Under the Microscope: Private vs Public Company Operating ......2014/12/31 · Operating metrics...

Under the Microscope: Private vsPublic Company Operating MetricsAnalysis of Operating Metrics for

North American Companies

Data as of December 31, 2014

Copyright © 2015 by Cambridge Associates (“CA”). All rights reserved.

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Cambridge Associates, LLC is a Massachusetts limited liability company with offices in Arlington, VA; Boston, MA; Dallas, TX; and Menlo Park, CA. Cambridge Associates Fiduciary Trust, LLC is a New Hampshire limited liability company chartered to serve as a non-depository trust company, and is a wholly-owned subsidiary of Cambridge Associates, LLC. Cambridge Associates Limited is registered as a limited company in England and Wales No. 06135829 and is authorized and regulated by the Financial Conduct Authority in the conduct of Investment Business. Cambridge Associates Limited, LLC is a Massachusetts limited liability company with a branch office in Sydney, Australia (ARBN 109 366 654). Cambridge Associates Asia Pte Ltd is a Singapore corporation (Registration No. 200101063G). Cambridge Associates Investment Consultancy (Beijing) Ltd is a wholly owned subsidiary of Cambridge Associates, LLC and is registered with the Beijing Administration for Industry and Commerce (Registration No. 110000450174972).

Contributors to this report include Andrea Auerbach, Frank Cicero, Jimmy Crivella, Keirsten Lawton, Caryn Slotsky, and Christine Trang.Published December 2015.

Table of Contents

Introduction to Operating Metrics 3

Notes on the Data 4

Operating Metrics: Purchase the Company and Optimize Capital Structure 5

Key Valuation Metric: Purchase Price MultipleTotal UniverseBy Company TypeBy Enterprise Value SizeBy Industry Sector

69

101112

Key Capital Structure Metric: Leverage MultipleTotal UniverseBy Company TypeBy Enterprise Value SizeBy Industry Sector

1517181920

Operating Metrics: Improve the Performance of the Company and Transform the Business 22

Key Performance Metric: Revenue GrowthTotal UniverseBy Company TypeBy Enterprise Value SizeBy Industry Sector

2325262728

Key Performance Metric: EBITDA GrowthTotal UniverseBy Company TypeBy Enterprise Value SizeBy Industry Sector

3133343536

Key Performance Metric: EBITDA MarginTotal UniverseBy Company TypeBy Enterprise Value SizeBy Industry Sector

3941424344

Key Exit Metrics: Purchase Price Multiple Expansion and Leverage CompressionKey Exit Metrics: Revenue CAGR, EBITDA CAGR, and Margin Expansion

4750

Appendix: Revenue Growth, EBITDA Growth, and EBITDA Margin Quartile Charts and Tables 54

The data in this report on operating metrics provide insights into key parts of the process by which private equity (PE) managers execute their strategy:

Purchase the company and optimize the capital structure

Improve the performance of the company and transform the business

PE managers aim to purchase the company at an attractive price and optimize its capital structure so that with sufficient operational improvement, revenue growth, and/or other acquisitions they can sell the company for a higher price.

Similar metrics can be used to evaluate both private and public companies, though public market analysts typically focus on company earnings and price-earnings ratios rather than EBITDA and EBITDA multiples as their proxy for cash flow.

Cambridge Associates has now captured and analyzed historical data from global PE funds for four years running; this year’s report includes data for the ten-year period ending December 31, 2014, from 2,400 North American portfolio companies.

Our analysis allows for the comparison of private and public companies across industry sector and company size for various parts of the investment process and is the first broad-based attempt that we are aware of to conduct such a comparison. The data shed new light on key levers and value drivers in private equity as well as the risks and returns of private equity versus public equity.

Introduction to Operating Metrics

| 3

Cambridge Associates collected information from PE firms of all sizes with broad mandates, as well as specialized and industry-focused strategies. The sample of private investments includes more than 2,400 North American companies acquired by PE firms from 2000 through 2014 and is subject to change over time. The companies in the universe range in enterprise value from less than $1 million to larger than $60 billion.

Within the report, depending on the metric analyzed, the set of companies represented will vary. This is due to the acquisition and disposition of companies during the period analyzed. Additionally, this reflects the impact of a statistical tool, an interquartile range, used to screen for outliers as part of each calculation. Relative to prior reports, the range was tightened to address the potential impact of very large or very small results on the average. The change in outlier methodology, as well as restatements in company data that sometimes occur, may lead to changes in historical metrics.

Company counts for each analysis reflect all submitted transactions rather than discrete companies. For example, for a “club” orsyndicated deal that involves three investors, there would be three companies in our universe.

Operating metrics data were collected directly from investment managers and have not been independently verified.

Unless specified, the exhibits include unrealized and realized investments.

The Russell 2500™ was selected for public market comparisons based on the enterprise values of companies within the index. OtherRussell indexes have been used to reflect various market cap ranges.

Sector classifications are based on the Global Industry Classification Standard (GICS®), an industry taxonomy developed by MSCI Barra and Standard & Poor’s.

Individual company operating metrics (e.g., revenue and EBITDA) have not been adjusted for acquisitions.

The analyzed holding period for some companies represented in the dataset is short, and thus EBITDA growth rates may be mutedinitially, as private equity owners do not seek to maximize EBITDA in the first several years of ownership.

Any company with a negative metric for EBITDA or net debt was excluded from analysis using that metric.

Because the operating metrics information is disaggregated into deal type, enterprise value, and sectors, the sample sizes are smaller and may be biased by one or several data points. Time periods with fewer than 15 observations have been marked NA.

Past performance is not an indication of future performance, provides no guarantee for the future, and is not constant over time.

Notes on the Data

| 4

Purchase the Company and Optimize Capital StructurePurchase Price Multiple

Leverage Multiple

| 5

PE acquisition multiples have increased in each of the last five years and hit a new high of 10.7x in 2014. At this level we view private equity in the aggregate as very overvalued.

Historical valuations indicate that 2008 through 2012 was an opportune time to invest in equities, whether private or public. Purchase price multiples (PPMs) jumped in the public markets over the last two years, with 2013 and 2014 representing the two highest valuation periods seen over the last ten years. Though again highlighting private market valuation concerns; public valuations declined in 2014, while private valuations continued to climb.

The valuation gap between public and private markets narrowed significantly to 0.4x EBITDA in 2014, which is in contrast with the last market peak (2005–07) when private companies traded at a substantial discount to publics (2.2x EBITDA on average). In the current cycle, privates seem to be following public markets to peak valuations.

At today’s valuations, particularly in the mid- and large-size segments, the arbitrage opportunity of buying privately and taking a company public or selling to a strategic buyer with a public market currency has diminished.

Reflecting their potential, growth equity deals command higher valuations based on PPMs as represented by enterprise value/EBITDA. The average purchase price for growth equity deals since 2005 has been 5.8x more than buyout deals. However, it should be noted that revenue often trumps EBITDA as the key valuation metric for growth equity investors, which makes this an imperfect comparison.

Key Valuation Metric: Purchase Price Multiple

| 6

While growth equity PPMs averaged 13.0x EBITDA over 2005–11, over the past three years, they have jumped to an average of 16.4x. Multiple factors are driving up valuations for growth equity, including increased interest from strategics willing to pay multiples of revenue instead of EBITDA, attractive characteristics of growth companies in a slow growth environment, and strong recent returns.

Our valuation concerns hold even when looking at only control/buyout transactions. At 9.9x EBITDA, 2014 surpassed 2007 peak valuations of 9.2x. Caution is warranted as we now know that this was not a short-term aberration because the high valuation environment continued in 2015.

Further disaggregating the valuation statistics in buyouts by size draws out some compelling observations. Over the past ten years, from 2005 to 2014, PPMs for large buyouts and their public counterparts were roughly equal at 9.7x. In the largest size segment (companies with greater than $1 billion of enterprise value), PPMs were 10.0x or higher the past three years, reaching 10.5x in 2014.

Mid-sized buyouts (companies with enterprise values between $250 million and $1 billion) have averaged 9.0x, a full turn lower than their public counterparts in the Russell 2000® and 0.7x below their larger private counterparts. However, valuations surged in 2014 to a 10.6x average.

Small private companies (enterprise values less than $250 million) historically trade at a discount of 2.2x EBITDA relative to the largest private segment and a discount of 2.7x EBITDA relative to their small public counterparts. In contrast, in public markets, small companies typically trade at a slight premium versus their larger public brethren.

In 2014, small company PPMs increased the most, reaching 9.3x.

Key Valuation Metric: Purchase Price Multiple (continued)

| 7

Across the four largest sectors (consumer discretionary, health care, industrials, and information technology, which account for approximately three-quarters of the total PE universe), PE companies have historically traded at a discount to their counterparts in the public markets. Between 2005 and 2014, the average PE PPM across these four sectors was 9.4x versus 10.9x for the public comparables in the same period.

Health care and IT represent two sectors where private companies historically have traded much “cheaper” than their public counterparts. For health care this discount has averaged 3.2x EBITDA, or 9.4x for PE transactions versus 12.6x for public health care companies. This discount has held for every year except 2008, when private health care companies sold for an average 10.1x while public companies appeared to hit a nadir of 8.9x, likely due to uncertainty around the Affordable Care Act. PPMs for private IT companies have averaged 11.5x versus a historical valuation multiple of 13.1x in public markets. In 2014, both private and public IT companies seemed expensive relative to historical valuations at 14.7x and 14.5x, respectively.

The consumer discretionary sector appears to have no consistent pattern as to valuation differences, with a historical average variation of 0.1x between privates and publics in favor of privates. And while both privates and public valuations were high relative to historical norms in 2013 and 2014, private valuations were 1.3x and 1.8x lower, respectively, than the consumer discretionary company valuations in public markets.

At 7.8x EBITDA, industrial companies typically trade below consumer discretionary (8.8x), health care (9.4x), IT (11.5x), and their public counterparts (9.0x). As such, in evaluating a manager with a heavy focus on industrials, one should expect a lower average PPM versus the market.

Key Valuation Metric: Purchase Price Multiple (continued)

| 8

Valuations Have Been Elevating; Discount Narrowing Between Public and Private

Average EBITDA Purchase Price Multiples of Private Equity–Owned Companies vs Public CompaniesAs of December 31, 2014

Sources: Cambridge Associates LLC Private Investments Database (as reported by investment managers), FactSet Research Systems, and Frank Russell Company.Note: Outliers were identified and excluded, and the same methodology was applied to the PE and public company universes.

| 9

1 2 3 4 5 6 7 8 9 9

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Private Equity–Owned Companies 140 246 335 207 112 257 240 269 147 173 Russell 2500™ Index 1,457 1,436 1,418 1,469 1,425 1,470 1,467 1,444 1,407 1,420

Number of Companies

8.0 8.2

9.59.0

7.9 8.1 8.28.7

9.6

10.710.7 11.010.5

6.8

9.49.7

8.58.9

11.511.1

0

2

4

6

8

10

12

14

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Ent

erpr

ise

Valu

e/E

BIT

DA

Growth Equity Companies Command a Premium Multiple

Average EBITDA Purchase Price Multiples of Buyout and Growth Equity Companies vs Public CompaniesAs of December 31, 2014


| 10

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Control/Buyout Companies 95 169 226 117 64 160 164 201 113 131Growth Equity Companies 18 34 51 40 26 51 34 50 34 42Russell 2500™ Index 1,457 1,436 1,418 1,469 1,425 1,470 1,467 1,444 1,407 1,420

Number of Companies

7.8 7.7

9.28.1

7.0 7.5 7.9 8.49.1

9.910.6

12.1 11.7 11.4

22.7

10.3

12.3

17.217.8

14.4

10.7 11.0 10.5

6.8

9.4 9.78.5 8.9

11.5 11.1

0

5

10

15

20

25

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Ent

erpr

ise

Val

ue/E

BIT

DA

Both to publics and larger private peers

Small Private Buyout Companies Available at a Discount

Average EBITDA Purchase Price Multiples at Acquisition of Private Equity Control/Buyout Companies vs Public Companies by Enterprise Value SegmentAs of December 31, 2014

Sources: Cambridge Associates LLC Private Investments Database (as reported by investment managers), FactSet Research Systems, and Frank Russell Company.Notes: Outliers were identified and excluded, and the same methodology was applied to the PE and public company universes. Company counts are indicated in parenthesis for each acquisition year. In 2009, the number of PE control/buyout companies with an enterprise value segment greater than $1 billion did not meet ourminimum sample size.

| 11

7.8 7.79.2

8.17.0 7.5 7.9 8.4

9.19.9

10.7 11.0 10.5

6.8

9.4 9.78.5 8.9

11.5 11.1

0

2

4

6

8

10

12

14

16

18

20

2005(95)

2006(169)

2007(226)

2008(117)

2009(64)

2010(160)

2011(164)

2012(201)

2013(113)

2014(131)

Ent

erpr

ise

Val

ue/E

BIT

DA

Total Universe

Control/Buyout Companies

Russell 2500™ Index

9.4 9.2

11.110.4

8.67.8

10.3 10.3 10.510.5 10.2 10.3

6.4

9.5 9.68.6

9.4

11.2 11.3

0

2

4

6

8

10

12

14

16

18

20

2005(20)

2006(38)

2007(69)

2008(24)

2009(NA)

2010(34)

2011(19)

2012(37)

2013(21)

2014(16)

Ent

erpr

ise

Val

ue/E

BIT

DA

EV > $1 bn


Russell Midcap® Index

8.5 9.110.3

8.47.7 7.8

9.0 8.59.7

10.610.8 11.3 10.8

6.9

9.4 9.98.5 8.9

11.9 11.1

0

2

4

6

8

10

12

14

16

18

20

2005(27)

2006(32)

2007(54)

2008(23)

2009(20)

2010(47)

2011(40)

2012(60)

2013(29)

2014(50)

Ent

erpr

ise

Val

ue/E

BIT

DA

EV $250 mm – $1 bn


Russell 2000® Index

7.0 6.87.7 7.4

6.3 6.9 7.2 7.48.3

9.3

11.612.3

11.4

6.4

9.4 9.78.5 8.4

11.7 11.4

0

2

4

6

8

10

12

14

16

18

20

2005(47)

2006(97)

2007(101)

2008(68)

2009(35)

2010(79)

2011(99)

2012(100)

2013(60)

2014(65)

Ent

erpr

ise

Val

ue/E

BIT

DA

EV < $250 mm


Russell Microcap® Index

Health care trades lower than its public counterparts

Health Care and IT Start High and Have Trended Higher

Average EBITDA Purchase Price Multiples of Private Equity–Owned Companies vs Public Companies by SectorAs of December 31, 2014

Sources: Cambridge Associates LLC Private Investments Database (as reported by investment managers), FactSet Research Systems, and Frank Russell Company.Notes: Outliers were identified and excluded, and the same methodology was applied to the PE and public company universes. In 2009, the number of PE-ownedcompanies in the health care sector did not meet our minimum sample size. | 12

0

5

10

15

20

25

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Ent

erpr

ise

Val

ue/E

BIT

DA

Consumer Discretionary

Health CareIndustrials

Information Technology

Russell 2500™ Sectors

Significant Valuation Increases Last Two Years Across All Sectors and Markets

Average EBITDA Purchase Price Multiples of Private Equity–Owned Companies vs Public Companies by SectorAs of December 31, 2014

Sources: Cambridge Associates LLC Private Investments Database (as reported by investment managers), FactSet Research Systems, and Frank Russell Company.Notes: Outliers were identified and excluded, and the same methodology was applied to the PE and public company universes. In 2009, the number of PE-ownedcompanies in the health care sector did not meet our minimum sample size.

PE-Owned R2500™ PE-Owned R2500™ PE-Owned R2500™ PE-Owned R2500™ PE-Owned R2500™

2005Mean 8.3 9.8 7.6 15.3 7.2 9.5 9.7 15.1 8.0 10.7n 33 327 20 176 27 280 22 344 140 1457

2006Mean 8.1 10.4 8.5 14.9 7.0 9.5 9.9 15.2 8.2 11.0n 66 313 36 161 44 281 57 298 246 1436

2007Mean 10.4 8.7 9.6 14.9 7.7 9.1 10.5 15.9 9.5 10.5n 80 302 50 152 65 287 49 298 335 1418

2008Mean 9.7 5.9 10.1 8.9 7.6 6.2 10.9 7.8 9.0 6.8n 51 289 35 161 39 302 34 309 207 1469

2009Mean 7.3 8.0 NA 10.0 7.8 8.9 9.2 13.9 7.9 9.4n 23 282 NA 182 18 290 28 294 112 1425

2010Mean 8.6 8.3 8.7 10.7 7.5 9.6 9.7 12.5 8.1 9.7n 47 312 40 167 50 296 51 315 257 1470

2011Mean 7.9 7.7 9.1 10.1 7.7 8.0 9.7 10.1 8.2 8.5n 49 294 38 163 34 307 61 309 240 1467

2012Mean 8.7 8.0 9.6 11.6 7.4 8.3 10.9 11.0 8.7 8.9n 58 295 41 147 48 307 58 285 269 1444

2013Mean 9.9 11.1 9.7 14.6 9.0 10.7 20.2 15.1 9.6 11.5n 17 301 23 134 32 291 52 281 147 1407

2014Mean 9.2 10.9 11.3 14.9 9.4 10.1 14.7 14.5 10.7 11.1n 35 294 27 130 21 288 48 262 173 1420

Consumer Discretionary Health Care Industrials Information Technology Total Universe

| 13

Purchase the Company and Optimize Capital StructurePurchase Price Multiple

Leverage Multiple

| 14

PE-owned companies are more highly levered than their publicly traded counterparts, averaging 3.8x net debt to EBITDA at acquisition versus an average of 2.4x for publics. By strategy, over the last ten years, buyout and growth equity companies have been levered at an average of 4.2x and 2.0x net debt to EBITDA, respectively.

Leverage levels vary across the time period; they peaked at 4.9x across all PE companies in 2007 (5.3x for buyouts in 2007) and hit a nadir of 2.7x in 2009 as banks and other lenders became more conservative. Lenders have become more accommodating over the last five years, with leverage at 4.3x in 2014, climbing back toward, but still below, the 2007 level.

In aggregate, leverage levels have increased less than purchase prices, reflecting increased equity contributions. PE funds have more equity at risk in the current vintage of deals, but the larger equity investment could provide a cushion if growth slows.

In private markets, large buyout companies have consistently commanded higher leverage levels, averaging 5.9x over the 2005–14 period. Leverage in this size segment peaked in 2007 at 7.3x and, while nearly reaching the 7.0x level again in 2013, it fell slightly in 2014 to 6.4x.

Key Capital Structure Metric: Leverage Multiple

| 15

Versus their public brethren, large private companies are significantly more levered, averaging 3.8x more leverage than their counterparts who typically employ 2.1 turns of leverage. Notwithstanding the “covenant lite” packages these companies have been able to attain, this represents a key driver of returns and risk in this segment.

Versus their large brethren, in every period small private companies have been more conservatively capitalized, at an average 3.4x EBITDA. While still below their mid and large peers, leverage levels in this segment peaked in 2014 at 4.0x and represented the only size segment where leverage increased versus the prior year.

In private markets, consumer discretionary and industrials are more highly levered sectors at 4.3x and 4.1x EBITDA, respectively, on average. Health care and IT are slightly less levered, on average, at 3.9x and 3.7x, respectively. By sector and versus their public peers, PE-owned companies at acquisition have tended to be about 2.0 turns more levered.

Key Capital Structure Metric: Leverage Multiple (continued)

| 16

Leverage has been steadily climbing since 2009 and is now back at 2006 levels

PE-Owned Companies Consistently More Levered Than Public Companies

Average EBITDA Leverage Multiples at Acquisition of Private Equity–Owned Companies vs Public CompaniesAs of December 31, 2014


| 17

1 2 3 4 5 6 7 8 9 9

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Private Equity–Owned Companies 139 240 316 187 101 245 235 250 148 165 Russell 2500™ Index 877 912 921 937 838 855 884 901 894 981

Number of Companies

3.9

4.3

4.9

3.4

2.7

3.2

3.53.8

4.14.3

2.12.2 2.4 2.4 2.4 2.4

2.32.4 2.5 2.6

0

1

2

3

4

5

6

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Net

Deb

t/EB

ITD

A

Buyouts Significantly More Levered Than Growth Equity Counterparts

Average EBITDA Leverage Multiples at Acquisition of Buyout and Growth Equity Companies vs Public CompaniesAs of December 31, 2014


| 18

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Control/Buyout Companies 96 169 219 102 51 158 168 191 115 135Growth Equity Companies 16 28 36 28 18 42 23 27 25 29Russell 2500™ Index 877 912 921 937 838 855 884 901 894 981

Number of Companies

4.3

4.7

5.3

3.7

3.43.6 3.7

4.2

4.6 4.7

0.8

2.2

3.4

1.7

1.31.5

2.5 2.4

1.2

2.8

2.12.2 2.4 2.4 2.4 2.4

2.32.4 2.5 2.6

0

1

2

3

4

5

6

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Net

Deb

t/EB

ITD

A

Leverage at mid-sized buyouts also high and nearly back to 2007 levels

Large Buyouts Highly Levered—Significantly More Than Public Counterparts

Sources: Cambridge Associates LLC Private Investments Database (as reported by investment managers), FactSet Research Systems, and Frank Russell Company.Notes: Outliers were identified and excluded and the same methodology was applied to the PE and public company universes. Company counts are indicated in parenthesis for each acquisition year. In 2009, the number of PE control/buyout companies with an enterprise value segment greater than $1 billion did not meet ourminimum sample size.

Average EBITDA Leverage Multiples at Acquisition of Private Equity Control/Buyout Companies vs Public Companies by Enterprise Value SegmentAs of December 31, 2014

| 19

5.1 5.3 5.5

4.2

3.1

3.9

4.7 4.75.3 5.1

2.2 2.3 2.5 2.5 2.4 2.5 2.3 2.5 2.62.7

0

1

2

3

4

5

6

7

8

2005 (30)

2006 (33)

2007 (52)

2008 (21)

2009 (19)

2010(45)

2011(38)

2012(58)

2013(30)

2014(45)

Net

Deb

t/EB

ITD

A

EV $250 mm – $1 bnControl/Buyout Companies

Russell 2000® Index

3.0

3.8 3.83.4

3.0 3.0 3.03.3

3.54.0

2.42.7 2.7 2.7 2.9 2.8 2.9 2.9 3.0 3.0

0

1

2

3

4

5

6

7

8

2005(43)

2006 (93)

2007(92)

2008(62)

2009(27)

2010(76)

2011(104)

2012(98)

2013(60)

2014(62)

Net

Deb

t/EB

ITD

A

EV < $250 mmControl/Buyout Companies

Russell Microcap® Index

4.34.7

5.3

3.73.4 3.6 3.7

4.24.6 4.7

2.1 2.2 2.4 2.4 2.4 2.4 2.3 2.4 2.52.6

0

1

2

3

4

5

6

7

8

2005 (96)

2006 (169)

2007 (219)

2008 (102)

2009 (51)

2010 (158)

2011 (168)

2012 (191)

2013 (115)

2014 (135)

Net

Deb

t/EB

ITD

A

Total Universe


Russell 2500™ Index6.0

6.3

7.3

5.1 5.14.7

5.1

6.96.4

1.9 2.0 2.0 2.2 2.32.1 2.1 2.2 2.3 2.3

0

1

2

3

4

5

6

7

8

2005 (20)

2006 (35)

2007 (63)

2008 (26)

2009 (NA)

2010 (32)

2011 (19)

2012 (36)

2013 (19)

2014 (17)

Net

Deb

t/EB

ITD

A

EV > $1 bn


Russell Midcap® Index

0

1

2

3

4

5

6

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Net

Deb

t/EB

ITD

A


Health CareIndustrials



Use of Leverage Evident Across All Sectors

Average EBITDA Leverage Multiples at Acquisition of Private Equity–Owned Companies vs Public Companies by SectorAs of December 31, 2014

Sources: Cambridge Associates LLC Private Investments Database (as reported by investment managers), FactSet Research Systems, and Frank Russell Company.Notes: Outliers were identified and excluded, and the same methodology was applied to the PE and public company universes. In 2009, the number of PE-ownedcompanies in the health care and industrials sectors did not meet our minimum sample size. | 20

In contrast to PPMs, where valuations are similar

Consumer Discretionary and Industrials Leverage Levels Typically Higher

Average EBITDA Leverage Multiples at Acquisition of Private Equity–Owned Companies vs Public Companies by SectorAs of December 31, 2014

Sources: Cambridge Associates LLC Private Investments Database (as reported by investment managers), FactSet Research Systems, and Frank Russell Company.Notes: Outliers were identified and excluded, and the same methodology was applied to the PE and public company universes. In 2009, the number of PE-ownedcompanies in the health care and industrials sectors did not meet our minimum sample size.


2005Mean 4.7 2.5 4.3 1.5 3.9 1.7 3.3 1.2 3.9 2.1n 34 224 20 76 29 201 25 75 139 877

2006Mean 4.6 2.6 4.4 1.9 4.3 1.7 4.1 1.5 4.3 2.2n 66 218 35 81 45 217 45 79 240 912

2007Mean 5.8 3.0 4.4 2.6 4.8 2.1 4.6 1.5 4.9 2.4n 67 213 50 92 72 219 41 80 316 921

2008Mean 4.9 3.0 3.5 2.2 3.8 2.1 3.0 1.6 3.4 2.4n 52 189 30 97 38 216 27 92 187 937

2009Mean 2.4 2.5 NA 1.8 NA 2.2 2.3 1.4 2.7 2.4n 22 160 NA 93 NA 183 26 74 101 838

2010Mean 3.5 2.7 3.0 2.1 3.5 2.1 3.0 1.2 3.2 2.4n 43 173 39 88 54 207 50 68 245 855

2011Mean 3.7 2.5 3.9 2.2 3.5 2.0 3.9 1.4 3.5 2.3n 41 169 41 86 37 220 57 80 235 884

2012Mean 4.0 2.9 3.4 2.4 3.8 2.3 4.9 1.3 3.8 2.4n 52 162 44 80 44 214 42 83 250 901

2013Mean 4.5 2.8 3.9 2.2 4.6 2.1 3.7 1.8 4.1 2.5n 18 181 23 77 34 201 34 79 148 894

2014Mean 4.9 2.9 4.2 2.5 4.5 2.0 4.4 1.9 4.3 2.6n 34 191 26 74 19 217 39 95 165 981


| 21

Improve the Performance of the Company and Transform the BusinessRevenue Growth

EBITDA Growth

EBITDA Margin

Exit Metrics

| 22

In terms of revenue growth, PE-owned companies have consistently outperformed their public market peers. The pattern of strong revenue growth holds when returns are disaggregated by buyout or growth equity transaction types.

On average over the 2008–14 period, growth equity companies grew revenue by 16.2%, while buyout companies increased revenue by 5.8% and public companies increased revenue by 5.2%.

Growth equity substantially outperforms the public markets (as represented by the Russell 2500™) in every period, and on average by more than 1,000 bps. Notably, growth equity companies showed positive revenue growth even during the downturn.

Buyouts outperformed in four of seven years by a muted 60 bps on average. Small buyouts were the key to the outperformance because they dramatically outperformed public market comparablesand other size segments in generating revenue growth. From 2008 through 2014, small buyouts averaged 8.1% revenue growth compared to 2.9% for companies in the Russell Microcap® Index.

Key Company Performance Metric: Revenue Growth

| 23

Relative to the smallest size segment, from 2008 through 2014 mid- and large-sized buyouts experienced significantly lower revenue growth, averaging 4.5% and 3.1%, respectively. Neither mid-nor large-sized buyouts outperformed similarly sized public companies over the full period, with revenue averaging ~100 bps lower versus their respective indexes.

From 2007 to 2014, outperformance by PE-owned companies has been strongest in the IT sector with superior performance in all but two years and averaging 430 bps.

Health care and consumer discretionary companies bested their public counterparts in five of the seven periods analyzed, averaging 100 bps and 85 bps over the full period, respectively.

Private industrials surpassed their public peers in four of the seven years, averaging 110 bps of outperformance, due to particularly strong relative growth in the last three years.

Key Company Performance Metric: Revenue Growth (continued)

| 24

PE-Owned Companies Have Generated Higher Revenue Growth Than Publics

Average Annual Revenue Growth of Private Equity–Owned Companies vs Public CompaniesAs of December 31, 2014


| 25

2008 2009 2010 2011 2012 2013 2014

Private Equity–Owned Companies 275 490 608 749 775 695 691 Russell 2500TM Index 1,840 2,014 1,924 1,961 1,963 1,965 1,954

Number of Companies

5.8

-5.3

9.8

11.1

9.410.1

13.8

5.7

-7.5

9.09.6

6.2 5.7

7.6

-10

-5

0

5

10

15

2008 2009 2010 2011 2012 2013 2014

Ann

ual G

row

th R

ate

(%)

Growth Equity Companies Produced the Best Revenue Growth

Average Annual Revenue Growth of Buyout and Growth Equity Companies vs Public CompaniesAs of December 31, 2014


| 26

2008 2009 2010 2011 2012 2013 2014

Control/Buyout Companies 193 336 385 452 493 430 415 Growth Equity Companies 38 68 104 157 189 213 218 Russell 2500™ Index 1,840 2,014 1,924 1,961 1,963 1,965 1,954

Number of Companies

4.1

-6.8

8.8 9.47.7 7.1

10.1

20.2

1.3

17.9 18.2

16.1 16.3

23.1

5.7

-7.5

9.0 9.6

6.2 5.7

7.6

-10

-5

0

5

10

15

20

25

2008 2009 2010 2011 2012 2013 2014

Ann

ual G

row

th R

ate

(%)

Small Company Revenue Growth Outpaces the Other Size Segments

Average Annual Revenue Growth of Private Equity Control/Buyout Companies vs Public Companies by Enterprise Value SegmentAs of December 31, 2014


| 27

2008 2009 2010 2011 2012 2013 2014 2008 2009 2010 2011 2012 2013 2014

Total Universe 193 336 385 452 493 430 415 Russell 2500™ Index 1,840 2,014 1,924 1,961 1,963 1,965 1,954 EV > $1 bn 54 96 89 114 102 68 62 Russell Midcap® Index 650 690 655 660 669 676 677 EV $250 mm – $1 bn 27 61 76 92 96 104 103 Russell 2000® Index 1,390 1,534 1,494 1,507 1,510 1,524 1,501 EV < $250 mm 112 179 206 243 283 241 249 Russell Microcap® Index 1,274 1,192 1,047 1,092 1,078 1,047 1,062

Number of PE-Owned (Control/Buyout) Companies Number of Public Market Companies

4.1

-6.8

8.8 9.47.7 7.1

10.1

5.7

-7.5

9.0 9.6

6.2 5.77.6

-15

-10

-5

0

5

10

15

2008 2009 2010 2011 2012 2013 2014

Ann

ual G

row

th R

ate

(%)

Total Universe

2.2

-7.8

5.68.1

3.7 3.3

6.54.8

-9.4

8.7 8.2

4.5 4.66.4

-15

-10

-5

0

5

10

15

2008 2009 2010 2011 2012 2013 2014

Ann

ual G

row

th R

ate

(%)

EV > $1 bn

0.9

-8.1

11.0

7.55.3

7.1 7.55.8

-7.0

9.3 9.56.3 6.3

8.1

-15

-10

-5

0

5

10

15

2008 2009 2010 2011 2012 2013 2014

Ann

ual G

row

th R

ate

(%)

EV $250 mm – $1 bn

7.0

-5.5

10.011.4 10.6 10.3

13.3

3.4

-7.7

5.1 6.24.3 3.1

5.5

-15

-10

-5

0

5

10

15

2008 2009 2010 2011 2012 2013 2014A

nnua

l Gro

wth

Rat

e (%

)

EV < $250 mm

Health care was steady and strong

Private IT Companies Demonstrated Greatest Outperformance

Average Annual Revenue Growth of Private Equity–Owned Companies vs Public Companies by SectorAs of December 31, 2014


| 28

-20

-15

-10

-5

0

5

10

15

20

25

2008 2009 2010 2011 2012 2013 2014

Ann

ual G

tow

th R

ate

(%)

Consumer DiscretionaryHealth CareIndustrialsInformation Technology


By Sector, PE-Owned Company Revenue Growth Beats Publics in Most Years

Annual Revenue Growth Quartiles of Private Equity–Owned Companies vs Public Companies by SectorAs of December 31, 2014



2008Upper 9.4 7.7 27.7 22.6 10.8 14.7 21.8 17.6 13.9 14.6 Median 3.5 0.0 11.4 10.9 3.2 6.8 3.1 9.6 4.4 5.3 Lower -4.9 -6.7 3.4 4.3 -1.9 -0.2 -3.5 -0.4 -2.9 -3.6 Mean 3.2 0.7 15.2 13.1 5.7 7.2 8.1 8.7 5.8 5.7 n 81 277 45 194 58 274 49 324 275 1,840 2009Upper 3.0 3.1 14.0 15.5 -1.4 -7.1 7.9 4.6 6.0 3.9 Median -7.3 -5.5 7.0 5.5 -10.6 -16.7 -4.5 -8.4 -4.5 -6.3 Lower -17.3 -17.1 2.0 -1.8 -20.2 -24.6 -16.5 -20.6 -16.9 -19.7 Mean -7.7 -7.0 8.0 7.0 -11.3 -15.7 -1.8 -7.4 -5.3 -7.5 n 129 292 72 218 105 307 73 357 490 2,014 2010Upper 15.1 15.4 14.2 17.7 17.2 15.9 32.1 31.2 18.1 17.7 Median 7.4 5.5 6.7 8.0 6.8 8.2 11.2 16.6 8.0 7.2 Lower 0.5 -1.4 1.4 1.8 0.0 1.8 0.3 5.2 0.3 -0.9 Mean 8.4 7.4 8.5 9.6 7.5 8.5 16.6 18.9 9.8 9.0 n 158 297 87 228 117 282 113 316 608 1,924 2011Upper 12.9 12.7 19.8 24.0 21.0 23.8 22.1 20.8 19.8 18.5 Median 6.3 5.2 8.9 10.7 9.3 14.8 12.4 11.2 8.6 8.4 Lower 1.0 -1.4 4.9 1.9 0.0 8.5 2.5 0.8 1.7 -0.1 Mean 7.2 5.8 12.5 13.3 10.1 15.7 13.5 11.4 11.1 9.6 n 170 303 105 219 154 291 133 346 749 1,961 2012Upper 12.4 11.3 18.1 17.9 18.7 13.0 24.0 15.8 18.3 14.1 Median 5.2 4.4 7.6 9.6 6.9 5.6 9.4 4.0 6.1 4.8 Lower 0.0 -0.8 1.0 1.2 -0.8 -1.0 -1.4 -6.0 -0.5 -2.1 Mean 6.7 5.8 9.9 8.9 8.6 6.4 12.5 5.1 9.4 6.2 n 162 290 114 204 158 296 148 334 775 1,963 2013Upper 13.8 11.4 20.3 15.1 18.0 10.4 26.4 15.9 18.0 12.5 Median 3.5 4.9 9.6 6.9 8.6 4.2 11.7 7.3 7.8 4.7 Lower -1.4 -0.1 3.1 0.6 1.7 -1.3 0.4 -2.1 -0.4 -1.9 Mean 6.5 5.5 12.7 9.1 9.5 4.8 14.0 7.9 10.1 5.7 n 139 278 105 189 126 286 158 336 695 1,965 2014Upper 13.0 11.4 25.9 29.0 21.7 11.2 37.0 18.1 24.6 14.3 Median 4.0 4.7 10.1 11.3 8.6 6.3 14.4 8.3 9.5 6.3 Lower -3.4 -0.8 2.1 3.0 1.4 0.8 3.6 2.1 0.8 0.1 Mean 5.4 5.5 17.2 16.2 11.2 6.5 21.9 10.1 13.8 7.6 n 130 295 108 219 113 283 177 325 691 1,954

Total UniverseConsumer Discretionary Health Care Industrials Information Technology

| 29


EBITDA Growth

EBITDA Margin

Exit Metrics

| 30

The annual average EBITDA growth rate from 2008 to 2014 for PE-owned companies was 6.7% versus 6.4% for public market companies, which represents 30 bps of outperformance for PE-owned companies. PE-owned companies produced better year-over-year EBITDA performance in four years: 2009, 2012, 2013, and 2014. While in absolute terms performance lagged public companies in 2010 and 2011, growth for PE-owned companies was strong, averaging 11.2%.

Disaggregating private equity returns to show buyout and growth equity illustrates the strong performance of the latter segment. Growth equity has averaged annual EBITDA growth of 11.6% over the last seven years, besting public markets by 520 bps.

Buyout companies have grown in each year, averaging 6.0% over the time period, 40 bps below the 6.4% average for the Russell 2500™.

Among buyouts, the smallest size segment generated the best EBITDA growth—averaging 7.0% from 2008 to 2014. This segment bested its public counterpart, the Russell Microcap® Index, by an average of 160 bps.

Key Company Performance Metric: EBITDA Growth

| 31

Similar to the revenue analysis, smaller companies have demonstrated greater EBITDA growth than their larger counterparts, whether public or private, over the last six years. PE-owned companies in the smaller segment outperform public companies at more than two-thirds of the quartile breakpoints, yet outperformance in the top quartile by publics led to outperformance at the average in four of the six years.

When evaluating EBITDA growth by sector, it appears that privates underperformed their public counterparts over the seven years analyzed. However, over the last three years, in three of the four key sectors—industrials, health care, and IT—privates outperform.

In terms of EBITDA growth, health care and IT have been fairly steady and strong contributors to above average growth. Health care has averaged 8.5% and 12.2% for privates and publics, respectively, while IT has delivered even stronger growth, at 9.2% and 13.4% for privates and publics, respectively.

Consumer discretionary has typically delivered below average growth, with privates delivering 2.5% average EBITDA growth while publics have increased EBITDA at a 5.7% annual pace on average.

While EBITDA growth in the industrial sector is more muted, the sector performed more on par with its public sector counterparts over this period, averaging 6.3% versus 7.6%, and besting publics in three out of six periods.

Key Company Performance Metric: EBITDA Growth (continued)

| 32

Privates Demonstrated Superior EBITDA Growth Over Last Three Years

Average Annual EBITDA Growth of Private Equity–Owned Companies vs Public CompaniesAs of December 31, 2014


| 33

2008 2009 2010 2011 2012 2013 2014

Private Equity–Owned Companies 259 434 525 650 656 572 547 Russell 2500TM Index 1,229 1,296 1,224 1,309 1,284 1,263 1,241

Number of Companies

1.5

-2.6

11.610.8

8.6 8.28.8

3.5

-10.1

18.4

12.5

6.55.2

8.4

-15

-10

-5

0

5

10

15

20

2008 2009 2010 2011 2012 2013 2014

Ann

ual G

row

th R

ate

(%)

Greater than 12% growth in each of the last five years

Growth Equity Lives Up to its Name

Average Annual EBITDA Growth of Buyout and Growth Equity Companies vs Public CompaniesAs of December 31, 2014


| 34

2008 2009 2010 2011 2012 2013 2014

Control/Buyout Companies 191 315 348 423 465 414 392 Growth Equity Companies 28 46 84 111 134 132 128 Russell 2500™ Index 1,229 1,296 1,224 1,309 1,284 1,263 1,241

Number of Companies

0.9

-2.7

11.3 10.4

6.47.4 8.2

1.5

-0.6

23.7

16.6

13.1 12.813.9

3.5

-10.1

18.4

12.5

6.55.2

8.4

-15

-10

-5

0

5

10

15

20

25

2008 2009 2010 2011 2012 2013 2014

Ann

ual G

row

th R

ate

(%)

Small Dominates in Growth Analysis

Average Annual EBITDA Growth of Private Equity Control/Buyout Companies vs Public Companies by Enterprise Value SegmentAs of December 31, 2014


| 35

2008 2009 2010 2011 2012 2013 2014 2008 2009 2010 2011 2012 2013 2014

Total Universe 191 315 348 423 465 414 392 Russell 2500™ Index 1,229 1,296 1,224 1,309 1,284 1,263 1,241 EV > $1 bn 56 91 92 114 102 76 61 Russell Midcap® Index 481 524 491 484 507 496 516 EV $250 mm – $1 bn 30 59 71 87 97 103 103 Russell 2000® Index 892 950 914 1,000 983 940 918 EV < $250 mm 108 168 172 216 264 229 221 Russell Microcap® Index 627 575 502 586 558 516 505


0.9

-2.7

11.3 10.46.4 7.4 8.2

3.5

-10.1

18.4

12.5

6.5 5.28.4

-15

-5

5

15

25

2008 2009 2010 2011 2012 2013 2014

Ann

ual G

row

th R

ate

(%)

Total Universe

-0.3

0.5

9.9 9.85.5

2.86.2

3.8

-11.5

17.8

10.4

6.0 6.7 7.5

-15

-5

5

15

25

2008 2009 2010 2011 2012 2013 2014

Ann

ual G

row

th R

ate

(%)

EV > $1 bn

3.7

-6.4

12.3 12.68.5 8.9 9.7

0.3

-12.7

19.3

13.9

6.92.8

7.7

-15

-5

5

15

25

2008 2009 2010 2011 2012 2013 2014

Ann

ual G

row

th R

ate

(%)

EV < $250 mm

-5.2-0.6

10.87.8 6.5 5.9

7.2

3.1

-9.4

18.0

12.4

6.2 4.9

9.4

-15

-5

5

15

25

2008 2009 2010 2011 2012 2013 2014

Ann

ual G

row

th R

ate

(%)

EV $250 mm – $1 bn

Last three years less conclusive

Over the Full Seven Years, Public Company Growth Has Outperformed

Average Annual EBITDA Growth of Private Equity–Owned Companies vs Public Companies by SectorAs of December 31, 2014

Sources: Cambridge Associates LLC Private Investments Database (as reported by investment managers), FactSet Research Systems, and Frank Russell Company.Note: Outliers were identified and excluded, and the same methodology was applied to the PE and public company universes.* The 2010 Russell 2500TM information technology sector is capped for graphing purposes; its EBITDA growth was 37.3%. | 36

-25

-20

-15

-10

-5

0

5

10

15

20

25

2008 2009 2010 2011 2012 2013 2014

Ann

ual G

row

th R

ate

(%)


Health Care

Industrials



*

EBITDA Growth Varied Widely by Sector

Annual EBITDA Growth Quartiles of Private Equity–Owned Companies vs Public Companies by SectorAs of December 31, 2014



2008Upper 10.0 9.7 28.3 27.2 22.4 18.4 21.6 29.5 14.0 20.1 Median 0.2 -8.6 13.7 12.3 2.0 4.5 -0.2 5.1 2.9 3.5 Lower -21.8 -29.3 0.0 -0.4 -6.9 -9.6 -5.8 -15.0 -10.3 -14.1 Mean -5.1 -9.1 13.4 16.2 6.2 4.0 3.7 7.1 1.5 3.5 n 77 270 38 126 53 244 42 256 259 1229 2009Upper 8.6 16.6 19.1 27.3 8.1 -7.6 13.6 18.9 12.5 11.9 Median -4.0 -2.0 7.6 9.8 -8.4 -22.9 1.4 -5.7 0.0 -8.0 Lower -22.1 -21.3 -3.5 -4.5 -26.3 -43.2 -7.0 -34.5 -17.5 -31.7 Mean -8.0 -2.5 8.7 10.4 -9.5 -24.4 2.0 -6.1 -2.6 -10.1 n 116 246 73 139 97 276 51 261 434 1296 2010Upper 22.2 38.7 15.4 25.3 22.7 33.2 37.2 73.2 23.4 34.0 Median 11.6 15.5 6.0 11.9 9.7 13.5 15.7 23.3 9.8 13.4 Lower 1.3 0.0 -1.4 0.2 -2.0 0.0 0.0 -0.3 -1.4 -1.2 Mean 13.9 21.3 6.9 12.1 11.3 17.5 17.9 37.3 11.6 18.4 n 137 251 79 141 102 253 89 239 525 1224 2011Upper 19.1 19.6 21.5 26.1 26.1 36.4 23.9 32.1 24.5 29.9 Median 9.6 5.3 8.3 7.7 9.0 17.3 11.9 9.7 10.6 10.4 Lower 1.3 -7.5 0.9 -8.7 -8.0 3.6 -2.2 -14.5 -3.1 -5.0 Mean 10.6 6.2 11.0 11.8 8.8 20.3 11.3 10.7 10.8 12.5 n 154 262 90 145 134 267 108 289 650 1309 2012Upper 16.0 18.2 17.9 22.6 23.9 25.6 25.5 18.8 21.0 21.9 Median 4.2 6.8 5.0 5.5 9.4 8.3 8.4 -4.1 6.5 5.7 Lower -5.0 -5.4 -2.3 -7.2 -3.5 -4.5 -5.4 -26.0 -5.0 -8.4 Mean 4.5 5.0 6.0 9.3 12.0 9.8 10.1 -3.7 8.6 6.5 n 146 252 91 132 144 272 105 279 656 1284 2013Upper 15.7 18.1 18.1 16.7 23.1 20.0 24.3 23.7 18.2 18.5 Median 5.0 6.7 7.2 4.3 7.3 5.7 12.1 4.0 7.0 4.7 Lower -10.3 -4.4 -2.4 -10.1 -4.7 -6.5 1.8 -10.2 -4.2 -8.6 Mean 2.9 6.4 10.0 3.0 9.6 6.7 14.4 6.2 8.2 5.2 n 123 254 81 120 116 274 99 252 572 1263 2014Upper 8.6 16.7 33.3 21.7 29.6 17.0 18.4 25.5 24.0 20.0 Median -2.5 6.2 15.7 11.7 11.7 8.0 6.7 10.9 7.4 8.1 Lower -16.6 -5.8 5.4 -0.3 -3.6 -1.2 -6.3 -3.3 -8.4 -3.8 Mean -3.6 5.1 19.8 11.2 11.5 7.7 7.0 12.7 8.8 8.4 n 117 261 83 115 108 257 101 248 547 1241


| 37


EBITDA Growth

EBITDA Margin

Exit Metrics

| 38

From 2007 through 2014, PE-owned companies consistently operated at higher EBITDA margin levels. The difference versus public companies averaged 550 bps over that time period and was not surprising considering private companies’ more highly levered capital structures and debt servicing needs.

The pattern of higher margin operations holds when disaggregated by company type. Buyout and growth equity companies both have higher margins than those in the Russell 2500™. With industry exposure (rather than leverage levels) likely representing a greater influence, growth equity–owned companies operated with the highest margins.

Of the three size ranges, buyouts in the largest size segment have the best margins and the ones most proximate to publicly traded peers as represented by the Russell Midcap® Index. Large private and public companies have margins that average 21.3% and 19.5%, respectively, representing only 180 bps of difference between the two.

Medium-sized PE-owned companies have consistently higher margins than their public market counterparts as measured by the Russell 2000® Index; the difference between private and public companies averaged 660 bps. These medium-sized buyout businesses averaged 20.5% EBITDA margins as compared to public market comparables at 13.9%. Lower middle market PE-owned companies (less than $250 million of enterprise value) had consistently higher margins than their public market counterparts as measured by the Russell Microcap® Index; the difference between private and public companies in this size range averaged 610 bps given the smallest sized private companies had margins of 17.3% versus public market comparables at 11.3%.

Key Company Performance Metric: EBITDA Margin

| 39

Across all four sectors analyzed, PE-owned companies had higher EBITDA margins than their public market counterparts. By sector, this varied from an average difference of 240 bps to 1,150 bps.

EBITDA margins for PE-owned IT companies averaged 25.8%, versus public companies at 14.3%. Whether public or private, industrials had the lowest margins, averaging 15.8% for private companies versus 12.5% for publics.

The smallest difference between public and private company performance was evidenced in the health care sector. Just 240 bps separated the private company average of 18.9% and the public company average of 16.5%. Margins for PE-owned consumer discretionary companies averaged 17.8%, 480 bps better than the 13.0% average across time for publics.

Key Company Performance Metric: EBITDA Margin (continued)

| 40

PE-Owned Companies Operated at Higher EBITDA Margins Than Publics

Average Annual EBITDA Margin of Private Equity–Owned Companies vs Public CompaniesAs of December 31, 2014


| 41

2007 2008 2009 2010 2011 2012 2013 2014

Private Equity–Owned Companies 335 535 752 969 1,195 1,293 987 1,023 Russell 2500™ Index 1,508 1,492 1,528 1,568 1,544 1,506 1,482 1,483

Number of Companies

19.718.6

21.0 21.2 21.0 21.5 20.819.5

15.0 14.5 14.715.4 15.3 14.8 14.7 14.9

0

5

10

15

20

25

30

2007 2008 2009 2010 2011 2012 2013 2014

EB

ITD

A/R

even

ue (%

)

Buyouts outperformed growth equity in 2014

Growth Equity Companies Averaged the Highest EBITDA Margins

Average Annual EBITDA Margin of Private Equity–Owned Companies vs Public Companies by Manager StrategyAs of December 31, 2014


| 42

2007 2008 2009 2010 2011 2012 2013 2014

Control/Buyout Companies 232 377 476 594 724 812 694 720Growth Equity Companies 35 56 123 193 210 244 217 222Russell 2500™ Index 1,508 1,492 1,528 1,568 1,544 1,506 1,482 1,483

Number of Companies

19.017.4

19.719.0 18.9

19.8 20.0 19.5

22.4 23.023.7

27.0 27.4

23.622.4

19.0

15.0 14.5 14.715.4 15.3 14.8 14.7 14.9

0

5

10

15

20

25

30

2007 2008 2009 2010 2011 2012 2013 2014

EB

ITD

A/R

even

ue (%

)

The larger the company, the better the margins

At All Sizes, Buyouts Had Higher EBITDA Margins Than Public Peers

Average Annual EBITDA Margin of Private Equity Control/Buyout Companies vs Public Companies by Enterprise Value SegmentAs of December 31, 2014


| 43

2007 2008 2009 2010 2011 2012 2013 2014 2007 2008 2009 2010 2011 2012 2013 2014

Total Universe 232 377 476 594 724 812 694 720 Russell 2500™ Index 1,508 1,492 1,528 1,568 1,544 1,506 1,482 1,483 EV > $1 bn 69 120 130 163 177 175 138 121 Russell Midcap® Index 567 566 566 580 574 581 583 593 EV $250mm - $1bn 41 75 89 123 143 181 184 181 Russell 2000® Index 1,154 1,138 1,172 1,211 1,197 1,171 1,134 1,120 EV < $250mm 121 182 237 291 383 426 343 389 Russell Microcap® Index 879 855 734 753 735 659 649 673


21.419.9 20.7 21.0 20.7

22.5 21.522.5

18.5 18.3 19.020.2 20.1 20.1 20.1 19.7

0

5

10

15

20

25

2007 2008 2009 2010 2011 2012 2013 2014

EB

ITD

A/R

even

ue (%

)

EV > $1 bn

17.015.5

18.717.6 17.1 16.9 17.9 17.9

12.3 11.3 11.9 11.7 10.9 10.6 10.7 10.6

0

5

10

15

20

25

2007 2008 2009 2010 2011 2012 2013 2014E

BIT

DA

/Rev

enue

(%)

EV < $250 mm

20.819.0

20.3 19.921.4 22.2

21.0 19.3

14.3 13.6 13.6 14.3 14.3 14.0 13.5 13.8

0

5

10

15

20

25

2007 2008 2009 2010 2011 2012 2013 2014

EB

ITD

A/R

even

ue (%

)

EV $250 mm – $1 bn

19.017.4

19.7 19.0 18.9 19.8 20.0 19.5

15.0 14.5 14.7 15.4 15.3 14.8 14.7 14.9

0

5

10

15

20

25

2007 2008 2009 2010 2011 2012 2013 2014

EB

ITD

A/R

even

ue (%

)

Total Universe

Across Sectors, at All Sizes, Privates Had Higher EBITDA Margins Than Publics

Average Annual EBITDA Margin of Private Equity–Owned Companies vs Public Companies by SectorAs of December 31, 2014


| 44

0

5

10

15

20

25

30

2007 2008 2009 2010 2011 2012 2013 2014

EB

ITD

A/R

even

ue (%

)

Consumer DiscretionaryHealth CareIndustrialsInformation TechnologyRussell 2500™ Sectors

And also the greatest divergence from publics

Companies in the IT Sector Had the Highest EBITDA Margins

Annual EBITDA Margin of Private Equity–Owned Companies vs Public Companies by SectorAs of December 31, 2014

Sources: Cambridge Associates LLC Private Investments Database (as reported by investment managers), FactSet Research Systems, and Frank Russell Company.Note: Outliers were identified and excluded, and the same methodology was applied to the PE and public company universes. | 45


2007Upper 25.4 18.5 25.2 22.1 21.5 16.6 32.5 19.6 26.6 20.4 Median 15.6 12.0 18.2 15.6 16.0 12.3 25.8 12.8 17.4 13.5 Lower 9.3 7.7 12.9 10.2 9.0 8.1 13.5 7.5 10.8 8.2 Mean 19.0 13.9 19.8 16.5 16.3 13.1 24.8 14.1 19.7 15.0 n 95 325 53 177 73 292 58 331 335 1,508








Total UniverseConsumer Discretionary Health Care Industrials Information Technology


EBITDA Growth

EBITDA Margin

Exit Metrics

| 46

Key Exit Metrics: PPM Expansion and Leverage Compression

In reviewing exited investments, PE-owned companies demonstrated consistent multiple expansion, i.e., PE firms have paid lower valuations at entry than what they received at exit, and thus were able to “buy low and sell high.” This multiple expansion is apparent in each year analyzed, with a median of 1.5x overall.

The low PPMs coming out of the global financial crisis (2009–12) were followed by improving exit markets. The 170 deals consummated during this period had a median multiple expansion of 2.8x, whereas data from 391 investments made from 2005 to 2008, which have subsequently been exited, show a more muted median impact of 1.0x of multiple expansion.

An analysis of exited investments, for PE acquisitions completed from 2005 to 2011, suggests debt paydown, or deleveraging, contributes to value creation. The median company has reduced leverage by 0.7 turns. The two different environments at the time of acquisition suggest slightly different trajectories during the life of the investment. For companies acquired from 2005 to 2008, the median net leverage started high at 4.5x and decreased a full turn during ownership. Due to credit contraction, in the subsequent period, the 2009–11 vintage deals were less levered at acquisition, 3.2x, and experienced minimal deleveraging, 3.1x, at sale.

Deleveraging may be the result of earnings growth or debt pay down but, in any event, suggests a less risky company.

| 47

PE-Owned Companies Are Sold at Higher Multiples Than They Were Purchased

Median EBITDA Multiple Expansion of Exited Private Equity–Owned Companies by Acquisition YearAs of December 31, 2014

Source: Cambridge Associates LLC Private Investments Database (as reported by investment managers).

| 48

2005 2006 2007 2008 2009 2010 2011 2012

Multiple at Acquisition 79 115 127 70 49 74 32 15 Multiple at Exit 79 115 127 70 49 74 32 15

Number of Companies

8.4 8.38.8

7.9

6.8 7.07.8

8.69.4

8.69.2

8.5

10.6

9.7

11.612.0

0

2

4

6

8

10

12

14

2005(5.2)

2006(5.3)

2007(5.0)

2008(4.2)

2009(3.1)

2010(2.8)

2011(2.7)

2012(2.0)

Ent

erpr

ise

Val

ue/E

BIT

DA

Acquisition Year(Average Hold Period in Years)

Shorter holds, less leverage to start apparent in more recent years

Managers Have Been Able to Deleverage Over the Investment Period

Median EBITDA Leverage Multiple Compression of Private Equity–Owned Companies by Acquisition YearAs of December 31, 2014


| 49

2005 2006 2007 2008 2009 2010 2011

Multiple at Acquisition 70 101 113 59 35 60 31 Multiple at Exit 70 101 113 59 35 60 31

Number of Companies

4.2

4.9

5.4

3.7

3.03.1

3.8

3.4

3.8

3.4

2.7

3.03.0

3.4

0

1

2

3

4

5

6

2005(5.2)

2006(5.3)

2007(5.1)

2008(4.2)

2009(3.5)

2010(2.7)

2011(2.7)

Net

Deb

t/EB

ITD

A


Key Exit Metrics: Revenue CAGR, EBITDA CAGR, and Margin Expansion

Based on the analysis of more than 600 realized investments

Median revenue growth during the period of PE ownership was 10.9%.

PE-owned companies increased EBITDA substantially during the period of ownership. The median compound annual growth rate across this universe of companies was 11.6%.

PE-owned companies experienced solid margin improvement (median of 95 bps in aggregate) versus their “at acquisition” margin profiles.

| 50

Median Revenue CAGR Was at Least 10% for Companies Acquired in 6 of 8 Years

Median Revenue CAGR of Exited Private Equity–Owned Companies by Acquisition YearAs of December 31, 2014


| 51

2005 2006 2007 2008 2009 2010 2011 2012

PE-Owned Companies 100 137 155 95 65 89 40 18

Number of Companies

11.0

9.5 10.0 10.1

7.5

15.3

11.9

20.1

0

5

10

15

20

25

2005(5.1)

2006(5.2)

2007(4.8)

2008(4.0)

2009(3.0)

2010(2.8)

2011(2.6)

2012(2.0)

Com

poun

ded

Ann

ual G

row

th R

ate

(%)


For All But One Acquisition Year, the Median EBITDA CAGR Was at Least 10%

Median EBITDA CAGR of Exited Private Equity–Owned Companies by Acquisition YearAs of December 31, 2014


| 52

2005 2006 2007 2008 2009 2010 2011 2012

PE-Owned Companies 90 128 139 80 55 76 35 15

Number of Companies

13.9

8.6

10.1

13.8 14.8

19.5

10.7

20.3

0

5

10

15

20

25

2005(5.2)

2006(5.3)

2007(5.0)

2008(4.2)

2009(2.9)

2010(2.7)

2011(2.7)

2012(2.0)

Com

poun

ded

Ann

ual G

row

th R

ate

(%)


Median EBITDA Margin at Exit Improved for Companies Acquired in All but Two Years

Median EBITDA Margin Expansion of Exited Private Equity–Owned Companies by Acquisition YearAs of December 31, 2014


| 53

2005 2006 2007 2008 2009 2010 2011 2012

Margin at Acquisition 89 123 136 80 55 76 35 15 Margin at Exit 89 123 136 80 55 76 35 15

Number of Companies

18.6

20.719.2

20.9

15.6

19.4

25.8

20.720.421.1

20.522.1

17.8

20.2

17.5

19.5

0

5

10

15

20

25

30

2005(5.1)

2006(5.3)

2007(5.0)

2008(4.2)

2009(2.9)

2010(2.7)

2011(2.7)

2012(2.0)

EBI

TDA

/Rev

enue

(%)

Acquisition Year(Average Holding Period in Years)

Appendix: Revenue Growth, EBITDA Growth, and EBITDA Margin Quartile Charts and Tables

Revenue Growth Quartiles

Total UniverseBy Manager Strategy

5556

EBITDA Growth Quartiles


5859

EBITDA Margin Growth Quartiles


6162

| 54

PE-Owned R2500™ PE-Owned R2500™ PE-Owned R2500™ PE-Owned R2500™ PE-Owned R2500™ PE-Owned R2500™ PE-Owned R2500™Max 45.8 48.9 42.9 42.8 60.3 53.5 60.6 53.8 62.3 44.8 61.0 40.7 79.9 44.1 Upper 13.9 14.6 6.0 3.9 18.1 17.7 19.8 18.5 18.3 14.1 18.0 12.5 24.6 14.3 Median 4.4 5.3 -4.5 -6.3 8.0 7.2 8.6 8.4 6.1 4.8 7.8 4.7 9.5 6.3 Lower -2.9 -3.6 -16.9 -19.7 0.3 -0.9 1.7 -0.1 -0.5 -2.1 -0.4 -1.9 0.8 0.1 Min -32.2 -35.6 -51.9 -57.4 -35.5 -32.9 -33.7 -31.7 -37.4 -30.0 -36.6 -27.7 -45.7 -26.1 Mean 5.8 5.7 -5.3 -7.5 9.8 9.0 11.1 9.6 9.4 6.2 10.1 5.7 13.8 7.6

n 275 1,840 490 2,014 608 1,924 749 1,961 775 1,963 695 1,965 691 1,954

20142008 2009 2010 2011 2012 2013-50

-40

-30

-20

-10

0

10

20

30

40

50

Ann

ual G

row

th R

ate

(%)

Mean

Annual Revenue Growth Quartiles of Private Equity–Owned Companies vs Public CompaniesAs of December 31, 2014 • Middle Two Quartiles Graphed


| 55

Annual Revenue Growth Quartiles of Private Equity Control/Buyout Companies vs Public Companies As of December 31, 2014 • Middle Two Quartiles Graphed


| 56

PE Buyout R2500™ PE Buyout R2500™ PE Buyout R2500™ PE Buyout R2500™ PE Buyout R2500™ PE Buyout R2500™ PE Buyout R2500™Max 42.8 48.9 42.9 42.8 47.6 53.5 44.3 53.8 45.0 44.8 48.3 40.7 58.6 44.1 Upper 11.8 14.6 5.0 3.9 16.6 17.7 16.4 18.5 15.1 14.1 14.3 12.5 18.9 14.3 Median 3.4 5.3 -5.9 -6.3 6.8 7.2 7.7 8.4 5.3 4.8 5.1 4.7 7.1 6.3 Lower -4.0 -3.6 -17.6 -19.7 0.0 -0.9 1.7 -0.1 -0.1 -2.1 -1.1 -1.9 0.1 0.1 Min -30.5 -35.6 -49.9 -57.4 -29.5 -32.9 -22.4 -31.7 -27.1 -30.0 -31.2 -27.7 -32.6 -26.1 Mean 4.1 5.7 -6.8 -7.5 8.8 9.0 9.4 9.6 7.7 6.2 7.1 5.7 10.1 7.6

n 193 1,840 336 2,014 385 1,924 452 1,961 493 1,963 430 1,965 415 1,954

20142008 2010 2011 2012 20132009-50

-40

-30

-20

-10

0

10

20

30

40

50

Ann

ual G

row

th R

ate

(%)

Mean

Annual Revenue Growth Quartiles of Private Growth Equity Companies vs Public Companies As of December 31, 2014 • Middle Two Quartiles Graphed


| 57

PE Growth R2500™ PE Growth R2500™ PE Growth R2500™ PE Growth R2500™ PE Growth R2500™ PE Growth R2500™ PE Growth R2500™Max 105.4 48.9 58.8 42.8 82.0 53.5 77.5 53.8 94.7 44.8 84.7 40.7 122.6 44.1Upper 40.6 14.6 13.9 3.9 28.5 17.7 27.9 18.5 29.4 14.1 28.3 12.5 40.9 14.3Median 15.4 5.3 0.0 -6.3 14.2 7.2 17.6 8.4 15.0 4.8 13.8 4.7 15.7 6.3Lower 1.6 -3.6 -11.2 -19.7 6.0 -0.9 5.2 -0.1 -2.0 -2.1 2.0 -1.9 3.1 0.1Min -58.6 -35.6 -51.9 -57.4 -41.2 -32.9 -38.1 -31.7 -59.6 -30.0 -45.8 -27.7 -58.3 -26.1Mean 20.2 5.7 1.3 -7.5 17.9 9.0 18.2 9.6 16.1 6.2 16.3 5.7 23.1 7.6

n 38 1,840 68 2,014 104 1,924 157 1,961 189 1,963 213 1,965 218 1,954

20142008 2009 2010 2011 2012 2013-50

-40

-30

-20

-10

0

10

20

30

40

50

Ann

ual G

row

th R

ate

(%)

Mean

Annual EBITDA Growth Quartiles of Private Equity–Owned Companies vs Public CompaniesAs of December 31, 2014 • Middle Two Quartiles Graphed


| 58

PE-Owned R2500™ PE-Owned R2500™ PE-Owned R2500™ PE-Owned R2500™ PE-Owned R2500™ PE-Owned R2500™ PE-Owned R2500™Max 52.4 82.4 64.0 86.2 82.1 121.2 78.1 97.6 75.1 81.1 68.6 71.9 92.7 66.9 Upper 14.0 20.1 12.5 11.9 23.4 34.0 24.5 29.9 21.0 21.9 18.2 18.5 24.0 20.0 Median 2.9 3.5 0.0 -8.0 9.8 13.4 10.6 10.4 6.5 5.7 7.0 4.7 7.4 8.1 Lower -10.3 -14.1 -17.5 -31.7 -1.4 -1.2 -3.1 -5.0 -5.0 -8.4 -4.2 -8.6 -8.4 -3.8 Min -58.6 -71.8 -66.3 -99.1 -51.0 -73.1 -52.1 -64.7 -52.2 -62.7 -50.0 -56.7 -66.6 -47.9 Mean 1.5 3.5 -2.6 -10.1 11.6 18.4 10.8 12.5 8.6 6.5 8.2 5.2 8.8 8.4

n 259 1,229 434 1,296 525 1,224 650 1,309 656 1,284 572 1,263 547 1,241

20142008 2009 2010 2011 2012 2013-50

-40

-30

-20

-10

0

10

20

30

40

50

Ann

ual G

row

th R

ate

(%)

Mean

Annual EBITDA Growth Quartiles of Private Equity Control/Buyout Companies vs Public Companies As of December 31, 2014 • Middle Two Quartiles Graphed


| 59

PE Buyout R2500™ PE Buyout R2500™ PE Buyout R2500™ PE Buyout R2500™ PE Buyout R2500™ PE Buyout R2500™ PE Buyout R2500™Max 62.1 82.4 54.9 86.2 75.7 121.2 67.5 97.6 64.1 81.1 61.4 71.9 81.8 66.9 Upper 12.4 20.1 10.9 11.9 21.9 34.0 22.7 29.9 18.1 21.9 17.5 18.5 22.6 20.0 Median 2.1 3.5 0.0 -8.0 10.6 13.4 9.3 10.4 5.0 5.7 6.4 4.7 6.7 8.1 Lower -10.7 -14.1 -17.2 -31.7 0.0 -1.2 -1.0 -5.0 -5.2 -8.4 -4.2 -8.6 -7.3 -3.8 Min -54.2 -71.8 -64.8 -99.1 -43.3 -73.1 -44.4 -64.7 -46.1 -62.7 -45.6 -56.7 -59.6 -47.9 Mean 0.9 3.5 -2.7 -10.1 11.3 18.4 10.4 12.5 6.4 6.5 7.4 5.2 8.2 8.4

n 191 1,229 315 1,296 348 1,224 423 1,309 465 1,284 414 1,263 392 1,241

2008 2010 2011 2012 20132009 2014

-50

-40

-30

-20

-10

0

10

20

30

40

50

Ann

ual G

row

th R

ate

(%)

Mean

Annual EBITDA Growth Quartiles of Private Growth Equity Companies vs Public Companies As of December 31, 2014 • Middle Two Quartiles Graphed


| 60

PE Growth R2500™ PE Growth R2500™ PE Growth R2500™ PE Growth R2500™ PE Growth R2500™ PE Growth R2500™ PE Growth R2500™Max 117.2 82.4 80.3 86.2 153.8 121.2 114.0 97.6 122.4 81.1 136.8 71.9 151.4 66.9 Upper 31.0 20.1 21.8 11.9 42.3 34.0 38.6 29.9 35.0 21.9 33.4 18.5 38.2 20.0 Median 6.4 3.5 0.0 -8.0 20.7 13.4 15.5 10.4 11.3 5.7 10.3 4.7 12.3 8.1 Lower -36.6 -14.1 -18.0 -31.7 -5.6 -1.2 -4.5 -5.0 -7.5 -8.4 -8.1 -8.6 -11.5 -3.8 Min -100.0 -71.8 -86.6 -99.1 -85.0 -73.1 -76.7 -64.7 -80.7 -62.7 -93.5 -56.7 -100.0 -47.9 Mean 1.5 3.5 -0.6 -10.1 23.7 18.4 16.6 12.5 13.1 6.5 12.8 5.2 13.9 8.4

n 28 1,229 46 1,296 84 1,224 111 1,309 134 1,284 132 1,263 128 1,241

2008 2009 2010 2011 2012 2013 2014

-50

-40

-30

-20

-10

0

10

20

30

40

50

Ann

ual G

row

th R

ate

(%)

Mean

Annual EBITDA Margin Growth Quartiles of Private Equity–Owned Companies vs Public CompaniesAs of December 31, 2014 • Middle Two Quartiles Graphed


| 61

PE-Owned R2500™ PE-Owned R2500™ PE-Owned R2500™ PE-Owned R2500™ PE-Owned R2500™ PE-Owned R2500™ PE-Owned R2500™ PE-Owned R2500™Max 52.3 42.8 52.0 41.3 56.2 43.3 60.9 44.7 60.1 44.3 62.5 42.0 60.9 41.8 57.5 42.9 Upper 26.6 20.4 25.4 19.8 28.3 20.3 28.9 21.1 29.0 20.7 29.6 19.8 28.7 19.7 26.6 20.2 Median 17.4 13.5 16.3 12.9 18.5 13.0 18.3 13.5 18.2 13.4 17.7 13.1 17.8 13.0 16.9 13.0 Lower 10.8 8.2 10.0 7.8 10.9 7.4 10.8 8.1 10.8 8.1 10.5 8.0 10.7 8.0 10.0 8.3 Min 0.0 0.0 1.1 0.2 0.0 0.0 0.0 0.0 0.0 0.1 0.0 0.0 0.0 0.1 0.0 0.0 Mean 19.7 15.0 18.6 14.5 21.0 14.7 21.2 15.4 21.0 15.3 21.5 14.8 20.8 14.7 19.5 14.9

n 335 1,508 535 1,492 752 1,528 969 1,568 1,195 1,544 1,293 1,506 987 1,482 1,023 1,483

2013 20142007 2008 2009 2010 2011 20120

10

20

30

40

50

EB

ITD

A/R

even

ue (%

)

Mean

Annual EBITDA Margin Growth Quartiles of Private Equity Control/Buyout Companies vs Public CompaniesAs of December 31, 2014 • Middle Two Quartiles Graphed


| 62

PE Buyout R2500™ PE Buyout R2500™ PE Buyout R2500™ PE Buyout R2500™ PE Buyout R2500™ PE Buyout R2500™ PE Buyout R2500™ PE Buyout R2500™Max 49.3 42.8 47.3 41.3 51.5 43.3 52.5 44.7 53.3 44.3 57.3 42.0 56.4 41.8 55.0 42.9 Upper 25.8 20.4 24.4 19.8 26.7 20.3 26.5 21.1 26.4 20.7 27.5 19.8 27.1 19.7 26.5 20.2 Median 17.0 13.5 15.4 12.9 17.8 13.0 16.4 13.5 16.2 13.4 16.3 13.1 17.1 13.0 16.9 13.0 Lower 11.2 8.2 9.9 7.8 10.9 7.4 10.4 8.1 9.9 8.1 10.4 8.0 10.7 8.0 10.2 8.3 Min 0.8 0.0 1.1 0.2 0.0 0.0 0.0 0.0 0.0 0.1 0.3 0.0 0.0 0.1 0.0 0.0 Mean 19.0 15.0 17.4 14.5 19.7 14.7 19.0 15.4 18.9 15.3 19.8 14.8 20.0 14.7 19.5 14.9

n 232 1,508 377 1,492 476 1,528 594 1,568 724 1,544 812 1,506 694 1,482 720 1,483

2013 20142007 2008 2009 2010 2011 2012

0

10

20

30

40

50

EB

ITD

A/R

even

ue (%

)

Mean

Annual EBITDA Margin Growth Quartiles of Private Growth Equity Companies vs Public CompaniesAs of December 31, 2014 • Middle Two Quartiles Graphed


| 63

PE Growth R2500™ PE Growth R2500™ PE Growth R2500™ PE Growth R2500™ PE Growth R2500™ PE Growth R2500™ PE Growth R2500™ PE Growth R2500™Max 69.0 42.8 64.1 41.3 74.8 43.3 82.6 44.7 77.8 44.3 70.0 42.0 65.9 41.8 58.4 42.9 Upper 36.3 20.4 31.7 19.8 34.2 20.3 40.0 21.1 40.1 20.7 33.0 19.8 31.0 19.7 25.5 20.2 Median 18.6 13.5 22.0 12.9 19.6 13.0 21.8 13.5 23.8 13.4 21.3 13.1 18.8 13.0 16.4 13.0 Lower 9.4 8.2 12.7 7.8 10.6 7.4 12.2 8.1 14.2 8.1 10.3 8.0 10.2 8.0 9.0 8.3 Min 2.5 0.0 1.9 0.2 0.0 0.0 0.2 0.0 0.0 0.1 0.0 0.0 0.0 0.1 0.0 0.0 Mean 22.4 15.0 23.0 14.5 23.7 14.7 27.0 15.4 27.4 15.3 23.6 14.8 22.4 14.7 19.0 14.9

n 35 1,508 56 1,492 123 1,528 193 1,568 210 1,544 244 1,506 217 1,482 222 1,483

2013 20142007 2008 2009 2010 2011 2012

0

10

20

30

40

50

EB

ITD

A/R

even

ue (%

)

Mean

Under the Microscope: Private vs Public Company Operating ......2014/12/31 · Operating metrics...

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