EdgeStone believes that Canada is an attractive market for private equity investing because of its favourable economic environment and the structure of its private equity market.

FAVOURABLE ECONOMIC ENVIRONMENT
The Canadian economy is favourable for private equity investing because it is large and diversified, growing strongly, oriented to trade and exports, and fiscally sound.

Large and Diversified Economy
The Canadian economy is broad based with no one economic sector representing more than 37% of GDP. In fact, the Canadian economy is very similar in composition to the U.S. economy. With 2004 GDP per capita of $39,400, Canada is among the most affluent nations in the world.

Strong Economic Growth
Canada's economy has demonstrated strong economic growth relative to other G-7 countries and this strong growth is forecast to continue.

Export Driven Economy
International trade, both imports and exports, comprise a significant portion of the Canadian economy. In addition, Canada's close geographic proximity to the U.S. is an obvious contributor to the strong economic integration between the two countries' economies.



Fiscal Policy Supportive of Economic Growth
Canada's economic growth has been strongly supported by prudent fiscal management by the Canadian Federal government. In 1997, Canada was the first G-7 country to post a surplus in the 1990s and in fiscal year 2003-04 Canada reported its seventh consecutive annual surplus. In the December 2004 OECD Economic Outlook, Canada is the only country expected to remain in surplus in the 2004-2006 period.



ATTRACTIVE PRIVATE EQUITY MARKET
The Canadian private equity market has delivered strong absolute and relative returns because of its favourable supply/demand balance and attractively priced investment opportunities. In addition, Canadian private equity investments benefit from access to a variety of attractive Canadian and U.S. exit alternatives.

Strong Absolute and Relative Returns
Over the previous three, five and nine and a half-year periods, Canadian private equity buyout and mezzanine returns have on average outperformed those of the U.S.



Favourable Supply / Demand Balance
The Canadian private equity market has been growing and developing over the last decade but, compared to the U.S., Canada still has less than half the share of the buyout capital under management on a relative basis.



Against this backdrop of limited and concentrated supply of private equity in Canada, there is a robust demand for capital. Over the period from 2000 to 2004, Canadian M&A activity as a percentage of GDP has been approximately 40% greater than that of the U.S.




Attractive Exit Alternatives
There are many exit opportunities for Canadian private equity portfolio companies, including the robust M&A markets referred to above and strong Canadian capital markets supported by both traditional IPO opportunities and the large and developed income trust market in Canada (which has become an attractive exit option as it attracts both equity and yield oriented investors and generally enables significant secondary offerings) and the U.S. capital markets.