Market Update

October 2018 Introduction to PMCF

Senior Banker Led,

▪ Founded in 1995 – nearly 25 years of middle market advisory experience ▪ Differentiated approach via senior banker leadership and direct involvement through every step of the transaction, yielding the highest levels of service ▪ One of the largest, most active boutiques with a focus on niche, entrepreneurial businesses ▪ Proven analytical and positioning processes drives superior preparation and value outcomes ▪ Affiliation with International™ provides clients with expansive transaction expertise and global geographic reach ▪ Integrated, Single Point Approach to Investment banking using supportive functions from Plante Moran and EKS&H Denver Detroit Chicago

Recent Awards & Recognition

2017 M&A Atlas Award Winner: 2017 M&A Atlas Award Winner: 2016 EMEA M&A Advisor 2016 M&A Atlas Award 2016 M&A Award Winner: 2013 International M&A USA Boutique Investment Middle Markets Corporate Deal Award Finalist: Winner: Corporate Acquisition of 2016 M&A Award Winner: Boutique Investment of the Year of the Year Transaction of the Year Deal of the Year the Year Deal of the Year Banking Firm of the Year

Market Update October 2018 About PMCF

Global Reach and Capabilities

P&M Corporate Finance is a founding member of Corporate Finance International® (CFI) • Provides critical in-country investment banking professionals for negotiation with international parties and buyer/target identification • Platform for seamless execution of cross-border transactions through shared international contacts and resources • Over a decade of international collaboration and transaction experience between member firms

Worldwide — Up to USD 200M

RANK 2016 Financial Advisor # of Deals 1 KPMG 421 2 PricewaterhouseCoopers 338 27 17 32 ~200 3 Ernst & Young LLP 228 4 BDO 233 COUNTRIES FIRMS OFFICES PROFESSIONALS 5 Rothschild 221 6 Deloitte 218 7 Houlihan Lokey 212 8 IMAP 169 9 Mizuho Financial Group 167 10 136 34 CFI 70 35 Credit Suisse 69

Market Update October 2018 Agenda

• Public Equity • Private Equity • Private Debt • Multiples: Market and Sector-Specific • Apportioning Risk • Observations Going Forward

Market Update October 2018 Market Trends Public Equity

 Listed domestic companies, US through 2017

 Market cap listed domestic companies, US through 2017

Market Update October 2018 Market Trends Private Equity Fund Trends

 Fundraising activity slows with fewer funds coming to the market

 But cumulative dry powder continues to grow.

$900 $848.3 $800 $677.3$692.9 2017 $624.0 2016 $700 $600.2 $651.7 $640.3 $629.0 $512.9 $564.7 $600 $531.0 $520.7 2015 $337.9 $500 2014 $400 Cumulativ 2013 $300 Overhang 2012 $200 by vintage 2011 $100 2010 $0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017*

*Source: PitchBook Market Update October 2018 Market Trends Private Debt Trends

 Mirroring PE, number of funds appears to have peaked

 But cumulative dry powder also continues to grow.

 We are seeing continued and increased creativity among private debt providers  Higher multiples of EBITDA  Lighter covenants  Hybrid senior and unitranche  A search for higher yields

*Source: Prequin Market Update October 2018 Market Trends Debt vs. Equity in transactions

*Source: Pitchbook Market Update October 2018 Market Trends Private Equity vs. Strategic MA (% of deals)

 .

8,000 40.0%

34.6% 7,000 35.0% 31.2% 30.1% 30.8% 29.3% 28.9% 28.9% 6,000 27.9% 27.9% 27.8% 30.0% 26.7% 25.4% 25.5% 25.4% 25.9% 25.4% 23.8% 24.5% 5,000 25.0%

4,000 20.0%

3,000 15.0%

4,427

5,206

5,219

4,932 4,450

2,000 3,704 10.0%

3,819

3,685

4,250

5,022

4,794

4,167

4,732

3,901

3,824

4,340

2,884 4,680

1,000 5.0%

1,637 1,612 1,465 1,581 1,615 1,783 1,632 1,634 1,724 1,775 1,721 1,635 1,582 1,800 1,586 1,681 1,646 1,523 0 0.0% 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 2014 2015 2016 2017 2018

Sponsor Backed Corporate M&A Sponsor Backed %

Market Update October 2018 Market Trends Total M&A Deal Trend

Market Update October 2018 Market Trends Secondary Market Transactions

Market Update October 2018 Market Trends Industry Focus Trends

 IT and healthcare are still the stars

US Strategic activity (#) by Sector 12,000

10,000

8,000

6,000

4,000

2,000

0 2010 2011 2012 2013 2014 2015 2016 2017 2018*

Energy Healthcare Materials & Resources IT B2B B2C

*Source: Pitchbook *Source: CapIQ

Market Update October 2018 Market Trends Industry Focus Trends

 IT and healthcare are still the stars

US Strategic activity ($B) by Sector 2,500

2,000

1,500

1,000

500

- 2010 2011 2012 2013 2014 2015 2016 2017 2018*

Energy Healthcare Financial Services Materials & Resources IT B2B B2C

*Source: Pitchbook *Source: CapIQ

Market Update October 2018 Market Trends Market Multiples

*Source: Pitchbook Market Update October 2018 Market Trends 2018 IT Market Multiples

*Source: S&P Capital IQ Market Update October 2018 Factors Pressuring Multiples

• Influx of capital • Much competition for relatively few deals • It’s a supply problem! • Tax code changes • 35% to 21%: Upward pressure • Interest in excess of 30% of EBITDA: Downward pressure at 6-7x EBITDA of debt • Repatriation: Jury is still out • Tariffs (or not tariffs… or tariffs… or not tariffs…) • Eventual downward pressure: Inflation and interest rates

Market Update October 2018 Apportioning Risk Earnouts

• Sellers have had the upper hand in recent years • Swinging back to buyers as hedge against higher multiples

*Source: SRS Acquiom Market Update October 2018 Apportioning Risk Indemnification Caps

Survival

Baskets Caps RWI

*Source: SRS Acquiom Market Update October 2018 Apportioning Risk Escrow

Escrow Size as % of Transaction Value – All Deals

Escrow Size as % of Transaction Value – No RWI

*Source: SRS Acquiom Market Update October 2018 Summary of Past Data

• Multiples continue to be historically very high • Continues to be a sellers’ market • For the good companies! • Defined as: strong management, with a defensible product/service, predictable revenue/earnings, strong growth in a large market. • For those Goldie Locks companies, buyers still lining up and terms are seller-favorable • Tax changes are “artificially” supporting multiples • Due diligence will continue to be “onerous” • Likely to be the best time in a generation

Market Update October 2018 Observations Going forward

Market Update October 2018 Observations Going Forward Treasury Spread

 .

Market Update *Source: St. Louis Federal Reserve October 2018 Observations Going Forward

• Multiples will remain elevated • Too much competition • But they have peaked • Will not revert to the mean any time soon though • Deal counts will continue to trend downward (slowly) • Economic breaks • WSJ: Already had a recession in parts of Midwest • ITR: Mild slow down in 2019 with rebound thereafter • LBCI: Expectations of national and regional downturn • Tariffs are rippling through the economy • But, nothing visibly precipitous at this point

Market Update October 2018 Thank You!