CONSTRUCTION, ENGINEERING & BUILDING PRODUCTS MERGER & ACQUISITION PERSPECTIVES

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1 CONSTRUCTION, ENGINEERING & BUILDING PRODUCTS MERGER & ACQUISITION PERSPECTIVES 1H

2 Number of Deals Median Transaction Value ($ in millions) OVERVIEW & OUTLOOK The market for mergers and acquisitions (M&A) was off to a healthy start in the first half (1H) of 2018 for the construction, engineering and building products (CEBP) industry. Confidence, driven by tax savings, projected above-historical-average revenue growth and healthy balance sheets provided tailwinds to an already robust M&A environment. Large transactions in 1H 2018 drove median transaction values higher within the CEBP Industry. Two building products (BP) deals in particular were noteworthy: USG Corporation, a US-based construction materials manufacturer, announced it would merge with Knauf, a German-based construction materials manufacturer, for $6.6 billion on March 26, The combined company results in a global building materials industry leader that will maximize Knauf and USG s highly complementary businesses, products and global footprint. NCI Building Systems, Inc., a leading manufacturer of exterior building products for commercial construction and Ply Gem Parent, LLC, a leading manufacturer of exterior building products for residential construction, signed a definitive agreement under which the two companies will combine in a stock-for-stock merger for $2.6 billion. An analysis of the CEBP M&A market in 1H 2018 compared to 1H 2017 shows the overall number of transactions increased 23.1 percent for the construction and engineering (C&E) subsector and 17.2 percent for the BP subsector. Median transaction values for C&E and BP during the same periods increased by percent and percent, respectively Number of Deals & Median Transaction Value H H $110 $90 $70 $50 $30 $10 CONTENTS Construction Spending Industry Trends Industry Segment Trends Construction & Engineering Firms Building Products About BKD Corporate Finance BKD Services ABOUT BKDCF Founded in 1994, BKD Corporate Finance helps companies and stockholders go beyond their numbers by creating value through investment banking solutions that include mergers, acquisitions, sales, recapitalizations, management buyouts and financings. CEBP CONTACTS Tony Schneider Managing Director tschneider@bkd.com Jason Corson Director jcorson@bkd.com Jeff Johnson Vice President jjohnson@bkd.com C&E Deals BP Deals C&E Value BP Value Source: S&P Capital IQ 2

3 Total Construction Spending ($ in billions) INDUSTRY TRENDS Construction spending for the U.S. ended 5.1 percent higher in 1H 2018 compared to 1H 2017, led by residential spending, up 8.1 percent in the 1H 2018 compared to 1H Forecasted 2018 total construction spending in the U.S. is estimated to increase 6 percent, compared to up 4 percent in Nonresidential construction spending rebounded in 1H 2018, increasing 2.9 percent relative to 1H Nonresidential construction spending is forecast to increase, albeit at a slower pace than residential construction spending throughout $1,300 $1,100 $900 $700 $500 $300 $100 -$100 $850 $574 Total Construction Spending & YoY Change H 2018 $1,186 $1,231 $1,114 $1,006 $906 $713 $708 $685 $631 $577 $276 $329 $375 $429 $473 $522 $590 $620 $340 $350 $249 $ H H 2018 Residential Construction Nonresidential Construction YoY Change 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% Fueling nonresidential construction spending growth were the commercial, lodging and office construction subsectors spending, up 6.5 percent in 1H 2018 compared to 1H Commercial construction spending increased 4.8 percent, lodging construction spending increased 10.7 percent and office construction spending increased 6.8 percent in 1H 2018 compared to the same period in Commercial, Lodging & Office Spending ($ in billions) H H 2018 $53 $63 $66 $77 $87 $42 $44 $14 $15 $13 $17 $33 $22 $35 $38 $27 $89 $47 $28 $94 $105 $56 $126 $67 $143 $69 $171 $184 Source: U.S. Census Bureau Commercial Lodging Office 3

4 # of Deals Median Transaction Value ($ in millions) TRENDS FOR CONSTRUCTION & ENGINEERING FIRMS Number of Deals & Median Transaction Value H $ $ H H 2018 $35 $30 $25 $20 $15 $10 $5 $0 # of Deals Median Transaction Value Select Transactions WillScot Corporation, provider of modular space and portable storage solutions announced it would acquire Modular Space Holdings, Inc. ( ModSpace ), the largest privately held provider of office trailers and modular buildings for $1.1 billion on June 22, ModSpace was valued at approximately 11.3x Adjusted EBITDA of $106 million for the twelve months ended March The acquisition creates an industry-leading specialty rental services provider with over $1 billion of combined revenue and over 160,000 rental units across North America. On April 10, 2018, Ashford Inc., a provider of asset management services to companies within the hospitality industry, announced it would acquire Remington Project Management, a division of privately-held Remington Holdings, for $203 million. Remington Project Management, a provider of comprehensive and cost-effective design, development and project management services for hotels, was valued at 12.5x reported 2017 EBITDA of $16.3 million. The acquisition helps the acquirer to immediately add scale, diversification and an enhanced competitive position in the hospitality industry while also expanding the breadth of services it offers to its managed REITs. ESP Associates, Inc., a multidiscipline engineering design and consulting firm was acquired by Strength Capital Partners on April 13, 2018, for $46 million. In 2017, ESP generated $56 million in revenue. The Company will serve as a platform for consolidation in the engineering services industry. Strength Capital will seek to supplement the steady organic growth at the Company by seeking out strategic acquisition opportunities. The acquisition strategy will focus on adding complimentary service lines and entering new geographies. Source: S&P Capital IQ, Pitchbook 4

5 TRENDS FOR CONSTRUCTION & ENGINEERING FIRMS Public Comparables Construction Firms in millions of dollars Company Ticker Price 52-Week Market TTM TTM Enterprise EBITDA EV to EV to (8/14/2018) High Low Cap Revenue EBITDA Value Margin Sales EBITDA Mid-Cap Companies ($2B $10B) Quanta Services, Inc. PWR $33.94 $40.11 $32.19 $5,067 $10,162 $690 $5, % 0.6x 8.4x EMCOR Group, Inc. EME $76.55 $85.08 $62.15 $4,454 $7,754 $478 $4, % 0.6x 9.3x MasTec, Inc. MTZ $44.60 $55.53 $38.40 $3,513 $6,573 $551 $5, % 0.8x 9.3x Valmont Industries, Inc. VMI $ $ $ $3,068 $2,777 $345 $3, % 1.2x 9.8x Dycom Industries, Inc. DY $74.33 $ $67.15 $2,319 $2,768 $256 $3, % 1.1x 11.8x Granite Construction Inc. GVA $42.06 $68.58 $42.78 $1,922 $3,129 $199 $1, % 0.6x 10.0x Median $4,851 $412 $3, % 0.7x 9.5x Average $5,527 $420 $3, % 0.8x 9.8x Small-Cap Companies ($300MM $2B) Comfort Systems USA FIX $55.40 $59.05 $32.45 $2,052 $1,942 $157 $2, % 1.1x 13.3x Primoris Services Corp PRIM $25.10 $30.00 $23.61 $1,294 $2,340 $156 $1, % 0.7x 10.2x MYR Group Inc. MYRG $33.88 $40.81 $23.00 $561 $1,432 $83 $ % 0.4x 7.4x Matrix Service Company MTRX $18.95 $20.65 $9.60 $508 $1,090 $33 $ % 0.4x 14.4x Sterling Construction STRL $15.21 $18.90 $9.42 $412 $1,049 $46 $ % 0.4x 9.5x IES Holdings, Inc. IESC $18.60 $20.24 $14.50 $394 $843 $34 $ % 0.5x 12.1x Median $1,261 $65 $ % 0.5x 11.1x Average $1,450 $85 $ % 0.6x 11.1x Median (Small & Mid-Cap) $2,554 $178 $2, % 0.6x 9.9x Average (Small & Mid-Cap) $3,488 $252 $2, % 0.7x 10.4x Public Comparables Engineering Firms in millions of dollars Company Ticker Price 52-Week Market TTM TTM Enterprise EBITDA EV to EV to (8/14/18) High Low Cap Revenue EBITDA Value Margin Sales EBITDA Mid-Cap Companies ($2B $10B) Jacobs Engineering Group JEC $70.87 $73.90 $49.31 $10,057 $13,496 $946 $11, % 0.9x 12.3x Fluor Corporation FLR $55.22 $62.09 $37.04 $7,765 $19,677 $775 $7, % 0.4x 10.0x AECOM ACM $32.12 $39.90 $30.15 $5,164 $19,706 $751 $8, % 0.4x 11.2x Stantec Inc. STN $25.55 $28.19 $23.52 $2,909 $2,614 $254 $3, % 1.3x 13.5x KBR, Inc. KBR $19.96 $21.70 $14.40 $2,808 $4,276 $261 $3, % 0.8x 13.0x Median $13,496 $751 $7, % 0.8x 12.3x Average $11,954 $598 $6, % 0.8x 12.0x Small-Cap Companies ($300MM $2B) Exponent, Inc. EXPO $50.35 $52.63 $31.73 $2,620 $346 $87 $2, % 7.0x 27.8x Tutor Perini Corporation TPC $19.65 $29.90 $17.55 $983 $4,541 $205 $1, % 0.4x 8.0x VSE Corporation VSEC $14.40 $15.35 $6.88 $659 $780 $78 $1, % 1.5x 14.5x Ameresco, Inc. AMRC $38.63 $59.90 $39.30 $420 $716 $76 $ % 0.9x 8.2x Median $748 $83 $1, % 1.2x 11.3x Average $1,596 $112 $1, % 2.4x 14.6x Median (Small & Mid-Cap) $4,276 $254 $3, % 0.9x 12.3x Average (Small & Mid-Cap) $7,350 $382 $4, % 1.5x 13.2x Source: S&P Capital IQ 5

6 TRENDS FOR BUILDING PRODUCTS Number of Deals H H H 2018 Construction Materials Building Products Public Comparables in millions of dollars Company Ticker Price 52-Week Market TTM TTM Enterprise EBITDA EV to EV to (8/14/18) High Low Cap Revenue EBITDA Value Margin Sales EBITDA Mid-Cap Companies ($2B $10B) USG Corporation USG $43.12 $43.47 $25.60 $6,016 $3,292 $472 $6, % 2.1x 14.4x Trex Company, Inc. TREX $77.42 $80.19 $35.96 $4,546 $640 $180 $4, % 7.1x 25.3x Armstrong World Industries AWI $69.90 $71.35 $44.75 $3,611 $924 $258 $4, % 4.7x 16.7x Simpson Manufacturing SSD $72.13 $74.91 $41.79 $3,341 $1,047 $202 $3, % 3.0x 15.8x Universal Forest Products UFPI $36.57 $39.58 $25.93 $2,254 $4,311 $249 $2, % 0.6x 10.2x Median $1,047 $249 $4, % 3.0x 15.8x Average $2,043 $272 $4, % 3.5x 16.5x Small-Cap Companies ($300MM $2B) Builders FirstSource, Inc. BLDR $16.48 $23.28 $14.39 $1,891 $7,448 $410 $3, % 0.5x 9.4x Masonite International DOOR $66.95 $75.95 $58.40 $1,847 $2,111 $254 $2, % 1.2x 9.7x Boise Cascade Company BCC $44.00 $49.30 $28.00 $1,711 $4,910 $278 $1, % 0.4x 7.0x American Woodmark AMWD $81.45 $ $78.75 $1,429 $1,250 $167 $2, % 1.7x 12.9x Gibraltar Industries, Inc. ROCK $44.10 $44.95 $25.61 $1,400 $1,014 $128 $1, % 1.4x 11.0x Interface, Inc. TILE $22.65 $26.25 $18.30 $1,348 $1,048 $153 $1, % 1.5x 9.9x Quanex Building Products NX $16.75 $24.60 $16.00 $588 $868 $94 $ % 0.9x 8.6x Median $1,048 $153 $1, % 1.4x 9.9x Average $1,818 $164 $1, % 1.2x 9.9x Median (Small & Mid-Cap) $1,047 $191 $2, % 1.6x 11.9x Average (Small & Mid-Cap) $1,930 $218 $2, % 2.3x 13.2x 1 Industry segment consists of target companies with industry classifications of Construction Materials & Building Products Source: S&P Capital IQ 6

7 CONTACT US CEBP TEAM INDUSTRY FOCUS Tony Schneider Managing Director Indianapolis, IN Jason Corson Director Springfield, MO Jeff Johnson Vice President Denver, CO Construction & Engineering Energy ABOUT US The professionals of BKDCF have more than 200 years of combined experience helping company owners plan for and execute their growth and exit strategies. From managing the sale of a company to negotiating the acquisition of a competitor or raising debt and equity capital to improve financial and operational flexibility, BKDCF can help you to develop a specific course of action for achieving your desired results. Manufacturing & Distribution Business Services BKD Office BKD/BKDCF Office BKDCF, a wholly owned subsidiary of BKD, LLP, helps companies and stockholders go beyond their numbers by creating value through investment banking solutions that include mergers, acquisitions, sales, recapitalizations, management buyouts and financings. Founded in 1994, BKDCF is staffed with experienced investment bankers and financial analysts. In addition, the firm draws on the resources of BKD with its network of accountants, auditors, tax professionals, business consultants and industry-specific consultants. BKDCF is a member of the Financial Industry Regulatory Authority and the Securities Investor Protection Corporation. Financial Services Consumer Services & Products 7 Health Care Technology, Media & Telecom

8 BKD SERVICES Abundant services. Sheer precision. BKD, LLP offers a full range of services and industry-focused expertise to provide you with insightful solutions and help you stay a cut above the competition. FINANCIAL ASSURANCE Audit, review & compilations Benchmarking Internal audit Internal control studies SEC filings SOX 404 compliance CONSULTING Accounting outsourcing Bankruptcy consulting Budgeting & financial planning Cost accounting Employee benefit plan structuring & administering ESOP feasibility analysis Forecasts & projections FEDERAL & STATE TAX PLANNING & COMPLIANCE Compensation planning Corporate tax planning Inventory tax planning R&D tax credit enhancements Real estate cost segregation studies Restructuring planning State & local tax planning FORENSICS & VALUATION CONSULTING Bankruptcy services Business valuations Fraud prevention Litigation support INTERNATIONAL TAX STRATEGIES DISC Expatriate assignment services Foreign tax credit planning Global structuring support Indirect global taxes Transfer pricing INVESTMENT & FINANCIAL PLANNING Estate & gift planning Family tax planning Investment management Personal wealth planning Retirement planning TRANSACTION SERVICES Federal, state & local tax diligence Financial diligence Operations diligence Technology diligence GROWTH & ADVISORY INVESTMENT BANKING Mergers & acquisitions Company sales & divestitures Debt & equity recapitalizations Management buyouts Affiliations Succession planning Strategic options analysis ECONOMIC DEVELOPMENT Expansion projects Grants & public incentives INTERNATIONAL MARKET Development Exporting Direct investment Licensing Acquisitions OPERATIONS MANAGEMENT PERFORMANCE ENHANCEMENT ADVICE & KNOW-HOW (PEAK) METHODOLOGY Business process improvement Decision costing Inventory optimization Lean manufacturing Profit improvement TECHNOLOGY APPLICATIONS SOFTWARE Best-Abra MAS 90, 200 & 500 Microsoft CRM Microsoft Dynamics AX Microsoft Dynamics GP IT SERVICES IT assessments & planning IT control reviews Project management assistance Security solutions & penetration testing STRATEGIC TECHNOLOGY E-business planning IT assessments & planning Systems selection & implementation 8