Bain ABCCapitalPartnersPEFirmStrategy

ABC Capital Partners
Private Equity Firm Strategy

Contact: Anil Shrivastava
September 2002
Copyright© 2001 Bain & Company, Inc.
This information is confidential and was prepared by Bain & Company solely for the use of our client; it is not to be relied on by any 3rd party without Bain's prior written consent.
Agenda
 Presentation materials
 Additional Materials
-LP Overview
-Strategic Due Diligence Template
ABCCapitalPartnersPEFirmStrateg
y 2
GXC
ABC said they wanted a strategy session to
overcome common PE firm issues:
Environment: “An open atmosphere for meaningful discussion”
“This requires everyone in the room to be considered and act as

‘equals’…All [comments] should be treated as constructive ideas to
be debated, accepted or rejected”
Content: “Consensus on who we are , what are our strengths and weaknesses
and where we are going”
“General agreement in direction of the industry”
“Size, scope and focus of ABC for the period ahead are critical issues”
“As external assessment of strengths and weaknesses”
“Understand how we are different from other groups and what ‘best
practices’ we could adopt
“Come away with a ‘unified’ view of where ABC is going”
y 3
GXC
Strategy Session Agenda
Monday Tuesday
9:00-9:30am Breakfast 7:30-8:00am Breakfast
9:30-9:45am Introduction – Review of Meeti 8:00-9:30am Deal Sourcing
ng Objectives
9:30-10:00am Break
9:45-11:00am Private Equity Landscape
10:00-1:00pm Split Sessions and Lunch
Partners: Internal Operations
11:00-12:30pm What makes ABC unique
ABC input
VPs:
- Deal Evaluation Tips
Midwest deal market - Resources of the firm
ABC Transactions - Roles for Professionals
Constituency Input
Comparisons to other funds
1:00-2:00pm Debrief Session

12:30-1:15pm Lunch 2:00-2:30pm Break
1:15-4:30pm Adding Value to our portfolio 2:30-4:00pm
 ABC input
Process of exiting in
vestments
Constituency input
Practices employed by other funds
pre and post close 4:00-5:00pm Wrap-up, Debrief and Ne
xt Steps
4:30-5:00pm Review of first days’ learnings

7:00-9:00pm Dinner
y 4
GXC
Bain Objectives in running this session
 Lay out the facts
 Generate discussion not give answers
 Act as moderators and sounding boards for your ideas
Support an open fact-based discussion
y 5
GXC
Who is Bain?
 Working with private equity clients for over 15 years
 Global dedicated staff exceeding 200
 Tap into global Bain network of 2800 professionals in

25 offices
 Evaluate hundreds of acquisitions and work with dozens

of portfolio companies annually
 Relationships with a select number of leading

investment firms
y 6
GXC
We have assisted in over 2,000+ deals and
portfolio companies all stages
100% Finance Media Retail

Retail Bus. Prod. & Svcs Bus. Prod.
& Svcs
Finance
Media Media
Healthcare
80 Healthcare Healthcare
Retail
Business Products and Services Consumer
60 Consumer Consumer
Tech. &
Telecom
40 Technology
Technology and Telecom and Telecom Industrial
20
Industrial Industrial Finance
0
Due Diligence Portfolio Other
Strategy
y 7
GXC
Who are we?
Mike McKay Simon Roberts
 Joined Bain in 1987, based in  Joined Bain in 1995, based in New

Boston York, has worked in Boston,
 Founded and leads Bain’s Private London and Sydney
Equity Group in New York and  Led over 100 due diligence and
Boston multiple portfolio turnaround
 Expertise in merger and assignments in the Bain Private
Equity group
acquisition strategy, portfolio
strategy, growth strategies,  Significant experience in
consumer marketing and Industrial products,heavy
manufacturing cost reduction. engineering, pulp & paper,
 Also advise corporations engaged financial services, and consumer
in mergers and acquisition products.
activity.  Previous experience with a
London based middle market
buyout fund.
y 8
GXC
Monday Tuesday
ng Objectives
9:30-10:00am Break
ABC input
VPs:

12:30-1:15pm Lunch 2:00-2:30pm Break
 ABC input
vestments
xt Steps

7:00-9:00pm Dinner
y 9
GXC
The bubble bursts: NASDAQ off 70% from
its peak
Nasdaq index
5,000
4,000
3,000
2,000
1,000
25-Feb-00
21-Apr-00
16-Jun-00
11-Aug-00
6-Oct-00
1-Dec-00
26-Jan-01
23-Mar-01
18-May-01
13-July-01
7-Sep-01
y 10
GXC
Consumption is declining rapidly
% change
20
10
GDP -
Durable
0 Goods
Consumption
-10
-20
90 91 92 93 94 95 96 97 98 99 00 01
y 11
GXC
US employment growth has slowed
% change
4%
1 US
employment
0 growth
-1
-2
91 92 93 94 95 96 97 98 99 00 01
y 12
GXC
Consumer confidence is down after
reaching historic peaks
Consumer confidence index
(1985 = 100)
125
100
75
50
25
0
1995 1996 1997 1998 1999 2000 2001
y 13
GXC
Corporate earnings declining
US corporate quarterly net income
$150B
$121.8B
100
$58.4B (52%)
50
0
2Q 2000 2Q 2001
y 14
GXC
Moody’s:
“Q1 bond defaults

highest in the past 80 years”
y 15
GXC
High-yield debt market has evaporated
High-yield debt issuance

($ Billions)
$80B
60
40
20
0
Q1-99
Q2-99
Q3-99
Q4-99
Q1-00
Q2-00
Q3-00
Q4-00
y 16
GXC
M&A activity down 55%
Announced transaction value ($B)
$2,000B
$1,531B
1,500
1,000
$674B
500
0
1H 2000 2H 2001
y 17
GXC
LBO transaction volume down 65%
LBO transaction volumes
$30B
$27.5B
$21.8B
20 $17.9B
10 $9.5B
$2.0B
0
H1-98 H1-99 H1-00 H1-01 Q3-01
(annualized)
y 18
GXC
80% PIPE investments have largely failed
Number of PIPE Returns/trading range

investments
100%
21% Positive
80
20% 0 to (30%)
60
40 37% (30%) to (80%)
20
22% Wipeouts
0
y 19
GXC
“The sky is falling!”
y 20
GXC
1980’s: exploding LBO activity
LBO activity ($B)
$80B
62.0
60
45.0 46.3
40 36.0
18.0 19.5
20
4.0 3.5 4.3

1.0
0
80 81 82 83 84 85 86 87 88 89
Number of
Transactions: 11 100 164 231 254 255 337 279 377 388
y 21
GXC
Financed with junk bonds
Junk bond financing ($B)
$40B
32
30 28 27
25
20
13 14
10 8
2 2 3
0
80 81 82 83 84 85 86 87 88 89
y 22
GXC
Price/earnings ratios increasing
S&P Industrials
Price/earnings ratio
20X
16
12
0
80 81 82 83 84 85 86 87 88 89
y 23
GXC
1980s: The leveraging of America
All Non-Financial Corporations

Debt as a percent
of total capitalization
50%
45
40
35
30
80 81 82 83 84 85 86 87 88 89
y 24
GXC
Massive debt
• Consumer and mortgage debt doubled
• National debt tripled
• Consumed one trillion dollars more than we produced
• World’s largest creditor becomes world’s largest debtor
• Bankruptcy filings doubled to 4x depression levels
• Bank failures in decade were 2x 1934 -1989 total
y 25
GXC
1991 Bond defaults and business failures
Bond defaults Business failures
Dollars in billions vs. prior year

$10B 55%
8 44
6 33
4 22
2 11
0 0
1989 1990 1991 Q2 Q3 Q4 Q1
1990 1991
y 26
GXC
1990-91: Private equity takes a hiatus
LBO Investments ($B)

CAGR
$80B
(1980 - 89)(1989-91)
61% -69%
60
40
20
0 80 81 82 83 84 85 86 87 88 89 90 91
y 27
GXC
Market Assessment - US Returns
Buyout returns rebounded in 1995
Venture
50
40
Five Year NET IRR
30
20
Buyouts
10
0
'80 '81 '82 '83 '84 '85 '86 '87 '88 '89 '90 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 01
Year of Inception
y 28
GXC
LP cycle in a rising stock market
Stock market rising
Investor portfolio
value increases
Investment in new PE
managers
% allocation to PE
requires more $ to
Increase % maintain
allocation to PE
PE fund distributions
y 29
GXC
Private equity allocations increasing
Endowments Pension funds
% mix % mix
Dollars
15% 14% $15B 6% 5.6%
13 $12B
11% 4.3%
10 10 4
8
$5B
5 5 2
0 0 0
1995 2000 1995 2000 1995 2000
y 30
GXC
Funding explodes again
CAGR
Private Equity Funding
(90-98) (98-00)
$150B
Other PE 37% 5%
100
Venture 24% 92%
capital
50
21% 14%
LBO
0
90 91 92 93 94 95 96 97 98 99 00
y 31
GXC
The number of LBO funds raised also rose
dramatically
Total funds raised
200
154
150
117
110 110 104
100 90
81
50
24 30
0
92 93 94 95 96 97 98 99 00
y 32
GXC
Growth of the Megafund
Five Funds 14 Funds 39 Funds
Late 80’s Early/Mid 90’s 1999
 Kohlberg, Kravis,  Forstmann, Little  Kohlberg, Kravis,  Clayton, Dubilier & Rice
Roberts & Co.  Warburg Pincus Roberts  Gilbert Global Equity
 Kohlberg, Kravis,  Warburg Pincus  Hellman & Friedman
 Forstmann, Little Roberts  Forstmann, Little  Kelso
 Morgan Stanley  Hicks, Muse, Tate &  Charterhouse
 Warburg, Pincus Furst
 Goldman Sachs  The Carlyle Group—
 Hellman & Freidman  Blackstone Domestic
 Morgan Stanley
 Clayton, Dubilier &  Apollo Advisors  Robert M. Bass
Rice  Thomas H. Lee  The Carlyle Group—
 Lehman Brothers
 Blackstone  CVC Capital Partners Europe
 Thomas H. Lee  DLJ  Cypress Group
 Apollo Advisors  Welsh, Carson  Advent International
 DLJ  Goldman Sachs  AEA Investors
 Stonington Partners  Texas Pacific Group  Bessemer
 Zell/Chilmark  Cinven  Golder, Thoma, Cressey
 Cypress Group  Doughty Hanson & Rauner
 Silver Lake  Joseph, Littlejohn & Levy
 Lehman Brothers  Leonard Green
 Morgan Stanley  Madison Dearborn
 Capital Z Management Partners
 Bain Capital  Stonington Partners
 Beacon Group  Summit Partners
 Zell/Chilmark
y 33
GXC
Leveraged buyout deal volume
Value of transactions
$80B
$63B
60
$41B $39B
40
$29B $29B
$21B $22B
20 $15B
$11B $13B
$7B $10B
0
90 91 92 93 94 95 96 97 98 99 00 01
Number
of deals 197 218 270 255 228 272 277 275 306 386 283
Average
deal size 77 32 36 43 57 77 105 104 134 164 138
y 34
GXC
A growing pool of un-invested capital has
intensified competition
Univested capital ($ billions)
$150B
100
50
0
79 81 83 85 87 89 91 93 95 97 99 01
Years
capital 0.1 0.1 0.8 1.9 2.1 1.5 4.1 4.5 6.5
y 35
GXC
Growing LBO capital pool seeks
diversification
 Technology and telecommunications
 Internet deals
 VC/growth capital
 PIPES
y 36
GXC
History repeats itself
= LBO
LBO and Venture Investments ($B)
= Venture
$150B
100
50
0
80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00
y 37
GXC
Private equity delivers higher returns
over the long term
Fund type 20 years
U.S. Venture 19.6%
U.S. Buyouts 19.1%
S&P 500 12.0%
(Period ending 31 Dec 2000)
Note: Returns are net to investors after fees and carried interest; Bloomberg yearly compounded
performance. No investment of dividend
y 38
GXC
Top-quartile funds significantly outperform
the rest
Cumulative IRR
40%
30
20
10
0
Quartile I Quartile II Quartile III Quartile IV
Top quartile funds relatively

consistent over time
y 39
GXC
Note: IRR includes realized and unrealized gains; mezzanine and buyouts only
The average fund underperforms on
a risk adjusted basis
Ten year net IRR (1987-97)

30%
26% Adjusted midcap index
25
22%
20%
20 18%
15
10
0
Early/seed Balance Later stage Buyout
focused focused focused
y 40
GXC
Increasingly developed asset class
Likely winners
Branded mega
Investment banks Focused funds Value added GPs
funds
 Family of  Guaranteed  Expertise  Affect outcomes

funds deal flow - Strategy
 Proprietary
 Scale/  Flexibility in deal flow - Earnings
experience/ moving capital improvements
infrastructure globally  Due diligence
- Turnarounds
 LP franchise  Network
y 41
GXC
Ability to apply leverage is limited
Non-Bank Debt/EBITDA
6 5.8 5.7
Bank Debt/EBITDA
5.3 5.2 5.2
2.3 2.1 4.5
1.9 1.7 4.1 3.9
4 2.5 1.2
1.2
1.5
2 3.6
3.3 3.5 3.5 3.3
2.8 2.9
2.4
0
1994 1995 1996 1997 1998 1999 2000 Aug-01
Equity % 26% 24% 23% 30% 32% 36% 38% 39%
y 42
GXC
The public/private multiple gap is shrinking
S&P 500 multiple - purchaseprice multiple
15.0 13.7
13.2
10.0 9.5 9.8
7.1
6.1
5.3
5.0
0.0
'94 '95 '96 '97 '98 '99 '00
Purchase
price 5.4 6.5 7.0 7.1 8.6 8.3 7.4
y 43
GXC
Adding value is increasingly important
100%
80%
80 Multiple
Expansion
(7x - 10x)
60 Buy 10%
Cheaper
Double
Earnings
Growth
(7.5 - 15%)
40 35%
Leverage 60%
Leverage
Double
90% Debt Earnings
20 Growth
(7.5 - 15%)
Base Base
0
1980's No Unable Lower Future
deal multiple to buy leverage deals
expansion cheaper
y 44
GXC
Major LPs are focused on existing
relationships not new ones
LP commitments/fund Percent to New Funds
$500M 100%
470
400 80 79%
60
300 51%
245
40
200 29%
145
19%
20
100
61
0 94-'95 96-'97 98-'99 2000
0 Fourth Third Second First
fund Dollars
GP Fund Round committed $2.1B $2.4B $3.0B $2.4B
y 45
GXC
Limited partners are focusing their
investments with a few funds
“LPs are aggressively pushing to reduce the number of names (of GPs) on their lists, sometimes at the expense of missing good opportunities
Jonathan Roth, Abbot Capital (Gatekeeper)
“We always look at our existing relationships first. Then we look at newer groups; but this is not something we like to do a whole lot, because there is more risk involved – a new group has to be really unique.”
Institutional Investor, Aug 00
“I now have my list of Core GPs, and we will invest globally with them; we are adding new GPs only if we drop a GP.”
Cheryl Schwartz, TIAA.
“If you have proven consistent returns for twenty years that’s something. All else being equal, who do you go with? The ones you know.”
Jon Vanderploeg, Private Equity Portfolio Manager, Wisconsin State Investment Bd.
“Track record and deal networks, along with a proven innovative investment strategy are all critical factors.”
Richard Hayes, Sr. Principal Investment Officer of Alternative Investments, CalPERS
“The US is overallocated. We will increasingly carve back on some relationships, focus on core relationships, and take advice from gatekeepers.”
Dave Rogers, Omers
y 46
GXC
New funds selected by LPs are often small
funds, specialist funds, or strongly branded
large funds
Small general funds Specialist funds Others
Calpers Calpers Calpers

GP Fund size commitment GP Fund size commitment GP Fund size commitment
•Dominion $100M $40M •Asian $300MM $100M •Apollo $1.5B $150M

Fund IV Recovery Investment
Fund Fund III
•Coller $240M $75M
•Doyle & $100M $75M International •Fenway $527M $100
Bossiere Fund I Partners Partners
(international, Capital Fund
secondaries)
•Exxel $850M $75M •Questor $860M $75M
•Generation $165M $50M Capital Partners
Capital Partners V Funds II
Partners (Argentina)
•Lexington $1.1B $150M •Thomas $1.3B $100M
Capital Weisel Capital
Partners II Partners
(secondaries)
•M/C Venture $550M $65M
Partners V
(telecom)
•Spacevest $46M $30M

Fund (space
industry)
y 47
GXC
Winners rely on differentiation and adding
value
Likely winners
Branded mega
funds

 Proprietary
- Turnarounds
 Geography
y 48
GXC
Given this challenging environment how
can ABC succeed?
Likely winners
Branded mega
funds

 Proprietary
- Turnarounds
 Geography
Target Market Operating Culture

y 49
GXC
Monday Tuesday
ng Objectives
9:30-10:00am Break
ABC input
VPs:

12:30-1:15pm Lunch 2:00-2:30pm Break
 ABC input
vestments
xt Steps

7:00-9:00pm Dinner
y 50
GXC
To answer this question we have created
and used key fact bases
Interviews completed Databases created/used
 CF, LP  ABC Investor and CEO survey results
 BS, LP
 CH, LP  Bain P.E. database of Investor and CEO
 TC, LP survey results
 BS, ABC’s Commercial Bank 1
 Full database of deals with reported size,
 BF, ABC’s Commercial Bank 2
industry, and advisors from 1997-2002 YTD
 DD, ABC’s Investment Banker 1 by state
 MK, Portfolio CEO
 CH, ABC’s Legal Firm 1  Full database of private and small public
 BK, co-investor companies by industry by state
 AR, LP
 SS, ABC’s Accounting Firm 1  Literature and web search on industry and
peer investor group
 SE, ABC’s Legal Firm 2
 MH, co-investor
 JH, ABC’s Investment Banker 2
 JF, Portfolio CEO
 JB, Portfolio CEO
 BM, ABC’s Commercial Bank 3
y 51
GXC
Historically this niche has worked well
IRR to LPs
40% 38.0%
All Funds Started in 1993
30
23.8%
22.1%
20
13.1%
10
0
ABC I $0-250M $250-500M >$500M
(1993)
y 52
GXC
ABC II expectations are lower
IRR to LPs
All Funds Started in 1995

20%
16%
15 14%
13%
10 9%
8%
Estimated
Estimated
0
ABC II ABC II $0-250M $250-500M >$500M
(1995) (1995)
exit at 2x exit at 2.75x
Note:ABCII returns assume 2003 exit, less 2% mgmt fees and 20% to carry y 53
GXC
ABC III expectations remain unclear
IRR to LPs All Funds Started in 1997
20%
18%
15
13%
11%
10
5 ??
0%
0
ABC III $0-250M $250-500M >$500M
(1997)
y 54
GXC
The whole mid-market has been tougher
since ABC I was formed
Cumulative benchmark
returns as of 12/31/00
30%
$250-500M
>$500M
20
10
$0-250M
Year of Fund Formation

-10
93 94 95 96 97 98 99 00*
y 55
GXC
Where does ABC make its money?
 Portfolio Co. A
Other ($40M)
Too recent
 O $45M
 D ($5M)
 B
 C ($6M)
Financial
services
 E ($23M)  K ($18M)
 F ($18M)  L ($4M)
 G ($6M)  M ($54M)
 H ($2M)  N ($26M)
Manufacturing
 I ($25M)
Midwest East Coast Other
y 56
GXC
Investment theses center on M&A and
great management teams
 D
 E
 B
 F
M&A/roll-up
 K
 A
 L
Growth engine
 M
 N
 G  C
 H
Organic
 I
Stronger Weaker
Management team
How often were original theses correct? ABCCapitalPartnersPEFirmStrateg

y 57
GXC
Key components of fund strategy
Market Definition Operating Principles
Geography Deal size Specialization Culture Capabilities
Choice set:  Region  <$100M  Industry focus  Investing style  Financial skills
(e.g. healthcare) - Value - Investment
 Country  $100-250M - Growth experience
- Turnaround - Financial
 Functional focus engineering
(e.g.  Aggressive vs.
 $250-1,000M  Operational skills
distribution) passive
- Advisory board
 >$1,000M - Portfolio boards
 Investment  Relationship vs.
- Business
Class (e.g. Transactional development
Mezzanine) - Turnaround
 Support existing - Exit
management vs.
replace individuals
ABC:  Midwest  $100-250M  Basic Industries/  Patient value  Experienced

investors investors
Manufacturing
 Trusted supportive  Low to Moderate
 Northeast business partners
portfolio involvement
 Relationship Driven
 Leverage network
- Family culture
effectively
y 58
GXC
- Advisory board
- Business
management vs.
replace individuals

investors investors
Manufacturing
 Northeast business partners portfolio involvement
- Family culture
effectively
y 59
GXC
There are 39 Midwest firms in the $100-
500M segment (of 92 total)
Funds under management
Total =
$4B $5B $9B
100%
Other
11 Other
80 15
29
20
30 21
60 22
34 23
24
25
36
40 26
27
37 28
31
20 38 32
33
39 35
0
Chicago Other
Note: Midwest = IL, WI, MN, IN, OH, MI ABCCapitalPartnersPEFirmStrateg

y 60
GXC
ABC has a solid mid-market position in its
State
Funds under management
$0.9B $3.7B
100%
5 1
80 7
3 4
60
2
40
9
20 8
6
0
$100-500M $500-1B
y 61
GXC
Local peers have moved outside the region
ABC A
1
1
1 1
5 3 1 4 1
1
B C
Also: ON
1 1 1
1
1
4 1 2 1
1 1 1
1 1
2
2
2
1
1
y 62
GXC
Target states have 40% of mid-market
deals
Deal count Mix of deal
(97-02YTD) count (97-02YTD)
500
1,250 100%
1,017
1,000 80
Outside
region
750 60
500 IN
500 40 WI
NJ
MI
MA CT
250 20 IL OH
PA
NY
0 0
Total $50-150M Midmarket deals
deals Deal Size
y 63
GXC
Note: Midmarket deal estimate based on mix of reported, known value, LBO deals
Aside from the general ‘01 downturn, flow
has been consistent in these regions
Midmarket Total midmarket

deals announced deal value (for
reported deals)
148
150 $1.5M
IN PA
131 MI MI
NJ IN
NJ WI
PA WI
OH
PA
OH MA
100 93 MA 1.0 IL
PA
IL 83 MI
CT
IL IL IL
CT
MI IL NJ
NY
OH
PA MI NY
50 PA NJ 0.5 MA
NY MI 37
PA
NY CT OH NY MA
MA PA CT
NY NY IL
NY 9
MA PA IL PA OH
OH
0 97 98 99 00 01 02YTD
0.0 97 98 99 00 01 02YTD
Note: Midmarket deal estimate based on mix of reported, known value, LBO deals ABCCapitalPartnersPEFirmStrateg
y 64
GXC
And these markets have good growth
potential
Middle market percent of state GDP
20%
WI MN
MO
15
NJ MA
PA
VA IN KY MI CT
GA MD $300B
OH NY State MM
GDP
10
0.0 0.5 1.0 1.5 2.0%
LBO Penetration of middle market

y 65
GXC
The Midwest has fewer sellers with advisors
Percent of mid-market LBO
deals with named advisors
100%
77% 80%
80 76% 75%
63%
63%
67% 67%
60 59%
53%
40
20
0 Mid. Atl. Midwest West S. Atl. South Great
Mtn.
New. Eng.
SE
Plains
y 66
GXC
Midwest deals are less competitive and
could generate lower acquisition multiples
Count of firms that express interest
in region, per $50-150M deal (97-02YTD)
National mean = 1.9

2
0 New. Mid. Atl. West Midwest SE S. Atl. South Great Mtn.

Eng. Plains
y 67
GXC
States nearby are attractive; the Northeast
not as much so
No offices in state
No deals reported
0-1 firm per deal
2-3
4-5
y 68
GXC
Peer companies target a broad set of
industries
ABC Capital Partners A B C
 Diversified  Aerospace & Defense  Business Services  Biotechnology

 Energy/ Natural  Broadcasting/  Diversified  Broadcasting/
Resources Cable/Radio  Cable/Radio
Education
 Business Services  Business Services
 Financial Services  Food Services/
 Communication  Communication
 Industrial Equipment Products
Equipment Equipment
 Manufacturing  Industrial Equipment  Computer Hardware
 Computer Software
 Telecom/ Networking  Manufacturing  Computer Software
 Diversified
 Materials & Chemicals  Diversified
 Electronic Equip./
 Transportation  Education
Components
 Wholesaling/  Electronic Equip./
 Food Services/ Products
Distribution Components
 Health/Medical IT
 Financial Services
 Industrial Equipment
 Health Care Services
 Internet & Online Services  Industrial Equipment
 Manufacturing  Internet & Online
 Materials & Chemicals Services
 Medical Devices  Manufacturing
 Pharmaceuticals  Materials & Chemicals
 Publishing & Advertising  Medical Devices
 Telecom/Networking  Pharmaceuticals
 Wholesaling/ Distribution  Publishing & Advertising
 Wireless Communications  Telecom/ Networking
y 69
GXC
Manufacturing is more prevalent in ABC’s
regions than in the US middle market
ABC Presence
Revenues in $50-250M firms
$1,268B $220B
100%
Other Other
80 Consumer Non-durables
Travel & Entertainment
Utilities Transportation
Transportation Healthcare
Electronics Electronics
Travel & Entertainment Retail
60 Capital Goods
Healthcare Food & Beverages
Retail Capital Goods
Food & Beverages Construction Services
40 Construction Services
Business Services
Business Services Construction Materials
Chemicals
20 MotorChemicals
Vehicles & Parts
Motor Vehicles & Parts
Construction Materials Fabrication
Fabrication
Financial Services Financial Services
0
US Midwest
y 70
GXC
But Midwest mid-market deals are
dominated by manufacturing
100% Bus Svcs

Comp Eqp
Other Const Matls
80 Ind Equip
Cons N-Dbls Pers Svcs
Const Mtls
T&E Retail
HC
Trans
Chem Printing
60 Elect
Retail
Mtr Veh Motor Vehicles
Food&Bev
40 Cap Goods
Fab
Const Svcs Diversified
20 Manufacturing
Bus Svcs
Fin Svcs
0
Companies Reported deals
y 71
GXC
Attractive growth and profit companies
exist
EBIT%
Midwest Middle Market Companies
30%
Com
Bank
20 Biotech
Food Pro Restaurants Tobacco Cons Fin.

IT Bev Med. Equip.
Hard Hotels
10 Pkging Life Oil Inv Elec
Const. CP O&G
Plastics Apparel
Util
Metals
Const Sppls Grocery
Paper Furn
Pharma $100B
Printing Aero&Def Sector
Bus Adv revenues
Auto Tires P&C ins. Svcs
0 Parts
1 2 5 10 Const. 2025%
Auto Rtl Catalog
Off Supp
Middle market revenue CAGR (97-01)
y 72
GXC
Industry focus defines capability sets for
ABC and its CEOs
Industry Uniqueness
More general More technical

Higher
Growth
Cash management
Complex technical due diligence

Ability to recognize
Complex strategic due diligence proprietary value
early in cycle
Industry
Growth Financial and M&A
Characteristics expertise
ABC
Currently?
Value added investing
Deep industry experience
Lower
Growth to leverage targets core
intro new growth
y 73
GXC
Partners say your focus is a strong point
“We like their middle-market focus – I would not like to see them branch off
into new fields”
Lender
“They have a good focus on middle market transactions and they should
stick to that position and not move up to big deals that are a more
competitive market.”
Lender
“Middle market focus is a defensible model however as a regional firm they

don’t get exits that quickly.”
Senior Lender
“They know their niche and they should stick to it.”

Attorney
“The culture drives the success – if they expand they could lose that”
LP
“I hope the larger fund doesn’t get them into competitive larger deals”
Investment Banker
y 74
GXC
- Advisory board
- Business
management vs.
replace individuals

investors investors
Manufacturing
 Northeast business partners
portfolio involvement
- Family culture
effectively
y 75
GXC
We heard the following themes:
Strengths Challenges
 Great partners, people you  How do you maintain the

trust strong culture as you grow?
 Are there opportunities to
deepen ABC operational
 Financially savvy capabilities?
 How do you provide support
but still intervene when
 Great CEOs necessary?
 How and when do you
 Strong, deep relationships intervene when an
with longevity investment is off track?
 How do you institutionalize

 Strong personal network deal flow?
y 76
GXC
Your “localness” drives powerful
relationships
“I have as much confidence in these guys as any sponsor I work with, I
enjoy the relationship.”
- Lender
“It’s a relationship business in the mid-market and that is where their
contacts are.”
LP
“ABC are Our towns’ leading citizens. They are great at relationships!”
Attorney
“Great people to deal with”

CEO
“There was a good personal connection with them”
CEO
“Their strength is their style, but that is difficult to institutionalize”
Attorney
“Half their deals are proprietary due to relationships with Jack and John”
Investment Banker
y 77
GXC
There is a natural tension with one
constituency – the CEOs
Proportion of CEOs
perceived as successful
100%
80 Unsuccessful
60
40
Successful
20
0
All buyouts ABC
y 78
GXC
ABC CEOs have the same buyout
experience as most CEOs
Mix of responses Previous Buyouts Experience
100% >5
>5 5
80 3 3
2 2
60
40
1 1
20
0
ABC CEOs All Buyout CEOs
y 79
GXC
ABC keeps its CEOs in-place longer
Tenure in Current Position

Mix of responses
100%
80 >4
>4
60
2-3
40
2-3 1-2
20 1-2
<1
<1
0
ABC CEOs All Buyout CEOs
y 80
GXC
ABC CEOs are not as “caught-off-guard”
post buyout as other buyout CEOs
Pre vs. post buyout pressures
(5 = Very different post buyout)
5
4.2 4.2 4.2
4.1
4 3.7
3.4
3.2 3.3
3.2
3 2.8
2.6 2.4
2 All
buyout
1 CEOs
ABC
CEOs
0 Finance/ Working Cultural Limited Time Performance
debt with board resources
y 81
GXC
Though CEOs want the autonomy
“They let me do my own thing – I like that”
“We didn’t want someone to help us – we do the

operations, they focus on the finance, we liked
that approach”
“I don’t need a lot of operational support and

don’t want it”
“My advice to them? Stay out of the way”
y 82
GXC
Investors want more active management
of the portfolio
“ABC have been slow to get involved when the company
wanders off track”
Lender
“Lack of operating expertise has made them reluctant to
pull the trigger on management changes early enough”
LP
“They tend to leave their portfolio companies alone a

little too much”
LP
“They really don’t look for value across the portfolio”

LP
y 83
GXC
Even ABC wants faster action by CEOs
Importance of skill set

(5 = Very important to success of CEO)
2
ABC
ABC
CEOs
1
Team
Building
of Prior Co.
Perf. Focus
Execution
Coaching
Action/
Integrity
Fin. Perf.
Strat. Quick
Innovative
Vision Dec. w.out
Info
y 84
GXC
When pushed, CEOs acknowledge they
were slow with hard decisions
Things I could have done better:
“Been tougher on people in the beginning”
“Make staffing decisions faster”
“Focus on cost reductions and financial results in periods of

declining revenues and less tolerance for under-performing
employees”
“Work out non-performers earlier”
“I would have made more management changes earlier. I should

have trusted my instincts instead of waiting for performance
evidence”
y 85
GXC
All buyout CEOs voice common mistakes
 Greater urgency in establishing the management team

- “I’d have moved on key management changes sooner”
- “Only hire the best – saving on salary/benefits doesn’t begin to cover the
cost of inexperience or political positioning”
- “To be more decisive earlier in the process of establishing one culture… and
moving quickly to replace those who were not with new leadership”
 Agree and define financial objectives and realities

- “Emphasized working capital management at the same level as P&L”
- “Would have clarified the short and long term equity arrangements”
- “Had better communication on what the economic/funding realities were”
- “To have made our partners understand, accept and act on the problems
facing our company”
 Focus on the core versus growth

- “I would have stayed on my core business instead of trying to find the next
new market”
- “Focus on acquisitions as an augmentation to organic growth”
y 86
GXC
And all buyouts agree on common CEO
problems
Being too slow
 “Most common mistake is patience; patience is a vice”
 “Bureaucratic behavior slows up the change process”
 “Not making decisions quickly enough”
 “Must make decisions as soon as need becomes apparent”
 “Status quo is the enemy. Sticking with an unstable situation is a disaster
 “Don’t “wait and see”. That’s the mistake. You need to see things that aren’t working on the “right
track” immediately”
 “Being slow to react to problems is the worst mistake, by far”
Not Facing the Facts

 “Excess optimism and/or denial when it’s all too clear”
 “Setting false expectation’s based on an unrealistic data set”
 “CEO’s sometimes don’t see the negatives as a possibility…aren’t prepared to confront “bumps in the
road” or failure”
 “Not being on top of the numbers, letting trends get away from you”
 “Not monitoring performance trends closely enough”
 “Be proactive, not reactive to changes in the business environment”
Mismanaging the Investor Relationship

 “The need to develop a strong and trusting relationship with the investor”
 “Being sure that investor and management expectations are aligned”
 “Not managing upward to the board loses trust quickly”
y 87
GXC
However, ABC may not appreciate CEOs’
pressure to motivate and manage culture
Biggest CEO challenge
(5 = Most challenging pressure)
5 4.7
4.3 4.4
4.0
4 3.7 3.8
3.5
3.3 3.2
3.0 3.1 3.0
3
2
ABC
1
ABC
CEOs
0 Finance/ Cultural/ Time Performance Limited Working
debt motivation resources with Board
All
buyout
CEOs 4.2 4.1 3.8 3.6 3.7 3.7
y 88
GXC
Cultural and emotional issues dominate
as the biggest surprises or differences
for CEOs
 “The complexity of the process and realizing there is no such thing as a small detail.”
 “Difficult to change culture in near-term.”
 “Surprise: seller focus on monetary issues to the detriment of people and long-term success
of the business. Lesson: need to be more focused on near-term operating financials.”
 “People are still the key, especially in our business.”
 “Not everyone identifies and works well in a buyout environment.”
 “Reaction of ABC to down-turn in the business. Positive reinforcement, great support,

and confidence in management to affect changes necessary to achieve turn-around!”
 “The dramatic difference in the sense of personal accomplishment from pre-buyout to

post-buyout. I didn't believe the company could feel so different.”
 “The amount of enjoyment and frustation that can occur in the same day. I have learned to
focus on the successes and to look back every once in a while to see how we have come. “
y 89
GXC
What is the right balance between support
and aggressive involvement with CEOs?
Support Intervention
 Proactive advice  People changes

 Experienced board  Redefine direction
member  Action not advice
 Understand cultural
issues
y 90
GXC
What’s the one thing investors could do to
better support efforts?
 “Be consistent and timely in all matters affecting the buyout business.”
 “None.”
 “Share successful operating and financial strategies and cross-selling opportunities

with other portfolio companies.”
 “Hire us to manage their money and design their financial plans!”
 “Stay out of the way.”
 “I'm honestly having trouble thinking of something meaningful.”
 “Choose more forgiving golf courses for the non-golfer CEO's.”
 “Work hard at aligning management and investor objectives. -- after a couple of

things change -- adjust to make things work or if not, sell”
y 91
GXC
ABC CEOs ask for more communication
 “In the beginning you must be open and honest with regard to buyout issues and the
buyout expectations. Additionally, the CEO must know his limits and abilities and
communicate those to his Chairman.”
 “Total openness.”
 “Regular ongoing two-way communication regarding financial and operating results

and opportunities.”
 “Accountability to our plans, and dialogue related to accountability.”
 “Constant interaction.”
 “Openness and honesty.”
 “I don't believe there is a single best way to communicate. What is important is

that there is a good match between the investors and the CEO (the company).”
 “Tell them as much as they can possibly understand. It is usually better to bring to
the table issues earlier than later.”
y 92
GXC
For all buyout shops including ABC, three
themes recur to help CEOs succeed
 Open communication
- “Openly communicate their objectives/agenda”
- “Provide fact-based, honest feedback in a timely manner”
- “Look for the gray lines to help facilitate faster outcomes; everything
is not always black or white”
 Partner with and empower the CEO

- “Partner with us operationally, not to make decisions, but to be a
sounding board to help resolve issues”
- “Fully empower the CEO to make those decisions he/she believes are
right”
- “More help in identifying specific, creative business development
opportunities (M&A, end-game strategies etc.)”
- “Maintain legitimate networks to address and assist at critical
junctures”
 Discuss and agree on expectations especially as they change

- “Better communication on what the expectations were”
- “Align expectations with the realities of the operating business”
- “Lets set the numbers up front and update them together”
y 93
GXC
Monday Tuesday
ng Objectives
9:30-10:00am Break
ABC input
VPs:

12:30-1:15pm Lunch 2:00-2:30pm Break
 ABC input
vestments
xt Steps

7:00-9:00pm Dinner
y 94
GXC
We saw that adding value is increasingly
important
100%
80%
80 Multiple
Expansion
(7x - 10x)
60 Buy 10%
Cheaper
Double
Earnings
Growth
(7.5 - 15%)
40 35%
Leverage 60%
Double
Earnings
20 Growth
(7.5 - 15%)
Base Base
0
1980's No Unable Lower Future
Deal multiple to buy Leverage Deals
expansion cheaper
y 95
GXC
Firms that add value do several things
 Share due diligence findings and investing experience to help develop key
goals and metrics
 React quickly when the company slips off plan, challenging the
management team in a supportive but data-driven way
 Maintain and build a network of people who can parachute in if there is

trouble
 Bring in additional outside resources to help where required
 Look for cross portfolio opportunities to enhance value
 Monitor the portfolio to identify both underperforming companies and

quick-hit value creation opportunities, as well as the salability of assets
y 96
GXC
Two dimensions
Pre-close Post-close
 Expert-based deal  Laying out plans

sourcing/screening  Operating the
 Strategic due diligence company
 Operational due  Optimizing exit
diligence
Discuss key examples during Discuss some examples now

the break-out tomorrow
y 97
GXC
Interviews with over 40 investors and
portfolio CEOs confirm the importance of
starting post-close strong
 Success and expectations should be mutually and explicitly
defined up front
 LBOs are typically more demanding than corporate

environments and have great results pressure and time
pressure
- “Principal sponsor breathing down your neck”
- “More demanding and hands on owners”
 Poorly defined expectations defined as one of the key

mistakes/lessons for CEOs
- “there were a lot of performance goals set without realistic operating
plans and management in place to achieve them.”
- “I’d make sure that investor and management expectations are
aligned the next time around”
y 98
GXC
The opportunities to add value run from
post-close through exit
Timing: Post-close Ownership Exit
Develop Full Build the Monitor Provide Leverage

Major Optimize Exit
Potential Plan Progress Support Across Portfolio
focus:
What does  Capitalize on  Construct an  Develop best  Bring  Identify and  Maximize value
it mean: due diligence, actionable practice early exceptional maximize through both
management strategic plan warning internal and value market timing
expertise and aimed at systems external creation and company
LBO driving full  Measure less, resources to and sharing preparation
experience to potential bear on across
but measure
determine problems companies
what matters
business
potential
 American  GTCR  GE Capital  TPG  CSFB  Bain Capital

Examples:
Securities
 Organizes  Develops  Detailed  Maintain  Implement  Actively

offsites with clear “game scorecards “SWAT” purchasing monitor
company to plan” for backed up teams to savings industry
discuss each with aid outlook and
lessons investment business companies company
learned and post-close metrics  Leverage performance
formulate companies
strategy with
professional ABCCapitalPartnersPEFirmStrateg
y 99
services GXC
Everyone does the basics, but there are
other activities that may be necessary
Post-close Ownership Exit

Optimize Exit
Basic  Set the full  Highlight key  Track  Identify  CEO council  Look for
potential initiatives for financial problem or growth to
based on the company measures areas roundtable incorporate in
trended  Associate  Provide next owner’s
financials input on investment
primary
solutions thesis
contact
Intermediate  Set full  Oversee  Use financial  Assign deal  Limited  Gear strategy
potential detailed and non- staff to ad- cross- towards exit
using business plan financial hoc portfolio (e.g. set up JV
internal and with dashboard projects purchasing with likely
external timelines and   Form (e.g. health buyer)
Principal
benchmarks milestones insurance)
primary dedicated
contact teams
Advanced  Conduct Oversee  Implement  Parachute  Entire  Look for
fact-based integrated company- deal staff functions inflection point
evaluation business plan specific into (e.g. in company
of options  Strategic scorecard operating payroll) trajectory
and use  Operational linked to roles outsourced
results to  HR key metrics
 financial
set full in plan
potential  MD primary
contact y 100
GXC
Most funds add value at a basic level
100%
Advanced
80
Intermediate
60
40
Basic
20
0
Develop Build Monitor Provide Leverage Optimize
Full the Plan Progress Support Across Exit
Potential Portfolio
y 101
GXC
And few are strong along most dimensions
Percent of Private
Equity Funds Evaluated
100%
91%
80
68%
60
45%
40
20 14%
9%
0%
0
1 2 3 4 5 6
Number of Dimensions with
Intermediate or Advanced Level
y 102
GXC
Your constituents agree you have
operational capability gaps
“Operational focus is sorely needed – due diligence is very financially oriented. They
need a deeper understanding of underlying industry trends, etc.”
LP
“They are all financial/institutional guys, getting one or two operators with different
perspectives would help”
LP
“ABC have a shortcoming in operational expertise – they need to build an ability to

help under performing companies”
Lender
“We didn’t want someone to help us.. We do the operations, they do the finance.”
CEO
“They need a really good manufacturing person.”
CEO
“I would have preferred an operator or two versus the four deal guys on my board”
CEO
y 103
GXC
We will discuss recent examples from real
deal work along each part of this post-
closing chain
 Superwide – Measuring the full potential at

the beginning to drive full value
 Semi – Running the company strategically

and tightly
 Dark and GEM – Optimizing exit (Tomorrow)
y 104
GXC
Superwide Overview
 Superwide is a producer of print equipment for both the

out of home and billboard markets
 Underlying print equipment markets are growing but

the introduction of digital technology is changing the
market
 Private Equity Co originally retained Bain in the due

diligence phase to review its valuation hypothesis
 Immediately following the acquisition of Superwide,

Bain was hired to develop a full potential business plan
in conjunction with management
y 105
GXC
Superwide Summary
 Segmentation of customer base suggests additional

revenue opportunities
- $400M in future addressable markets
- 40% interested in a service contract
 Digital technology is a threat to Superwide’s analog

products, but the company's own digital offering is cost
competitive
- Adoption would be maximized if sold as modules based on
customer interviews
 Superwide’s share will be maximized selling its new

products with a partner
- Cost analysis supports direct sales force model
- But customers want to adopt quickly ABCCapitalPartnersPEFirmStrateg
y 106
GXC
Summary of initiatives
Initiatives Actions Insights/recommendations
Segment customer base  Segment customers based on  Early adoption segments

revenue size and growth poised to purchase before
 Profile segments’ willingness 2002 placing premium on
to invest in new technologies market penetration
 Identify key product  Color and
attributes by segment pre-press/application training
 will become key
Analyze likely timing of
differentiators
purchase
 Lowering price of inputs
increases domestic market
profit pool by $700 million
Position new products to  Review advantages of new  Core product line should
maximize market acceptance technology focus around modular
and profit  Compare product cost product
savings versus competing  Product line-up would be
products strengthened by the addition
 Analyze configuration of a cheaper, simpler product
attractiveness by customer
segment
 Understand price elasticity of
Focus channel strategy around  segments 
Understand segment specific Direct sales force is most
partnership to accelerate
channels effective but partnering with
penetration
 Identify cost efficiency of input manufacturer is the
various channels fastest way to generate
 penetration
Analyze relative timing of
alternatives
y 107
GXC
Bain segmented Superwide’s customer
base by revenue and growth rate
Product A
Product B
30% 29% 20%
25%
15%
15
Percent of Adoption
Percent of Adoption
20
12%
10
11% 8%
10
6% 6% 5
3% 2%
0 0
Small Medium Large Low High
Growth Growth
y 108
GXC
Superwide’s customers can be grouped into
four distinct segments
Indexed
Cut off Reported # of US
# of Non-US
Revenue Growth Growth Companies in Companies in
Range Rates Application Set (1=Bears) Segment Segment
Tigers:  >$5.0M  >20%  POP  3X  1,130  3,225

(Large/High  Banner
Growth  Display/Exhibit
Companies)
Foxes:  $500K-  >20%  POP  5X  4,331  12,358

(Medium/High $5M  Banner
Growth  Display/Exhibit
Companies)
Bears:  >$500K  <20%  POP  1X  5,699  16,263

(Large &  Fleet
Medium/Slow  Banner
Growth
Companies)
Sheep:  <$500K  All growth  POP  3X  6,840  19,518

(Small/High and rates  Fleet
Low Growth)  Banner
y 109
GXC
That proved a good determinant of
adoption likelihood
Adoption Likelihood
(Percent Likely to Adopt)
50%
43%
40
34%
30
20
14%
Product A
9% 9%
10 6% Product B
3% 2%
0 Tigers Foxes Bears Sheep
First Adopted
Digital: 1997 1997 1998 1998
% Owning
Digital: 57% 26% 18% 18%
y 110
GXC
Surveying the Tigers and Foxes enabled
Bain to better understand their product
needs
Future Required Characteristics Additional Addressable Market
100% $100
Not More Likely
$86M
$79M $81M
80 80
$71M
Percent of Total
Somewhat More Likely
60 60
$45M
40 40 $35M
Much More Likely
20 20
0 0
Text
Vibrant Spot UV En- Six Water

UV-Based
Enhanced
Water-Based
Vibrant Colors
Inks
Inks
Spot Color
Six Color
as Color Ink hanced Color Based

Screen Text Ink
Printing
y 111
GXC
And focused Superwide on the potential to
provide more services
Importance of service criteria
5 Willingness to purchase service

4.5 agreements
4.4
4.3  “How likely would you be to purchase a service contract at 20%
of the purchase price?”
4.0
4
- 60% of respondents said “very unlikely” or “unlikely”
3.9 - however, 12% said “highly likely to purchase” and 28% said they were
either “likely” or “somewhat likely” to purchase at this price
3.6
 “20% is too much, but 10% would make sense”--Dutch Screen
Printer
3
 Screen printer interviews and site visit results indicate a
willingness to pay roughly 7-10%
1
Maintenance
Contracts
Annual
Pre-Press
On-Site
Help Desk
Tech.
Application
Installation
Training
Support
Support
Support
y 112
GXC
New digital technology posed a problem for
existing products
Company’s Greatest Limitations Digital Perceived Advantages
40% 30%
37%
27%
30
20
Percent of Total
Percent of Total
18%
17%
16%
20
17%
12% 12% 10
10%
10 6%
4%
0 0
Turnaround time
machine
required
automation
Speed/time
More
versatile
capability
Quality
Color/
print quality/
Labor required/
Output
color
Ease of
Less Labor
Area for
Short run
consistency
size/versatility
setup
y 113
GXC
However, the company’s new digital
product was well positioned from a cost
perspective
$1.10
1.00
0.90
$ per Sq. Ft.
0.80
0.70 Company
Products
Competing
0.60 Products
0.50 50 100 150 200 250 300 350 400 450 500 550 600 650 700 750 800 850 900 950 1000
Number of 4'X6' Displays in Run
y 114
GXC
And demonstrated attractive payback
Tigers can payback the full investment in a company product in less than one year, at full
utilization
10 9.2 Payback Scenario All

Variables Companies
8  Total Cost per Run (250 prints) • $3,885
 Contribution Margin • 35% margin
6
Months
 Margin ($ one run)

• $1,360
 Break even number of runs
• 735 runs
4  Maximum number of runs per
month • 80 runs
0 Early
Adapters
Average Runs
per Month 80
y 115
GXC
Decreasing ink prices made the product
even more attractive
$3.0 40% Ink Price Reduction Scenario

U.S. Gross Profit Available ($B) 2001-2005
$0.8B
2.0
$0.9B
$1.4B
-$1.0B
1.0
$0.7B
Ink Gross
Equipment
Gross
0.0 Base Profit Increase Increase in Decline in New Profit
in Equipment Ink Revenue Ink Margin
Revenue
y 116
GXC
And should be sold as a modular concept
Tigers and Foxes Bears and Sheep

15% 14.2% 15%
12.3%
Adoption Rate
Adoption Rate
10 9.6% 10
4.8%
5 5
2.9%
2.4%
0 Four Two One

0 Four Two One
module module module module module module
y 117
GXC
Analysis suggested that a direct sales force
would be the most cost-effective
distribution method
$308M $308M $308M
100%
Profit
80 Profit Profit
Percent of Total
Service Expense
60 Service Expense Commission
Incremental SGA Commission
40
COGS COGS COGS
20
0 Direct Manufacturer Distributor

Rep. / Mfg. Partner
Salespeople
required 26 39 77
Tele-sales
people required 6 2 0
y 118
GXC
However, interviews revealed customers
were planning to purchase quickly and that
speed to market was key
Tigers and Foxes All Respondents
100% 100%
2003 2002 2003
80 2002 80 2003
2002
2003
Percent of Total
2001
Percent of Total
60 60 2001
2001
2002 2001
40 40
2002
20 2000
20 2001 2000
2001 2000 2000
2000
0 Somewhat Very or Weighted
0 Somewhat Very or Weighted
likely to extremely Demand likely to extremely Demand
purchase likely to purchase likely to
superwide purchase superwide purchase
superwide superwide
y 119
GXC
Which favored a partnership arrangement
Relatively fast
Direct / Manufacturer Distributor / Mfg.

Direct with Ink Partner
Rep. Partnership
Lead Generation:
Salesforce
Recruitment:
Salesforce
Training:
Contacting
Customer:
Closing Sale:
Service Force
Creation:
Overall:
y 120
GXC
We will discuss recent examples from real
deal work along each part of this post-
closing chain
 Superwide – Measuring the full potential at

the beginning to drive full value
 Semi – Running the company strategically

and tightly
 Dark and GEM – Optimizing exit (Tomorrow)
y 121
GXC
Semi Co. overview
 Semi Co. is the semiconductor components division

of a larger technology company
 The division is increasingly becoming marginalized by
a shift in the company’s strategic thinking
- Company moving to systems on a chip
- Focus on customer-specific products rather than
general products
 Company looking to split out division into a stand
alone entity
 Bain hired to help create the new entity, with a role
that included:
- Supporting the separation
- Reorganizing and refocusing the new business
- Developing and executing the new strategy
y 122
GXC
Semi Co. summary
 Product lines had to be managed as a portfolio

- Differential investment and attention levels
 Major cash generator had opportunity to expand its

market
- Mature market growing at 9% with 70% margins
- Repositioning into related segments could double or
triple its addressable market
 Aggregate impact of strategy increased full potential

valuation by up to $12B
- Lead to a successful IPO
y 123
GXC
Semi Co.
Initiatives Actions Takeaways
 Support the separation  Formulate major goals and  Key concerns include:
identify significant concerns - Keeping good people
for the separation process - Capturing the patents
- Maintaining/creating brand
value
- Understanding the value
potential from bundling
 Reorganize/refocus the  Focus management on  Management needs to focus
business sources of value on unlocking existing value
 and creating new value
Reorganize company
management  Stand-alone company
 requires new management
Focus management on
and responsibilities
results
 Keeping management
focused
- Frequent reviews
- Meetings on gaps vs plan
- Address key problem areas
 Develop and execute the  Identify key growth sectors  Management needs to
new strategy reposition existing
technology
 Successful repositioning
with increase market by
a factor of 5
The division priced its IPO at $16.00 per share and subsequently saw its price increase to $25.00 per
share – a ~17x return on its equity cost base.
y 124
GXC
Evolving the company’s strategy began
with managing the product portfolio
correctly
20%
Projected Industry Growth Rate
 Establish application
focused business model
 New product investment
- R&D, engineers
 Financial turnaround - FAEs
15%  Strategic turnaround
Analog
- next generation IP
 M&A
10% TMOS
Total
Bipolar Standard
 Reposition technology
Discrete Logic
5% ECL
into high-bandwidth IC
markets
 New product investment  Financial turnaround
 Grow to leadership  Strategic turnaround or
- R&D, engineers
 Generate cash exit
0%  Reinvest to build capacity, capability, coverage
10 5 2 1 0.5 0.2 0.1

RMS
y 125
GXC
ECL was positioned against “old”
applications
ECL (Emitter Coupled Logic) Market
CAGR  High speed logic

$250 (1996-99)
$234M  Mature market and technology
$219M 9% - mainframe computing
- test equipment
200
$180M - telecom
(Millions of Dollars)

Other
$163M
Dominant market share
150  70% gross margins
 Contributing 29% of gross
100 profit from 10% of revenue
Semi
50
How long can the profit

0
stream be milked?
Historical
9%
ASP $2.27 $2.28 $2.90 $2.96
y 126
GXC
By changing ECL’s positioning Semi Co.
entered the sweet spot of many more
applications
GaAs
HBT/
HEMT
GaAs
10GHz MESFET
Performance
SiGe
ECL
“High Bandwidth IC TAM”
S
MO
Mi
xe
LVDS/
eC
200MHz
d-
od
Si
BLVDS GTL Advanced
tM
gn
al/
(CMOS/BiCMOS) (CMOS) CMOS
n
rre
Op
(AVC/VCX)
Cu
tic
al
Others
Volume of Usage Within the Market
y 127
GXC
And vastly expanded its market…
Workstations NIC
Servers SRAM Access
142M 99M 19M 6M

100% MS
LAN Switches Testers
Memory
Testers
Percent of Total TAM
80 Transmission
RAID (with SAN)
60 WAN Switches
Testers
Set Top Boxes
Logic
40
Instrumentation
Tape Libraries Central Office
20
0
Computing/Storage Datacom/Telecom ATE
y 128
GXC
Resulting in an increase in valuation
$15 Multiple “Pure Play” Comparables

$13.8B
 5 - 25x  Power Integration, Telcom,

LinearTech, Maxim,
Analog BurrBrown, etc.
Billions of Dollars
10
 14 -  Semtech, Micrel
5 ECL 18x
Market Cap
Std.Logic  6 - 7x  Pericom, IDT

$1.8B
TMOs  4 - 5x  International Rectifier,
Discretes  1.6 Siliconix
0 
TTM Full Potential General Semiconductor
Revenue Comparable
Value
y 129
GXC
And a successful IPO
$25
20
$16.00
15
10
5
$1.50
0
Founders Equity IPO Price
y 130
GXC
To execute value added means getting the
right capabilities within the firm and with
the portfolios
Within the
Internally
portfolios
 Mix of Staff  Prior experience

capabilities  Mix of
 Access to senior capabilities
outside  Bench strength
colleagues
 Access to
Advisors
y 131
GXC
ABC clearly values prior experience for its
CEOs
Importance of Prior Experience
(5 = Very Important to Success of CEO)
2
ABC
ABC
CEOs
1 Fin. Perf. Same CEO Exp Same Entr. Buyout Fin.
of Prior Co. Issue Ind. Exp. Exp Exp.
y 132
GXC
Most buyout firms do hire more CEOs with
industry capabilities
Percent with experience
100%
80
60
40
All
20 Buyout
CEOs
ABC
0 Small Large Same Same Entrep. Fin. Consl. PE Govt
Co. Co. Issue Ind.
y 133
GXC
ABC expects more leadership, other
buyouts expect more management
ABC All Buyouts
Investors =
CEOs =
Managing most Leading most
important important
1 2 3 4 5
Creating an
Agenda:
Developing an
Organization:
Execution:
Outcomes:
y 134
GXC
We asked questions about leadership vs.
management based on Kotter’s theories
 Create an agenda:
- Managing = Work Planning and Budgeting
- Leading = Establishes Strategic Direction
 Developing an organization to fulfill the agenda:

- Managing = Organizes Work and Builds Staff
- Leading = Builds Trust and Alignment
 Execution:
- Managing = Controls and Solves Problems
- Leading = Motivates and Inspires
 Outcomes:
- Managing = Produces Results
- Leading = Generates Innovation and Change
(Adapted from “A Force of Change: How Leadership Differs from

Management”, John Kotter, Simon & Schuster, Inc. 1990)
y 135
GXC
There are only a few routes to building
operational capability
Upgrade Portfolio Upgrade and Train and build

Hire GP Staff Company Expand use of within current
Management Advisors staff
 Expensive  Difficult where  Quickest route  Long process
 Search can be one has an arms  Can be  Mistakes will be
length
long expensive if not made along the
relationship
 Challenge to find used with care way
 Not fully
the right person  Can be  Requires
who fits in effective – challenging to identification of
agent/owner find trusted latent capability
issues may
partners within current
prevail
- Alignment staff
- Custom vs off-
the-shelf help
y 136
GXC
Monday Tuesday
ng Objectives
9:30-10:00am Break
ABC input
VPs:

12:30-1:15pm Lunch 2:00-2:30pm Break
 ABC input
vestments
xt Steps

7:00-9:00pm Dinner
y 137
GXC
Our experience shows the typical mid-
market deal funnel
ABC
Invites 200-300 200-240
Perform Quick 50-100

Analysis
~100
Analyze in Detail/
Meet Mgmt. 30-50
Bid 10 10-12
Close 3-4 3-4
y 138
GXC
ABC was not aware of a significant number
of deals that took place in relevant regions
Total LBO deals in Midwest
and Northeast (99-02YTD)
X
A
Wrong
Y
Size
Wrong Industry
Z
-B
-C -D -E -F G D+E+
0 F+G
Total Not Not Did Did Did not Acquired
deals Target Aware not not bid acquire
Request
OM
y 139
GXC
There are mixed messages on deal sourcing
“They need a more systematized approach to deal

sourcing, the market are getting more competitive and
they need to go sector by sector using a rigorous
framework”
LP
“Good honest firm. They have a strong reputation and

will be on the shortlist for any deal we have”
Local Banker
“I give them first look on deals because I am

comfortable with them.”
Attorney
y 140
GXC
About half of not-aware deals seem within
reasonable reach
50% are with advisors who do
45% are in adjacent states
not think of us or do not know us
100%
CIBC
80 No MSDW
advisor Raymond James
First Union Securities
60 Wasserstein Perella
Warburg Dillon Read
Lazard Freres
40 Harris Trust
Peter J. Solomon
Seller's
CSFB/DLJ
20 advisor Sperry Mitchell
Merrill Lynch
SG Cowen
0
Not aware
y 141
GXC
Not-aware deals fall within the standard
industries that ABC has experience with
Const HC
Dist Retail
100%
80 Apparel
Publish
Bus svcs
60
Motor Vehicles
40 Shipping and Logistics
20 Diversified
Manufacturing
0
Not aware
y 142
GXC
Proprietary deal generation practices vary
“Proprietary” channels:  Community networking
 “Smile and dial”
 Proactive deal screening

with follow-up
“Quasi-proprietary”:  Public relations outlets (eg.

Publications, conferences)
 Exclusive broker
arrangements
y 143
GXC
ABC did not see some deals in the non-
proprietary" traditional advisor channels
Date Company Advisor Banker (if known)
Jul-99 Happy CIBC World Markets

Feb-99 Troll. Morgan Stanley
Aug-99 Cable Morgan Stanley
Nov-99 Cam Raymond James
May-00 Key Wachovia
Apr-00 Cherry DKW
Jun-99 M Holdings Warburg Dillon Read
Jun-99 Durable Lazard Freres
Feb-00 Imaging Peter J. Solomon Kelly Engel
Aug-01 Logistics CSFB/DLJ
Sep-00 Priority Sperry Mitchell Hannah Smith
Aug-00 Geneva Warburg Dillon Read
Sep-99 Nova DKW, CIBC and Warburg Rod O'Neill, Dillon Read
Dillon Read Paul Adams, DKW
Jan-01 Mentor UBS Warburg
Jul-00 Brookdale. Merrill Lynch
Mar-01 Weston Raymond James
Mar-00 Renaissance SG Cowen
y 144
GXC
To see and evaluate more deals requires
dollar and time investments
New
Diligence Capacity
Processes/Systems
 Incremental systems to  Additional internal

add to deal flow resources
- Databases
- Information sources  Investments to optimize
- New relationships existing capacity
- Training
- Systems
 Outsource diligence to
advisors
y 145
GXC
Monday Tuesday
ng Objectives
9:30-10:00am Break
ABC input
VPs:

12:30-1:15pm Lunch 2:00-2:30pm Break
 ABC input
vestments
xt Steps

7:00-9:00pm Dinner
y 146
GXC
ABC’s “Internal Process Report Card” has
improved since 1999
1999 2002
 LP Reporting Y X
 Deal tracking/log Y X
 Performance reviews Y in with A,B,C, D, E,XF Grades

Fill
 Assignment of deal Y X
resources
 Use of outside advisors Y X
 Formal exchange of Y X
information
 Formal deal approval Y X
 Hiring
- Partners Y X
- Vice-presidents Y X
y 147
GXC
Succession is hard
“The real problem is that it takes such ego and energy to achieve
success with these private equity firms.
That doesn't necessarily make for the kind of personality that is

good at succession planning. Grooming younger people and
stepping away is very difficult.
The bottom line is most firms have not thought about it hard
enough.”
Scott Myers, director of The Crossroads Group
“The fact that so few firms have gone through it shows you how
hard it is. We did it three years ago. The time to do it is the
good years.”
Don Gogel, CEO and designated successor,

Clayton, Dubilier & Rice
y 148
GXC
Succession approaches vary in the industry
Approaches Examples
 Wait until strong economic  Clayton, Dublier and Rice

environment
 Transition to a team vs. a single  Otto van der Wyck’s 2001 retirement
person from BC Partners (London)
 Sell a portion of the firm to an  Thomas H. Lee sold to Putnam

institutional investor Investments to cash-out founder
 Carlyle sold 5% of its management
company to CaLPERS
 Institutionalizes development and  The Carlyle Group is known to avoid

promotion of critical talent -- reduce ‘masters of the universe’ and keeps ‘no
dependence on single rainmakers internal superstars’
 Manage the succession process for  NA

each function separately
y 149
GXC
A succession plan is not complicated but
must be explicit across three elements
1. Internal transition of roles

- Investment committee leadership
- Setting agenda
- Setting compensation and carry distribution
2. Communication to external constituencies

- To LP’s”
 Direct: “effective January 1…”
 Indirect: press release quotes, company speeches,
senior board seat assignments
- To other constituencies
3. Confirmed deployment of senior persons in most

effective roles
y 150
GXC
There are key roles that must be filled
across the leadership team
Internal roles Activities
 Continue to maintain key relationships
Statesman/chairman
 Similar to corporate setting
 Community and LP relations
 Sparing, highly controlled use of time
 Lead developer of new relationships

Lead the internal process
 Investment committee leadership
 Sets the agenda
 Sets compensation/carry
 Picks up sourcing leads

Run the deals/manage
the portfolios  Systematically farms sourcing contracts
 Primary board holders
 Lead value creation process with portfolio companies
 Financial
Execute the due diligence
 Strategic
 Value added plans
y 151
GXC
Monday Tuesday
ng Objectives
9:30-10:00am Break
ABC input
VPs:

12:30-1:15pm Lunch 2:00-2:30pm Break
 ABC input
vestments
xt Steps

7:00-9:00pm Dinner
y 152
GXC
The opportunities to add value run from
post-close through exit
Timing: Post-close Ownership Exit

Major Optimize Exit
focus:
What does  Capitalize on  Construct an  Develop best  Bring  Identify and  Maximize value
it mean: due diligence, actionable practice early exceptional maximize through both
management strategic plan warning internal and value market timing
expertise and aimed at systems external creation and company
LBO driving full  Measure less, resources to and sharing preparation
experience to potential bear on across
but measure
determine problems companies
what matters
business
potential
 American  GTCR  GE Capital  TPG  CSFB  Bain Capital

Examples:
Securities
 Organizes  Develops  Detailed  Maintain  Implement  Actively

offsites with clear “game scorecards “SWAT” purchasing monitor
company to plan” for backed up teams to savings industry
discuss each with aid outlook and
lessons investment business companies company
learned and post-close metrics  Leverage performance
formulate companies
strategy with
professional y 153
services GXC
Everyone does the basics, but there are
other activities that may be necessary
Post-close Ownership Exit

Optimize Exit
Basic  Set the full  Highlight key  Track  Identify  CEO council  Look for
potential initiatives for financial problem or growth to
based on the company measures areas roundtable incorporate in
trended  Associate  Provide next owner’s
financials input on investment
primary
solutions thesis
contact
Intermediate  Set full  Oversee  Use financial  Assign deal  Limited  Gear strategy
potential detailed and non- staff to ad- cross- towards exit
using business plan financial hoc portfolio (e.g. set up JV
internal and with dashboard projects purchasing with likely
external timelines and   Form (e.g. health buyer)
Principal
benchmarks milestones insurance)
primary dedicated
contact teams
Advanced  Conduct Oversee  Implement  Parachute  Entire  Look for
fact-based integrated company- deal staff functions inflection point
evaluation business plan specific into (e.g. in company
of options  Strategic scorecard operating payroll) trajectory
and use  Operational linked to roles outsourced
results to  HR key metrics
 financial
set full in plan
potential  MD primary
contact y 154
GXC
One important area to address will be how
to optimize exits
“Exits are slow, but I like investing with them.”
Lender
“They have to wait their time to exit – I would like to see them exit
faster at times.”
LP
“Exit is their weakest skill. They need better quality analysis and
timing for their exits”
Investment Bank
“Exits are a real issue. ABC holding periods are too long.”
Lender
“They need to think through exits strategies earlier in the process.”

CEO
“They are great at the buy side, but not so quick at exiting”
CEO
y 155
GXC
Optimizing exit requires focusing on three
things at both the start and during a holding
Buyer
Timing the Optimizing the
Identification and
Environment Company for Exit
Tracking
 Strategic vs.  Track the  “Write the OM” at

Financial environment’s the beginning
 Identify likely key metrics  Optimize in small
buyers at the  Take a 1 and 3 ways for likely
start – track year forward buyers
their situations look each year  Build-in a ‘prepare
during
for exit’ phase in
the strategic plan
Dark Example
y 156
GXC
Dark Co. Overview
 Dark Co. is a leading player in the US portable

generator market
 Dark Co.’s owners, a private equity fund, want to

understand the outlook for the business in order to
better evaluate an offer for the company
 Bain was hired to address several key questions

around the business’ future prospects:
- What market growth rate could be expected?
- How was Dark positioned against its competitors and
what market share could it expect?
y 157
GXC
Dark Co. summary
 Industry growth was expected to be flat
- Variance analysis of historical drivers isolated one-time events
- Penetration approaching saturation point
- Experience curve suggested continued declines
 Dark forecast to lose share based on product line

comparisons with competitors
 Price reductions and increased costs would lower margin

per unit from $134 to $23
 The fund accepted an offer for the business, receiving a

price that paid off all of the debt and allowed for some
recapture of the equity
- Viewed as a positive outcome given the direction that the
company and the market were projected to take
y 158
GXC
Summary of initiatives
Initiatives Actions Takeaways
 Forecast market revenue  Address the following  Historical growth driven by:
questions: - Channel expansion
- What are the key historical - Strong domestic economic
drivers and how have they growth
changed over time  Recent accelerated growth
- What is the impact of Y2K driven by:
on 2000 and beyond - Y2K purchases
- How large is the market in - Retail inventory build-up
2000 - Severe weather events
- How is the market projected  Industry growth anticipated
to grow in 2001 and 2002
to be flat due to
- Increased penetration
- Negative price pressure
- Slowing channel expansion
- Slower economic growth
 Project future market share  Address the following  Dark market share is
questions: expected to decline over the
- How well is Dark positioned next two years
versus competitors - Loss of large accounts
- How well is Dark positioned - Declining share of key
against suppliers and customer
retailers  Margins are expected to
- What are the share
implications
decline driven by
- What are the margin - Excess capacity and
implications inventories
- Brand licensing agreements
- Increased demand and price
for key components
Based on outlook for market and company, LBO client decided to proceed to exit
y 159
GXC
1999 generator shipments were more than
double expectations primarily due to Y2K-
related purchases and inventory build-up
$1,000
U.S. Wholesale Shipments (Millions)
$233MM $900MM
800
~$428MM
$75MM Y2K-driven
shipments
$120MM
600
$35MM $12MM
$425MM
400
200
0
Expected Extraordinary Exceptionally Inventory Incremental Accelerated Estimated
1999 weather strong build-up Y2K purchases 1999
shipments events in 1999 construction purchases due to Y2K shipments
activity in 1999
y 160
GXC
2000 shipments fell dramatically due to
good weather, negative price pressure and
weak demand
U.S. Wholesale Shipments (Millions of Dollars)
$500 $470MM
($25MM) ($10MM)
400
($47MM)
$302MM
300 ($86MM)
$225MM
($77MM)
200
100
0 Expected 2000 Unusually low Slowing Negative price Weak demand/ Retail demand Inventory Estimated
shipments weather activity geographic pressure (10%) accelerated reduction manufacturer
expansion of purchase shipments**
impact of Y2K
big box retailers
y 161
GXC
Future purchases are going to be
determined by market penetration levels,
which are approaching saturation
CAGR CAGR CAGR
20% Saturation Point
93-97 97-99 99-05
Percent of Relevant Households Penetrated
15
4% 8% 2%
10
0
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
Analysis reveals market saturation point at ~19% of households

y 162
GXC
Growth in 2002 will be minimal as the
number of new purchasers begins to
decline
Retail Sales
at Wholesale
Units Sold CAGR $ (Millions) CAGR
(000s)
00-02E 00-02E
1,500 1,000
10% 6%
1,302K New residential
purchasers
800 $780MM
Residential
replacement
1,000 Contractor
purchases
600
665K
637K
549K 400
$333MM$340MM
500 2% $302MM
-1%
200
43% 38%
12% 8%
0 0
1999 2000 2001 2002 1999200020012002
y 163
GXC
A forecasted slowdown in housing starts
will also have a negative impact on demand
CAGR CAGR
00-01 01-02
Detached one unit housing starts (000s)
1,500
1-unit housing starts
1,250 -5% 3%
1,000
750
500
1998 1999 2000 2001P 2002P
Replacement Units 143 146 143 140

Change in Installed Base 27 -23 -29 15
Total Units 170K 124K 114K 155K
y 164
GXC
In addition, prices appear poised to
continue to fall at 3-4% in the near term
7
Price per Consumer Unit of
Bain Slope = 63%

R² = 0.98
1980
Value Log of $/KW
1995
1997
5 1998
1999
2000
2001P
2002P
4
2.4 4
Accumulated Experience
Log of Accumulated (Kilowatt X Generator Units)
y 165
GXC
Dark’s margins will come under attack as
the Big Box retailers continue to mature
Entry Maturity
Traditional
distribution
Big Box
retailers
I. Market Entry II. Regional Expansion III. Customer/ IV. Mature competition
Big Box profit Product expansion
driver:  Concept  Store growth  Sales per store  GMROI
creation/ first -top line growth -top line growth -bottom line focus/
to market through geographic through product cost reduction
expansion differentiation and
Implication for local share gain
manufacturer:  Manufacturer  Strategic alliance  Increased focus  Retail price
in stronger  Trade-off margin on brand competition forces
position than for growth strength, aggressive cost
retailer exclusivity and containment and
new product asset management
development y 166
GXC
2001/2 Shipments Forecast
Retail Sales at Wholesale (Millions of Dollars)
$400
$36MM
350 $333MM $340MM
$18MM -$18MM $316MM
$302MM
300 -$17MM
-$5MM
250
200
150
100
50
manufacturer
manufacturer
shipments
shipments
2001
2002
Contractor
change
inventory
buyers
sales
Excess
Residential
replacement
retail
New
retail
2000
2001
reduction
Pricing
sales
y 167
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Competitive analysis reveals that Dark’s
product placement is weak with few
advertised SKUs and relatively high prices
$3,000
$2,049
2,000
Unit Price
$1,299
1,000
$736
$599 $559
$398 $398
0 Dark Competition Dark Competition Competition Competition Competition

10 kw 7.5 kw 4 kw 5 kw 5 kw 3 kw 1.85 kw
Price/Watt: $.20 $.17 $.18 $.12 $.11 $.13 $.22

Engine Type: OHV OHV OHV OHV Side-valve Side-valve Side-valve
y 168
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Which, when combined with pricing
pressure, will result in a fall in Dark’s
margins
$800 $150
$134
$670 $655
Dark
600 Contribution License Fees -$15
%
Wholesale Price
100
Contribution
Selling
Expense
-$33
400
Other
COGS
50
200
$23
Engine -$63
0 0
of wholesale)
License
Fee (5%
Decline (2%)
Retail Price
premium)
Engine (30%
Branded
New
4000XL 4000XL
Contribution
Margin
Contribution
Margin
(E)
y 169
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Outcome
 Based on Bain’s work, Private Equity Co.

accepted an offer for the business
 The purchaser paid a strategic price that

paid off all of the debt and allowed for
some recapture of the equity
- Viewed as a positive outcome given the direction
that the company and the market were projected
to take
y 170
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Monday Tuesday
ng Objectives
9:30-10:00am Break
ABC input
VPs:

12:30-1:15pm Lunch 2:00-2:30pm Break
 ABC input
vestments
xt Steps

7:00-9:00pm Dinner
y 171
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Did we achieve what we set out to do?
Environment: “An open atmosphere for meaningful discussion”
“This requires everyone in the room to be considered and act as

‘equals’…All [comments] should be treated as constructive ideas to
be debated, accepted or rejected”
Content: “Consensus on who we are , what are our strengths and weaknesses
and where we are going”
“General agreement in direction of the industry”
“Size, scope and focus of ABC for the period ahead are critical issues”
“As external assessment of strengths and weaknesses”
“Understand how we are different from other groups and what ‘best
practices’ we could adopt
“Come away with a ‘unified’ view of where ABC is going”
y 172
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What are the next steps:
Follow-ups/Tasks Who When
y 173
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Agenda
 Presentation materials
 Additional Materials
-LP Overview
-Strategic Due Diligence Template
y 174
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US LPs account for 77% of funds
committed to alternative investments
Percent of Total Funds Committed Total =
$247B
$191B $44B $12B
100% Endowments & Foundations Other
Insurance Companies Other
Private
Banks Govt
80 Corporate Pension Funds Govt Indvls
Private Indvls
Pension
Corporate Funds
60
Insurance
Banks, Finance Companies and Other
Insurance
40
Banks
Corporate
20 Public Pension Funds
Pension
Funds
0
US Europe Asia
Penetration of Alternative 7.4% 2.5% ~0%
Assets by Pension Funds:
y 175
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60% of $191B in commitments come from
public & corporate pension funds
Percent of Total Commitment
to Alternative Assets
Total =
$87B $28B $18B $47B $191B
100%
New York State Teachers' Retirement System
80 State of Wisconsin Investment Board

State of Connecticut Retirement & Trust Funds
San Francisco City & County Employees' Retirement
Ontario Teachers' Pension Plan Board
Florida State Board of Administration
Virginia Retirement System BPMT Pensionfund

Other
AIG Global
60 PA State Employees Retirement System

New York State Common Retirement Fund
E.I. du Pont de Nemours & Co.
Investment
Corp.
GTE Investment
Oregon State Treasury Management Corp. Travelers
Insurance
Minnesota State Board of Investments
SBC Comm.
40 Public Employees' Retirement Association of Colora
TIAA
Michigan Department of Treasury
IBM Retirement
Cornell U.
Washington State Investment Board Yale U.
Life Insurance
Metropolitan
20
Fund
CA State Teachers' Retirement System U. of
CA Provident Bank
California Public Robert
Wood
SEB Asset Management
Comdisco Ventures
Employees' Retirement System Johnson Navis Partners

Univ. of CA
0
Found.
Cos
Public Pension Funds Corporate Banks
Endowments
& Foundations
Insurance
Pension
Funds & Other
Note: Market map only shows LP investors for which allocation and commitments to alternative investments
are available - notable omission here is the Harvard Management Co; Other category includes wealthy
individuals, economic development agencies, corporate development groups and money management ABCCapitalPartnersPEFirmStrateg
firms y 176
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Industry analysis template package
overview
DRAFT
Objectives:  Take a team through the most relevant and common facts used to analyze any industry
 Provide a template that can be filled out in as little as 1 week
 Point out objectives, means to construct and points to look for in each set of facts
 Provide some real examples to illustrate use and give guidance on construction
 12-14 slides that together give an analytic factbase on any industry

Contents:  Each slide has three sections:
- Instructions page with objectives, directions to fill out, potential sources of data and what to look for in interpreting the facts
- A template page that has a “blank slide” which is the goal of the team to fill out
- Where available, an example slide which shows the “blank slide” filled out for a real industry (sometimes in a slightly different format, but with the same
data and intent)
 Fill out each template using the most convenient software at hand (e.g. Excel graphs are fine where possible)
Usage:
 For each slide, write down 1-3 key conclusions for and against an investment in this industry and in the target
at hand. Catalog in a single summary sheet with an overall conclusion at the top
 For each slide write down 1-2 additional questions or analyses to pursue beyond this overview look
y 177
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Guidelines
As you fill out these analyses remember: DRAFT
 You will not find all the data you need, particularly with smaller, private companies
 Sources will contradict each other
 Often there are 3-4 “Master” sources everyone uses. Rush to find those and then rely
on them
 Be skeptical of secondary sources. Often, they are guessing based on limited data and
tend to skew to be either overly optimistic or overly pessimistic. In addition, secondary
sources tend to overestimate the rate of change
 Graphics help you see patterns in the data and avoid mistakes. Use graphics as a tool
but not a crutch – do not graph everything without a reason
 These templates include forecasts as reported by sources. However, to create a future

scenario requires careful understanding of key drivers of the industry that comes next:
- customer perceptions
- industry reaction to macroeconomic drivers
- analogous situations and industries
- proven forecasting tools (e.g. experience curves, s-curve penetration, etc.)
The point is to go through the rigor of understanding each issue as best as the
facts allow and to make a recommendation with clarity about what is known
and what is not.
y 178
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Template one: Industry size and growth DRAFT
Objectives:  Determine relevant industry size and period growth for 5-10 years
 Locate time periods when industry grew more quickly or more slowly than
long term average
 Define the relevant industry for the target up-front. Too wide a definition will show industry trends that have no relevance for the target,
Directions to fill out: while too narrow will not show growth opportunities or threats to the target’s segment
 Use revenues. Units show real consumption while revenues include the effects of pricing. The next template will break out units and pricing
 Determine the right time period to look at. Aim to include a full economic cycle for this industry. For most, that means including the last
recession (e.g. 1990-91)
 Collect and graph the data and calculate CAGRs for relevant time periods
 Note key events on the graph as appropriate
Where to get the data:  Industry association interviews and published reports; magazines and periodicals
 Industry equity and debt research analysts
 Industry report writing groups (e.g. Datamonitor, Frost and Sullivan, Nilson, Gartner Group, Forrester, etc.)
 Offering Memorandum (careful – could include management biases)
 Government reported statistics (e.g. housing starts, defense spending, etc.)
What to look for/ questions  Does industry growth support target growth expectations (e.g. is it high enough?) If target growth needs to
to ask: exceed industry growth, target will need to gain share
 How did the industry perform in the last downturn or recession?
 What is forecasted growth for customers of this industry?
 What underlying drivers move this industry? How can you forecast these drivers to create a model for industry
growth for the next 3-5 years that informs an investment case?
y 179
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Template one: Industry size and growth
DRAFT
Annual revenues
CAGR CAGR
Key event #2
(1990-00) (00-05E)
Example 10% 8%
Key event #1
1990
91
92
93
94
95
96
97
98
99
00
01
02E
03E
04E
05E
Year
y 180
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Template one example - General Aviation
Aircraft sales (1973-02E)
General Aviation Billings
CAGR CAGR
(73-92) (92-02E)
$13B
GA 4.3% 18.7%
10 Billings
8 GARA
Enactment
0
1973 75 77 79 81 83 85 87 89 91 93 95 97 99 01E
y 181
GXC
Template two: Unit and pricing trends
DRAFT
 Determine historical and likely future unit and pricing trends for the industry and by segment (as necessary)
Objectives:  Determine how different competitors have used price to compete and gain/lose share

Directions to fill out: 
Use the same time period as previous analyses with available projections
Use the same segment and industry definitions as previous analyses
 Find revenues and units for the industry or segment in question
 Find revenues and units for the companies in question
 Graph units on the left hand side
 Calculate average pricing for each year and graph on the right hand side
 Note key events in the slide with text as appropriate
Where to get the data:  Company level SEC filings or other company specific reports (e.g. D&B, OneSource)
 Industry association interviews and published reports; magazines and periodicals

What to look for/ 
What is driving industry revenue trends? Units or pricing?
At what rate will costs have to decline for an average industry or segment player to maintain margins?
Questions to ask:  How do target’s prices and margins compare?
 What underlying drivers are causing prices to move:
- Changes in the mix of channels, products or other segments?
- Low price entrants?
 If prices are not changing, is effective price changing – e.g. in PCs prices have declined slowly but quality offered has increased rapidly
y 182
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Template two: Pricing trends DRAFT
Note that E may be trying to gain share by keeping price low. On the other hand
E plays in a specific segment – does that segment have lower pricing overall?
Units Pricing
Annual inudstry CAGR CAGR

Average
wide units (1990-00) (00-04E) price per unit
shipped
300 $4.00
Example
6.6% 8.7%
B
3.00 A
Industry
200 Avg.
Projected E
Key Event
2.00
100 Key Event #1

Key Event #1
1.00
0 0.001990
1990
92
94
96
98
00
02E
04E
92 94 96 98 00 02E 04E
Year
Year ABCCapitalPartnersPEFirmStrateg
y 183
GXC
Template two example - Retail cheese
volume and price (FDM, 1997-03E)
Volume (lbs)
Natural Natural no shred price per pound
(F/D/M) (F/D/M)
2,000M
CAGR CAGR
(97-00) (00-03E)
Price per pound
2.8% 3.2% $6
Land O' Lakes
3.8% 4.0%
5 Kraft
PL
1,500 Tillamook
4
Sorrento
1,000 3
Private Label
2.2% 2.5%
2
Brand
500
1
0 0
1997
98
99
00
01E
02E
03E
PL%: 1997 98 99 00 01E 02E 03E
Private label retail growth has outpaced branded

due to share gains in natural cheese ABCCapitalPartnersPEFirmStrateg
y 184
GXC
Source: IRI, 2001
Template three: Key segments and
industry players DRAFT
Objectives:  Compare key segments in terms of size

 Compare the key players in the industry based on their market share strengths
and weakness in each of these key segments

Directions to fill out: Define the key segments up-front. These segments should be well known in the industry and mutually exclusive. If you cannot find all the small
segments that together make up the whole industry, attempt to explain at least 80-90% of the industry. Segments can be channels, regions or
countries if that makes more sense for this industry (or run a few different ones to capture multiple angles)
 Find the segment size data for the most recent year possible
 For each major player, break down their most recent sales into these segments and assign market share in each segment
 Attempt to explain 80-90% of each segment
 Look for specialized players that may be smaller but large within their segment

Where to get the data: Company level SEC filings or other company specific reports (e.g. D&B, OneSource)
 Industry association interviews and published reports
 Industry magazines
What to look for/  Does any one or two companies dominate the whole industry? Is the target one of them?
questions to ask:  Are there specialized players that will dominate specific segments but that do not play in the
industry overall?
 Does the target play everywhere but without dominating any segment or is it a specialty
player that will be confined to a given segment?
y 185
GXC
Template three: Key segments and
industry players DRAFT
Note that in this illustrative template, both companies B and E have the
same overall share of 10% but play in different ways across the segments
Each company's share of segment total
100%
Other
80 Other
Other
B
60 Other
D
A B Other
C A
40
F A
B
20 E G
B
A
H C
0
Segment 1 2 3 4 Other
Percent each segment comprises of totalABCCapitalPartnersPEFirmStrateg

y 186
GXC
Lighting and water fixtures industry
revenue pool (2000)
USI has a strong competitive position in whirlpools and lawn/garden
tools with weaker positions in other businesses
Total =
$0.7B
100%
$2.3B $3.9BB $4.7B $10.1B $21.7B
Other
Other
Others Others
80 Maax
JJI Lighting Group
Simkar
American
Standard
Others Mag Instrument
Masco
Acorn
Moen Catalina
60
Crane Plumbing Industries
Elkay Mfg Price Pfister (B&D) Juno Lighting
LASCO
Crane Plumbing
Bathware American Standard
Kohler Falcon Building
Products
Elkay Mfg
USI USI
40 American Kohler
Standard Hubbell
USI
Moen USI
Kohler
20 USI Genlyte Thomas
Cooper Industries
Masco Masco
National Service Industries
0
Fixtures (U.S.)
Whirlpool Plumbing Plumbing Lighting Fixtures (U.S.)

Lawn & Garden
& Spa Fixtures (U.S.) Fittings (U.S.)

(Global)
y 187
GXC
Template four: Segment growth DRAFT
Objectives:  Determine segment specific growth prospects for each company and target
given their shares of each segment

Directions to fill out: Use the same segment definitions as previous analysis
 Use units or revenues and use the same time period as the overall industry growth slide to ensure that facts are
comparable
 Collect and graph the units or revenues data for each segment
 One method to graph is to add each segment to a total for each year (“area chart”) to show how each segment grows

Where to get the data: Company level SEC filings or other company specific reports (e.g. D&B, OneSource)
 Industry association interviews and published reports
 Industry magazines
What to look for/  Which segments are growing faster than the overall industry and which are growing slower?
Questions to ask:  Which segments are “stealing share” from others and why?
 What specific segment growth most defines the boundaries for the target? Is the target in a
very fast growing segment that will allow it to more easily achieve above average growth, or a
slower segment that will hamper it more?
y 188
GXC
Template four: Segment growth
Note that the total CAGRs here match the overall industry as
they should and that the segment sizes should match those DRAFT
of the last slide
Percent each segment

comprises of total market CAGR CAGR
(90-92) (92-04E)
1,500
2.8% 12.9%
Other
1,000 -1.0% 4.0%
4
-1.0% 8.6%
3
-1.0% 11.5%
500 2
Segment -1.0% 6.0%

1
0
1990
91 92 93 94 95 96 97 98 99 00
01E
02E
03E
04E
y 189
GXC
Template four - Japan Pollock Roe Import
Forecast (1994-04E)
Falling US TAC and decreasing Russian production will likely
drive total Japanese roe imports down by 9% through 2004
Metric tons of Pollock Roe

60,000
CAGR CAGR
40,000 (94-01E) (01E-04E)
0.0% -8.5%
2.2% 0.0%
ROW
20,000 -8.3% -6.6%
Russia
9.0% -11.0%
US
0
94 95 96 97 98 99 00 01E 02E 03E 04E
y 190
GXC
Template five: Distribution channel map
DRAFT
Objectives:  Understand how the industry and key competitors distribute their product
Directions to fill out:  Lay out all current channels used in the industry
 Lay out percent of industry units and revenues that are purchased in each channel
 Map out flows of goods from the beginning of the supply chain to the end-buyer
 Show mix of units flowing in each area on the flow map or in a graph
 Find the mix of distribution channels used by each player and show in map or graph when possible
Where to get the data:  Industry association interviews and published reports
 Industry magazine special issues (“state of the industry” or “annual survey” issues)
 Industry report writing groups (e.g. Datamonitor, Frost and Sullivan, Nilson, Gartner
Group, Forrester, etc.)

What to look for/ 
Are particular channels more important than others?
Is the price or margin apparently higher in key channels?
Questions to ask:  Do key competitors who are winning or losing focus on specific channels?
 Is there information indicating that winning in some channels will be more important than others over the next 3-5 years?
 What is the basis of competition in each channel? Are they the same (e.g. products the same, pricing the same, relationships used the same, etc)
 Does the target have access to the winning distribution channels? Can it develop the right access in the required time period to achieve performance
targets?
y 191
GXC
Template five: Distribution channel map
DRAFT
Player
70%
A Direct: 40%
30
B %
Internet
10%
End Buyer
10
C 0%
10
0%
E
Distributors
60%
100%
Others
y 192
GXC
Template five example - Residential
flooring Market distribution channels
(millions of square feet) Sheet
Tile
180 Pre-fab 180 180
distributor
Consumer
Builder (new home
470 470 buyer)
100 Building contractors
10 115 115
620 Indep. 620

100 floor 100
stores
Building
1,360 200 200 680 Consumer
Manu- Chain floor contractors
facturer
310 Distributor 70 stores
70 and 40 (PI)
installers
DIY
210 210
Other
40 retailers
40
DIY
120 Other 120
90 building 90
supply
110 Consumer
(DIY)
Top 200 110
180 building
2,030MM ft² 180
supply stores
y 193
GXC
Template six: RMS vs. ROS DRAFT
Objectives:  Determine if companies in this industry achieve economies of scale or scope

 Measure the relationship between gaining size in a given segment or the
industry and gaining profitability

Directions to fill out:
Find the most recent measure of profit for the major players in this industry overall
 If you are interested in a particular segment (because the target specializes in that segment) find profits for that segment in particular
 Transform industry or segment share from your Template 3 into relative market share (RMS). This allows direct comparison of one industry or segment to another regardless of how fragmented it
is. RMS reads as: “Player A is 1/3rd the size or the largest player or “The largest player is 2 times the size of the next largest.” To calculate:
- Divide each share percentage by the share percentage of the segment or industry leader
- Divide the leader’s share by the next largest share
 Graph RMS on the x axis and ROS (or other profit ratio) on the y axis
 Draw a correlation along the strongest line you can see (in practice we use 1 standard deviation around the regression line excluding obvious outliers)
 You can adjust the size of the marker (or bubble) to the size of that player’s revenues to provide more information to the user
Where to get the data:  Company level SEC filings or other company specific reports (e.g. D&B, OneSource)
 Industry magazines and other periodical literature searches
 Is there a correlation between size and profits? If so, how strong is it?
What to look for/
 Is the target performing in line with its size? If not is there an opportunity to perform
Questions to ask:
better? Worse? Can the target gain enough share to be as profitable as market
leaders? ABCCapitalPartnersPEFirmStrateg
y 194
GXC
Template six: RMS vs ROS DRAFT
Note that E is outperforming for its size (Does that have to do with its segment
dominance from Template 3? If we looked at Segment specific RMS, would we
get a better correlation?). D is performing in line with its size and it would be
hard for D to gain enough share to reach 7-8% industry average.
Return on sales
15%
10 E
5 C
0
0.1 0.2 0.5 1 2 5 10
Relative market share y
GXC
195
Lifting ROS (EBIT) vs RMS
The largest lifting companies have the highest operating margins
2000 retun on sales

(operating margin)
20%
15 Manitowoc (est)
JLG
10 Terex
Skyjack
Kalmar Omniquip
Grove
0
0.1 0.2 0.5 1 2 5 10
Relative market share ABCCapitalPartnersPEFirmStrateg

y 196
GXC
Template seven: Competitor profiles
DRAFT
Objectives:  Provide a reference that describes the strategic and operating

personality of each major player
 Begin to predict likely competitor actions given likely scenarios over the
next 3-5 years
Directions to fill out:  Review the key questions on the template

 Research each company and place 1-2 short bullet points to characterize
each player

Where to get the 
Company level SEC filings or other company specific reports (e.g. D&B, OneSource)
Industry magazines and other periodical literature searches
data:  Industry equity and debt research analysts
 Are there consistent themes in the competitors who are winning? Losing?
What to look for/  Which competitors appear to be making strategic and operating shifts to respond to changes in the market?
questions to ask:  Which competitor actions will change the dynamics of the whole market?
 What actions can you predict for each competitor given their profiles?
y 197
GXC
Template seven: Competitor profiles
DRAFT
Competitor A B C D E
(EXAMPLE)
 Stated Strategy:  To dominate the branded sector in
the direct channel and maximize
share of wallet of top customers
 Fill out remainder of slide with

pointed, strategic issues for
 Key Strategic  40 tenured sales force with large each competitor that:
customer relationships - Indicate strengths and
Assets:  Strong service co. relationships weaknesses
- Point out legacy issues
- Allow a meaningful guess at
future actions
 Basis of competition:  Full but non-differentiated product
line
 Referrals to service cos.
 Segment/Region  Direct channel

focus:  No other focus
 Relative financial/  High cost

cost position:
y 198
GXC
Competitor conduct
You will need to drive the competitor profile to a
conclusion regarding the target’s position
Est. Commercial/
Agricultural Metal Impact
Roofing/Siding Plant Product on
Competitor Sales Locations Pricing Service Breadth Channel Strategy/Comments Metal
Co.
WC $70M OH, AL, KY,  Lowest  Poor  Narrow selection  Lumber Low price product niche strategy.
KS, MN no aluminum yards Poor product quality (some
limited profiles secondary steel). Focus on
animal confinement. Integrated
steel mill
MSM $65M WA, IL, FL,  Low  Fair  Average selection  Direct Aggressive pricing, focus on
CO, MN,  Lumber smaller customers. Bypass
MO, OH, yards distribution channel: straight to
TN, PA, IN, contractors. Strict/severe
WA, TX corporate culture
Victor $58M AR, KY,  Average  Good/  Average selection  Direct  Contractor-direct,
OH, OR, (less fair limited commerical/residential focus
MN, TX, than aluminum (product focus: galvalume).
WA Fabral) Strong push into U.S. from
Canada
McDane $44M CA, GA, IL,  Same as  Good  Average selection  Direct High price/quality, focus on
MI, VA Fabral no aluminum  Lumber residential, similar positioning to
(high quality) yards Fabral. “Friendly”, “sleeper”
competitor
ABC $29M FL, GA, IL,  Lowest  Good/  Narrow selection  Direct Low price product niche strategy.
KY, NE, NY, fair offer aluminum (some Poor product quality
TX(x3), VA, few profiles lumber
TN, OK (poor quality) yards)
Granite $8M MO  Low  Fair  Narrow selection  Lumber  Regional/agriculture focus.
no aluminum yards Integrated player. Signs of exiting:
sale of coil to Metal Co.
Balder $4M OK, TX  Low  Fair  Narrow selection  Direct Low price local market strategy
few profiles (limited national presence)
few colors
y 199
GXC
Template 8: Profit pools DRAFT
 Measure the profits made across the value chain to determine the relative
Objectives:
power of buyers versus suppliers in this industry
 Find the most recent measure of profit for the major players in this industry overall based on
Directions to
the previous slide in absolute dollar terms
fill out:
 Lay out the key supplier and buyer elements of the value chain on either side of the industry
in question including key distribution points as appropriate
 Find overall revenue (i.e. market size) for each of the supplier and buyer side elements of
the value chain for the same year as the profits
 Find an average industry profit margin on revenue for each of the supplier and buyer side
elements
 Multiply the margins with the overall revenues of each element to understand how much
profit each element makes relative to the industry in question
 Graph absolute profit pools from left to right in relative proportion to indicate who makes the
profit along this chain
 Indicate trends and key factors for why the profits are as large as they are within that
segment below the chart
 Company level SEC filings or other company specific reports (e.g. D&B, OneSource)
Where to get
the data:  Industry magazines and other periodical literature searches
 Which element in the chain captures the greatest share of total profits available? Why?
What to look
for/Questions  Is the target performing in the right profit pool? Do trends and factors indicate a positive or
to ask: negative implication for an investment in the target?
y 200
GXC
Template 8: Supply chain profit pools
DRAFT
Operating Margin
50%
50%
40
30% 30%
30
20% 20%
20
10
5%
0
Raw Conversion Supplier Industry Distributors Buyer
Materials Distribution to Buyers Servicers
% of Industry Revenue
y 201
GXC
Auto retail sales profit pool (1999)
Leasing has the highest margins, but OEM, Car Dealers and Auto
Insurers are the three largest winners of absolute profits in the
industry despite low margins
25%
23%
20%
Operating Margin
15%
Leasing
10% 9%
6%
6%
6%
Insurance
New Products 5%
5% 4%
Auto
Auto Rental
Auto Loans
3% Warranty
Service After
1% 2% 2% Repair Market
OEM Used car dealers Gasoline Parts
0
0 25% 50% 75% 100%
% of Industry Revenue
y 202
GXC
Template 9: Market Share Trends
DRAFT
 Measure each company’s historic ability to gain market share
Objectives:
 Use the same segment or industry definitions as all previous analyses – specifically the RMS
Directions to
vs ROS graph
fill out:
 Use units or revenues to be consistent with your previous market share analyses – in
Template 2 and Template 4
 Collect historical units or revenues for each company
 Calculate and graph historical market share for each company
 One method to graph is to ensure that each adds up to 100% of the same area allowing you
to directly measure market share
 Historical company level SEC filings or other company specific reports (e.g. D&B,
Where to get
OneSource)
the data:
 Historical industry magazines and other periodical literature searches
 Have market shares been so stable over time that it appears difficult to gain or lose share
What to look
quickly for any given player?
for/Questions
 Has the target gained or lost share? To reach projected growth rates versus industry growth
to ask:
does it have to gain share more quickly than it ever has? Than anyone ever has?
 Can the players who had lower market share in the RMS vs ROS slide gain share quickly
enough to change their profitability position?
 Have new entrants taken quick positions in this market? Why? Have large dominant players
lost share in this market? Why? ABCCapitalPartnersPEFirmStrateg
y 203
GXC
Template 9: Market Share Trends
Note that A and B used to dominate in what could be a fragmented
market (lots of other small players) but have had some share taken
DRAFT
from them and some from Other. Perhaps E was a roll-up of small
players in its segment?
Percent of Total Market Revenues or Units
100%
80 Other
60 E
D
40 C
B
20
A
0
1990 91 92 93 94 95 96 97 98 99 00 01
204
Year
y
GXC
Fresh-cut salad supermarket market shares
(1997-00)
Dole has gained market share from both the smaller players
and Fresh Express since 1997
Annual Supermarket
Fresh-Cut Salad Sales CAGR
(97-00)
Other -16%
100% Earthbound Farm 56%
Salad Time -20%
Ready Pac -3%
Private Label 24%
80
60 Dole 28%
40
Fresh Express 14%

20
0
1997 1998 1999 2000
y 205
GXC
Template 10: Valuation Trends DRAFT
Objectives:  Understand public perception of value trends for this industry and for
specific players
 Create a baseline for valuation
Directions to  Use the same time frame as previous analyses or redefine time frame to
fill out: show more recent detail if highly volatile
 Collect and write down market capitalization for each public company
 Index figures to the same point in time for all companies shown
 Create a comparison index for the industry, like industries or the whole
market (e.g. S&P 500 index) and graph with the other data
 Calculate other meaningful historical valuation ratios (e.g. EV/EBITDA)
 These other ratios can be graphed or listed along side as reference
Where to get  Bloomberg

the data:  Dow Jones
 Historical company level SEC filings or other company specific reports
(e.g. D&B, OneSource)
What to look  Has the public market been favorable or unfavorable to this industry?
for/Questions  Have particular companies been punished or rewarded? Why?
to ask:
 What is the valuation trend in this market?
 How does the target’s valuation compare to the industry?
y 206
GXC
Template 10: Valuation Trends
A, B and D have underperformed the S&P500 dramatically – perhaps they are
good values or perhaps public perception is accurate that there is not future
value here. What about the private players?
DRAFT
Indexed Market Capitalization
(1990 = 100)
500
400
S&P 500
300
200 A
B
100 D
0
1990 91 92 93 94 95 96 97 98 99 00 01
y 207
Year GXC
Share price performance: Spirits
comparison
After strong growth in 1991, the Drink Co share price has
under performed most of its spirits competitors
800 S&P 500
700 FTSE 100

Share Price, p
Competitor A
600
Competitor B
500
Drink Co
400
Competitor C
300
Ja
Ja
Ja
Ja
Ja
Ja
Ju
Ju
Ju
Ju
Ju
Ju
n
n
l
l
-9
-9
-9
-9
-9
-9
-9
-9
-9
-9
-9
-9
1
6
1
6
y 208
GXC
Template 11: Recent Transactions
DRAFT
Objectives:  Understand current M&A by private and public players to gain insight into:
- Potential longer term player strategies to win in this market (e.g. gain scale)
- Public and private perceptions of value
- Measure comparable entry and exit options and multiples
Directions to  Find all transactions in the last few years (e.g. acquisitions, mergers and divestitures)
fill out:  List acquirer, acquiree, date, transaction amount, available multiples and structure notes
 List on page in relevant format:
- By date
- By acquirer
- By segment
- By company
 Summarize key points that influence investment thesis (e.g. entry or exit options or
multiples, insights into strategic direction of key players, etc.)
Where to get  SDC (Other transaction databases)

the data:  Bloomberg or Dow Jones
 Historical company level SEC filings or other company specific reports (e.g. D&B,
OneSource)
What to look  Are key winning players growing organically or via acquisition?
for/Questions  Do key players’ acquisitions or divestitures show a pattern that indicates competitive intent
to ask: (to enter a market, to enter a new segment, to lower their cost structure, etc.)
 What are trends in entry multiples?
 Do clear exit options and multiples exist?
 Are other private equity players active in this market? What have their returns been? What
strategies did they pursue in this market?
y 209
GXC
Template 11: Recent Transactions
DRAFT
Date Acquirer Acquiree Value X EBITDA X EBIT X Sales Notes
       
       
       
List in order of most relevance:

 By date
 By acquirer
 By segment
 By company affected,
etc
y 210
GXC
Precedent FBO Acquisitions - Companies
Enterprise EV/LTM EV/
Date Target Acquiror Target Description
Value Revenue EBITDA
• 5/30/01 • GlobeGround • Penauille • Provides international $317.3M 0.9x 10.6x

GmbH Polyservices ground handling services
(Lufthansa) including cleaning, fueling
and de-icing of aircraft
• 11/15/00 • Aircraft Service • Signature Flight • Provides ground-handling, $137.9M 0.9x 9.4x
International Support Corp. (BAA fueling, and a range of
Group (Ranger Group plc) passenger and
Aerospace Corp.) maintenance services
• 7/26/00 • Ogden Ground • John Menzies PLC • Provides ground and cargo $105.0M 0.6x 6.2x
Services (Ogden handling, passenger
Aviation Services) services, fueling and airport
maintenance
• 6/05/00 • Lynton Aviation • BBA Group PLC • Provides aviation services $55.0M N/A N/A
Inc. including sales and repairs
• 2/10/99 • Hudson General • GlobeGround GmbH • Provides aircraft ground $120.0M 0.7x 5.7x
Corp. (Lufthansa) handling, fueling, de-icing,
maintenance and ground
transportation
• 7/25/96 • Signature Flight • BBA Group plc • Provides refueling, cargo $139.7M N/A N/A
Group handling, cleaning and
maintenance services to
corporate and commercial
aircraft
• 12/15/98 • AMR Combs Inc. • Signature Flight • Owns a chain of 11 FBOs in $170.0M 1.0X N/A
Support Corp. (BBA the United States
Group plc) Average: 8.0x
y 211
GXC
Template 12: Industry Capital Structure
DRAFT
Objectives:  Review industry standard capital structures and reinvestment rates to

provide guidelines for building investment model
Directions to  Find most current available balance sheet and cash flow statements for the
fill out: largest companies. Use the same recent year for all companies for
comparability
 Group right side of balance sheet items into liabilities and equity using
consistent definitions and graph as percentages of 100%. Show each company
found
 Find available Free Cash Flow figures and average capital expenditure rates for
a consistent set of current years or periods
 Show reinvestment rates in capital expenditures as percentages for each
company on the same page as capital structures
 Note average industry figures for both capital structure as well as reinvestment
rates
Where to get  SEC filings for public companies

the data:  Dow Jones, D&B and Onesource for private companies
 Offering Memorandum for Target
What to look  What capital structure should we use to model this investment?
for/ Questions  Are the capital structures currently used in the industry appropriate for their
to ask: businesses or would we change it if we owned target?
 What reinvestment rates should be used in cash flow models?
 Are the reinvestment rates used in the industry appropriate for the industry?
 What capital releasing/requiring actions might we take with the target that will
require us to change our forecast reinvestment rates in the model?
y 212
GXC
Template 12: Industry Capital Structure
DRAFT
Percent of Total
Capital Structure Reinvestment Rates
as of 1/1/2001
Capital Structures (Period Capital Expenditures/Period FCF)
100%
$__M $__M $__M $__M $__M
Company Reinvestment Rate
(Full Year 2000)
Equity
27%
20%
25%
30% A 4%
80 35%
Average=
73% Debt
B 5%
60 C 3%
D 4%
40
73%
Debt
80%
75%
70%
65% E 4%
20 Industry Average 4%
0 Company A B C D E
y 213
GXC
Template 13: Industry Seasonality DRAFT
Objectives:  Understand intra-year seasonality to ensure cash flow models

take into account required funding of working capital
Directions  Find most current available quarterly or monthly revenues and cash
to fill out: flow statements (sales more likely) for all available companies over a
consistent set of recent years
 If industry revenues available, use the full industry instead and
compare to target
 Graph quarterly or monthly data over a consistent period of recent
years
 If high seasonality exists, ensure that cash flow models correct for
intra-year inventory and other working capital requirements and are
NOT driven by monthly or quarterly revenues
Where to  Government reporting for some industries
get the data:  Industry association interviews and reports; magazines and periodicals
 SEC filings for public companies
 Dow Jones, D&B and Onesource for private companies
 Offering Memorandum for Target
What to look  What comprises high versus low seasonality?
for/ Questions  Do different players show different approaches to handling seasonality,
to ask: or do they appear to have different exposure to seasonality? Why?
 Does the target adequately budget for seasonality?
 Do the investment models adequately budget for seasonality?
y 214
GXC
Template 13: Industry Seasonality
Revnues and Cash Flow DRAFT

in Millions of Dollars
$60M Quarterly Flows for Companies A, B, E and Target
Revenues
40
20
Cash Flow
0
-20
Q1 2 3 4 Q1 2 3 4 Q1 2 3 4E
1999 2000 2001
y 215
GXC
Toy Industry Seasonality (1998-01 Q1)
DRAFT
Revnues and Cash Flow

in Millions of Dollars
$6,000M
Quarterly Flows for Toys R Us
4,000
Revenues
2,000
0 Operating
Cash Flows
-2,000
1998 Q1 98 Q3 99 Q1 99 Q3 00 Q1 00 Q3 01 Q1
y 216
GXC
Additional Industry-Specific Analyses
As necessary, you may want to look into delving into more DRAFT
industry specific analyses:
Consumer Products Engineering/Defense

 Distribution coverage (%ACV)  Pipeline measurement for the next 3-5 years
 Distribution mix and share trends by: - Firm
- Food, Drug, Mass, Convenience, - Contingent
Vending and Food Service  Monte Carlo simulation of contracts available
- Product types (e.g. single serve) and won by competitor
- Flavors  International buyer analysis and country trends
 The role of private label in the category  Obsolescence cycle measurement and
 Category Premiumness matrix position penetration of new technologies
 Regulator, political and other country risk
 Marketing mix for the industry and key
analysis
competitors:
 R&D/New Technologies pipeline
- Advertising
- Direct and indirect trade spending
- Consumer promotions
Financial Services Manufacturing

 Focus on asset and liabilities growth  Manufacturing facility footprints mapping
 Return on Assets analysis includes:  Capacity utilization
interest rate movements, net earning  Contribution margin economics
balances, credit losses, servicing costs  Capital expenses budgeting
 Securitization dynamics
 Current cost containment programs
 Household penetration
 Competitor capabilities (e.g. flexibility versus
 Sub-customer segmentation needs and long run lines with low cost positions)
perceptions
y 217
GXC

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ABC Capital Partners

Private Equity Firm Strategy

“This requires everyone in the room to be considered and act as

“General agreement in direction of the industry”

“As external assessment of strengths and weaknesses”

“Come away with a ‘unified’ view of where ABC is going”

1:00-2:00pm Debrief Session

4:30-5:00pm Review of first days’ learnings

 Lay out the facts

 Generate discussion not give answers

 Act as moderators and sounding boards for your ideas

Support an open fact-based discussion

 Working with private equity clients for over 15 years

 Global dedicated staff exceeding 200

 Tap into global Bain network of 2800 professionals in

 Evaluate hundreds of acquisitions and work with dozens

 Relationships with a select number of leading

100% Finance Media Retail

Mike McKay Simon Roberts

 Joined Bain in 1987, based in  Joined Bain in 1995, based in New

1:00-2:00pm Debrief Session

4:30-5:00pm Review of first days’ learnings

US corporate quarterly net income

“Q1 bond defaults

High-yield debt issuance

Announced transaction value ($B)

LBO transaction volumes

Number of PIPE Returns/trading range

40 37% (30%) to (80%)

LBO activity ($B)

4.0 3.5 4.3

Junk bond financing ($B)

All Non-Financial Corporations

• Consumer and mortgage debt doubled

• National debt tripled

• Consumed one trillion dollars more than we produced

• World’s largest creditor becomes world’s largest debtor

• Bankruptcy filings doubled to 4x depression levels

• Bank failures in decade were 2x 1934 -1989 total

Dollars in billions vs. prior year

LBO Investments ($B)

Buyout returns rebounded in 1995

Stock market rising

Endowments Pension funds

 Technology and telecommunications

Fund type 20 years

U.S. Venture 19.6%

U.S. Buyouts 19.1%

S&P 500 12.0%

(Period ending 31 Dec 2000)

Top quartile funds relatively

Ten year net IRR (1987-97)

 Family of  Guaranteed  Expertise  Affect outcomes

Equity % 26% 24% 23% 30% 32% 36% 38% 39%

10.0 9.5 9.8

Calpers Calpers Calpers

•Dominion $100M $40M •Asian $300MM $100M •Apollo $1.5B $150M

•Spacevest $46M $30M