Transcript Slide 1

MassMEDIC
LEADING IN TURBULENT TIMES
Mark Gallagher
Senior Vice President
Silicon Valley Bank
March 5, 2009
Agenda
• Global Economy – The world is on fire!
• MedTech Economy – Doing ok?
• The Good News – sifting through the
ashes
• Shamless Commerce!
How bad can it be?
Negative Events Accelerated…
Fed Cuts 25 bps, Establishes TAF
Market-supporting events
above the timeline
Fed Cuts 75 bps, Creates TSLF and PDCF
GSEs taken into
conservatorship
TARP
Approved/
Global Rate
Cuts
Fed Cuts 50 bps
Fed Cuts
125 bps
Fed Cuts
25 bps
Q107
Q207
Q307
Fed Begins
Purchasing
MBS
Q407
Fed Cuts
25 bps
Q108
Q208
Q308
Fed Cuts
Rates to
0-25 bp
Q408
Q109
Madoff
>50 Mortgage Brokers
Shut Down
Housing Bubble Articles at
all-time high
FNM/FRE/
Lehman/AIG
CDO-Backed
ARS Fails
Stanford
Fed Leaves
Rates Unchanged
First Extendible
CP Extends
Negative events below the
timeline
Oil peaks at $147
GSEs encouraged to expand
/raise capital
Bear Stearns Bailout
Majority of ARS Fail
3.6
million
jobs
lost
since
1/08
…Convert to Daily in September…
9/14
Fed injects $70B - most since 9/11
9/17
Paulson plans TARP
9/19
SEC bans Short Sales
9/20
TARP request finalized - $700B
9/21
Mitsubishi invests
$8.4B in M Stanley
9/26
Global Swap Lines
Increased
September 2008
9/8
FNM/FRE
Conservatorship
9/17
Fed lends $28B to AIG
9/15
Reserve fund "Breaks the Buck",
Fed Leaves Funds rate at 2%
9/14
Lehman to file BK, Merrill forced on
BofA, Stocks fall most since 9/11
9/12
Market expects Lehman Bailout
9/29
Citigroup to
acquire Wachovia
9/25
WAMU Seized
The Markets
Source: SNL Financial
Federal Funds Rate
Effective Federal Funds Rate
(%)
6.0
5.0
4.0
3.0
2.0
1.0
Source: Federal Reserve Bank, St. Louis
Nov-08
Sep-08
Jul-08
May-08
Mar-08
Jan-08
Nov-07
Sep-07
Jul-07
May-07
Mar-07
Jan-07
0.0
Housing Prices Plunge…
Home Construction Plunges As Well
Auto Sales Drop
Manufacturing Drops
Labor Markets Deteriorate
Consumers Cut Back
Household Names Disappear
ss of $1.1 Trillion or 77% in Market Cap in 23 months --Market Values Plunge
We saw erosion
ofloss$300
Billion
in82%)
45in Market
daysCap since 2007
•
A collective
of over $1.1
trillion (or
•
Over $400 billion in Market Cap lost since the start of Q4 2008
$274in 23 months --Loss
of $1.1 Trillion $240
or 77%$121
in Market Cap
$168
$85
$82
$85
$85
--- We saw erosion of $300 Billion in 45 days
$23 $12
In $$97
billions
$167 $28
$168
$86
$97
$74 $26
$82
$85
$85
$24
$28
$64
$238
$240
$32 $117
$12 $85
$121
$35
$274
$274
Winners /
Survivors
$1
$82
$3
$16
$85
$23
$31
$26
$37
$64
$35
$32
$18
$12
$17
$37
$35
74
$3
$11
$81
$35
$16
$23
$12
$11
$10
$12
$23
$82
$11
$35
$3
$16
$23
$1
$43
$31
$25²
$8
$9 $115
$108
$12
$11
$10
$3
$13
$1
$115
$82
$274
$12
Winners
/
Winners
/
$16
Survivors
Survivors
$31
$25²
$43
$42
$15 $39
$10
$43
$24
$42
$49
$18
$45
$24
$15
$10
$9
$49
$45
$30
$25²
Sold /
Buried
$30 Buried
$25²
$1
$16
$27
$66
$56
Market Cap
12/31/06
Source: SNL Financial; Yahoo Finance
$13
$8
$27
$16
Sold /
Buried
Sold
/
$66
$56
Market Cap
01/22/09
$
Volatility and Fear at an All-time High
VIX Index
100
90
Current
Crisis
80
70
Accounting Scandals
9/11
60
50
40
30
20
10
0
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
Volatility Index (VIX) is a key measure of market expectations of near-term volatility conveyed by S&P 500 stock index option prices. A high value
of VIX corresponds to a more volatile market.
Source: Chicago Board Options Exchange
Total medtech financing
While venture capital held up, total financing was down sharply …
IPO
Follow-on
Convertible debt
Venture
12
10
US$b
8
6
4
2
0
2000
2001
2002
2003
2004
2005
2006
2007
Source: Ernst & Young, ThinkEquity Partners, Windhover, Dow Jones VentureSource and Jefferies & Co.
2008
U.S. Fundraising Declines in 2008
Commitments to Venture Capital Funds
$83.8
Funds Raised ($B)
$80
$57.5
$60
$50.7
$40
$26.9
$20
$17.5
$25.6
$12.5
$30.0 $32.2
$24.7
$17.3
$10.1
$0
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Source: Dow Jones VentureSource
4Q ’08 Investment Drops
Deal Flow and Equity into Venture-Backed Companies
780
707
632
$8
$6
687
636
678
647
718
689
750
687
620
554
$8.1
$8.0 $8.1 $7.9
$7.6
$7.6
$7.4
$7.6 $7.5
$6.7
$6.2 $6.5
$5.5
600
450
300
$4
$2
150
$0
0
4Q05
2Q06
4Q06
2Q07
Amount Invested ($B)
4Q07
2Q08
Number of Deals
Amount Invested ($B)
$10
680
4Q08
Number of Deals
Source: Dow Jones VentureSource
Healthcare Investment Declines in 4Q ‘08
Equity into Venture-Backed Healthcare Companies
192
173
154
$3
170
167
190
174
173
$2
158
154
$3.0
$2.7
$2.4 $2.3
$2.3
$2.3
200
$2.6
$2.0
$1.8
137
$2.5
$2.2
175
154
150
125
$2.1
$1.5
100
75
$1
Number of Deals
Amount Invested ($B)
186
50
25
$0
0
4Q05
2Q06
4Q06
2Q07
Amount Invested ($B)
4Q07
2Q08
Number of Deals
4Q08
Source: Dow Jones VentureSource
Medtech mergers & acquisitions
2008 M&A activity fell to pre-2006 levels …
Value
Number of deals
80
100
90
70
80
60
US$b
50
60
40
50
40
30
30
20
20
10
10
0
0
2000
2001
Source: Ernst & Young
2002
2003
2004
2005
2006
2007
2008
Number of deals
70
Medtech mergers & acquisitions
… with most of the decline occurring in the second half of the year.
Value
25
12
20
9
15
6
10
3
5
0
0
US$b
15
Q1 08
Source: Ernst & Young
Q2 08
Q3 08
Q4 08
Number of deals
Number of deals
Are Banks Pulling Their Weight?
Banks Do NOT Dominate the Credit
Markets
Source: Arbor Research
• For better or worse, securitized markets dominate credit availability
• Securitized markets are shut due to investor fear
• Unrealistic to expect the banking sector to immediately replace this market
Obligatory Pie Chart
Fed Lowers Forecast Dramatically
Medtech Financials
Net income of non-conglomerates is on pace to grow by 46%
Medtech market capitalization
… but company valuations plummeted in the fourth quarter.
2008 Deal Allocation Steady
Deal Flow Allocation by Selected Groups (Annual)
100%
5%
15%
% Deal Flow Allocation
80%
13%
5%
4%
60%
59%
13%
51%
60%
Energy &
Utilities
Business
Services
Consumer
Services
40%
IT
26%
20%
26%
Healthcare
20%
0%
2001
2002
2003
2004
2005
2006
2007
2008
Source: Dow Jones VentureSource
Medical Devices Investment Allocation
Increases in 4Q ‘08
Healthcare Investment Allocation by Sector
100%
9%
6%
4%
48%
41%
% of Dollars Invested
80%
Medical IS
32%
60%
Medical
Devices
16%
10%
62%
40%
Healthcare
Services
55%
46%
Biopharm
20%
0%
4Q05
2Q06
4Q06
2Q07
4Q07
2Q08
4Q08
Source: Dow Jones VentureSource
SVB Financial Group (SIVB – Nasdaq)
SVB Financial Group
SVB Silicon
Valley Bank
SVB Analytics
SVB Capital
SVB Global
SVB Private
Client Services
SVB Securities/
SVB Asset Mgmt
Commercial
Banking
Valuations
& Capitalization
Software
Venture Capital
& Private
Equity
Global
Networks
Private
Banking
Funds
Management
-Relationship Mgmt
with VC / PE for
SVBFG
-London office:
lending to emerging
cos. in Europe
-Family of funds:
VC fund of funds,
Co-Investment
Fund, Gold Hill
venture debt,
Partners for Growth
-Israel and Canada:
commercial
banking in ’07
-LP Investments
(parent company)
since 1995
- Assisted 450
clients and VC / PE
firms overseas
-VC / PE Backed &
Large Tech Cos.:
Term Debt, Asset
based lines, Cash
Flow lending
-Total Loans $3.0 B
-Deposit & Cash
Management
Services
- Total Deposits:
$4.0 Billion
-Private Equity
Services: Lending
and Cash Mgmt
-International:
foreign exchange,
letters of credit, etc.
-Private Co.
Valuations
(409A) – 30
people
-Cap Table
management
(eProsper) – 900
companies and
30,000 optionees
-Established in
2006
- Hundreds of
engagements in
first 12 months
-FAS 157 in 2008
-India & China:
Consulting offices
-Personal loans
to CEOs, CFOs,
General Partners
and extended
SVB network.
$20 Billion of SVB
client assets under
management in:
REPOs:
collateralized,
overnight investments
which generate
interest income only
SVB Securities: self
directed investment in
money market mutual
funds
SVB Asset Mgmt.
managed accounts
for greater
performance,
customization and
reporting
It is a cycle!
Y