M&A 2015 CONFERENCE M I N N E A P O L I S ▼ N O V E M B E R 1 8 1
Welcome! Bruce Engler , Faegre Baker Daniels 2 0 1 5 M & A C O N F E R E N C E 2 2 0 1 5 M & A C O N F E R E N C E
Market Update: Current Deal Activity, Valuations and Outlook Robin Engelson , Sapphire Financial Group Kurtis Fechtmeyer , Northland Capital Markets Sima Griffith , Aethlon Capital, LLC Dan Gulbrandson , Piper Jaffray & Co. Lisa Kro , Mill City Capital Moderator: Morgan Burns , Faegre Baker Daniels 2 0 1 5 M & A C O N F E R E N C E 3 2 0 1 5 M & A C O N F E R E N C E
The Boom is Back… But What’s Ahead??? ► High valuations in middle market driven by tight supply and other factors ► Supply-demand imbalance in credit markets continues to push leverage levels to new highs ► Equity markets open, BUT ► Lots of uncertainty globally ► Less stable equity markets of late ► Overall MM deal volume down in Q3, particularly in certain sectors 4 2 0 1 5 M & A C O N F E R E N C E Email Questions to MAConference@FaegreBD.com
Domestic Transactions – Annually ► After a significant lull in 2009, M&A activity rebounded in 2010-2015 ► Activity in 2015 has continued to increase, driven by strong economy, balance sheet cash and favorable credit market dynamics Annual Domestic M&A Transactions For the Years Ended December 31, 1990 – 2014 and YTD 2015 ($ in billions) $1,600 12,000 $1,353 $1,400 $1,364 9,656 $1,293 10,000 $1,237 8,802 8,870 8,478 $1,136 7,808 8,561 $1,200 8,431 Aggregate Deal Value ($ Billions) 7,988 7,502 $1,031 7,583 $1,021 8,000 7,226 7,205 6,959 $1,000 6,306 6,616 Number of Deals 5,943 6,313 $888 $872 5,715 6,073 $827 5,917 5,687 $800 6,000 $731 5,227 4,944 4,628 $635 $651 $619 4,307 $576 4,069 3,891 $568 $551 $600 $496 4,000 $465 $435 $371 $400 $309 $293 $219 2,000 $200 $124 $104 $138 $0 0 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 1Q-3Q 1Q-3Q 2014 2015 Aggregate Deal Value ($ Billions) Number of Deals Source: Thomson Financial. Year-to-date figures as of September 30, 2015. Includes transactions with the target and the acquiror based in the United States. Excludes minority stake purchases, acquisitions of remaining interest, self-tenders, and repurchases. 5 2 0 1 5 M & A C O N F E R E N C E Email Questions to MAConference@FaegreBD.com
Middle Market M&A Observations ► Middle market M&A transaction volume is still well below 2005 - 2007 peak ► Significant activity in 2012 driven by capital gains increase ► Pitch activity accelerated in 2H 2013 into 2014, driving the notable increase in 2014 deal volume that has cooled somewhat in 2015 Quarterly Announced Domestic Middle Market M&A Transactions For the Periods Ended 1Q04 through 3Q15 (Transactions valued between $25 - $500 million) $90 450 398 $80 400 372 355 351343 334323314 331 328 $70 350 Aggregate Deal Value ($ Billions) 323 313 308 307 298 293 288292281 282291 279 $60 300 261 257 256251 Number of Deals 238251 252 $51 $51 245 245 $49 $49 $48 236229 227 225226 $50 $47 250 $46 221212 $46 220 220 $44 207 $43 $43 $43 $42 $42 $42 $42 $41 $40 $38 $39 $39 $36 $37 $37 $40 200 $35 167 $35 $34 $33 $33 159149 $32 $33 $33 $33 $32 152 $32 $32 $32 148 $31 $30 $29 $29 $30 150 119 $24 $21 $19 $17 $20 $16 100 $14 $10 50 $0 0 Q1 2004 Q2 2004 Q3 2004 Q4 2004 Q1 2005 Q2 2005 Q3 2005 Q4 2005 Q1 2006 Q2 2006 Q3 2006 Q4 2006 Q1 2007 Q2 2007 Q3 2007 Q4 2007 Q1 2008 Q2 2008 Q3 2008 Q4 2008 Q1 2009 Q2 2009 Q3 2009 Q4 2009 Q1 2010 Q2 2010 Q3 2010 Q4 2010 Q1 2011 Q2 2011 Q3 2011 Q4 2011 Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015 Q3 2015 Aggregate Deal Value ($ Billions) Number of Deals Source: Thomson Financial. Year-to-date figures as of September 30, 2015. Includes transactions with the target and the acquiror based in the United States. Excludes minority stake purchases, acquisitions of remaining interest, self-tenders, and repurchases 6 2 0 1 5 M & A C O N F E R E N C E Email Questions to MAConference@FaegreBD.com
Historical Breakdown by Transaction Value ► Deals less than $500 million historically represent nearly 90% of all transactions 100% 3.8% 4.3% 5.4% 5.8% 6.1% 6.2% 6.4% 6.5% 7.3% 8.5% 8.7% 8.4% 9.7% 3.0% 10.6% 10.7% 10.8% 3.5% 12.4% 12.0% 11.9% 13.2% 13.1% 5.7% 4.9% 5.0% 4.8% 5.8% 4.7% 90% 5.5% 6.0% 6.0% 6.4% 6.8% 8.2% 8.9% 8.2% 7.3% 7.7% 8.9% 8.6% 9.9% 80% 70% 60% 50% 93.2% 92.2% 88.9% 88.9% 88.8% 88.7% 88.4% 88.8% 87.2% 85.5% 85.6% 84.9% 83.4% 40% 81.2% 81.0% 80.7% 80.4% 79.9% 79.1% 78.2% 77.0% 30% 20% 10% 0% 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 YTD 2015 $0 - $249 Million $250 - $499 Million $500 Million + Source: Thomson Financial. Year-to-date figures as of September 30, 2015. Includes transactions with the target and the acquiror based in the United States. Excludes minority stake purchases, acquisitions of remaining interest, self-tenders, and repurchases; based on number of deals. 7 7 2 0 1 5 M & A C O N F E R E N C E Email Questions to MAConference@FaegreBD.com
M&A Seller Trends ► M&A activity has been fairly consistent across industries M&A Transaction Breakdown by Industry For the Years Ending December 31, 2011 – 2014 and the Year-to-Date Period Ended September 2015 2014 YTD 2015 2011 2012 2013 14.8% 0.2% 15.9% 0.1% 13.9% 0.3% 0.1% 0.2% 16.8% 19.9% 14.2% 17.4% 19.4% 23.1% 17.6% 7.9% 9.2% 8.4% 8.5% 11.2% 5.6% 12.5% 10.5% 21.6% 6.0% 7.3% 22.1% 5.7% 20.0% 8.9% 8.8% 6.9% 6.0% 7.9% 9.0% 32.3% 24.5% 24.2% 23.2% 24.2% Consumer Financials Consumer Financials Consumer Financials Consumer Financials Consumer Financials TMT Real Estate TMT Real Estate TMT Real Estate TMT Real Estate TMT Real Estate Energy & Power Healthcare Energy & Power Healthcare Energy & Power Healthcare Energy & Power Healthcare Energy & Power Healthcare Industrials Other Industrials Other Industrials Other Industrials Other Industrials Other Source: Thomson Financial. Based on number of deals as of September 30, 2015. 8 2 0 1 5 M & A C O N F E R E N C E Email Questions to MAConference@FaegreBD.com
Middle Market M&A Pricing Trends ► Valuation multiples have increased steadily from 2009 levels. ► 2015: Spreads in valuations between “A” companies and “Less than A” companies have continued to decrease ► 2015: Competition for assets and improved fundamentals driving strong valuations ► YTD 2015: average Enterprise Value / EBITDA multiple for all middle market transactions was 14.2x Average U.S. Middle Market Purchase Price / EBITDA Valuation Multiples 16.0x 14.6x 14.5x 14.1x 13.9x 13.7x 13.6x 13.7x 13.4x 14.0x 13.1x 13.0x 11.8x 11.7x 11.7x 11.3x 12.0x 11.1x 11.0x 10.5x 10.5x 10.5x 10.4x 10.4x 10.3x 10.3x 10.2x 10.1x 9.8x 9.9x 9.6x 10.0x 9.2x 9.2x 9.1x 8.7x 8.0x 6.0x 4.0x 2.0x 0.0x 2008 2009 2010 2011 2012 2013 2014 YTD 2015 Less than $100 million $100 - $499 million $500 million - $1 billion Less than $1 billion Source: Thomson Financial; Year-to-date figures as of September 30, 2015. 9 2 0 1 5 M & A C O N F E R E N C E Email Questions to MAConference@FaegreBD.com
Leveraged Finance Market Highlights Commentary Total New Issue Loan Volume and Use of Proceeds 2015 YTD Total volume reached ~$347 • $700B Other Recap / billion, a ~25% decrease from 2014 YTD Total ($347.25B) 9% General 606.9 Refinancing Recap 28% $600B Liquidity in financing market drove significant 2% • 535.2 528.1 refinancing activity in 2015 480.1 465.5 474.8 $500B Corp Purpose Refinancing activity is further constraining • 1% 376.9 $400B 347.3 M&A volume as refi dividend is seen as Recap / 295.4 Stock 255.9 265.2 $300B Repurchase interim liquidity alternative for PE sponsors 235.9 243.4 1% 220.2 165.6 184.7 LBO $200B 139.4 156.8 17% Recap / 138.7 Dividend 76.6 12% $100B $0B Acquisition 34% Source: S&P LCD; Year-to-date figures as of September 30, 2015. Institutional Pro Rata Use of Proceeds – High-Yield Bonds (YTD 2015) High Yield Bond Volume $400B 100% 6% 5% 9% 11% 11% 10% 11% 2% 12% 12% 14% 14% 15% 344.8 8% 321.2 5% 5% 4% 310.5 7% 7% 11% 5% 8% 9% 80% 287.0 6% 11% $300B 265.8 19% 11% 22% 51% 24% 40% 40% 33% 225.5 20% 28% 60% 218.3 50% 10% 55% $200B 16% 12% 11% 164.0 10% 11% 144.0 143.8 44% 10% 40% 3% 15% 30% 19% 19% 21% 13% 17% 13% 8% 93.7 $100B 26% 9% 14% 67.5 20% 17% 12% 25% 24% 23% 23% 22% 21% 22% 22% 17% 13% 10% 8% 0% $0B Secured Unsecured Subordinated Refinancing / Bonds Refinancing / Bank Debt Refinancing / General M&A Recap Other Source: S&P LCD; Year-to-date figures as of September 30, 2015. Source: S&P LCD; Year-to-date figures as of September 30, 2015 10 2 0 1 5 M & A C O N F E R E N C E Email Questions to MAConference@FaegreBD.com
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