norwest equity partners | 1 cfa society of iowa february 2008

Norwest Equity Partners | 1

CFA Society of IowaFebruary 2008


The Private Equity Market-Introduction to Norwest Equity Partners (NEP)

-The Evolution of Private Equity

-Current Middle Market Overview

-Trends in Private Equity


Who We Are

Norwest Equity Partners (NEP) invests in profitable and growing middle market companies

– Four decades of investment experience; heritage dates back to 1961

– $3 billion in capital under management

– Currently investing NEP VIII — $800 million private equity fund

– Affiliated mezzanine fund: Norwest Mezzanine Partners (NMP), $650 million under management

– Limited partner is Wells Fargo & Co.

– NEP General Partners have autonomous decision-making

– 25 investment professionals located in Minneapolis (20 NEP, 5 NMP)


What We Do

Types of Transactions

– Buyouts

– Recapitalizations

– Growth Equity

– Mezzanine

– Other

Investment Criteria

– EBITDA greater than $10 MM for standalone investments; any size for portfolio company add-on acquisitions

– Transaction size between $50 MM - $500 MM

– Equity investments of $20 MM - $100 MM


Agricultural Services and Products

Business Services

Consumer Services and Products

Distribution

Energy

Financial Services

Healthcare

Manufacturing

Plastics and Packaging

Proven Technology

Transportation and Logistics

Representative Investments


National Presence

Not shown on map:

Hawaii

Brazil, Mexico, Canada

●● – current portfolio company – exited investments – add-on investments

NEP Office, Minneapolis

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POET Biorefining Jewell, IA

POET Biorefining Gowrie, IA

Paladin Brands Cedar Rapids, IA

Jacobson Companies Des Moines, IA

Becker Underwood Ames, IA

•NEP and NMP have invested over $265 million in Iowa

•Combined sales of over a billion $’s

NEP Iowa Investments


The Evolution of Private Equity


What is Private Equity?


Venture CapitalBDCs SPACs

Leveraged RecapsLeveraged Buyouts

Mezzanine PIPEs Management Buyouts


What is Private Equity?

Source: Credit Agricole


Top Quartile Performance

Source: Bain


“Cowboy Days”

<20% of capitalization in equity for LBOs

Some deals funded with 0% equity

Mega deals like RJR Nabisco

6x leverage, emergence of cash flow loans and junk bonds

The Early StageEarly 1980’s - Mid 1990’s


Return Model

The Early Stage

Debt Paydown -Debt arbitrage

-Cost cuts

-Junk bonds

Multiple Arbitrage-Fewer exit options

Earnings Growth-Don’t rock the boat


The Early Stage

Source: Venture Economics

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Number of Funds Fundraising Totals


“The Proliferation Story”

More funds, more specialization, spin-out funds

Over-levered deals in trouble

Growth slows with recession

It’s all about the internet and technology

The Middle StageLate 1990’s - Early 2000’s


Return Model

The Middle Stage

Debt Paydown -Asset Sales

-Cost cuts

Multiple Arbitrage-Roll-ups

Earnings Growth-Cost take-outs in roll-ups


Institutional “Grown-up” Stage

Record fundraising and investments

Record leverage and purchase multiples

The Recent StageMid-2000’s – 6 Months Ago


Return Model

Recent Stage

Debt Paydown-Not at these prices and

required equity %

Multiple Arbitrage-Not at these prices

Earnings Growth-Operational improvements


2007: Record Breaking

U.S. Buyout and Mezzanine Fundraising, 1996–2007($Mil)

Source: Buyouts Magazine


2007: Record Breaking

U.S.-Based Disclosed Deal Volume By Quarter In Billions



2007: The Year of the Mega DealBiggest Closed Deals Ever

Sponsor Target Name Value Sector Closing Date

1 Kohlberg Kravis Roberts & Co., TPG, Goldman Sachs TXU Corp $44.3billion

Utilities October 2007

2 The Blackstone Group Equity Office Properties Trust $37.7billion

Real Estate February 2007

3 KKR, Bain Capital, Merrill Lynch Capital HCA Inc $32.1billion

Hospitals November 2006

4 KKR RJR Nabisco Inc $30.2billion

Cigarettes April 1989

5 Goldman Sachs, Carlyle Group, Riverstone, AIG, management Kinder Morgan Inc $27.5billion

Energy May 2007

6 KKR First Data Corp $27.0billion

Data processing September 2007

7 TPG, Goldman Sachs Alltel Corp $26.9billion

Telecom November 2007

8 The Blackstone Group Hilton Hotels Corp $26.7billion

Hotels October 2007

9 KKR, management Alliance Boots PLC $19.4billion

Drug stores June 2007

10 The Blackstone Group, Permira, Carlyle Group, TPG Freescale Semiconductor Inc $17.5billion

Semiconductors December 2006

Source: Thomson Financial, Buyouts


7 out of the 10 largest closed deals ever took place in 2007


Current Middle Market Overview


2007: The Year of the Credit Crunch

The market has been erratic this week.


Buyout firms walking away from take-private deals

KKR and GS Capital: Harman International ($8 billion)

J.C. Flowers and Cerberus: Sallie Mae ($25 billion)

Cerberus: United Rentals ($100 million reverse break-up fee)

The Break Up


Top Pending US “Going Private” Transactions

Target Spread ($) Spread (%)

Myers Industries Inc -12.32 -54.76

Cumulus Media Inc -6.32 -53.79

Restoration Hardware Inc -2.84 -42.39

Mace Security Intl Inc -1.20 -40.00

Reddy Ice Holdings Inc -9.62 -30.78

Alliance Data Systems Corp -21.46 -26.25

Covad Commun Grp Inc -0.25 -24.51

3Com Corp -1.28 -24.15

Critical Path Inc -0.02 -20.00

Penn National Gaming Inc -12.98 -19.37


PE Slowdown?

“Hoskins, try saying 'profits are up' without the finger quotes, okay?”


PE Market Slowing?

LPs Seeing Early Signs Of An End To The Buyout Boom (Dec 07)

Source: Coller Capital


Liquidity shortage finally catching up with middle market

Collapse of CLO and syndication markets

Sub-prime mess, recession fears, rogue traders

Consolidation and retreat

Funding challenges for BDC’s

Middle Market Immunity?


Middle Market Woes

Harder time getting lenders to underwrite deals

Buyout Funds are seeking non-traditional lenders (Hedge Funds, etc)

Less Capacity

Lenders pushing for tougher covenants


Trends in Private Equity


“The private-equity industry is larger, more profitable and more

global in scope than at any time in its roughly 40-year history.”

David Rubenstein, co-founder of the Carlyle Group

Globilization of PE

Source: The Economist


Europe moving into U.S. PE Market?

European Sponsors Grow More Active In U.S.



Industry/Theme Focus

Sector specialization– Energy, retail, clean technology, etc

Demographics– Baby boomers, Hispanic market, affluent market

Outsourcing– China and India strategies

PE organizational changes– Operating partners, role specialization


Convergence with Hedge Funds

Synergies between two areas

Leveraging sector talent, market knowledge, deep research, deal flow, fund raising

Debt markets are largest areas of convergence

Public to Private Deals

Significant cultural differences


Going Public

BDCs, SPACs, Management Companies, etc


Tips for working with a private equity firm…

Start to prepare early

-Get financials in order

Understand decision making process of PE groups

Do your homework

-What is the firm’s track record? Reputation?

-Call CEO’s of current and former portfolio companies

Think about taxes

-Can single level taxation be preserved?

-Changes in capital gains rates

Spend time with firm to understand personalities/good cultural fit

norwest equity partners | 1 cfa society of iowa february 2008

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