1. © 2007 Northern Trust Corporation northerntrust.com The Northern Experience A C C E S S. E X P E R T I S E. S E R V I C E. Robert Jank Senior Vice President September 10, 2007 Robert Morgan Senior Vice President © 2007 Northern Trust Corporation northerntrust.com Positioning Closely Held Businesses For Sale ― Trends In Private Equity Mary Boehler Senior Vice President

2. 2 The Northern Experience A C C E S S. E X P E R T I S E. S E R V I C E. Question #1 What trends are you seeing that will impact our clients regarding how they position their closely held business for sale or succession?

3. 3 The Northern Experience A C C E S S. E X P E R T I S E. S E R V I C E. Mary Boehler Unprecedented pool of Private Equity capital Strong earnings Baby boomers reaching retirement age Cap gains rate at 15% Consolidation trends Recent favorable credit market What trends are you seeing that will impact our clients regarding how they position their closely held business for sale or succession?

4. 4 The Northern Experience A C C E S S. E X P E R T I S E. S E R V I C E. Bob Jank Turmoil in the credit markets is affecting pricing, structure and availability of bank credit. The amount of leverage that banks will allow has decreased during this phase of the credit cycle. As a result:  Sellers must reduce their price expectations  Find buyers who can provide more equity  Be patient until cycle turns What trends are you seeing that will impact our clients regarding how they position their closely held business for sale or succession?

5. 5 The Northern Experience A C C E S S. E X P E R T I S E. S E R V I C E. Bob Morgan M&A markets are driven by the convergence of buyer and seller expectations 2006 and the first half of 2007 was characterized by record breaking numbers for deal flow and capital raised. The liquidity provided by the debt markets, and increasing fund sizes is leading to very frothy valuations. Recent contraction in the debt markets will have implications for buyers and sellers  Reduced purchase prices  Higher equity contributions  Slower deal pace  Returns??? What trends are you seeing that will impact our clients regarding how they position their closely held business for sale or succession?

6. 6 The Northern Experience A C C E S S. E X P E R T I S E. S E R V I C E. Trends in the Buyout Market Source: Thompson Buyouts, January 8, 2007

7. 7 The Northern Experience A C C E S S. E X P E R T I S E. S E R V I C E. Chart Title (Sub-title) Trends in the Buyout Market Purchase Price/EBITDA by Deal Size (Includes Fees) Source: S&P LCD- M&A Stats, June 2007

8. 8 The Northern Experience A C C E S S. E X P E R T I S E. S E R V I C E. Chart Title (Sub-title) Trends in the Buyout Market Purchase Price Multiples by Broad Industry Source: S&P LCD- M&A Stats, June 2007

9. 9 The Northern Experience A C C E S S. E X P E R T I S E. S E R V I C E. Question #2 How would you recommend preparing a business and its owners for a liquidity event?

10. 10 The Northern Experience A C C E S S. E X P E R T I S E. S E R V I C E. Bob Jank Start getting audited statements now. Remove/identify personal “adjustments” from statements.  Club membership  Cars, planes  Travel Expenses If real estate is owned by the family not corporation, increase the lease to market rate. “Institutionalize” clients Commit to the decision. How would you recommend preparing a business and its owners for a liquidity event?

11. 11 The Northern Experience A C C E S S. E X P E R T I S E. S E R V I C E. Mary Boehler Owners  Restructure ownership to minimize taxes, move appreciation to future generation  Sales to defective grantor trusts  GRAT’s  Charitable trusts/entities  LLC strategies  Delaware non-grantor trusts  Dynasty trusts  Design infrastructure for a post sale family enterprise/family office  Create a personal plan for life after business is sold How would you recommend preparing a business and its owners for a liquidity event?

12. 12 The Northern Experience A C C E S S. E X P E R T I S E. S E R V I C E. Mary Boehler Business  Obtain professional valuation  Clean up negatives, build out positives  Move real estate out of the business  Get environmental report  Prepare audited financials  Consider “stay bonuses” for key managers How would you recommend preparing a business and its owners for a liquidity event?

13. 13 The Northern Experience A C C E S S. E X P E R T I S E. S E R V I C E. Bob Morgan What they will look for:  Strengths and weaknesses of management team  Audited financial statements/one-time or family expenses  Retaining relationships with key clients  Recurring/Stable cash flow streams- addbacks  Ability to service debt  Growth in some form Exit scenarios Deal killers  Inability to conduct thorough due diligence  “Waffling” How would you recommend preparing a business and its owners for a liquidity event? Private equity firms will conduct a significant about of due diligence in their review process.

14. 14 The Northern Experience A C C E S S. E X P E R T I S E. S E R V I C E. Question #3 What process do you recommend for obtaining the best transaction price / best overall value for the business?

15. 15 The Northern Experience A C C E S S. E X P E R T I S E. S E R V I C E. Bob Morgan All depends on the sellers definition of “value”  Corporate versus family sellers Market has become significantly more intermediated in the last ten years  Range from large investment banks to one-off business brokers Considerations:  Price  Discretion/Confidentiality  Speed  Treatment of existing employees  Roll-over of ownership Hire good service providers; law firm, accountants, investment bank What process do you recommend for obtaining the best transaction price / best overall value for the business?

16. 16 The Northern Experience A C C E S S. E X P E R T I S E. S E R V I C E. Mary Boehler Clarify goals and risk appetite / financial preferences  Optimize after tax proceeds  All cash at closing  Business owner role post closing  Retention of management  Retention of employees Identify value preferences  Buyer culture similar to seller  Commitment to community  Only strategic buyer  Certain buyers not acceptable What process do you recommend for obtaining the best transaction price / best overall value for the business?

17. 17 The Northern Experience A C C E S S. E X P E R T I S E. S E R V I C E. Mary Boehler Select transaction preference  IPO  Sale of stock  Sale of assets  ESOP  Recapitalization  Combination Choose the best team for transaction and identified goals  Trusted advisors, attorneys, accountant, key business execs,  Board members, trustees, family members  Additional expertise  Investment banker  Transaction attorney  Estate planner Match expertise to most probable buy expertise What process do you recommend for obtaining the best transaction price / best overall value for the business?

18. 18 The Northern Experience A C C E S S. E X P E R T I S E. S E R V I C E. Bob Jank IPO: Price vs.  Ongoing expense  Administrative aggravation  “Constant report card” Private Equity: Price vs.  Impact on employees  Potential requirement to stay for some time Synergistic Buyer: Price vs.  Loss of privacy  Impact on employees  Selling to a rival ESOP: Great tax treatment and high regard for employees vs.  Lower price  Ongoing “responsibility” in the event of performance downturn What process do you recommend for obtaining the best transaction price / best overall value for the business?

19. 19 The Northern Experience A C C E S S. E X P E R T I S E. S E R V I C E. Bob Jank Best scenario I have seen:  Sell to synergistic buyer who offers earn out provided that:  Buyer pays a fair price  Buyer has a proven track record of treating acquired employees well  Buyer has a proven track record of treating “earn out” fairly  Seller recognizes that buyer will bring some real synergies What process do you recommend for obtaining the best transaction price / best overall value for the business?