2014-15 Annual Review

  • CD&R Fund VII, L.P.

    At year-end 2014, Fund VII was valued at 2.0x, unchanged from a year earlier. The value increased to 2.1x at the end of the first quarter 2015.

    Realizations remain a top priority. On a gross basis as of June 20, 2015, the Fund had returned 167% of its invested cost, with $1.8 billion of unrealized and public value remaining across four investments. Exova and ServiceMaster are publicly traded, and TruGreen and US Foods remain privately held. Since the beginning of 2014 through May 2015, Fund VII investments have generated $1.4 billion of realized proceeds.

    Recent Fund Highlights

    • In July 2014, ServiceMaster completed an initial public offering. In February and June 2015, Fund VII and affiliates sold 36.6 million shares of ServiceMaster
    • through secondary offerings. Total net proceeds to CD&R were $1.1 billion, including $739 million to Fund VII and $181 million to Fund VII (Co-Investment). Following the June 2015 secondary offering, CD&R continued to own approximately 17% of the company’s common stock. Including both realized proceeds and the discounted value of CD&R’s remaining shares, the implied valuation on the ServiceMaster investment was 2.7x its pro forma cost basis at the time of the June offering.
    • In December 2014, Fund VII sold its remaining shares in HD Supply. In aggregate, Fund VII’s equity and debt investments in HD Supply collectively generated $1.1 billion in total proceeds and a blended MOI of 1.4x (1.3x on the equity investment and 1.8x on the debt investment).1
    • In April 2014, Fund VII sold its remaining indirect ownership of Rexel, generating a 2.3x MOI on the Fund’s original $102 million investment. Under CD&R’s
    • ownership, Rexel expanded its geographic footprint, including high growth markets around the world, developed a presence in new product categories that are less sensitive to economic downturns and recruited a new senior leadership team.
    • In April 2014, Exova priced an initial public offering (IPO) through which Fund VII sold approximately 25% of its shares and returned approximately 44% of its invested capital. Including the Fund’s remaining shares held at the discounted quarter-end trading price, the Exova investment was valued at 1.1x invested capital.
    • In January 2014, ServiceMaster completed the separation of TruGreen from its portfolio through a tax-free spinoff that was effected through a pro rata dividend to ServiceMaster shareholders. TruGreen is now a separate standalone portfolio company in which CD&R funds own a majority interest. CD&R Operating Partner John Compton assumed the Chairman role at TruGreen and is working with management to complete the turnaround of its business.

  • Fund VII’s fully realized investments in HD Supply, Hertz, Rexel and Sally Beauty, as well as the fully realized debt investment in US Foods, have generated $5.9 billion in proceeds, representing a gross MOI of 2.4x capital invested. The remaining private investments in TruGreen and US Foods were valued at $171 million (1.2x capital invested) and $864 million (1.4x capital invested), respectively. Including realized proceeds and the discounted value of the stock price2, the publicly traded investments in Exova and SeviceMaster were valued at $481 million (1.1x capital invested) and $1,189 million (2.6x capital invested), respectively.

    Resources and Realizations

    Fund VII’s first closing was on December 21, 2004. Its final closing, on March 31, 2006, brought the total committed capital to $4 billion. Through March 31, 2015, Fund VII

    realizations totaled $6.5 billion, including $659 million of cumulative recallable distributions. Fund VII has called a total of $4.3 billion of capital commitments and recallable distributions from its partners. As of March 31, 2015, $324 million of capital was available to be called.

    There may be excess fee income received by CD&R that does not ultimately offset the management fee. Consistent with the historic approach of the CD&R fund partnership agreements, and in order to address tax concerns of certain limited partners, excess fee income (if any) would not be shared with the limited partners. As of the most recent management fee payment date (April 30, 2015) the amount of fee income to be carried forward and applied as a reduction of future management fees is approximately $16.4 million. We will continue to provide ongoing disclosure regarding any fee income-related credits that carryover to the following management fee payment period.

    Liquidity Summary

    The Fund VII portfolio companies have strong balance sheets, ample liquidity and minimal near-term re-financing requirements. As of March 31, 2015, available liquidity to cash interest averaged approximately 19.6x, and the average ratio of net debt to EBITDA was 2.6x.

Current Portfolio

  Investment Remaining Cost As of March 31, 2015 Compound Multiple
(millions) Date $ of Investment Realized Unrealized Total Value Gross IRR* of Cost