1. ICAA and Azure Group
CFO network event
Private Equity investment in the current
economic environment
7 March 2012
Private & Confidential

2. Agenda
1. Current appetite for private equity investment in Australia
2. Impact of global financial uncertainty
a. Sourcing of deals (investment opportunities)
b. Securing equity (PE fund raisings)
c. Securing debt financing (senior and mezzanine funding)
3. What private equity looks to invest in
4. Quadrant background and investment appetite
Private & Confidential 2

3. 1. Current PE investment appetite
Private equity is still investing in Australia, with good appetite for solid
businesses. Key themes today versus pre GCF include:
PE deals generally smaller today than 5 years ago
Focus on investments that have real earnings growth opportunities rather than
financial engineering ability … need more than a sophisticated capital structure
to generate returns!
Importance of underlying cash-flows paramount
Less debt available (and more expensive / restrictive covenants)
Some equity commitments remaining from pre GFC fund raisings
Recent fund raisings more challenging except for the top tier players
RESULT: While PE appetite in Australia remains strong:
- fewer PE firms remaining (with available equity funding)
- greater focus on higher quality growth businesses
- lower valuations versus boom years
Private & Confidential 3

4. 2. Impact of GFC on investment appetite
A. Sourcing of Deals / Investment opportunities
2. Emerging private businesses
– Demand for growth capital - (higher due to lower debt availability)
– Succession planning / realisation of private wealth - (generally unchanged)
3. Non core divisions of larger companies
– Australian corporates – (generally unchanged except when unable to refinance debt)
– Local subsidiaries of international businesses – (many US and European companies looking
for opportunities to repatriate cash given high $A and constrained parent balance sheets)
4. Public to private transactions
– Smaller mid-cap stocks more targeted (< $1.0bn market cap) due to debt funding constraints
– Focus on stocks that have seen falling share prices / lost shareholder support – opportunity to
acquire at lower valuation levels and turn around business to higher profitability
– Still challenging – high execution risk / low success rates (despite lower market valuations)
5. Secondary private equity transactions
– Significant increase in secondary PE transactions (globally and in Australia)
– IPO markets prove more difficult as an exit route for PE firms than pre-GFC
– Larger PE funds look to buy portfolio investments from smaller PE funds and take businesses
to the next level of growth (eg: QSR, Tegel, ATF, etc)
Private & Confidential 4

5. 2. Impact of GFC on investment appetite
B. Securing equity funds to invest (equity fund raising)
 Most equity funds are provided by superannuation funds (both Australian and
offshore). However, many pension funds have reduced their sector weighting to
private equity since the GFC due to:
− Individual fund participants requesting lower ‘risk weighting’ following GFC
− Many local super funds increasing their weighting to offshore investments
− Some funds exiting the PE asset class altogether (since ~5% weighting was too small)
 Increasing trend of Sovereign Wealth Funds (including Australia’s future fund) to
provide equity (and fill the hole from declining participation of super funds)
 Hence, equity fund raisings have been smaller since the GCF (see appendix 1)
 Equity cheque commitments now higher since GFC (from <30% to >50%) as less
bank leverage available (see appendices 2 and 3)
 Result of lower funds raised and higher equity cheque %’s is a reduction in the
overall value of PE deals in recent years. PE firms have also been more selective on
quality of investment opportunities (with lower overall valuations)
 Recent successful fundraisings over past 18 months (Archer, Quadrant and CHAMP)
has led to an increase in private equity deals recently
 Larger global and Asian PE funds also targeting Australia leading to a recovery in PE
investment appetite overall
Private & Confidential 5

6. 2. Impact of GFC on investment appetite
C. Securing bank financing (senior and mezz debt funding)
 “Crowding out effect” of global debt markets has led to less “leverage debt” being
available to fund private equity buyouts (in Australia and globally)
− Sovereign debt refinancing in US and Europe - following balance sheet expansion during GFC
− Corporate debt refinancing – large corporates look to secure longer term funding post GFC
− Lower risk appetite from banks (also impacted by regulatory changes)
 Many European banks exiting Australian market (previously aggressive leverage
lenders in 2005 to 2008). Now led by Australian domestic banks
 Most of the impact felt at the high end ($1.0bn + deals) where large underwritten
facilities are no longer possible and large club deals (with 10+ banks complicated)
 RESULT:
− Higher cost of funds to banks – hence remain leverage debt available is now more expensive
− Banks insisting on tighter debt covenants (following some large PE failures during GFC)
− Equity cheques required now higher – from c.30% pre GFC to c. 50% today
− Leverage levels (senior debt) previously up to ~5.0x but today average around 4.0x EBITDA
− Mezzanine debt was previously available for 1.0x to 1.5x (rarely used today and expensive)
− Senior debt margins: Previously 200bps to 250bps … today at 400bps to 450 bps
− Term debt now shorter: Previously 5 to 7 years, now 3 to 5 years
Private & Confidential 6

7. 3. What Private Equity looks for …
Each private equity firm has its own unique investment mandate, with each PE firm
looking to create its own ‘niche’ or ‘point of difference’ in a competitive market.
Investment appetite is influenced by sector appeal, turn-around versus growth focus,
varying return hurdles, and appetite for risk. Some broadly common themes include:
Ability to grow earnings (via revenue / margin growth or cost out)
Exit appeal – ability to IPO or sell to synergistic trade buyers
Strong industry fundamentals (and market position within industry)
Good management team
Strong underlying (and defensible) cashflows
Potential for synergistic mergers or bolt-on acquisitions
Ability to acquire at a reasonable price (exclusivity preferred)
Low execution risk (willing vendor, avoid large auction processes)
Efficient capital structure (must be able to support reasonable gearing)
Equity IRR > 25% (small and mid cap) or > 20% (large cap)
Private & Confidential 7

8. 4. Quadrant overview & investment appetite
Quadrant Private Equity is a leading Australian mid market private equity fund:
Successfully completed 49 investments to date
Consistently achieving returns within the top quartile of PE fund managers
Mandate covers leveraged buy-outs, expansion capital and succession funding
Raised and invested 6 funds with over $1.75bn raised from institutional investors
Our latest fund is a A$750 million fund, raised in December 2010
Some of the key investment factors include:
− Enterprise value: $100m to $400m
− Equity cheque: $70m to $150m (+ co-investor funds)
Investment appetite strong for businesses with following attributes:
− Growth businesses with an established position within attractive industry sectors
− Products and services with a sustainable competitive advantage in their markets
− Strong cash-flows with earnings growth
− Capable and proven management teams
− Clear strategy for exit
Private & Confidential 8

9. Appendix 1 – PE funds raised and invested
9
Source: AVCAL Pacific Strategy Partners Deal Metrics Study 2011
Source: AVCAL Private & Confidential 9

10. Appendix 2 – Average equity cheque %’s
60%
52%
50%
51%
40%
39%
31%
30%
25%
23%
20%
10%
0%
FY06 FY07 FY08 FY09 FY10 FY11
Source: AVCAL
Source: AVCAL Pacific Strategy Partners Deal Metrics Study 2011 Private & Confidential 10

11. Appendix 3 – Average equity cheque %’s
by equity cheque size range
70%
29% 30%
60%
34%
50%
FY2006
40% FY2007
FY2008
FY2009
30%
FY2010
FY2011
20%
10%
0%
Small (Equity Inv <50m) Mid (Equity Inv 50m - 200m) Large (Equity Inv >200m)
Source: AVCAL
Source: AVCAL Pacific Strategy Partners Deal Metrics Study 2011 Private & Confidential 11

12. Appendix 4 – Drop off in PE deals since GFC
30 120
25 100
EV of bolt-ons EV of new deals
No. of new deals No. of bolt-ons
20 80
15 60
N
o
d
e
a
s
f
.
l
10 40
U
D
A
V
o
b
d
u
p
n
e
a
E
s
r
t
f
)
(
l
i
5 20
0 -
FY05 FY06 FY07 FY08 FY09 FY10 FY11
Source: AVCAL
Source: AVCAL Pacific Strategy Partners Deal Metrics Study 2011 Private & Confidential 12

13. Appendix 5 – Private equity deals by size
Source: AVCAL 13
Source: AVCAL Pacific Strategy Partners Deal Metrics Study 2011 Private & Confidential 13

14. Appendix 6 – History of large Australian PE
deals
6,000
Nine Entertainment,
$5,567
5,000
4,000 Seven Media, $4,000
Redbank Energy,
$3,056
3,000
m
A
$
DCA Group, $2,623 Healthscope, $2,649
2,000 Coates Hire, $2,113
BIS Cleanaway,
Myer, $1,409
$1,828 MYOB, $1,200
Affinity Health, Stella Group, $1,311
Energy
1,000 $1,162
Veda Advantage, Developments, $819
Pacific Brands, $740 $964 Study Group, $660
-
04/01 09/02 01/04 05/05 10/06 02/08 07/09 11/10 04/12 08/13
Source: Capital IQ, AVCAL
Source: AVCAL Pacific Strategy Partners Deal Metrics Study 2011 Private & Confidential 14