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welcome you to our webcast: U.S. Middle Market Manufacturing Deals: Where Are We Now? and

Moderator Lou Whiteman Senior Writer The Deal LLC

Expert Panel W. Morgan Burns Partner Faegre & Benson LLP

Expert Panel Michael R. Dillahunt Managing Director Co-Head of Industrials and Clean Technology Chairman of PJC M&A Group Piper Jaffray & Co.

Expert Panel Mike Israel Managing Director Mill City Capital

Expert Panel Bob McGrath Director of Corporate Development H.B. Fuller Co.

Portrait of recent dealmaking activity in U.S. middle market: Confidence starting to return in fits and starts Debt and equity markets loosening Strategic and financial buyers/sellers all active Where will it go from here?

U.S. midmarket first-half M&A 2011 –Both number of deals and deal value up significantly from first half of 2010 Source: Thomson Reuters

Manufacturing M&A tracking with the overall M&A market –Bumpy but improving U.S. manufacturing numbers –Significant variability in pace of recovery by industry (e.g., agricultural equipment vs. construction equipment) –Stronger corporate balance sheets –Open capital markets – public and private equity and debt Debt markets key to asset-intensive manufacturing M&A 2008-’09 cyclical lows becoming less weighted in underwriting decisions –Confidence increasing – much improved from two years ago but still uneven –Strategic and financial buyers feel need to drive growth/returns coming out of downturn

Manufacturing is one of the largest segments of market when industrials and materials are combined (11.1%) Source: Thomson/Reuters

Challenges to Getting Deals Done – Healthy Targets  Price dislocation *Healthy sellers want to monetize improved performance/outlook and be paid stronger multiples than in recent years - Still focused on prior cycle peak valuations *Buyers still facing many challenges in macro-environment and in their specific markets * Earnouts – traditional way to bridge valuation gap - Seem to be making a comeback in manufacturing M&A - Create many post-closing challenges even when there is a clear framework in purchase agreement  After cost cutting of recent years, buyers need to factor in need for additional investment in seller’s business to drive desired ROI

 Many, if not most, “good values” in this tier have traded already  Much competition exists for those remaining –Price dislocation with healthy targets makes distressed targets more attractive  Distressed companies still have all the same challenges –Underperforming businesses, often with poor balance sheets  Intensive due diligence and post-closing work required –Are strategics prepared for this work given recent cutting of internal resources? Challenges to Getting Deals Done – Distressed Targets

Legal Challenges:  Key issues haven’t changed, but stakes are higher in today’s environment – buyers can’t risk being wrong  Antitrust * Manufacturing deals tend to involve building share in existing markets * Use of “clean teams” common in due diligence * New FTC rules for HSR process will present additional challenges for both financial and strategic buyers and sellers  Environmental  Work force – union relations and immigration compliance

Strategics vs. Financials Strategics More competition from financial buyers than in recent years Generally cash-rich Due diligence and integration challenges prevalent with less internal resources today Speed and flexibility required in competitive auction processes do not always favor strategics

Financials Back in the market in a big way Availability of leverage is key to their success in getting manufacturing deals done Active as both buyers and sellers as many firms have held portfolio companies much longer than expected Strategics vs. Financials

Outlook in midmarket manufacturing dealmaking

Why here? Reasons for Optimism in U.S. Manufacturing  Greatly improved competitive position for the U.S. - Productivity growth through the downturn far better than Europe/Japan - Escalating wage inflation in China and other low-cost regions erodes their cost advantage - Weak dollar compounds U.S. relative gains in unit labor costs  High commodity prices favor sectors where U.S. has leading position, such as energy equipment, agricultural equipment, etc.  Investment in manufacturing PP&E was not excessive in prior upturn  Weak labor market suggests protracted period of moderate wage

AUDIENCE Q&A

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