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Everything You Always Wanted To Know About LBOs

Investment Banking
November 09, 2006
Table of Contents
Career at Citigroup 5.
The Analysts Role in a Leveraged Buyout 4.
Leveraged Buyouts in Practice 3.
Concept of Leveraged Buyouts 2.
Citigroup at a Glance 1.
1. Citigroup at a Glance
45.4
47.1
47.5
51.1
54.8
58.1
60.8
61.6
63.5
63.7
68.5
73.2
76.4
79.7
84.9
87.9
88.0
96.2
103.7
106.6
129.5
171.1
191.9
194.9
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
J PMorgan
HSBC
Bank of America
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
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$/;
Equity including trust securities.
Largest Financial Institution as to Market Cap (in bn) Key Facts
Net Income Contribution of Business Segments (2005)
The Worlds Largest Financial Services Provider
Global
Consumer
53%
Corporate &
Investment
Banking
34%
Alternative
Investment
7% Global Wealth
Management
6%
Source: Datastreamas of 30/10/06; Euro values calculated on exchange ratio
of 1.2 US$/.
Main Competitors Investment Banking Citigroup
1 Citigroup at a Glance
with a Broad Range of Offered Services
Independent
research division
reporting directly
to the CEO of
Citigroup
Global sector
based coverage
Corporate broking
Equity capital markets
Equity-linked
Equity-based derivatives
Sales & trading operations
Equity Research
Equities
Capital raising & lending
Risk management
Transaction services
Leasing
Cash management
FX and futures
Investment services
Trade finance & services
Corporate credit cards
Financial advisory services,
in particular M&A
Acquisition finance
Capital raising, i.e. IPO
Fixed Income
Debt capital markets
Ratings advisory services
Asset-backed finance
High yield
Sales & trading operations
Fixed income derivatives
Capital structuring, project
finance, securitisation
Corporate Banking Investment Banking
Capital Markets Global Banking
Global Corporate & Investment Bank
Global Investment
Management
Global Consumer
Group
2 Citigroup at a Glance
an Exceptional Global Presence
Citigroups expansive footprint provides its clients unique access to opportunities in over 100 countries around the globe
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 needsanywhere
Loan Syndications
Working Capital Facilities
Asset Management
Asset Securitisation
Structured Finance
Venture Capital
Asset Backed Finance
Structured Lending & Leasing
Real Estate Finance
Commercial FX
FX Options
FX Derivatives
Equity / Fixed Income Derivatives
Integrated Hedging
Cash Management
Cross- Border Collections
Securities Services
Trade Services
Private Banking
Loan Syndications
Working Capital Facilities
Asset Management
Asset Securitisation
Structured Finance
Venture Capital
Asset Backed Finance
Structured Lending & Leasing
Real Estate Finance
Asset Finance Asset Finance
Commercial FX
FX Options
FX Derivatives
Equity / Fixed Income Derivatives
Integrated Hedging
Cash Management
Cross- Border Collections
Securities Services
Trade Services
Private Banking
M&A Advisory
Restructurings
Hostile Defenses
Joint Ventures
Minority Investments
Divestitures
Initial Public Offerings
Secondary Equity Offerings
Block Trades
Investment High Yield Debt
Preferred Stock
Convertible Preferred
Liability Management
Hybrid Bonds
144A Offerings
Acquisition Finance
Liquidity Management
Pension Fund Management
M&A Advisory
Restructurings
Hostile Defenses
Joint Ventures
Minority Investments
Divestitures
Initial Public Offerings
Secondary Equity Offerings
Block Trades
Investment High Yield Debt
Preferred Stock
Convertible Preferred
Liability Management
Hybrid Bonds
144A Offerings
Acquisition Finance
Liquidity Management
Pension Fund Management
Retail Brokerage
3 Citigroup at a Glance
Advi sor
Rank Val ue
(bn) Rank
Mkt.
Share
Deutsche Bank 109.7 1 52.9% 28
Citigroup 104.1 2 50.5% 20
J P Morgan 88.9 3 42.9% 18
Merrill Lynch 78.5 4 37.8% 13
Lehman Brothers 65.6 5 31.8% 10
BNP Paribas 61.4 6 29.9% 5
HSBC 61.2 7 29.7% 5
Morgan Stanley 53.2 8 25.4% 18
Credit Suisse 47.5 9 23.0% 19
Goldman Sachs 37.3 10 17.9% 19
Industry Total 207.9 - 100.0% 1,683
Number
of Deal s Advi sor
Rank Val ue
(bn) Rank
Mkt.
Share
Citigroup 340.6 1 35.6% 134
J P Morgan 307.0 2 32.1% 150
Morgan Stanley 292.3 3 30.6% 118
Merrill Lynch 274.7 4 28.7% 82
Goldman Sachs 260.2 5 27.2% 107
Deutsche Bank 241.8 6 25.3% 107
BNP Paribas 228.2 7 23.9% 77
UBS 220.3 8 23.0% 122
Rothschild 210.4 9 22.0% 215
HSBC 177.1 10 18.5% 51
Industry Total 956.6 - 100.0% 9,414
Number
of Deal s
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
J uly 2006
has acquired
for 16.3 billion
Citigroup acted as financial
advisor to Bayer
J une 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 by
J .C. Flowers
for 1.25 billion
Citigroup acted as financial
advisor to WestLB
Pending 2006
has announced its intention to sell
Germany - Internet
to
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
4 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 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
D
e
b
t

R
e
p
a
y
m
e
n
t

t
h
r
o
u
g
h

O
C
F
Entry &
Refinancing
Capital Structure
75% Debt
25% Equity
Management participates to achieve full motivation
Sponsor provides management expertise and potentially raises synergies with other
companies in his portfolio
All cash flows to repay debt; no dividends demanded
Exit & Refinancing
IRR: 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
cheapacquisitions)
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
6 Concept of Leveraged Buyouts
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
7 Concept of Leveraged Buyouts
LBO Capital Structure: Senior Term Debt
Term: 5-10 years
Size: 25%-50% of total
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
maturity
Equity
(Senior) Term
Debt
Revolving Credit
Senior Term debt is the main financing source in Leveraged Buyouts.
(Subordinated)
High-Yield and
PIK Notes
Acquisition financing
8 Concept of Leveraged Buyouts
LBO Capital Structure: High-Yield and PIK Notes
Term: 6-10 years. Matures after Senior debt
Size: 20%-40% of total
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
(Subordinated)
High-Yield and
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.
Acquisition financing
9 Concept of Leveraged Buyouts
LBO Capital Structure: Equity
Size: 20%-40% of total
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.
(Subordinated)
High-Yield and
PIK Notes
Acquisition financing
10 Concept of Leveraged Buyouts
Sponsors
Suppliers /
Counterparties
Parties Involved
Try to get as much cheap debt as possible
Secured debt sources
High-Yield and PIK instruments
Try to minimise companys cash needs
Squeeze working capital
Minimise capex
Try to keep equity contribution as low as possible
Do not want to take companys 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 exit
Monitor 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
Management
Try to use sponsor expertise
Strategic orientation beyond sponsor exit
High Moderate Low
NWC / Capex
Debt Provider
Financing Operations
11 Concept of Leveraged Buyouts
Summary of Practical Implications
Is the company a good LBO candidate?
Stable cash flows, defensive industry, available collateral, lowEBITDA 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
12 Concept of Leveraged Buyouts
3. Leveraged Buyouts in Practice
97
102
54
77
94
182
321
76
84
65
89
123
159
279
0
50
100
150
200
250
300
350
1999 2000 2001 2002 2003 2004 2005
L
B
O

V
o
l
u
m
e
s

(
U
S
$
b
n
)
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.
C
A
G
R

9
9
-
0
5
:

2
2
.
1
%
C
A
G
R
:

9
9
-
0
5
:

2
4
.
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
108.9
292.6
522.6
147.2
12.2%
13.4%
15.7%
22.3%
6.5%
4.9%
4.6%
19.1%
0
100
200
300
400
500
600
700
1999 2000 2001 2002 2003 2004 2005 2006YTD
V
o
l
u
m
e

(
U
S
$
b
n
)
0%
5%
10%
15%
20%
25%
%

o
f

G
l
o
b
a
l

V
o
l
u
m
e
LBO Volumes in % of Global M&A Volume
LBO Market Development (contd)
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 1980s, Leveraged Buyouts were based on acquiring undervalued, undercapitalised and stable companies
In the early 1990s, sponsors started to actively encourage or intervene to achieve improved operative performance
In the late 1990s, sponsors are more and more looking for growth stories
And today?
Market Trends
14 Leveraged Buyouts in Practice
1 1
4
3 3
2
0
1
2
3
4
5
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
YTD
#

L
B
O

T
r
a
n
s
a
c
t
i
o
n
s
>$5bn, <$10bn >$10bn
3 3
2
6
0
1
2
3
4
5
6
7
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
YTD
#

L
B
O

T
r
a
n
s
a
c
t
i
o
n
s
>$5bn, <$10bn >$10bn
Growth in LBO Size
#of LBOs >US$5bn in USA #of LBOs >US$5bn in Europe
No MegaLBOs No MegaLBOs
Top 10 US LBO Deals 2006 YTD
5.1 Industrials KKR, GS Capital Partners/ Kion
30.1 Transportation Ferrovial, GCI, Caisse de Depot / BAA
10.4 Utility Osprey Acquistions / AWG
4.0 Industrials Henderson Fund Mgmt Plc / J ohn Laing
4.6 Healthcare EQT, Investor AB / Gambro
5.8 Healthcare Nordic Capital / Altana Pharma Unit
9.5 Technology KKR, Silverlake, AlpInvest, Bain, / Philips Semi
4.6 Telecom Babcock & Brown Capital / Eircom
6.1 Industrial GS, Borealis/ Associated British Port Holdings
11.6 Media KKR, Blackstone, TH Lee, Carlyle/ VNU
Value
(US$bn) Industry Acquirer / Target
Top 10 Europe LBO Deals 2006 YTD
25.6 Recreation Apollo, TPG / Harrahs Entertainment
17.4 Consumer SuperValu, CVS, Cerberus / Albertsons
13.4 Media Saban, Madison, Providence, TPG, TH Lee /
Univision
8.2 Consumer Mgmt, J PM, Warburg, TH Lee, GS / ARAMARK
32.1 Healthcare Bain, KKR, ML Global Equity / HCA
4.8 Real Estate Blackstone / CarrAmerica Realty
7.9 Fin. Institutions Cerberus / GMAC
27.5 Power Mgmt, GS, AIG, Carlyle, Riverstone / Kinder Morgan
6.0 Consumer Bain, Blackstone / Michaels Stores
17.5 Technology Blackstone, Carlyle, Permira, TPG / Freescale
Value
(US$bn) Industry Acquirer / Target
MegaLBOs are the recent phenomenon.
(1)
Source: SDC.
(1) The US$31bn RJ R/Nabisco transaction, completed in 1989, is the exception.
15 Leveraged Buyouts in Practice
60%
80%
100%
120%
140%
160%
J an-02 Oct-02 Aug-03 May-04 Mar-05 Dec-05 Oct-06
S&P 400 MidCap Russel 2000 Dow J ones Industrials
93 92
130
238
300
0
50
100
150
200
250
300
350
2002 2003 2004 2005 2006E
V
o
l
u
m
e

(
U
S
$
b
n
)
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

L
B
O

T
o
t
a
l

S
o
u
r
c
e
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
4.6x
5.2x
5.5x
3.0x
3.1x
3.5x 3.5x
3.2x
0.0x
2.0x
4.0x
6.0x
2002 2003 2004 2005 1H 2006 A
v
e
r
a
g
e

P
r
o

F
o
r
m
a

A
d
j
u
s
t
e
d

C
r
e
d
i
t

S
t
a
t
i
s
t
i
c
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
16 Leveraged Buyouts in Practice
LBOs Offer Incredible Profits
making the sponsors involved filthyrich ...
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 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
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 Brenntag
from Deutsche Bahn in 2004, funding the buyout with 1.2 billion euros of debt. Since then, Brenntaghas 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
17 Leveraged Buyouts in Practice
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
31
11
103
37
29 18
12
0
50
100
150
200
250
300
SunGuard Select
Medical
AMC
Entertainment
Transdigm PanAmSat
i
n

U
S
$
m
CEO Other Top 5 Executives
246
62
56
49
22
18 Leveraged Buyouts in Practice
1.6x
2.0x
1.6x
0.9x
5.6x
4.9x 4.9x
0.0x
1.5x
3.0x
4.5x
6.0x
-4Q -3Q -2Q -1Q +1Q +2Q +3Q
T
o
t
a
l

D
e
b
t

/

E
B
I
T
D
A
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
745
781
721
779
847
1,003
600
700
800
900
1,000
1,100
-4Q -3Q -2Q -1Q +1Q +2Q +3Q
Q
u
a
t
e
r
l
y

S
a
l
e
s

(
U
S
$
m
)
Quartely Relative to LBO
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
C
a
p
e
x

/

S
a
l
e
s

(
%
)
Quartely Relative to LBO
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
E
B
I
T
D
A

M
a
r
g
i
n

(
%
)
Quartely Relative to LBO
19 Leveraged Buyouts in Practice
12.2%
13.4%
15.7%
19.1%
10%
15%
20%
25%
30%
2002 2003 2004 2005 2006E 2007E
L
B
O

i
n

%

o
f

G
l
o
b
a
l

M
&
A
20.0
16.5
15.0
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
2
0
0
6

F
u
n
d

S
i
z
e

(
$
b
n
)
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 market
Private equity accounts for c.23% of global M&A volume (in 3Q
2006, LBO contribution increased to 26%)
Mega-Fundraising
More 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-LBOs
2005 was marked as The Year of the GiantLBO, 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
2006YTD
22.3%
(1) (1) (1)
20 Leveraged Buyouts in Practice
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.
Industry analysis
Peer group analysis
Press / news searches
Comparable companies
Comparable transactions
Analyse market research
Organise internal / client meetings
Organise internal / client
conference calls
Internal administration
Timeline
Outside-in
Valuation
1
st
Round Bid Due Diligence 2
nd
Round Bid Closing
Research
Valuation / Modelling
Work Flow Management
Processing
Leveraged Buyout
Discounted cash flow
Sum-of-the-parts
Operational benchmarking
Tombstones
Closing diner
Presentation building
Timetable
Client meetings
Due diligence
Dataroomanalysis
Site visits
Expert meetings
Presentation building
Client meetings
Communication with Leverage Finance
department
Communication with relevant industry
group
Fundamental valuation
adjustments
21 The Analysts 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 (contd)
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: 31
st
J anuary 2007
Recruiting Contacts
In Frankfurt: Myriam Tantz; +49 (0)69 1366 5081; myriam.tantz@citigroup.com
In London: Anna Collins; +44 (0)20 7508 7075; anna.collins@citigroup.com
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.
23 Career at Citigroup
Business Contacts
Robert Witte
Vice President
German Investment Banking
Citigroup Centre
Canada Square
London E14 5LB
United Kingdom
Tel: +44 (0)20 7986 8622
Fax: +44 (0)20 7986 8251
robert.witte@citigroup.com
For any questions, please do not hesitate to contact us.
Alexander Becker
Associate
German Investment Banking
Citigroup Centre
Canada Square
London E14 5LB
United Kingdom
Tel: +44 (0)20 7500 6882
Fax: +49 (0)69 2715 98867
alexander.becker@citigroup.com
Christopher Tubeileh
Analyst
German Investment Banking
Frankfurter Welle
Reuterweg 16
60323 Frankfurt am Main
Germany
Tel: +49 (0)69 1366 5687
Fax: +49 (0)69 2715 99092
christopher.tubeileh@citigroup.com
24 Career at Citigroup
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