Private Equity Capital Markets Seminar 24 September 2013
24/09/2013 Private Equity Capital Markets Seminar Simon Borrows, Chief Executive, 3i Group plc 24 September 2013 Our strategic goal: a leading international manager of third-party and proprietary capital Private Equity Infrastructure Debt Management Illustrative capital allocation Third-party capital Third-party capital Third-party capital Proprietary capital Proprietary capital Proprietary capital Key return 1. Portfolio returns 1. Portfolio income 1. Fee income 2. Portfolio income 2. Fee income 2. Portfolio income drivers 3. Fee income 3. Portfolio returns 3. Portfolio returns Key � Pro-cyclical asset � Counter-cyclical � Low exposure to characteristics class asset class volatility of underlying Realised and Income from assets and sensitivity � � unrealised capital investment portfolio � Recurring annual to market cycle gains and carried � Recurring annual fee third-party fee income interest income from � Proprietary capital permanent capital “light” vehicle Our businesses provide an attractive balance of income and capital returns 2 1
24/09/2013 Key phases of organisational change and strategic delivery � FY2013 FY2014 - 15 FY2016+ Transition and Restructuring Strategic goal delivery We have delivered all of our FY2013 strategic priorities We are already making strong progress towards the next phase of our strategic plan: “Transition and delivery” 3 Next phase of our strategic plan “Transition and delivery” FY2013 FY2014-2015 FY2016+ 1 Cover operating costs with annual cash income On track Grow third-party income and generate a sustainable 2 On track annual operating profit from our fund management activities Improve capital allocation strategy; focus on 3 On track enhanced shareholder distributions and re-investment in our core investment businesses We are already making strong progress towards the next phase of our strategic plan 4 2
24/09/2013 Our evolving business model 3i Group Proprietary capital investing Fund management activities Investing own-balance sheet Managing third-party and proprietary capital Portfolio income Fee income Realised and unrealised Carried interest and capital gains performance fees Funding costs Operating costs Operating costs 5 Private Equity Portfolio segmentation Key categories: Selected examples: Action, Element, Longer-term hold and value creation Mayborn Strong performers; position for sale over the next few Civica, Mold-Masters years Azelis, OneMed, Manage intensively; potential value upside Xellia Low or nil-valued assets Enterprise 6 3
24/09/2013 Tracking our progress and performance How does Private Equity contribute? Proprietary capital investing Fund management activities � Grow Private Equity portfolio � Validate track record of recent earnings vintages to prepare ground for new general PE fund � Action � Invest alongside co-investors � Element � Action � Realise investments at uplifts � HILITE to book value and strong cash-on- cash multiples � Óticas Carol � Commence syndication � Mold-Masters discussions on GIF � Xellia � Reinforce LP confidence in 3i’s � Utilise strong balance sheet investment capabilities and permanent capital � Óticas Carol � GIF 7 Private Equity Value creation drivers 1 � Leverage network and focus on key strengths ─ True mid market ─ Northern Europe ─ Sector expertise Robust investment review process � 2 Best-in- 1 Selective class asset investment management 2 � Support and foster growth ─ Access to 3i’s international network ─ Inter-portfolio best practice sharing Prudent financing and structuring � � Careful monitoring 3 � Patient ownership 3 Disciplined Detailed exit planning for all � realisations investments � Take advantage of market tailwinds when opportune 8 4
24/09/2013 The 3i Value Build An attractive, multi-year value proposition Grow Private Equity investment � Grow NAV portfolio earnings Realise investments at good uplifts to � Optimise value of existing book value and strong cash-on-cash portfolio and enhance P/NAV multiples rating Generate a sustainable annual operating profit from our fund � Add value beyond NAV management activities Utilise strong balance sheet and � Invest in value-creating growth permanent capital opportunities � Greater capital efficiency; focus Increase shareholder distributions on shareholder distributions and through our enhanced distribution attractive re-investment policy 9 opportunities Element Materials Technology Alan Giddins Co-Head, Private Equity 5
24/09/2013 Element is a leading materials testing business � Network of accredited laboratories across Europe and the US � Over 1,400 employees � 3i invested in December 2010 to carve out SMT from the Stork Group – EV$210m � Rebranded as Element Materials Technology in December 2011 11 Why did we invest in Element? � Sector we understood, with a range of attractive growth drivers � Business well positioned in its testing verticals � Exposed to extremely attractive end-markets � Process which played to 3i’s strengths 12 6
24/09/2013 Deep sector understanding � Sector deep dive undertaken in 2005 as part of Business Services strategy � Appointed Ad Verkuyten, former CEO of RTD, as a special adviser in 2006 � Today, recognised as the pre-eminent PE investor in the sector: - Carso - € 9.7m (2005) – exit 3.4x MM to FSI / Euromezzanine in December 2010 - Inspecta - € 117m (2007) - Inspicio - £180m (2008) – partial exit 1.2x MM in September 2010 - Trescal - € 64m (2010) – exit 2.0x MM to Axa PE in July 2013 - Element - $155m (2010) - GIF - € 77m (2013) 13 Note: investment amounts include 3i and funds and returns are shown in local currency Highly attractive underlying growth trends 2 3 1 Increase in Globalisation HSE requirements outsourcing Strong drivers of market growth 4 5 6 Regulation Customer demand Innovation 14 7
24/09/2013 Why did we invest in Element? � Sector we understood, with a range of attractive growth drivers � Business well positioned in its testing vertical � Exposed to extremely attractive end-markets � Process which played to 3i’s strengths 15 Well positioned in its testing vertical Typical TIC sub-segment Materials testing % share of sub-segment % share of sub-segment Long tail Long tail ALS Intertek #1 in US SGS Element (SMT) BV Exova #1 in Europe and Globally 16 Note: Relative size illustrative only 8
24/09/2013 Why did we invest in Element? � Sector we understood, with a range of attractive growth drivers � Business well positioned in its testing verticals � Exposed to extremely attractive end-markets � Process which played to 3i’s strengths 17 Exposed to extremely attractive end-markets Diligence at the time showed positive …and it appeared that the broader outlook for core Aero and O&G end- US industrial activity was at an markets… inflexion point E.g. Oil &Gas Hercules oil & gas revenues CAGR, CAGR, Hercules US revenues, US industrial production (weighted average of USDm 2007–10 2010–15 relevant sectors and total index), real GDP, LTM Correlation Delayed Indexed: jan 2008 = 100 (lag=0) correlation 106 105 32 +11% p.a. 104 1 0% 4% 103 29 1 102 26 9 24 101 1 9 100 22 1 0% 6% 99 8 20 1 0.8 0.96 Real GDP 19 19 19 98 8 1 1 Hercules US 1 1 97 8 96 7 7 7 7 95 94 0% 13% 22 93 19 17 92 16 14 91 12 11 11 11 0.8 0.91 90 IPI 89 Weighted IPI 0.8 0.86 88 87 Jan07 Jul07 Jan08 Jul08 Jan09 Jul09 Jan10 2007 2008 2009 2010 2011 2012 2013 2014 2015 1 Weighted IPI reaches maximum correlation of 0.98 when Hercules revenues lags 6 months Europe US 18 Source: Diligence reports at the time of acquisition 9
24/09/2013 Why did we invest in Element? � Sector we understood, with a range of attractive growth drivers � Business well positioned in its testing verticals � Exposed to extremely attractive end-markets � Process which played to 3i’s strengths 19 Process which played to 3i’s strengths � Early access to management and the business � Primary buyout � Business Leaders Network expertise � Ability to move quickly 20 10
24/09/2013 Process which played to 3i’s strengths � Early access to management and the business � Primary buyout � Business Leaders Network expertise � Ability to move quickly 21 Clear value levers 1. Creating a standalone business � Planning the carve-out � Rebranding and integration 3. Commercial and 2. Strategy 4. Outstanding operational governance excellence � 3-5 year strategic � Pricing and � Organisation plan salesforce � Board process effectiveness � M&A and and reporting divestments � Ongoing lean operational improvements 22 11
24/09/2013 Process which played to 3i’s strengths � Early access to management and the business � Primary buyout � Business Leaders Network expertise � Ability to move quickly 23 Unique Business Leaders Network expertise Peter Regan Ad Verkuyten � Former Chief Executive and then � Former CEO of RTD-Group Chairman of ERM Holdings (TIC-company now part of Applus) � Co-led 3i backed management � Chairs the Board of Inspecta buyout from founders in 2001 � Special Adviser to 3i in TIC sector � ERM’s clientele includes over (since 2006) 60% of the Fortune 500 24 12
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