Private Equity Investment Committee

8/10/2019 Private Equity Investment Committee

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KKR Private Equity InvestmentCommitteesAlex Navab

July 17, 2012


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Process Overview


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Investment Committee

Main decision making forum for all new investments for private equity

Meets formally two times per week Monday and Thursday mornings (NY time)

Iterative process not just the last step

All key decision points should come to the Committee

Meaningful money to be spent on analysis

Initial bid proposal (excluding early stage and exploratory first round bids)

Interim and final bids

Formal approach to company or board

Committee should also be used as sounding board, and we are actively encouraging coming to theCommittee earlier in your evaluation/thinking

Controversial issues

Specific guidance on issues

Quick read before a lot of work done (e.g., minority investment)

Most investments will be discussed with the Committee four or more times before a final decision

Also encouraging using regional heads/other IC members as a sounding board before coming to theCommittee

Memos to be submitted Friday for Monday meeting and Tuesday for Thursday meeting

Email Erika Stadtlander prior to memo submission, copying Alex Navab and Johannes Huth, to geton the agenda


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What to Cover


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Macro / Industry Analysis

Detailed discussion around how macro environment is expected to impact thesector (to be incorporated with firms macro view)

Include deal teams view on key macro risks and opportunities as part of theiranalysis of key investment highlights and considerations

Provide overview of how deal performs under various macro outcomes

If relevant, highlight correlation to certain key macroeconomic statistics

MacroPerspective

Respond to the question: Why is it good to invest in the sector today?

Medium and long-term thesis on industry / sector and why it is attractive

Walk-though how value has been created in the industry historically (includinghow private equity has been involved in the sector)

Outperforming and underperforming deals have often captured or missedpotential technological / industry shifts. Include view on ability to create valuethrough (or defensibility of industry to) technological / industry shifts

Discuss other big risk areas (regulatory, competition from overseas, etc.)

IndustryThesis(1)

Incorporate long-term analysis (as available and relevant) on performance of

industry through economic and industry-specific cycles Breakdown of underlying growth drivers (volume, price, margin, etc.)

If relevant, include analysis around industry performance as the sectorevolved (evolution of companies as industry matured, new entrants,substitutes, etc.)

Discussion of supply / demand dynamics of industry (such as customerconcentration, supplier power, input cost trends, etc.)

Long TermIndustry

Analysis andPerformance

(1)

E

arly-Mid

Ea

rly

(Updated

Frequently)

Mid

(1) When presenting the above items, keep in mind guidelines provided by the legal team on the appropriate

language, tone and descriptions to use. Additionally, remember that sensitive topics should be discussed verbally.


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Company Specific / Risk Analysis Overview and Business Model

Respond to the question: Why is this a good Company?

Historical, projected, comparative ROIC and opportunity to invest behind

Other quantifiable metrics and comparisons

Provide clear description of products and services of the Company Discuss long-term historical performance of the Company

Include performance through various economic cycles. Include bothgeneral financial metrics (revenue, EBITDA, margins, capex, etc.) as wellas key operating statistics (same store sales, volume/price, etc.)

Company

Thesis andLong Term

Performance

Historical performance relative to peers and reason for under / overperformance. Outline market share trends of company (include commentaryaround shifts in share and drivers)

Outline competitive nature of industry, implications thereof and specific valueproposition of Company. Outline Companys competitive advantages (cost,service, technology, etc.) and the sustainability of the competitive advantage

Provide customers and key suppliers feedback (collected on primary basis) oncustomer satisfaction, vendor satisfaction, competitive position, etc.

CompetitivePositioning(1)

Provide full assessment of company culture and management(2)

Provide plan for management team Highlight key weaknesses of

management pool and provide IC with color around certain important roles(i.e. relative importance of a CEO, COO, CFO, sales leadership, etc.)

If turnaround, include basis for expected improvement of culture andmanagement

During late stages, conduct and provide update on background checks for keysenior managers (Kroll reports)

Management

Mid

Mid

(Updated

Fr

equently)

Mid-Late

(1) When presenting the above items, keep in mind guidelines provided by the legal team on the appropriatelanguage, tone and descriptions to use. Additionally, remember that sensitive topics should be discussed verbally.

(2) Colorful characterizations of management are better handled verbally, as IC decks can be produced in litigation and seen by managers

and descriptions of mangers can be requested by managers in some countries under data privacy laws.


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IC Process Suggestions

Include other geographic / industry vertical teams that have had significantexperience in the space and / or cover suppliers or customers of the Company

Teams should reach out early to relevant executives to review materials

Relevant executives should directly participate in IC discussions

Include KCM, KKR Capstone, Public Affairs, KAM as relevant and addressplans to use them post-deal

Any discussion of fees and allocations should be avoided in the IC materials

CrossFunction /Geography

Involvement

Teams should be prepared to walk the IC through the following verbally

Overview of process dynamics (including motivation for sellers, other

bidders, potential partners and others) For consortia, address early who the partners are, partnership dynamic,

and ability to involve other parts of KKR (KCM, Capstone, etc.)

Provide download on findings of advisors (consulting, accounting, legal, tax,environment, labor, insurance, govtrelations, etc.). For sensitive points thatmay be legally privileged, please run by outside or internal counsel in advance

DealProcess,Partnership/Consortia &

Other

Th

roughout

Throughout

Investment Committee to provide deal team with discreet structured follow-up

items

Deal teams to respond to each follow-up item from prior session during everyIC meetingFollow Up

Items

Throughout


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Specific Opportunity:

Take Private of Willis (3rd

Largest Global Insurance Broker)

Objective:

Show impact of broader economy on the insurance industryandoutline a specific thesis on industry growth.

Conclusions:

a) The insurance sector follows the economy over the long-term, buthas industry-specific cycles.

b) Timing the insurance cycle is important to generating attractivereturns in the insurance brokerage space given the tying of the

growth of the broker space to commercial P&C premiums.c) Q: Why is it good to invest in the sector today?

A: Visibility on hardening cycle in the medium term, opportunity toenter market before valuations reset when insurance cycle

hardening is more visible.d) No visible positive or negative technological / industry shifts

expected to impact the industry.

Sample Macro / Industry Analysis 1: Willis (2010)


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Insurance broker organic growth is highly correlated with growth in commercial P&C premiums

Over the long term, P&C premiums grow But over shorter-term horizons,

in-line with the economy P&C premium growth is highly cyclical

Source: KKR Analysis, Company Filings, A.M. Best, SNL, Bureau of Economic Analysis

Hard Cycle

4%2%

4%3%

8%5%

5%

15%

18%

12%

(5%)

-

5%

10%

15%

20%

25%

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 YTD 6/10

Comm'l P&C NPW Growth

Broker Industry Organic Growth

Willis Organic Growth

-

50

100

150

200

250

300

350

400

450

500

'67 '70 '73 '76 '79 '82 '85 '88 '91 '94 '97 '00 '03 '06 '09

-

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000P&C Net Premiums Earned (Left Axis)

Nominal GDP (Right Axis)

(10%)

(5%)

-

5%

10%

15%

20%

25%

'67 '70 '73 '76 '79 '82 '85 '88 '91 '94 '97 '00 '03 '06 '09

2.0%

2.2%

2.4%

2.6%

2.8%

3.0%

3.2%

3.4%

3.6%

3.8%

4.0%

NPE Growth (Left Axis)

NPE / GDP (Right Axis)

Sample Macro / Industry Analysis: Willis (2010) (contd)


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Most Significant Value Creation Event in Recent History Was Willis' Initial Buyout

(10%)

(8%)

(6%)

(4%)

(2%)

0%

2%

4%

6%

8%

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 YTD 6/10

WillsOut/Underperformanc

(25%)

(20%)

(15%)

(10%)

(5%)

0%

5%

10%

15%

20%

RevenueGrowt

Willis Out/Underperformance Willis Rev Growth Broker Ind Rev Growth


- Significant desire by insurance carriers and corporates alike to create a third

option to Marsh & McLennan and Aon, who were the only large brokers of scale

- KKR partnered with insurance carriers in 1998 on the acquisitions

- This was a large driver of shift from underperformer to outperformer

Although Commission Rates Have Modestly Grown, Revenue is Driven by Volume Growth (P&C Premiums)with EBITDA Further Accelerated by Margin Expansion

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 YTD 6/10

Vol Growth (P&C Prems) (0.9%) (1.8%) 0.3% 5.4% 9.5% 21.3% 12.8% 7.2% 2.5% 6.7% (0.9%) (3.6%) (6.9%) (3.6%)

Comm Rate Growth 5.9% 6.0% 6.5% 2.4% 0.3% (5.7%) (0.7%) (6.2%) (3.6%) (3.6%) 3.1% 5.0% 6.4% 3.8%

Broker Revenue Growth 5.0% 4.2% 6.8% 7.8% 9.8% 15.6% 12.2% 1.0% (1.2%) 3.1% 2.2% 1.4% (0.5%) 0.2%

Broker EBITDA Margin 16.4% 16.6% 16.9% 17.3% 18.1% 18.7% 19.5% 20.2% 21.0% 21.9% 23.0% 23.2% 23.7% 24.1%

Broker EBITDA Margin Change +0.2% +0.3% +0.4% +0.8% +0.6% +0.8% +0.7% +0.8% +0.9% +1.1% +0.2% +0.5% +0.4%Broker EBITDA Growth 5.2% 5.5% 8.7% 10.3% 14.9% 19.4% 17.0% 4.7% 2.7% 7.5% 7.4% 2.3% 1.7% 1.9%

0

50

100

150200

10

20

30

40Revenue EBITDA


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A Hardening Cycle May Be Getting Closer

Statutory cash flows have deteriorated, indicating And rates may be approaching the unprofitable levels

carriers may soon look to raise rates of the late 1990s

But It Is Not Yet Imminent

It took three years of unfavorable reserve developments prior Underwriting profitability still appears to be

to the last hard cycle, and we have had none to-date much better than in the late 1990s

Source: KKR Analysis, SNL, The Council of Insurance Agents and Brokers

18%

22%25%

19%20%

13%

8% 7% 7%

12%12%

6%3%

5%4%

-

10

20

30

40

50

60

70

80

90

100

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Y TD6/10

P&C Statutory Op. CF (bn)

Total P&C % of Surplus

Comm'l P&C % of Surplus

(20)

(15)

(10)

(5)

-

5

10

15

20

1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009

Cum. Dev't To-Date

2-Year Dev't

1-Year Dev't 110% 114%

97%93% 95%

96%92%

95%

103%100%

114%115%

110%109%

80%

85%

90%

95%

100%

105%

110%

115%

120%

125%

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Reported Combined Ratio

Combined Ratio ex. PY Reserve Dev't



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The Next Hard Cycle May Not Be As Amplified As The Last Without A Large Catastrophe

Industry capitalization levels remain robust The '00-'03 cycle was magnified by the tech bust and 9/11

Based On This Analysis, We Have Formed Three Cases For P&C Cycle Assumptions

Conservative Case: Pricing does not harden, but flattens over three years; volumes grow at 2%

Base Hardening Case: '11-'13 same as Conservative Case; '14, '15 and '16 grow at 10%, 10% and 7%, respectively

Aggressive Hardening Case: '11-'12 same as Conservative Case; '13-'16 replicate growth in '01-'03 (10% / 21% / 13% / 7%)

Projected P&C Industry Net Premiums Written:

Source: KKR Analysis, SNL, Bureau of Economic Analysis

109%

100%

87%85%

89%

103%

126%129%

115%

106%

98%

83%87%87%

75%

100%

125%

150%

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2.5%

3.0%

3.5%

4.0%

NPW / Surplus (Left Axis)P&C Industry Surplus / GDP (Right Axis)

24%

9%

2%

(5%)(7%)

(1%)

(13%)

19%

15%

9%12%

7%12%

3%

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

30%

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 YTD

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Change in Stat Surplus

Tech Bust /

Sept. 11thKatrina /

Rita / Wilma

(10%)

(5%)

-

5%

10%

15%

20%

25%

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Aggressive Hardening Case

Base Hardening Case

Conservative Case



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Appendix 2: Sample Preliminary CompetitivePositioning Analysis


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Specific Opportunity:

Take Private of Supervalu

Objective:

Outline key competitors, positioning and relative trends.

Conclusions:a) Share trends for grocery channel and Supervalu troubling and

unlikely to moderate.

b) Importance of banner / market level operating performance andregional market share.

c) Meaningful investments in price likely needed across most

banners.

Preliminary Competitive Analysis: Supervalu (2011)


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ID Sales Trend (Annual) ID Sales Trend (Last 4 Appx. Calendar Qtrs)

EBITDA Margin EBITDA Growth (CY 2007 LTM CAGR)

Preliminary Competitive Analysis: Supervalu (2011) (contd)

Financial Benchmarking Analysis

5.6%5.3%

5.0%

2.1%3.3% 3.4%

0.8%

(2.5%)

0.4% 0.5%

(1.2%)

(5.1%)(6.0%)

(4.0%)

(2.0%)

2.0%

4.0%

6.0%

8.0%

2006 2007 2008 2009

Kroger Safeway Supervalu

1.2%

2.4%2.7%

2.4%

(4.1%)

(3.1%)

(2.5%)(2.0%)

(6.5%)(6.8%)

(7.2%)

(6.4%)

(4.9%)

(8.0%)

(6.0%)

(4.0%)

(2.0%)

2.0%

4.0%

Q409 Q1 10 Q2 10 Q3 10 Q4 10


(5.9%)

(11.3%)

(0.1%)

(12.0%)

(10.0%)

(8.0%)

(6.0%)

(4.0%)

(2.0%)

Kroger

Safeway

Supervalu

5.6%

5.4%

5.2%

5.0%

4.7%

6.7%

6.9%7.0%

6.5%

6.1%6.0%

6.3%

5.5%5.4%

5.1%

4.0%

4.5%

5.0%

5.5%

6.0%

6.5%

7.0%

7.5%

2006 2007 2008 2009 LTM



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Appendix 3: Sample Management Analysis


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Organizational Chart and Management Overview

The quality of the management team was an important part of our investment thesis on Company X

Based on our assessment to-date, the Companys senior leadership talent is of high qualityand is capable of operating a much larger company

As a result, it will be critical for us to ensure that each of the key members of the managementteam remains highly motivated and is provided with sufficient responsibility and upsideopportunity

CEO successor potential Strongno issuesIn question Under strengthto leaveResigned New

Searches in Progress

Position Timing to Fill

Open Position 1 ASAP

Open Position 2 Not Urgent; When Larger Company

Person 3Chief Financial Officer

Person 2Chief Operating Officer

Person 1Chief Executive Officer

Person4

Unit A

Person5

Unit B

Person6

Unit C

Person7

Unit D

Person8

Unit E

Person9

Unit F

Management Analysis: Company X


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Executive Position Roll % /$ Early Assessment Concerns/Action

Person 1 CEO [ ]% / $[ ]mm Strong, sales-oriented CEO. Hascommand and respect of his people

Need to mentor on softeningleadership style

Person 2 COO [ ]% / $[ ]mm Highly talented, execution focused COO.Overqualified for role

Need to monitor to ensurebeing provided with enoughresponsibility

Person 3 CFO [ ]% / $[ ]mm Capable and detail oriented. Good atblocking and tackling

Need to push to be morestrategic

Person 4 Unit A [ ]% / $[ ]mm Long tenure at Company. Capablesteward of Unit A franchise but not a

high-powered leader

Responsibility scopedeclining as other leaders

step up. Not sufficientlyaggressive/commercial todrive Unit A

Person 5 Unit B [ ]% / $[ ]mm Extremely valuable to the franchise.Directly responsible for growth of Unit B

Need to ensure shecontinues to be motivated

Person 6 Unit C [ ]% / $[ ]mm Capable leader of Unit C segment andhas been able to grow the businessmeaningfully

Need to ensure he continuesto be motivated

Person 7 Unit D [ ]% / $[ ]mm Highly talented young leader of Unit D.Important to the growth of the segment

Need to ensure he continuesto be motivated

Person 8 Unit E [ ]% / $[ ]mm Overqualified for the core Unit E job.Good at thinking of operational andstrategic implications of technology toCompany X

Need to keep motivated ashe is critical to the Company

Person 9 Unit F [ ]% / $[ ]mm Very capable salesperson want to seemore significant desire to achieve more

Need to monitor ability toexecute on new wins and ifright person going forward

Senior Management Assessment

Management Analysis: Company X (contd)


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Appendix 4: Rationale for Investment /Sources of Return


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Value Driver EBITDA Key Assumptions Risk Level

At Acquisition $200

Industry Growth +$32mm 3% estimated industry growth, 2% from general macroeconomicgrowth and 1% from secular growth

MacroSecular

Market Share Gain +$11mm 1% addnl growth via share gain vs historical outperformance of 3%

Op Leverage +$31mm Flow-through rate of revenue growth based on variable cost analysis

Cost Takeout +$30mm Already identified cost initiatives; supplemented by Capstone review

Subtotal $304mm Implies 9% EBITDA CAGR

Cash Flow /Deleveraging

$716mmcash flow

Based on historical capex levels and assumed working capitaloptimization initiatives

Rationale for Investment

Rationale for Investment / Sources of Return

We believe that Company X represents an attractive investment opportunity given the returnprofile of the investment relative to the risks

We have a high confidence level on most of the drivers of value (both controllable anduncontrollable)

The upside opportunity is meaningful while our conservative case (which we have highconfidence we can exceed) still generates an attractive return profile

Finally, in a severe downside scenario, our capital investment is still preserved

Acquisition Information Capitalization Information Net Return Profile

Acquisition TEV (w/ Fees) $1,700 Debt Funding $1,200 3-Year 5-Year

EBITDA Multiple (Current) 8.5x Leverage 6.0x Base Case 25.6% 22.9%

EBITDA Multiple (Forward) 7.8x Interest Coverage 2.1x Upside Case 36.3% 32.2%

EBITDA - Capex (Current) 9.2x Equity Requirement $500 Conservative Case 18.9% 16.7%

EBITDA - Capex (Forward) 8.4x % Equity 29.4% Downside Case (2.4%) 1.2%


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Documents

Private Equity Investment Committee