Everything You Always Wanted To Know About LBOs

Investment Banking
November 09, 2006

Table of Contents
1. Citigroup at a Glance
2. Concept of Leveraged Buyouts
3. Leveraged Buyouts in Practice
4. The Analysts Role in a Leveraged Buyout
5. Career at Citigroup

1. Citigroup at a Glance

The Worlds Largest Financial Services Provider

Key Facts
y

Largest Financial Institution as to Market Cap (in bn)

Citigroup

Worlds 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

y
y
y

194.9

Bank of America

191.9

HSBC

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

171.1

JPMorgan

129.5

Mitsubishi UFJ

106.6

UBS

103.7

Wells Fargo

96.2

Wachovia

88.0

RBOS

87.9

Banco Santander

84.9

BNP Paribas

Largest foreign bank in Germany

79.7

ING Group

76.4

Mizuho

Net Income Contribution of Business Segments (2005)

73.2

Barclays

68.5

Morgan Stanley

Alternative
Investment
Global Wealth
7%
Management
6%

63.7

Goldman Sachs

63.5

HBOS

61.6

Merrill Lynch

60.8

Credit Suisse

58.1

American Express

54.8

Deutsche Bank

Corporate &
Investment
Banking
34%

Global
Consumer
53%

51.1

U.S. Bancorp

47.5

Lloyds TSB

47.1

Fannie Mae

45.4
0

50
Citigroup

(1) As of 31/12/05; Euro values calculated on exchange ratio of 1.2 US$/;

Equity including trust securities.
1

Citigroup at a Glance

100

150

200

Main Competitors Investment Banking

Source: Datastream as of 30/10/06; Euro values calculated on exchange ratio

of 1.2 US$/.

250

 with a Broad Range of Offered Services

Equity Research

Global Corporate & Investment Bank

y Independent
research division
reporting directly
to the CEO of
Citigroup
y Global sector
based coverage

Capital Markets
Fixed Income
y
y
y
y
y
y
y

Citigroup at a Glance

Debt capital markets

Ratings advisory services
Asset-backed finance
High yield
Sales & trading operations
Fixed income derivatives
Capital structuring, project
finance, securitisation

Global Consumer
Group

Global Banking
Equities

y
y
y
y
y

Global Investment
Management

Corporate broking
Equity capital markets
Equity-linked
Equity-based derivatives
Sales & trading operations

Investment Banking
y Financial advisory services,
in particular M&A
y Acquisition finance
y Capital raising, i.e. IPO

Corporate Banking
y
y
y
y
y
y
y
y
y

Capital raising & lending

Risk management
Transaction services
Leasing
Cash management
FX and futures
Investment services
Trade finance & services
Corporate credit cards

 an Exceptional Global Presence

y Citigroups expansive footprint provides its clients unique access to opportunities in over 100 countries around the globe
y Citigroups 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

M&A Advisory
Restructurings

Loan Syndications
Working Capital Facilities

Hostile Defenses

Asset Management

Joint Ventures

Asset Securitisation

Minority Investments

Structured Finance

Divestitures

Venture Capital

Initial Public Offerings

Asset Backed Finance

Secondary Equity Offerings

Structured Lending & Leasing

Block Trades

Real Estate Finance

Investment High Yield Debt

Asset Finance

Preferred Stock

Commercial FX

Convertible Preferred

FX Options

Liability Management

FX Derivatives

Hybrid Bonds

Equity / Fixed Income Derivatives

144A Offerings

Integrated Hedging

Acquisition Finance

Cash Management

Liquidity Management

Cross- Border Collections

Pension Fund Management

Securities Services

Retail Brokerage

Trade Services
Private Banking

Citigroup at a Glance

 and a Superior Track Record to Serve Our Clients Needs

Germany Announced M&A Ranking YTD
Advisor
Deutsche Bank
Citigroup
JP Morgan
Merrill Lynch
Lehman Brothers
BNP Paribas
HSBC
Morgan Stanley
Credit Suisse
Goldman Sachs
Industry Total

European Announced M&A Ranking YTD

Number
Rank Value
Mkt.
(bn)
Rank Share of Deals
109.7
1
52.9%
28
104.1
2
50.5%
20
88.9
3
42.9%
18
78.5
4
37.8%
13
65.6
5
31.8%
10
61.4
6
29.9%
5
61.2
7
29.7%
5
53.2
8
25.4%
18
47.5
9
23.0%
19
37.3
10
17.9%
19
207.9
100.0% 1,683

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

Pending 2006

has announced its intention to sell

Rank Value
(bn)
340.6
307.0
292.3
274.7
260.2
241.8
228.2
220.3
210.4
177.1
956.6

Advisor
Citigroup
JP Morgan
Morgan Stanley
Merrill Lynch
Goldman Sachs
Deutsche Bank
BNP Paribas
UBS
Rothschild
HSBC
Industry Total

Number
Mkt.
Rank Share of Deals
1
35.6%
134
2
32.1%
150
3
30.6%
118
4
28.7%
82
5
27.2%
107
6
25.3%
107
7
23.9%
77
8
23.0%
122
9
22.0%
215
10
18.5%
51
100.0% 9,414

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

Pending 2006

has announced its intention to sell its

stake in

Pending 2006

Pending 2006

Pending 2006

has announced its intention to sell

its division Bayer HealthcareDiagnostic to

has announced its intention to

merge its networks business
group with the carrier related
operations of

for 675 million

to five investors advised by

J.C. Flowers
for 1.25 billion

for 4.2 billion

Undisclosed amount

in a transaction valued
565 million

Citigroup acted as financial

advisor to Time Warner

Citigroup acted as financial

advisor to WestLB

Citigroup acted as financial

advisor to Bayer

Citigroup acted as financial

advisor to Nokia

Citigroup acted as financial advisor

to MobilCom

Germany - Internet
to

Pending 2006

July 2006

June 2006

has launched a public offer for

has announced its intention to

merge with

May 2006

May 2006

has sold

has sold

to

to

has acquired
has bought back a 25.1% stake
held by

for 47.5 billion

for 16.3 billion

4.5 billion

for 3.3 billion

for an undisclosed amount

Citigroup acted as defence advisor

to Endesa

Citigroup acted as financial

advisor to Bayer

Citigroup acted as financial

advisor to Bertelsmann

Citigroup acted as financial

advisor to Volkswagen

Citigroup acted as financial advisor to

Investcorp

Citigroup at a Glance

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

Value Creation
Year 1

Year 2

Exit

Year 3

Year 4

Debt Layer 1

Debt
Deb
t

Debt Layer 2

Rep
a

ym e

nt t
hro
ug

hO
CF

Debt Layer 3

Debt Layer 3

Debt Layer 4

Debt Layer 4

Debt Layer 4

Debt Layer 4

Debt Layer 5

Debt Layer 5

Debt Layer 5

Debt Layer 5

Debt Layer 5

Equity

Equity

Equity

Equity

Equity

y Capital Structure
75% Debt
25% Equity

Debt Layer 2

Debt Layer 3

y Entry &
Refinancing

Concept of Leveraged Buyouts

Year 5

Equity

y Management participates to achieve full motivation

y Exit & Refinancing

y Sponsor provides management expertise and potentially raises synergies with other
companies in his portfolio

y IRR: 25%-30%

y All cash flows to repay debt; no dividends demanded

y Proceeds for
management
and sponsor

Key Return Drivers of Financial Investors

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

1. Leverage on acquisition and subsequent debt pay

down

2. Increased firm value through EBITDA growth

between time of investment and exit

y Maximising of free cash-flow through strict capex,

R&D and working capital discipline

y Sustainable earnings growth (internal growth and via

cheap acquisitions)

y Typical financing structure using up to 75% debt to

finance deal

y Cost control

3. Increased firm value through multiple expansion

between time of investment and exit

4. Limited duration of investment

y Evolving industry fundamentals (e.g. cyclicality of

industry)

y Willing to buy in weak markets

y Quality of asset
y Enhanced organic growth outlook
y Improved equity capital market conditions

Concept of Leveraged Buyouts

y Possibly restructuring upside or synergies with other

companies in the portfolio of the financial investor

y Exit during robust M&A and equity market within a

3-7 years period
y Trade off between time to exit, total proceeds and
IRR

LBO Capital Structure: Revolving Credit Facility

Revolving Credit Facility is a flexible debt financing instrument and normally undrawn at closing.
y Term: 5+ years
Revolving Credit

y Size: 5%-15% of total

y 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

(Senior) Term
Debt

y Seniority: Senior secured claim against assets. Usually secured by inventory and
accounts receivable (the most liquid operating assets)
y Main Lenders: Commercial banks, commercial paper investors
y Uses: Used to finance investments in working capital, capital expenditures, general
liquidity support

(Subordinated)
High-Yield and
PIK Notes

y Flexibility: Rather flexible, tailor-made loan contracts with varying collateral and
covenant packages
y Other: Restrictive covenants; pre-payable at par

Equity

Acquisition financing
7

Concept of Leveraged Buyouts

LBO Capital Structure: Senior Term Debt

Senior Term debt is the main financing source in Leveraged Buyouts.
y Term: 5-10 years
Revolving Credit

y Size: 25%-50% of total

y 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

(Senior) Term
Debt

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

(Subordinated)
High-Yield and
PIK Notes

y Uses: Issued to finance property and equipment as well as other long-lived

assets (land, machinery, etc.), acquisitions, buyouts, redemptions, stock
repurchases
y Flexibility: Tailor-made loan contracts with varying collateral and covenant
packages, as well as amortization schedules

Equity

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

maturity

Acquisition financing
8

Concept of Leveraged Buyouts

LBO Capital Structure: High-Yield and PIK Notes

High-Yield debt / PIK note financing is an additional, but more expensive source if senior debt financing is used up.
y Term: 6-10 years. Matures after Senior debt
Revolving Credit

y Size: 20%-40% of total

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

(Senior) Term
Debt

y PIK notes are structured with repayment of principal and accrued interest at
maturity. PIK notes may include an upside participation
y For both instruments credit spreads are tied to cash flows
y 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

(Subordinated)
High-Yield and
PIK Notes

y Seniority: Subordinate to Senior debt in rights and remedies

y 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

Equity

y Flexibility: Flexible instrument, can be structured as a debt security with a fixed

coupon and equity-linked features (e.g. warrants)
Acquisition financing

Concept of Leveraged Buyouts

LBO Capital Structure: Equity

Usually the Equity stake in a LBO comprises 20% to 40% of total capital.
y Size: 20%-40% of total
Revolving Credit

y Exit Strategy: 3-7 years

y Composition of Equity: 2/3 shareholder loans, 1/3 shareholders equity
y Equity holders preserve voting, dividend, control, and information rights in the
company

(Senior) Term
Debt

y Dividend and liquidation rights are subordinated to the interests of the debt
lenders
y Management often invests in the equity together with an LBO sponsor

(Subordinated)
High-Yield and
PIK Notes

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

Equity

Acquisition financing
10

Concept of Leveraged Buyouts

LBO Capital Structure: Parties Involved and Interests

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

Interests
y Try to get as much cheap debt as possible
Secured debt sources
High-Yield and PIK instruments
y Try to minimise companys cash needs
Squeeze working capital
Minimise capex
y Try to keep equity contribution as low as possible

Sponsors

Management

y Try to use sponsor expertise

y Strategic orientation beyond sponsor exit

Debt Provider

y 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.)
y Require certain debt repayment before sponsor exit
y Monitor principal repayments

Suppliers /
Counterparties

y Do not want to take companys risk by holding its

Payables
Any other form of credit

Low
11

Moderate

Concept of Leveraged Buyouts

High

Financing
Debt

Equity

Operations
NWC / Capex

Summary of Practical Implications

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

Is capital readily available? At what terms?

Narrowing credit spreads, favourable interest rates, low LBO backlog, high risk appetite

What capital structure will be feasible?

Optimise capital structure though a large bank loan / high-yield tranche and low equity stake

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

12

Concept of Leveraged Buyouts

3. Leveraged Buyouts in Practice

LBO Market Development

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

Comments
y USA and Europe are the major markets for Leveraged Buyouts
worldwide

350
321
300

279

.1%
22
:
.3%
-05
24
99
:
5
GR
9-0
9
CA
:
GR
A
C

LBO Volumes (US$bn)

250

200

y Since 2002, both key LBO markets increased significantly

y These strong growth rates of Leveraged Buyouts are in
particular related to a favourable micro and macro economic
environment
182

y Significant capital inflow from outside the USA and Europe

(Petro-Dollars)

159
150

y Restructuring of conglomerates in Europe focus on core

competencies

123
100

102

97
76

89

84

94

y Recovery in the equity markets since 2002

77
65
54

50

0
1999

2000

2001
USA

2002

2003

y Together they account for about 87% of total volume

2004

Europe

Source: SDC.
Note:
Target as well as acquiring companies are included in regional split.
13 Leveraged Buyouts in Practice

2005

LBO Market Development (contd)

Established 25 years ago, Leveraged Buyouts started as a niche product and developed to a mainstream instrument.
LBO Contribution to Global M&A Volume
700
600
500
400
300
200

651.1

522.6
12.2%
4.6%

4.9%

6.5%

151.1

167.3

108.9

13.4%

25%
20%

15.7%

15%
292.6

10%

185.2
147.2

5%

100
0

% of Global Volume

Volume (US$bn)

22.3%
19.1%

0%
1999

Source: SDC.

2000

2001

2002
LBO Volumes

2003

2004

2005

2006YTD

in % of Global M&A Volume

Comments
y 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%
y Sponsor-related deals in 2006 spanned a wide range of sectors, but in particular Healthcare, Technology, Consumer, Industrials
y Recently, sponsors have been targeting companies outside the U.S. and Europe in greater frequency

Market Trends
y In the 1980s, Leveraged Buyouts were based on acquiring undervalued, undercapitalised and stable companies
y In the early 1990s, sponsors started to actively encourage or intervene to achieve improved operative performance
y In the late 1990s, sponsors are more and more looking for growth stories
y And today?
14

Leveraged Buyouts in Practice

Growth in LBO Size

Mega LBOs are the recent phenomenon.(1)
# of LBOs > US$5bn in Europe

# LBO Transactions

6
5
4
3

No Mega LBOs

2
1

3
2

5
# LBO Transactions

# of LBOs > US$5bn in USA

4
4
3

3
2
2

No Mega LBOs

1
0

1997

1998

1999

2000

2001

>$5bn, <$10bn

2002

2003

2004

2005

>$10bn

2006
YTD

Top 10 US LBO Deals 2006 YTD

1998

1999

2000

2001

>$5bn, <$10bn

2002

2003

2004

2005

>$10bn

2006
YTD

Top 10 Europe LBO Deals 2006 YTD

Acquirer / Target
Bain, KKR, ML Global Equity / HCA
Mgmt, GS, AIG, Carlyle, Riverstone / Kinder Morgan
Apollo, TPG / Harrahs Entertainment
Blackstone, Carlyle, Permira, TPG / Freescale

Value
Industry (US$bn)
Healthcare
32.1
Power
27.5
Recreation
25.6
Technology
17.5

SuperValu, CVS, Cerberus / Albertsons

Consumer

17.4

Media

13.4

Consumer
Fin. Institutions
Consumer
Real Estate

8.2
7.9
6.0
4.8

Saban, Madison, Providence, TPG, TH Lee /

Univision
Mgmt, JPM, Warburg, TH Lee, GS / ARAMARK
Cerberus / GMAC
Bain, Blackstone / Michaels Stores
Blackstone / CarrAmerica Realty

1997

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

Acquirer / Target
Ferrovial, GCI, Caisse de Depot / BAA
KKR, Blackstone, TH Lee, Carlyle / VNU
Osprey Acquistions / AWG
KKR, Silverlake, AlpInvest, Bain, / Philips Semi
GS, Borealis / Associated British Port Holdings
Nordic Capital / Altana Pharma Unit
KKR, GS Capital Partners / Kion
EQT, Investor AB / Gambro
Babcock & Brown Capital / Eircom
Henderson Fund Mgmt Plc / John Laing

Industry

Value
(US$bn)

Transportation

30.1

Media
Utility
Technology
Industrial
Healthcare
Industrials
Healthcare
Telecom
Industrials

11.6
10.4
9.5
6.1
5.8
5.1
4.6
4.6
4.0

Factors Driving Larger LBO Transactions

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

more Equity Available

160%

57.7%
55.2%

120%

20.6%

100%
80%

Aug-03

May-04
Russel 2000

Mar-05

Dec-05

% of LBO Total Source

39%

37%

150
100

130
93

92

2002

2003

50

Dow Jones Industrials

32%

34%

36%

34%

32%

33%

33%

31%

10%
7%

3%

3%

1%

2002

2003

2004

2005

2%

0%

1H 2006

Retained Earnings / Vendor Financing

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

Leveraged Buyouts in Practice

2004

2005

2006E

Total Funds Raised

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

30%

Contributed Equity

16

200

Oct-06

less Equity Required

20%

238

250

0
Oct-02

S&P 400 MidCap

40%

300

300

Average Pro Forma Adjusted

Credit Statistics

60%
Jan-02

Volume (US$bn)

140%

350

# LBOs

68

80

117

6.0x
4.2x
4.0x

3.2x

3.5x

86
5.5x

5.2x

4.6x

4.4x

158

3.5x

3.1x

3.0x

2.0x
0.0x
2002

2003
Debt / EBITDA

2004

2005

1H 2006

EBITDA / Cash Interest

LBOs Offer Incredible Profits

making the sponsors involved filthy rich ...

Selected Transactions
[] 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 Brenntag
from 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
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 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
The Deal.com, 11 May 2006
investment has in increased in value fivefold.

Blackstone macht RAG-Kohle zu Gold

Wie in dreieinhalb Monaten von $200 Mill. mehr als $650 Mill. werden [] Das Unternehmen ging fr 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 spter kommt das Unternehmen an die Brse. Die Kapitalerhhung splt zwar netto min. $400 Mill. in die Kasse. Via
Sonderdividende werden aber $350 Mill. direkt an die Alteigentmer zurckgeleitet. [...] der Anteil am Grundkapital reprsentiert bei $18
Emissionspreis weitere $307 Mill. [...].
Brsen-Zeitung, 23 November 2004

Source: Factiva.
17

Leveraged Buyouts in Practice

Strong Management Incentives in LBOs

as well as the management of the target companies
Significant Equity Incentives in Post-LBO Companies
300

250

As a % of Deal Value
SunGuard

246

2.3%

Comments
y Sponsors have a keen interests to align management interests
with their own strategy
y Participation of the management in the equity of the target
company are considered to be crucial

Select Medical 2.7%

in US$m

200

103

AMC

2.5%

Transdigm

4.2%

PanAmSat

0.5%

y Due to sensitivity of information, details on management

incentives are not often disclosed
y Public available information of payouts and participations
however show strong monetary incentives

150

y Ways for monetary incentivising include:

100
62

142
50

56

Stock options
49

SunGuard

Restricted stocks / stock units

37

29

18

22

25

26

31

12
11

Select
Medical

AMC
Entertainment

Transdigm

PanAmSat

CEO
Source: SEC Filings & Citigroup.
18

y In addition, sponsors incentivise through high payouts

Leveraged Buyouts in Practice

Other Top 5 Executives

Company plan bonus

Retention / success fee

Post LBO Performance

and create value for the companies.

EBITDA margin (%)

25.0%

1,100
1,003
1,000
900
800

847
735

745

-4Q

-3Q

781

779
721

700

EBITDA Margin (%)

Quaterly Sales (US$m)

Quartely Sales (US$m)

20.4%
20.0%
15.6%
15.0%

16.7%
14.7%

-2Q

-1Q

+1Q

+2Q

-4Q

+3Q

-3Q

Quartely Relative to LBO

15.6%

5.6x

+1Q

+2Q

+3Q

4.4%

4.1%

3.8%

+1Q

+2Q

+3Q

10.0%
4.9x

Capex / Sales (%)

4.9x
4.5x

1.6x

2.0x

1.6x

1.5x

-1Q

Capex / Sales (%)

6.0x

3.0x

-2Q

Quartely Relative to LBO

Total Debt / EBITDA (LTM)

Total Debt / EBITDA

15.2%

10.0%

600

0.9x

0.0x

8.0%
5.7%

6.0%
4.0%

3.7%

3.9%

-4Q

-3Q

3.3%

2.0%
0.0%

-4Q

-3Q

-2Q

-1Q

+1Q

+2Q

Quartely Relative to LBO

Source: SEC Filings; Citigroup Financial Strategy Group publication (Nov. 2006).
19

14.4%

Leveraged Buyouts in Practice

+3Q

-2Q

-1Q

Quartely Relative to LBO

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

y Private equity accounts for c.23% of global M&A volume (in 3Q

2006, LBO contribution increased to 26%)

Mega-Fundraising
y More and large private equity funds
y 2006 funds raised $600bn in equity; total firepower of $1,700bn
y Shift of international reserves into private equity investment

LBO Contribution to the M&A Market

30%

LBO in % of Global M&A

Increasing importance in the M&A market

2006YTD
22.3%

25%

19.1%

20%
15.7%
15%

13.4%

12.2%

10%

Giant-LBOs
y 2005 was marked as The Year of the Giant LBO, with 2006
already exceeding 2005 level

2002

y Top consortium deals contributed more than $14bn in equity

Favourable DCM Environment

y Substantial extension of the Fixed Income markets
y Corporate defaults are considered to remain below the average
Source: SDC, Citigroup, Factiva.
(1)
Funds are still in the market and therefore, sizes are estimated.
20 Leveraged Buyouts in Practice

22
2006 Fund Size ($bn)

y Sponsors form consortiums of three to seven firms

2004

2005

2006E

2007E

Mega-Fundraising

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

Syndicates (Club deals)

2003

20.0
16.5

18

15.0

14.5

14.1

14
10.1

10.0

KKR Carlyle TPG Permira AM

GS

10.0

10.0

10.0

10
6
BS

(1)

(1)

Fund Size

(1)

(1)

(1)

Provid. Silver Bain

4. The Analysts Role in a Leveraged Buyout

The Analysts 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.
Timeline
Outside-in
Valuation

1st Round Bid

Due Diligence

2nd Round Bid

Closing

Research
y Industry analysis
y Peer group analysis
y Press / news searches

Valuation / Modelling
y Comparable companies y
y Comparable transactions y
y Analyse market research y
y

Leveraged Buyout
Discounted cash flow
Sum-of-the-parts
Operational benchmarking

y Fundamental valuation
adjustments

Work Flow Management

y Communication with Leverage Finance
department
y Communication with relevant industry
group

y Tombstones
y Closing diner

y Organise internal / client meetings

y Organise internal / client
conference calls
y Internal administration

Processing
y Presentation building
y Timetable
y Client meetings
21

The Analysts Role in a Leveraged Buyout

y
y
y
y

Due diligence
Dataroom analysis
Site visits
Expert meetings

y Presentation building
y Client meetings

5. Career at Citigroup

Citigroup Application Process

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

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

Investment Banking Full-time Applications for Frankfurt / London
y Citigroup is inviting applications for our analyst programme within the Investment Banking Division in Frankfurt
and London
y We are looking for highly motivated individuals with a very good academic performance, strong communication
and interpersonal abilities as well as outstanding quantitative skills
y 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
y Our internship programme is an integral part of our graduate recruitment drive
y We devote considerable time and resources as we regard it as an invaluable way to get to know you
y It also gives you the chance to explore whether you would enjoy a career in Investment Banking and particularly
with Citigroup
22

Career at Citigroup

Citigroup Application Process (contd)

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

Deadlines for Full-time Positions and Internships

Full-time Position Application
y Frankfurt: Throughout the whole year however early applications are recommended
y London: November 2006
Internship Application
y Frankfurt: Throughout the whole year
y London: 31st January 2007
Recruiting Contacts
y In Frankfurt: Myriam Tantz; +49 (0)69 1366 5081; myriam.tantz@citigroup.com
y In London: Anna Collins; +44 (0)20 7508 7075; anna.collins@citigroup.com

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

23

Career at Citigroup

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

Robert Witte

Alexander Becker

Christopher Tubeileh

Vice President

Associate

Analyst

German Investment Banking

German Investment Banking

German Investment Banking

Citigroup Centre

Citigroup Centre

Frankfurter Welle

Canada Square

Canada Square

Reuterweg 16

London E14 5LB

London E14 5LB

60323 Frankfurt am Main

United Kingdom

United Kingdom

Germany

Tel: +44 (0)20 7986 8622

Tel: +44 (0)20 7500 6882

Tel: +49 (0)69 1366 5687

Fax: +44 (0)20 7986 8251

Fax: +49 (0)69 2715 98867

Fax: +49 (0)69 2715 99092

robert.witte@citigroup.com

alexander.becker@citigroup.com

christopher.tubeileh@citigroup.com

24

Career at Citigroup

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