Washington, D.C. ~ November 7-9, 2007

2007 International 2007 International ConferenceConference

Deal or Bad Deal?Deal or Bad Deal?

M & A

Q & A

Deal or Bad Deal?Deal or Bad Deal?Panel MembersPanel Members

MODERATOR: • James M. Fasone, Division Senior Vice President

Arthur J. Gallagher Risk Management Services• Simon Hodge, Managing Director

Wachovia Insurance Services• William Monat, President and CEO

Transactions Risk Solutions• Miles D. Scully, Managing Partner

Gordon & Rees LLP• Kim Patlis Walsh, Managing Director

Corporate Risk Solutions• Chris Warrior, Underwriter, Specialty Lines

Beazley Group plc

OverviewOverview

• Exposures Created from Mergers and Acquisitions

• Insurance Coverage Implications

• Underwriting Issues and Concerns

• Emerging M&A Trends

• Product Solutions

Overview of PE MarketOverview of PE Market

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1998 1999 2000 2001 2002 2003 2004 2005 2006 June'07

Source: The Private Equity Analyst, July 2007

Transaction StructuresTransaction Structures

• Degree of successor liability depends upon the type of transaction

• Three Primary Types: Merger Stock Acquisition Asset Acquisition

M&A ChallengesM&A Challenges

• Data Access Needed Purchase Agreement Due Diligence Information Pro Forma Financials Insurance Policies

M&A ChallengesM&A Challenges(cont’d)(cont’d)

• Understanding Insurance and Indemnification Agreements

• Understanding Change in Control Provisions

• Interfacing With Other Deal Pros• Managing the Politics• Meeting Expectations

Deal KillersDeal Killers

• Bank write-downs

• Lack of financing / fundraising

• Valuations, inability to exit and profit quickly

• Buyer/Seller can’t agree on liabilities, indemnification language, R&W’s, covenants

Deal KillersDeal Killers(cont’d)(cont’d)

• Purchase price adjustments

• Other Scrutiny from legislative bodies Certain Industry developments

Making It A Better DealMaking It A Better Deal

• Assist Negotiation of Transaction Documents / Indemnity Agreements

• Identification of Transactional Risk Protections R&W insurance, tax liability, litigation buyouts Purchase price adjustments due to accruals /

reserve practices Deal protection / failed deal insurance Successor liability

Making It A Better DealMaking It A Better Deal(cont’d)(cont’d)

• Other Insurance Protections D&O runoff / tail, ongoing Address international exposures Surety / alternative collateral Environmental Products liability Political risk insurance

State of Transactional State of Transactional Insurance MarketInsurance Market

• Maturing marketplace for transactional products

• U.S. product experience – 10 plus years• Building acceptance in deal community –

steady process• Underwriting methodology • Significant opportunity to grow products

Liquidity Crisis – Impact on Liquidity Crisis – Impact on M&A and PE MarketsM&A and PE Markets

• Financing for mega deals difficult• Higher debt costs driving down EBITDA

Multiples that PE firms can pay• Re-focusing of PE capital• Targeted funds – infrastructure, foreign,

etc.

Liquidity Crisis – Impact on Liquidity Crisis – Impact on M&A and PE MarketsM&A and PE Markets

(cont’d)(cont’d)

• Smaller buyouts with more PE equity vs. debt

• Distressed buyouts• Strategic deals• Foreign acquisition of U.S. companies

Product InnovationsProduct Innovations

New Product Innovations• Private Equity – Product that addresses

contingency exposures faced by PE firms at fund close to enable distributions without risk of claw backs – indemnity obligations or contingencies

• Adapt products to changing deal environments as new issues arise

Emerging Trends in M&AEmerging Trends in M&A

• Deal Boom: 2006 and 2007 Leading to U.S. Sub-Prime Crisis Mega-deals closed by private equity

groups, incredible valuations Movement from publicly traded firms in

hands of shareholders to PEGs IPOs of PE/Alternative Investment Firms Continued boom of restructurings /

refinancing

Emerging Trends in Emerging Trends in M&AM&A(cont’d)(cont’d)

• Impact of Post-Debt / Credit Crunch Private equity investment slowdown

• Debt financing and tax benefits more expensive and difficult to secure

Deal valuations significantly reduced Overleveraged debt lenders, fragility of certain

hedge funds Outside U.S. investors cautious; European banks

hit hard due to mortgage-backed products Continued regulatory scrutiny, SEC watchdog

investigates deeper into banks, investment firms, alternative investment firms

TakeawaysTakeaways

• M&A Market Highly Complex

• Product Solutions Very Deal Specific

• Still Relatively New Market

• Deal Slowdown Predicted

• Market Ripe for Product Development

AudienceAudience

Q & A Q & A

Many thanks to . . .Many thanks to . . .

• James M. Fasone

• Simon Hodge

• William Monat

• Miles D. Scully

• Kim Patlis Walsh

• Chris Warrior