MassMEDIC LEADING IN TURBULENT TIMES Mark Gallagher Senior Vice President Silicon Valley Bank March...
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MassMEDIC LEADING IN TURBULENT TIMES Mark Gallagher Senior Vice President Silicon Valley Bank March 5, 2009
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Transcript of MassMEDIC LEADING IN TURBULENT TIMES Mark Gallagher Senior Vice President Silicon Valley Bank March...
MassMEDICLEADING IN TURBULENT TIMES
Mark Gallagher Senior Vice President Silicon Valley Bank March 5, 2009
Agenda
• Global Economy – The world is on fire!
• MedTech Economy – Doing ok?
• The Good News – sifting through the ashes
• Shamless Commerce!
How bad can it be?
Housing Bubble Articles at all-time high
>50 Mortgage Brokers Shut Down
First Extendible CP Extends
Fed Cuts 50 bps
Fed Cuts 25 bps
CDO-Backed ARS Fails
Fed Cuts 25 bps, Establishes TAF
Fed Cuts 125 bps
Majority of ARS FailBear Stearns Bailout
Fed Cuts 75 bps, Creates TSLF and PDCF
GSEs encouraged to expand /raise capital
Fed Cuts 25 bps
Oil peaks at $147
GSEs taken into conservatorship
Fed Leaves Rates Unchanged
FNM/FRE/Lehman/AIG
Fed Cuts Rates to 0-25 bp
Q207Q107 Q307 Q407 Q108 Q208 Q308 Q408 Q109
Negative Events Accelerated…Market-supporting events
above the timeline
Negative events below the timeline
Madoff
TARP Approved/Global Rate Cuts
Fed Begins Purchasing MBS
3.6 million jobs lost since 1/08
Stanford
…Convert to Daily in September…
9/8FNM/FRE Conservatorship
9/12Market expects Lehman Bailout
9/14Lehman to file BK, Merrill forced on BofA, Stocks fall most since 9/11
9/14 Fed injects $70B - most since 9/11
9/15Reserve fund "Breaks the Buck", Fed Leaves Funds rate at 2%
9/17 Paulson plans TARP
9/17Fed lends $28B to AIG
9/19 SEC bans Short Sales
9/20 TARP request finalized - $700B
9/21 Mitsubishi invests $8.4B in M Stanley
9/25WAMU Seized
9/29Citigroup to acquire Wachovia
9/26 Global Swap Lines Increased
September 2008
The Markets
Source: SNL Financial
Federal Funds Rate
Source: Federal Reserve Bank, St. Louis
Effective Federal Funds Rate
0.0
1.0
2.0
3.0
4.0
5.0
6.0
Ja
n-0
7
Ma
r-0
7
Ma
y-0
7
Ju
l-0
7
Se
p-0
7
No
v-0
7
Ja
n-0
8
Ma
r-0
8
Ma
y-0
8
Ju
l-0
8
Se
p-0
8
No
v-0
8
(%)
Housing Prices Plunge…
Home Construction Plunges As Well
Auto Sales Drop
Manufacturing Drops
Labor Markets Deteriorate
Consumers Cut Back
Household Names Disappear
Market Values Plunge• A collective loss of over $1.1 trillion (or 82%) in Market Cap since 2007
• Over $400 billion in Market Cap lost since the start of Q4 2008
Source: SNL Financial; Yahoo Finance
Loss of $1.1 Trillion or 77% in Market Cap in 23 months ------ We saw erosion of $300 Billion in 45 days
New CEO
$49
$45
$66
New CEO
$49
$45
$66
Acquired Countrywide
& Merrill Lynch
$31
$25²
$27
Acquired Countrywide
& Merrill Lynch
$31
$25²
$27
$11
$13
$11
$13
Converted to bank holding
company
$11
$10
$8
Converted to bank holding
company
$11
$10
$8
Converted to bank holding
company
$15
$10
$16
Converted to bank holding
company
$15
$10
$16
New CEO; Sale to Wells Fargo
$11$25⁴
$97
New CEO; Sale to Wells Fargo
$11$25⁴
$97
Sold to
BofA
$30$25²
$56
Sold to
BofA
$30$25²
$56
Sold to
J PM
$12
NA
Sold to
J PM
$12
NA
Seized;Sold to
J PM
$12
$46
Seized;Sold to
J PM
$12
$46
Bankrupt; Sold to Barclays
$14
$14
Bankrupt; Sold to Barclays
$14
$14
Winners /Survivors
Sold / Buried
Loss of $1.1 Trillion or 77% in Market Cap in 23 months ------ We saw erosion of $300 Billion in 45 days
New CEO
$49
$45
$66
New CEO
$49
$45
$66
Acquired Countrywide
& Merrill Lynch
$31
$25²
$27
Acquired Countrywide
& Merrill Lynch
$31
$25²
$27
$11
$13
$11
$13
Converted to bank holding
company
$11
$10
$8
Converted to bank holding
company
$11
$10
$8
Converted to bank holding
company
$15
$10
$16
Converted to bank holding
company
$15
$10
$16
New CEO; Sale to Wells Fargo
$11$25⁴
$97
New CEO; Sale to Wells Fargo
$11$25⁴
$97
Sold to
BofA
$30$25²
$56
Sold to
BofA
$30$25²
$56
Sold to
J PM
$12
NA
Sold to
J PM
$12
NA
Seized;Sold to
J PM
$12
$46
Seized;Sold to
J PM
$12
$46
Bankrupt; Sold to Barclays
$14
$14
Bankrupt; Sold to Barclays
$14
$14
New CEO
$49
$45
$66
New CEO
$49
$45
$66
Acquired Countrywide
& Merrill Lynch
$31
$25²
$27
Acquired Countrywide
& Merrill Lynch
$31
$25²
$27
$11
$13
$11
$13
Converted to bank holding
company
$11
$10
$8
Converted to bank holding
company
$11
$10
$8
Converted to bank holding
company
$15
$10
$16
Converted to bank holding
company
$15
$10
$16
New CEO; Sale to Wells Fargo
$11$25⁴
$97
New CEO; Sale to Wells Fargo
$11$25⁴
$97
Sold to
BofA
$30$25²
$56
Sold to
BofA
$30$25²
$56
Sold to
J PM
$12
NA
Sold to
J PM
$12
NA
Seized;Sold to
J PM
$12
$46
Seized;Sold to
J PM
$12
$46
Bankrupt; Sold to Barclays
$14
$14
Bankrupt; Sold to Barclays
$14
$14
Winners /Survivors
Sold / Buried
$167 $74 $82 $238 $117 $85 $274
$37
In $ billions
Winners / Survivors
Sold / Buried
Market Cap 12/31/06
Market Cap 01/22/09
$81 $23 $12 $108 $43 $39 $18
$17$18$35$37$31$31$24$86
Volatility and Fear at an All-time High
VIX Index
0
10
20
30
40
50
60
70
80
90
100
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
CurrentCrisis
Accounting Scandals9/11
Volatility Index (VIX) is a key measure of market expectations of near-term volatility conveyed by S&P 500 stock index option prices. A high valueof VIX corresponds to a more volatile market.
Source: Chicago Board Options Exchange
Total medtech financing
0
2
4
6
8
10
12
2000 2001 2002 2003 2004 2005 2006 2007 2008
US
$b
IPO Follow-on Convertible debt Venture
While venture capital held up, total financing was down sharply …
Source: Ernst & Young, ThinkEquity Partners, Windhover, Dow Jones VentureSource and Jefferies & Co.
U.S. Fundraising Declines in 2008Commitments to Venture Capital Funds
$24.7
$32.2$30.0$25.6
$17.3
$10.1$12.5
$50.7
$83.8
$57.5
$26.9
$17.5
$0
$20
$40
$60
$80
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Funds
Rai
sed
($B)
Source: Dow Jones VentureSource
$5.5
$7.6$8.1
$7.6$7.9$8.1$8.0$7.4
$6.7$7.5$7.6
$6.5$6.2
554
620
687689718678
780
647636687707
632680
$0
$2
$4
$6
$8
$10
4Q05 2Q06 4Q06 2Q07 4Q07 2Q08 4Q08
0
150
300
450
600
750
Amount Invested ($B) Number of Deals
4Q ’08 Investment DropsDeal Flow and Equity into Venture-Backed Companies
Am
ount
Inve
sted
($B) N
um
ber of Deals
Source: Dow Jones VentureSource
Healthcare Investment Declines in 4Q ‘08Equity into Venture-Backed Healthcare Companies
Am
ount
Inve
sted
($B)
Num
ber of Deals
$1.5
$2.1
$2.5
$2.0
$2.6
$2.2
$2.7$3.0
$2.3$2.3$2.4
$1.8
$2.3
137
154
174158
190
154
192
173167170173
154
186
$0
$1
$2
$3
4Q05 2Q06 4Q06 2Q07 4Q07 2Q08 4Q08
0
25
50
75
100
125
150
175
200
Amount Invested ($B) Number of DealsSource: Dow Jones VentureSource
Medtech mergers & acquisitions
0
10
20
30
40
50
60
70
80
2000 2001 2002 2003 2004 2005 2006 2007 2008
US
$b
0
10
20
30
40
50
60
70
80
90
100
Nu
mb
er o
f dea
ls
Value Number of deals
2008 M&A activity fell to pre-2006 levels …
Source: Ernst & Young
Medtech mergers & acquisitions
0
3
6
9
12
15
Q1 08 Q2 08 Q3 08 Q4 08
US
$b
0
5
10
15
20
25
Nu
mb
er o
f dea
ls
Value Number of deals
… with most of the decline occurring in the second half of the year.
Source: Ernst & Young
Are Banks Pulling Their Weight?
Banks Do NOT Dominate the Credit Markets
• For better or worse, securitized markets dominate credit availability
• Securitized markets are shut due to investor fear
• Unrealistic to expect the banking sector to immediately replace this market
Source: Arbor Research
Obligatory Pie Chart
Fed Lowers Forecast Dramatically
Medtech Financials Net income of non-conglomerates is on pace to grow by 46%
Medtech market capitalization… but company valuations plummeted in the fourth quarter.
2008 Deal Allocation SteadyDeal Flow Allocation by Selected Groups (Annual)
0%
20%
40%
60%
80%
100%
2001 2002 2003 2004 2005 2006 2007 2008
Energy &Utilities
BusinessServices
ConsumerServices
IT
Healthcare
% D
eal Flo
w A
lloc
atio
n
20%
59%
5%
26%
51%
13%15%
5%
13%
60%
26%
Source: Dow Jones VentureSource
4%
Medical Devices Investment Allocation Increases in 4Q ‘08
Healthcare Investment Allocation by Sector
0%
20%
40%
60%
80%
100%
4Q05 2Q06 4Q06 2Q07 4Q07 2Q08 4Q08
Medical IS
MedicalDevices
HealthcareServices
Biopharm% o
f D
olla
rs Inve
sted
9%
32%
4%
41%
46%
6%48%
55%
16%
62%
Source: Dow Jones VentureSource
10%
Bay Area Draws Most Investment DollarsRegional Investment in the United States 4Q’08
Bay Area 35%
Southern California
8%
Texas9%
Washington2%
Potomac3%
New York Metro7%
Research Triangle
2%
All Other US21%
New England13%
Source: Dow Jones VentureSource
SVB Financial Group (SIVB – Nasdaq)
Commercial Banking
SVB Silicon Valley Bank
SVB Global
SVB Financial Group
SVB Analytics
Venture Capital & Private
Equity
SVB Capital
Global Networks
SVB Private Client Services
Private Banking
Funds Management
Valuations& Capitalization
Software
-VC / PE Backed & Large Tech Cos.: Term Debt, Asset based lines, Cash Flow lending
-Total Loans $3.0 B
-Deposit & Cash Management Services
- Total Deposits: $4.0 Billion
-Private Equity Services: Lending and Cash Mgmt
-International: foreign exchange, letters of credit, etc.
-Private Co. Valuations (409A) – 30 people
-Cap Table management (eProsper) – 900 companies and 30,000 optionees
-Established in 2006
- Hundreds of engagements in first 12 months
-FAS 157 in 2008
-Relationship Mgmt with VC / PE for SVBFG
-Family of funds: VC fund of funds, Co-Investment Fund, Gold Hill venture debt, Partners for Growth
-LP Investments (parent company) since 1995
-London office: lending to emerging cos. in Europe
-Israel and Canada: commercial banking in ’07
-India & China: Consulting offices
- Assisted 450 clients and VC / PE firms overseas
$20 Billion of SVB client assets under management in:
REPOs: collateralized, overnight investments which generate interest income only
SVB Securities: self directed investment in money market mutual funds
SVB Asset Mgmt. managed accounts for greater performance, customization and reporting
-Personal loans to CEOs, CFOs, General Partners and extended SVB network.
SVB Securities/ SVB Asset Mgmt
It is a cycle!
Y
