Privat it Prefer small-/mid-cap buyouts in US/emerging markets; Recommendations UBS View distressed debt in Europe Strategic (1 to 2 years) ' . ; ; ; ; 5 e In Europe, the ongoing deleveraging has . Global M&A volume has continued its downward trend since Q4 2010, falling by -20% quarter-by-quarter led to attractive opportunities for special in Q3 2012, with a drastic decline in Europe of -46%, the third lowest quarter since 2001. However, private situations. We thus recommend pursuing equity withstood the negative M&A environment as global activity grew by +13% in Q3, and the US posted less liquid investment strategies with a its strongest quarter since Q3 2007. The importance of private equity in emerging markets continues to preference for debt to benefit from the grow, now accounting for 13% of global activity, strongly driven by Asia, but increasingly also by Africa. macroeconomic adjustment process and ¢ We prefer buyout strategies in North America, given reasonable valuations, liquid debt markets and our selling pressure for many European banks. house view of economic outperformance vs. Europe. Emerging markets offer compelling opportunities for * We prefer small-/mid-cap buyouts in North PE investors, especially outside the main hubs (China, Brazil), which have become expensive. Distressed America given the better economic strategies which focus on acquiring complex/illiquid loan positions from banks in Europe are also attractive. outlook vs. Europe, higher transaction certainty and more attractive entry prices. 4 Positive scenario Prefer small-/mid-cap buyout and secondaries ° yestors looking for downside Behe e An abating Eurozone debt crisis and improved business confidence would increase deal flow and exit ales ms Euous eaten 4 “geen abler tunities for private equity managers, but would also increase entry prices. In such a positive scenario ATG eAtaG BUyOURS io tie Ue, Manuen GnLer OPPor ; p . qey g — y Pp nen Pp ’ exposure to large, diversified companie