK -Abello
Jerini
Nicox
Transgene
Morphosys
Biovitrum
Active Biotech
Thrombogenics
AntiSoma
Bavarian Nordic
Prostrakan
NeuroSearch
Medigene
Galpagos
Devgen
Santhera
Medivir
Karo Bio
Orexo
ExonHit
PhotoCure
LifeCyclePharma
Evotec
Exiqon
Renovo
GPC Biotech
Pharming group
Innate
Wilex
Cytos
TopoTarget
Alizyme
Vernalis
Arpida
BioXell
Pharmexa
33.2
10
Why is Biotech valuations declining
WACC = Equity cost + debt cost
= (risk premium*beta+risk free rate)*equity ratio +
(risk premium on debt+risk free rate) * debt ratio
NPV formula
Free cash flow (DKKm)
Above example was valued at DKK 1.9 bn with a WACC of 10%
In the meantime equity beta and risk premium on debt have risen from 1.6 to 2.0 and 200 bps to 500 bps respectively – imposing a new WACC of 12.5%
The value of the company with the new WACC is DKK 1.4 bn – a decrease of 26%
Illustrative example – Biotech Company
As WACC decreases NPV increase and vice versa
During the financial crisis both risk premium and beta have increased – leading to a higher WACC
Especially a problem for valuations of companies with long horizon to positive cash flows (such as biotech companies), as cash flows will be discounted more
WACC impact on NPV
T
tt
to
WACC
FCFNPV
1 1
-19
-100
-48.1
2558
137
227
381 394
2006R 2007F 2008F 2009F 2010F 2011F 2012F 2013F 2014F
11
European biotech
0%
20%
40%
60%
80%
100%
Market Cap.
28/ 04/ 09
(DKK bn. 105)
Cash posit ion
Q1 2009
(DKK bn. 19)
Cash Burn
2008
(DKK bn. 10)
Share turnover
04/ 09
(liquidity)
Rest
Top 5
Market Cap. as of 28/04 2009 (DKKbn)
7.9
7.2
3.7
3.4
3.4
2.5
2.3
2.3
2.1
1.4
1.4
1.3
1.1
1.1
0.9
0.8
0.8
0.8
0.6
0.6
0.5
0.5
0.4
0.4
0.3
0.2
0.1
0.1
0.1
0.1
0.1
0.7
0.4
0.3
0.3
0.6
1.3
1.9
3.2
4.8
9.7
Acthelion
Genmab
Crucell
Intercell
Stallergenes
Basilea
ALK -Abello
Jerini
Nicox
Transgene
Morphosys
Biovitrum
Active Biotech
Thrombogenics
AntiSoma
Bavarian Nordic
Prostrakan
NeuroSearch
Medigene
Galpagos
Devgen
Santhera
Medivir
Karo Bio
Orexo
ExonHit
PhotoCure
LifeCyclePharma
Evotec
Exiqon
Renovo
GPC Biotech
Pharming group
Innate
Wilex
Cytos
TopoTarget
Alizyme
Vernalis
Arpida
BioXell
Pharmexa
33.7
Top five has 58% of market cap, 50% of Cash, 50% Cash burn and 75% of share trading
50% of the companies has less than 40 DKK in monthly trading volume in the share
50% of the companies has less than 230 DKK in cash
Those who have shall get more……..
12
European biotech – Raising public money
EU biotech sector – now reaching maturity
0
20
40
60
80
100
120
140
160
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Num
ber
of lis
ted c
om
panie
s
0.0
1.0
2.0
3.0
4.0
5.0
6.0
EU
R b
n. r
ais
ed
EU companies Danish companies EUR bn. raised
?Phase I Phase II Phase III
The profile of the IPO hopefull
There are approximately 150 public biotech in Europe today compared to 20 in 20 in 1999
Cash needs have increased
There are several companies with phase III programmes
Several companies are profitable/getting close to profitability
Increased competition for the biotech money
Raising money more competitive than ever
13
Consequences for biotech
IPO Hopefuls Listed CompaniesUpstart & Venture companies
Cash is scarce
Venture financing market is facing a structural crisis
The trade sale exit will be the exit for more than 90% of start ups
Focus on asset development instead of company building
Be realistic: is an IPO achievable and attractive exit for investors?
Conserve cash & Focus on core value
Build company – bloody big is beautiful
Go public at first opportunity
Raise truckloads of cash: Limit Overhang Ensure Share Liquidity Financial Strength
Conserve cash
Focus on partnerships
Deliver on promises
Divest non core activities
Grow the company – consolidate
Prepare to raise cash at first window opening Limit overhang Ensure Share liquidity Financial strength
Consolidation needed: Larger companies:
Stronger pipelines
More efficient use of capital
Strengthen management
Strengthen cash position
Strengthen liquidity and shareholder base