Mergers & Acquisitions Environment for the Battery Power Industry

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Emerald Pierce
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1 Mergers & Acquisitions Environment for the Battery Power Industry 1

2 Current Themes in M&A U.S. M&A activity returned strongly since 2010 after a drop off in volume in 2009 and has remained relatively healthy since Activity levels by corporate purchasers have been robust as many U.S. corporates are holding large cash positions that generate modest returns The pursuit of attractive acquisition candidates in the middle market is competitive which is reflected in an increase in average valuation multiples paid in recent years Private equity investors have helped fuel the resurgence, enabled by liquidity in the credit markets and driven by a need to put uninvested capital to work Leverage ratios in leveraged buyouts have increased while required equity contributions have declined, allowing private equity investors to pay more for investments and still generate targeted investment returns US equity markets are currently at historic highs, signaling investor confidence Confidence and equity valuations tend to indicate levels of M&A activity In the Battery Power sector, acquisition activity has included: Strategic buyers seeking incremental chemistries, end-market diversification, restructuring of leveraged balance sheets and vertical integration as well as financial sponsors looking to benefit from industry growth 2

corporates are holding large cash positions that generate modest returns The pursuit of attractive acquisition candidates in the middle market is competitive which is reflected in an increase in

3 US M&A Activity Has Returned Deal volume has recovered substantially from 2009 lows 1Q 2013 U.S. M&A activity has remained strong with larger transactions at higher multiples, albeit with 20% fewer deals than 1Q 2012 Both strategic transactions and private equity activity have contributed to the sustained rebound U.S. M&A Activity Number of Deals 16,000 14,000 12,000 10,000 8,000 6,000 4,000 8,947 8,792 9,933 10,089 12,420 13,336 11,482 9,369 12,724 13,386 14,537 Number of Deals Deal Value 3,690 2,949 $2,000 $1,800 $1,600 $1,400 $1,200 $1,000 $800 $600 $400 Deal Value ($BN) 2,000 $ Q Q 2013 $0 Source: Wall Street research 3

M&A Activity Number of Deals 16,000 14,000 12,000 10,000 8,000 6,000 4,000 8,947 8,792 9,933 10,089 12,420 13,336 11,482 9,369 12,724 13,386 14,537 Number of Deals Deal Value

4 Elevated Valuation Multiples Middle market (less than $750 million) transaction valuation multiples have returned to peak levels from the past decade Robust multiples reflect the improvement in credit markets and the competitive nature of most sale processes U.S. Middle Market Enterprise Value / EBITDA Valuation Multiples 12.0x 11.2x 10.1x 10.1x 10.0x 10.5x 10.3x Enterprise Value / EBITDA 9.0x 6.0x 8.0x 7.3x 9.3x 8.1x 7.1x 9.4x 3.0x LTM Source: Wall Street research 4

S. Middle Market Enterprise Value / EBITDA Valuation Multiples 12.0x 11.2x 10.1x 10.1x 10.0x 10.5x 10.

5 US Private Equity Activity is Significant Private equity activity has remained robust since 2010, with total deal value up substantially from Q to Q Increased liquidity in the debt markets and the pressure to put to work committed but uninvested capital have driven the resurgence U.S. private equity firms have capital overhang, which they must deploy U.S. Private-Equity Activity Number of Deals 2,500 2,000 1,500 1, ,181 1,219 1,662 1,848 2,262 2,323 1,796 1,471 1,956 1,991 1,946 Number of Deals Deal Value $700 $600 $500 $400 $300 $200 $100 Deal Volume ($MM) Q Q 2013 Source: Wall Street research $0 5

private equity firms have capital overhang, which they must deploy U.S.

6 Financial Sponsors Back in Buy Mode Financing markets are providing ample acquisition capital for financial and strategic buyers Financial sponsors are ramping up their acquisitions Dollar Volume ($Bn) % % $35 1.7% $8 1.7% $9 2.0% 6.6% $15 8.4% $72 2.0% $ % $15 1.4% $370 $15 9.9% $75 2.5% $37 1.1% $ % $ % $67 1.5% $22 3.0% $27.6% $5 6.1% $53 4.1% $30.4% $3 4.0% $ % $88 2.6% $20 8.1% $62 5.5% $55 1.4% $14 7.5% $ % $91 7.8% $59 4.3% $ % $82 4.1% $11 0.5% $ % $ % $ % $ % $1, % $1, % $ % $ % $ % $ % $ % $ YTD Total Volume ($Bn) ,095 1,443 1, , Corporate Acquiror Financial Buyer Acquiror and Seller Financial Buyer Seller Financial Buyer Source Thomson Reuters as of 5 April 2013 Notes 1. Includes announced transactions, each with an aggregate value of $100MM or more. Includes transactions with estimated values. Excludes terminated transactions and transactions where target or acquiror nationality is unknown. Future terminations of pending transactions will reduce totals shown. Includes transactions announced as of 31 March Financial Buyer activity showing the roles where the financial player involved is either the acquiror, seller, or a portfolio company regardless of ownership stake 6

0% $29 11.5% $88 2.6% $20 8.1% $62 5.5% $55 1.4% $14 7.5% $76 12.0% $91 7.8% $59 4.3% $32 31.6% $82 4.1% $11 0.5% $1 40 89.7% $451 86.1% $649 83.6% $915 70.7% $1,020 70.9% $1,029 90.3% $788 91.

7 LBO Characteristics Over Time LBO Prices remain high, but off of peaks Leverage increasing Equity required moderating Average LBO Purchase Multiple Excludes Fees x x 5.8x 6.4x 6.7x 7.0x 8.1x 8.0x 9.3x 8.7x 7.2x 8.1x 8.4x 8.3x Source Purchase Price Standard & Poor's LCD Average Leverage Multiple Since 2000 Average Equity Contribution to LBOs Since 2000 x x 5.4x 5.2x 5.0x 4.6x 4.9x 5.1x 4.6x 4.0x 4.2x 3.8x 3.4x 3.7x Senior Debt/EBITDA Sub Debt/EBITDA % Source Standard & Poor's LCD Source Standard & Poor's LCD

3x 4 2 0 Source 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Purchase Price Standard & Poor's LCD Average Leverage Multiple Since 2000 Average Equity Contribution to LBOs

8 PE Tremendous Buying Power Remains More than $450Bn of dry powder still seeking investments (1) Top Global Funds Fund Size Today Funds >$1Bn in Funds $15.0Bn 24 Funds $8.0Bn 6 76 Funds $3.0Bn Funds $1.0Bn Blackstone GSPIA TPG KKR Apax Partners** Anschutz Bain Capital Warburg Pincus CVC Capital Partners** Apollo Carlyle Group Permira** Providence Equity Advent International Thomas H. Lee Silver Lake Partners Advent International (Europe)** Cinven (Europe)** First Reserve Clayton, Dubilier & Rice Hellman & Friedman KKR (Europe)** BC Partners (Europe)** J.C. Flowers Cerberus Madison Dearborn PAI Partners (Europe)** Onex Corporation 3i Group (Europe)** Candover (Europe)** Terra Firma Bridgepoint Capital (Europe)** EQT Partners Golden Gate Japonica Partners MSPE Riverstone Sun Capital TA Associates Charterhouse (Europe) Centerbridge Partners Fortress Investment Group Leonard Green & Partners Kelso & Company New Mountain General Atlantic Generation Investment Management KKR (Asia) Lone Star Millenium Finance Corp (Dubai One Equity Partners Ripplewood SPO Partners Matlin Patterson D. E. Shaw Welsh, Carson, Anderson & Stowe Natural Gas Partners Ares Management Doughty Hanson (Europe) Carlyle Group (Europe) Oak Hill Capital Partners Vestar Capital Partners Oaktree Capital Management Jordan Company CCMP Capital Partners Brookside Lehman Brothers Merchant Banking Court Square Capital (fka CVC) Lindsay Goldberg & Bessemer Ontario Teachers Summit Partners Nordic Capital (Europe) JLL Partners Crestview Berkshire Partners Altor Equity Partners HarbourVest TowerBrook Capital Platinum Equity GTCR Irving Place (fka BSMB) Oak Investments PPM Capital Perry Capital Lion Capital - Hicks, Muse (Europe) Lee Equity Partners Cypress Group CVC International Francisco Partners American Securities Energy Capital Partners Quadrangle DLJ Merchant Banking ArcLight Capital Tennenbaum Capital Partners Stone Tower Istithmar Eton Park Dubai Investment Group (DIG) Caxton-Iseman Avista Capital Abraaj Capital (1) (1) KKR Forstmann Little MSCP Warburg Pincus Clayton, Dubilier Notes 1. Source: Preqin Report; includes all buyout funds

0Bn 2 0 8 Blackstone GSPIA TPG KKR Apax Partners** Anschutz Bain Capital Warburg Pincus CVC Capital Partners** Apollo Carlyle Group Permira** Providence Equity Advent International Thomas H.

9 Recent Transaction Observations Consolidation: Highly Synergistic / platform building: Restructuring: Key end markets Vehicles, medical devices, grid storage, military/defense, oil and gas 9

10 Commentary from Battery Consolidators Qualities Sought After: Accretive to earnings in short term (1-2 years) Strong market position / diversity in end markets Incremental products to acquiror s existing distribution channels Incremental chemistries Geographic presence Qualities Shunned: Technology not yet proven commercially Limited track record of profitability and visibility Average or inferior solution in competitive marketplace Minimal cash flow or assets to leverage Concentrated business risk (customer, supplier, end-market, etc.) 10

Qualities Shunned: Technology not yet proven commercially Limited track record of profitability and visibility Average or inferior

11 Discussion Materials Key Valuation Multiple Drivers for Portable Power / Battery Systems Providers EBITDA Multiple 10.0x+ 9.5x 9.0x 8.0x World-Class Power Systems / Battery Companies Proprietary capabilities Control IP Vertically Integrated Systems / Solutions focus Bespoke versus RFP focused High degree of engineering on service Customer and end market diversity Multiple / growing chemistries Global manufacturing footprint Barriers to entry / switching costs 10.0x+ 9.5x 9.0x 8.0x 7.0x 6.0x Niche / Mid-tier Suppliers Geographic concentration / constraints Some systems / solutions capabilities Compete with larger, more global competitors Mature products in portfolio Offshore / pressures from LCCs Some price-downs / pressured 7.0x 6.0x 5.0x 4.0x Commodity / Low Growth Products Off-shore / LCC risk High cost manufacturing Customer concentration Low margin products End market dependence Low switching costs for customers Catalogue / RFP orientation Significant price pressure 5.0x 4.0x 11

Customer and end market diversity Multiple / growing chemistries Global manufacturing footprint Barriers to entry / switching costs 10.0x+ 9.5x 9.0x 8.0x 7.0x 6.

12 Expectations for Balance of 2013 Current market conditions make this a particularly good time to be selling high quality assets Continued strategic activity Inexpensive capital, valuations, cash accumulation Market rewarding strategic activity Who will be the consolidators? Sellers price expectations are high Active financial sponsors Portfolio divestitures many battery power companies are sponsor owned New platform investments organic growth and scale economies make this dynamic sector attractive for equity capital Ongoing corporate restructurings Increasing cross-border transactions 12

Sellers price expectations are high Active financial sponsors Portfolio divestitures many battery power companies are sponsor owned New platform

California State Teachers' Retirement System Private Equity Portfolio Performance As of March 31, 2014. Vintage Year.

California State Teachers' Retirement System Private Equity Portfolio Performance As of March 31, 2014. Vintage Year. Total 40,563,497,470 32,421,776,641 27,672,361,736 11.54 ACON Equity Partners III LP 2011 70,000,000 36,131,275 601,911 2.29 Acon-Bastion Partners II, L.P. 2006 40,000,000 36,615,642 42,284,275 11.90 Advent