Leveraged Buyouts Israeli Perspective IVA 2005

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Leveraged Buyouts Israeli PerspectiveIVA 2005

• Sachi Gerlitz, Apax Partners
• June 2005

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Overview of the Apax Partners group
European Investments since 1990

• Over 30 years of experience
• Offices in Europe, USA, Israel and Japan
• 20bn under management
• Balanced portfolio investment strategy -
  investing in late venture, growth capital and
  buyouts
• Global portfolio of 330 companies
• A successful track record of 62 IPOs on stock
  markets around the world since 1995, more than 80
  portfolio companies in mergers or acquisitions

By Stage
Early
MBO/MBI
Turn-around
Expansion
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Track record of successful investments
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Global reach

• Sweden
• Stockholm 1

• UK
• London 46
• Leeds 3

• Germany
• Munich 22

• France
• Paris 34

• Italy
• Milan 5

• Japan
• Tokyo 11

• Spain
• Madrid 11

• Israel
• Tel Aviv 12

• US
• New York 22
• Menlo Park 12

More than 175 investment executives globally in
11 offices
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Organized in sectors of expertise

Telecom IT Services
Technology
Retailing Consumer Products
Headed by leading industry figures and supported
by first class financial and technological
knowledge, Apax specialist Sector teams provide
unequalled depth of sector knowledge and expertise
Financial Services
Healthcare
Media
Leveraged Transactions Late venture
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Apax in Israel

• Founded in 1994
• Two national funds
• 1994 - Israel Growth Fund - 40m
• 1999 - Apax Israel II - 100m
• 2000 Merged with Apax Europe
• 44 investments 250m
• 7 NASDAQ and TASE listings and 3 trade sales
• Team of 12 investment professionals
• Investment focus on technology,
  telecommunications and life science

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Israeli venture portfolio
Healthcare
Technology
Dune Medical
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Examples of large leveraged buyouts in Israel
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Israel LBO environment

• Closed public markets with low liquidity
• Underdeveloped subordinated debt market
• Rush of small-medium companies to go public
• AIM, TASE, Poland, Singapore
• Concentrated market
• Extensive cross-ownership
• Small number of large active players
• Proactive regulatory environment
• Antitrust authority limit cross ownerships,
  increase competition
• Supervisor of Banks pressure

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Israel LBO opportunities

• Government privatisation
• Bezeq, Israel Electric Corp., Mekorot, Bank
  Leumi, Bazan
• Family owned businesses need to address
  generation transition
• Distressed owners
• Economic downturn effect on post bubble era
  acquisition (highly leveraged)
• Multinational divestments
• Failed tech acquisitions
• Structural changes in large corporations focus
  on core assets
• IDB, Koor
• Regulatory driven sales forced by antitrust
  authority and supervisor of banks

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Benefits that private equity funds bring to the
market

• Focus on medium to long-term value creation
• vs. public markets that are short-term focused
• Enhance market liquidity
• An alternative capital source for public markets
  and loans
• Active MA strategy
• Improve quality of corporate management
• Incentivise management act as owner-manager
• Focus all effort on a common objective
• Provide greater discipline
• Leverage requires focus on cash-flow
• Professionalism
• Bring in experienced board members
• International experience and sector expertise

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Key means for returns to private equity funds

• Operational growth
• Sales, EBITDA, net income, cash flow
• Valuation improvement
• Sector valuation appreciation
• Improvement in growth profile
• Removal of constrains
• Acquisitions
• Internationalisation
• De-leveraging
• repayment of acquisition loans or
  recapitalization of loans

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Example of de-leveraging effect on returns
Value
600
600
Equity
150
Multiple return 3.3x IRR 27
500
Debt financing
450
Repayment of 70 p.a.
100
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A typical buyout structure in Europe/US
Consideration (cash)
Example
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Israeli leveraged deal - Polgat example
34m cash
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The Bezeq transaction - Background

• Apax Partner, Saban Capital and Mori Arkin won
  the Government auction on May 9th
• Acquisition of a 30 stake and 11 option for
  about US 1 billion in cash
• Leverage financing will be provided by Israeli
  banks and financial institutions
• Apax spent a year working on the deal with a
  large team of professionals from both the Israeli
  and European offices
• Leveraged expertise in telecom, media and
  financing from Apax global offices

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The proposed Bezeq deal structure
Apax
Saban
Arkin
Holding Co.
Other shareholders
Debt providers
Debt
30 of Shares 11 options
Consideration (cash)
Shares
State of Israel
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Israel LBO environment is relatively challenging
compared to the Europe or US
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Conclusion

• Buyouts could be an important catalyst in Israel
  for
• Privatisation and deregulation
• Decentralization of holdings in Israeli economy
• Restructuring of larger companies
• Succession in family companies
• Buyouts enhance liquidity, quality of management,
  and performance of companies, and thus boost
  competition and economic growth
• Israel requires some regulatory and tax changes
  in order to catch up with the competitive and
  sophisticated financial global markets
• Entrance of additional foreign investors and
  lenders to Israel would boost liquidity and
  increase Israels attractiveness for large
  leveraged transactions

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Thank you

• sachi.gerlitz_at_apax.com