a perspective on deals in 2014 th annual tulane corporate ... - a perspective on... · excludes...

A Perspective on Deals in 2014

26th Annual Tulane Corporate Law Institute

Goldman, Sachs & Co.

March 2014

2

This presentation has been prepared by the Investment Banking Division of Goldman Sachs and is not a product of

Goldman Sachs Global Investment Research. It should not be used as a basis for trading in the securities or loans of any

companies named herein or for any other investment decision. This presentation does not constitute an offer to sell the

securities or loans of any companies named herein or a solicitation of proxies or votes and should not be construed as

consisting of investment advice.

This presentation has been prepared and is based on information obtained by us from publicly available sources. In

preparing this presentation, we have applied certain assumptions, have performed no due diligence, and have relied upon

and assumed, without assuming any responsibility for independent verification, the accuracy and completeness of all

financial, legal, regulatory, tax, accounting and other information provided to, discussed with or reviewed by us. We

assume no liability for any such information. This presentation is necessarily based on economic, monetary, market and

other conditions as in effect on, and the information made available to us as of, the dates indicated herein and we assume

no responsibility for updating or revising this presentation. Goldman Sachs does not provide accounting, tax, or legal

advice.

3

Agenda

I. The Backdrop

II. Is the Market Getting Better?

III. Okay, But We’ve Seen This Before…

IV. Why? What Has Changed?

V. Is the Recovery Durable?

The Backdrop

5

$1,999

$2,432$2,519 $2,549

$2,409

2009 2010 2011 2012 2013

Glo

bal

M&

A V

olu

me (

$b

n)

Global M&A Volumes Have Not Grown Since the

Financial Crisis…

Source: Thomson Reuters

CAGR

(2010-2013)

= (0.3)%

CAGR

(2009-2013)

= 4.8%

6

6.2%

4.9%

5.5%

6.0%

7.4%

8.5%

7.9%

6.5%

5.6% 5.5%5.2%

5.4%

4.3%4.6%

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 *

… And M&A Remains Low as a Proportion of

Global Equity Market Cap

Source: Thomson Reuters, Factset

* 2014 volume is annualized as of 20 March 2014. Excludes Charter’s bid for Time Warner Cable and Numericable’s bid for SFR.

“Lost”

M&A

$908bn

Average = 6.1%

7

$754 $787 $964 $933 $1,042

$618 $716

$751 $846 $641

$626

$929 $805 $770

$726 $1,999

$2,432 $2,519 $2,549

$2,409

2009 2010 2011 2012 2013

An

no

un

ce

d M

&A

Vo

lum

e (

$b

n)

US M&A Volume EMEA Rest of World

U.S. M&A Has Been the Biggest Contributor to

Volume and Growth…


2009-2013

CAGR

3.7%

0.9%

8.4%

8

… Driven By a Faster Recovery of U.S. GDP and

Strong Fixed Investment…

% Change in GDP (YoY)

% Change in Fixed Investment (YoY)

Source: GS Research; Region Aggregate Nominal GDP (PPP) Weighted

(2.8)%

2.5 % 1.8 %

2.8 % 1.9 %

2.8 % 3.2 %

(4.2)%

2.0 % 1.7 %

(0.3)%

0.1 %

1.6 % 1.8 %

(6.0)%

(4.0)%

(2.0)%

0.0 %

2.0 %

4.0 %

2009 2010 2011 2012 2013 2014 2015E

(16.7)%

1.5 %

6.2 % 8.3 %

4.3 % 6.4 %

7.9 %

(12.5)%

0.1 % 1.6 %

(2.7)% (2.3)%

2.7 % 2.9 %

(20.0)%

(15.0)%

(10.0)%

(5.0)%

0.0 %

5.0 %

10.0 %

2009 2010 2011 2012 2013 2014 2015E

USA Europe

9

European Corporates Still Rely Heavily on Bank

Funding

France Portugal Germany Italy Greece Spain US

0 %

10 %

20 %

30 %

40 %

50 %

60 %

70 %

80 %

90 %

100 %

Bond-Market Funding Bank Loans

10

… And European Banks Are Still in Recovery Mode

Source: Bloomberg

40%

60%

80%

100%

120%

140%

160%

180%

Nov-2009 Nov-2010 Nov-2011 Dec-2012 Dec-2013

Ind

exe

d P

ric

e

Daily from 02-Nov-2009 to 24-Mar-2014

S&P 500 Banks Index Stoxx Europe 600 Banks 79.1%

(2.5)%

11

Cross-Border M&A Has Been a Remarkably

Stable Contributor to M&A Activity

Strategic Cross-Border M&A Cross-Border M&A by Industry – 2009-2014 YTD

Cross-Border M&A by Industry – 2013-2014 YTD

Source: Thomson Reuters. 2014 YTD as of 20 March 2014. Total volume excludes Charter’s bid for Time Warner Cable and Numericable’s bid for

SFR. Analysis is for deals >$250 million.

* 2014 volume is annualized as of run rate on 20 March 2014.

Natural Resources

32%

Technology, Media & Telecom

17%

Industrial14%

Consumer Retail13%

Financial Institutions10%

Healthcare9%

Real Estate5%


22%

Natural Resources

21%

Industrial15%

Consumer Retail12%

Healthcare12%

Financial Institutions

9%

Real Estate8%

53%

60% 64%66%

64%

84%47%

40%36%

34%

36%

16%

25%

35%

31% 33%

28%

33%

2009 2010 2011 2012 2013 2014*

% o

f T

ota

l M

&A

An

no

un

ced

M&

A V

olu

me (

$b

n)

Cross-Region Intra-Region % of Total M&A

$404

$693

$638

$686

$551

$765

12

US27%

Other19%

Japan54%

$58.99

$40

$50

$60

$70

Sep-2013 Dec-2013 Mar-2014

US22%

Other23%

Japan55%

$20.17

$15

$16

$17

$18

$19

$20

$21

Sep-2013 Dec-2013 Mar-2014

Applied Materials’ Merger With Tokyo Electron

Applied Materials Tokyo Electron

Source: Bloomberg, Thomson Reuters

+9%

+13%

US90%

Other9%

Japan1%

US88%

Other11%

Japan1%

September 24, 2013

13

M&A Mix by Industry

2009-2012 2013-2014 YTD

Source: Thomson Reuters. 2014 YTD as of 20 March 2014. Volume excludes Charter’s bid for Time Warner Cable and Numericable’s bid for SFR.

Natural Resources29%

Financial Institutions16%


16%

Industrial11%

Consumer Retail10%

Real Estate9%

Healthcare9%


26%

Natural Resources20%

Real Estate15%

Consumer Retail12%

Industrial10%

Financial Institutions

9%

Healthcare9%

TMT and Natural Resources Are Going Through Significant Structural

Changes

14

While Broad Financial Sponsor Activity is Growing,

“Pure” LBO Activity Remains at 5% of Volume

Financial Sponsors Activity (ex IPOs) LBO Activity

Source: Thomson Reuters. 2014 YTD as of 20 March 2014. Total volume excludes Charter’s bid for Time Warner Cable and Numericable’s bid for SFR.

34%

45%32%

21%

43%

36%

66%

55%68%

79%

57%

64%

2%

6% 6% 5%

7%

6%

2009 2010 2011 2012 2013 2014YTD

% o

f T

ota

l M

&A

An

no

un

ced

M&

A V

olu

me (

$b

n)

Public Company Target Other % of Total M&A

$45

$134$140 $138

$176

$38

42%

35%

42%34%

48%

47%

14%

17%

15% 22%

16%

25%

44%

49%

43%44%

36%

28%

12%

20%

23%24%

25%26%

2009 2010 2011 2012 2013 2014YTD

% o

f T

ota

l M

&A

An

no

un

ce

d M

&A

Vo

lum

e (

$b

n)

Sponsor as Seller Secondary Sponsor Sales

Sponsor as Buyer % of Total M&A

$231

$491

$576$604 $606

$170

15

Divestitures and Spin-Offs Are Almost Half of M&A

Activity, Largely Driven by Activist Pressure…

Annual Divestiture Activity

Source: Thomson Reuters. 2014 YTD as of 20 March 2014. Total volume excludes Charter’s bid for Time Warner Cable and Numericable’s bid for SFR.

* 2014 volume is annualized as of run rate on 20 March 2014.

Recent Significant Divestitures / Spin-offs

$683

$1,045

$913

$1,177

$1,063

$967

34%

43%

36%

46%

44%

35%

2009 2010 2011 2012 2013 2014*

Div

es

titu

res

as

% o

f To

tal M

&A

Div

es

titu

re V

olu

me

($b

n)

Divestitures % of Total M&A

16

… Which Has Intensified as Their Funding Has

Grown

Source: HFR Global Hedge Fund Industry Report

$36.2

$46.8

$50.9

$65.5

$93.1

2009 2010 2011 2012 2013

AU

M (

$b

illi

on

)

17

Activism May Be the New Form of Hostile M&A

Source: Thomson Reuters, Factset. 2014 is annualized based on totals as of 20 March 2014.

$128

$335

26

173

-100%

0%

100%

200%

300%

400%

500%

600%

2009 2010 2011 2012 2013 2014 Annualized

Ind

exe

d V

alu

e

Global Hostile Volume ($bn) Activism Situations (#)

18

… Although Deal Jump Activity Has Been Active


Year Target Initial Topping Jurisdiction Industry

Amt

($bn)

Winning

Bidder

2014 Time Warner Cable Charter Communications Comcast Corp US Media $70.7 Pending

2012 Sprint Nextel Softbank DISH Network US Telecom 37.8 Initial

2013 Dell Silver Lake,

Management

Blackstone /

Carl Icahn US Technology 22.9 Initial

2014 SFR (Vivendi) Bouygues Telecom Numericable Gp Europe Telecom 18.1 Pending

2012 Clearwire Sprint Nextel DISH Network US Telecom 9.9 Initial

2013 Tele2 Russia Holding VTB A1 Investment /

Investor Group Europe Telecom 4.2 Initial

2013 Commonwealth Ppty

Office Fund GPT DEXUS Ppty, CPPIB Australia Real Estate 3.5 Topping

2013 Rede Energia COPEL, Energisa Energisa Latin America Nat Res 2.0 Initial

2014 Amcol International Imerys Minerals Technologies US Nat Res 1.7 Topping

2013 Block BC-10, Parque

das Conchas Sinochem BC-10 Petroleo Ltda Latin America Nat Res 1.5 Topping

2013 The Men’s Wearhouse Jos A Bank Clothiers N/A US Retail 1.5 Pac-Man

Successful

Total $173.8

Bidders

Is the Market Getting Better?

20

$490

$647

$566

$847

$502$525

$711$671

$599

Q1 12 Q2 12 Q3 12 Q4 12 Q1 13 Q2 13 Q3 13 Q4 13 Q1 14

Glo

bal

M&

A V

olu

me (

$b

n)

$684*

M&A Volumes Have Improved over the Last

Three Quarters…

* Estimated quarterly total for Q1 2014 based on volumes as of 20 March 2014.

Source: Thomson Reuters. Global volume excludes Charter’s bid for Time Warner Cable and Numericable’s bid for SFR. 2014 YTD as of 20

March 2014.

21

…With 2014 M&A Volumes Outpacing the Same

Period In the Prior Two Years…

Source: Thomson Reuters. 2014 as of March 20, 2014. Excludes Charter’s bid for Time Warner Cable and Numericable’s bid for SFR.

$429

$457

$641

$420$439

$599

2009 YTD 2010 YTD 2011 YTD 2012 YTD 2013 YTD 2014 YTD

Glo

ba

l M

&A

Vo

lum

e (

$b

n)

22

Global U.S. Only

Source: Thomson Reuters, as of March 25.

* 2014 YTD volume excludes Charter’s bid for Time Warner Cable ($62.6 billion)

** 2014 YTD volume excludes Numericable’s bid for SFR ($16.3 billion)

Significant Year on Year Gains 2013-2014

YTD

($ in billions) 2014 2013 % change y-o-y

Total M&A Volume *,** $623 $458 36 %

Strategic Cross-Border 223 107 108

Divestitures & Spinoffs ** 218 201 8

Hostile M&A 73 36 101

LBO 43 73 (41)

YTD

Number of Deals over: 2014 2013 % change y-o-y

$500mm *,** 208 155 34 %

$1bn *,** 111 82 35

$5bn *,** 16 7 129

$10bn *,** 8 4 100

YTD

($ in billions) 2014 2013 % change y-o-y

Total M&A Volume * $295 $223 32 %

Strategic Cross-Border 74 19 280

Divestitures & Spinoffs 75 81 (8)

Hostile M&A 69 28 148

LBO 30 60 (50)

YTD

Number of Deals over: 2014 2013 % change y-o-y

$500mm * 83 67 24 %

$1bn * 47 38 24

$5bn * 6 6 0

$10bn * 4 4 0

23

52% 54%59%

42% 42%

74%

27%29%

11%

24%

39%

10%1%

3%

2% 8%

2%5%

1%

8%

6% 2%

9% 5%

2%

5%

10%23%

5% 3%

17%13%

2% 2% 2%

2009 2010 2011 2012 2013 2014

% o

f $

Vo

lum

e o

f $

1b

n+

De

als

Corporate / Corporate Divestiture - Corporate Buyer Divestiture - LBO Buyer

Public to Private Spinoff Other

… Which is A Marked Shift in Tone

Source: Thomson Reuters. U.S. targeted deals >$1 billion. Other includes negotiated share repurchases and rescues. Analysis for 2014 as of 20

March 2014.

24

Corporate Leaders are More Confident…

Source: Factset

40

45

50

55

60

65

Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013

CEO Confidence

Above 50 = Positive

Below 50 = Negative

25

…The Impact of Share Buybacks is Less

Pronounced…

Note: Buyback yield is defined as shares repurchased divided by shares outstanding at the beginning of the period.

Source: GS Research

2.2%

2.8%

0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014

S&

P 5

00

Tra

ilin

g 1

2-m

on

th Y

ield

Dividend Yield

Buyback Yield

26

As Interest Rates Rise, Companies Are

Accelerating M&A Projects

Source: Bloomberg and Thomson Reuters

$0

$50

$100

$150

$200

$250

0%

2%

4%

6%

8%

10%

12%

14%

16%

Jan-1983 Jan-1987 Jan-1991 Jan-1995 Jan-1999 Jan-2003 Jan-2007 Jan-2011

US

An

no

un

ce

d M

&A

Vo

lum

e ($

bn

)

10 Y

ear

US

Tre

as

ury

Ra

te (

Co

ns

tan

t M

atu

rity

)

10Y US Treasury Rate US M&A Volume ($bn 3mo Moving Avg.)

Okay, But We’ve Seen This

Before…

… How Is the Market Different

Today?

28

(1.3)% (1.9)%

0.3 % 0.3 %

1.8 %

3.1 % 3.6 %

5.2 %

Ind

exed

Sto

ck

Pri

ce R

eacti

on

There Has Been A Demonstrable Shift Toward

Shareholder Support of M&A…

One-Day Indexed Stock Price Reaction for Buyers

One-Week Indexed Stock Price Reaction for Buyers

Note: Stock Price reaction relative to the S&P 500. Deals with transaction value greater than $1,000mm with a US public acquiror.

Source: Bloomberg, Thomson Reuters, Capital IQ

2008 2009 2010 2011 2012 2013 1H 2013 2H 2014 YTD

(1.7)% (1.7)%

(0.1)%

0.0 %

2.0 %

3.6 % 4.1 %

4.7 %

Ind

exed

Sto

ck

Pri

ce R

eacti

on

2008 2009 2010 2011 2012 2013 1H 2013 2H 2014 YTD

29

…Which Started to Accelerate in Q3 2013…

Source: Bloomberg, Thomson Reuters, Capital IQ. Deals with transaction value greater than $1,000mm with a US public acquiror.

Proportion of Deals with Positive Acquiror One Day Stock Price Reactions

50.0 %

54.2 %

69.6 %

75.0 % 73.3 %

Pro

po

rtio

n o

f D

ea

ls w

ith

Po

sit

ive

O

ne

Da

y S

toc

k P

ric

e R

ea

cti

on

s

Q1 2013 Q2 2013 Q3 2013 Q4 2013 2014 YTD

30

…Driven by Investor Sentiment Regarding EPS

Impact…

Source: Thomson Reuters, Company disclosure. Deals with transaction value greater than $1,000mm with a US public acquiror.

¹ Includes deals announced as dilutive or accretive in years after FY1.

² Deals that are announced as immediately accretive or accretive in FY1.

Dilutive Transactions1

2009-2010 2013-2014 YTD

Accretive Transactions2

2009-2010 2013-2014 YTD

(3.9)%

0.7 % 0.2 %

5.4 %

(6.0)%

(4.0)%

(2.0)%

0.0 %

2.0 %

4.0 %

6.0 %

Ac

qu

iro

r S

toc

k P

ric

e R

ea

cti

on

On

e D

ay

Po

st-

An

no

un

ce

me

nt

31

(15)%

(10)%

(5)%

0%

5%

10%

15%

(40)% (20)% 0% 20%

FY

2 A

cc

reti

on

Acquiror One Day Post Announcement Share Price Reaction

…And Clear Evidence That Investors Believe in

the Value of EPS Accretion Again…

2009-2010 2013-2014 YTD

Source: Thomson Reuters, IBES, Company’s disclosures. Deals with transaction value greater than $1,000mm with a US public acquiror.

Notes: (1) FY2 accretion represents FY2 expected accretion disclosed by the acquiror when available, or is otherwise FY2 EPS IBES estimate immediately

post close (or 6 months post announcement when close has not yet occurred) relative to FY2 EPS IBES estimate immediately pre-announcement.

R² = 0.1015

(10)%

(5)%

0%

5%

10%

15%

20%

25%

30%

(40)% (20)% 0% 20% 40%

FY

2 A

cc

reti

on

Acquiror One Day Post Announcement Share Price Reaction

R² = 0.428

32

5.0%

16.6%

10.8%

1.3%

15.0%

5.5%

20.0%

20.0%

23.2%

30.0%

31.1%

108.3%

0.0% 17.5% 35.0% 52.5% 70.0%

Devon /GeoSouthern

Advance AutoParts

PackagingCorp / Boise

Actavis /Warner Chilcott

SalixPharmaceuticals

/ Santarus

Scientific GameCorp / WMSIndustries

FY2 Accretion Acquiror Stock Price Reaction at Announcement

… Strong Projected Earnings Are Driving Stock

Prices Higher…

Significant cost and tax synergies (96% of target’s EBITDA)

Strong strategic rationale, significant revenue synergies

Operational synergies and tax benefits totally more than

$400mm (~30% of target’s EBITDA)

Strong consolidation rationale and significant synergies

(~35% of target’s EBITDA)

Strategic rationale and significant synergies (~70% of

target’s EBITDA)

Use of leverage to finance growth, market focus on

execution of forward growth plans

Notes: (1) FY2 accretion represents FY2 expected accretion disclosed by the acquiror when available, or is otherwise FY2 EPS IBES estimate immediately post close (or 6 months

post announcement when close has not yet occurred) relative to FY2 EPS IBES estimate immediately pre-announcement.

(2) Stock price reaction one day post announcement is relative to the undisturbed date.

Source: Thomson Reuters, Capital IQ

Key Drivers

100.0% 120.0%

33

… With Significant Underlying “Synergies” Announced Synergies as a % of Combined EBITDA

Source: Bloomberg, company filings

(4.4)%

3.4%

1.5%

18.1%

11.2%

3.9%

0.6%

5.0%

21.0%

6.5%

12.7%

13.1%

13.7%

13.8%

108.3%

20.2%

63.0%

122.0%

(10.0)% 5.0% 20.0% 35.0% 50.0% 65.0% 80.0%

Synergies as % of Combined EBITDA Acquiror Stock Price Reaction At Announcement

100.0% 150.0%

RF Micro Devices Inc / TriQuint Semiconductor Inc

Actavis plc / Forest Laboratories

Minerals Technologies / AMCOL International

Martin Marietta Materials / Texas Industries

Entegris Inc / ATMI Inc

Signet Jewelers Ltd / Zale Corp

Brookdale SeniorLiving Inc / Emeritus Corp

Kite Realty Group Trust / Inland Diversified Real Estate Trust

Comcast Corp / Time Warner Cable Inc

34

$99.04

$75

$80

$85

$90

$95

$100

18-Feb-2014 25-Feb-2014 4-Mar-2014

Clo

sin

g P

ric

e (

US

D)

… Illustrated by Signet’s Acquisition of Zale…


41% premium

Investors expect deal to be dilutive due to

the high premium

Announces synergies of $100mm,

representing 143% of the target’s EBITDA

+18%

+25%

February 19, 2014

35

However, Reaction Has Varied by Sector…

Note: Includes deals from 2013 and 2014 YTD with a transaction value of $1,000mm or greater and a US public acquiror.

Source: Capital IQ, Thomson Reuters

6.5%6.3%

7.3%

6.4%

7.6%

9.3%

3.9%

5.1%5.4%

3.0% 3.0%

5.6%

2.0%

1.1%

2.7%

0.5% 0.7%

2.4%

(1.6)% (1.5)%

(2.3)%

(4.0)%

(2.0)%

-

2.0%

4.0%

6.0%

8.0%

10.0%

One Day One Week One Month

Ac

qu

iro

r S

toc

k P

ric

e R

ea

cti

on

Consumer Retail Industrials Healthcare TMT Real Estate Energy and Power Financials

Why? What Has Changed?

… Positive Investor Sentiment Has

Been the Missing Piece

37

4,401

4,279

4,171

4,102

4,180

3,950

4,000

4,050

4,100

4,150

4,200

4,250

4,300

4,350

4,400

4,450

2009 2010 2011 2012 2013

# o

f D

om

es

tic

Co

mp

an

ies

Lis

ted

on

NY

SE

an

d

Na

sd

aq

Source: World Federation of Exchanges

There Are Fewer Opportunities to Invest in the

Public Markets…

38

… And There Are Record Inflows Into Equity

Mutual Funds…

Source: Strategic Insight Simfunds

$(40)

$(149)

$ 44

$ 405

$ 462

$(200)

$(100)

$ 0

$ 100

$ 200

$ 300

$ 400

$ 500

2009 2010 2011 2012 2013

Ne

t N

ew

Flo

ws

($

bn

)

39

… Which Is Helping the US and European IPO

Markets…

US IPOs Year to Date

US IPOs by Industry (2013-2014 YTD)

European IPOs Year to Date

European IPOs by Industry (2013-2014 YTD)

Source: Dealogic and Thomson Reuters; YTD as of March 19. Industry mix based on dollar volume.

$3.5

$6.8

$8.627 25

45

0

10

20

30

40

50

0

2

4

6

8

10

12

14

16

2012 YTD 2013 YTD 2014 YTD

# o

f IP

Os

$ V

ol

($b

n)

Deal Value ($bn) # of Deals

$0.7

$3.1

$13.7

1915

30

0

10

20

30

40

50

0

2

4

6

8

10

12

14

16

2012 YTD 2013 YTD 2014 YTD

# o

f IP

Os

$ V

ol

($b

n)

Deal Value ($bn) # of Deals

CRG, 4 %

FIG, 48 %

HC, 10 %

IND, 5 %

NR, 14 %

RE, 8 %

TMT, 11 %

CRG, 7 %

FIG, 32 %

HC, 0 %

IND, 23 %

NR, 11%

RE, 13 %

TMT, 14 %

40

$(197.8)

$(316.9)

$(111.1)

$ 180.0 $ 173.6

$(0.1)

$(350.0)

$(250.0)

$(150.0)

$(50.0)

$ 50.0

$ 150.0

$ 250.0

$ 350.0

2009 2010 2011 2012 2013 2014 YTD

Investors Are Turning to “Active” Funds Again…

Flows to Passive Funds ($bn)

Flows to Active Funds ($bn)

Source: Strategic Insight Simfunds, 2014 YTD as of Feb-14

$ 157.6 $ 168.1 $ 155.2

$ 225.2 $ 288.7

$ 46.5

$(350.0)

$(250.0)

$(150.0)

$(50.0)

$ 50.0

$ 150.0

$ 250.0

$ 350.0

2009 2010 2011 2012 2013 2014 YTD

41

… And “Active” Fund Managers Need to Create

Alpha and Generate Superior Returns

Cumulative Average Returns to Passive Funds (%)

Cumulative Average Returns to Active Funds (%)

Note: Returns are net of fees

Source: Strategic Insight Simfunds

28.5%

13.3%

(4.9)%

12.3%

18.5%

1.4%

(5.0)%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

2009 2010 2011 2012 2013 2014 YTD

26.8%

12.3%

(1.5)%

11.5% 15.3%

1.6%

(5.0)%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

2009 2010 2011 2012 2013 2014 YTD

42

Which is Driving Some Investors Into Deal

Stocks to Create Alpha…

Source: Thomson Reuters, Bloomberg, Deals with transaction value of $2,000mm or greater, with a US public acquiror.

3.5x

5.4x 5.7x

6.4x

At Announcement

Mu

ltip

le t

o A

cq

uir

or

Pre

-An

no

un

ce

men

t 3 M

on

th

AD

TV

2010 2011 2013 2014 YTD

43

… And Some Targets To Trade Through Offer

Prices... Acquiror One Week Gross Arbitrage Spread

Source: Thomson Reuters, Capital IQ

0.2%

0.3%

0.3%

2.6%

3.2%

5.8%

8.4%

0.0% 2.0% 4.0% 6.0% 8.0% 10.0%

Zale / Signet Jewelers

Santarus / Salix Pharmaceuticals

CEC Entertainment / Apollo Global Management

ArthroCare Corp / Smith & Nephew

Celesio AG / McKesson Corp

Sirius XM / Liberty Media

AMCOL International / Minerals Technologies

Acquiror One Week Gross Arbitrage Spread

44


0.0 %

1.0 %

2.0 %

3.0 %

31-Jan 3-Feb 6-Feb 9-Feb 12-Feb 15-Feb 18-Feb 21-Feb 24-Feb 27-Feb 2-Mar 5-Mar

Gro

ss S

pre

ad

6-Mar-2013: Arthro files a merger proxy

Arthro shares trade as high as 2.5% above offer price

as investors expect competing bid(s)

SEC filings indicate that the company ran a full process

with 8 other potential acquirors

Stock price closes at offer price of $48.25 as

competing bid appears unlikely

… Until Investors Read the Filings

Smith & Nephew’s Acquisition of Arthrocare

Is the Recovery Durable?

46

Investors Are Strongly Encouraging Companies

to Invest and Grow to Fill the Growth Gap

Source: Bloomberg

66%

46%

14%

(10)%

0%

10%

20%

30%

40%

50%

60%

70%

Sep-11 Feb-12 Jun-12 Oct-12 Feb-13 Jun-13 Oct-13 Mar-14

Cu

mu

lati

ve

Gro

wth

Sin

ce

30-S

ep

-2011

S&P 500 Increase FY1 PE Increase Earnings Increase

PE MultipleExpansion

47

$2,407

$253

$655

$3,315

2013 Global M&A Additional M&A Volume if USReturns to 10-year Average of

Market Cap

Additional M&A Volume if Asia &Europe Return to 10-year

AverageProportion to US Volume

2013 + "Return to Normal"

An

no

un

ce

d M

&A

Vo

lum

e (

$b

n)

What if M&A Activity Approached Historic Levels

of Relative Volumes?

Source: Thomson Reuters and FactSet

+11%

+27%

+38%

48

Shuanghui Intl / Smithfield Foods

Glencore Intl / Xstrata

CITIC / AsiaInfo-Linkage

AT&T / T-Mobile

United Parcel Service / TNT Express

Deutsche Borse / NYSE Euronext

Anheuser-Busch InBev / Grupo Modelo

AMR Corp / US Airways

Silver Lake / Dell

McKesson / Celesio

Boise / PCA

Shanghui Intl / Smithfield Foods

Coca-Cola / China Huiyuan Juice

BHP Billiton / Potash Corp

BAE Systems / EADS

Shareholders

Government Regulators

But… There Are Plenty of Headwinds

49

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

1985 1989 1993 1997 2001 2005 2009 2013

Glo

bal M

&A

Vo

lum

e (

$b

n)

The Long Term View of M&A Market is Volatile…

But Upward Trending


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