• Consolidation - multiple high-profile mergers

• Fare competition – airlines compete to undercut one another on competitive routes

• Low-cost carriers - recent entrance by smaller carriers trying to replicate Southwest Airlines’ low-cost model

• Individual consumers

• Corporations/small businesses

• Travel web sites/resellers

• Internet – airline websites, online ticket resellers

• Telephone – airline call center agents

• Travel agents

• Over-the-counter – walkups at airports

• Revenue: Ticket revenues, excess/oversize baggage fees, food and beverage sales

• Costs: VC: fuel, food and beverage, ground crew/hourly employees FC: aircraft leases, airport gate leases, IT/admin costs, salaried employees (i.e., pilots)

• Lifestyle/consumer behavior e.g. aging population, social networks, online advertising, go green, economic downturn

• New products critical to success

• Completely new, slightly improved, product line extensions

• In addition, companies driving ‘outside-in’ product innovation (from outside of R&D division)

• Product mix and Brand management are critical to CPG companies

• Emerging markets – India & China – seen as important source of future growth

• Individual Customers

• Discount Wholesalers (Sam’s Club, Costco)

• Large box retail (Wal-mart ,Target, Safeway)

• Convenience Retail (7-11, Rite-Aid)

• Retail

• Wholesale

• Direct (web and mail order)

• Revenue : Volume of goods sold; Price premium on branded goods

• Costs: Branding, Sales and Marketing, COGS (commodity costs – raw & packaging material)

• Credit crisis / financial meltdown threatened solvency of industry due to illiquid assets difficult to value

• Consolidated, mature industry with primary growth through acquisitions

• Demographic shift (baby boomer aging) creating large market for retirement products

• Offshoring of various functions to reduce expenses (e.g. call centers, back office functions)

• Large national players (Bank of America, Citi) compete with regional banks.

• Largest players services extend well beyond commercial banking to investment banking, securitization, proprietary, etc with services that are increasingly opaque

• Individual consumers

• High net worth consumers (priority segment)

• Small/medium businesses without sufficient size for larger investment banking financing services

• Still large face-to-face presence with bank branches, tellers, etc

• Increasing use of ATM services, online banking

• Banks increasingly offer credit cards, home loans, etc as means to increase asset base

• Revenue: Net revenue is the spread between bank’s borrowing cost and the rates charged to borrowers; fees

• Costs: Overhead (branches, administration, compliance); Salaries; Bad Debt Expense

• Credit crisis / financial meltdown threatened solvency of industry due to illiquid assets difficult to value

• One of the global leaders (AIG) nationalized in credit crisis, emphasizing the importance of monitoring investment portfolio

• US national healthcare policy changes could completely change the landscape of the health insurance market

• Companies focused on managing risk and controlling costs

• Several large, integrated players operating across multiple parts of the industry Competitive

(AIG, Prudential, etc)

• Some niche players focusing in a particular segment (Geico )

• Individual consumers seeking to manage risk at home / on the road

• Small/medium/large businesses seeking to manage risks of property damage, liability, etc

• Insurance agents (sales force) still manage much of the front-end sales process to businesses/individuals

• Online sales becoming easier with better websites and aggressive marketing

• Direct marketing to employees via in-office demonstrations (Aflac supplemental insurance, etc)

• Revenue: Net revenue is the spread between premiums collected and claims/payments made over time

• Costs: Overhead (administration, compliance); Salaries; Sales Commissions; Marketing

• Manufacturing is highly cyclical in most sectors

• US manufacturing, traditional strength of US economic growth, has suffered due to higher cost structure (labor in many cases) as companies outsource manufacturing to lower-cost regions of the world

• General Motors, Chrysler, Ford, Toyota, Honda

• Boeing, Airbus

• GE, Phillips, Siemens

• Honeywell, Dow, Corning

• Varies by industry, can be end-consumer, OEM (original equipment manufacturer) – B2B

• Automotive: Primarily end consumer; Metal: airplane, automotive, tool/die manufacturing; Apparel: End Consumer; Plastics: medical industry, machinery manufacturing; Infrastructure/Machinery: Government, Utilities, Rail operators; Chemicals: pharmaceutical, process technology, semiconductor manufacturing

• Retail (Automotive, Apparel – industries where end-consumer is primary customer)

• Wholesale – B2B (Plastics, Chemicals, Pharmaceuticals, Metal, Machinery, Semiconductors, Computer Hardware –

Industries where the customer is another business)

• Revenue: diversity of customers, volume (automotive: high, airplane manuf: low), emerging markets, adjacent industries, new technologies/products, end-consumer demands

• Cost: outsourcing (potential quality), process efficiency, supply chain management (inventory turns), labor (unions), raw materials/commodities, channel management (ie. Auto dealers), marketing, capital investment

• Print: traditional paper product & online / mobile

• Television: traditional broadcast / cable / satellite & online / mobile

• Movies: traditional theatres, rentals & online (to a growing extent)

• Revenue Drivers: advertising, subscriptions in some cases (there is talk about moving to higher subscription model for premium content)

• Cost Drivers: VC: production costs (salaries of staff, technology); FC: capital costs (studios, printing presses);

overheard, marketing & advertising

• Price competition from generic drug manufacturers

• Increasing pressure from health insurance companies and hospital chains to reduce prices

• R&D challenge of finding high revenue drugs (‘Blockbusters’ have annual sales > $1B)

• Loss of patent on key drugs for many large Pharma Cos. around 2010-11

• Key success factor comes down to one thing: products

• Products target various treatment areas (TA): cancer, cardiovascular, psychology etc

• US, Europe and Japan are largest markets although emerging market opportunity (eg. China) is growing

• Food & Drug Authority (FDA) needs to approve all drugs before sale

• Doctors who prescribe these medicines

• Insurance companies that pay for them

• Patients/consumers who need these drugs/medicines

• In some emerging markets, various officials (hospital, provincial and central government) may control channel access

• Over the counter (“OTC”, can be sold without prescription): Retail outlets – CVS, Walgreens; Mail order

• Prescription drugs: Hospitals; pharmacies

• B2B: Distributors / intermediaries ; hospitals; pharmacies

• Revenue Drivers: Size of specific treatment area / level of competition; Buy-in from doctors that will prescribe; Speed to market/ expertise in difficult products (for generics)

• Cost Drivers: VC: sales and marketing (doctor visits, sponsored studies); FC: R&D (drug discovery, formulation, clinical trials; a lot of this is now outsourced; generic companies only need to perform clinical trials)

• Larger amounts of equity required for each deal

• Potential wave of deals failing in the coming years

• Buying and selling of current PE commitments likely to increase over the next few years

• Growing need for PE firms to have cash margins

• Deal volume has sharply Competitive

declined recently

• Large (e.g. KKR, Carlyle, Blackstone, TPG), Mid ($250M to $5B), and Small Market PE shops

• New customers of PE deals may be corporations

• Institutional investors

• Customers can range from small family-owned companies to large corporations

• Leveraged Buyouts: controlling interest (of equity) is acquired through high borrowing

• Venture Capital: investors give cash in exchange for shares/control of invested company; typical with start-ups

• Mezzanine Capital: financing that contains equity based options and subordinated debt (e.g. convertible loans)

• Growth capital: financing to expand, restructure, or enter new markets with little change in management

• Distressed Investments: investing in financially stressed companies

• What financial levers can be pulled to make this more profitable (various ways to access cash, cap structures, etc)?

• What operational levers can be pulled to make this deal better (more efficiencies, new management etc)?

• What return on investment is required to make this investment worthwhile?

• What is the timeframe of return on this investment?

• Is there a better (more profitable) investment where money should be spent?

• Increasing M&A Activity: As growth has slowed in certain subsectors (systems, software), leading vendors have utilized M&A for growth, offering customers a one stop shop proposition (ie HP/Compaq, Oracle/Peoplesoft)

• Co-opetition: Leading vendors co-exist as competitors and collaborators. This is a key characteristic of the industry and has become even more so as players move into adjacent subsectors. Examples include: Microsoft/Intel, Oracle/IBM

• Cloud Computing: Offering IT as outsourced utility has implications across subsectors

• Systems: IBM, Hewlett-Packard

• Semiconductors: Intel, Samsung, Toshiba, Texas Instruments

• Communications Equipment: Cisco, Nokia, Samsung

• Software: Microsoft, IBM, Oracle / Internet Software: Google, Yahoo!, Microsoft

• IT Services: Accenture, IBM, HP/EDS

Relevant splits:

• By size: Enterprise, SMB (small/medium businesses), Retail

• By type: Business vs. consumer

• Varies by customer focus. Business/Enterprise-focused players tend to rely on direct sales force.

SMB/Retail/Consumer tend to rely Channels on indirect channels.

• Systems: Lower margin (COGS management key to profitability)

• Semiconductors: High fixed costs (capex) and highly cyclical; manufacturing utilization

• Communications Equipment: Manufacturing utilization

• Software: license/maintenance versus subscription service model; renewal rates; high gross margins, but high R&D expenses

• IT Services: staff utilization; revenue per employee

• Internet: revenue per click

• The industry has grown and evolved at an incredible pace for the last 20 years. Mobile phone penetration
approaching 50% globally; Mobile broadband subscribership has topped 200 million worldwide; rollout of 3G networks in emerging markets causing mobile broadband subscribers to outnumber fixed-line broadband subscribers.
• Many households are giving up their landline, preferring to use a cell phone or VoIP services (Skype, Vonage) on their computer.

• Landscape is very competitive and wireless carriers have undergone a wave of consolidation: In recent times, Cingular acquired AT&T Wireless; Sprint joined Nextel; and ALLTEL acquired Western Wireless.

• Big 4 cellular players are AT&T, Verizon, T-Mobile and Sprint Nextel

• Cable companies attempting to capture wireless customers through wireless service offerings of their own (or in partnership) e.g. Comcast introducing WiMAX service in Portland, Ore; COX will offer cell phone service late ’09.

• Carrier-owned stores and leading retailers like Wal-Mart, RadioShack and Best Buy are significant channels for mobile phone sales and service.

• Major carriers have online stores for phone and service purchases. They are joined online by all of their retail

competitors (Best Buy, Walmart, RadioShack) as well as amazon.com, wireless specialty retailers like letstalk.com and Wirefly.

•Revenue Drivers: Subscriptions, data services (SMS, email and internet access on cell phones), mobile advertising, app stores.

•Cost Drivers: VC: marketing & advertising, salaries; FC: capital costs (equipment, infrastructure – cell towers, network maintenance, stores); overhead