1. The Current Market Environment for Business Transitions
Presented By:
George Calfo
SunTrust Robinson Humphrey
Mergers & Acquisitions

2. Key Themes in Middle Market M&A
The M&A market is healthy with several macro factors facilitating strong valuations and deal volumes
Business Confidence
Revenue growth of 7.4% over the past 12 months (vs 6.7% a year ago and historical average of 6.8%) and growth expectations of 6.7% over the next 12 months
Hiring grew at a robust 6.7% over the past 12 months and expectations are for an additional 4.8% over the next 12 months
90% of U.S. middle market companies express confidence in local economic conditions (compared to 86% for the aggregate U.S. economy)
Strong Market Valuations
Stock markets hover at all-time highs with rich public trading multiples in the majority of the industry sectors
M&A deals have resulted in strong valuations given buyer’s ability to pay up and still achieve accretive transactions
Constructive Debt Markets
Despite the recent increases, companies are still able to borrow at historically very attractive rates that facilitates higher purchase prices
Banks are well-capitalized with an appetite to book more loans for healthy and high-growth companies
Significant Cash on the Sidelines
Significant pools of private equity have been raised in recent years with fund managers eager to put the capital to work
Corporate tax reductions and incentives for large corporations to repatriate some of the estimated >$2.0T held abroad

3. Middle Market M&A Activity
The M&A market has been consistently active in recent years with ~2,000 deals taking place per quarter with either undisclosed deal values or transactions <$500MM
Valuations in the M&A market have followed the public markets, with strong valuations across most all sectors
Capital continues to flow into private equity funds, which creates strong deal demand from the financial buyers
Average EV / LTM EBITDA Valuations Over Time by Sector(1)
Source: ThomsonOne
M&A Activity for Deals(1) <$500MM and Undisclosed
Source: ThomsonOne
Industries excluded: Real Estate

4. Private Equity – Deal Activity
Market Observations
Disclosed Private Equity Buyout Deal Value
2Q2018 Buyout Deals By Industry
($ Billions)
Leading sectors by deal volume for the year include High Technology, Consumer Products & Services, and Consumer Staples
A growing buyer universe with an abundance of dry powder has driven continued high volume in the buyout market
LBO purchase multiples for 1H declined from the high level in 2017
Purchase price multiples dipped to 9.8x for 1H 2018, reaching the low level last seen in 2014
Sponsor equity contributions sit at % of enterprise value for 1H 2018, a decline from the high in 1H 2017 of 41.7%
The decline in equity contributions is the first decrease since the beginning of 2015
LBO Purchase Multiples
LBO Equity Contributions
Source: S&P, Buyouts Magazine, PitchBook

5. Middle Market M&A Activity
Important Reasons When Deciding to Buy
M&A Frequency
~5%
68%
45%
42%
~20%
Adding new markets and customers
Diversifying product or service portfolio
Acquiring new talent or leadership
Complete An Acquisition Annually
Sell To Or Merge Into Another Business Each Year
Important Reasons When Deciding to Sell
45%
FOR
SALE
20%
19%
18%
No Plans To Sell But An Attractive Opportunity Presented Itself
Succession or retirement issues
Opportunity to sell at an attractive price
Competition
Experience with M&A
Key Challenges
90%
#1 Valuation
#2 Integration
70%
41% of Buyers / 43% of Sellers
44% of Buyers & Sellers
Of Acquirors Had Little Or No Previous Experience
Of Companies That Sold Or Merged Had Little Or No Previous Experience
1 National Center for the Middle Market Survey
2 ThomsonOne

6. Founder / Owner Observations in the Middle Market
What Executives are Seeing in the Market:
Companies are performing well in today’s market and executives feel very confident about the next months
There appears to be a lot of interest from both investors and strategic industry consolidators
Many business owners have indicated they receive an average of one external solicitation per week
Market Concerns:
✜ When does this cycle end?
✜ I’m not ready to retire, but I’m concerned about the next downturn
✜ I am seeing the consolidation trend, and will I be able to keep up and compete on my own?
Questions on the Owner’s Mind:
How Should I Transition My Business?
What is the right timing for a transition?
Is the next generation prepared to manage or interested in the business?
What are the right steps to prepare?
My risk tolerance is different than my kids in the business
What is my business worth?
How do I plan for and structure the ownership for a transition?
How do I handle the risk of having all my eggs in one basket?
What are the objectives of private equity owners and what control will I have over the business?

7. Transaction Readiness and Planning7

8. Process Considerations
Key Issues in an M&A Process
Financial
Buyer/Seller
Procedural
Operational
Historical vs. prospective results
Valuation
Form of consideration
Tax implications
Use of proceeds
Financing contingencies
Setting criteria for targets
Strategic fit/synergies
Interest/motivation to close transaction
Financial capacity to close transaction
Relationship consideration
Confidentiality/ competitive impact
Cultural fit
Process: broad auction, targeted auction, negotiated
Timing/urgency
Structure of deal
Negotiation of purchase agreement
Negotiation of ancillary agreements, e.g., employment, non- compete agreements
Board process and legal considerations
Confidentiality – impact on customers, vendors, partners, etc.
Management retention
Employee retention
Information sharing/access to proprietary data
Transition considerations
Management “bandwidth” to handle acquisition process
Negotiating Leverage as a Deal Progresses

9. Steps to Manage M&A Complexity and Get Deal-Ready
1. Start with the long view
Have a long term vision encompassing business and personal paths
2. Develop a clear M&A strategy
Link vision and business goals to the potential for M&A to create business value
3. Read the economy and M&A market
Monitor your industry and the economy looking for the best time to activate M&A
4. Map out your deal journey
Determine the resources and time you will need to undertake your M&A deal journey
5. Build an M&A team with industry knowledgeable advisors
Know the skills and experience you will need to complete a successful M&A deal