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Understanding Your Liquidity Options in Today's Market 7/24/2019 UNDERSTANDING YOUR LIQUIDITY OPTIONS IN TODAY'S MARKET LIQUIDITY EVENTS: M&A UPDATE & LIQUIDITY OPTIONS July 24, 2019 TO RECEIVE CPE CREDIT • Individuals . Participate in entire webinar . Answer polls when they are provided • Groups . Group leader is the person who registered & logged on to the webinar . Answer polls when they are provided . Complete group attendance form . Group leader sign bottom of form . Submit group attendance form to [email protected] within 24 hours of webinar • If all eligibility requirements are met, each participant will be emailed their CPE certificate within 15 business days of webinar 1 7/24/2019 • Joined BKD Capital Advisors in 2007 • More than 30 years of financial advisory services experience • Founder & Managing Partner Santana Partners, LLC • Partner & Vice President Daniels & Associates, L.P. • Commercial Banker – The Fuji Bank, Ltd.; The Sumitomo Bank, Ltd.; & TONY GIORDANO United Jersey Bank President & Managing • Managed investment & commercial banking transactions totaling over $5.0 Director billion • Experience in many industries, including M&D, food & beverage, technology, Denver telecom, media, retail, hospitality, construction, real estate, health care & insurance • Fordham University – Certificate Program for Advanced Study in Business – Corporate Finance, 1992 • Regis University – MBA, 1987 • Fairfield University – B.S., Marketing, 1984 • FINRA Registered Representative • Series 7, Series 24 & Series 63 About BKDCA TABLE OF CONTENTS Economic Outlook M&A Trends Capital Markets Valuations Liquidity Options 2 7/24/2019 ABOUT BKD CAPITAL ADVISORS BKD, LLP – BREADTH & DEPTH OF RESOURCES • 40 offices in 18 states • Approximately 380 Partners & Managing Directors • More than 2,700 employees • Seven industry niche groups • Manufacturing & Distribution, Energy, Health Care, Financial Services, Construction & Real Estate, Technology & Telecom & Not-for-Profit • Clients in all 50 states & internationally • End-to-end client service proposition Key Service Offerings BKD Office BKD/BKDCA Office • Audit & Tax • Forensics & Valuation Services • BKD Capital Advisors • Risk Management • BKD Wealth Advisors • Special Tax Services • Transaction Services 3 7/24/2019 BKD CAPITAL ADVISORS PROFILE Why BKD Capital Advisors? • Wholly owned investment banking subsidiary founded in 1994 . Middle market-focused with deep M&D experience • Diverse transaction experience spanning multiple industries, sales channels & . Relationship culture end markets . We are advisors, not facilitators; plan for success . Senior bankers execute transactions • Focused on high-quality middle-market transactions with enterprise values . Tailored approaches to planning & executing from $10 million–$300 million, as well as preparatory consulting engagements . Outstanding domestic & international reach • Active senior banker involvement from start to finish, with support from a highly . Creative approach to positioning & selling “futures” qualified team of junior bankers & associates/analysts . Data- & fact-centric • More than half of our investment bankers are senior bankers . Breadth of complementary BKD services • All engagements include multiple senior bankers Transaction Type Client Industry Buyer Type 5% 5% 19% 13% 12% Mfg. & Dist. 33% Strategic Sell-Side Health Care 43% M&A Business Services Buy-Side 18% PEG Financial Services M&A Consumer & Retail PE-backed Strategic 38% 82% 32% ECONOMIC OUTLOOK 4 7/24/2019 2019 ECONOMIC OUTLOOK: MACRO VIEW Growth • The labor market remains healthy with the June unemployment rate at 3.7 percent, close to its lowest level in 50 years. • The U.S. economy grew at a healthy 3.1% rate in the first quarter of 2019, but signs are mounting that growth will slow through the remainder of the year. • Slight cooling in the manufacturing sector & a drop in trucking shipment are signs of a possible economic slowdown in the future. • ISM Manufacturing Index stood at 51.7 at the end of June—approaching a two-year low—falling from 58.2 in January. When this index falls below 50, the economy is typically contracting. • The Cass Freight Index has tracked below 2018 levels for each month of 2019, most recently posting 1.23 in May, compared to 1.31 a year prior. Key Considerations • In the first quarter, consumer spending, which accounts for 70% of economic activity, slowed to 0.9% rate gain. Economists believe consumer spending will rebound in the second quarter. • Business investment growth nearly doubled from 2017 to 2018 & accounted for almost one third of GDP growth for the year—overall capital spending has fallen in 2019; however, investment in intellectual property research & development increased from Q1 to Q2 of 2019, & is higher than it was in the same quarter a year prior. [1] • While inflation is projected by the Congressional Budget Office to rise to 2.7 percent by 2020, the Bureau of Economic Analysis found that inflation in Q1 of 2019 had fallen under 2.0 percent, below the previous quarter & the 2018 Q1 rate, & below the Federal Open Market Committee’s (FOMC) symmetric 2 percent objective. Source: [1] St. Louis Federal Reserve Bank – “Data Series 387” 2019 ECONOMIC OUTLOOK: POLITICS & PUBLIC POLICY Taxes • Positive effect on corporate bottom lines from tax reform will continue to be felt in 2019—however, in a smaller magnitude as some of the temporary provisions begin to expire. Political Climate • Continues to be a difficult political climate between Congress & the Administration in addition to moving into the Presidential election cycles—campaigning for the 2020 election is already underway. Trade Policy & Global Outlook • Global conflict over trade—whether tariffs, anti-dumping/countervailing duties (AD/CVD), or international trade agreements—continues to be one of the biggest threats to economic growth. • China GDP slowed to 6.2% in the second quarter, the weakest rate in 27 years, as the country’s trade war with the U.S. took its toll. • Global growth has continued to soften this year. The World Bank has identified subdued investment in emerging markets & rising public debt as key dampeners for growth. • Global growth in 2019 has been downgraded to 2.6 percent, 0.3 percent below previous forecasts. • Other concerns include uncertainty surrounding issues like Brexit negotiations & the Italian budget crisis. 5 7/24/2019 2019 ECONOMIC OUTLOOK: INTEREST RATES Credit Market • The current Fed funds rate is set at 2.5 percent—raised by the Board of Governors from 2.25 percent in December of 2018. • On 7/10/19, Federal Reserve Chairman Jerome Powell testifying before the House Financial Services Committee, highlighted ongoing risks to the United States economy from the trade war, low inflation & a global economic slowdown—signaling a rate cut may be likely when the Fed meets again in late July. • On 7/16/19 Chairman Powell repeated his pledge to “act as appropriate” to keep the economic expansion going as his fellow central bankers move toward an expected interest rate cut at the July 30–31 Federal Open Market Committee policy meeting. • The availability of capital & historically low interest rates should continue to support vibrant M&A activity. 3-month LIBOR as of 7/15/19 is 2.30325%. Prime rate as of 7/15/19 is 5.50, up from 5.00 one year ago. Leveraged Finance • The increased volatility in equity markets at the end of 2018 had ripple effects in the credit market for deals. • Total leveraged finance volume for the first quarter was $191 billion. This represented a 41% increase from the fourth quarter of 2018 but a decrease of nearly 20% on a year-over-year basis. • A survey of M&A lenders by William Blair found that the perceived condition of the leverage finance market improved over the last quarter, up from 3.9 to 4.2 out of 5.0. • Lenders reported that the two main factors influencing this market are overall economic health & rising interest rates. CAPITAL MARKETS & M&A TRENDS 6 7/24/2019 CURRENT M&A CONDITIONS • We expect middle-market M&A activity in the U.S. will remain active for at least another 12 to 18 months, driven by an abundance of equity looking for deals & accommodating credit markets, among other forces. • Many are assessing strategic options, such as whether to exit, find a partner to help them get their business to the next level or become a consolidator. • Near-term deal activity will continue to be fueled by: • Ongoing access to capital & financing • Strengthened balance sheets of strategic buyers • Increasing private equity activity • U.S. corporations have $927 billion in cash on balance sheets & are increasing acquisition activity. [1] • Private equity firms have $1.2 trillion in capital to invest. [2] • Debt markets are healthy with lenders active & competitive in M&A lending. • The current M&A market presents both opportunities & challenges • Companies with excellent management teams, above average margins, multiple growth opportunities can be highly valued. • Strong competition for quality assets as both corporates & private equity continue to seek deals to fuel growth & deploy capital. • General worldwide macro events & general trends in U.S. economy, reflected in volatility of U.S. debt & equity markets, have a direct impact on M&A market activity. • Assuming a relatively stable economy, we anticipate the remainder of 2019 & 2020 to be an active M&A market with attractive valuation multiples. Sources: [1] St. Louis Federal Reserve – “Nonfinancial corporate business; checkable deposits and currency; asset, Level”, [2] Preqin – “Private Equity Dry Powder”
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