Title: VENTURE, PRIVATE EQUITY, BUYOUT AND HEDGE MONEY WHATS GOING ON
1- VENTURE, PRIVATE EQUITY, BUYOUT AND HEDGE MONEY
WHATS GOING ON?
2Panelists
- Jim Huston, Blueprint Ventures
- Erik Krieger, Riverlake Partners
- Kevin Cable, Cascadia Capital
- Wayne Embree, Cascadia Partners
3A Broad Range of Financing Options
Advantages
Considerations
Maintain Status Quo
- Continue to focus on operational execution of the
business - Maintain maximum financial flexibility
- Minimize dilution of current investors
- Does not improve balance sheet for future
acquisitions no dry powder - Continued reliance on internally generated cash
flow for incremental growth initiatives
Equity Capital
- Maximizes financial flexibility by maintaining
efficient access to incremental capital - Running a competitive process drives valuation
and optimizes strategic and social aspects of new
equity partner - Smart money injected into the Company
- New equity investors will likely play an active
role - Highest cost of capital
- Maximum incremental dilution
- Long execution process
Debt Capital
- Flexible structure (revolver vs. term)
- Provides dry powder for acquisitions
- Lowest cost of capital
- Favorable market conditions
- No equity dilution
- Positive and negative financial covenants
- Limits overall financial flexibility
- Refinancing risk
- Potential repayment penalties or fees
Combination Equity Debt Capital
- Maintains financial flexibility
- Smart money injected into the Company
- Provides dry powder for acquisitions
- Run one capital raising process for both debt and
equity
- Positive and negative financial covenants
- Selling equity at a lower private market
valuation - Defined use of proceeds
- Management must answer to both new equity
investors and new lenders
4Private Equity Performance
52005 Numbers on Track with 2004
Amount Invested (B)
Number of Deals
Source Dow Jones VentureOne/Ernst Young
6A Ten-Year Slide in Startups Dollars
Expansion Late Stage
Seed, Startup Early Stage
Source PricewaterhouseCoopers/Thomson Venture
Economics/National Venture Capital Association
MoneyTree Survey
7The Crash in Seed Capital
US Seed Funding as a Pct of All Venture Funding
8Debt Financing Overview
Debt can be flexibly and opportunistically
employed
Lender Security
Lender Risk
Lowest
Most
Highest
Least
9Debt Market - Leveraged Finance Trends
- Senior Debt multiples have risen to 3.1x and
total multiples to 4.4x, exceeding levels
experienced in 2000.
Source Wall Street research.
10Lending Market Statistics
- The amount of equity contribution has declined
significantly since 2001
Average Equity Contribution to Leveraged Buyouts
Source Portfolio Management Data
11Middle Market Valuations
- Leveraged buyout multiples are increasing in
the middle market
Average LBO Purchase Price as a Multiple of LTM
EBITDA (Transaction Sizes
Between 25M and 250M)
Source Thompson Financial Data Corporation and
Piper Jaffray MA Monitor (July 2005)
12Middle Market Valuations
- Larger Transactions are significantly rewarded
for scale
MA Valuations by Size ( millions)
Source Thompson Financial Securities Data
Corporation (May 2005)
13IPO Activity Slows in 2005
Deals and Amount Raised Through IPOs
Amount Raised (B)
Venture-Backed IPOs
YTD05 1Q05-3Q05
Source PwC Moneytree
14IPO Offering Sizes Valuations Shrink
Median Amount Raised at IPO vs. Median
Pre-Valuation at IPO
Median Pre-Valuation at IPO (M)
Median Amount Raised (M)
YTD05 1Q05-3Q05
Source PwC Moneytree
15Merger Acquisition Overview
Percent of Total Market and Number of Deals
Source Mergerstat / Factset
16General MA Activity Moving Up
U.S. MA Activity All Transactions (Trailing
Twelve Months)
Source MergerStat
17Middle Market MA Activity
U.S. Middle Market MA Activity Transaction
Sizes Between 10M and 250M (Trailing Twelve
Months)
Source MergerStat
18Gains from MA Exits Pick Up in 05
Median Amount Paid in MAs vs. Median Amount
Raised Prior to MA
Median Amount Raised Prior to MA (M)
Median Amount Paid (M)
YTD05 1Q05-3Q05
Source PwC Moneytree
19Successful Exits Remain Constrained
Venture-Backed High-Tech Acquisitions,
1/20035/2005
Source Blueprint research, VentureSource,
Capital IQ (only includes transactions where
acquisition price was disclosed)
20The Case for Capital Efficiency
- Expected exit range for VC-backed companies
100-200M - Seek venture-style returns (5-10X) based on 100M
exit - Invest in deals requiring 25M in total equity
investment
Source Dow Jones / VentureOne
21Summary of Key Issues
- Lack of early stage capital
- Deal competition and valuation increases in
later stage deals - IPO market more constrained than ever
- Capped exit environment