Industrial Gas Industry Advisor

Industry Report

Fall 2015

Industry Report

TABLE OF CONTENTS I. Executive Summary ...... 3 Overview ...... 3 II. Industry Overview ...... 6 Product Overview ...... 6 III. Financial Analysis ...... 11 IV. Valuation Metrics ...... 12 Valuation Trends ...... 13 V. Industrial Gas M&A Trends ...... 14

TABLE OF FIGURES Figure 1: Industrial Gas Product Summary, 2014 ...... 3 Figure 2: Sales by Distribution Method, 2014 ...... 5 Figure 3: Sales for U.S. Gas and Cylinder/Packaged Gas Companies ...... 5 Figure 4: Long Term Industry Growth ...... 6 Figure 5: Population Analysis, 2010 vs. 2030P ...... 6 Figure 6: End Market Indicators ...... 7 Figure 7: Market Share and Growth by Product, 2014 - 2019P ...... 8 Figure 8: Ammonia Consumption by Volume, 2014 ...... 9 Figure 9: U.S. Food & Beverage Shipments ...... 10 Figure 10: Quarterly Industrial Gas Revenue, 2012 - 2014 ...... 11 Figure 11: Industry Financial Analysis, 2015 ...... 11 Figure 12: Relative Stock Price Performance ...... 12 Figure 13: Industry Valuations ...... 12 Figure 14: Trends in Industry Valuations ...... 13 Figure 15: Industry Valuation Diagram ...... 13

Securities offered through SFI Capital Group, LLC, Member FINRA, Member SIPC and the affiliated broker-dealer of League Park Advisors, LLC 2

Executive Summary

I. Executive Summary

Overview The U.S. market for industrial gases represents a $9 billion Figure 1: Industrial Gas Product Summary, 2014 industry and encompasses a multitude of manufacturers and Other Gases, 15% distributors. Growing demand throughout the past decade Hydrogen & has been driven by the expanding manufacturing and Argon, 30% Carbon Dioxide, petroleum end markets. This decade of growth, however, was 9% met with volatility due to domestic and global Total U.S. $9B macroeconomic conditions. In 2009, the industry experienced Oxygen, 10% a sharp, 29% decline due to a turbulent economy. Since then, the industrial gas sector has recovered to 93% of its previous Fluorocarbons, 19% 2008 peak. Over the past few years, industrial gas companies Nitrogen, 16% have benefited from strong macroeconomic drivers including:

(i) improved economic and industrial activity; (ii) rebounding construction markets; (iii) increased environmental 8% 2012-2014 AAGR 2014-2019P CAGR consciousness and focus on regulating and monitoring activities; (iv) increased use of technology and digital devices; 6% and; (v) an aging population with growing healthcare needs. 4% Growth from expansion in the industries mentioned above 2% along with a robust economic outlook has propelled industrial gas companies’ market valuations. The strong valuations, 0% combined with the following dynamics, should drive the (2%) Hydrogen & Fluorocarbons Nitrogen Oxygen Carbon Other Gases Majors to strive for improving M&A activity: Argon Dioxide (4%)

Operating efficiencies garnered from consolidation (1) AAGR: Least squares growth rate over all data points Globalization and harmonization of markets (2) CAGR: Growth rate uses only first and last data point over period Source: The Freedonia Group Vertical integration enables consolidators to get closer to the end customer and increase their share of higher margin cylinder/ packaged products

As shown below, the $9 billion U.S. market for industrial gases is highly diverse and includes a multitude of products. In addition, as end-user demands have become more specific, sophisticated, and complex, the need for mixtures, specialty gases, and high purity gases has also increased. A growing need to fulfill excess demand is driving the U.S. specialty gas market. The specialty gas market has been evaluated in prior League Park Industry Advisors.

Executive Summary

In addition to reviewing market share by product, the Figure 2: Sales by Distribution Method, 2014 industrial gas market can also be analyzed by the method of product delivery. The three primary delivery methods include: Tonnage, 30% • Tonnage – represents large dedicated gas supply facilities that are typically set-up on a customer’s site. Traditionally, these facilities have 15-plus year Cylinder, 35% World

take-or-pay contracts whereas the customer is Gas Market willing to cover at least 80% of the plant’s volume. Plants that typically use tonnage (also known as “on- site”) facilities are large consumers of oxygen, nitrogen, or hydrogen and include steel mills, Merchant, 35% chemical and petrochemical plants, or electronics plants. Sources: Credit Suisse, League Park Estimates

• Merchant – products that are supplied to customers via large cryogenic tanker trucks. These tanker trucks are typically supplemented with vacuum insulated storage tanks at the customer’s site and are rented from the gas provider. The merchant market is characterized by three-year to five-year contracts for hospitals, metal works, glass factories, or smaller chemical plants.

• Cylinder – represents the smallest portion of supply on a volume basis; however, the meaningfully higher price (up to 100 times greater than merchant products) greatly enhances its market position. The cylinder (also known as “packaged”) market rarely has long-term contracts; however, customers do rent cylinders on a month-to-month basis, which creates meaningful revenue stability as rentals often last for months or even years at a time. The cylinder market is broadly consumed by all of the gas markets discussed in Section II.

Executive Summary

At a high level, the U.S. industrial gas market appears to be fairly concentrated, which is true for the tonnage and Figure 3: Sales for U.S. Gas and Cylinder/Packaged Gas merchant markets. However, the cylinder/packaged gas Companies market remains highly fragmented in nature and represents an opportunity for consolidation. For example, within the Other, 17% domestic packaged gas market, the five largest companies Praxair, 22% (the “Majors”) control approximately 50% of the market, while the other 50% is comprised of nearly 1,000 independent Linde, 12% Total U.S. Gas companies. We believe that regardless of end-market or Market Share general economic conditions, the fragmented nature of the Air Products, cylinder/packaged industrial gas industry should drive 18% consolidation. Air Liquide, 14%

In an effort to position themselves for long-term growth, Airgas, 17% industrial gas companies are anticipated to capitalize on the high degree of industry fragmentation to address the shifting Linde, 3% end market dynamics and changing competitive environment. Air Liquide, 5%

As a tactical measure, the majority of the consolidators’ Matheson, 8% acquisitions will be focused on (i) expanding product offerings; (ii) increasing geographic coverage; (iii) enhancing Praxair, 10% U.S. Cylinder/ their position in the supply chain; (iv) capturing share in the Independents, Packaged Gas 50% higher margin cylinder/packaged gas market; and (v) driving Market Share both sales and cost synergies.

Airgas, 25%

Sources: Airgas, Susquehanna, League Park Estimates

Fall 08

Industry Overview

II. Industry Overview

Product Overview Approximately 39%, 13%, and 12% of industrial gases are hydrotreating processes. Additionally, sales growth will be consumed in the manufacturing, chemicals, and metals attributable to continual evolution in manufactured chemical markets, respectively, while the remaining 36% is consumed in products for which hydrogen is involved in production. the electronics, energy, food, and healthcare markets. Given Suppliers of natural gas and other related commodities are the importance of general industrial activity on industrial gas expected to pass along any incurred increases in production demand, League Park believes that continuing improvement and procurement costs to their respective consumers. in economic activity in the U.S. will continue to drive strong Though markets for refined petroleum products have become volume demand domestically. increasingly volatile, the metal production sector will help create stable growth opportunities for both gases in the long Overall, the industrial gas market is projected to grow at run. nearly 4% from 2015 to 2019; however, as shown in Figure 4, much of the expected growth will likely be attributable to Figure 4: Long Term Industry Growth expanding markets for fluorocarbons, carbon dioxide, and 8% 2012-2014 AAGR 2014-2019P CAGR other industrial gases. 6%

Hydrogen & Argon 4% Demand for hydrogen and argon gas is projected to rise 2.5% 2% annually through 2019. At a 2.5% rate of expansion, the market size for hydrogen and argon is estimated to surpass 0%

$3.1 billion by 2019. Growth in demand for this class of gases (2%) Hydrogen & Fluorocarbons Nitrogen Oxygen Carbon Other Gases is a reflection of increased demand for refined petroleum. Argon Dioxide (4%) Hydrogen serves as a primary agent in hydrocracking and (1) AAGR: Least squares growth rate over all data points (2) CAGR: Growth rate uses only first and last data point over period Source: The Freedonia Group

Figure 5: Population Analysis, 2010 vs. 2030P

Year 2010 = Population: 310M Year 2030 = Population 374M Percent of Total Population

85+ Male Female 80 - 84 Male Female 75 - 79 2010 2030 Change 70 - 74 Median Age 36.9 38.7 5.0% 65 - 69 Male 35.5 37.5 5.7% 60 - 64 55 - 59 Female 38.2 39.9 4.3% 50 - 54 Sex Ratio¹ 97.0 97.0 (0.0%) 45 - 49 Under 18 104.5 104.2 (0.3%) 40 - 44 18 - 64 99.2 99.9 0.7% 35 - 39 65 - 84 80.9 84.7 4.7% 30 - 34 85+ 48.6 59.4 22.1% 25 - 29 20 - 24 ¹Sex Ratio = Male / Female X 100 15 - 19 10 - 14 5 - 9 0 - 4 5% 4% 3% 2% 1% 0% 1% 2% 3% 4% 5% 5% 4% 3% 2% 1% 0% 1% 2% 3% 4% 5%

Source: U.S. Census Bureau 6

Industry Overview

Despite hydrogen and argon experiencing a recent stunt in impurities to create a separable gas (hydrogen sulfide) which growth, the two gases recorded the fastest annual growth rate can be removed from the desired product. Because diesel among discrete segments, charting 5.1% growth from 2004 to fuel is inherently different from gasoline in chemical structure, 2008. As economic conditions continue to strengthen, growth it requires more hydrogen per gallon than gasoline. will continue to defy the sharp 36% downturn experienced in Increasing regulation on sulfur emissions will continue to 2009. Demand for hydrogen has become frothy due to its positively impact the growth prospective of hydrogen gas. wide array of usage in the manufacture of chemicals. A list of chemicals produced by or with hydrogen includes: ammonia, Figure 6: End Market Indicators aniline, hydrogen peroxide, hexamethylene diamine, and Construction Market methanol. Additionally, hydrogen can be found in many $700 Residential Non Residential Infrastructure recognizable household products including soaps, insulation, $600 plastics, and ointments. The gas also finds application in the $500 production of electronics, food and metal processing, fuel $400 cells, and the production of glass. $300

Dollars in Billionsin Dollars Argon gas is primarily used in metal processing applications, $200 mainly arc welding and steel production. Argon acts as a $100 shielding gas to protect the molten weld metal from $0 atmospheric contamination. As it pertains to the aforementioned purposes, argon is consumed more than any other gas. It is worth mentioning, however, that carbon U.S. Petroleum Production dioxide, helium, and oxygen gases can serve in place of argon 6,900 as substitutes. The steel production industry widely applies 6,800 the Argon-Oxygen Decarburization (“AOD”) process to aide 6,700 production. The process has been implemented since its discovery in 1954 by Praxair, aiming to reduce carbon impurity 6,600 and minimize chromium oxidation. AOD application has 6,500

expanded from the production of stainless steel to a spectrum Barrels Millions of 6,400 of foundry-grade ferrous alloys. 6,300

Because of its natural abundance, hydrogen has taken on a 6,200 critical role in the petroleum refining process. With stricter 2009 2010 2011 2012 2013 2014 2015P 2016P 2017P 2018P 2019P sulfur emission restrictions set in place by the EPA, refiners needed to find a cost-effective process to reduce emissions. U.S. Raw Steel Production Using a process called hydrocracking, petroleum producers 120 are able to convert low-quality crude oil into a higher-quality, 100 desulfurized fuel. The hydrocracking process is primarily used 80 in the production of distillate-range products such as diesel 60 fuel. Many producers have implemented hydrotreating, a

Millions Tons Millions of 40 process designed to remove sulfur and other impurities from 20 the product without fundamentally altering the chemical 0 structure of the product. In this process, a hydrocarbon 2009 2010 2011 2012 2013 2014 2015P 2016P 2017P 2018P 2019P mixture is combined with a catalyst, reacting with any Sources: FMI, The Freedonia Group, League Park Estimates

Industry Overview

Fluorocarbons Oxygen

Fluorocarbons represent the fastest growing segment of With a 1.5% annual increase in demand, the oxygen market industrial gases at a projected 6.2% cumulative annual growth will near $1 billion by 2019. Gains in demand for oxygen will rate (“CAGR”) through 2019. At such a pace, the market for be the result of expanding chemical manufacturing activity fluorocarbons will reach $2.3 billion. The advancement of this and a rebound of steel production. Sales for oxygen steadily particular sector is attributable to the higher-cost preference declined in the ten year period ending 2014, and has recently of hydrofluroocarbons (“HFCs”), hydrofluoroolefins (“HFOs”), been negatively impacted by weak U.S. steel output. and other blended fluorocarbon products. EPA regulation has become more constraining on producers of HFCs, creating a As the largest consumers of the gas, steel mills use oxygen in market for higher-cost HFOs and other alternative blast and combustion furnaces. To create steel, coal must first hydrocarbons to compete as replacements. Though volume be converted to coke in an oven. Once produced, coke is growth is not expected to expand dramatically, the increased combined with iron pellets and limestone to formulate pig cost of alternatives and demand for refrigeration and cooling iron in a blast furnace. An oxygen-rich air mixture in the blast will drive profits. Those factors, along with increased furnace supports clean combustion and a more refined competition among manufacturers to provide HFC product. Once removed from the blast furnace, the alternatives, will continue to drive growth in sector. oxygenated pig iron is moved to a combustion furnace and the product is refined into steel. Impurities in the steel are Over the past ten years, fluorocarbon demand increased at a oxidized away, creating the final product quickly and rate of 4.6% per annum. More recently, this market segment efficiently. Because high oxygen content is desired in the has experienced robust growth nearing 10% annually, the furnace, technological innovations have boosted demand for fastest of all segments discussed. Rapid growth in the a source of increased oxygen in electric arc furnaces. fluorocarbon sector is largely due to stricter Montreal Protocol standards set forth in 2010. Regulation increases have Oxygen has a variety of other applications, ranging from become a key differentiator in fluorocarbon demand in chemical production to healthcare. Oxygen has found a way comparison to other industrial gases. New product into the automobile industry, becoming a key component of development in the wake of increased EPA regulation has ethylene glycol (antifreeze). With an aging U.S. population, shifted producers’ focus to fluorocarbons with low Global oxygen consumption has amplified in the fields of respiratory Warming Potential (“GWP”), as defined by the Environmental therapy and emergency care, among many other health Protection Agency. Because HFOs command higher prices related applications. Additionally, oxygen gas is consumed for and contain lower GWP than other fluorocarbons, they are various purposes in water treatment plants, refineries, and the actively preferred by their end users. manufacturing of electronics.

Figure 7: Market Share and Growth by Product, 2014 - 2019P

Other Gases, Other Gases, 15.3% Hydrogen & 17.1% Hydrogen & Argon, 30.4% 2015 - 2019 Argon, 28.8% Product Growth Rate Carbon Dioxide, Hydrogen & Argon 2.5% 9.4% Carbon Dioxide, 9.7% Fluorocarbons 6.2% 2014 = $9B 2019P = $11B Nitrogen 0.9% Oxygen 1.5% Oxygen, 9.7% Carbon Dioxide 4.3% Oxygen, 8.8% Other Gases 6.0%

Fluorocarbons, Fluorocarbons, 21.1% Nitrogen, 16.5% Nitrogen, 14.4% 18.6%

Source: The Freedonia Group 8

Industry Overview

Nitrogen

Demand for nitrogen through 2019 is forecasted to expand at Figure 8: Ammonia Consumption by Volume, 2014 0.9% annually, and growing into a $1.6 billion dollar market Industrial over that same horizon. Increased drilling activity for oil and 12% natural gas will drive enhanced oil recovery (“EOR”) techniques, thusly increasing nitrogen requiring applications. Along with EOR techniques, growing output of chemical and 2014 Ammonia metal products are expected to support the nitrogen market. (NH₃) Consumption Throughout the last decade, nitrogen has experienced market expansion of 1.5% yearly. Though smaller in magnitude than Fertilizer the other two segments containing atmospheric gases, a 13% 88% decrease in nitrogen demand in 2009 alone plays culprit to a depressed ten-year average. Sources: The Freedonia Group, Industrial Efficiency Technology Database

Nitrogen has essential applications in both natural gas recovery and the metal production process. Oil and gas producers consume the gas for processes involving EOR and well stimulation. For the EOR process, nitrogen gas is pumped underground to pressurize the well. Once properly pressurized, recovery rates for oil in the well are increased sizably. When it comes to well stimulation, nitrogen is the preferred choice of oil drillers. In general, gas-based fracturing fluids are used on relatively shallow oil and gas formations that contain low permeability, porosity, and water- sensitivity. Nitrogen also serves as an inert gas in the metal production process, providing an anti-combustion and anti- oxidation blanket. Nitrogen blanketing generates an oxygen deprived environment to prevent fire or explosion in manufacturing applications. In liquid form (-326oF), nitrogen is used for refrigeration and freezing purposes. Liquid nitrogen competes with carbon dioxide in the food and beverage industry as a refrigeration agent.

Nitrogen gas has many other consumer applications as well, including its use in the electronic and chemical industries. The greatest consumption of nitrogen, by volume, is through the production of ammonia. Ammonia is commonly applied as fertilizer, and as much as 88% of the ammonia produced in 2014 was consumed by fertilization products.

Industry Overview

Carbon Dioxide A projected $1.1 billion dollar carbon dioxide market by 2019 Figure 9: U.S. Food & Beverage Shipments will be supported by healthy gains in food and beverage 1,200 12.0% output. Furthermore, carbon dioxide usage over the five year horizon will be spurred by other related applications. Oil and 1,000 10.0% gas EOR will factor into the 4.3% CAGR expected for the 800 8.0% carbon dioxide industry. As is the case with oxygen 600 6.0% consumption, so too will carbon dioxide become increasingly Dollars Billions Dollars in 400 4.0% integral in the healthcare sector. Carbon dioxide has recently faced competition from liquid nitrogen in the food and 200 2.0% beverage space, limiting serious growth potential. Despite 0 0.0% this, carbon dioxide consumption has experienced more than 5% annual growth over the past ten years. Positive and stable U.S. Food & Beverage Shipments % Growth growth from the food and beverage industry supported Source: The Freedonia Group demand, and because of its main application, the market for carbon dioxide experiences little cyclicality (the gas boasts an industry leading 0.89 r2 value). Carbon dioxide is used for EOR and well stimulation, respiratory stimulation, and the manufacture of rubber, plastics, electronics, chemicals, and metals.

Other Gases

This portion of the market insight refers to a compilation of the following industrial gases:

Acetylene Helium Liquid Air Neon Nitrous Oxide

In aggregate, the demand for the above gases is expected to grow rapidly at 6% per annum, generating a nearly $2 billion dollar market by 2019. As gases such as helium experience scarcity due to the government-mandated National Helium Reserve auction, market price will rise by simple law of supply and demand. Helium and acetylene hold the majority share of the “Other Gases” market. Applications for this sector have an abundance of variety, ranging from cryogenics to leak detection, among many others. Acetylene is a common solvent in the manufacturing process of plastics and fibers, and serves as a fuel gas for welding.

Financial Analysis

III. Financial Analysis

Fiscal 2014 was a strong revenue year for industrial gas efficiencies and garner market share, with the intention of companies. The strong revenue growth is no surprise as the enhancing pricing power increased M&A activity. Companies industry is directly correlated to global GDP, which has typically pursue accretive acquisitions to improve operating benefited from the relatively strong economy and a continued efficiencies and garner market share, with the intention of low interest rate environment. In addition to positive end enhancing pricing power. market dynamics, certain sectors within the industrial gas industry have also benefited from significant inflation in unit Figure 10: Quarterly Industrial Gas Revenue, 2012 - 2014 selling prices, due in some cases to the scarcity of product. (Units in 000s) $20,000 The publicly-traded industrial gas companies tracked grew $18,000 their revenue base in 2014, posting average revenue growth of 6.9%. In addition to expanding revenue, the average $16,000 Earnings Before Interest, Taxes, Depreciation, and $14,000 Amortization (“EBITDA”) margin for all companies excluding Hudson Technologies increased nearly 3.6%. League Park $12,000 believes that profitability margins will flatten out over the $10,000 coming years due to increasing commodity prices and 1Q 2Q 3Q 4Q competition, along with increased volatility in financial 2012 2013 2014 markets. Although not intuitive, flat industry profit margins Note: Quarterly revenue figures are derived from the companies listed in Figure 11 should be a driver of increased M&A activity. Companies Source: Capital IQ typically pursue accretive acquisitions to improve operating

Figure 11: Industry Financial Analysis, 2015 As of September 30, 2015 ($ in 000s) YoY Change Last Twelve Months (LTM) LTM Margins LTM LTM Margins

Revenue EBIT EBITDA Gross EBIT EBITDA Revenue Gross EBIT EBITDA

L'Air Liquide $18,028.8 $3,097.0 $4,546.8 62.1% 17.2% 25.2% 3.8% 1.2% 7.2% 6.8% The Linde Group 19,906.4 2,182.1 4,246.2 35.2% 11.0% 21.3% 5.8% 1.3% (1.0%) 3.0% Praxair 11,629.0 2,601.0 3,748.0 44.0% 22.4% 32.2% (5.4%) 1.6% (4.2%) (3.5%) Air Products & Chemicals 10,122.5 1,836.8 2,793.2 29.1% 18.1% 27.6% (3.0%) 8.2% 11.7% 7.3% Airgas 5,341.0 641.7 976.5 55.6% 12.0% 18.3% 3.1% (0.2%) 0.5% 2.2% Taiyo Nippon Sanso (Matheson) 4,657.2 300.2 638.4 33.3% 6.4% 13.7% 3.4% 2.6% 7.7% 5.7% Hudson Technologies Inc. 74.1 6.2 7.9 20.5% 8.4% 10.6% 40.9% 89.8% 547.1% 1512.9%

Low $74.1 $6.2 $7.9 20.5% 6.4% 10.6% (5.4%) (0.2%) (4.2%) (3.5%) Average $9,965.6 $1,523.6 $2,422.4 40.0% 13.6% 21.3% 6.9% 14.9% 81.3% 219.2% Median $10,122.5 $1,836.8 $2,793.2 35.2% 12.0% 21.3% 3.4% 1.6% 7.2% 5.7% High $19,906.4 $3,097.0 $4,546.8 62.1% 22.4% 32.2% 40.9% 89.8% 547.1% 1512.9% Source: Capital IQ

Valuation Metrics

IV. Valuation Metrics

Publicly-traded industrial gas companies have essentially Figure 12: Relative Stock Price Performance mirrored the broader equity market (i.e., S&P 500 Index) As of September 30, 2015 trends over the past five years, and have been steadily Price as of 52 Week 09/30/15 High Low % of High contracting from Q1 of 2012 through 2014. Thus far in 2015, the production and procurement of oil has become more L'Air Liquide $117.91 $138.33 $97.28 85.2% The Linde Group 161.71 217.62 156.27 74.3% volatile, and so too have the industrial gases that support the Praxair 101.86 132.95 98.55 76.6% refining industry. As of September 30, 2015, the median Air Products & Chemicals 127.58 158.20 118.20 80.6% Airgas 89.33 119.00 88.02 75.1% publically tracked company was trading at 74.2% of its 52 Taiyo Nippon Sanso (Matheson) 9.45 16.29 7.64 58.1% Hudson Technologies Inc. 2.11 3.05 1.17 69.3% week high. Public company valuations multiples remain strong in the recovery period following the steep decline in Low $2.11 $3.05 $1.17 58.1% Average $87.14 $112.21 $81.02 74.2% 2008. The median Earnings Before Interest, Tax, Depreciation, Median $101.86 $132.95 $97.28 75.1% High $161.71 $217.62 $156.27 85.2% and Amortization (“EBITDA”) multiple for industrial gas companies was 10.2x as of September 30, 2015.

Industrial Gas vs. S&P 500 Index Performance 200% 175%

150%

125% 100%

75%

50% 25%

0% 2010 2011 2012 2013 2014 2015

S&P 500 Index Industrial Gas Companies

Source: Capital IQ

Figure 13: Industry Valuations As of September 30, 2015 ($ in 000s)

Market Cap Enterprise TotalLTM Debt / Last Twelve Months (LTM) Enterprise Value / LTM 09/30/15 Value* EBITDA Capital Revenue EBIT EBITDA Revenue EBIT EBITDA

L'Air Liquide $40,414.1 $49,659.4 2.2x 19.5% $18,028.8 $3,097.0 $4,546.8 2.8x 16.0x 10.9x The Linde Group 30,018.6 40,589.5 2.2x 23.7% 19,906.4 2,182.1 4,246.2 2.0x 18.6x 9.5x Praxair 29,180.0 38,946.0 3.2x 29.2% 11,629.0 2,601.0 3,748.0 3.3x 15.0x 10.2x Air Products & Chemicals 27,427.5 33,467.3 2.1x 17.6% 10,122.5 1,836.8 2,793.2 3.3x 18.2x 11.3x Airgas 6,668.8 9,102.1 2.4x 25.9% 5,341.0 641.7 976.5 1.7x 14.2x 9.3x Taiyo Nippon Sanso (Matheson) 4,091.6 6,187.2 3.9x 38.0% 4,657.2 300.2 638.4 1.3x 20.6x 9.2x Hudson Technologies Inc. 96.9 110.1 1.9x 13.2% 74.1 6.2 7.9 1.5x 17.7x 14.0x

Low $96.9 $110.1 2.1x 17.6% $74.1 $6.2 $7.9 1.33x 14.2x 9.2x Average $19,699.6 $25,437.4 2.2x 23.9% $9,965.6 $1,523.6 $2,422.4 2.28x 17.2x 10.6x Median $27,427.5 $33,467.3 2.2x 23.7% $10,122.5 $1,836.8 $2,793.2 2.04x 17.7x 10.2x High $40,414.1 $49,659.4 3.9x 38.0% $19,906.4 $3,097.0 $4,546.8 3.35x 20.6x 14.0x *Enterprise value equals market capitalization plus net debt, minority interests, and preferred shares Source: Capital IQ 12

Valuation Metrics

Valuation Trends

Recent public valuation multiples for industrial gas companies supply chain. In particular, we believe the packaged gas have shown improvement since the last economic cycle that companies will continue to be prime targets for the Majors as began in 2008. Since 2001, industrial gas companies have they consolidate the supply chain. We believe that owners of been focused on servicing the billowing industrial, energy, industrial gas companies have the opportunity to realize chemical, and healthcare markets. With industrial growth robust valuations in the current market environment. In moderating over the medium-term, we anticipate that many addition, as the public markets put pressure on companies to industrial gas companies will be focused on minimizing their grow, it is anticipated that this will inherently create exposure to moderating commodity prices and garnering competition for acquisitions and the possibility for higher market share, including some companies that heretofore were valuations. not aggressive acquirers, but are highly interested in continuing vertical integration initiatives to consolidate the

Figure 14: Trends in Industry Valuations For the years ended December 30, 2005 – 2014 and YTD September 30, 2015

9/30/2015 12/31/2014 12/31/2013 12/31/2012 12/31/2011 12/31/2010 12/31/2009 12/31/2008 12/31/2007 12/31/2006 12/31/2005

L'Air Liquide 10.9x 11.6x 10.4x 9.9x 9.6x 10.4x 9.8x 7.9x 11.0x 10.1x 9.6x The Linde Group 9.5x 10.3x 10.1x 10.2x 8.4x 9.2x 8.6x 6.5x 9.4x 12.9x 6.5x Praxair 10.2x 12.0x 13.2x 11.4x 11.4x 12.5x 12.4x 8.0x 13.0x 10.4x 10.9x Air Products & Chemicals 11.3x 13.5x 11.4x 9.2x 8.3x 9.5x 9.9x 5.8x 10.7x 9.5x 8.8x Airgas 9.3x 11.6x 11.6x 10.6x 10.1x 9.9x 8.0x 6.7x 10.2x 9.2x 9.5x Taiyo Nippon Sanso (Matheson) 9.2x 10.8x 8.9x 6.9x 6.4x 7.7x 11.5x 6.6x 8.9x 10.5x 10.1x Hudson Technologies Inc. 14.0x NM NM 6.1x 9.5x 24.0x NM 5.9x NM 9.4x 15.6x

Low 9.2x 10.3x 8.9x 6.1x 6.4x 7.7x 8.0x 5.8x 8.9x 9.2x 6.5x Average 10.6x 11.6x 10.9x 9.2x 9.1x 11.9x 10.0x 6.8x 10.5x 10.3x 10.1x Median 10.2x 11.6x 10.9x 9.9x 9.5x 9.9x 9.9x 6.6x 10.5x 10.1x 9.6x High 14.0x 13.5x 13.2x 11.4x 11.4x 24.0x 12.4x 8.0x 13.0x 12.9x 15.6x

Figure 15: Industry Valuation Diagram As of September 30, 2015 35.0%

10.2x LTM EBITDA 30.0%

25.0% 10.9x LTM EBITDA 11.3x LTM EBITDA

9.5x LTM EBITDA 20.0%

9.3x LTM EBITDA

15.0% LTM EBITDA Margin EBITDA LTM

9.2x LTM EBITDA

10.0% 14.0x LTM EBITDA

5.0%

0.0% 0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 3-Year Revenue CAGR Source: Capital IQ 13

Industrial Gas M&A Trends

V. Industrial Gas M&A Trends

Market Fragmentation The cylinder/ packaged industrial gas industry is fragmented with been to complete bolt-on acquisition in contiguous regions, over 1,000 total participants competing. However, due to high which enables the acquirer to realize significant synergetic freight costs, location of ASUs, and unique regional product benefits. These benefits include centralized administrative demand, we believe that the industrial gas market needs to be functions, efficient production and logistics planning, and pricing assessed by individual gas products and potentially on a regional power. An alternative is to acquire stand-alone operations that basis. For example, although the industrial gas market appears to maintain a substantial national or geographic presence. The be dominated by a select group of global companies, the benefits of acquiring a regionally dominant/stand-alone participants tend to compete on a regional basis with a plethora operation are immediate cash-flow generation and the ability for of participants. League Park believes that these dynamics will the acquirer to leverage its newfound market position and result in continued acquisition and activity of companies that execute bolt-on acquisitions. have a strong niche product or regional presence. In 2014, the U.S. acted as a net exporter of industrial gases, with a Down-Stream Integration trade surplus of $330 million. Japan and Korea are also leaders in the export of industrial gases, holding 16% and 12% shares of the Nearly all of the Majors have publicly stated their intent to lead gas export market, respectively. China remains a large net down-stream integration in the industrial gas industry (the importer of industrial gases, holding nearly 20% of the world’s strategic purchase of distributors). Given that the Majors have industrial gas imports. captive production units and shortages of certain products exist in the marketplace, they have been provided significant pricing League Park expects that the Majors will continue to drive power in the short-run. League Park believes that the Majors will acquisition activity. A strong U.S. dollar, coupled with a continued look to increasingly capture end customer relationships over the low interest rate borrowing environment, creates value and cause long-run and control the entire supply chain. Down-stream for the Majors and other large corporations to expand their integration should enable the Majors to provide turnkey gas product offerings. Additionally, currency strength creates solutions, capture additional value in the supply chain, and opportunity to increase, and in some cases, explore international enhance cash flow and earnings stability. In addition, down- ventures. stream integration enables the Majors to increasingly capture share within the higher-margin cylinder/ packaged market. Implications of Eco-Friendly Production Examples of down-stream integration by Majors are Praxair’s acquisition of the American Gas Group, Airgas’ acquisition of We believe the global adoption of sustainable energy production Superior Specialty Gas Services, and the acquisition of Specialty has positioned the industrial gas market at a unique inflection Air Technologies by TechAir. League Park believes that the point. Example growth drivers are: (i) hydrogen and oxygen Majors will continue to utilize a portion of their cash hoard, which increasingly continue to be important components of the currently sits near $4 billion, to complete acquisitions of down- complex refining and gasification processes, which greatly reduce stream assets, and take advantage of the fragmented nature of emissions and produce cleaner fuel; (ii) increased production of the industrial gas industry. photovoltaics; (iii) increased focus on vehicle emission standards with BAR gases and EPA protocols; and (iv) purification benefits of Globalization carbon dioxide in water treatment and oxygen in wastewater treatment. The aforementioned drivers are anticipated to Although the domestic market is projected to grow in the mid- translate into accelerating sales and market penetration for gases single digits (4%), many of the Majors are turning to geographic with environmental applications. expansion as a means to generate double-digit revenue growth and appease Wall Street analysts. Historically, one approach has 14

Industrial Gas M&A Trends

The Environmental Protection Agency’s Clean Air Act (CAA) has This serves as additional regulation to the required elimination of created positive implications for the industrial gas industry all CFC production and consumption worldwide in 2010. through its goal of reducing greenhouse and pollutant emissions. Ultimately, the protocol calls for the same halt in production of Petroleum refiners must reduce sulfur levels in their refined HCFCs by the year 2030, making non-ozone depleting products. Because of this legislation, an increased volume of hydrofluorocarbons (HFCs) a likely replacement. hydrogen has become a necessary step in producing clean- burning fuels. Additionally, environmental regulation has Unlike other previous innovations in the industrial industry, the become a driver of change in the fluorocarbon market. Because adoption of gases that have environmental applications will fluorocarbons are ozone depleting in structure, their applications initially be driven by end consumers pulling the product through must be heavily regulated. The Montreal Protocol on Substances the supply chain as consumers and governments continue to that Deplete the Ozone Layer controls both the production and demand goods that are produced in environmentally sustainable consumption of these potentially harmful gases through a processes or support reduced emissions. Given this rapidly suggested phase-out schedule that varies by country. Some CFCs expanding market opportunity, many companies are looking to have been removed completely in economically advanced and enhance their position in products that have environmental industrialized countries. According to the Montreal Protocol, applications. HCFC production will be 90% phased out by the end of 2015.

League Park Overview

LEAGUE PARK OVERVIEW AND REPRESENTATIVE TRANSACTIONS League Park is a boutique investment bank that professionally and ethically advises clients on strategies aimed to maximize shareholder value. We assist middle market companies with transactions that generate value through mergers and acquisitions, recapitalizations, capital raising, and outsourced corporate development.

Whatever the transaction, our clients receive specialized attention from senior bankers at every step in the deal process. Our team has decades of investment banking, corporate development, private equity, and operational experience, completing over 300 transactions across a diverse range of industries in the past 25 years.

Advisory Capabilities: For more information, please contact: Mergers and Acquisitions Recapitalizations Chemicals and Industrial Gas: Capital Raising Outsourced Corporate Development Wayne A. Twardokus (216) 455-9989 [email protected] Industry Expertise: Business Services Healthcare Technology Retail and Consumer Products To learn more about League Park, please contact: Industrial . Automotive J.W. Sean Dorsey . Building Products and Construction Founder and CEO . Distribution (216) 455-9990 . Industrial Gas [email protected] . Industrial Services . Metals 1100 Superior Avenue East, Suite 1650 . Paper, Print and Packaging Cleveland, Ohio 44114 . Specialty Chemicals (216) 455-9985 . Specialty Glass or visit us at: www.leaguepark.com

Transactions represent personal experience of members of League Park while employed at League Park or other firms 16

Representative Transactions

SPECIALTY AIR TECHNOLOGIES SUPERIOR SPECIALTY GAS SERVICES

Company Overview Company Overview Specialty Air Technologies (“SAT” or the “Company”) blends Superior Specialty Gas Services, Inc. (“Superior” or the and packages “high-end” pure gases and mixtures for several “Company”) is a leading independent distributor of specialty growing niche markets in North America, Latin America, and gas mixtures for the North American hydrocarbon market. Asia. The Company specializes in and packages a variety of The Company specializes in and packages a variety of industrial gases, including argon, ethane, ethylene, specialty gases including customized calibration blends, halocarbons, helium, hydrogen, isobutane, isobutylene, high hydrocarbons, reactive mixtures, high-purity chemicals, and purity oxygen, krypton, methane, neon, nitrogen, nitrous research-grade gases as well as industrial gas products. oxide, propane, sulfur hexafluoride, and xenon. SAT’s pure Superior procures its products on a global basis and is a industrial gases are augmented with a full-line of mixtures. known industry leader for the supply of gas mixtures to the calibration market.

AMERICAN GAS GROUP VANDEMARK CHEMICAL

Company Overview Company Overview American Gas Group is one of the largest independent VanDeMark Chemical (“VanDeMark”), a portfolio company of specialty gas distributors in North America. The company Buckingham Capital, is a leading global producer of specialty, specializes and packages a variety of specialty gases including intermediate, and catalyst chemicals utilizing phosgenation EPA Protocols, hydrocarbons, VOC mixtures, reactive mixtures, chemistry. The company serves a diverse base of loyal high-purity chemicals, and research-grade gases in addition customers from a broad range of end markets, including to industrial and medical gas products. The American Gas pharmaceutical, agricultural, paints and coatings, plastics and Group procures its products on a global basis and is a known polymers, and sealants and adhesives. VanDeMark maintains industry leader for supply of rare gases and gas mixtures. The key customer and distribution relationships throughout North company’s unique packaging capabilities and breadth and and South America, Europe, Australia, and Asia. The depth of inventory provide customers with one-stop for all company’s research and development department has their specialty gas and hard goods needs. distinguished VanDeMark within its customers’ organizations.

Representative Transactions

RECENT TRANSACTIONS

INDUSTRIAL & CONSUMER

Ferro

HEALTHCARE & IT

Sources and Disclosure

SOURCES AND DISCLOSURE

Sources Referenced

Capital IQ Company Investor Presentations Credit Suisse Equity Research FMI Industrial Efficiency Technology Database SEC Filings and Forms (EDGAR) Standard & Poor’s The Freedonia Group U.S. Census Bureau

The Freedonia Group Research materials for the preceding report were provided by The Freedonia Group. Founded in 1985, the Freedonia Group is a leading international business research company that publishes more than 100 industry research studies annually. These reports include product and market forecasts, industry trends, threats and opportunities, competitive strategies, market share determinations and company profiles. More than 90% of the industrial companies in the Fortune 500 use The Freedonia Group research to help with their strategic planning. www.freedoniagroup.com

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