Not one to mince words, KPS Capital's Michael Psaros offers a ...

01-02_Toc.qxd 1/12/09 2:21 PM Page 1ContentsFebruary 2009 | Volume 44 | Number 02Cover StoryBrass TacksNot one to mincewords, KPS Capital’sMichael Psaros offersa candid view of themarket. Some dealpros may want tolook away.Michael Psaros giveshis take of what awaits.36The Water Cooler10 The joke is on National Lampoon’s CEO; Platinum runs a reverseon the AFL; Is TARP stepping on the toes of PE? Plus other newsM&A pros are talking about.Round Up20 Activists Adapt22 Does M&A Have a Madoff in its Midst?24 Bailout Answers Few Questions for Suppliers26 Strategics Reverse CourseCover Photograph by johncalphoto.comLBO Watch28 Considering the Unthinkable30 Downsized32 Combing for Add-Ons33 Going Back to the WellDebt Monitor34 Where’s the Mezz?

01-02_Toc.qxd 1/12/09 2:21 PM Page 2ContentsFebruary 2009 | Volume 44 | Number 02M&A is both the cause andthe victim of difficulty inthe chemicals space48Association for Corporate Growth6 Who’s Who8 Letter to Members78 The Pulse80 Community CommentaryFeatures44 1-800-Flowers.com in Full Bloom46 Profile: Madison Capital’s Circle of Trust48 Chemicals Sector: Catching the VaporsThe Changing Scene72 M&A’s revolving door spinsData50 2008, as told by the numbersCompany Index88 Companies cited in this issue

04_InsideWord.qxd 1/12/09 2:21 PM Page 4Inside WordAn RFPWe’re already two months into the New Year, and considering the marketin 2008, I’m sure few people want to look back. As it stands rightnow, however, 2009 isn’t shaping up to be much better. Indeed, our mostrecent issue can be pretty depressing when one considers the job losses (story foundon page 30), fraud (page 22), and overall unrest facing most sectors today (pages24 or 48). Michael Psaros, in our cover story, warns that this depression — hiswords, not mine — could stretch into 2010.So what is a deal pro to do? My suggestion would be to embrace the small victoriesand just keep plugging away until the market turns.It’s akin to a depressing Thanksgiving scene from a sappy movie. The father loseshis job, the mom is going through some emotional issues, and the son gets cutfrom the basketball team. To make matters worse, old Uncle Pete lost his filteryears ago, so he is at the end of the table being way too honest about the state ofaffairs. When it comes time to express thanks, though, everything is put into perspectiveand the family realizes things aren’t so bad after all.With this in mind, we’re about to embark on our Mid-Market Awards, celebratingthe best deals and dealmakers. While 2008 was an all-around dismal year,there were more than a few standouts who were able to shine.We have altered the format a bit, enabling us to recognize other areas in the dealworld that are worthy of recognition. The categories this year include:Deal of the YearPro of the YearPrivate Equity Firm of the YearStrategic Buyer of the YearAdviser of the YearLender of the YearLaw Firm of the YearWe’re also eschewing the typical ceremony in favor of a panel at InterGrowth.The panel will be comprised of select award winners, who will provide their takeof the M&A market. It promises to be much more engaging for both the audienceand the award winners than the awkward Lucite handoffs.When it comes to submissions, I would stress that we always prefer as muchdetail as possible. More information can be found at our website, www.mergersunleashed.com.As always, if you have any questions or thoughts, please don’t hesitate to reach out.Thanks,Ken MacFadyenken.macfadyen@sourcemedia.comFebruary 2009 Volume 44, Number 2EditorSenior ReportersContributing EditorsContributing ReportersKen MacFadyenken.macfadyen@sourcemedia.comJonathan Marinojonathan.marino@sourcemedia.comAvram Davisavram.davis@sourcemedia.comDanielle Fugazydanielle.fugazy@sourcemedia.comTom Granahanthomas.granahan@sourcemedia.comCarol Clousecarol.clouse@sourcemedia.comKelly Holman, Matthew SheahanAleksandrs Rozens, Josh HamermanEVP & Managing Director Capital Markets Division Mike Stantonmichael.stanton@sourcemedia.comAssociate Publisher/AdvertisingNaz Bayazitnaz.bayazit@sourcemedia.comExecutive Director Creative ServicesSharon Pollacksharon.pollack@sourcemedia.comArt DirectorNikhil Malinikhil.mali@sourcemedia.comAssociate Art DirectorFritz Laurorefritz.laurore@sourcemedia.comExecutive Director of ManufacturingStacy Ferrarastacy.ferrara@sourcemedia.comProduction DirectorDeborah Kimdeborah.kim@sourcemedia.comAssociate Production ManagerNaphtali Davidnaphtali.david@sourcemedia.comAdvertising CoordinatorAshley Johnsonashley.johnson@sourcemedia.comReprint SalesFulfillment ManagerDistribution ManagerMarketing ManagerSourceMedia, Inc.Chairman & CEOChief Financial OfficerVice President, Sales & Customer ServiceSenior Vice President, Finance & AccountingSenior Vice President, OperationsExecutive Vice President & Chief Content OfficerDenise Petratosdenise.petratos@sourcemedia.comLynn Sherwoodlynn.sherwood@sourcemedia.comMark Ferraramark.ferrara@sourcemedia.comRobert Hanrobert.han@sourcemedia.comJames M. MalkinWilliam JohnstonSteve AndreazzaRichard AntoneckCelie BaussanDavid LongobardiExecutive Vice President, Marketing & Strategic Planning Anne O’BrienSenior Vice President, Brand ManagementHolly SraeelSenior Director, Human ResourcesYing WongReproduction or electronic forwarding of this product is a violationof federal copyright law! Site licenses are available - please call CustomerService (800) 221-1809 or custserv@sourcemedia.comMergers & Acquisitions,The Dealmaker’s Journal (ISSN 0026-0010)is published monthly by SourceMedia, Inc. One State Street Plaza, 27thFloor, New York, NY 10004. Telephone: (212) 803-8200.Editorial Offices: 1500 Market Street, East Tower, 12th Floor, Philadelphia,PA 19102. Telephone: (215) 246-3464; Fax: (215) 665-5763.Customer Service: For subscriptions, renewals, address changes, ordelivery service issues contact our Customer Service Department at (800)221-1809 or (212) 803-8333; e-mail at custserv@sourcemedia.com;or send correspondence to Customer Service-Mergers & Acquisitions,SourceMedia, One State Street Plaza, 27th Floor, New York NY 10004.Periodicals postage paid at New York, NY, and additional mailing offices.Subscriptions: Yearly subscription is $695; add $175 for foreign airmail.Please address subscription questions to Customer Service.Postmaster: Send address changes to: Mergers & Acquisitions/ Source-Media, Inc., One State Street Plaza, 27th Floor, New York, NY 10004.Advertising: For information, contact Naz Bayazit at (212) 803-8638 ornaz.bayazit@sourcemedia.com.Reprints/Web Rights: To order reprints or request web rights,contact Denise Petratos at (212) 803-6557 or denise.petratos@sourcemedia.com.This publication is designed to provide accurate and authoritative informationregarding the subject matter covered. It is sold with the understandingthat the publisher is not engaged in rendering financial, legal,accounting, tax, or other professional service. Mergers & Acquisitions isa registered trademark used herein under license.© 2009 Mergers & Acquisitions and SourceMedia, Inc. All rights reserved.4 MERGERS & ACQUISITIONS February 2009

06-08,78-85_ACG.qxd 4/6/09 5:11 PM Page 6WHO’S WHOACG Board 0f DirectorsGary A. LaBranchePresident and CEOHarris SmithChairmanhsmith@gt.comRobert BlumenfeldChapter Representative Directorbobby@bpcllc.comClifford Braly, III.Chapter Representative Directorcbraly@deloitte.comGlenn BurroughsChapter Representative Directorglenn.burroughs@pncbusinesscredit.comMichael A. CarrChapter Representative Directormichael.carr@americancapital.comJack DerbyDirector at Largejack@derbymanagement.comMatthew FinlayChapter Representative Directormfinlay@midmarkcapital.comMichael GibbonsDirector at Largemgibbons@bglco.comPatti GillenwaterChapter Representative Directorpatti@elinvar.comJeri J. HarmanDirector at Largejeriharman@gmail.comWilliam T. Hobbs II.Chapter Representative Directorwhobbs@carouselcap.comSteve HumkeChapter Representative Directorhumke@icemiller.comStuart JohnsonCorporate Secretaryscjohnson@pogolaw.comMark JonesChairman of ACG InterGrowth 2008mjones@riverassociatesllc.comConnie MahmoodDirector at Largecmahmood@allcapcorp.comRobin MarshallDirector at LargeRobin_Marshall@3i.comDavid MeadDirector at Largemeaddp@meadconsultinggroup.comCraig MillerChapter Representative Directorcmiller@poweringgrowth.comJames F. O’DonnellChairman of Financejfodonnell@sbcglobal.netUte RaabChapter Representative Directoru.raab@lincolninternational.deAndrew RiceDirector at Largearice@jordanind.comPaul A. StewartImmediate Past Chairmanpstewart@pscapitalpartners.comDoug TatumDirector at Largedoug.tatum@co-investmentpartnership.comThomas WaltonChairman of InterGrowth 2009twalton@joyglobal.comDennis J. WhiteVice Chairmandwhite@mwe.comPhillip WordenChapter Representative Directorphil.worden@bankofamerica.comMembers of ACGExecutive CommitteeACG Honorary DirectorsRobert G. CoffeyAlan B. GelbandThomas J. SmithACG ChaptersACG 101 Corridorwww.acg101.orgPresident and CEOGary A. LaBrancheACG Arizonawww.acg.org/arizonaACG Atlantaacg.org/atlantaACG Austriawww.acg.org/austriaACG Bostonwww.acgboston.orgACG Calgarywww.acg.org/calgaryACG CarolinasACG Central Texaschapters.acg.org/centraltexas/ACG Chicagowww.acg.org/chicagoACG Cincinnatiwww.acg.org/cincinnatiACG Clevelandwww.acg.org/clevelandACG Columbuswww.acg.org/columbusACG Connecticutwww.acg.org/connecticutACG Dallas/Fort Worthwww.acg.org/dallasACG Denverwww.acg.org/denverACG Detroitwww.acg.org/detroitACG Francewww.acg.org/parisACG FrankfurtACG HollandACG Houstonwww.acg.org/houstonACG Indianawww.acg.org/indianaACG Kansas Citywww.acg.org/kcACG Kentuckyhttp://chapters.acg.org/kentuckyACG Los Angeleswww.acgla.orgACG Louisianawww.acg.org/louisianaACG Marylandwww.acg.org/baltimoreACG Memphiswww.acg.org/memphisACG Minnesotawww.acg.org/minnesotaACG External Affairs/Media ManagerWilliam Haynes, bill.haynes@backbaycommunications.comPeter Czyryca, peter@backbaycommunications.comACG Sales DirectorJoanne Bonaminio, jbonaminio@acg.org, 312-673-4981ContributorsGary A. LaBranche, Harris Smith, Denise Walsh, Robert Shepherd,Ivan R. Lehon, Richard Sibery,Tom Pannell,Travus DrouinACG National Capitalwww.acg.org/capitalACG New Jerseywww.acg.org/njACG New Yorkwww.acgnyc.orgACG North FloridaACG Orange Countywww.acg.org/occACG Orlandowww.acg.org/orlandoACG Philadelphiawww.acg.org/philadelphiaACG Pittsburghwww.acg.org/pittsburghACG Portlandwww.acgportland.orgACG Research Trianglewww.acg.org/rtpACG Rhein-Ruhrwww.acg-rhein-ruhr.deACG Richmondwww.acg.org/richmondACG San Diegowww.acgsd.orgACG San Franciscowww.acg.org/sanfranciscoACG Seattlewww.acg.org/seattleACG Silicon Valleywww.acg.org/svACG South Floridawww.acg.org/southïorida/ACG St. Louiswww.acg.org/stlouisACG Tampa Baywww.acg.org/tampabayACG Torontowww.acg.org/torontoACG UKwww.acg.org/ukACG Utahwww.acg.org/utahACG Vancouverwww.acg.org/vancouverACG Western Michiganwww.acgwmich.orgACG Wisconsinwww.acg.org/wisconsinAssociation for Corporate Growth616 N. North Court, Suite 210Palatine, IL 60067ACG Membership: 877-358-2220; 847-934-5425www.acg.orgSubmit an Article:Want to share Best Practices with other members?Looking to promote your Chapter’s success?Have a brilliant M&A-related story idea?Email Peter Czyryca of BackBay Communications:Peter@backbaycommunications.com6 ACG > MERGERS & ACQUISITIONS February 2009

10-19_Watercooler.qxd 4/6/09 5:37 PM Page 10Water Coolerwhat players in the midmarket are talking aboutDOUBLE-SECRET PROBATION The Securitiesand Exchange Commission charged National Lampoonchief executive Daniel Laikin, as well as threeother individuals, with providing kickbacks for stock purchases.The scheme sought to artificially inflate National Lampoon’sstock price, an effort, the complaint says, that was designedto improve the company’s ability to seal strategicpartnerships and acquisitions.National Lampoon is best known for such blockbusters asAnimal House and Vacation, though the company has diversifiedin recent years to add cable programming and websitesto its portfolio. Last year, Laikin told Mergers & Acquisitions(“The New Lampoon,” May 2008) that his ultimate goal wasto “sell [the business] as a fully integrated comedy/collegelifestyle media company.” He identified TimeWarner or Viacomas possible suitors.In the SEC’s complaint, however, Laikin was quoted astelling an informant that he needed to inflate the stock priceto further drive his growth plan. The complaint says: “Laikinspecifically discussed his need to have the stock trading at higherlevels, stating that ‘there are some small acquisitions that Iwant to make and I can make those with stock.’”Laikin also allegedly told the informant that he had turneddown acquisition offers from “every major media company” becausehe didn’t think the stock price — at the time trading atroughly $2 per share — representeda “fair public valuation.”Another concern forLaikin, according to the complaint,was that National Lampoon’sstock price had fallenbelow Amex listing standards.Laikin, along with consultantDennis Barsky, paid at least$68,000 to stock promoters,one of whom was an informant.Collectively, the promoterspurchased 87,500 shares ofNational Lampoon stock, aimingto artificially inflate theprice “to at least $5.00 a share.”Laikin first invested in NationalLampoon through the now-defunct Indianapolis investmentfirm Four Leaf Partners. He acquired a controllingstake in the business in 2002, and assumed the CEO role threeyears later. During his time at the company, National Lampoonmade a number of acquisitions, buying cable programmerBurly Bear Network in addition to deals for websites ComedyExpress, Rival Fish, College Hangover and DrunkUniversity.Laikin shoots himself in the foot.LPs suffering from too much PETOO MUCH OF ABAD THING The denominatoreffect is takingits toll on limited partners,according to Coller Capital’s mostrecent global survey of institutionalinvestors, as over a quarter ofNorth American LPs expect to beover-allocated to private equity in2009 — a result, largely, of weaknessin other asset classes.Jeremy Coller, who heads thesecondary firm, cited both a “distributionsdrought” from private equity firms as well as the oftciteddenominator effect, which describes the inverse climb inprivate equity allocations as competing, more liquid, asset classes— such as equities, fixed income and real estate — sink.The Coller Capital study does not bode well for PE firms intenton raising funds in the next 12 months. The survey, whichpolled 107 investors in private equity worldwide, revealed that66% anticipate being “at or above” their target allocations for theasset class. Moreover, investors that still have room for additionalcommitments are scrutinizing their general partner relationshipsmore closely. Four out five, for example, have cut ties withexisting GPs during the past year, with performance, style driftand staff turnover representing the top three reasons for refusingfollow-up investments.The majority of those polled also anticipate that mega buyoutfunds will not fare well in the current environment. Over 60%are expecting the most recent vintage of mega funds will returnless than 1.5x committed capital, and seven percent believereturns could gravitate into negative territory.Alternatively, the small and lower-mid markets are seen as outperformersover the next 12 months, both in terms of returnsand activity. More than 40% see returns coming in over twotimes or higher from buyout firms targeting deals below $200million in size, and in the lower middle market, deals under$500 million, roughly a third of LPs anticipate draw downs willexceed 2008 numbers.While the survey paints a pretty grim picture, the silver liningis that institutional investors, by and large, still view private equityas more appealing than other options. And the poll, as it turnsout, also bodes well for the secondaries market, which will likelybe a beneficiary as LPs seek to reconfigure their allocation mix.10 MERGERS & ACQUISITIONS February 2009

10-19_Watercooler.qxd 4/6/09 5:37 PM Page 12Water Coolerwhat players in the midmarket are talking aboutINCOMPLETE Platinum Equity went from hero to goatin a matter of months after the firm decided to pull its reported$100 million offer to acquire a stake in the ArenaFootball League. The withdrawal forced the league to suspendits 2009 season.The Sports Business Journal reported that Platinum balkedat the league’s $24 million operating loss. As originally conceived,the Los Angeles private equity firm had planned to pouras much as $100 million into the league, garnering a 40% stakein the process, and would assume managerial oversight of the entireleague and its 16 teams. The deal was similar to an offerBain Capital and Ontario Teachers’ Merchant Bank had floatedby the NationalHockey League in2005 after the strike, aproposal that was ultimatelyturned down bythe NHL.The offer for theAFL, meanwhile, hadbeen structured to givePlatinum control ofticketing and sponsorships of the entire league, while the individualfranchise owners would maintain oversight of on-thefielddecisions, such as coaching and player personnel.The league, when it called off the 2009 season, said it wasworking on a long-term plan to improve its economic model.The AFL counts Jon Bon Jovi, John Elway, Jerry Jones andArthur Blank among its team owners.The AFL has served as a farm league of sorts for the NationalFootball League, as Kurt Warner, Rob Bironas, and Stylez G.White all cut their teeth in the arena football before graduatingto the NFL. The league, however, has faced tough times thathave only worsened with the softening economy.Jim Renacci, who owns the Columbus Destroyers and servesas the vice chairman of the AFL’s executive committee, alludedto this in a transcribed conference call with reporters and notedthat the league’s dealings with Platinum were not completelyin vain.“All professional sports leagues will find corporate sponsorshipsdeclining, especially over this last 90 days,” he said. “Theequity group that took a look at the league gave us a lot ofgood ideas and I think it’s time to implement those and putthem in place.”Trips right, AFL dive, on two.ESAPS “Going forward, employees participating in theESOP will be invested alongside Sam Zell, one of today’smost successful investors.” It sounded good at thetime. Lately, though, Dennis FitzSimons’ comments on the TribuneCo. sale in the April 2007 press release would be almostlaughable if the employees hadn’t lost so much from the ill-fateddeal.Immediately following Sam Zell’s $8.2 billion buyout ofTribune Co., his use of an employee stock-ownership plan[ESOP] to help fund the transaction renewed interest in thedeal community in the employee-backed funding source [“ESOPson the Rise,” June 1, 2008]. But considering the travails of Tribuneand the company’s recent bankruptcy, Zell may have donemore bad than good for the ESOP market.Tribune’s employees, through the stock-ownership plan,hold 100% of the company’s common equity, which leavesthem essentially last in line to recover anything when the companyemerges from Chapter 11protection. Zell, meanwhile,since his investment took theform of a promissory note andwarrants — together valued at$315 million — is better protected,although he does face alawsuit filed in September byemployees who claim that heforced their hand in creating theESOP.Whether or not Sam ZellWill Sam Zell be credited for killingthe ESOP?killed the ESOP remains to be seen. At the very least, ESOPsare going to be a tougher sell to employees, who will likely bea bit more circumspect at the prospect of the stock ownershipplans, even it’s the “most successful investors” they’rebacking.12 MERGERS & ACQUISITIONS February 2009

10-19_Watercooler.qxd 4/6/09 5:37 PM Page 13Water Coolerwhat players in the midmarket are talking aboutINSIDE EDITION The goal of publicrelations, a PR pro would argue, isto help shape the news. The BrunswickGroup, however, is making headlines, asthe PR firm sits square in the middle of thelatest insider trading case.According to a complaint from the Securitiesand Exchange Commission, formerLehman Brothers broker MatthewDevlin misappropriated nonpublic informationfrom his wife, Brunswick executiveNina Devlin, about corporate transactionsinvolving accounts her firm was representing.The SEC claims that Devlin passedthis information on to clients, yielding over$4.8 million in illegal profits.According to the complaint, Devlinwas provided with cash and luxury itemsfor the tips, and he also had other peoplemake attempts to trade on his behalf. Inaddition to cash payments, Devlin receiveda Cartier watch, a Barneys New York giftcard, a widescreen television and a RalphLauren leather jacket.Devlin and his wife were married in2003, a year after she started working atBrunswick Group. The SEC claims thatthrough this connection, Devlin misappropriatedinformation involving a minimumof 12 M&A transactions or offers, includingdeals for Alcan Inc., Abgenix, EonLabs, Take Two Interactive, Anheuser-Busch and Rohm & Haas Co. The complaintcited correspondence between Devlinand his clients and friends that refer tohis wife as the “golden goose.”This isn’t the first time a PR firm gotcaught up in an insider trading scandal.Intermarket Communications’ former chiefexecutive Matthew Zachowski was nabbedby authorities last year. A similar case occurredin 2002, when Lawrence Dobrow,then an account director at Ogilvy PublicRelations Worldwide, tipped off his fatherabout a possible acquisition.In the Devlin case, however, the SECdid not levy any charges against either NinaDevlin or Brunswick.February 2009 MERGERS & ACQUISITIONS 13

10-19_Watercooler.qxd 4/6/09 5:37 PM Page 14Water Coolerwhat players in the midmarket are talking aboutTomorrow’sDealsTaking stock ofwhat dealmakersare looking atWE WON’T BE UNDER SOLD! Before the governmentauthorized a bailout for the automakers, theBig Three had to put forth plans on how they willstabilize their businesses. As it turns out, M&A figured prominentlyin the respective stabilization blueprints.Ford Motor Co. was the most specific, identifying that it iscurrently exploring the possible sale of Sweden-based Volvo CarCorp. The review, Ford chief Alan Mulally testified, is in linewith previous efforts to “focus on the Ford brand,” which includedsales of Aston Martin, Jaguar, Land Rover and its majoritystake in Mazda.General Motors was a bit more vague, saying only that itwould look to implement a “reduction in brands, nameplatesand retail outlets” to concentrate more closely on the company’sprofitable operations. The company has signaled, however, thatboth Saab and Hummer are candidates for possible divestitures.Chrysler’s Bob Nardelli didn’t discuss any divestitures, thoughhe alluded to the possibility of a larger deal. “Further partnership,restructuring and consolidation would make the US autoOn blocksindustry even more viable and competitive in the long run,” hetestified, a statement that would seem to be in line with rumorsin December that Chrysler had rekindled deal talks with GeneralMotors. Spokespeople from Chrysler and GM refuted the rumor,which was first published in the Wall Street Journal.NO SALE Weyerhaeuser Co. has experienced some luck with divestituresconsidering its $6 billion sale of its container-boardpackaging and recycling business to International Paper. However,the company’s smaller sale processes haven’t been as well received.In light of this, Weyerhaeuser has discontinued its efforts to sell its WestwoodShipping Line, which operates a fleet of seven vessels used to shipover-sized cargo to more than 20 ports in Japan, Korea, China and NorthAmerica.“We did not feel that the current market conditions would allow us torecognize a reasonable value for our assets and operations,” Guy Stephenson,Westwood Shipping Line president, said in a statement. The companyfirst announced plans to sell the business in May.Timber!The abandoned auction does not affect Weyerhaeuser’s efforts to sellits four regional short-line railroads. The railroads, which run throughArkansas, Oklahoma, Mississippi and Washington, are used by the company as well as select third-party customers.Weyerhaeuser, like many, has struggled in the face of the global economic downturn. The company, in December, cut its dividendand trimmed its 2009 capital spending budget by roughly 50 percent. These efforts, along with other cost saving initiatives,are targeting $375 million in expense reductions.14 MERGERS & ACQUISITIONS February 2009

10-19_Watercooler.qxd 4/6/09 5:37 PM Page 15Water Coolerwhat players in the midmarket are talking aboutFounder seeks liquidityBACK IN THE FOLD Vinod Gupta, the founder ofmarketing company infoGROUP, is pushing for a saleof his former business, saying that he would considereither buying thecompany himselfor would sell his40% stake in apossible deal.“I am exploringworking withan equity partnerto make a cashproposal for thecompany to theboard of directors,”he said in astatement, adding, “I want to emphasize that I would alsobe willing to sell my shares for liquid stock or cash if thatproves to be the best transaction for all the stockholders ofthe company.”Gupta has retained the Blackstone Group as a financialadviser and tapped Latham & Watkins as legal counsel.The company, meanwhile, responded by saying that “inthe regular course of discussions,” the board has already considered“various opportunities.” Company chairman BernardReznicek noted that the economic environment and the conditionof the capital markets would make it “a challengingtime” to seek a sale.Reznicek, however, acceded to Gupta’s demands, saying,“Nevertheless, because the company founder and major shareholderhas expressed an interest in selling the company, theindependent directors will review...our present and projectedresults of operations and general market conditions to determinewhat is in the best interests of all our shareholders.”Evercore Partners will advise the board in the review.Gupta, who founded the company in 1972, stepped downas its CEO and chairman last year as part of a settlement relatedto a shareholder lawsuit. He was accused of misspendingmillions of dollars on things such as homes, cars and a yacht.He also hired former president Bill Clinton as a consultant, anexpense that the lawsuit claimed benefited Gupta as opposedto the company. He also got into hot water over advertisementsthat ran during Super Bowl XLII for Salesgenie, a divisionof infoGROUP. Gupta, himself, authored the ads, whichcritics said conveyed negative stereotypes.Seeking Alpha noted that Gupta’s motivations seem suspect,speculating that if he was intent on buying the company,announcing his objective would only serve to pushthe price higher. The blog noted that he committed almosthalf of his stake in infoGROUP to be used as collateral fora loan, which could play a role in his desire for liquidity, oralternatively, he may need the cash to repay the company $2.2million, a sum determined as part of his settlement withshareholders.FALLBACK PLAN When BHP Billiton’s unsolicited$66 billion deal for Rio Tinto fell apart, the publiclyheld UK mining and resources company wasforced to move along to Plan B, which alongside layoffs totaling14,000 employees includes an effort to pursue moredivestitures than originally planned.Struggling under a burden of about $40 billion in debt,Rio Tinto plans to reduce its debt by $10 billion by the endof 2009. The companyhas not signaled whichbusiness units it is con-Rio Tinto mines for interestsidering divesting,though the company’sstatement in the secondweek of December signaledthe divestitureswould be extensive.Chief executive TomAlbanese said the company“will expand furtherthe scope of assetswe are targeting for divestment”to include “significant assets not previously highlightedfor sale.”In an analyst report obtained from Thomson One Analytics,Merrill Lynch’s Daniel Fairclough noted that themove to expand the scope could be because Rio has not seeninterest in the previous assets offered for a sale. In addition,divestitures may now include assets that are more crucial toRio’s business, such as bulk commodities, which could entice“Chinese interests” as a possible buyer.Rio, meanwhile, will focus on developing ventures thatserve emerging economies with large populations, includingChina and India.As part of Rio’s cost-saving initiatives, the company willlook to refinance its existing debt, combine various offices,increase IT outsourcing, and defer exploration projects.February 2009 MERGERS & ACQUISITIONS 15

10-19_Watercooler.qxd 4/6/09 5:37 PM Page 16Water Coolerwhat players in the midmarket are talking aboutBeltwayMonitorIS TARP ALIENATING PRIVATE EQUITY? It is anotherexample of government agencies working at cross purposes:Regulatory moves designed to coax private equitymoney into the banking system are being undercut by the TreasuryDepartment’s Troubled Asset Relief Program.Certainly, some private-equity firms are not raising moneyas quickly as they once did, and others are skittish after watchingothers’ investments in banks evaporate. But sources said thegovernment itself has become an obstacle by investing some$250 billion in banks.“The reason why there haven’t been a lot of transactions announcedso far is, very simply, Tarp,” says Wilbur Ross, the billionaireinvestor and chief executive of the private-equity firm WLRoss & Co. The government has been “spraying money into alot of banking institutions and quite consistently on more generousterms than private equity would do,” he said.Mr. Ross said he talks to “a couple of banks” every day aboutmaking an investment but has yet to pull the trigger. “We’re hopefulto do [a deal] in the immediate future,” he said, “but whetherthat’s days or weeks or months, it’s hard to tell.”In November, the agency established rules to make it easierfor nonbanks to buy troubled or failed banks. With a shelf chartera nonbank can bid on failed banks before becoming a bankholding company. Before that, in September, the Federal ReserveBoard loosened a bank holding company rule to let investorstake larger stakes in banks without registering as a bankholding company. The rule also permits minority investors to havemore influence on bank boards.Though regulators do not keep track of new capital movinginto banking from the private sector, several private equity firmshave shown more interest. With that said, this interest has yet totranslate into a flood of capital moving into the sector.“There’s still money there potentially to be invested,” saidV. Gerard Comizio, a partner in Paul, Hastings, Janofsky &Walker LLP. But “the combination of the Tarp program andsome of the receivership actions [has] caused private equity to takea step back before jumping in,” he added.Brian Sterling, a principal and the co-head of investmentbanking at Sandler O’Neill & Partners LP, said among investors’biggest concerns is that if they buy a bank stake nowtheir investment could be diluted or wiped out by a governmentcash infusion later.The limitations on control over companies in which theyinvest are also giving pause to some private equity firms. A conditionof the Fed’s relaxation of its holding company requirementswas that private-equity investors own no more than 15%of a company’s votingstock.“In an environmentwhere an equityinvestor is looking tomake an investmentin a distressed bank,it’s still a non-controlinvestment,” saidJoseph J. Thomas, amanaging director atHovde Private EquityAdvisors. “You’rerestricted on the numberof board seats, andyour economic controlis capped at athird or 25% insome cases. Manyfirms look at that andWilbur Ross is among those put offby TARP red tapesay it’s very hard to make an investment in a company with thoserestrictions.”Investors can file for shelf-charter applications, but thosecome with the caveat that if an investment group gains controlof a troubled or failed bank, they would be barred from doingbusiness in other sectors.The limitation makes no sense to Ross. “We don’t mind beinga bank holding company — we don’t mind being subject toregulation,” he said. “But the idea that we couldn’t invest inanything that’s not a banking entity; that would constrict ourbusiness.”Ironically, private equity investors have a strong trackrecord when it comes to reviving banks.Ross, for instance, has seen success in Japan, after he acquiredthe troubled Kofuku Bank, while Ripplewood Holdings’investment in Shinsei Bank, formerly the Long TermCredit Bank of Japan, is credited as revolutionizing bankingin Japan. By Emily Flitter and Marissa Fajt16 MERGERS & ACQUISITIONS February 2009

10-19_Watercooler.qxd 4/6/09 5:37 PM Page 17Water Coolerwhat players in the midmarket are talking aboutFROM PE TO SBA The migrationof Wall Street pros to public servicecontinued in December, as KarenGordon Mills was nominated by PresidentelectBarack Obama to serve as the nextadministrator of the Small Business Administration.Mills previously served as the presidentof MMP Group, a Maine-based private equityinvestor and adviser. She also servedas a founding partner and managing directorof Solera Capital, although she departedin 2007. Mills previously put in stints atMcKinsey & Co. and E.S. Jacobs & Co.,the defunct buyout shop formerly headedby troubled businessman Eli S. Jacobs.“With Karen Mills as administrator,America’s small businesses will have a partnerin Washington who will help them createjobs and understand the challenges theyface,” President-elect Obama said in a statementannouncing the appointment.Mills’ case for the position was bolsteredby Olympia Snowe, Maine’s republicansenator who formally recommendedMills for the position. Snowe is also behinda push to elevate the role of SBA administratorto a Cabinet-level position.Under former president Bill Clinton theposition was considered a cabinet-level appointment.In addition to her private equity background,Mills is also the chair of the Governor’sCouncil on Competitiveness andthe Economy for the state of Maine andalso serves on the Board of the Maine TechnologyInstitute and is a director of theMaine Chapter of the Nature Conservancy.Moreover, Mills is a director on theboard of Scotts Miracle-Gro.February 2009 MERGERS & ACQUISITIONS 17

10-19_Watercooler.qxd 4/6/09 5:37 PM Page 18Water Coolerwhat players in the midmarket are talking aboutPoliteConversationThe doomsayers came out, offering different takes on the future of private equity“The men and women who sit on the credit committees of thebank and non-bank lending institutions are staring into theabyss, and it is going to be a long time before they’re financingcash flow at four, five or six times. The ‘L’ in LBO is dead.But now we get to see how good people are at generatingreturns through fixing and growing businesses.”— Michael Psaros, co-founder and managing partner of KPS CapitalPartners, discussing the prospects for private equity. The full Q&A can befound on page 36.Michael Psaros“When I was 11, my father, a businessmanwho, in his day, took a dubious risk or two,gave me a key lesson in finance and life whichI knew was meaningful without understandingit. ‘You’re not bankrupt,’ he said, ‘untilpeople know you’re bankrupt.’By which he meant, I’ve come to understand,that money is a complicated reality. It’s a masterillusionist’s game. The artifice is everything.Transparency is the enemy of making it reallybig-which is one reason the word ‘private’ gotjoined ‘to equity.’” — Michael Woolf, in an article“The Ultimate Bubble?” found in the February issue of VanityFair.“The biggest impact of the perfect storm will beon the private equity firms themselves. Weestimate that around 20 to 40 percent of thesefirms will disappear; on the other hand, at least30 percent will survive. The fate of theremaining firms will hang in the balance.The timing of the next fundraising round andthe private equity firms’ historical performancewill drive this shakeout...We found that theshakeout will affect individual firms in very differentways.” — A report, “Get Ready for the Private EquityShakeout,” released in December 2008, by The Boston ConsultingGroup and IESE Business School18 MERGERS & ACQUISITIONS February 2009

10-19_Watercooler.qxd 4/6/09 5:37 PM Page 19Water Coolerwhat players in the midmarket are talking about“If you look at the last recession, therewere times in the 1990/1991 periodwhere it wasn’t much fun to be in theprivate-equity business in terms ofone’s existing portfolio. But at the endof the day, this fund generated 19percent returns.” — Blackstone Group’sStephen Schwarzman, as quoted by theNew York Post“Trust will be regained onlyif there is a fundamental changein the rules of transparency andonly if those rules are enforced.Such transparency could haveprevented many of thecataclysms of the past year.”— Eliot Spitzer, in acolumn for Slate‘’I don’t believe in thenotion of Masters of theUniverse. People eitherdo their job or they don’t.It’s ultimately all aboutperformance.’’— Apollo Management’sLeon Black, as quoted by theNew York TimesFebruary 2009 MERGERS & ACQUISITIONS 19

20-35_Roundup.qxd 4/6/09 5:39 PM Page 20Round UpActivists AdaptThe depressed M&A market has made life harder onactivist investors, though many are retooling theirplaybook in order to stay busyBy Avram Davis“I don’t see alot of sabrerattlers rightnow tellingmanagementteams that theyhave all theanswers.”For the past five years, the playbook of activistinvestors might resemble the old “straight T” offenseemployed by the Oklahoma Sooners footballteam in the Fifties; its brilliance was in its simplicity.Investors could quietly build up a stake in abusiness, and then a few months later go public withthe notion that the targeted company should seek asale. It was almost too easy, although without credit,such a strategy has nearly been rendered obsolete.That doesn’t necessarily mean that activism is dead.Take the recent 13D filing from Trian Fund Management,which went public with its 7% stake in Dr. PepperSnapple Group in December. Nowhere in its filingdid Trian mention a possible sale. Rather, the activist’sblueprint revolved around a stimulating a “sharper strategicfocus, better operational execution and more efficientuses of capital.” A divestiture of the Dr. Pepperbottling operations could be a part of the plan, thoughthe strategy does not appear to be as reliant on M&A,or more specifically an auction for the entire company,as past endeavors from activists. Trian, it should be noted,has historically used a blueprint focused on execution.In many cases today, activists will keep the optionfor a sale open, but at the same time they seem to acknowledgethat a deal offering a premium to shareprice is no sure thing. When Simcoe Capital and JeffreyJacobowitz built up a stake in Telular, the investorspushed for the company to use its strong cash positionto either “aggressively repurchase shares and toconsider paying an ongoing cash dividend” and alsocautioned Telular management to adopt an “extremelycautious approach to acquisition activity.”In its letter, Simcoe also floated the possibility ofstrategic alternatives but added the caveat that only“under the right circumstances, at the right time andfor the right price,” would such a strategy work. Simcoealso added that its nominees for the Telular boardhave “no current plan or proposal” to pursue a sale.The state of the credit markets has quite obviouslymade activism more difficult, and with the economynow in a recession, even operational fixes can betough. Most companies are already doing what theycan to trim costs, and excess cash on the balance sheet,most recognize, is no longer a low-hanging fruit foractivists, as this cash provides a much needed cushionin light of the illiquid environment.“I don’t see a lot of sabre rattlers right now tellingmanagement teams that they have all the answers,”says Keybanc Capital Markets managing director LelandHarrs, who works in the firm’s chemicals group.“If they did, I think those suggestions would probablybe welcomed,” he adds.Of course, many activists are essentially stuck witha position in a company after having missed its windowfor a possible sale. These groups are unlikely to justunload their positions and swallow a loss. Instead,many investors will simply retool their approach.“I have a hard time seeing [activists] quietly goingaway, and not worrying about the large holding thatthey may have in a company,” says Harris Williams& Co. managing director Tiff Armstrong, who notesthat at the same time he doesn’t expect these investorsto be in a position where they can “advocate a sale.”Sandell Asset Management has been a stakeholderin Southern Union since 2006, an investment thatrepresents roughly a quarter of the firm’s domestic portfolio.Three years ago, the plan was for Southern Unionto either sell the company or convert to a master limitedpartnership. Today, though, the firm has to anglefor corporate governance and operational changes. Itis perhaps a more modest goal, but it allows the investorsto maintain an activist posture with objectivesthat are still attainable.Of course, modesty isn’t the first thing people thinkwhen it comes to activism. And for some investors, thecredit crunch has opened the door for a more contentiousoption than even a sale would present. “I’ve gotmy hands full of liquidations,” says Kenneth Yager,II, a principal at advisory firm Morris-Anderson &Associates. “Every company that I’m dealing with nowseems to be moving in that direction.”20 MERGERS & ACQUISITIONS February 2009

20-35_Roundup.qxd 4/6/09 5:39 PM Page 21Round UpIndeed, that’s the path Zachary McAdoo, of ZannettOpportunity Fund, proposed for MathStar inDecember.Even as the M&A market isn’t yielding anywherenear the valuations that could be found two years ago,it does not mean that activists aren’t searching for valuethrough smaller transactions. Such a strategy, though,is often much more complex. Dennis Friedman, cochairof Gibson Dunn’s mergers and acquisitions practice,notes that in general, he is seeing fund managerspursue more of a multi-pronged approach that incorporatesasset sales as part of a larger plan. And if a businessunit is unable to command a strong valuation, itcan still be spun off in a tax-free transaction.Pershing Square, in October, proposed that TargetCorp. spin off its real estate holdings into a REIT. Thetiming, on the surface, seems odd considering the batteredreal estate market. The activist’s rationale is that Targetshareholders would benefit from the REIT’s dividend,while the company would be able to substantiallycut its corporate taxes, thus boosting its bottom line.To be sure, the “traditional” M&A opportunitieswill still emerge. Friedman cites, “I am seeing it ease up,but it’s not going to disappear.”In December, Vinod Gupta, the founder and a40% stakeholder in infoGROUP, proposed that thecompany put itself on the block. Management respondedby calling it a “challenging time” to seek a sale,though conceded it would “nevertheless” conduct a reviewsince the “company founder and major shareholderhas expressed an interest.”It was the press release equivalent of an eye roll.Activists, however, can be opportunistic after offersare made, which could be an increasingly common approachgiven the uptick in unsolicited bids. PlainviewCapital, an investor in Charlotte Russe, jumped in whenthe company rejected a buyout offer from KarpReillyand HIG Capital, saying it was “disappointed and perplexed”with management’s hostile stance toward theoffer. This was a similar tack taken by Carl Icahn lastsummer after Yahoo rejected Microsoft’s bid. Icahn respondedwith a purchase of 59 million Yahoo shares anda letter declaring that Yahoo’s actions were “unconscionable.”A proxy fight soon followed.“ I’ve gotmy handsfull ofliquidations.”February 2009 MERGERS & ACQUISITIONS 21

20-35_Roundup.qxd 4/6/09 5:39 PM Page 22Round UpDoes the M&A Space Have aMadoff in its Midst?With capital drying up, it is only a matter of time beforefraud starts showing up in the merger marketKen MacFadyen“In good timespeople steal;in bad timespeople reallysteal.”As the desiccation of liquidity exposes businessesand financial firms, instances of fraud, both ona grand scale and relatively minor offenses, seemto be emerging on a daily basis. Bernard Madoff’s ponzischeme is obviously the most talked about transgressionin recent months, though similar cases involving lawyerMarc Dreier, venture capitalist William “Boots” Del Biaggio,and Illinois Governor Rod Blagojevich has giventhe CSI set more scams than they can handle in a givennews cycle. The M&A market, while spared of anymajor hoaxes so far in 2009, is by no means immune.“In good times people steal; in bad times peoplereally steal,” Joseph Spinelli, co-founder and chiefoperating officer at Daylight Forensic & Advisory, tellsMergers & Acquisitions.Yogesh Bahl, a partner at Deloitte Financial AdvisoryServices LLP, notes that financial duress serves to“ferret out fraud,” as most schemes require a continuinginflux of cash. “As soon as the funding stops, that’s whenpeople start asking questions,” he says.At the same time, Bahl notes that downturns canoften present “a more fertile landscape” for fraud or collusion,as incentive schemes aren’t readjusted to dealwith the new environment. At the same time, companiesare cutting back on the infrastructure and compliancedesigned to root out fraud and employees will assumenew responsibilities that make collusion easier.In M&A, fraud can take on a number of forms. Perhapsmost common is the instance in which a targetcompany has manipulated the books and views a saleas an easy out. Marketwatchers will likely remember itwas The Blackstone Group, through its due diligence,that reportedly uncovered the fraud at Parmalat. Thedisclosure ultimately led to the dairy producer’s bankruptcyfiling.Another high-profile case, again involving a privateequity firm, occurred when former Refco CEO PhillipBennett was caught hiding $430 million of bad debt. Thiscase highlights how much damage instances of fraudcan create for the ancillary players. Bennett received 16years in prison, but in the aftermath shareholders alsowent after Thomas H. Lee Partners, which acquired Refcoand profited on its IPO; Grant Thornton, the company’sauditor; and a slew of investment banks, whichunderwrote and financed the company.Malfeasance in M&A is not confined to target companieseither. Deloitte’s Bahl notes, “You also see it happenfrom the acquirer’s perspective. Once these companiesstart mixing up the financials it clouds the level oftransparency that once existed.”Most recently, this cropped up at National Lampoon,whose CEO orchestrated a scheme providingkickbacks for stock purchases. The aim, which fell flat,was to artificially inflate the company’s stock price toimprove its capital position for all-stock deals and potentiallypump up the company’s valuation for a sale to astrategic.In other cases of fraud, companies will use M&Ato create enough noise that the din distracts regulatorsfrom seeing through to the swindle. In 1999, the Securitiesand Exchange Commission had investigated Tycoto determine whether or not the company was using itsmerger-related accounting to overstate its performance.That was three years before it was finally uncovered thatTyco’s CEO Dennis Kozlowski had looted $96 millionfrom the company. In a bigger scam, WorldComtallied an almost $80 billion overstatement, using M&Aas part of, and to camouflage, the manipulation.Because of this, it’s on the shoulders of both buyersand sellers to be aware of the potential for fraud. Prospectivered flags can be easy to spot. As the Madoff casedemonstrates, the first tip off might be performance thatis too good to be true. “Anything that looks like ananomaly deserves further attention,” according to Bahl.Another area that warrants investigation, Bahl says,is the incentive structure. If an opening for fraud exists,there’s a chance people will look to exploit it.FRAUD continued on page 8622 MERGERS & ACQUISITIONS February 2009

20-35_Roundup.qxd 4/6/09 5:39 PM Page 24Round UpBailout Answers Few Questionsfor SuppliersThe Fed intervention on behalf of the Big Three certainlyhelped the supply base, though continued uncertainty willcrimp necessary consolidationBy Jonathan Marino“ We wouldhave seenhundreds oflargebankruptciesthroughout thesuppliers.”Quick Hits fromBlue Light SpecialGerman reinsurance company Munich Rewill acquire Hartford Steam Boiler Inspectionand Insurance Company (HSB), a subsidiaryof American International Group (AIG), in a$742 million all-cash transaction.In September, New York-based AIG receivedan $85 billion government bailout loanin order to remain solvent.The deal, however, is considered well belowprojections for the assets. The FinancialTimes, for instance, estimated HSB couldfetch between $1 billion and $2 billion. Theacquisition of the Hartford, Connecticut-basedThe government came through with a bailoutfor the Big Three automakers in December,likely saving General Motors and Chryslerfrom having to file for bankruptcy protection. The infusionsurely helped the auto suppliers as well, althoughit provided little in the way of clarity for parts makers.Lear Corp., TRW Automotive Holdings, Johnson Controlsand ArvinMeritor couldn’t even guess as to whatmay lie ahead, leading them and other publicly heldsuppliers to withdraw guidance altogether. It’s this uncertaintythat will make dealmaking in the automotivespace so difficult, although the restructuring efforts,industry wide, will see to it that M&A continuesto percolate, albeit very slowly.In Washington, the politicians and legislators focusedlargely on the fate of the Big Three. However,according to one distressed investor with experiencein auto parts, the intervention saved the suppliersfrom being irreparably destroyed had either GM orHSB is part of Munich Re’s efforts to expandits US presence. The transaction is expectedto close at the end of the first quarter of 2009.Family AffairPanasonic and SANYO are set to mergein a deal valued at $9 billion. The transactionrepresents a culmination of two independentfamily affairs; the founder of SANYO is thebrother-in-law of Panasonic founder KonosukeMatsushita.After the acquisition is completed, Panasonicis aiming to concentrate on SANYO’ssolar and rechargeable batteries businesses,Ford been allowed to fail. “We would have seen hundredsof large bankruptcies throughout the suppliers,”the source says, noting that the remaining automakerswould have been undercut by thecounter-party risks such a prospect would create.“People think that there is this unique supply basefor the Big Three and a separate unique supplybase for the transplants. There is one integrated supplybase, and you can’t disentangle which part isgoing where.”Despite the bailout, uncertainty still rules theday, and because of that dealmaking among the suppliershas nearly slowed to a stop. “The number oftransactions is down dramatically,” says Kevin Kaden,a director in BDO Consulting’s advisory practice,who monitors the sector. However, he notes that asdesperation sets in, strategic buyers and investorswill likely be around to pick up the pieces. He pointsoverseas, saying, “There will be a lot of prospectingincluding those for hybrid vehicles. A researchnote from Merrill Lynch estimatedthat eliminating redundancies could cost upto ¥300 billion, making the deal “somewhatexpensive.” The research note also cited thatthe combination will alter Panasonic’s standingas a net cash company to net debt.A joint statement released by the companiessaid Panasonic “will consider various optionsincluding a possible investment of around¥100 billion” during SANYO’s integration.Chem BuyLubrizol Corp., the listed Ohio-based24 MERGERS & ACQUISITIONS February 2009

20-35_Roundup.qxd 4/6/09 5:39 PM Page 25Round Upand international interest.”To be sure, signs have already emerged that showsome people are starting to feel around for a bottom.In the first week of January, for instance, BorgWarnerrejected a mini-tender offer from Toronto-based TRCCapital Corp., dismissing it as too low. Meanwhile, inLear Corp.’s third quarter conference call, Merrill Lynchanalyst John Murphy noted that the company’s marketcap, at $190 million, roughly equaled its annualcapital expenditure budget. After making this point, heasked, “Have you thought about taking the companyprivate?”Lear chairman and CEO Robert Rossiter, accordingto a transcript of the call found on Thomson OneAnalytics, merely responded, “Thanks for pointingthat out.” He later clarified that Lear was “not interestedin any help.” Roughly a month later, Dana’s marketcap had fallen below $100 million and the NewYork Stock Exchange warned the parts maker that itcould be delisted.Still, it may be a while before the bigger namesin the auto parts space look to consolidate or seekout a rescue. In the meantime, many willpursue asset sales if possible. Modine International,for instance, is looking to to divestits Korean HVAC operations, with anyproceeds going to improve the company’sbalance sheet. ArvinMeritor, meanwhile, istrying to unload its light-vehicle systems division.In its fourth-quarter conference callheld in November, the company disclosedthat it was in negotiations to sell the business,but as of press time, on January 6, a dealhad yet to materialize.Part of the problem, like that facing the auto industryin general, is that buyers are in short supply. Privateequity, as has been well documented, has beenhampered by the credit crunch, while strategics —even the stronger companies in the sector like TRW— are remiss to even consider acquisitions if it meanssacrificing balance sheet flexibility.BBK’s Bill Diehl, the president and CEO of theDetroit advisory firm, issued a statement in mid-November in support of the federal automotivebailout. He also made a case that capital should goto the suppliers as well. “While support is neededby the Detroit Three, additional financing is criticalfor its supply base to encourage the efficiency andrationalization that is so badly needed after the lossof market share by [the OEMs]” he wrote. “Some ofthe funding provided for the industry should be earmarkedfor consolidating transactions in the supplybase.”Additional reporting by Ken MacFadyen“ Some of thefundingprovided forthe industryshould beearmarked forconsolidatingtransactions inthe supplybase.”chemicals company, bought Dow Chemical’sthermoplastic polyurethane business,a unit that generated $85 million in revenuesfor Dow in 2007. Terms of the dealwere not disclosed.The deal brings to Lubrizol Dow’s thermoplasticpolyurethane commercial, productionand research and developmentassets and 40 additional employees. Theacquisition will be factored into Lubrizol’sEstane engineered polymers business.The Dow brand names will be retainedand unified under the Estane engineeredpolymers business.February 2009 MERGERS & ACQUISITIONS 25

20-35_Roundup.qxd 4/6/09 5:39 PM Page 26Round UpStrategics Reverse CourseReverse breakup fees were once considered just an LBOphenomenon; now corporate bidders are on boardBy Avram Davis“ There aresomecompanies thatsay ‘as amatter ofpolicy, we donot agree tobreakup fees,and wenever will.”The propensity of reverse break-up fees in dealdocuments has climbed alongside the rise ofprivate equity, and when acquisitions startedblowing up last year, buyout shops leaned heavily onthe escape clause. Traditionally, reverse breakup feeshave been considered part of the LBO phenomenon,although increasingly, deal pros say, they are poppingup in more transactions involving corporate buyers.The growing prevalence in strategic deals is partiallythe result of the credit crunch. While financingwas rarely in question for strategics in the past, todaythere’s no guarantee that even corporate buyers canprocure the necessary debt for deals. Moreover, sellersmay also be worried about a buyer’s covenants. Whenchemicals maker Ashland acquired Hercules, last fall,the company negotiated a $77.5 million reverse breakupfee that safeguarded the seller against the possibilitythat Ashland would either fail to find financing orbreach its covenants, prospects that could potentiallytrip up the transaction.Another issue that has sellers concerned is the possibilitythat regulators, after a deal is cinched and paidfor, could step in to block a transaction. Over theyears, a few deals have taken precautions to guardagainst this possibility. In 2006, when Whirlpool sweetenedits offer for Maytag, the company included a$120 million reverse breakup fee, which would havebeen payable had regulators shot down the sale onantitrust concerns.Indeed, many anticipate uncertainty over antitrusttreatment will become more of an issue as a new administrationsweeps into Washington. The consensus amongdeal pros is that President Barack Obama will tightenthe screws somewhat, at least compared the GeorgeBush administration, which took a lax view towardantitrust. This reason, deal pros and lawyers cite, couldperhaps be the thrust behind the use of reverse breakupfees among strategic bidders.Jonathan Layne, partner at Gibson Dunn and cochairof the law firm’s mergers and acquisitions group,notes that if the coming administration is, in fact,“more robust in its antitrust involvement,” sellers willneed to make a deeper economic analysis of the corporaterisks. He adds that as it relates to antitrust, “therewill be a much greater risk to get a deal done,” andadds that both sides will be keen to discuss “how tomitigate” those liabilities.Initially, reverse breakup fees were considered a seller-friendlyaddition to a deal’s documents. However,as it played out at the onset of the credit implosion —with many PE buyers gladly paying the penalty for aclean break — it could be argued that the provisos wereleaving sellers in the lurch. Also, as demonstrated bythe litigation over many broken deals, the clauses werenot as black and white as initially thought. For instance,when Apollo Management walked away from its offerto buy Huntsman, the firm was hoping it would onlyhave to pay the negotiated, $325 million reverse-breakupfee. After lengthy litigation, though, Apollo, along withthe deal’s lenders, were forced to pay a total of $1 billionto the spurned target.Sellers, it is expected, will seek to clarify the detailsaround reverse breakup clauses. One such discussionwill likely be the timeframe of termination. A brokentransaction at the outset of negotiations typically hasfewer consequences than a deal that collapses after manymonths. Layne suggests that reverse breakup fees couldbe stepped to increase the penalty as time goes on, althoughsuch a scenario could unduly penalize buyers,especially in antitrust cases when a deal’s fate lies out ofa bidder’s control. The Whole Foods/Wild Oats merger,for example, is still facing Federal Trade Commissionscrutiny a full year after it was completed.Not everyone is on board with idea of breakup fees.According to Paolo Morante, a partner at DLA Piper’santitrust and trade regulation practice, “There are somecompanies that say ‘as a matter of policy, we do notagree to breakup fees, and we never will.’”From the buyer’s perspective, they may be remissto lock themselves into something that can ultimatelybe beyond their control. Sellers, meanwhile, mightprefer a market MAC, which can be tougher to provethan a mere breakup fee — especially after watching somany companies get burned in 2008.26 MERGERS & ACQUISITIONS February 2009

20-35_Roundup.qxd 4/6/09 5:39 PM Page 28LBO Watch“You can betwe will seemore of this,but it will beinteresting tosee who playsand whodoesn’t.”Buyout Bits fromConsidering the UnthinkableIn the spirit of compromise, a few GPs have madearrangements with their investors that could either signala new era of conciliation or, alternatively, may open thedoor for bitter disputesBy Ken MacFadyenPNC’s Makes Energy Add-OnPNC Mezzanine Capital has acquired heattreating services company Mannings USA.Terms of the transaction were not disclosed.Mannings, based in Dover, N.J., was foundedin 1989 by Peter Smith. The purchase is anadd-on to Bolttech, Inc., an industrial toolsand services provider that PNC acquired a$20 million stake in from the company’sfounder, Harry Knopp Sr. Bolttech is run byKnopp’s sons, Brian and Harry Jr., and chiefexecutive officer Anthony Santilli. Based inWest Newton, Pa., Bolttech focuses on the oilrefinery and power generation industries.It likely happened sooner than some might have expected,but London private equity firm Permirawent ahead and did the unthinkable. The firm, inearly December, gave its limited partners the option ofcutting back on their commitments to its latest vehicle,a concession that could see Permira’s fourth fundtrimmed from ¤11 billion to ¤9.5 billion. Only a fewweeks later, TPG Capital followed suit with a similar gesturethat could trim its fund by as much as $2 billion.The moves highlight the pressures facing both limitedpartners (liquidity) and general partners (strugglingto deploy outsized funds). While Permira’s LPslikely cheered the move, whether or not they were lookingto cut back on their stakes, the firm’s peers couldbe expected to bristle at the very idea of returning capital.And given that Permira and TPG let the cat outof the bag, limited partners everywhere could be emboldenedto seek similar concessions from their GPs.“They were smart to do it early,” John Sinnenberg,a managing partner and chairman at fund of fundsand mezzanine investor Key Principal Partners, says.“You can bet we will see more of this, but it will be interestingto see who plays and who doesn’t.”Audax Recapitalizes United RecoveryAudax Group has recapitalized United RecoverySystems, a debt collection agencyspecializing in bank card and credit cardcontingency collections. Terms of the transactionwere not disclosed. Kaulkin Ginsbergadvised URS on the transaction.Metalmark Acquires Schafer Corp.Metalmark Capital has made a majorityinvestment in Schafer Corp., a provider ofscientific, engineering, systems integration,programmatic support, and technical solutionsto government clientele. Financial termsSinnenberg adds that a lot will depend on howmuch leverage PE firms have over their LPs, whichcould reflect a fund’s particular terms, the remaininglength of the commitment period or, predictably, afund’s performance.Of course, a growing concern on both sides of thedebate is the prospect of investor defaults. VC firm FinancialTechnology Ventures, for instance, started litigationrecently after a bankrupt Washington Mutualfailed to come up with a $700,000 capital call. Thiskind of dilemma has yet to turn into a full-blown trend,but the prospect of such an impasse may keep both GPsand LPs up at night.In fact, Permira’s concession reflects this dynamic,as its largest investor, the publicly held SVG Capital,has seen its share price plummet in recent months,putting into question its ability to meet draw downrequests from the fund.Permira’s solution was to reach out to all 180 investorsin Fund IV, which is roughly 50% invested,giving its limiteds the opportunity to reduce their originalcommitments by as much as 40 percent. The firmcapped the total reduction at ¤1.5 billion in an effortwere not disclosed. Houlihan Lokey Howard& Zukin and Posternak Blankstein & Lundserved as financial and legal adviser toSchafer Corporation. Kirkland & Ellis servedas legal adviser to Metalmark Capital.Sorenson Partners With JetSet SportsSorenson Capital has acquired a minorityinterest in Jet Set Sports, a provider of corporatehospitality services and packages forthe summer and winter Olympic Games.Terms of Sorenson Capital’s investment inJet Set Sports were not disclosed.28 MERGERS & ACQUISITIONS February 2009

20-35_Roundup.qxd 4/6/09 5:39 PM Page 29LBO Watchto avoid penalizing those who remain fully committed.The offer, to be expected, did arrive with somecaveats, as limited partners seeking to scale back wouldbe accountable for management fees on the full ¤11billion that was originally committed. Moreover, theirfuture distributions from the fund would be cut by 25percent. One component to Permira’s offer that didn’tget much attention incentivizes its existing LPs to fill inany holes by suspending the management fee on any newcommitments that replace withdrawn obligations.No consensus yet exists that would suggest Permira’sarrangement will be duplicated by other funds lookingto reach out to a distressed investor base. One limitedpartner, an investor in Permira’s fund, calls the firm’sefforts a “unique” situation that arose solely because itslargest shareholder faced a liquidity crunch. “Absentthat, nothing happens here,” he speculates, adding thatPermira’s pact with its LPs isn’t something that he seesbeing replicated.“This isn’t like the hedge fund world, where everyonehas the ability to decide that they don’t want tobe in this,” the source adds. “They’re bound by contracts,so I don’t see GPs being put in a position wherethey have to beg for their investors to stick around.”The fact that TPG quickly followed suit, however,would seem to underscore that while Permira’s situationwas unique, most PE firms are dealing with theirown set of distinct circumstances. The Wall Street Journal,which first reported on TPG’s concessions to itslimited partners, quoted a letter to investors in whichthe firm cited the “significant stress” facing the limiteds.The motives were similar, although TPG’s compromisediffered slightly. The firm trimmed its managementfee by 10% and promised it would not calldown any more than 30% of an LP’s total commitmentin 2009 without clearance first from the advisorycommittee. TPG is currently investing out of itssixth fund, which closed last year with $19.8 billion ofcapital under management.To date, it has only been the larger funds that havemade these kinds of concessions, although the pressuresfacing limiteds could force both LPs and GPsback to the negotiating table regardless of fund size.And even when an investor default is not a distinctpossibility, Ropes & Gray partner Larry Jordon Rowesays that nearly all PE funds contain investors “who’llstruggle to come up with the money.”Partners?It’s not rare to hear dissension between PE fundsand their limited partners. These disputes typically takethe form of grumblings that might find their way into panelistcomments at an industry event or in print via anonymousstatements made to reporters. During slow periods,limiteds will argue that GPs are merely sitting on capitalcollecting fat management fees, and during boomtimes, the arguments tend to materialize as reservationsabout rising management fees, strategy drift or outsizedfunds. The nature of these gripes shadows the pendulumthat sways back and forth with the general marketconditions. What’s different this time around, however,is that both GPs and LPs are in a position of need.“It’s become all the more apparent that the fortunesof general partners and limited partners are intertwinedmore closely than ever before,” says JonathanGutstein, a partner at secondaries firm Coller Capital.Of course, secondary sales represent one avenueilliquid limiteds might pursue. Absent that option,which might fetch 40 or 50 cents on the dollar, bothGPs and their limiteds will want to keep the lines ofcommunication open.To industry pros, that means that neither side canafford to push for the upper hand. While LPs are beholdento the terms they agreed to in the fund contract,Rowe notes that if the GP/LP partnerships deterioratebeyond repair, there is a “nuclear option” thatoften exists. “A number of funds have no-fault divorceclauses,” Rowe describes, noting that he has yet to eversee such a clause triggered or even attempted on behalfof disgruntled LPs.Generally, a no-fault divorce clause requires at least80% of a fund’s investors to reach an agreement, electingto terminate the fund, at which point the vehiclewould be dissolved and the existing investments placedin a liquidating trust. Rowe says that the standard for limitedsto execute an annulment is “very difficult to meet,”but he speculates that the possibility for such a revoltshould coax GPs to “live up to the label [of partner].”For general partners and their investors, compromiseswon’t necessarily have to take the form of commitmentrollbacks. In some cases, PE funds may forge anagreement that eliminates management fees if GPs areexempted from having to make clawback distributions.Rowe cites another possibility involving the exemptionof clawbacks, in which PE funds step up efforts to producedistributions, even if it means an exit comes at a loss.As part of the ongoing dialogue, LPs and GPs canexpect recalcitrance from the other side. The limitedsmay feel as if they were taken for a ride, whereas thepride of general partners will compel them to refer tosigned documents. Both sides, however, are takingnotes. And if GP/LP relationships are going to live beyondpresent funds, neither the sponsors nor their investorswill look to alienate the other side.“ A numberof funds haveno-faultdivorceclauses”February 2009 MERGERS & ACQUISITIONS 29

20-35_Roundup.qxd 4/6/09 5:39 PM Page 30LBO WatchDownsizedPrivate equity firms are laying off employees as the creditcrunch grinds down the deal businessBy Kelly Holman“We are goingto see morelayoffs inprivate equity.”Private equity firms are well-known for enactingcost-cutting measures in their portfolio companies,including the firing of employees. Rarehas been reducing the head count at leveraged buyoutshops themselves; at least until now.A number of large financial sponsors and middlemarketgroups have taken such measures. Four wellestablishedglobal private equity firms moved todownsize their staffs before the New Year, includingBlackstone Group, The Carlyle Group, Investcorpand 3i Group. Washington DC-based Carlyle is makingperhaps the most drastic move, trimming its1,000-employee staff by 10%, while London’s 3iGroup said it would eliminate 100 positions, or 15%of its global staff, citing “significantly changed marketconditions.”Blackstone intends to lay off roughly 70 employees,sources told sister publication Investment Dealers’Digest, while Investcorp, a Bahrain-, New York- andLondon-based firm, is cutting its work force by 60 positions,or 90 spots, if retirements and other unfilled positionsto be eliminated are taken into account.“In response to the current global economic turmoil,Investcorp has had to realign its business, bothto increase its resilience during the mid-term recessionaryperiod and to position itself to take advantagein this changed environment,” says a spokesman forInvestcorp. “This has resulted in job reductions in itsNew York, London and Bahrain offices. These redundancieswere selected on the basis of which roles wererequired to fit the future business model.” (Investcorpowns SourceMedia, the parent company of Mergers& Acquisitions.)The lack of debt for leveraged transactions is behinda major slowdown in dealmaking, which some industryobservers blame for the layoffs in private equity.Denise Palmieri, director of client relations at PinnacleGroup International, a Scottsdale, Ariz.-based privateequity recruitment firm, says Pinnacle has receivednumerous resumes from anxious, but employed, privateequity executives, and investment professionalswho have been fired. “We are going to see more layoffsin private equity,” she predicts.Palmieri notes that not all buyout firms havestopped hiring, of course. Instead, they are being farmore careful in their selection of job prospects. “Theprocess is getting longer and deeper. Firms want the‘supermodel’ candidate; the bar is higher and the competitionvery heavy,” she says.Behrman Capital is one of a handful of middle-Buyout Bits fromOdyssey Completes SM&AAcquisitionSM&A, a management consulting firm,has been acquired by Odyssey InvestmentPartners for about $119.6 million. SM&Astockholders will receive $6.25 in cash foreach share of SM&A that they owned immediatelyprior to the merger. Caltius Mezzanineprovided financing for the transaction, includingsenior notes, senior subordinated notesand an equity co-investment.Huntsman Terminates BuyoutHuntsman Corp. has terminated its$6.5 billion agreement to be acquired byApollo Management’s Hexion SpecialtyChemicals Inc. and settled litigationagainst the private equity firm for $1 billion.Under the settlement with Apollo,Huntsman will receive a $325 millionbreak-up fee. Hexion said it had commitmentsfrom Credit Suisse and DeutscheBank to fund the termination fee. Affiliatesof Apollo will also make cash payments toHuntsman totaling $425 million.CCMP Closes Fund IIICCMP Capital Asia has raised $1.2 billionfor its third buyout fund, Asia OpportunityFund III L.P. Limited partners include theAsian private equity arm of Goldman Sachs inaddition to public pension plans and sovereignwealth funds. CCMP Capital Asia alsosaid it was changing its name to Unitas Capitalwhen its affiliation with CCMP ends onJan. 30, 2009. Asia Opportunity Fund II L.P.,the $1.59 billion buyout fund raised by CCMPCapital Asia in 2005, invested in several areasincluding clean technology, services, environmentalprotection, retail and automobilesin China, Japan, South Korea, Singaporeand Australia.30 MERGERS & ACQUISITIONS February 2009

20-35_Roundup.qxd 4/6/09 5:39 PM Page 31LBO Watchmarket investment groups that have cut staffers atsatellite offices. In the case of Behrman, the firm’scutbacks came from its San Francisco outpost,although managing partner William Matthes isexpected to continue running the office. A spokesmanfor Behrman Capital declined to comment onthe report.A 3i spokesperson, meanwhile, said the firm’sjobs that are being eliminated could run the gamutfrom back office or support personnel to the investmentprofessional ranks. The firm, in November,also disclosed that it would shutter its Menlo Parkoffice that focused primarily on venture-orientedinvestments.Carlyle has also retreated from the West Coast venturecapital territory, as well, with the closure of itsMenlo Park office. Carlyle also closed its Warsaw office,which employed 10 professionals, and also shutdown its seven-person Asian leveraged finance teamalong with its hedge fund operation known as Carlyle-Blue Wave Partners. Carlyle spokesman ChristopherUllman said the firm “has taken measured steps to balanceits cost structure with the current investmentclimate.”Another Beltway investment house, AmericanCapital Strategies, recently said it is eliminating110 positions, or 19% of its staff, inthe US and Europe. The private equity anddebt investment firm cited current economicand market conditions as reasons behind thecost-cutting measure. It will be left with 160investment professionals spread between officesin the US, Europe and Asia.Similarly, it was joined by another publiclytraded Washington firm that began reorganizingits operations last year, as AlliedCapital trimmed its ranks by 30 professionals,with the cuts largely occurring between itsChicago and Los Angeles offices.To some, at rival firms, the cuts are surprisinggiven changes to the private equity businesssince the credit crunch. According to oneexecutive, speaking on the condition ofanonymity, “A $30 billion deal, generallyspeaking doesn’t require more manpower thana $1 billion deal.”The point being made is that the largemarket firms, for the most part, have raisedthe largest funds in their history. With megadealsall but dead, these firms will have to deploythe capital in smaller chunks, whichone would think would require more hands.“It’s interesting that they would consider pruningpeople...at a time they’ll have to actually do moretransactions,” the source adds.Some firms, such as TPG Capital and Permira,have trimmed their fund sizes or offered concessions onthe fees their investors pay (see story, page 28). Accordingto the source, it’s likely that the limited partnerswitnessing staff cuts at firms they back might beinclined to question the fees they’re paying.Meanwhile, the collateral damage has spread beyondequity sponsors to other parts of the business.GE Antares, a large middle-market lender that operatesunder GE Capital, is rumored to be planningstaff cuts.“GE Capital has previously announced that it isasking its businesses to take out costs, and not limitedto personnel, reflecting the changes in the markets inwhich they each operate,” says Ned Reynolds, aspokesman for GE Antares. “With respect to GEAntares, we aren’t planning to announce any further detailsother than that no personnel actions are plannedin December.”“ A $30 billiondeal, generallyspeakingdoesn’t requiremoremanpowerthan a $1billion deal.”February 2009 MERGERS & ACQUISITIONS 31

20-35_Roundup.qxd 4/6/09 5:39 PM Page 32LBO WatchCombing for Add-OnsPE firms are counting on bolt-on acquisitions to stayactive and grow their portfolios, though finding thesedeals requires a new approachBy Avram Davis“I can’t thinkof anysignificantadd-ons thatweren’tdiscussedinitially with theplatformmanagementand plannedfrom theoutset.”On the surface, private equity has been nearlynonexistent. Beneath the shallows, the assetclass has been staying busy through add-oninvestments, using their portfolio companies to makestrategic tuck-in and bolt-on acquisitions. Some investors,however, are finding that sourcing the add-onrequires a different approach than the typical platforminvestment.The benefits of add-on deals have been well documented,especially in a depressed market. With creditgone, PE firms can use their platforms to stay in thegame. And in an economic downturn, in which organicgrowth prospects dim, bolt ons provide an alternativefor top line expansion. Moreover, in an uncertainenvironment, when platform acquisitions requirea leap of faith, add-ons are pursued in the name ofstrengthening an asset.As a result, examples have been easy to find. J.F.Lehman, in the first week of January, bolstered its AtlanticMarine Holding Co. with two acquisitions, tackingBoston Ship Acquisition and Millennium Industrialand Marine Solutions onto the platform in separatedeals. According to J.F. Lehman’s website, the twotransactions represented the firm’s first acquisitions inover a year. In December, meanwhile, TPG Capitaland Silver Lake Partners portfolio company Sabre Holdingsacquired London e-commerce software providerEB2 International.To be sure, most significant add-ons are identifiedearly on. Chuck Hardin, chair of Jones Day’s privateequity practice notes, “I can’t think of any significantadd-ons that weren’t discussed initially with the platformmanagement and planned from the outset.”Hardin alludes to a significant distinction betweenadd-on transactions and platform deals; namely therole of management. While it takes control out of thehands of the private equity firms, the benefit is that itcan be easier to lock down proprietary deals. Also, consideringintegration becomes central to both the purchaseprice and the success of the combined investment,investors have to trust the managers they back.To be sure, PE firms will look beyond managementwhen it comes to sourcing add-ons. The differencein strategy can depend on the size of the target.For smaller deals, for instance, investors increasinglyhave discussed the use of sell-side advisers, who mayhave better luck uncovering smaller bolt-ons that mightbe a fit. For larger deals, PE firms may be more inclinedto enter a traditional auction, where synergies replaceleverage as a difference maker.While few in private equity relish such a distressedmarket, there are those who note that the stalled environmentprovides investors time to think creativelyabout their portfolio. Traditionally, in a normal market,PE investors recognize that time can be an IRRkiller, but with few exits on the horizon, portfolio companiescan take on longer-term projects. Thomas Bonney,founder and managing director of advisory firmCMF Associates, anticipates firms and their managementteams will work more closely together to identifytangential geographies and product lines to expandtheir reach and offerings.“These are all of the things that you want to do, particularlyin a troubled market,” Bonney says. “Thelight is shining more brightly on these strategies now.”He adds that the pressure is on. Many platformswere acquired in a peak market at a time when growthwas assumed. With the economy now contracting,leaving no sector untouched, few options exist to successfullygrow these holdings. “Organic growth isn’tthere anymore, so the only growth option that is leftis through add-ons,” Bonney notes.But there are a few caveats. Perhaps most notably isthe prospect that the acquisition will force the portfoliocompany to reprice its debt, a potentially heavy toll ifthe company is burdened with higher interest rates orless leverage. Another factor is that add-ons aren’t easy. Privateequity firms have billed themselves as “value added”over the past couple of years, although mergers and theADD-ONS continued on page 8632 MERGERS & ACQUISITIONS February 2009

20-35_Roundup.qxd 4/6/09 5:39 PM Page 33LBO WatchGoing Back to the WellPrivate equity firms are looking to past investments toprovide some comfort in what is an otherwise prickly dealenvironmentBy Ken MacFadyenThe quest for certainty in an uncertain markethas driven some deal pros to seek out pairingsthat have worked in the past.In September, New York-based private equity firmICV Capital Partners acquired specialty retailer MarshallRetail Group, re-uniting with a company thatICV sold only three years earlier. A similar scenariooccurred in November, when New York-based CentrePartners took Canadian fish producer ConnorsBrothers private in a $600 million deal. The firm, in2005, had exited its investment in Bumble Bee Tunavia a $385 million merger with Connors, a transactionthat gave Centre a stake in the publicly held incomefund.It may speak well for the firms re-acquiring their formerportfolio companies, though for the sellers involved,these kinds of deals typically reflect a deviancefrom a company’s traditional growth path. NeitherICV nor Centre Partners would speak to Mergers &Acquisitions for this story.“There’s usually a lot of tension there,” describesPeter Wilson, a managing director at HSBC CorporateFinance LLC, speaking generally about repeatinvestments. “If you paid $500 million for a propertyand then flipped it back [to the former owner] for$100 million, it makes you look stupid... The realityis that [the sellers] usually want these things to goaway quietly.”Deal pros might be reminded of the sale of AirborneHealth in October. Summit Partners sold thecompany back to its founder Victoria Knight-Mc-Dowell, who proceeded to launch a television advertisingcampaign attacking the private equity firm’smanagement of the assets. Summit, meanwhile, doesnot even mention the deal on its website, erasing anyevidence of the investment from its listing of historictransactions.For the acquirer, however, buying assets that itpreviously controlled can present compelling opportunities,allowing for a level of comfort in an environmentthat offers little conviction when it comes toforecasting.Leonard Green & Partners, for instance, has twicere-acquired former portfolio companies. In 2006, thefirm took private sporting goods retailer The SportsAuthority through a $1.3 billion deal and that sameyear bought pet supplies retailer Petco for $1.68 billion.Leonard Green had initially exited Sports Authorityand Petco via initial public offerings in 2003 and2004, respectively. The repeat investments, however,give the firm a chance to score twice on the samecompanies. It’s not unlike the public market investorwho sells on a peak then buys on a trough, repeatingas necessary.Leonard Green managing director John Danhakl,describing the appeal, tells Mergers & Acquisitions, “It’sa company we understand, an industry we’re comfortablein and a management team that we’re familiarwith; it just makes sense.”Danhakl adds that this understanding — encompassingthe particular business, its industry and management— gives the firm a head start when it comesto spotting dislocations in valuation, which, he cites,“is what really motivates the whole thing.”Given the struggles of the economy and the marketat large, KPMG’s Wilson says that he anticipatesmore LBO shops will seek out previous investmentsthat may now be struggling either in the portfolio ofother private equity firms or publicly. Indeed, privateequity firms may be inclined to clean out theirportfolios in light of the dimming economic pictureand the public market, with the Dow Jones Industrialslosing 33% in 2008, also presents intriguingvalue for buyers.While Wilson sees few deals occurring in the nearterm, thanks to the bowed lending market, he anticipatesthat once M&A activity starts picking up, “we’llprobably see more and more of this.”Wilson adds that this kind of re-investmentBACK TO THE WELL continued on page 86“ The idealacquisition forthe privateequity buyer issomethingslightlydamagedthat theyunderstand.”February 2009 MERGERS & ACQUISITIONS 33

20-35_Roundup.qxd 4/6/09 5:39 PM Page 34Debt MonitorWhere’s the Mezz?The mezzanine market, armed with billions of dollars, stillneeds the senior lenders to show signs of life before it canresume its renaissanceBy Danielle Fugazy“ Prior to thechaos thatstarted inSeptember2008, the mezzmarket wasgettingstronger, and itwas startingto shine.”Last year, more than $25 billion was raised byroughly 30 mezzanine providers, according todata from Thomson Reuters. While other lendingsources have effectively dried up amid the credit crisis,one would think the mezzanine market would beenjoying a renaissance as one of the few financing optionsstill available. Such a scenario, however, has yetto materialize.“Very few private equity firms will do a mezz andequity deal; they want senior lending,” says Andy Steuerman,a senior managing director with Golub Capital.“If you can’t get the senior lenders interested, then youhave no transaction. That is the situation today.”Another factor is, quite simply, that the deal markethas effectively stalled. Economic uncertainty, ontop of the credit woes, has both buyers and sellers retreatingto the sidelines until more clarity emerges. Forthe most part, the only deals being pursued are thetransactions that are absolutely necessary for a company’ssurvival. “We are telling our clients to hang on,now is not the time to sell,” says one banker, speakinganonymously. That in turn keeps the private equitymarket stagnant, which effectively idles the mezzanineproviders, even if they’re armed with billions dollarsworth of dry powder.For the few deals that are out there, another factoris limiting the appeal of mezz financing; namely itsprice. The mezz market has become costly, almost tothe point that it rivals the equity portion of the deal.Last year, for instance, mezzanine shops were pricingdeals with IRRs of between 15% and 18%, including apay-in-kind component; rates that were already consideredhigh. Today, mezzanine tranches are being pricedbetween 16% and 20%, according to Ronald Kahn, amanaging director at Lincoln International. He addsthat mezzanine co-investments are now almost alwaysbeing replaced with warrants with most deals also requiringhigher pre-payment penalties, often starting out withtwo-year no-call provisions.Accordingly, sponsors are over-equitizing theirdeals. “Private equity firms are willing to put more equityin transactions,” Steuerman says, noting that the“return profiles [between equity and mezzanine] areconverging.” He adds, “There is also the benefit of [reducingrisk] with less debt.”To some lenders, the current environment bearsresemblance to other periods in the market. “This is thesame thing we experienced in 1999 through 2001,when firms wanted to patch a deal together to avoid thecost of mezz,” says Michael Hermsen, a managing directorwith Babson Capital Management.Hermsen, however, does not reflect any worry aboutthe future of the mezz. “Everyone came back to mezzthen and the same thing will occur again.”Like Steuerman, Hermsen alludes to the role the restof the market will play. “The senior lenders aren’t beingvery aggressive at all; we will be here to fill the gap,”he says, adding “the purchase price multiples are becomingmore attractive and pricing is getting better.”Babson is among those prepared for the market rebound,having closed its Tower Square Capital PartnersIII fund in December with $1.58 billion of capital undermanagement.Mezz is undoubtedly a necessary part of the dealstructure. In fact, it is so important that many equitysponsors have raised their own mezzanine funds. EndeavourCapital, a lower middle market firm, is trying to raisebetween $200 million and $300 million for EndeavourStructured Equity and Mezzanine Fund I LP, whichwould finance deals sponsored by Endeavour Capital andother firms. KRG Capital Partners, meanwhile, is inthe market with a $200 million mezz fund, which wouldbe used to finance its own deals. Other firms such as TheAudax Group, Summit Partners and TA Associates havealways raised mezz funds, although some, such as Audax,won’t invest alongside their equity vehicles.While the mezz market remains stagnant goinginto 2009, it has shown signs of life at times duringthe credit crisis. In the early part of last year, when theMEZZ continued on page 8634 MERGERS & ACQUISITIONS February 2009

36-43_CoverStory.qxd 4/6/09 5:40 PM Page 36Photographs by johncalphoto.comBrass

36-43_CoverStory.qxd 4/6/09 5:41 PM Page 37Not one to mincewords, KPS Capital’sMichael Psarosoffers a candid viewof the market.Some deal pros maywant to look away.TacksBy Ken MacFadyenFebruary 2009 MERGERS & ACQUISITIONS 37

36-43_CoverStory.qxd 4/6/09 5:41 PM Page 38BRASS TACKSFFew deal pros wanted to see the bubble that was emerging asfar back as 2006. KPS Capital Partners’ Michael Psaros, meanwhile,may have been motivated to see it. He is, after all, a distressedinvestor. Perhaps that is the reason so many people dismissed hispublic pronouncements at the time that the economy was headedfor a major crash.In trade publications, in correspondence with limited partners,and in conversation, Psaros would make a case as to why the dealmarket and the economy in general were being set up for anincredible fall. It was a convincing argument in 2006; today itresonates like gospel.“We perceivedthis mania,primarily inNew York andother financialcapitals, inwhich peoplehad basicallylost their minds.”Psaros, who co-founded KPS alongside DavidShapiro and serves as a managing partner at the fund,remains pessimistic about what lies ahead for both theUS economy and the M&A market in general. Hedoes, however, like the opportunity set emerging inthe distressed arena, although even there, he is takinga cautious stance.In a candid conversation with Mergers & Acquisitions,Psaros offers a view on how he sees the market shaping upand describes, in detail, how the distressed market willdevelop. Some deal pros may want to read this sittingdown.Mergers & Acquisitions: To start off, I’d like to take youback to a forecast you made in early 2006. At the time,in the middle of what was a tremendous bubble, we werediscussing the possibility of a soft landing for the economy.Your response was that when the downturn comes “itwill be something that hits the economy with great violence.”This was quite a different take than what most punditsand deal pros were saying at the time and for the next24 months that followed. As it turns out, and despitewidely held opposition to this sentiment, you hit the mark.What were you seeing then that allowed you to be so farahead of the curve?Psaros: There were a number of factors. Basically, theworld forgot that there is this concept of risk, and riskmetrics were not being applied anywhere, up and downthe economy, especially in the credit system.We were looking at the deal economy, in particular,and in the M&A markets pedestrian companieswere being acquired at absurd multiples of cash flow.These companies were being levered at levels we hadnever seen before in our careers. That leverage was beingsupplied by hedge funds who were more interestedin clocking phantom carried interest for a particularcalendar year than ever recovering their capital back.So we perceived this mania, primarily in New Yorkand other financial capitals, in which people had basicallylost their minds.This was coupled with the fact that a wide gulf was38 MERGERS & ACQUISITIONS February 2009

36-43_CoverStory.qxd 4/6/09 5:41 PM Page 39BRASS TACKSbeing created, separating the very few who could beconsidered wealthy and the preponderance of peoplewho would be considered the “have nots.” We couldtell that it wouldn’t take much for the consumer tostop spending. In America, when that happens, we endup in the quasi depression that you’re seeing today.Mergers & Acquisitions: I noticed you used the word“depression.”Psaros: I don’t know what else to call it. We’re not ina recession. It’s not necessarily the Great Depression;that would be melodramatic. But this is going to beworse than the last two recessions and it will be worsethan what we saw from 1980 to 1982. I don’t knowwhat the word is for a “super recession.”Mergers & Acquisitions: Are you at all surprised aboutthe current depths of the downturn? You correctly forecastthe distress, but I can’t imagine that anyone would haveexpected Lehman Brothers’ demise, the automaker bailoutor the carnage throughout the rest of Wall Street.Psaros: Up until September 15, 2008, everything hadunfolded exactly in the manner that we expected. Havingsaid that, the decision by Treasury Secretary HenryPaulson to blow up Lehman Brothers was the dumbestdecision made by the US government in my lifetime.I’m 41 years old, and I have never seen a dumber move,and Paulson owns it.Within 48 hours, the world had changed irrevocably.That’s not something that can even be argued.There’s no nuance to it; there’s no subjectivity; it’s blackand white. The world that we knew ceased to existwithin 48 hours of Lehman going under. Before that,nobody could ever envision a world in which the literalplumbing of the credit system worldwide was fractured,and that’s exactly what has happened.Mergers & Acquisitions: Given everything, where doyou see the market, M&A in particular, going from here?Psaros: We’re in a dynamic environment. Who couldhave ever imagined that the Federal Reserve would cutinterest rates to zero? But let’s forget about macroeconomicsfor just a second. There is still a group of peopleout there who will tell you that we didn’t have arecession in the early 90s. We invest in manufacturingand industrial companies, and I can assure you thatthose sectors went through a depression during thatperiod, so I’m not going to weigh in on the macroeconomicstatistics that “define” a recession.This economy is going to suffer for at least another18 months or maybe as long as another 24 months.It will be a long time before the consumer starts spendingagain, and this economy is not going to recoveruntil that happens. For the first time our lives, consumerswill start accumulating capital instead of liabilities.Unfortunately — or fortunately, dependinghow you look at it — that will continue to have a negativeaffect on the economy.As for the credit markets, after all that has happenedI am stunned people are still out saying they expectfinancing will reappear anytime soon. I don’t believethat we’ll see any true leverage for years.We’re all human. The men and women who sit onthe credit committees of the bank and non-bank lendinginstitutions are staring into the abyss, and it is goingto be a long time before they’re financing cash flowat four, five or six times. The “L” in LBO is dead. Butnow we get to see how good people are at generatingreturns through fixing and growing businesses.Mergers & Acquisitions: Do you anticipate that the traditionalprivate equity firms will be able to work their waythrough this? In the past few years, a lot of groups havemade a point of bolstering their operational focus andwe’ve seen a lot of corporate executives flood into the assetclass. Will that make a difference?Psaros: We don’t have any operating partners at KPS.That stuff is pure marketing shtick for limited partners.If we wanted to, we could put 50 former GE orAllied Signal executives on retainer. If a private equityfirm has historically been able to improve businesses,they’ll continue to be able to do so.Mergers & Acquisitions: Tell me about the distressedworld. Not to dance on anyone’s grave, but I have to imaginethat this is, or will be, a great time to be a distressedbuyer. How would you characterize the market thus far?Psaros: You said “will be,” and I think that’s an importantdistinction. We just raised $1.2 billion for our latestfund, and we told our limiteds that for the first 12to 18 months of a downturn our job is to duck. It’sthe weakest companies who are the first to get sick,whereas the strongest are always the last to capitulate.In the first 12 to 18 months, we’ll always see a largequantity of dealflow but the quality is extremely poor.And we were actually taken aback by some of the investmentopportunities that were funded in the turnaroundspace throughout the spring and summer of2008. I was astonished that some of those deals got“ There is goingto be carnagein private equityportfolios.”February 2009 MERGERS & ACQUISITIONS 39

36-43_CoverStory.qxd 4/6/09 5:41 PM Page 40BRASS TACKS“There is aninexhaustiblesupply of badmanagement.”funded.To go back to the original question, though, wemade an affirmative decision to duck in 2008. Wecompleted just two deals and let the rest of the stuff justpass us by. With that said, looking out over the next twoto three years, we’re expecting to see the buying opportunityof a lifetime.In terms of dealflow, we’re at an inflection point today.There has been a steady supply of under-performingor distressed divisions owned by global Fortune500 companies. We were seeing these opportunitiesup until September of 2008. Now we’re starting to seethe return of the stand-alone bankruptcy deal, andthese are the kinds of investments that we haven’t seenmuch of since 2002 or 2003. I believe the pace of theseopportunities is going to expand dramatically throughthe next two years.Mergers & Acquisitions: Considering there hasn’t beena whole lot of activity involving Chapter 11 since the newbankruptcy laws went into effect in 2005, what kind ofimpact will that have on dealmaking?Psaros: It’s a mildly positive event for control privateequity firms like KPS since the new bankruptcy lawswill result in more sales and quicker disposals of assets.The time that a company has to complete a reorganizationhas been truncated. Therefore, on or aboutthe time a company files, it will have to decide whetherto initiate a sales process or pursue a stand-alone transaction.I think you will also see a huge uptick in prearrangedbankruptcy transactions. The agreements betweenthe creditors and the debtor will be arrangedprior to filing so when the company goes into bankruptcya pre-cut deal will already be in place.Complicating things today is the fact there is basicallyno DIP [debtor in possession] financing available.It would not surprise me over the next two tothree years if we end up providing the DIP loan to alot of the companies we intend to acquire. We’re notin the DIP business, per se, but we will extend creditto companies we would like to acquire.Mergers & Acquisitions: What are the problems thatyou’re seeing as you scan the market for new investments?Is it performance, too much leverage, mismanagement,fraud, or a combination of all of these factors that arecontributing to corporate distress?Psaros: The whole reason we’re in business and thereason we were able to invest our second fund into theteeth of a booming economy is because there is an inexhaustiblesupply of bad management. The level ofmismanagement we see everyday still staggers me.We will go into companies and find that they don’thave any idea which customers or products are profitable;they’ll have no handle on their cost structure; andthey’ll be completely focused on their reported incomestatement irrespective of how much capital is requiredto support those earnings.Mergers & Acquisitions: What about the leverage you’reseeing? Is this a product of mismanagement?Psaros: You can have great management that has beenput in charge of an over-leveraged company. But thatpresents another kind of opportunity. If you’re a companytoday that has a leveraged capital structure withmaturities due in 2009 or 2010, I don’t know whatyou can do unless the owner is prepared to inject a significantamount of capital into the business. Thosecompanies are going to have to file for bankruptcy orbe restructured out of court.The amount of leverage employed between 2005and 2007 is in many cases just beyond comprehension.As an example, my partners and I visited a companyrecently that had $300 million of funded debtand break-even Ebitda. We went to see another companywith $110 million of funded debt with $2 millionof Ebitda. There are a lot of examples like this,and these are going to be your bankruptcies over thenext 12 to 36 months.Mergers & Acquisitions: If you had a preference, what’smore appealing, balance-sheet opportunities or dealingwith companies that require a true operational fix?Psaros: I haven’t seen a good company with a bad balancesheet since the late 1980s or early nineties. I thinkin this cycle, we’ll start to see some great companieswith bad balance sheets, and I hope we can take advantage.Having said that, those situations, requiring just asimple balance-sheet fix, is not what we’re actively lookingfor. We are a hard-core, operations-driven turnaroundfirm. The situations we’re attracted to are companiesthat have a history of recurring losses, includinglosses at the Ebitda level. We are seeking companiesthat don’t have a management team or a strategy, orbusinesses with a material cost problem. We’re attractedto the complexity of the operational turnaround.But we are opportunists. There are so many companiesdealing with these balance sheet issues, so it40 MERGERS & ACQUISITIONS January 2009

36-43_CoverStory.qxd 4/6/09 5:41 PM Page 41BRASS TACKSwould be nice to get few layups that don’t necessarilyinvolve the typical turnaround process.Mergers & Acquisitions: Could you flesh out the balancesheetopportunities you’re seeing?Psaros: Companies that were over-leveraged duringthe last cycle, who are now seeing their earnings plummet,are obviously that much more over-levered. Ithink, according to [Standard & Poor’s] data, that theaverage leverage multiple in the last cycle peaked at asmuch as eight times trailing Ebitda. That’s“trailing” Ebitda in what was a boomingeconomy. If your Ebitda is off by 20% or30% today, you’re essentially leveragedthat much more. And if you don’t haveaccess to capital and maturities are comingdue, then you have a major problem.This is why there is going to be carnagein private equity portfolios. Nobody likesto talk about it, but we’re seeing it already.What’s going on in the macroeconomyis obviously going to hurt earnings,so folks are not going to have the cashflow to even service their interest payments.We’re going to see a lot more paymentdefaults.Mergers & Acquisitions: Switching gears a bit, it seemslike so many different industries are facing true transformationaldistress, including the automakers, retail, printmedia, energy, financial services; I’m sure I’m missing afew. What are your thoughts about the expansive natureof this radical disruption in what are core sectors to the USeconomy?Psaros: The list of industries is actually longer. Generallyspeaking, the only area that appears to be weatheringthe storm is healthcare, although nobody reallyknows how the new presidential regime will affect profitsthere. We’re also seeing a severe downturn in industriesthat are involved in or dependent upon manufacturing.We just had the worst quarter in manufacturingsince 1980. Aerospace companies are hurting, capitalequipment manufacturers are hurting, chemical companiesare hurting. The list could go on.In the almost 20 years that we’ve been together asa firm, we have never been in a period in which thereis no visibility into the next year on the top line. Companyafter company is trying to look into the future,but basically cannot put together a forecast or evenguess on a range in terms of what their actual revenueswill be in 2009.If you look at the industries today that are in extremesituations — autos for one; building productcompanies would be another — I can’t tell you howmany businesses have just seen the top line evaporate;literally. We just looked at a company in the recreationalvehicle space, and their order book went from havinghundreds of units in their backlog to having just twoor three units in the fourth quarter [of 2008] and nothinglined up for 2009. Building product companies inparticular and companies directed toward the consumerare effectively seeing their demand fall off of acliff.Mergers & Acquisitions: KPS has always been active inthe industrials and manufacturing arena. Will you lookto be opportunistic in some of these other areas as companiesbecome available?Psaros: There’s no style drift with us. We invest incompanies that make things. Even our investment inAttends Healthcare; outwardly, it’s a healthcare company,but we saw it as a manufacturing business witha gold plated brand name. We will continue to investin companies that either make or distribute products,so that means no high tech, telecom, entertainmentor real estate. We also made the decision as investors tostay away from restaurants and retail.Mergers & Acquisitions: As it relates to a particularbusiness, what might be considered too distressed for KPS?Psaros: We’ve already discussed the top line at length.If we can’t have complete confidence in a company’s rev-“ For the first12 to 18months of adownturn ourjob is to duck.”February 2009 MERGERS & ACQUISITIONS 41

36-43_CoverStory.qxd 4/6/09 5:41 PM Page 42BRASS TACKSenues we will walk. The second red flag is insignificant market share.If a company only controls three to ten percent of its respective marketthen the industry is telling you that the company doesn’t matter.A third thing we try to avoid is the necessity to invest a largeamount of capital in order to generate cash flow and profits. We’ll seea lot of companies that generate minimal Ebitda. You can get thesebusinesses up to $40 million or $50 million in Ebitda, but you haveto invest $150 million, so the economics don’t make sense.Ultimately, though, you have to ask if the company has a reasonto exist. If you’re the fourth or fifthbiggest competitor in a sector, this is aquestion that should apply.Mergers & Acquisitions: This downturn,perhaps unlike any other, is truly globalin scale. What are your thoughts on whatmight happen to the globalization themethat has been so important during the pastfew years?Psaros: I could talk on this subject forhours. The first point I’d make is thatthe reason a US company goes to Chinaor India today is to service those particularmarkets. The whole transfer ofNorth American manufacturing capacityhappened 10 years ago and it’s done; we’re not going back.For our second fund, which was made up of North Americanindustrial companies, China was the greatest thing that ever happened.The giant boom in consumption there raised the prices for manufacturedgoods and the intermediate goods that feed into thoseproducts.Mergers & Acquisitions: KPS has invested a few times overseas: Ebroand Ashcroft come to mind. Do you like the opportunity set for globaldeals or is it more difficult to get your arms around foreign investments?Psaros: We’re seeing an incredible amount of dealflow emanatingfrom Europe. We have had successes there, so we’re excited aboutthe opportunity, and a significant portion of Fund III will be investedin companies that are domiciled in Western Europe. But you willnot see us making a platform investment in Asia or Japan.In terms of restructuring, I think Europe is where the US wasbetween 1985 and 1990. We’re seeing a lot of companies that arerun in the same manner of a US company about 15 or 20 years ago,so that presents an opportunity.There are three primary obstacles, though. With the exception ofthe UK, very little asset-based financing is available in Europe. That’susually how we finance our deals. In the US, all of our capital structureshave a plain-vanilla revolver with a term loan against the assets.The law in various jurisdictions over there blocks asset-based financing,so you have to get creative, whether it’s through factoringor just adding more equity.Also, it’s very difficult to pursue a bankruptcy transaction in Europe,given all of the different jurisdictions; there’s no commonalityto the law. So, to date, we have yet to buy anything out of bankruptcyin Europe.The third obstacle is that it’s difficult to do the same things that wecan do here. It’s a fallacy that you can’t reduce headcount in Franceor Germany. The difference is that you just have to pay to do it, soyou have to factor those costs into the purchase price.Mergers & Acquisitions: What does thedomestic distressed market look like thesedays? It seems like many of the same faceswho were the players in 2002 — such asKPS, WL Ross & Co., and MatlinPattersonto name a few — are the same firmswho will be active in 2009. And consideringthe travails of Cerberus, Sun Capitaland Apollo Management, who haveall been burned recently, not to mention thecontraction among the hedge funds, it’s almostas if there will be fewer firms activein the distressed space?Psaros: There are probably fewer control-orientedturnaround funds out theretoday than any other time that my partner Dave [Shapiro] and I havebeen doing this. That’s because what we do is really hard, and it is evenmore difficult to demonstrate success over an extended period oftime.I think we’re privileged to be in the company of those groupsthat you mentioned. We have seen a few new entrants; basically smallerfirms whose marketing shtick is that they’ll do micro-cap or smallcapturnarounds. Generally speaking, though, we wouldn’t go afterany of those deals.The hedge funds are nowhere to be found. In our space, 2005 wasreally the year of the hedge fund. Billions of dollars effectively movedfrom bond trading into control private equity, and for the most partthey went on to lose an astonishing amount of capital doing really sillyand stupid things. It’s been a long time since we’ve run into a hedgefund, though. A lot of these fund managers, on an IQ basis, are verysmart people, and they have probably made their investors very attractivereturns around their core trading strategies. But companiesare not securities or mere pieces of paper. They’re living, breathing entities.You can’t sit behind a Bloomberg terminal and try to turnarounda brass mill. It just doesn’t work like that.Mergers & Acquisitions: Do you anticipate that the traditional privateequity funds will make a run into distress?Psaros: It’s bound to happen. It has happened in the last three cycles,where we’ve seen firms that historically pursued true leveraged42 MERGERS & ACQUISITIONS January 2009

36-43_CoverStory.qxd 4/6/09 5:41 PM Page 43BRASS TACKSbuyouts come in and try to take on an opportunistic turnaround.What happens is that they apply traditional LBO metrics to an Ebitdanegative company. I fully expect to run into these groups whowill overpay for an opportunity because they don’t understand the risksinvolved. It will cost us a few opportunities.Mergers & Acquisitions: What about the strategic buyers? Are theycompetitive in this market or does the whole bankruptcy process tend toscare them away?Psaros: For almost two decades, we went about our business andnever ran into an industrial strategic buyer in a restructuring or bankruptcyprocess. Then, this past May, when we acquired [the wheel bearingsbusiness] out of the Delphi Corp. bankruptcy, our only competitorwas an industrial company based in China. This was the firsttime in 20 years we had seen a strategic. They were there and they wereserious. We just knew how to do bankruptcy better.Generally speaking, strategics are looking for a well-run, profitablecompany without any major problems. We’ll sell a lot of businessesto strategics. They would rather pay up for a shiny new applethan buy one that’s at the bottom of the barrel.Mergers & Acquisitions: Earlier you alluded to the decision by KPS to“duck” in 2008. Yet, we’ve seen quite a bit of activity involving distressedassets, and a lot of investors who got burned. Was this at all predictable?Psaros: Look at the deals that were done in 2008. There were veryfew transactions that we saw that didn’t run the risk of catching avery sharp falling knife.Mergers & Acquisitions: The investment in Washington Mutual mightbe one example and the investment in Steve & Barry’s would be anotherhigh-profile failure. As an investor in the space, how do you avoidthis?Psaros: It’s a matter of doing thorough due diligence on the revenueline. It starts with the industry, moves to the company and then goesto the customers. We have to believe that the top line has either stabilizedor is facing only minimal further erosion. Then we figure outif we can re-engineer a company’s cost structure on that diminishedrevenue. But it’s really about thorough due diligence and just beingcareful.Mergers & Acquisitions: What’s the typical ratio of companies you willlook at versus the number of investments you actually make?Psaros: It changes with the market but it’s at least 50 to one. In 2008,it was probably 100 to one, but we won’t waste our time. We’ll onlygo through a due diligence process with a select few of the companieswe see.Mergers & Acquisitions: Given that creditors are seeking to move therestructuring process along, does that add some pressure on the buyers?Psaros: Absolutely. A lot of creditor constituencies are pushing companiesto do something expeditiously, in or out of court. You’re goingto have to run faster in today’s market place. Traditionally, our duediligence has taken between five weeks and 13 months, although wecan move as fast as necessary.Mergers & Acquisitions: What if anything might signal a market bottom?Psaros: The bottom is going to occur when banks and other financialinstitutions start lending money. That’s when credit becomesavailable to the consumer and companies again.The second thing we’re watching is capital spending. CorporateAmerica has dramatically pulled back on expenditures. When businesseshave the confidence to stop hording cash and start spendingmoney again that will be another signal. Until those to things happen,though, I wouldn’t call it a bottom.Mergers & Acquisitions: Where will the credit come from? We’ve seenso much consolidation on Wall Street, and many of the traditional playersin the middle market have pulled back.Psaros: The only constant on Wall Street is change. We live in theworld’s most efficient capitalist economy. Over time there will be institutions,which either already exist or will emerge, that will providecapital. You have some giant institutions in existence today thatwere not even around 20 years ago. I don’t know who will fill thevoid but this country doesn’t operate without access to credit —somebody is going to be around to provide it.Mergers & Acquisitions: Time for predictions. Is it possible that theworst isn’t behind us and there will be a second shoe to drop?Psaros: I hate to discuss this, but it was a topic that was brought upduring the Presidential election. I think that President Obama willbe tested at some point with international events. There will be aglobal or domestic crisis that will test the President. The last thing weneed at this point is any further erosion in consumer confidence.That’s the biggest potential “other shoe.”Mergers & Acquisitions: What about the optimistic scenario?Psaros: I believe that President Obama’s fiscal stimulus package is goingto be larger than what anyone expects. And if that’s the case, itwould have a profoundly positive effect on the economy.Overall, the economy is a super tanker, so it’s going to take awhile for any stimulus to work its way through the system. I don’t anticipatethere will be any return to macro economic growth until atleast the second half of 2010, and I believe it will be years before wesee the credit markets functioning properly again.February 2009 MERGERS & ACQUISITIONS 43

44-49_Feature.qxd 4/6/09 5:44 PM Page 44Deal LookbackIn Full BloomJim McCann is relying on acquisitions to diversify1-800-Flowers.com beyond floraBy Danielle Fugazy“This is a muchmore challengingtime and thereare assets outthere that couldbe interesting.”It was in preparation for Mother’s Day 1992when 1-800-Flowers.com (then just 1-800-Flowers)launched its online flower business. Jim Mc-Cann was nervous. The Carle Place, N.Y.-basedbusiness had booked plenty of sales through its800 number, but tallied only 100 orders through theinternet for the holiday, which in the flower businessis bigger than even Christmas and Valentine’s Day.Nevertheless, McCann, the company’s founder, decidedagainst abandoning the online effort, and today,roughly 80% of the company’s business comes throughthe internet. The medium has turned what started asa single store-front operation into the leading internetflower service in America and now worldwide.Of course, things always seem to work out for Mc-Cann, who bought a single flower shop in Manhattanon a whim with borrowed money. It was 1976 andMcCann was working in the non-profit sector at theSt. John’s Home for Boys in Rockaway, N.Y. At night,he was tending bar in Manhattan. One of his regularcustomers at the bar owned the flower shop across thestreet. When the regular mentioned that he was thinkingof selling, McCann jumped at the opportunity totry something new.At first he started working under the owner’s tutelageto see if he liked the flower business. It turned outthat he did, which led to his first acquisition when hebought the shop. From there McCann kept savingmoney and buying up rival flower shops in the NewYork Metropolitan area. After building up a chain of14 flower shops in New York, McCann’s next purchasemight have been his most important; he bought the1-800-Flowers phone number, and with that his businesstook off. By the time he added the “dotcom,” thecompany had already become a household name.In building the flower business, McCann hasdemonstrated a flare for M&A. Since 1998, the companyhas made select purchases that expand the productline, but present a complementary fit for its onlineand over-the-phone customers. In 2006, forexample, McCann bought chocolate retailer FannieMay Confections Brands for $85 million, giving 1-800-Flowers.com customers a natural alternative toflora as a gift.“We wanted to add mid-priced chocolate brands toour offering,” says McCann. “We thought it could bea good fit.”What made the deal a better match was that FannieMay didn’t even have an online presence prior tothe deal. Within two years, revenues at the chocolatemaker grew by 25% after it was added to 1-800-Flowers.com’se-commerce platform, which now accountsfor a third of its sales. “It didn’t cost anything to put itsproducts in our stores or online,” McCann says.The company has also used its purchases to diversifyits holidays. In 1999, McCann boughtGreatfood.com, which offers everything from caviarand truffles to cheese and wine. In December, when customersmight be interested in gift baskets and bakedgoods, the company will display items from the websiteto entice consumers who might be interested inthe gourmet offerings.The list of acquisitions goes on. To name a few, 1-800-Flowers.com has picked up toys and games brandThe Children’s Group in 2001; a year later it acquiredcertain assets of the Popcorn Factory, and in ensuing44 MERGERS & ACQUISITIONS February 2009

44-49_Feature.qxd 4/6/09 5:44 PM Page 45Deal LookbackSelectAcquisitions7/08 - Napco Marketing Corp. (Napco); awholesale merchandiser and marketer of floral-orientedproducts4/08 - DesignPac Gifts LLC; a designer anddistributor of gourmet gift baskets5/06 - Fannie May Confections Brands; amanufacturer and multi-channel retailer andwholesaler of premium chocolate10/05 - Wind & Weather; a direct-marketerof weather-themed instruments and gift items3/05 - Cheryl & Co.; a manufacturer and directmarketer of premium cookies and bakedgift items11/04 - The Winetasting Network; a distributorand direct-to-consumer marketer ofwine5/02 - Certain assets of The Popcorn Factory6/01 - The Children’s Group, Inc.; educationalchildren’s toys and games11/99 - GreatFood.com4/98 - The Plow & Hearth; a direct marketerof home decor and garden merchandiseyears, bought The Winetasting Network, cookies makerCheryl & Co. and gift maker Wind & Weather,among others.Of course, after the right price is negotiated, the offerto come into the “1-800” family has its perks. Mostof the acquired companies have stayed on with thesame management and have been able to leverage thecompany’s 30 million (and growing) customer base.And despite the weak M&A market, McCann suggeststhat the company could be an active buyer. “Thisis a much more challenging time and there are assetsout there that could be interesting,” he says. “Any businessesthat rely on credit are going to have issues. Wehave a long balance sheet and are moving ahead.”But like most consumers out there, McCann willbe particular when it comes to dealmaking. “Multiplesare contracting and we are looking around, butwe won’t pay what we were paying a year ago,” he says.Beyond acquisitions, the company continues tofocus on organic growth initiatives as well. It recentlylaunched a mobile platform that is available to Blackberryand AT&T users. Still, McCann’s greatest fearis that the company will get behind the curve. “I remainanxious. I feel like I am not going fast enough and I worryabout the next thing,” he admits.With that said, compared to others in the retailuniverse, 1-800-Flowers.com is in significantly bettershape. It maintains a low fixed-cost structure, and byexpanding its use of home agents, the company is moreagile than most in the sector. Also, last summer 1-800-Flowers expanded its credit facility to almost $300 million,giving it ample flexibility in the face of the economicdownturn.From the beginning McCann has been ahead ofhis time. From 1-800-Flowers.com’s first internet saleto the telecommuting staff established almost 15 yearsago, he has never shied away from bucking conventionalwisdom. In speaking about the company’s use ofhome agents, for example, McCann cites that it providesa compromise for the company and its employees.“There are peaks and valleys of calls coming in,”he says. “A homemaker can work from 9:30 until 1:30,a very busy time for us, and still be available to herchildren and we don’t have to pay for the whole day.”He adds that the use of home agents allows thecompany to employ more people, covering more hoursout of the day.Perhaps the trickiest part of McCann’s acquisitionstrategy is keeping the company’s family business feel.McCann founded the business and now serves as itsCEO, while his brother holds the position of president.At times, he has employed his children, but onlyon one condition: “Every child has to work here forsome time, but when they graduate college they haveto leave the business for at least five years.”McCann’s daughter, who was a vice president atFederated Department Stores, and his son, now workingwith the Popcorn Factory, have each returned to theroost.Even with more acquisitions on the horizon, Mc-Cann’s goal is maintain the company’s ethos. “It’s importantto me to maintain the family culture as wegrow. And we will continue to act smaller than ourheadcount.”“ We willcontinue to actsmaller thanour headcount.”February 2009 MERGERS & ACQUISITIONS 45

44-49_Feature.qxd 4/6/09 5:44 PM Page 46ProfileCircle of TrustReputation matters to Madison Capital Funding, even attimes when few others think soBy Jonathan Marino“Lots of otherlenders werepullingcommitments;looking for waysto get out ofdoing deals.”The relationship between sponsor andlender is often depicted as a harmoniousmarriage. Yet few unions in the real worldwould survive the power struggle thatoften goes on behind the scenes. In goodtimes, private equity firms will squeeze as much as theycan from their lenders, be it a 10x debt multiple or aPIK toggle, whereas in bad times, they are lucky tohave their calls returned. This struggle spilled out intothe public domain at the onset of the credit crisis, whenbanks like Citigroup, Credit Suisse and Morgan Stanley,among others, had to be dragged to court to followthrough on their commitments.It was amid this turmoil, however, that the peoplestarted to figure out who their friends were. It was thelenders who stuck to their commitment sheets — becausethey valued both their reputations and relationships— who were able to distinguish themselves. MadisonCapital Funding was among these groups that puttheir relationships ahead of what might have been theirfirst instinct to run.“Lots of other lenders were pulling commitments;looking for ways to get out of doing deals,” ChrisWilliams, a senior managing director with Madisondescribes. “We chose not to do that.”The firm, an affiliate of New York Life InvestmentManagement, had previously made commitments onfour deals when the floor fell out of the market lastSeptember. Madison was backing a PNC Equity Partners-ledrecapitalization of a laundry services company;Tailwind Capital’s acquisition of Archway MarketingServices; Imperial Capital’s investment in SchulmanAssociates; and Sterling Investment Partners’ acquisitionof FCX Performance. The firm followed throughon all four.It didn’t matter to Madison that industry forceshad given them the upper hand in the lender/sponsorrelationship. It also didn’t matter that the deals mayhave suddenly looked less attractive than maybe amonth earlier.“We are a relationship-oriented lender,” Williamssays, adding, “We only do sponsor-related business.”Of course that doesn’t mean, either, that it was outof benevolence that Madison Capital opted to supportthose deals. The Chicago-based lender works exclusivelywith private equity groups and counts over 100sponsors with which it has a relationship. The firmrecognizes that it isn’t good business to burn bridges —even when it seems few others in the space share suchworries.Anyone can build a strong rapport during headytimes. “If you can live up to the moniker of ‘relationship’banker over the next twelve months, than you reallydeserve the title,” Eric Bacon, a senior managingdirector at Linsalata Capital, notes. “There are a lot ofthings overwhelming relationships these days.”Specifically, Bacon notes that many lenders, in theabsence of funding new deals, have been tighteningthe screws on past credits. The approach, he says, tendsto fall into two buckets: lenders will either be willingto have a discussion about a particular company or willwalk in, “arms folded,” and simply demand an amendmentfee, default interest and new terms over a breachedcovenant.“Even the people with whom you had pretty goodrelationships just don’t care,” he adds. “They come inwith a formula, apply it to every situation, and the relationshipgoes out the window.”In his dealings with Madison, though, Bacon insiststhat the firm would fall into the first bucket. “Weabsolutely consider them a relationship banker,” hesays. “Ultimately it comes down to the individuals youdeal with, but the cultural philosophy of the institutionplays an important role.”46 MERGERS & ACQUISITIONS February 2009

44-49_Feature.qxd 4/6/09 5:44 PM Page 47ProfileSpecifically, Bacon and other sponsors are onlylooking for a conversation and a sign that creditors arewilling to look at each situation on an individual basis.This kind of approach may stem from the firm’sbeginnings. New York Life launched Madison CapitalFunding in March of 2001, with a mandate to financemid-market LBOs sized between $15 million and $200million. The environment for leveraged loans at thistime was marked by consolidation, such as GeneralElectric’s industry-changing deal for Heller Financial,and defection, as the bigger banks were largely fleeing.This created an opening for non-bank lenders such asMadison, Dymas Capital, an affiliate of Cerberus CapitalManagement, and CapitalSource, among others.While many deal pros contendthe current crisis is as bad as they’veever seen, the upheaval caused bythe tech implosion, followed shortlyby the September 11, 2001 terroristattacks, created nearly asmuch uncertainty in the deal marketin the 2002 frame. M&A volumeplummeted by more than44% that year, with all-cash dealsrepresenting nearly 39% of the domesticactivity. It was a bad yearfor lenders and sponsors, but likethe current crisis, 2002 was essentiallya show-me year that allowedeach side to prove themselves tothe other.Five of the six founding partners,all veterans of Bank of America,remain at Madison Capital.Only Terry Capsay, who retired,has since departed. This kind of continuity helps provideperspective, which has kept Madison level-headedas cycles change.Early on, Williams says, Madison was able to benefitfrom the initial dislocation in the leveraged loan arena.“When the credit crisis first hit, our pipeline reallyexploded in terms of opportunities,” Williamsdescribes, noting that in mid-2008, sellers were eagerto accept lower valuations, and buyers, in turn, weren’tseeking such high leverage multiples.However, when the market took its knockout blowin September, sparked by the bankruptcy of LehmanBrothers, things changed quickly, as sellers, buyers andlenders all took a step back to reconnoiter.“There are so few deals being done right now; anythinggetting closed in today’s market is of extremelyLinsalata’s Bacon says relationships aretougher to maintain in hard times.high credit quality,” Williams says.His definition of quality is characterized by companieswith stable earnings that reside in recession-resistantindustries. Sound end-markets and a diversecustomer base are also required today.For companies that might be border-line situations,Williams notes that relationships do count. If asponsor has a track record with Madison and has provento be a supportive owner, it can make a difference inwhether or not a deal gets funded.Bacon too notes that relationships go both ways. Intimes of stress, he describes, that it’s up to the sponsorto be vigilant owners and keep the lenders apprised ofwhat’s going on. “It’s our obligation to not chew throughtheir collateral,” he describes.Williams does acknowledgethat Madison will pursue fewerdeals in 2009 than last year. In2008, according to its website,Madison Capital notched 77tombstones, although since September,new deals have been fewand far between.At the same time, MadisonCapital has not yet followed a pathcleared by many of its peers todownsize. GE Antares, for instance,has been rumored to beplanning staff cuts, according tosister publication Investment Dealers’Digest, while familiar namessuch as American Capital Strategiesand Allied Capital have had to trimtheir respective workforces in lightof the market conditions.Williams credits New York Life’srelative health for providing Madison Capital with a cushion.It may seem like a small difference, but job securitycan ease the tension between the lender and sponsor.Even as deal flow remains slow, Williams anticipatesactivity will perk up in select sectors. “We dohave a specialized healthcare group,” he cites, notingthat activity there “has been fairly strong” compared toother areas.And when the market as a whole begins its recovery,Madison Capital should be well positioned. Sponsors,it is well known, have very long memories whenit comes to relationships.Bacon notes, “For us it’s never about price... It’sabout understanding what’s going on and keeping yourears open. If it’s the policy of a [lender] group to notunderstand specific issues then we won’t go back.”“When the creditcrisis first hit, ourpipeline reallyexploded in termsof opportunities.”February 2009 MERGERS & ACQUISITIONS 47

44-49_Feature.qxd 4/6/09 5:44 PM Page 48FeatureThe VaporsM&A in the chemicals space is at an inflection pointBy Avram DavisEveryone knows chemicals are a cyclical industry; it’s justfew could have predicted any cycle could be this volatile.In the second week of January, for instance, Lyondell-Basell went from teetering to toppled as the companyfiled for bankruptcy protection. Lyondell’s fall, roughlya year after its merger, is a microcosm of the forces at play wreakinghavoc in the chemicals space.Record energy prices, petroleum feedstock in particular, initiallydrove the $12.7 billion merger between Lyondell Chemicals and BasellAF, a deal — completed in 2007 — that was predicated on the needto build scale. Shortly thereafter, the economy started to sink, with energyprices falling soon after, leaving a $26 billion debt load, and a bloatedcompany with pricing power that no longer much mattered.The woes are shared by many in the sector. Ineos, the No. 3chemicals producer in the world and another product of rapid consolidation,was forced to negotiate covenant waivers from its banks,while industry giant BASF has suffered as well, idling 80 plants to goalong with other production cuts.M&A, while at the root of some of these issues, has also been avictim, as deals that have been in the works for months crumble amidthe volatility. Huntsman’s purchase of Hexion took a much publicizeddetour, while Dow Chemical was spurned at the eleventh hour whenthe state-owned Kuwait Petroleum Corp. pulled out of a joint venturethat would have created the world’s largest petrochemicals producer.As of press time, marketwatchers were fearful that Dow’splanned $15 billion Rohm & Haas acquisition would face a similarfate without the $9 billion in pre-tax proceeds the Kuwaiti joint venturewas supposed to provide.At the crux of the chemical industry’s struggles is the volatility inenergy prices. Of course, the economy is playing a major role as well,but it’s the rapid rise and fall of energy and commodity prices that’screating fits for companies trying to keep pace. And while energyprices were at a peak, key end markets such as housing and autoswere showing severe stress. Many companies sought to achieve purchasingpower through consolidation, which meant buying into theteeth of an M&A bubble. “They were getting crushed [by energyprices]. It’s not even arbitrage, it’s a life survival game,” Kenneth R.Yager, II, a principal at MorrisAnderson Associates says.When Hexion, a commodity chemicals company, first bid forHuntsman in 2007, the premise behind the deal was to diversify byadding more specialty chemical assets. Huntsman, it seemed, was aperfect candidate to mute its cyclical risk. And with Basell fightingfor Huntsman at the same time, the list of targets that could providesuch relief were quickly disappearing. While the deal fell apart for multiplereasons, the effort to win Huntsman’s hand reflects the urgencyat the time, while the dissolution of the deal showcases how quicklythings changed.Even as commodity and energy prices have plummeted, there isstill a motivation for M&A; namely an effort to diversify. That wasthe goal for the Ashland/Hercules deal, the $2.6 billion merger completedin November, and was also the thrust behind Dow’s proposedacquisition of Rohm and Haas, which, if completed, would bolsterthe buyer’s global specialty chemicals and advanced materials reach.What is making M&A so difficult, however, is that buyers can’t adjustto the volatility. Accordingly, deal pros have differing views as towhat the future will bring as it relates to dealmaking in the sector.Andrew Marino, a principal at The Carlyle Group, alludes to thisanxiety, saying he has “no view” of whether energy prices will rise or fall.Yager, though, speculates that if energy prices stay low, it will“cool off chemical consolidation” in the short term.There is no consensus, however, that that will be the case. RobertHenske, vice president and chemicals practice leader at consultancyCRA International, dismisses the notion that the run up in energyprices was the main driver behind the industry’s consolidation. Hesurmises, “If there were capital available, I think we would be seeinga fairly robust M&A market in the sector.”Others take the view that companies in the sector should simplyplan on the volatility. Tiff Armstrong, managing director and coheadof the energy and power group at Harris Williams & Co. cites,“Oil prices have risen so high and dropped so quickly, so commonsense tells you that those same drivers for acquisitions will be therewhen oil prices rise again.”Indeed, it would seem as if there is no right answer. Henske’s earlier pointis an important one, though, because for many chemical providers,the balance sheets will dictate activity. Dan Rogers, a partner in King& Spalding’s energy practice, notes that for those in the petrochemicalssub-sector, the easing of energy prices “hasn’t been much of a help.”But he adds, that “only companies with significant cash reserves and along-term market demand view will be in acquisition mode in 2009.”To be sure, a company’s capital position will also play a role in whichpotential targets go on the block. And many of the mergers completedVAPORS continued on page 8648 MERGERS & ACQUISITIONS February 2009

50-MAJ_DataCoverFeb09.qxd 4/6/09 5:47 PM Page 50The Data Pages2008, as told by the numbers

51-70_Data.qxd 1/12/09 3:07 PM Page 512008 M&A ProfileSTATISTICS IN THIS ISSUE have been supplied by ThomsonReuters and are based on completed mergers, acquisitions, and divestiturespriced at $10 million or more and acquisitions of 5% ormore of a company's stock, if a $100 million price threshold is met.Except where noted, data cover only deals in which a U.S. companywas involved as either the buyer or the seller.The data represent the latest figures available at press time andmay be revised upward in future issues. In cases in which mid-marketdata is identified, “mid-market” is defined as deals below $500million.Mergers and Acquisitions Completions2008 vs. 20072008 2007% of % of % of % ofAll M&A No. of Total Value Total No. of Total Value TotalActivity Deals No. ($bil1) Value Deals No. ($bil2) ValueU.S. acq. U.S. 5,172 67.8 521.5 52.5 6,505 68.6 1,166.8 64.7Non-U.S. acq. U.S. 1,127 14.8 329.2 33.1 1,408 14.9 342.2 19.0U.S. acq. Non-U.S. 1,327 17.4 143.5 14.4 1,564 16.5 294.4 16.3Total 7,626 100.0 994.2 100.0 9,477 100.0 1,803.4 100.0Divestitures only 2,319 30.4 277.2 27.9 2,778 29.3 555.8 30.8LBOs only 518 6.8 113.2 11.4 764 8.1 526.3 29.2* Divestitures and LBOs are included in the Total1 Total dollar value for 2006 is based on 2,663 deals that disclosed price.2 Total dollar value for 2005 is based on 2,627 deals that disclosed price.10-Year Merger Completion Record1999 to 2008No. of % Value %Year Deals Change ($bil) Change1999 9,228 - 1,421.6 -2000 8,930 -3.2 1,785.8 25.62001 6,398 -28.4 1,155.4 -35.32002 5,660 -11.5 626.5 -45.82003 6,246 10.4 531.6 -15.12004 7,315 17.1 865.2 62.82005 8,218 12.3 1,013.0 17.12006 9,080 10.5 1,433.2 41.52007 9,477 4.4 1,803.4 25.82008 7,623 -19.6 994.2 -44.9No. ofDeals10000900080007000600050004000300020001000010-Year Merger Completion Record1999 to 2008Value ($bil)No. of Deals1999 2000 2001 2002 2003 2004 2005 2006 2007 2008Value($bil)2000180016001400120010008006004002000February 2009 MERGERS & ACQUISITIONS 51

51-70_Data.qxd 1/12/09 3:13 PM Page 52M&A Services2008 Adviser League TablesNumber of DealsAnnounced and Completed Deals — 2008Value of DealsAnnounced and Completed Deals — 2008AdviserValue($bil)AdviserNo. ofDealsGoldman Sachs & Co 213JP Morgan 186Credit Suisse 167Merrill Lynch 145Morgan Stanley 144Citi 134Houlihan Lokey Howard & Zukin 131UBS 131Barclays Capital 123Lazard 104Deutsche Bank AG 93Jefferies & Co Inc 83Banc of America Securities LLC 72RBC Capital Markets 62Rothschild 56Goldman Sachs & Co 549.8JP Morgan 424.2Citi 373.6Merrill Lynch 334.7Morgan Stanley 297.7UBS 252.8Credit Suisse 243.4Barclays Capital 236.3Deutsche Bank AG 218.5Lazard 178.5Banc of America Securities LLC 162.7Greenhill & Co, LLC 81.6Moelis & Co 80.4Centerview Partners LLC 78.7Wachovia Corp 72.8Mid-MarketNumber of Deals — 2008Mid-MarketValue of Deals — 2008AdviserNo. ofDealsAdviserValue($bil)Goldman Sachs & Co 80Credit Suisse 73JP Morgan 62Houlihan Lokey Howard & Zukin 58Merrill Lynch 57UBS 57Morgan Stanley 52Lazard 48Jefferies & Co Inc 47Barclays Capital 45Citi 41Keefe Bruyette & Woods Inc 37Deutsche Bank AG 32RBC Capital Markets 29Sandler O'Neill Partners 28Goldman Sachs & Co 20.1Credit Suisse 18.1JP Morgan 13.9Merrill Lynch 13.6UBS 12.8Morgan Stanley 12.1Barclays Capital 11.8Citi 9.8Lazard 9.4Deutsche Bank AG 8.7Jefferies & Co Inc 8.0Houlihan Lokey Howard & Zukin 7.6Banc of America Securities LLC 5.1Wachovia Corp 4.6Keefe Bruyette & Woods Inc 3.952 MERGERS & ACQUISITIONS February 2009

51-70_Data.qxd 1/12/09 3:00 PM Page 53M&A ServicesAdviser League TablesValue of Disclosed Fees —2008Value of Disclosed Fees —1999-2008Fees No. ofAdviser ($mil) DealsGoldman Sachs & Co 836.8 47JP Morgan 811.3 41Morgan Stanley 464.6 23Merrill Lynch 450.3 17UBS 436.2 25Citi 394.1 17Barclays Capital 371.1 25Deutsche Bank AG 361.7 23Lazard 270.6 14Banc of America Securities LLC 209.6 13Credit Suisse 187.4 13Moelis & Co 180.0 3Evercore Partners 179.7 7Greenhill & Co, LLC 170.5 6Sandler O'Neill Partners 111.9 20Fees No. ofAdviser ($mil) DealsGoldman Sachs & Co 8,430.5 465JP Morgan 5,904.7 467Morgan Stanley 5,675.0 336Merrill Lynch 4,783.4 282Credit Suisse 4,567.7 362Citi 4,193.6 277Barclays Capital 2,957.8 223UBS 2,289.7 193Banc of America Securities LLC 2,103.0 197Deutsche Bank AG 1,805.7 155Lazard 1,663.1 127Wachovia Corp 637.9 89Evercore Partners 624.3 32Sandler O'Neill Partners 621.7 156Houlihan Lokey Howard & Zukin 603.4 108Mergers and Acquisitions Fees — 1999 to 2008Acquirer Target Total Deals WithYear Fees ($mil) Fees ($mil) Fees ($mil) Disclosed Fees1999 1,055.4 2,249.2 3,304.6 6342000 587.3 1,197.9 1,785.2 3612001 324.7 714.7 1,039.4 1982002 330.7 652.1 982.8 1522003 90.1 184.8 274.9 1142004 312.3 662.3 974.6 2172005 278.9 607.5 886.4 2152006 276.6 629.3 905.9 2092007 462.7 823.4 1,286.1 3342008 277.8 497.5 775.3 219February 2009 MERGERS & ACQUISITIONS 53

51-70_Data.qxd 1/12/09 5:42 PM Page 54M&A Services2008 Legal League TablesNumber of DealsAnnounced and CompletedMid-Market: Number of DealsAnnounced and CompletedNo. of ValueFirm Deals ($bil)Jones Day 302 116.2Latham & Watkins 251 334.9DLA Piper 166 34.7Skadden, Arps, Slate, Meagher & Flom 165 278.0Kirkland & Ellis 141 85.2Dorsey & Whitney LLP 134 8.4Cleary Gottlieb Steen & Hamilton 123 246.5Wilson Sonsini Goodrich & Rosati 123 67.2Sullivan & Cromwell 121 406.2Gibson Dunn & Crutcher 114 106.8O'Melveny & Myers 113 34.5Baker & McKenzie 108 98.0Dewey & LeBoeuf LLP 107 190.1Morgan Lewis & Bockius 101 15.6Weil Gotshal & Manges 94 177.3No. of ValueFirm Deals ($bil)Latham & Watkins 123 21.2Jones Day 73 12.7Skadden, Arps, Slate, Meagher & Flom 70 13.9DLA Piper 64 7.6O'Melveny & Myers 56 7.3Wilson Sonsini Goodrich & Rosati 54 7.1Hogan & Hartson 52 7.2Sullivan & Cromwell 47 9.8Gibson Dunn & Crutcher 46 8.5Cleary Gottlieb Steen & Hamilton 42 10.8Dewey & LeBoeuf LLP 41 8.1Morgan Lewis & Bockius 37 4.5Kirkland & Ellis 37 5.9Davis Polk & Wardwell 36 6.5Baker & McKenzie 36 5.1Mid-MarketFairness OpinionsAnnounced and CompletedMid-Market: M&A Fairness OpinionsAnnounced and Completed dealsValue($bil)AdviserNo. ofDealsAdviserNo. ofDealsJP Morgan 77Goldman Sachs & Co 69UBS 47Houlihan Lokey Howard & Zukin 42Morgan Stanley 39Barclays Capital 36Deutsche Bank AG 35Merrill Lynch 34Duff and Phelps 34Citi 30Lazard 29Credit Suisse 29Sandler O'Neill Partners 26Banc of America Securities LLC 25Keefe Bruyette & Woods Inc 25Houlihan Lokey Howard & Zukin 23Sandler O'Neill Partners 20Duff and Phelps 19Goldman Sachs & Co 19Keefe Bruyette & Woods Inc 18UBS 17JP Morgan 17Lazard 14Barclays Capital 12Morgan Stanley 12Credit Suisse 12Deutsche Bank AG 12RBC Capital Markets 9Stifel Financial Corp 9Banc of America Securities LLC 854 MERGERS & ACQUISITIONS February 2009

51-70_Data.qxd 1/12/09 3:00 PM Page 55Top 100100 Largest Deals of 2008TargetPriceAcquirer Target Adviser(s) ($bil)InBev NV Anheuser-Busch Cos Inc Goldman Sachs & Co, UBS Investment Bank, 52.2Citi, Merrill Lynch, Moelis & CoInvestor Group Harrah's Entertainment Inc UBS Investment Bank, Peter J. Solomon Co Ltd 27.9BT Triple Crown Co Inc Clear Channel Commun Inc Goldman Sachs & Co, Lazard 25.9Mars Inc William Wrigley Jr Co William Blair & Co, Goldman Sachs & Co 22.4Wells Fargo,San Francisco,CA Wachovia Corp,Charlotte,NC Goldman Sachs & Co, Wachovia Securities Inc, 15.1Perella Weinberg Partners LPHewlett-Packard Co Electronic Data Systems Corp Citi, Evercore Partners 12.6Novartis AG Alcon Inc Credit Suisse Group, Citi 10.6Ingersoll-Rand Co Ltd Trane Inc Lazard 9.8Teva Pharma Inds Ltd Barr Pharmaceuticals Inc Banc of America Securities LLC 8.8Mahogany Acquisition Corp Millennium Pharmaceuticals Inc Goldman Sachs & Co 8.7Toronto-Dominion Bank Commerce Bancorp,New Jersey Goldman Sachs & Co 8.6Carolina Group Carolina Group JP Morgan, Lehman Brothers 8.3Oracle Corp BEA Systems Inc Goldman Sachs & Co 8.1Nokia Oyj NAVTEQ Corp Merrill Lynch 7.9ConocoPhillips Co Origin Energy-Coal Seam Gas Grant Samuel & Associates Pty, Macquarie Bank 7.9Mitsubishi UFJ Financial Grp Morgan Stanley Morgan Stanley 7.8CME Group Inc NYMEX Holdings Inc Merrill Lynch, Sandler O'Neill Partners, JP Morgan 7.6National Oilwell Varco Inc Grant PrideCo Inc Credit Suisse Group 7.5Abu Dhabi Investment Authority Citigroup Inc Citi 7.5Clearwire Corp Sprint Nextel Corp-Wireless Citi, Lehman Brothers 7.4Bank of America Corp China Construction Bank Corp Morgan Stanley, China International Capital Co 7.1GIC Citigroup Inc Citi 6.9Invitrogen Corp Applied Biosystems Group Morgan Stanley, Greenhill & Co, LLC 6.7Investor Group MidCon Corp Lehman Brothers 6.6Activision Inc Vivendi Universal Games Inc Goldman Sachs & Co 6.5* In some cases, purchase prices include the assumption of liabilitiesFebruary 2009 MERGERS & ACQUISITIONS 55

51-70_Data.qxd 1/12/09 3:14 PM Page 56Top 100100 Largest Deals of 2008TargetPriceAcquirer Target Adviser(s) ($bil)Eli Lilly & Co ImClone Systems Inc JP Morgan, Citi, Morgan Stanley 6.5Sirius Satellite Radio Inc XM Satellite Radio Hldgs Inc JP Morgan 6.2Liberty Mutual Group Inc Safeco Corp Morgan Stanley 6.1Republic Services Inc Allied Waste Industries Inc UBS Investment Bank, Moelis & Co 6.1International Paper Co Weyerhaeuser-Containerboard Morgan Stanley 6.0Fresenius SE APP Pharmaceuticals Inc Goldman Sachs & Co, Lazard 5.6PNC Finl Svcs Grp Inc Natl City Corp,Cleveland,Ohio Goldman Sachs & Co 5.6SAP AG Business Objects SA Houlihan Lokey Howard & Zukin, Goldman Sachs & Co 5.5Henkel AG & Co KGaA Natl Starch & Chem Co-Adhesive Morgan Stanley 5.5Koninklijke Philips Electronic Respironics Inc Goldman Sachs & Co, Raptor LLC 5.3Whitehall Street Fund LEG Metzler Corporation 5.3Finmeccanica SpA DRS Technologies Inc Bear Stearns & Co Inc, Stone Key Partners, Merrill Lynch 5.1IBM Corp Cognos Inc Lehman Brothers 5.0Tokio Marine Holdings Inc Philadelphia Consolidated Hold Merrill Lynch 5.7Iberdrola SA Energy East Corp JP Morgan, Greenhill & Co, LLC 4.5Berkshire Hathaway Inc Marmon Holdings Inc Goldman Sachs & Co, Robert W Baird & Co Inc 4.5Citigroup Japan Holdings Ltd Nikko Cordial Corp GCA Co Ltd, Greenhill & Co, LLC 4.5Temasek Holdings(Pte)Ltd Merrill Lynch & Co Inc Merrill Lynch 4.4XTO Energy Inc Hunt Petroleum Corp Goldman Sachs & Co, Tristone Capital Advisors Inc 4.2Bank of America Corp Countrywide Financial Corp Sandler O'Neill Partners, Goldman Sachs & Co 4.1Nasdaq Stock Market Inc OMX AB Morgan Stanley, Lazard, Credit Suisse Group, 4.1Lenner & Partners, CarnegieCitron Healthcare Ltd ConvaTec Ltd Citi, Morgan Stanley 4.1Boston Properties Inc General Motors Building,NY Citi 3.9Reed Elsevier Group PLC ChoicePoint Inc Goldman Sachs & Co, Wachovia Securities Inc, 3.8Lehman BrothersBank of Tokyo-Mitsubishi UFJ UnionBanCal Corp,CA Credit Suisse Group 3.7* In some cases, purchase prices include the assumption of liabilities56 MERGERS & ACQUISITIONS February 2009

51-70_Data.qxd 1/12/09 3:02 PM Page 57Top 100100 Largest Deals of 2008TargetPriceAcquirer Target Adviser(s) ($bil)Roche Holding AG Ventana Medical Systems Inc Merrill Lynch, Goldman Sachs & Co 3.7Jaguar Acquisition Corp MGI PHARMA Inc Lehman Brothers 3.6Weather Channel Interactive Weather Channel Interactive JP Morgan, Lehman Brothers 3.5StatoilHydro ASA Chesapeake Energy-Marcellus Jefferies & Co Inc 3.4Ashland Inc Hercules Inc Credit Suisse Group 3.3JM Smucker Co Folgers Coffee Co Morgan Stanley, Blackstone Group LP 3.3Celgene Corp Pharmion Corp Banc of America Securities LLC 3.2Investor Group Clearwire Corp Morgan Stanley, Citi, JP Morgan, Lehman Brothers 3.2Staples Inc Corporate Express NV JP Morgan, Goldman Sachs & Co, Deutsche Bank AG, 3.2ABN-AMRO Holding NVGoogle Inc DoubleClick Inc Morgan Stanley, Bear Stearns & Co Inc 3.1PPG Industries Inc SigmaKalon Group BV UBS Investment Bank, HSBC Holdings PLC 3.0Smith International Inc W-H Energy Services Inc UBS Investment Bank 3.0Delta Air Lines Inc Northwest Airlines Corp Morgan Stanley, Evercore Partners, JP Morgan 3.0Macrovision Corp Gemstar-TV Guide Intl Inc UBS Investment Bank 2.9Philips Holding USA Inc Genlyte Group Inc JP Morgan, Sagent Advisors Inc 2.8TransCanada Corp National Grid PLC-Ravenswood Merrill Lynch 2.8Ospraie Special Opportunities ConAgra Trade Group Centerview Partners LLC, UBS Investment Bank 2.8Great Plains Energy Inc Aquila Inc Blackstone Group LP, Evercore Group 2.7Rank Group Ltd Alcoa Inc-Packaging & Consumer Lehman Brothers 2.7FairPoint Communications Inc Verizon Commun Inc-Wireline Merrill Lynch 2.7Ralcorp Holdings Inc Post Cereal Centerview Partners LLC, Goldman Sachs & Co, 2.7Blackstone Group LPInvestor Group Citigroup Inc Citi 2.7CVS Caremark Corp Longs Drug Stores Corp JP Morgan 2.6Agrium Inc UAP Holding Corp JP Morgan 2.6SABMiller PLC-US & Puerto Rico Molson Coors Brewing Co-US & Morgan Stanley, Deutsche Bank AG 2.6* In some cases, purchase prices include the assumption of liabilitiesFebruary 2009 MERGERS & ACQUISITIONS 57

51-70_Data.qxd 1/12/09 3:14 PM Page 58Top 100100 Largest Deals of 2008TargetPriceAcquirer Target Adviser(s) ($bil)Carlyle Group LLC Booz Allen Hamilton-Government Credit Suisse Group, Houlihan Lokey Howard & Zukin 2.5Allianz SE Hartford Fin Svcs Group Inc Goldman Sachs & Co 2.5UnitedHealth Group Inc Sierra Health Services Inc Lehman Brothers 2.4Brocade Commun Sys Inc Foundry Networks Inc Merrill Lynch, Houlihan Lokey Howard & Zukin 2.4MTW County Ltd Enodis PLC Credit Suisse Group, Investec Bank Ltd, Rothschild 2.4ACE Ltd Combined Ins Co of America Credit Suisse Group, Aon Capital Markets, Merrill Lynch 2.4T-Mobile USA Inc SunCom Wireless Holdings Inc Goldman Sachs & Co 2.4Triarc Cos Inc Wendy's International Inc JP Morgan, Goldman Sachs & Co, Lehman Brothers, 2.3Greenhill & Co, LLCCorporacion Mapfre SA Commerce Group Inc Bear Stearns & Co Inc 2.3Reckitt Benckiser PLC Adams Respiratory Therapeutics Morgan Stanley 2.3General Dynamics Corp Jet Aviation International SA Morgan Stanley 2.2Eaton Corp Moeller Holding GmbH & Co KG UBS Investment Bank 2.2Best Buy Co Inc Carphone Warehouse Group PLC- Credit Suisse Group 2.2Hellman & Friedman LLC Getty Images Inc Goldman Sachs & Co 2.0Philip Morris Intl Inc Rothmans Inc BMO Capital Markets 2.0Korea Investment Corp Merrill Lynch & Co Inc Merrill Lynch 2.0KIA Merrill Lynch & Co Inc Merrill Lynch 2.0TPG Capital LP Washington Mutual,Seattle,WA Goldman Sachs & Co, Lehman Brothers 2.0JPMorgan Chase & Co Washington-Cert Bkg Asts Goldman Sachs & Co 1.9Bank of America Corp China Construction Bank Corp Morgan Stanley, China International Capital Co 1.9Hellman & Friedman LLC Goodman Global Inc JP Morgan, Goldman Sachs & Co1.9Glencore International AG Century Aluminum Co Credit Suisse Group, Morgan Stanley, Lazard 1.8Turbo Alpha Ltd Abbot Group PLC Rothschild, JP Morgan 1.8CBS Corp CNET Networks Inc Morgan Stanley, Allen & Co Inc 1.8Kinetic Concepts Inc LifeCell Corp Merrill Lynch 1.8* In some cases, purchase prices include the assumption of liabilities58 MERGERS & ACQUISITIONS February 2009

51-70_Data.qxd 1/12/09 3:02 PM Page 59Market DynamicsMost Active M&A IndustriesBy Number of Deals — 2008Most Active M&A IndustriesBy Dollar Value — 2008Industry*No. ofDealsIndustry*Value($bil)Business Services 1,426Prepackaged Software 687Insurance 284Health Services 273Electronic and Electrical Equipment 258Investment & Commodity Firms/Dealers/Exch. 246Measuring, Medical, Photo Equipment; Clocks 242Oil and Gas; Petroleum Refining 240Wholesale Trade-Durable Goods 230Real Estate; Mortgage Bankers and Brokers 225Food and Kindred Products 101.8Commercial Banks, Bank Holding Companies 88.5Business Services 66.9Investment & Commodity Firms/Dealers/Exch. 54.4Drugs 54.4Prepackaged Software 54.0Oil and Gas; Petroleum Refining 53.3Radio and Television Broadcasting Stations 44.7Measuring, Medical, Photo Equipment; Clocks 43.7Electric, Gas, and Water Distribution 41.6The Spectrum of DealmakingM&A Completions by Industry — 2008U.S. Acq. U.S. Non-U.S. Acq. U.S. U.S. Acq. Non-U.S. TotalNo. of Value No. of Value No. of Value No. of ValueIndustry* Deals ($mil) Deals ($mil) Deals ($mil) Deals ($mil)Advertising Services 28 567.6 5 .0 4 .0 37 567.6Aerospace and Aircraft 21 1,652.0 7 1,169.0 6 2,351.4 34 5,172.4Agriculture, Forestry, and Fishing 28 1,485.3 7 675.5 7 1,070.8 42 3,231.6Air Transportation and Shipping 21 7,848.5 4 305.3 6 2,705.6 31 10,859.4Amusement and Recreation Services 50 1,817.7 6 494.0 16 239.7 72 2,551.4Business Services 1,019 45,132.3 173 14,605.8 234 7,129.9 1,426 66,868.0Chemicals and Allied Products 80 6,828.3 28 4,544.2 40 4,345.1 148 15,717.6Commercial Banks, Bank Holding Companies 112 36,567.6 16 39,259.8 13 12,688.2 141 88,515.6Communications Equipment 34 685.6 6 40.0 14 1,514.7 54 2,240.3Computer and Office Equipment 30 7,548.4 8 96.5 11 248.0 49 7,892.9Construction Firms 90 2,925.2 17 464.0 18 263.6 125 3,652.8Credit Institutions 40 4,108.0 5 840.0 12 548.5 57 5,496.5Drugs 90 16,491.4 53 35,488.3 31 2,369.5 174 54,349.2Educational Services 42 520.1 3 73.2 18 203.3 63 796.6Electric, Gas, and Water Distribution 79 13,015.0 30 24,622.5 27 4,001.3 136 41,638.8Electronic and Electrical Equipment 141 4,253.9 56 6,363.7 61 7,009.1 258 17,626.7*Industry is determined by the target companyValues were not disclosed for all dealsFebruary 2009 MERGERS & ACQUISITIONS 59

51-70_Data.qxd 1/12/09 3:14 PM Page 60The Spectrum of DealmakingM&A Completions by Industry — 2008U.S. Acq. U.S. Non-U.S. Acq. U.S. U.S. Acq. Non-U.S. TotalNo. of Value No. of Value No. of Value No. of ValueIndustry* Deals ($mil) Deals ($mil) Deals ($mil) Deals ($mil)Food and Kindred Products 90 31,448.6 26 64,729.5 46 5,579.2 162 101,757.3Health Services 238 8,153.5 18 640.5 17 1,382.1 273 10,176.3Holding Companies, Except Banks 11 1,134.5 3 69.0 4 93.9 18 1,297.4Hotels and Casinos 55 30,691.8 11 2,425.6 6 .0 72 33,117.4Insurance 240 17,644.4 23 15,193.0 21 3,180.7 284 36,018.1Investment & Commodity Firms/Dealers/Exch. 152 26,151.5 41 17,269.0 53 11,018.3 246 54,438.8Leather and Leather Products 3 15.0 1 10.8 4 .0 8 25.8Legal Services 17 173.3 1 .0 2 .0 20 173.3Machinery 117 20,266.4 47 2,003.6 60 5,211.5 224 27,481.5Measuring, Medical, Photo Equipment; Clocks 130 13,575.7 51 27,345.2 61 2,777.6 242 43,698.5Metal and Metal Products 118 9,754.0 54 11,461.1 29 460.2 201 21,675.3Mining 38 2,217.4 27 2,529.4 29 2,591.7 94 7,338.5Miscellaneous Manufacturing 36 1,601.2 4 188.5 13 579.2 53 2,368.9Miscellaneous Retail Trade 114 4,528.2 15 15.0 16 2,373.6 145 6,916.8Miscellaneous Services 9 .0 1 .0 3 .0 13 0.0Motion Picture Production and Distribution 29 1,419.8 6 185.4 9 104.5 44 1,709.7Oil and Gas; Petroleum Refining 172 29,843.0 44 9,825.1 24 13,621.9 240 53,290.0Other Financial 12 905.2 1 117.0 3 .0 16 1,022.2Paper and Allied Products 30 9,903.3 8 2,908.2 10 11.8 48 12,823.3Personal Services 21 687.1 3 .0 2 10.3 26 697.4Prepackaged Software 476 22,995.9 91 17,563.7 120 12,934.7 687 53,494.3Printing, Publishing, and Allied Services 88 2,053.5 12 202.5 10 196.0 110 2,452.0Public Administration 8 118.2 - - - - 8 118.2Radio and Television Broadcasting Stations 56 40,751.5 5 724.3 14 3,221.0 75 44,696.8Real Estate; Mortgage Bankers and Brokers 153 21,849.6 35 4,633.0 37 13,389.0 225 39,871.6Repair Services 38 315.4 4 .0 5 .0 47 315.4Retail Trade-Eating and Drinking Places 52 3,494.8 4 .0 8 .0 64 3,494.8Retail Trade-Food Stores 24 226.7 4 160.0 5 403.0 33 789.7Retail Trade-General Merchandise & Apparel 18 220.6 3 24.5 8 82.1 29 327.2Retail Trade-Home Furnishings 14 305.6 2 .0 5 743.0 21 1,048.6Rubber and Miscellaneous Plastic Products 37 2,620.9 17 117.0 12 68.1 66 2,806.0Sanitary Services 28 13,584.8 3 .0 7 .0 38 13,584.8Savings and Loans, Mutual Savings Banks 10 6,255.7 - - - - 10 6,255.7Soaps, Cosmetics and Personal-Care Products 22 1,716.8 7 9,706.9 9 1,136.4 38 12,560.1Social Services 31 2,390.9 1 .0 - - 32 2,390.9Stone, Clay, Glass, and Concrete Products 17 .0 16 1,122.0 13 164.1 46 1,286.1Telecommunications 103 15,652.1 9 2,759.1 9 2,216.5 121 20,627.7Textile and Apparel Products 35 1,329.9 6 81.0 11 352.7 52 1,763.6Tobacco Products 2 8,310.2 1 .0 2 1,972.4 5 10,282.6Transportation and Shipping (except air) 111 2,971.8 20 659.0 25 4,181.2 156 7,812.0Transportation Equipment 48 3,449.4 15 468.1 19 394.0 82 4,311.5Wholesale Trade-Durable Goods 139 5,387.3 41 4,878.7 50 5,494.6 230 15,760.6Wholesale Trade-Nondurable Goods 92 1,989.2 10 53.3 23 671.6 125 2,714.1Wood Products, Furniture, and Fixtures 32 1,911.2 11 74.5 3 272.5 46 2,258.2*Industry is determined by the target companyValues were not disclosed for all deals60 MERGERS & ACQUISITIONS February 2009

51-70_Data.qxd 1/12/09 5:44 PM Page 61World SceneForeign Acquisitions of U.S. Companies1999 to 2008No. of % of All Value % of TotalYear Deals Deals= ($bil)* Value1999 1,142 12.4 263.4 18.52000 1,251 14.0 331.5 18.62001 938 14.7 204.5 17.72002 716 12.7 84.2 13.42003 779 12.5 81.2 15.32004 859 11.7 104.2 12.02005 1,086 13.2 112.7 11.12006 1,193 13.1 200.7 14.02007 1,408 14.9 342.2 19.02008 1,126 14.8 329.2 33.1=All Deals includes only M&A transactions involving a U.S. company as either theacquirer or the target.*U.S. dollarsU.S. Acquisitions Overseas1999 to 2008No. of % of All Value % of TotalYear Deals Deals= ($bil)* Value1999 1,599 17.3 158.0 11.12000 1,583 17.7 114.4 6.42001 1,144 17.9 118.5 10.32002 825 14.6 88.2 14.12003 894 14.3 96.0 18.12004 1,172 16.0 130.8 15.12005 1,283 15.6 154.9 15.32006 1,461 16.1 217.6 15.22007 1,564 16.5 294.5 16.32008 1,326 17.4 143.6 14.4=All Deals includes only M&A transactions involving a U.S. company as either theacquirer or the target.*U.S. dollarsForeign Acquisitions of U.S. Companies1999 to 2008U.S. Acquisitions Overseas1999 to 2008No. ofDeals250Value($bil)25No. ofDeals180Value($bil)70200150No. of DealsValue ($bil)2015160140120100No. of DealsValue ($bil)60504010050105806040203020100United KingdomCanadaGermanyChinaFranceAustraliaBrazilNetherlandsSpainJapan00BelgiumJapanUnited KingdomGermanyCanadaSwitzerlandAustraliaSpainSingaporeIsrael0February 2009 MERGERS & ACQUISITIONS 61

51-70_Data.qxd 1/12/09 5:45 PM Page 62World SceneTop 25 U.S. Acquisitions Overseas — 2008TargetPriceAcquirer Target Adviser(s) ($bil)*ConocoPhillips Co Origin Energy-Coal Seam Gas Grant Samuel & Associates Pty, Macquarie Bank 7.9Bank of America Corp China Construction Bank Corp Morgan Stanley, China International Capital Co 7.1Goldman Sachs Group Inc LEG Metzler Corporation 5.3IBM Corp Cognos Inc Lehman Brothers 5.0Citigroup Inc Nikko Cordial Corp GCA Co Ltd, Greenhill & Co, LLC 4.5Nasdaq Stock Market Inc OMX AB Morgan Stanley, Credit Suisse Group, Lenner & Partners, Carnegie, Lazard 4.1Staples Inc Corporate Express NV JP Morgan, Deutsche Bank AG, ABN-AMRO Holding NV, 3.2Goldman Sachs & CoPPG Industries Inc SigmaKalon Group BV UBS Investment Bank, HSBC Holdings PLC 3.0Manitowoc Co Inc Enodis PLC Credit Suisse Group, Rothschild, Investec Bank Ltd 2.4General Dynamics Corp Jet Aviation International SA Morgan Stanley 2.2Eaton Corp Moeller Holding GmbH & Co KG UBS Investment Bank 2.2Best Buy Co Inc Carphone Warehouse Group PLC- Credit Suisse Group 2.2Philip Morris Intl Inc Rothmans Inc BMO Capital Markets 2.0Bank of America Corp China Construction Bank Corp Morgan Stanley, China International Capital Co 1.9First Reserve Corp Abbot Group PLC Rothschild, JP Morgan 1.8HRE Investment Holdings LP Hypo Real Estate Holding AG JP Morgan 1.8Investor Group Weather Investments Srl Credit Suisse Group, Citi, Morgan Stanley 1.7Carlyle Group LLC NC Numericable SNC Morgan Stanley, HSBC Holdings PLC, Rothschild, BNP Paribas SA 1.7GE Interbanca SpA Rothschild, KPMG Corporate Finance 1.6BlackRock Inc UBS AG-Mortgage Assets UBS Investment Bank 1.5First Reserve Corp CHC Helicopter Corp Merrill Lynch, Scotia Capital (USA) Inc. 1.5TPG Capital LP Axcan Pharma Inc Merrill Lynch 1.4Aon Corp Benfield Group Ltd Merrill Lynch 1.4PepsiCo Inc OAO Lebedyansky Experimental Deutsche Bank AG 1.4Newmont Mining Corp Miramar Mining Corp BMO Capital Markets, Paradigm Capital Inc 1.3* U.S. dollarsSome deals include the assumption of liabilities62 MERGERS & ACQUISITIONS February 2009

51-70_Data.qxd 1/12/09 3:02 PM Page 63World SceneTop 25 Foreign Acquisitions in US — 2008TargetPriceAcquirer Target Adviser(s) ($bil)*Stichting Interbrew SA Anheuser-Busch Cos Inc Goldman Sachs & Co, Citi, Merrill Lynch, Moelis & Co, 52.2UBS Investment BankNovartis AG Alcon Inc Credit Suisse Group, Citi 10.6Teva Pharma Inds Ltd Barr Pharmaceuticals Inc Banc of America Securities LLC 8.8Takeda Pharmaceutical Co Ltd Millennium Pharmaceuticals Inc Goldman Sachs & Co 8.7Toronto-Dominion Bank Commerce Bancorp,New Jersey Goldman Sachs & Co 8.6Nokia Oyj NAVTEQ Corp Merrill Lynch 8.0Mitsubishi UFJ Financial Grp Morgan Stanley Morgan Stanley 7.8United Arab Emirates Citigroup Inc Citi 7.5Singapore Citigroup Inc Citi 6.9Investor Group MidCon Corp Lehman Brothers 6.6Fresenius SE APP Pharmaceuticals Inc Goldman Sachs & Co, Lazard 5.6SAP AG Business Objects SA Houlihan Lokey Howard & Zukin, Goldman Sachs & Co 5.5Henkel AG & Co KGaA Natl Starch & Chem Co-Adhesive Morgan Stanley 5.5Koninklijke Philips Electronic Respironics Inc Goldman Sachs & Co, Raptor LLC 5.3Finmeccanica SpA DRS Technologies Inc Bear Stearns & Co Inc, Merrill Lynch, Stone Key Partners 5.1Tokio Marine Holdings Inc Philadelphia Consolidated Hold Merrill Lynch 4.7Iberdrola SA Energy East Corp JP Morgan, Greenhill & Co, LLC 4.5Singapore Merrill Lynch & Co Inc Merrill Lynch 4.4Nordic Capital AB ConvaTec Ltd Citi, Morgan Stanley 4.1Reed Elsevier PLC ChoicePoint Inc Goldman Sachs & Co, Lehman Brothers, Wachovia Securities Inc 3.8Mitsubishi UFJ Financial Grp UnionBanCal Corp,CA Credit Suisse Group 3.7Roche Holding AG Ventana Medical Systems Inc Merrill Lynch, Goldman Sachs & Co 3.7Eisai Co Ltd MGI PHARMA Inc Lehman Brothers 3.6Norway Chesapeake Energy-Marcellus Jefferies & Co Inc 3.4Koninklijke Philips Electronic Genlyte Group Inc JP Morgan, Sagent Advisors Inc 2.8* U.S. dollarsSome deals include the assumption of liabilitiesFebruary 2009 MERGERS & ACQUISITIONS 63

51-70_Data.qxd 1/12/09 5:45 PM Page 64World SceneTop 25 Deals Done Outside of the U.S. — 2008PriceAcquirer Target Name Industry ($bil)*Gaz de France SA Suez SA Energy and Power 60.9HM Treasury RBS Financials 26.1Netherlands Fortis Bank Nederland(Holding) Financials 23.1Westpac Banking Corp St George Bank Ltd Financials 17.9Imperial Tobacco Overseas Hldg Altadis SA Consumer Staples 17.8Thomson Corp Reuters Group PLC Media and Entertainment 17.6Akzo Nobel NV ICI PLC Materials 16.3Serafina Holdings Ltd Intelsat Ltd Telecommunications 16.0Lafarge SA OCI Cement Group Materials 15.0Sunrise Acquisitions Ltd Scottish & Newcastle PLC Consumer Staples 14.9E ON AG Endesa Italia Energy and Power 14.3Shining Prospect Pte Ltd Rio Tinto PLC Materials 14.3Teck Cominco Ltd Fording Canadian Coal Trust Materials 13.6Netherlands ING Groep NV Financials 13.4BMPS Banca Antonveneta SpA Financials 13.2BM&F Bovespa Holding SA Financials 10.3WPP Group PLC WPP Group PLC Media and Entertainment 10.1GIC UBS AG Financials 9.8Pernod Ricard SA Vin & Sprit AB Consumer Staples 8.9China Unicom Ltd China Netcom Grp(HK)Corp Ltd Telecommunications 7.8Impala Holdings Ltd Resolution PLC Financials 7.5E ON Scandinavia AB E ON Sverige AB Energy and Power 7.0Investor Group Angel Trains Ltd Industrials 7.0AP Fastigheter AB Vasakronan AB Real Estate 6.9Kingdom of Belgium Fortis Bank SA/NV Financials 6.8* U.S. dollarsSome deals include the assumption of liabilities64 MERGERS & ACQUISITIONS February 2009

51-70_Data.qxd 1/12/09 3:02 PM Page 65LBO MarketThe Leveraged Buyout Market1999 to 2008No. of % of All Value % of TotalYear Deals M&A Deals ($bil) M&A Value1999 200 2.2 29.2 2.12000 311 3.5 51.7 2.92001 159 2.5 23.0 2.02002 175 3.1 23.2 3.72003 182 2.9 52.1 9.82004 351 4.8 84.1 9.72005 496 6.0 145.1 14.32006 698 7.7 256.8 17.92007 764 8.1 526.3 29.22008 519 6.8 113.2 11.48007006005004003002001000The Leveraged Buyout Market1999 to 2008No of DealsValue ($bil)1999 2000 2001 2002 2003 2004 2005 2006 2007 2008Top 25 LBOs — 2008TargetPriceAcquirer Target Adviser(s) ($bil)Investor Group Harrah's Entertainment Inc UBS Investment Bank, Peter J. Solomon Co Ltd 27.9BT Triple Crown Co Inc Clear Channel Commun Inc Goldman Sachs & Co, Lazard 25.9Nordic Capital AB ConvaTec Ltd Citi, Morgan Stanley 4.1Eisai Co Ltd MGI PHARMA Inc Lehman Brothers 3.6Weather Channel Interactive Weather Channel Interactive JP Morgan, Lehman Brothers 3.5Carlyle Group LLC Booz Allen Hamilton-Government Credit Suisse Group, Houlihan Lokey Howard & Zukin 2.5Hellman & Friedman LLC Getty Images Inc Goldman Sachs & Co 2.0Hellman & Friedman LLC Goodman Global Inc JP Morgan, Goldman Sachs & Co 1.9Some deals include the assumption of liabilitiesFebruary 2009 MERGERS & ACQUISITIONS 65

51-70_Data.qxd 1/12/09 5:45 PM Page 66LBO MarketTop 25 LBOs — 2008TargetPriceAcquirer Target Adviser(s) ($bil)First Reserve Corp Abbot Group PLC Rothschild, JP Morgan 1.8First Reserve Corp CHC Helicopter Corp Merrill Lynch, Scotia Capital (USA) Inc. 1.5Vestar Capital Partners Unilever PLC-Laundry Business Morgan Stanley 1.5TPG Capital LP Axcan Pharma Inc Merrill Lynch 1.4Apax Partners Worldwide LLP TriZetto Group Inc UBS Investment Bank 1.4Bain Capital Partners LLC Bright Horizons Family Goldman Sachs & Co, Evercore Group 1.3Carlyle/Riverstone Global Gibson Energy Holdings Ltd Simmons & Co, ABN AMRO Hoare Govett (UK), Close Brothers 1.2Providence Equity Partners Inc Clear Channel Commun Inc-TV Merrill Lynch, Goldman Sachs & Co 1.2Oak Hill Capital Partners LP News Corp-FOX Network(8) Allen & Co Inc 1.1Invesco Ltd Option One Mortgage Corp Lazard 1.1Kohlberg Kravis Roberts & Co Northgate Info Solutions PLC Rothschild, Citi, Hoare Govett Ltd 1.1Apollo Advisors LP NCL Corp Ltd Citi, Access Capital Ltd 1.0Pacific Equity Partners American Stock Transfer Lehman Brothers 1.0Blackstone Group LP Apria Healthcare Group Inc Goldman Sachs & Co .9Investor Group BORCO Citi .9Vestar Capital Partners Radiation Therapy Services Inc Morgan Joseph & Co Inc .8Carlyle Group LLC Neochimiki Lavrentiadis SA Deutsche Bank AG, Dresdner Kleinwort .8Some deals include the assumption of liabilities66 MERGERS & ACQUISITIONS February 2009

51-70_Data.qxd 1/12/09 3:02 PM Page 67Going PrivateTop Going-Private Deals — 2008TargetPriceAcquirer Target Adviser(s) ($bil)Investor Group Harrah's Entertainment Inc UBS Investment Bank, Peter J. Solomon Co Ltd 27.9BT Triple Crown Co Inc Clear Channel Commun Inc Goldman Sachs & Co, Lazard 25.9Hellman & Friedman LLC Getty Images Inc Goldman Sachs & Co 2.0Hellman & Friedman LLC Goodman Global Inc JP Morgan, Goldman Sachs & Co 1.9First Reserve Corp Abbot Group PLC Rothschild, JP Morgan 1.8First Reserve Corp CHC Helicopter Corp Merrill Lynch, Scotia Capital (USA) Inc. 1.5TPG Capital LP Axcan Pharma Inc Merrill Lynch 1.4Apax Partners Worldwide LLP TriZetto Group Inc UBS Investment Bank 1.4Bain Capital Partners LLC Bright Horizons Family Goldman Sachs & Co, Evercore Group 1.3Kohlberg Kravis Roberts & Co Northgate Info Solutions PLC Rothschild, Citi, Hoare Govett Ltd 1.1Blackstone Group LP Apria Healthcare Group Inc Goldman Sachs & Co .9Vestar Capital Partners Radiation Therapy Services Inc Morgan Joseph & Co Inc .8Sun Capital Partners Inc Kellwood Co Morgan Stanley, Banc of America Securities LLC .5Aurora Capital Group NuCO2 Inc UBS Investment Bank, Houlihan Lokey Howard & Zukin .4TPG Capital LP Midwest Air Group Inc Goldman Sachs & Co .4Bain Capital Partners LLC D&M Holdings Inc Morgan Stanley .4Platinum Equity LLC Maxim Crane Works Hldg Inc Goldman Sachs & Co .4Centre Partners Management LLC Connors Bros Income Fund Genuity Capital Markets .4ABRY Partners LLC Q9 Networks Inc Jefferies & Co Inc .3Investor Group Waste Industries USA Inc JP Morgan .3Great Hill Partners LLC CAM Commerce Solutions Inc RBC Capital Markets .2Catterton Partners Restoration Hardware Inc UBS Investment Bank .2Odyssey Invest Partners LLC EAG Ltd Lazard, Numis, American Capital Strategies .2Odyssey Invest Partners LLC SM&A Wedbush Morgan Securities .1Vector Capital Corp Printronix Inc Houlihan Lokey Howard & Zukin .1Industrial Rubber Products Inc Industrial Rubber Products Inc Stifel Nicolaus & Co Inc .1Thoma Cressey Bravo Inc Manatron Inc First Analysis Securities .1Imperium Partners Group LLC ESS Technology Inc Needham & Co Inc,Sutter Securities .1February 2009 MERGERS & ACQUISITIONS 67

51-70_Data.qxd 1/12/09 5:46 PM Page 68DivestituresCompleted Divestitures1999 to 2008Completed Divestitures1999 to 2008No. of % of All Value % ofYear Deals Deals ($bil) Total ValueNo. ofDeals3000Value($bil)6001999 2,752 29.8 290.3 20.42000 2,572 28.8 373.0 20.92001 2,387 37.3 253.4 21.92002 2,172 38.4 309.5 49.42003 2,413 38.6 213.4 40.12004 2,477 33.9 283.3 32.72005 2,726 33.2 325.9 32.22006 2,874 31.7 439.8 30.72007 2,778 29.3 555.8 30.82008 2,319 30.4 277.2 27.925002000150010005000No of DealsValue ($bil)1999 2000 2001 2002 2003 2004 2005 2006 2007 2008500400300200100010 Most Active Divesting Industries in 2008By Number of DealsBreakdown of Values in Divestitures2008 vs. 2007No. of ValueIndustry* Deals ($bil)2008 2007Business Services 269 13.6Prepackaged Software 125 10.2Oil and Gas; Petroleum Refining 119 27.2Real Estate; Mortgage Bankers andBrokers 109 31.8Electronic and Electrical Equipment 86 6.5Measuring, Medical, Photo Equipment;Clocks 78 10.0Electric, Gas, and Water Distribution 78 24.5Drugs 73 4.0Insurance 73 9.1Machinery 70 1.9% of % ofPrice No. of Value Total No. of Value Total($mil) Deals ($bil) Value Deals ($bil) Value$10.0 - 15.0 66 0.8 0.3 79 0.9 0.215.1 - 25.0 101 1.9 0.7 99 1.9 0.325.1 - 50.0 147 5.3 1.9 156 5.5 1.050.1 - 99.9 138 9.8 3.5 183 12.9 2.3100+ 384 259.4 93.6 620 534.6 96.2Data are based on deals with disclosed purchase prices*Industries are determined by the target companies68 MERGERS & ACQUISITIONS February 2009

51-70_Data.qxd 1/12/09 5:47 PM Page 69DivestituresTop 25 Divestitures — 2008TargetPriceAcquirer Target Adviser(s) ($bil)ConocoPhillips Co Origin Energy-Coal Seam Gas Grant Samuel & Associates Pty, 7.9Macquarie BankClearwire Corp Sprint Nextel Corp-Wireless Citi, Lehman Brothers 7.4Life Technologies Corp Applied Biosystems Group Morgan Stanley, Greenhill & Co, LLC 6.7Investor Group MidCon Corp Lehman Brothers 6.6Activision Blizzard Inc Vivendi Universal Games Inc Goldman Sachs & Co 6.5International Paper Co Weyerhaeuser-Containerboard Morgan Stanley 6.0Henkel AG & Co KGaA Natl Starch & Chem Co-Adhesive Morgan Stanley 5.5Goldman Sachs Group Inc LEG Metzler Corporation 5.3Nordic Capital AB ConvaTec Ltd Citi, Morgan Stanley 4.1Boston Properties Inc General Motors Building,NY Citi 3.9Weather Channel Interactive Weather Channel Interactive JP Morgan, Lehman Brothers 3.5JM Smucker Co Folgers Coffee Co Morgan Stanley, Blackstone Group LP 3.3PPG Industries Inc SigmaKalon Group BV UBS Investment Bank, HSBC Holdings PLC 3.0TransCanada Corp National Grid PLC-Ravenswood Merrill Lynch 2.8Ospraie Management LLC ConAgra Trade Group Centerview Partners LLC, UBS Investment Bank 2.8Rank Group Ltd Alcoa Inc-Packaging & Consumer Lehman Brothers 2.7FairPoint Communications Inc Verizon Commun Inc-Wireline Merrill Lynch 2.7Ralcorp Holdings Inc Post Cereal Centerview Partners LLC, Blackstone Group LP, 2.7Goldman Sachs & CoSABMiller PLC Molson Coors Brewing Co-US & Morgan Stanley, Deutsche Bank AG 2.6Carlyle Group LLC Booz Allen Hamilton-Government Credit Suisse Group, Houlihan Lokey Howard & Zukin 2.5ACE Ltd Combined Ins Co of America Credit Suisse Group, Merrill Lynch, Aon Capital Markets 2.4General Dynamics Corp Jet Aviation International SA Morgan Stanley 2.2Eaton Corp Moeller Holding GmbH & Co KG UBS Investment Bank 2.2Best Buy Co Inc Carphone Warehouse Group PLC- Credit Suisse Group 2.2JPMorgan Chase & Co Washington-Cert Bkg Asts Goldman Sachs & Co 1.9February 2009 MERGERS & ACQUISITIONS 69

51-70_Data.qxd 1/12/09 3:02 PM Page 70Deal FailuresMajor Deal Failures of 2008PriceBidder Target ($bil) Reason for FailureMicrosoft Corp. Yahoo! 41.9 Withdrew bidNRG Energy Calpine Corp. 16.5 Withdrew bidInvestor Group Pennsylvania Turnpike 12.8 Withdrew bidEDF Constellation Energy Group 10.6 Withdrew bidHexion Specialty Chemicals Huntsman Corp. 10.1 Withdrew bidMidAmerican Energy Holdings Constellation Energy Group 9.7 Withdrew bidPetrochemical Industries Co KSC Dow Chemical - Petrochemicals unit 9.5 Withdrew bidCleveland-Cliffs Alpha Natural Resources 9.2 Withdrew bidWaste Management Republic Services 8.6 Withdrew bidInvestor Group TransAlta Corp. 7.8 Withdrew bidSamsung Electronics Co. SanDisk Corp. 5.8 Withdrew bidBunge Corn Products International 4.7 Withdrew bidBristol-Myers Squibb Co. ImClone Systems 4.3 Withdrew hostile bidNovolipetsk Steel OJSC John Maneely Co. 3.5 Withdrew definitive agreementInvestor Group Post Properties 3.2 Withdrew offerWalgreen Co Longs Drug Stores Corp. 3.0 Withdrew offerUnited Technologies Corp. Diebold 3.0 Withdrew offerCitigroup Wachovia Corp. 2.2 Withdrew bidGrey Wolf Basic Energy Services 2.1 Withdrew definitive agreementElectronic Arts Take-Two Interactive Software 1.9 Withdrew hostile tender offerFirst Data Corp InComm 1.9 Withdrew bidMicrochip Technology Atmel Corp. 1.8 Withdrew offerInvestor Group PHH Corp. 1.7 Withdrew bidEuronet Worldwide MoneyGram International 1.7 Withdrew bidVishay Intertechnology International Rectifier Corp. 1.3 Terminated hostile tender offer70 MERGERS & ACQUISITIONS February 2009

84-88_ChangingScenes.qxd 4/6/09 5:52 PM Page 72The Changing SceneCorporates Build Out M&A CapabilitiesAlbemarle, BAE Systems and MTV were just a few of the corporates adding M&Acapabilities, plus other personnel news in the deal marketIf hiring trends reflect possible deal activity, strategic buyerscould be gearing up to take advantage of the low valuationsin the market, as a number of corporates filled M&A roles.Chemicals producer Albermarle Corp. tapped Milan Shah,a former Deutsche Bank director, to head its business developmentactivities, while BAE Systems promoted DougBelair to serve as senior VP for defense and planning, a rolethat oversees the unit’s strategic planning efforts. Viacom’sMTV also made a move along these lines, naming RichardGay as executive vice president of strategy and operations,a role that will have him pursuing external partnerships andacquisitions.Meanwhile, restructuring stayed in focus for the investmentbanks as Piper Jaffray brought in former Morgan Joseph& Co. veteran Victor Caruso, while Lazard poached SkaddenArps attorney Timothy Pohl to serve as a managing directorin its restructuring group. MorrisAnderson also promotedDavid Bagley to managing director. At the firm,Bagley focuses on financially distressed and under-performingcompanies.Albemarle Corporation — The chemicalscompany has named a Deutsche Bank investmentbanker to lead its business developmentactivities; it brought on Milan R. Shahas vice president of the company.While at Deutsche Bank, Shah was directorof global chemicals. In his new position,he will lead the company’s strategic initiatives,partnerships, and joint ventures. Shahwill report to Richard J. Diemer, chief financialofficer and senior vice president. He willbe based in the company’s Baton Rouge,Louisiana headquarters.Shah’s hire is part of a string of personnelchanges that Albemarle has initiated. It alsobrought on board Jim W. Nokes, a former executiveof Houston-based energy company ConocoPhillips,to the board of directors and namedDarian K.Rich vice president of human resources.BAE Systems — The aerospace and defensecompany appointed Doug Belair to itssenior vice president role for defense andplanning; he is presently president of the defenseand aerospace company’s technologysolutions and services business.Belair joined the company in 2002, andbecame vice president of the Undersea WarfareSystems Integration Division in February2003. In his new position, Belair will lead theunit’s business development initiatives andwill lead the strategic planning efforts. Hereplaces Ralph Meoni, who served in the positionfor less than a year. Meoni will becomeexecutive vice president of the electronics, intelligenceand support group.Bank of America — The investment banknamed Brian Moynihan as general counsel.He previously served as the bank’s presidentof global corporate and investment banking.Moynihan’s appointment as general counselwas effective Dec. 10 and his previousresponsibilities will be assumed by other executives.He will continue to serve as chiefexecutive of the company’s Banc of AmericaSecurities arm throughout the transition periodfollowing the Merrill Lynch acquisition.As general counsel, Moynihan will continueto report to Ken Lewis, BofA chairmanand CEO. Moynihan replaces Timothy Mayopoulos,who is leaving the firm.Moynihan joined BofA in 2004 as presidentof global wealth and investment managementvia the firm’s acquisition of Fleet-Boston Financial. He started at FleetFinancialas deputy general counsel in April 1993.The Blackstone Group — The private equitygiant is planning to lay off roughly 70staffers amidst the credit crunch, a sourcetold sister publication IDD.The New York private equity firm employed93 senior managing directors and more than780 additional investment and advisory professionalsthrough September.The layoffs, initially reported by Bloomberg,come on the heels of disappointing resultsfor the firm’s various business segments in thethird quarter. It reported negative revenuesfor its private equity business of $68.3 million,negative $273.7 million of revenues forits real estate business, and negative revenuesof $48 million for its alternative assetmanagement business.Officials from Blackstone declined to commenton the matter.Blue Wolf Capital Management LLC —The New York-based private equity firmmade a pair of appointments; Michael Ransonbecame a partner and Haran Narulla,asenior associate at the firm, was promotedto vice president.72 MERGERS & ACQUISITIONS February 2009

84-88_ChangingScenes.qxd 4/6/09 5:52 PM Page 73The Changing ScenePrior to his appointment, Ranson functionedas a senior adviser with Blue Wolf. Priorto joining Blue Wolf, he was a portfoliomanager with the New York hedge fund GoldenTreeAsset Management. In his responsibilitiesat GoldenTree, he sourced and completeddebt and equity investments,particularly those involving distressed assetsof private companies. Previously, Ransonwas a vice president at middle market buyoutfirm American Capital.Narulla, meanwhile, has been with BlueWolf since 2006, when he was hired as anassociate. He was promoted to senior associatein 2007. Narulla came to Blue Wolf fromthe private equity firm Sun Capital, and waspreviously an investment banker at SalomonSmith Barney.Brookfield Infrastructure Partners L.P— The asset management company revealedthat co-chief executive officer AaronRegent resigned, paving the way for SamPollock to be appointed sole CEO. The firmdisclosed that Regent will join a global miningcompany as president and chief executiveofficer.In November, Brookfield, which investsmostly in the utilities and timber sectors, announceda unit repurchase program, and alsoappointed Anne Schaumburg to the board ofdirectors. Schaumburg was previously a managingdirector with the global energy groupof Credit Suisse First Boston.Clifford Chance — The London-based lawfirm has hired William Blumenthal, the generalcounsel of the Federal Trade Commission,to join the firm.Blumenthal, while at the FTC, worked toimprove upon China’s long-criticized Anti-Monopoly Law, and pushed for internationalcooperation of competition policy at the commission.In his new position, Blumenthal will be apartner in the M&A practice and also thelitigation and dispute resolution practice.HT Capital —Peter Rozsa has joined the adviser as a senior managing director.Rozsa, who most recently led Deloitte & Touche’s corporate finance practice, hasexperience working in mid-market M&A and spent two years within the firm’sexternal acquisition program for its financial advisory services business unit. Thefirm said he will help its expansion in the mid-market M&A area, internationallyand domestically.Rozsa, who holds an MBA from Iona College and a BA from Dowling College, is amember of the Association for Corporate Growth, American Institute of CertifiedPublic Accountants and the New York State Society of Certified Public Accountants.Rozsa will report to Eric Lomas, HT Capital's president.HT Capital has offices in Chicago and representation in Paris.He will act as chairman of the firm’s US Antitrustgroup.In January 2008, Michel Petite joined CliffordChance from the EU Commission.Deutsche Bank - The investment bank willhave Takushi Abe join its ranks as senior adviserto its investment banking business in Japan.Abe, who joined Deutsche Bank in January,was previously a managing director withGoldman Sachs.FBR Capital Markets — The investmentbank announced its founder Eric Billingshas stepped down, relinquishing his chiefexecutive role. He will stay on as chairmanbut has been replaced as CEO by RichardHendrix, FBR’s president and chief operatingofficer.As chairman, Billings will continue to playa role in client relationship development.Hendrix was named FBR president andCOO in October 2004. He joined the firm in1999 from PNC Capital Markets, whichformed a strategic alliance with FBR in 1997.Prior to that, in Virginia, he oversaw investmentbanking, institutional brokerage, research,advisory, asset management and researchoperations.Institutional Limited Partners Association— The non-profit named Fifth ThirdBank’s Vanessa Indriolo as the membershipchair of its executive committee and alsoelected her to a two-year term on the association’sboard of directors.Indriolo has worked in the industry for nineyears, the last three of which she has servedat Fifth Third as a vice president and directorof private equity fund investing.ILPA is a not-for-profit group designed toprovide a platform for limited partners tocommunicate best practices and promoteresearch and standards in the private equityindustry. ILPA, for instance, played a rolealongside other industry groups to help draftvaluation guidelines in a push to standardizeprivate equity performance metrics.Joncarlo Mark, CalPERS’ senior portfoliomanager, currently heads ILPA as the association’schairman, while OMERS Capital Partners’Martin Day, CPPIB’s John Breen andFlorida State’s Jim Treanor all play activeroles in the executive committee as well.In a statement, Indriolo noted that her rolefor the organization will be to lead its efforts“to increase membership.”Kohlberg Kravis Roberts — The buyoutfirm will have members Michael Michelsonand Alexander Navab co-head the firm’s NorthAmerican private equity business.Michelson heads the New York-basedfirm’s healthcare team, where during hisFebruary 2009 MERGERS & ACQUISITIONS 73

84-88_ChangingScenes.qxd 4/6/09 5:52 PM Page 74The Changing Scene27-year tenure he has also worked with awide range of other businesses includingAutoZone, Beatrice Cos. and Owens-Illinois.The dealmaker sits on the corporate boardsof Accellent, HCA and Jazz Pharmaceuticals,as well as KKR’s private equity investmentcommittee.Navab, meanwhile, has been with KKR for15 years. He runs the firm’s North Americanmedia and communications team and sitson KKR’s private equity investment committee.A former Goldman Sachs investmentbanker, Navab also serves as a board memberat The Nielsen Co. and Visant.Both Michelson and Navab will report toKKR co-founders Henry Kravis and GeorgeRoberts, who have transformed KKR froma leveraged buyout firm following its foundingin 1976 into a global alternative assetbehemoth with offices in Europe, Asia andAustralia.Over the last few months, KKR also appointedFred Goltz to spearhead the firm’smezzanine investment efforts, while MarcLipschultz was named to lead its infrastructureinvestment activities.The personnel shifts represent the latestmoves by KKR to fortify its capital-raising andcapital markets businesses at a time when theprivate equity industry is riding out the creditcrunch. KKR’s new asset management divisionwill be led by TWC Group veteranWilliam Sonneborn.Lazard Ltd. — The investment bankpoached Timothy Pohl from law firm Skadden,Arps, Slate, Meagher & Flom, where he previouslyserved as co-head of its corporaterestructuring practice. Pohl will serve as amanaging director in Lazard’s restructuringgroup, a team that is led by co-chairs BarryRidings and Terry Savage. This isn’t the firsttime Lazard’s restructuring arm has targetedSkadden brain trust. In 2002, the firmbrought on David Kurtz from the firm.Pohl, 42 years old, had spent 10 years atSkadden and before that served for eightyears in the restructuring practice of JonesDay. At Skadden, Pohl led a number of assignments,including out-of-court restructuringsinvolving Rural Cellular Communications,Meridian Technologies and KrispyKreme, in addition to Chapter 11 restructuringsof Vera Sun Energy, McLeodUSA andNational Steel Corp. He has also taken onmandates serving as lead counsel to distressedinvestors.Morgan Keegan — The investment bankexpanded its M&A team with the acquisitionof Revolution Partners, a Boston-based technology-focusedboutique bank.Hilco Real Estate —The real estate company appointed Neil R. Aaronson to lead it as chief executive.Previously, Aaronson was executive vice president of Hilco Trading, the parentcompany of the real estate arm.Aaronson replaces Mitchell Kahn, who is leaving Hilco. He will remain active withsome of its engagements and also in the company’s neartermacquisitions.Gregory S. Apter, who had worked as the company’soperations chief, has also been promoted to president.Hilco Real Estate offers restructuring services for retail,wholesale and private equity portfolio businesses. Currently,it lists among its clients bankrupt retailer Mervyn’s, which isshuttering stores and reorganizing.Neil R. AaronsonAt a time when niche plays are among thefew deals getting done, Regions FinancialCorp.’s subsidiary will add to its ranks a teamfocused on application and infrastructure,business services, wireless infrastructure,storage, communications infrastructure, hardwareand financial technology.Revolution will work as a division of MorganKeegan. Co-founders Peter Falvey andDavid Lavallee will continue to oversee operations.Also joining are seven managingdirectors and 30 investment banking professionalsin Boston, San Francisco and LosAngeles.Morgan Stanley — The investment banktook another blow, and announced that itsglobal head of M&A, Gavin MacDonald,passed away.MacDonald, 47, had suffered a heart attackat his desk in the firm’s Canary Wharf officein London.MacDonald joined Morgan Stanley in 1983after graduating from Cambridge University.He was appointed global head of M&A lastyear and became head of European M&A inJanuary 2006. MacDonald, who also servedas a member of Morgan Stanley’s Europeanmanagement committee, helped establishthe firm’s European M&A business.His recent mandates include the merger ofThomson and Reuters and the Swedish government’ssale of Vin & Sprit to Pernod Ricard.MorrisAnderson — The financial advisoryfirm promoted to managing director DavidBagley, a MorrisAnderson vet who has spentsix years with the firm.Bagley joined MorrisAnderson in 2002.He has held roles as finance chief, chiefexecutive and head of restructurings. Priorto MorrisAnderson, Bagley ran a $30million international division at a hardwaredistributor, started a logistics program withan international freight forwarder and brokeragefirm, and consulted Fortune 500firms.74 MERGERS & ACQUISITIONS February 2009

84-88_ChangingScenes.qxd 4/6/09 5:52 PM Page 75The Changing SceneAlso, Kenneth Yager II was promoted tothe role of principal and equity owner atMorrisAnderson.MTV — The cable television network announcedRichard Gay will become executivevice president of strategy and operationsfor VH1 and MTV, in a move that mayserve as a precursor to M&A for theViacom-run stations.In his operational role, Gay will seek outexternal partnerships and acquisitions. He isalso being counted on to spearhead the properties’budget and long-range planning atthe brand level, and Gay will also help to extendMTV and VH1 into new businesses.Before joining MTV Networks in 2002, Gayworked in media as a partner at Booz AllenHamilton. Gay will also continue an activerole in the growth and planning of several ofVH1’s and MTV’s sister networks includingVH1 Classic,VH1 Soul, MTV2, MTV Tr3s, MTVHits and MTV Jams.New York Life Investments — John Sicilianowas named to the firm’s investingboutiques shop, leaving him to run five externalasset managers.As senior managing director and head ofthe firm’s investment boutiques, he will run:Madison Square Investors, MacKay Shields,McMorgan & Co., New York Life Capital Partnersand Institutional Capital. He will reportto John Kim, New York Life Investments presidentand chief executive.Siciliano was previously with Grail Partners,a merchant banking firm. He focusedon business development and investmenttransactions in its Chalice Fund and ChaliceDirect Private Equity Fund. He served onthe board of directors of two portfolio companiesand also served as chairman of GrailAdvisors LLC, one of the first Active ETF investmentadvisors.From 2005 through 2007, Siciliano servedas chairman and chief executive officer ofBKF Capital Group, Inc., a NYSE listed moneymanager. Prior to BKF, he was the headof the global institutional business for DimensionalFund Advisors from 2001 through2005. Siciliano served as a managing principalof Payden & Rygel, a fixed income investmentmanagement firm from 1998through 2001. While there, he also servedas president of its mutual fund company,Payden & Rygel Investment Group.Nair & Co. — The business consultancyadded an adviser to its board in the form ofTheodore Pincus, a former Ernst & Youngpartner.Previously, Pincus was executive vice presidentand chief financial officer of NYSE-list-February 2009 MERGERS & ACQUISITIONS 75

84-88_ChangingScenes.qxd 4/6/09 5:52 PM Page 76The Changing Sceneed business advisory firm FTI Consulting Inc.While at FTI, Pincus led twenty-five M&Atransactions. He become CFO of FTI in April1999 and retired from the position in 2007.Prior to joining FTI, Pincus was president offinancial consulting firm Pincus Group.He is presently a director and audit committeemember of Angelo, Gordon AcquisitionCo., a special purpose acquisition company;and chairman of PS Entertainment, LLC.Natural Gas Partners — The private equityfirm promoted David W. Hayes and ColinF. Raymond to the position of managing director.Hayes and Raymond joined the firm in1998 and 2005, respectively.Raymond was vice president at the explorationand production company Hunt Oil Company,and was also a partner at Soros PrivateEquity Partners and a vice president ofMorgan Stanley Capital Partners.Previously, Hayes worked with MerrillLynch’s energy investment banking group,based out of the Houston office. He was involvedin exploration and production-relatedM&A transactions with the group.Olshan Grundman Frome Rosenzweig& Wolosky LLP — The law firm will bringYehuda Markovits and Lori Marks-Estermanto its corporate and litigation practices aspartners.Markovits, 34, focuses on finance, M&A,securities law and general corporate representation.From 1998 to 2006, he was anassociate at Skadden, Arps, Slate, Meagher& Flom LLP.Marks-Esterman, 35, practices commerciallitigation matters, securities laws andcorporate dissolutions. She will join OlshamGrundman’s real estate team, as she has adepth of experience in this field.These hires represent just the latest personnelmoves for the firm, which has beenactive lately. Near the end of last year, Olshanopportunistically added more partnersfrom disbanding Dreier LLP, the law firmthat was run by Marc Dreier, who was arrestedfor fraud.Joining the firm as an equity partner isSteven R. Gursky, who is a well-known attorneywith experience in intellectual propertyand real estate. In addition, Mitchell B.Stern and Martin J. Feinberg have joined aspartners, Mark S. Lafayette, Mary L. Griecoand Elliott J. Brown have joined as counsel,and Matthew S. Root, Safia A. Anand andMelanie J. Sacks have joined as associates.Piper Jaffray — The investment bank augmentedits restructuring team, tapping formerMorgan Joseph & Co. vet Victor Carusoto serve as a managing director in its NewYork office. Caruso had joined MorganJoseph a little more than a year ago to launchits financial restructuring and special transactionsefforts.Caruso, who has more than two decadesof experience, has worked on mandates forAbercrombie & Fitch, AK Steel Co., AlamoNational Car Rental, Spiegel Corp. and UnitedAirlines, among others.Prior to his stint at Morgan Joseph, he putin work at Gordian Group, Bear Stearns &Co. and Lehman Brothers, where he was afounding member of the defunct investmentbank’s restructuring group.StepStone Group — James Gamett,a formervice president at Portfolio Advisors LLChas joined the private equity advisory firm asa managing director.While at Portfolio Advisors, a fund of fundsmanager, he was vice president of secondaries,advising the firm’s institutional clientsin committing investments to secondariesfund managers. Previously, Gamett worked atDeloitte & Touche Corporate Finance.In this newly-formed position, Gamett willserve as head of secondaries. He is presentlya member of the StepStone research teamand sits on the investment committee.The firm, which provides investment andadvisory services to institutional investors, isseeking a greater involvement in the secondariesmarket. Monte Brem, chief executiveofficer of StepStone, cited that the currentmarket dislocation is creating “historicallyattractive discounts.”Tri-Artisan Partners LLC — The privateequity firm announced that Thomas M. Harney,a former Bear Stearns senior managingdirector, has joined its ranks as managingdirector and head of real estate.While at Bear Stearns, Harney was coheadof real estate investment banking.He led the $1.5 billion merger of StarwoodFinancial and TriNet Corporate Realty Trust.Previously, Harney worked at Merrill Lynchand BT Securities. In his new position, hewill lead the New York firm’s newly-formedcommercial real estate unit developing recapitalizations,privatizations, and jointventures.Recently, the firm has made a number ofnew hires, including David Boemo as managingdirector and chief financial officer, andSuzanne Murphy as managing director offund services.Trimaran Partners — Jay Bloom and DeanKehler, co-founders and managing partnersof the private equity firm, have reportedlystruck out on a venture with the Nelson Peltzledhedge fund Trian Partners, investing indistressed corporate bonds, bank loans andpossible loan-to-own opportunities.The move, reuniting a former team fromDrexel Burnham Lambert, does not signal anend to Trimaran, which will continue on asan independent entity. Bloom and Kehler hadfounded the PE firm in 1995.The jump back to corporate credit is notbig leap for Bloom and Kehler. At Trimaran,the pair also oversaw Trimaran Advisors,which invests in below investment-gradecorporate debt. David Millison, also a Drexelalum, had managed those funds for Trimaranas the chief investment officer. He isnot expected to be joining Bloom and Kehler76 MERGERS & ACQUISITIONS February 2009

84-88_ChangingScenes.qxd 4/6/09 5:52 PM Page 77The Changing Scenein the new venture.Both Trimaran and Trian declined comment.Bloom and Kehler have been paired off formuch of their respective careers. Prior to Trimaran,both Bloom and Kehler had servedas co-heads of the CIBC Argosy MerchantBanking Funds, the PE arm of CIBC WorldMarkets. Before that, they had co-foundedThe Argosy Group, and each also put in stintsat Drexel and Lehman Brothers Kuhn Loeb.Bloom, however, preceded his banking careerwith a spell at Paul Weiss Rifkind Wharton& Garrison.TSG Consumer Partners — The San Franciscoprivate equity firm hired veteran consumerbuyout executive John Kenney as amanaging director and partner.Kenney joined TSG’s New York office fromAEA Investors where he worked for the last10 years.While at AEA, he served as co-headof the New York buyout group’s consumerproduct and retail investment business. Kenneyoversaw acquisitions of high-profile consumer-orientedcompanies such as personalcare products maker Burt’s Bees.Kenney will work alongside TSG managingdirector and partner Alex Panos, handlingthe firm’s New York and East Coastdeal origination activities. Panos will remainfocused on the firm’s national transactionsourcing efforts.Before Kenney joined AEA, he served as aprincipal on the North American corporateinvestment team of Investcorp (Investcorpowns SourceMedia, the parent company ofMergers & Acquisitions). The 17-year privateequity executive has also put in stints atLazard’s private equity group and worked onM&A and capital-raising assignments forDonaldson, Lufkin & Jenrette.Woodbridge Group — The Connecticutbasedmid-market M&A firm has opened anotheroffice, this one in Boston.Brace Carpenter and Tom Hawke will leadthe branch,Woodbridge Group’s sixth US office.The firm also has offices in New York,New Jersey, California and Georgia, and overseasmaintains a presence in China, theNetherlands, Brazil and India.Prior to joining Woodbridge, Carpenterfounded a Boston-based M&A firm. Hawke,a UK native, entered the M&A world withChristie Group. Both have a combined 40-plus years experience in dealmaking.February 2009 MERGERS & ACQUISITIONS 77

06-08,78-85_ACG.qxd 4/6/09 5:11 PM Page 78THE PULSEThe PulseAs taxpayer capital makes its way into the banking system and into other cornerstoneindustries, will a corollary be increased protectionism? What will be the impact on M&A?As taxpayer funds find their way into theprivate sector there should be some motivationfor these taxpayers/shareholders to support theinstitutions receivingthe benefit.Having saidthat, no intelligentperson orentity throwsgood money afterbad. Unlessthe institutionsbeing supportedMichael D. Sharkeychange theirways and operatemore efficientlyand safelyor producemore valuablegoods or services,history will repeat itself and more supportwill be required.I find it fascinating that the same economiststhat have been supporting free marketsfor all these years are suddenly advocating suchbroad sweeping government intervention. It isamazing what the threat to ones’ personalwealth will do to ones’ beliefs. Of course no onewants to see us slip back into the dark ages.— Michael D. Sharkey, President,Cole Taylor Business Capital—————————When a mezzanine lender tightly wrapscovenants around the borrower and takes warrantsfor the upside, we don’t call that protectionism.We say its part of the cost of doing business.Why should we expect anything differentfrom the government? After all, the guys responsiblefor putting the TARP funds to workare experienced investment bankers, right?Unfortunately, political motivations causelegislatures to seek protection beyond what aprudent business person would want. It is humannature - thepoliticians needto be able to sayto their constituentsthatthey extracted“concessions”and put in place“controls” tooversee the taxdollars beingused to “bail outgreedy corpora-John M. Suendertions thatfailed” so that it“doesn’t happenagain.” In reality,the government is grossly ill equipped tooversee the management of a business, but thepoliticians feel that they owe it to their voters totry. At the end of the day, the US governmentappears to be the true lender of last resort, soprotectionism becomes part of the cost of doingbusiness.The TARP funds are not only good for M&A,they are essential. Without banks making loans,there are no deals. The market will figure out away to price the cost of protectionism into dealsand we will survive.—John M. Suender, Director,Suender M&A Advisors LLC—————————The federal government, by injecting taxpayercapital directly into cornerstone industries,will take an increasingly dominant positionin corporate decision-making, which bybecoming nationalized will become unavoidablypoliticized. Congressmen play by political rules,not business rules. Much of the pressure to bailout the auto industry is coming from unionizedlabor, which has close ties to the DemocraticParty (now in almost complete control of thefederal government), and which has seen its influencewane over the last decades.With the government now exerting partialcontrol, and with Democratic dominance of thegovernment, federal decision-making concerningthe auto and financial industry inevitablywill increasingly reflect Democratic Party (andunion) policies (e.g., trade, livable-wages, electriccars, home mortgages to low-income families),whether or not those policies make eco-Don Keyssernomic orbusiness sense.How will theauto companiesmake decisionson bringing tothe US theirsuccessful autosfrom Europeand Latin America?How willthey make decisionson expandingproductionin non-USplants (e.g.,Mexico), to reducelabor costs? How will banks be able totighten mortgage lending guidelines, which78 ACG > MERGERS & ACQUISITIONS February 2009

06-08,78-85_ACG.qxd 4/6/09 5:11 PM Page 79THE PULSEdisproportionately affect minorities? I thinkthat federalized corporate decision-making, inan environment of the almost total dominationof the government by a party that has closeties to unions, will increasingly lead to politicizedeconomic policies and protectionism, impairingcross-border M&A as other nations retaliatewith protectionist policies.— Don Keysser, Managing Director,Hannover Ltd.—————————The question contains a false assumption,namely that taxpayers are footing the bill forthe corporate refinancing now underway. In fact,these rescue financings are themselves beingJohn P. Adamsfinanced viasale of governmentdebt. Aswe all know theprimary buyersof that debt areforeigners, notablyfrom China,Japan andIndia. So becomingmore protectionistwould beto slice off thehand that feeds.One could do itbut it would notbe in our self interestto reduce trade with those who are keepingus afloat.Regarding the consequences of these refinancingsfor the M&A market, since the beneficiariesof the rescue packages are almostexclusively very large corporate entities, thequasi-takeovers of these behemoths by thegovernment should not impact the acquisitionof smaller firms. Probably it would be hard tosell Citibank or GM or AIG with the USA as astakeholder, but why would you want to— John P. Adams, President,Adams & Royer, Inc.—————————I don’t see the connection between taxpayermoney flowing into the banking system andprotectionism because the issue is liquidity, notkeeping ownershipof the industriesout offoreign hands. Alarger issue forM&A in theshort term isthat industriesthat need to failor divest assetsare being kepton artificial lifesupport, whichkeeps them offRick Taftthe market (fornow). But taxpayermoney isat best only a respite, not a cure. In fact it encouragesexecutives and politicians to paper overserious problems in favor of an illusory quick fix.Sooner or later, the market inevitably will resetitself and flawed companies will fail or divest assetsanyway, so in the longer term M&A activityshould pick up and offer lots of creative opportunitiesfor well capitalized and patientbuyers. One effect of the taxpayer money mightend up being the difference between presidingover an inevitable but somewhat orderly liquidationof these assets or companies, versus thechaos of an all-out fire sale.— Rick Taft,Business Transfer Alliance—————————M&A activity will begin again in earneststarting as early as second quarter of 2009. Thebanking system is awash with cheap moneyright now, but no one’s lending. It’s that elusiveconfidence factor that lenders need to gain beforethey open the checkbook. The governmentfunding, as controversial as it may be, will bringa level of certainty to potential defaults thatloom on the horizon and have prompted the currentcredit lock in the country. The world as well,finds itself in this situation. Central banksglobally have supported the easing of rates.They have acted in rare cooperation and implementedliberal monetary policies to increaseliquidity. There is a tsunami of liquiditycoming towards us, once that confidencefactor comes around. There is no shortage ofundervalued companies right now. Once thattsunami hits, M&A will spike upwards as dealsget funded.Can the buyers in these transactions expecta continued level of government involvementand “piggyback” onUncle Sam protectingits investment?Notlikely. Even inthe DemocraticadministrationJim ConnorCongress ishaving great difficultypassing along-termbailout in theauto industry.More likely isthe fact thatcontinued protectionismthrough tariffs, taxation etc. resultsin the country declaring the bail out didn’t work,and we look for new alternatives.— Jim Connor, Managing Director,BBK—————————Protectionism gives domestic producers anadvantage in the marketplace so restrictions onforeign competition would seem to be a naturalresult of pouring taxpayer capital back into theUS markets. However, as protectionism tiptoesin - globalization will eventually come to a standstilland it would strangle our competitive ability.The gains from free trade outweigh any losses.Free trade creates more jobs than it destroysand it allows countries to specialize in the productionof goods and services in which they havea comparative advantage.THE PULSE continued on page 98February 2009 ACG > MERGERS & ACQUISITIONS 79

06-08,78-85_ACG.qxd 4/6/09 5:11 PM Page 80COMMUNITY COMMENTARYMaximizing Value through IPFailure to register a company’s trademarks or intellectual property cancost a business in the event of a sale.By Denise Walsh and Robert ShepherdWhen starting a business, most entrepreneursthink about financingthe company, hiring employees andmarketing the business to potential customersand clients. The last thing executives may thinkabout is the sale of the business. However, mostinvestment bankers advise owners to startpreparing for a sale from day one. This meansthat, from the date of its formation, the ventureshould be organized so that a future buyer couldstep in at anytime and seamlessly take over operations.One fairly inexpensive method of preparingfor sale at the outset of a business is toregister the company’s intellectual propertywith the United States Patent and TrademarkOffice (“USPTO”). Registration with the USPTOhelps ensure that the purchase price a businessowner receives upon sale includes thevalue of the company’s goodwill. Some key elementsof goodwill are the company’s name,trademark and/or service mark. For example,the name and symbol of a fast-food chain, aswell as the name of its signature hamburger,may be some of the most valuable assets ofthe business.Failure to register an entity’smark may result in aholdback or even a reductionof the purchase price.We recently represented abusiness owner who sold his company aftertwenty years of operation. The seller failed toregister the company’s mark with the USPTO.Due to the premium being paid for the goodwillof the business, the buyer ran a trademarksearch. The results of the trademark search revealedthat, unbeknownst to the seller, a thirdparty had filed a trademark application with theUSPTO for a very similar mark. Although thecompany attained certain common law rights tothe mark as a result of its use and likely wouldprevail in litigation against the third party, thebuyer was understandably apprehensive. Atclosing, the buyer required that a portion of thepurchase price be placed in escrow pendingresolution of the matter. Any legal fees incurredby the buyer in connectionwith such resolution wereto be reimbursed out ofthe escrowed funds andthe remaining funds, ifany, were to be paid to theseller.In another recent example,a business ownersold her business to a foreignbuyer. Once again,the seller failed to registerthe company’s mark.The company had used themark since inception and,therefore, attained certaincommon law rights to the Denise Walsh“Failure to register an entity’s mark mayresult in a holdback or even a reduction ofthe purchase price.“mark. The seller knew of no third-party claims tothe contrary. Notwithstanding, the buyer requireda reduction in the purchase price due tothe seller’s failure to register the company’smark. In many foreign countries, a person doesnot have any rights in a mark unless he or sheregisters the mark with the appropriate authorities.The buyer was unfamiliar with the protectionsafforded by the common law and was,therefore, uncomfortable with the fact that thebusiness it was buying had not registered itsmark. The buyer also wanted to register the markin its own country and non-registration in theUnited States presented an obstacle to such foreignregistration. From the buyer’s perspective,the company was worth less absent federal registration.The two scenarios describedabove could havebeen avoided if the businessowners registeredthe marks of their respectivecompanies from theoutset of the business.Once a company registersits mark as a federaltrademark, the companyhas nationwide rights inthat mark as relates tothe particular goods orservices for which themark is used. From thedate of registration, thirdparties are placed on constructivenotice of the registrant’s claim of ownershipof the mark. The registering entity cankeep others from using the same mark, as wellas any “confusingly similar” mark, throughoutthe United States. In other words, an entity onthe East Coast of the United States can stopan entity on the West Coast from using an identicalor similar mark. This represents a significantexpansion of a company’s common lawrights, which extend only to the geographicarea in which the entity sells its products orservices.Some additional benefits that flow from fed-80 ACG > MERGERS & ACQUISITIONS February 2009

06-08,78-85_ACG.qxd 4/6/09 5:11 PM Page 81COMMUNITY COMMENTARYeral registration of a mark include the right tobring an action concerning the mark in federalcourt, the ability to prevent importation of infringinggoods by filing the registrationwith the United States Customs Serviceand the opportunity to use suchregistration as a basis to obtain registrationof the mark outside of the UnitedStates. Federal registration also allowsthe registrant to potentiallyrecover treble damages, attorneys’fees and other remedies.In the first example cited above,the company’s registration of its markwith the USPTO would have placed the thirdpartyapplicant on notice of the company’sownership of the mark. The third party’s applicationwould have been denied by the USP-TO at the outset and would not have appearedin the trademark search results. There wouldno longer be a need for a holdback of any portionof the purchase price at closing and thebusiness owner would have walked away withmore money at closing. If the third party beganusing the mark, the company could file an infringementlawsuit in federal court seeking“There is no question that theregistration of a business’s name,trademark and/or service mark comeswith many benefits and, ultimately,increases the value of the business.”treble damages, attorneys’ fees and otherremedies.Likewise, in the second example, the company’sfederal registration of its mark wouldhave assured the buyer that the company hadexclusive rights to the mark. It also would havehelped pave the way for the buyer to registerthe company’s mark in its home country postclosing.Once a company registers its mark, thequestion becomes how to value it. As notedin a recent roundtable in Mergers & Acquisitions(“Reinventing the Deal,” October,2008), the valuation of intellectualproperty can be difficult.Notwithstanding the difficulty surroundingvaluation, there is no questionthat the registration of a business’sname, trademark and/or servicemark comes with many benefits and,ultimately, increases the value of thebusiness. The cost of registration bycompetent counsel is relatively low,even for a start-up company, and the downstreamproblems that may arise without registrationcan be significant, as illustrated bythe above examples.Denise Walsh is an attorney with Marcus, Brody,Ford, Kessler & Sahner, LLC, while Robert Shepherdis a shareholder with Mathews ShepherdMcKay and BruneauTHE PULSE continued from page 79David Acquavellaacquisitions each year.—————————As to whetheror not it will impactthe M&Aarena, we believethe answer is yes,but we also believethat it willaffect the largerdeals more so thanthe middle andlower markets. Privateequity accountsfor billionsof dollars in crossbordermerger and— David Acquavella,Southeast Investment BankingM&A transactions will decline as a result ofboth increasing costs and much greater governmentoversight.Funding costswill continue torise and therewill also be anew layer ofcosts associatedwith new governmentoversight.Governmentoversightis going to increase,both inthe US and fromsome internationalbody thathas yet to beBetty E. Reedformed. I fear that these oversight groups willgo to the extreme, requiring their approval onany M&A deal involving any entity in any waythat has taken taxpayer money, regardless ofwhether the taxpayers were English, American,etc.These oversight bodies will base their approvalor lack thereof on such issues as potentialjob loss and other “harmful” outcomesto the taxpayer and the taxpayer’s home economy.Think of the recent Chicago factory sitinand what appeared to be capitulation byboth Bank of America and JPMorgan Chase,but on a much larger scale. To avoid this overinvolvement, the parties involved in the M&Atransaction will seek funding from non-traditionalproviders such as sovereign wealthfunds and wealthy individuals such as WarrenBuffett and his billionaire class in orderto avoid the scrutiny and the micro-management.— Betty E. Reed, Principal,Abraxas Business Services—————————February 2009 ACG > MERGERS & ACQUISITIONS 81

06-08,78-85_ACG.qxd 4/6/09 5:11 PM Page 82COMMUNITY COMMENTARYStaying Ahead of Corruption LiabilitiesCompanies pursuing cross-border deals need a detailed FCPA due diligence processto address potential pitfalls.By Ivan R. Lehon, Richard Sibery and Tom PannellThe discovery of bribery of a foreign governmentofficial after closing an acquisitionis one of the fastest ways to losecompany value, given that the regulatory andlegal fines, penalties and remediation costs canbe significant. Even without regulatory action,fraud and illegal acts pose a barrier to operationalefficiency for a strategic or financial buyer.For an investor, the post-acquisition discoveryof a fraudulently enhanced revenue streamwill not only erode company profitability but willalso impact exit realization and the internal rateof return.As corporations continue to acquire newbusinesses, expand globally and enter newemerging markets, they must be cognizant ofthe increased exposure to the US Foreign CorruptPractices Act (FCPA) and other internationalanti-corruption laws and regulations. Recently,the US Department of Justice (DOJ) issued anopinion concerning potential FCPA implicationssurrounding a proposed acquisition. The areashighlighted in this opinion demonstrate the needfor companies making global acquisitions tohave a robust FCPA and anti-corruption due diligenceprocess including an assessment of the“Nearly 30% of companies that acquireda new business in the last two yearsnever or infrequently consideredbribery or corruption risks.”relevant risk factors. A detailed FCPA due diligenceprocess can address potential pitfallsseen in high risk market transactions.A significant number of FCPA enforcementactions in 2007 arose in the context of a mergeror acquisition. Yet nearly 30% of companiesthat acquired a new business in the last twoyears never or infrequently considered bribery orcorruption risks in thecontext of a potentialacquisition, accordingto Ernst & Young’s 10thGlobal Fraud Survey,“Corruption or Compliance:Weighing theCosts.” Only one-thirdof survey respondentsclaimed to have somelevel of knowledge about the FCPA and fully58% of senior in-house counsel were not familiarwith the FCPA.While more than 45% of respondents claimto routinely conduct anti-corruption due diligence,the continued flow of FCPA enforcementactions suggests that representations and warrantiesrelating to bribery and corruption areonly one step in protecting the acquiring companyand its executives from successor liabilities,such as fines, penalties and imposition of a monitor.Furthermore, the purchase price may havebeen inflated if predicated onrevenues obtained due to questionablepayments.In many countries, the linebetween state-owned and privateentities is unclear, makingit difficult to determine whetherpayments to government officialsare occurring. Third-partyagents or consultants may facilitate paymentsof bribes to government officials, or may indirectlybe government employees themselves. Illegalpractices may continue after a company“As corporations continue to acquire newbusinesses, expand globally and enter newemerging markets, they must be cognizant ofthe increased exposure to the US ForeignCorrupt Practices Act.”is acquired, putting the acquiring company atrisk of major fines for the pre- and post-acquisitionactivities of a target company.Experience shows that dealmakers can mitigatethe risk of FCPA non-compliance, evenwithin the limitations of the due diligence period.In a June 2008 opinion commonly known as“the Halliburton opinion,” the Department ofJustice took a position allowing Halliburton toproceed with the submission of a bid for a targetwhere due to the UK tender offer rules, FCPArelateddue diligence would not be performed untilafter the acquisition closed. The opinionhinged on Halliburton’s commitment to successfullyimplement the comprehensive FCPA andanti-corruption program that the company hadproposed, to disclose and promptly resolve anyviolations discovered post-close, and to meetthe DOJ’s other rigorous conditions.While this DOJ opinion applies only to Halliburtonand its full impact remains to be seen,it reflects the high standards the DOJ expects acquirersto meet for FCPA compliance and underscoresthe importance of having an FCPA duediligence strategy.The first step in FCPA-specific due diligenceshould be a risk assessment, implemented duringthe initial phase of the overall due diligenceprocess and revisited as new information emerges.82 ACG > MERGERS & ACQUISITIONS February 2009

06-08,78-85_ACG.qxd 4/6/09 5:11 PM Page 83COMMUNITY COMMENTARYSuch a risk assessment helps to identify areas ofpotential exposure, areas requiring performanceof specific procedures and red flags. Examples ofthe components of a risk assessment include:identification of relevant anti-corruption laws andthe industries in which the target operates, geographicconsiderations, level of interaction withgovernment entities, internal audit findings, useof third party intermediaries, commission structures,travel and entertainment, gifts, competitorinformation and use of non-controlled entities.In addition, the risk assessment sets theagenda for FCPA-related pre- and post-closingprocedures, which should include a detailedanalysis of, among other items, accounts thatgenerate cash payments — such as travel andentertainment, charitable donations or consultingfees — and could potentially be used to paybribes. Because the due diligence team mayhave limited information, the pre-close procedurescan help an acquirer develop an effectivedetailed post-closing plan.A post-closing FCPA and anti-corruption plan“The line between stateownedand private entities isunclear, making it difficult todetermine whether paymentsto government officialsare occurring.”should also include integration of the complianceprograms of the purchaser as part of the integrationprocess. In Halliburton’s request to theDOJ, the plan included special training for employeesin high-risk areas such as sales, managementand accounting.Highly effective FCPA anti-corruption duediligence processes can help the acquirer toidentify broad risk areas, allow them to assesstheir tolerance for such identified risk and buildappropriate remedial action into a post-closeintegration plan. The plan should include a detailedfollow-through on any unresolved issuesidentified prior to acquisition.The risks and issues identified pre-closingshould be incorporated when determining thereal value of the target. Should corruption issuesemerge post-closing, timely and thoroughvetting of the potential risks in the due diligenceprocess can strengthen the argument for leniencyin any enforcement proceeding.Ernst & Young partners Ivan R. Lehon and RichardSibery and senior manager Tom Pannell all servein Ernst & Young’s Fraud Investigation & DisputeServices practice.

06-08,78-85_ACG.qxd 4/6/09 5:11 PM Page 84COMMUNITY COMMENTARYGaining an Edgeon the Global StagePreparing for International Financial Reporting StandardsBy Travis DrouinAs if technology and the US economicstruggles haven’t made for enough of aroller coaster for businesses in the pastfew years, globalization is really just gettingstarted. More change is to come, and the increasingdialog about International Financial ReportingStandards (IFRS) indicates that the futurewill demand a truly globalperspective - especiallywhen considering crossborderM&A activity.Indeed, the SEC recentlylaid out a plan thatcalls for a 2011 assessmentand a 2014 implementationof IFRS. Thereis still much to be determinedbefore those datespass, but staying awareof the developments willbe crucial to gaining anedge on the internationalplaying field. Further,while 2011 and 2014 mayappear to be a distantTravis Drouinconcern, the magnitude of this issue will requireat least that much time to educate andprepare the financial markets for the adoptionIFRS.Migrating to IFRS will bring the US intoalignment with reporting and disclosure guidelinesfor companies abroad. The SEC took a majorstep in 2007, when it agreed to allow foreigncompanies filing in the US to use IFRS, butchanging the decades-old system for all UScompanies will be more of a challenge. The impactwill be felt primarily in financial departments,as conducting and reporting on multinationalbusiness will become simpler once thetransition is complete. This is good news, especiallyfor companies that are already exposed tooverseas sales, operations or business combinations.In fact, it is the source of some optimism forglobal growth, accordingto a study by the InternationalFederation of Accountants(IFAC). This organizationfound that amove to IFRS is expectedto boost business, as “approximately50 percent ofrespondents said convergenceto a single set of internationalstandards...for[Small to Mid-Sized Enterprises]is important to economicgrowth in theircountries.”1The groundwork has“For those that operate on a global scale,the migration will be critical to maintainingfluid financial relationships withregulators on multiple continents.”already been laid: more than 12,000 companiesin nearly 100 countries report in accordance withIFRS. The European Union, Australia, NewZealand and Israel, among many others, haveadopted IFRS, and Canada and Japan are alreadyheaded in the same direction.What IFRS means to public companiesFor public companies and at its most basiclevel, IFRS means an easier global system. Foreignissuers must undertake the complex task ofmassaging reports to meet current US guidelinesunder GAAP and IFRS, which often meansmaintaining two separate sets of financial statements.That process invokes higher accountingcosts and increased risk; moving to IFRS willliterally put US filers on the same page withtheir foreign equivalents. Currently, foreign acquirersof US businesses must also considerthe accounting implications of converting toIFRS post-transaction; a move to IFRS is expectedto ease such burdens and quicken the dealclosingpace.For those that operate on a global scale, themigration will be critical to maintaining fluid financialrelationships with regulators on multiplecontinents. In the near-term, the educationprocess will be significant- full teams of internal financialprofessionals willhave to be retrained to gaina full understanding ofIFRS.What IFRS means toPrivate CompaniesFor private companies, IFRS is less aboutcompliance and more about opportunity. The convergenceof standards will come into play as potentialmerger and acquisition activity material-84 ACG > MERGERS & ACQUISITIONS February 2009

06-08,78-85_ACG.qxd 4/6/09 5:11 PM Page 85COMMUNITY COMMENTARYizes. Having parallel reporting in place will allowfor seamless fusion of financial departments.And as global business becomes the norm,those that operate distribution centers, consultancies,or other divisions in foreign countries willbe better armed to interface with partners andsuppliers. That means less friction with overseasvendors and more opportunity to initiaterelationships that would otherwise encounterthe stumbling block of disconnected financialstatements.Coming down the pipeThe first and most fundamental considerationis to get educated as to what IFRS representsand how it differs from current accountingpractices under US GAAP. It is premature, withoutclear guidance from the standards makingbodies, to begin a full-scale implementationplan, but it is not too early to begin the educationprocess and develop a hit list of the expectedfinancial reporting changes.“For private companies, IFRSis less about compliance andmore about opportunity.”One word of caution: financial executivesshould not yet attempt to bring their entire accountingteam up to speed with IFRS. Thingsare very likely to change over the next few years,so it will be most effective to have an internalIFRS “champion” that can be the point of expertiseand guidance.Audit committees, external financial advisors,and stakeholders should also stay abreastof forthcoming changes. If external financial reportingis critical to business and deal flow, thenauditors and financial counsel should be positioningthemselves today to support evolving needs.In this way, companies can begin preparing forpotential changes that may affect items suchas corporate governance, financial performancetargets, and financial covenants.Many feel that until the 2011 date isreached, no real movement will be initiated.However, given the immense educational gapthat exists, financial executives should begin tofamiliarize themselves in order to maximize globalopportunities. With the wheels in motion,CPAs are already preparing for the standardsconvergence — companies looking to competeacross borders will be better armed for globalbusiness by doing the same.Travis Drouin, CPA, CIA, is a partner at Moody,Famiglietti & Andronico, LLP

20-35_Roundup.qxd 4/6/09 5:39 PM Page 86FRAUD continued from page 22A background check of the key people can also shed light. Spinellimentions one deal involving a bank, in which the principals involvedappeared “cleaner than Caesar’s wife.” A deeper investigation revealedtwo convicted felons.It’s often the case that the schemes are specific to a particular industry.In publishing, for instance, there was the public battle involvingAbry Partners and Providence Equity Partners. Abry claimed thatProvidence portfolio company F&W Publications used channel-stuffingthrough volume discounts ahead of the sale, which propped upthe order count, at least until the vendors started sending orders back.In retail, Steve & Barry’s is being sued for using tenant-improvementpayments to overstate its equity and assets. The company was sold lastJuly to a pair of hedge funds and ended up moving forward with aliquidation plan just a few months later.The most creative instances of fraud, according to Bahl, is alwayscollusion “involving more than one company.” Bahl cites as an examplethe manufacturing sector. “In these cases you need to look at thebusiness partners and look all the way down the supply chain,” he says.“It forces you to analyze multiple sets of transactions rather than justone person’s financials.”So how can dealmakers root out corruption? According to Spinelli,the key is to look for it. “It amazes me how little due diligence is beingdone,” he says, specifying that scrutiny should include financialand investigative due diligence as well as a very hard look at the complianceprocedures of an organization.“The vast majority of fraud is not a one-off scam,” he adds. “Thepeople who do it once, will do it again, and they’ll do it just a little bitat a time so they won’t get caught.”MEZZ continued from page 34second lien market crumbled and BDCs began showing weakness, themezz market held strong. During the first two quarters of 2008, forinstance, the percentage of mezzanine financing going into dealsgrew substantially over 2007, roughly doubling its average allocationwithin the capital structure. Meanwhile, the BDCs, CLOs andhedge funds are effectively shut out from the lending market.“Prior to the chaos that started in September 2008, the mezzmarket was getting stronger, and it was starting to shine. We werebusy,” says Michael Klofas, a managing director with Babson CapitalManagement. “But since October, we are not seeing a lot of dealactivity in general and mezz deals, in particular, have been few andfar between.”Indeed, prior to September 2008, Tower Square III had alreadycompleted 13 transactions and deployed 11% of its capital undermanagement. Since then the fund has only completed one transactionwith three in the pipeline.The bottom line is that senior lenders need to start lending againbefore mezz players can make any kind of headway.“Regular people can’t even get mortgages, how is a leverage buyoutsupposed to be completed?” asks one lender. “We need the entirelending market to start running well again, but who knows exactlywhen that will be.”While few will even guess as to when the credit markets willloosen up, commercial banks weren’t created for long term CDs.Eventually, when the remaining banks regain their appetite for risk,the mezzanine market will be positioned to benefit.“There’s a lot of private equity money on the sidelines. Senior lendingwill come back, purchase price multiples will come down andmezz will do better,” says Steuerman.For now, however, it’s just a renaissance delayed.BACK TO THE WELL continued from page 33 ADD-ONS continued from page 32activity on the part of private equity firms could be “especially pronounced”when the investors still hold an interest in the assets, eitherthrough earnout provisions or minority stakes.And even if the old targets present new challenges for the investors,Wilson notes that those are the types of deals that privateequity buyers find most tempting. “The ideal acquisition for the privateequity buyer is something slightly damaged that they understand;those are the deals that they can arbitrage and enhance, whichis where they can add value.”ensuing integration can test the mettle of even the best operators.As Welsh Carson Anderson & Stowe general partner John Almeidastated in a Mergers & Acquisitions roundtable last year: “If youdon’t know how to operate businesses, you can’t do these deals becausethat’s the quickest way to screw up a situation, period.”With that said, whether a firm can be considered an operations-orientedgroup or not, if add-ons are the only game townfor dealmaking, it’s expected that most investors will explore theopportunity.VAPORS continued from page 48over the past two years, if they added to the buyer’s debt load, mayeven spark more M&A as these companies look to shuttle assets topay down debt or rearrange the portfolio. For buyers in the midmarketspace, this will present an opportunity.Ashland, for example, recently flagged a number of assets considerednoncore, which could fetch between $40 million and $400 millionapiece. The company sold its FiberVisions unit to private equityfirm Snow Phipps Group, realizing $7 million in proceeds. SnowPhipps also assumed $90 million in debt, and the sale will create asubstantial tax loss for Ashland.Similar deals could be in the offing as more companies hit theproverbial wall. One dealmaker, who preferred anonymity, says ofLyondell and Ineos: “They are trying to figure out how to surviveright now, and their banks are getting very nervous... we will likelysee asset sales whether or not they go bankrupt.”Leland Harrs, a managing director at KeyBanc Capital Markets,notes that whether or not M&A is the solution, the status quo likelyisn’t. “More of the same doesn’t really help anyone,” he says.86 MERGERS & ACQUISITIONS February 2009

88-CompanyIndex.qxd 4/6/09 5:52 PM Page 88Company Index1-800 Flowers.com3i Group 30Allied Capital 30American Capital Strategies 30Apollo Management 19, 26Arena Football League 12ArvinMeritor 24Ashland 26Atlantic Marine Holding 32Audax Group 34Babson Capital Management 34Bain Capital 12BBK 25BDO Consulting 24Behrman Capital 30BHP Billiton 15Blackstone Group 15, 19, 30Boston Consulting Group 18Brunswick Group 13Carlyle Group 30, 48Charlotte Russe 21Chrysler 14, 24CMF Associates 32Coller Capital 10, 29CRA International 48DLA Piper 26Dow Chemicals 48Dr. Pepper Snapple Group 20Endeavour Capital 34Evercore Partners 15Financial Technology Ventures 28Ford Motor Co. 14GE Capital 31General Motors 14, 24Gibson Dunn 21, 26Golub Capital 34Harris Williams & Co. 20Hercules 26Hexion 26HIG Capital 21Hovde Private Equity Advisors 16Huntsman 26Ineos 48infoGROUP 15, 21Intermarket Communications 13International Paper 14Investcorp 30J.F. Lehman 32Johnson Controls 24Jones Day 32KarpReilly 21Key Principal Partners 28Keybanc Capital Markets 20, 49King & Spalding 48Kofuku Bank 16KPS Capital Partners 18, 36KRG Capital Partners 34Latham & Watkins 15Lear Corp. 24Lehman Brothers 13Linsalata Capital 46LyondellBasell 48Madison Capital Funding 46Maytag 26Merrill Lynch 15Microsoft 21MMP Group 17Modine International 24MorrisAnderson Associates 20, 48National Lampoon 10Ontario Teachers’ Merchant Bank 12Paul, Hastings 16Permira 28, 31Pershing Square 21Pinnacle Group International 30Plainview Capital 21Platinum Equity 12Rio Tinto 15Ropes & Gray 29Sabre Holdings 32Sandell Asset Management 20Sandler O’Neill & Partners 16Shinsei Bank 16Silver Lake Partners 32Simcoe Capital 20Solera Capital 17Southern Union 20Summit Partners 34SVG Capital 28TA Associates 34Target Corp. 21Telular 20TPG Capital 28, 31, 32TRC Capital Corp. 24Trian Fund Management 20Tribune Co. 12TRW Automotive Holdings 24Washington Mutual 28Weyerhaeuser Co. 14Whirlpool 26WL Ross & Co. 16Yahoo 21Zannett Opportunity Fund 21Advertising IndexACG Intergrowth 87Amper, Politziner & Mattia 21Dinan & Co. 17Getzler Henrich 13Grant Thornton 7ICV Capital Partners 9Lincoln International 31Madison Capital Funding 3MidMarket Capital Advisors 19PNC Business Credit 5Harris Williams & Co. 11Wells FargoInside Cover88 MERGERS & ACQUISITIONS February 2009

Not one to mince words, KPS Capital's Michael Psaros offers a ...

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