STRATEGIC MARKET INSIGHTS 4Q 2017

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1 STRATEGIC MARKET INSIGHTS 4Q 2017 A COLLECTIVE ANALYSIS OF MARKET PERSPECTIVE DEVELOPED BY PNC S ADVISORY AND SPECIALTY BUSINESSES CONTENTS M&A MARKET IPO AND FOLLOW-ON MARKET DEBT CAPITAL MARKETS ESOP INSIGHTS RECENT TRANSACTIONS

2 MARKET INSIGHTS 4Q 2017 M&A MARKET EXECUTIVE SUMMARY Following a record first half of the year, in which nearly 7,000 M&A transactions were consummated in the United States and Canada, preliminary data suggest transaction volume dipped slightly for the second consecutive quarter. Corporate and individual tax reform progress, among other economic initiatives, will assist in prolonging a healthy M&A market domestically. The outlook for the fourth quarter remains positive, with strong transaction volume expected within regular seasonal trends. 3Q 2017 M&A MARKET REVIEW The M&A market environment softened marginally throughout the third quarter of Geopolitical issues involving North Korea have resurfaced, and domestic political tensions have stagnated discussions around economic initiatives. However, both debt and equity capital remain readily available, with investors continuing to be aggressive in its deployment. Preliminary data through the first three quarters of 2017 suggest that more than 13,000 transactions will likely consummate in the U.S. and Canada this year, which would set a new annual record. NORTH AMERICAN M&A VOLUME 1 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 1 Includes transactions with a target located in the U.S. or Canada. Source: Thomson Financial M&A Market 1

3 M&A Market 2 S&P 500 aggregate cash positions (excluding financial companies) have hovered near $1.5 trillion over the past few years, which has led to increased scrutiny around balance sheet management and utilization. The pressure to supplement organic growth via acquisitions continues to be top of mind for boards and shareholders. S&P 500 AGGREGATE CORPORATE CASH BALANCES 1 ($ in Billions) $1,600 $1.4 Trillion in Aggregate Cash $1,400 $1,200 $1,000 $800 $600 $400 $200 $ Q Excluding financial companies Source: Factset U.S. private equity firms possess approximately $550 billion of deployable capital to invest, holding most in vintage funds. Firms are demonstrating an eagerness to put capital to work, particularly in companies with a proven track record through economic cycles. U.S. PRIVATE EQUITY FUNDS AVAILABLE CAPITAL ($ in Billions) $600 $500 $403 $495 $476 $447 $422 $449 $445 $495 $521 $549 $ $ $300 Cumulative Availability Availability by Vintage 2013 $ $ $ Source: PitchBook

4 M&A Market 3 Private equity backed deal multiples for middle market companies also reflect the competition to deploy capital within the asset class and the overall strength of the M&A market. AVERAGE PURCHASE PRICE BREAKDOWN BY SPONSORS x 10.0x 8.0x 6.0x 4.0x 2.0x 7.0x 7.2x 6.7x 2.9x 2.9x 3.2x 0.8x 0.6x 0.9x 3.1x 2.9x 3.5x 8.5x 3.4x 0.4x 4.6x 8.1x 3.3x 0.6x 4.1x 9.3x 3.4x 0.4x 5.4x 8.3x 3.8x 0.9x 3.6x 6.6x 3.4x 0.7x 2.6x 8.4x 8.2x 7.9x 4.1x 3.7x 3.3x 1.0x 0.6x 0.8x 3.3x 3.8x 3.8x 8.8x 4.1x 0.1x 4.5x 10.7x 10.2x 9.6x 5.3x 4.3x 5.0x 0.1x 0.2x 0.4x 5.1x 5.1x 4.7x 11.4x 5.8x 0.1x 5.5x 0.0x Q'17 Senior Debt/EBITDA Sub Debt/EBITDA Equity/EBITDA Others 1 Deals less than $50 million of EBITDA Source: Standard & Poor s As debt multiples have remained largely constant in LBO transactions, private equity firms are willing to deploy higher levels of equity toward opportunities with strong underlying growth rates. INDUSTRY UPDATES M&A continues to be strong across a broad range of industries. Below are select recent sector updates prepared by the firm. All of the most recent Industry Group updates can be found here. The firm s Consumer Group published an in-depth quarterly consumer update in their latest Industry Update. Throughout the year, the Group has seen the confluence of dynamics, driven by buyers and sellers, which have sustained the strength of the market. While structural shifts continue to evolve around how, when and where people buy products and food/services, the consumer is confident. Strong fundamentals in consumer spending are driving the overall growth. The Industry Update discusses the buyer universe, recent transactions, public market valuations, M&A sector deal flow and more. To access the full Update, please click here.

5 M&A Market 4 Harris Williams & Co. s Healthcare & Life Sciences Group s latest Industry Update provides recent commentary, public company trading statistics and an M&A market overview, among other information. The Update also includes a review of a few recent articles. According to one article, there is increasing concern about the extent to which narrow-network plans affect consumers choice of and access to specialty providers, particularly in mental health care. Using data for 2016 from 531 unique provider networks in the Affordable Care Act Marketplaces, a group of researchers evaluated how network size and the percentage of providers who participate in any network differ between mental health care providers and a control group of primary care providers. To read more and access the full Industry Update, please click here. The firm s Technology, Media & Telecom Group recently released its quarterly Human Capital Management (HCM) Technology Sector Review. Some of the sections included are HCM market observations by sector, a review of select HCM M&A transactions and market valuations. In talent acquisition and management, employee recruitment, engagement and retention remain top of mind, especially as the job market tightens. Identification and recruitment of internal and known talent provides attractive alternatives to relatively costly external candidate searches, and there is an increasing convergence of HCM technology and education technology to address employee career trajectory. Click here to read the quarterly Sector Review. Harris Williams & Co. s Building Products & Materials Group recently published an Industry Update that includes an overview of the public markets, public comparables, recent transactions in the building products and materials industry and a review of articles the Group has been reading. According to an analysis by Associated Builders and Contractors of data released by the Bureau of Labor Statistics, construction input prices rose.06% in August and are up 3.7% on a yearly basis. Nonresidential construction input prices behaved similarly, rising.06% in August and 3.5% for the year. To read more, please click here. FOR MORE INFORMATION To discuss opportunities in M&A for your business, please contact Bill Watkins at wwatkins@harriswilliams.com. Investment banking services are provided by Harris Williams LLC, a registered broker-dealer and member of FINRA and SIPC, and Harris Williams & Co. Ltd., which is a private limited company incorporated under English law with its registered office at 5th Floor, 6 St. Andrew Street, London EC4A 3AE, UK, registered with the Registrar of Companies for England and Wales (registration number ). Harris Williams & Co. Ltd. is authorized and regulated by the Financial Conduct Authority. Harris Williams & Co. is a trade name under which Harris Williams LLC and Harris Williams & Co. Ltd. conduct business. Harris Williams LLC is a subsidiary of The PNC Financial Services Group, Inc The PNC Financial Services Group, Inc. All rights reserved. CIB ENT PDF

6 MARKET INSIGHTS 4Q 2017 IPO AND FOLLOW-ON MARKET EXECUTIVE SUMMARY 1 Solebury s continued success in 3Q 2017 included advising on the largest IPO priced in the United States during the quarter (Venator) along with its first Mexican IPO advisory engagement (Traxion). Solebury advised on 22.3% of IPOs by proceeds in the quarter. IPO MARKET UPDATE IPO issuance in 3Q 2017 represented a retreat from relatively elevated levels in 1H IPO pricings were down from 3Q 2016 in both units (-26%) and volumes (-36%). The decrease was even starker on a QoQ basis, with issuance down substantially in both units (-57%) and volumes (-70%). Solebury also continued its role in the monetization cycle for some of its most prominent clients. Engagements included first follow-ons for Azul and Floor & Decor following their recent successful IPOs. Solebury also advised on two block trades raising $1 billion or more in proceeds. Solebury s market share in secondary transactions was 34.7% and 13.9% on marketed follow-on and block trade issuance respectively. While pricing outcomes remained relatively stable from the standpoint of below the range pricings, a larger proportion priced within the range as just one IPO came above in 3Q Aftermarket trading performance during the quarter trended more positively vs. recent levels, up 21% on average after one week of trading. 3Q 2017 saw a particular focus on Healthcare IPOs, with Healthcare making up almost half (43%) of all IPOs. QUARTERLY IPO VOLUME 1 1 Market share calculated by U.S. proceeds. Excludes REITs and MLPs. Only Secondary Follow-ons and Blocks included in market share statistics. 2 Includes U.S. IPOs greater than $50 million. Excludes BDCs, SPACs, ADRs, IDSes, CEFs and Chinese issuers. Source: Dealogic IPO and Follow-On Market 1

7 IPO and Follow-On Market 2 QUARTERLY OFFER TO 7-DAY PRICE PERFORMANCE 1 30% 25% 20% 15% 10% 5% 0% -5% -10% 26% 20% 22% 14% 16% 14% 14% 18% 20% 21% 10% 11% -7% 19% 28% 7% 8% 11% 21% 1Q '13 2Q '13 3Q '13 4Q '13 1Q '14 2Q '14 3Q '14 4Q '14 1Q '15 2Q '15 3Q '15 4Q '15 1Q '16 2Q '16 3Q '16 4Q '16 1Q '17 2Q '17 3Q '17 3Q: IPO PRICING BY INDUSTRY 3Q: IPO BACKLOG BY INDUSTRY Sector # of Deals Sector # of Deals Consumer 0 Consumer 4 Energy / Power 2 Energy / Power 2 FIG 1 FIG 2 Healthcare 6 Healthcare 1 Industrials 0 Industrials 8 Real Estate 3 Real Estate 1 Retail 0 Retail 1 Services 0 Services 3 TMT 2 TMT 2 Transportation 0 Transportation 3 PRICING RELATIVE TO RANGE 15% 28% 29% 6% Above Within 32% 24% 57% 65% Below 44% 2Q 17 3Q Average 1 Includes U.S. IPOs greater than $50 million. Excludes BDCs, SPACs, ADRs, IDSes, CEFs and Chinese issuers. Source: Dealogic

8 IPO and Follow-On Market 3 FOLLOW-ON MARKET UPDATE Marketed follow-on issuance was mixed, with a jump YoY and a mild decrease QoQ in both volume and proceeds. Discounts ticked up in 3Q 2017 both on a QoQ and YoY basis. Healthcare transactions were particularly prevalent, accounting alone for half of all marketed deals at 48%. QUARTERLY MARKETED FOLLOW-ON VOLUME $60, $40, $20,000 0 $0 1Q '13 2Q '13 3Q '13 4Q '13 1Q '14 2Q '14 3Q '14 4Q '14 1Q '15 2Q '15 3Q '15 4Q '15 1Q '16 2Q '16 3Q '16 4Q '16 1Q '17 2Q '17 3Q '17 Volume (# of Follow-Ons) 1 Proceeds ($mm) 3Q: INDUSTRY PRICING SUMMARY 1 QUARTERLY MARKETED FOLLOW-ON DISCOUNTS 1 Industrials 5% Energy / Power 5% Real Estate 9% Consumer Transportation 3% 5% Retail 2% Healthcare 48% 0% -5% -10% -15% -5.5% -5.6% -5.0% -6.2% -5.9% -5.7% -6.1% -5.8% -5.7% -6.9% -8.2% -7.5% -10.1% -9.6% -9.4% 1Q '14 2Q '14 3Q '14 4Q '14 1Q '15 2Q '15 3Q '15 4Q '15 1Q '16 2Q '16 3Q '16 4Q '16 1Q '17 2Q '17 3Q '17 FIG 9% TMT 14% 1 Includes U.S. follow-ons greater than $50 million. Excludes BDCs, SPACs, ADRs, IDSes, CEFs and Chinese issuers. Source: Dealogic

9 IPO and Follow-On Market 4 Block trade issuance tapered off YoY, with the QoQ change mixed at a slight increase in proceeds and decrease in volume. Average bid discounts widened to 4.0% after reaching their lowest levels since 4Q 2015 in the prior quarter. Real Estate saw a relative decrease in activity after having led 2Q, while TMT deals grew slightly as a share of all deals. QUARTERLY BLOCK TRADE VOLUME 1 80 $30, $20,000 $10,000 0 $0 1Q '13 2Q '13 3Q '13 4Q '13 1Q '14 2Q '14 3Q '14 4Q '14 1Q '15 2Q '15 3Q '15 4Q '15 1Q '16 2Q '16 3Q '16 4Q '16 1Q '17 2Q '17 3Q '17 Volume (# of Block Trades) Proceeds ($mm) 3Q: INDUSTRY PRICING SUMMARY 1 QUARTERLY BLOCK TRADE BID DISCOUNTS 1 Real Estate 10% Services 5% TMT 20% 0% -5% -10% -4.1% -3.8% -3.7% -3.5% -3.6% -3.8% -4.6% -4.6% -6.1% -5.3% -5.0% -4.6% -3.8% -4.0% -5.9% Consumer 10% -15% 1Q '14 2Q '14 3Q '14 4Q '14 1Q '15 2Q '15 3Q '15 4Q '15 1Q '16 2Q '16 3Q '16 4Q '16 1Q '17 2Q '17 3Q '17 Healthcare 13% Industrials 17% FIG 13% Energy / Power 12% FOR MORE INFORMATION Solebury Capital is a global advisory firm and registered broker-dealer exclusively focused on equity capital markets advisory. Please visit solecap.com. 1 Includes U.S. follow-ons greater than $50 million. Excludes BDCs, SPACs, ADRs, IDSes, CEFs and Chinese issuers. Source: Dealogic Equity capital markets advisory and related services are provided by Solebury Capital LLC, a registered broker-dealer and member of FINRA and SIPC. Solebury Capital LLC is a subsidiary of The PNC Financial Services Group, Inc The PNC Financial Services Group, Inc. All rights reserved. CIB ENT PDF

10 MARKET INSIGHTS 4Q 2017 DEBT CAPITAL MARKETS EXECUTIVE SUMMARY In the middle market, bank loan capital is available at attractive levels. For leveraged middle market companies, non-bank lenders are driving down borrowing costs as they quickly deploy excess funds. In the broadly syndicated leveraged loan market, investors are accepting spreads as low as L+200 and demanding fewer structural protections in an effort to invest new money. The high yield bond market is open to issuers, and spreads over treasuries sit at the lowest levels since Investment grade lending increased on the back of higher M&A, and banks are still seeking to book funded loans to high-grade companies. Investors are oversubscribing investment grade bond transactions 3.1x year-to-date, and spreads over treasuries are the lowest dating back three years. MIDDLE MARKET We re seeing significant competition in the syndicated bank loan market. With a lack of new-issue volume, banks are competing to win deals, making it an attractive time for borrowers to raise bank capital. Further illustrating the point, seven out of every 10 bank respondents to a Thomson Reuters survey indicated missing their lending goals in 3Q While this is down from 95% missing in the prior quarter, it underscores the idea that banks have appetite to lend in the middle market but aren t able to find enough deals. TOTAL MIDDLE MARKET VOLUME % OF LENDERS THAT MET THEIR LENDING GOAL $ % ($ in Billions) $200 $150 $100 $50 % of Respondents 90% 80% 70% 60% 50% 40% Missed Goal Missed Goal Missed Goal Missed Goal Missed Goal Missed Goal 30% $ Refinancing New Money Q -3Q17 20% 10% 0% Bank Non Bank 1Q17 2Q17 3Q17 Sources: Thomson Reuters LPC, PNC Capital Markets LLC Debt Capital Markets 1

11 Debt Capital Markets 2 To win business, banks are doing any or all of the following: taking larger hold sizes, lowering their yield targets, loosening structure and leveraging strong relationships with private equity firms. Based on our conversations with investors, banks are also hard-pressed to end a client relationship unless there are unacceptably low returns or little opportunity for additional ancillary business. In the leveraged middle market segment, private debt funds are raising a staggering amount of capital. Direct lenders, those who originate deals directly and often support private equity backed deals, are raising the bulk of that capital. Investors are competing more fiercely to invest those new dollars, driving down spreads over LIBOR to the lowest level post-recession (439 bps). One effect of the competitive environment is that Debt / EBITDA levels are approaching 6x. In fact, Senior Debt / EBITDA is approximately equal to 2016 s total debt level. INSTITUTIONAL MIDDLE MARKET LEVERAGE LOANS RISING MIDDLE MARKET DIRECT LENDING CAPITAL RISING 6.00x $70 Debt to EBITDA 5.00x 4.00x 3.00x 2.00x 1.00x 0.00x Junior Debt to EBITDA st Lien Debt to EBITD A 1Q-3Q 2017 Middle Market Debt Fundraising ($ in Billions) $60 $50 $40 $30 $20 $10 $ Q-3Q 2017 Mezzanine Direct Lending Funds BDC Public Equity MM CLO ASSET-BASED LENDING In asset-based lending (ABL), we re seeing a continuing trend in structural flexibility. The market is issuer-friendly, and both sponsors and borrowers are finding creative ways to maximize borrowing base availability. For example, in syndicated ABL deals, we are frequently seeing the inclusion of First-In, Last-Out (FILO) tranches, which provide incremental liquidity at the cost of premium pricing over the traditional revolver. The FILO was most typically utilized in the retail industry, but has recently been accepted in the broader ABL market. New deal flow is limited, and as a result lead arrangers are utilizing their balance sheets to support clients with larger commitment levels. This creates club executions with small lender groups, meaning there s more ancillary business to spread across fewer lenders (who in turn must accept larger hold sizes). In addition, because the market is so competitive, large cap sponsor provisions (that are very borrower-friendly ) are trickling down to the middle market. In turn, lenders are relaxing their risk tolerance to compete. Sources: Thomson Reuters LPC, PNC Capital Markets LLC

12 Debt Capital Markets 3 $700 OVERALL LEVERAGED LOAN VOLUME Capital raising efforts continue to be robust by direct lenders, which creates the opportunity for these lenders to play a bigger role across unitranche, Term Loan B, second $600 lien and mezzanine tranches. While we expect to see ($ in Billions) $500 $400 $300 more ABL lenders partnering with direct lenders to provide one-stop shop financing solutions, we re also seeing lead arrangers/bookrunners pursue larger deals to help offset the direct lender origination model. $200 $100 LEVERAGED / HIGH YIELD ($ in Billions) Institutional Pro Rata INSTITUTIONAL NEW ISSUE AND REPRICING VOLUME $400 $350 $300 $250 $200 $150 $100 $50 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 New-Issue Repricing YTD will likely be a record volume year and an all-time high for the leveraged loan market. At more than $540 billion so far, and on the back of significant institutional refinance and re-pricing volume, pro rata and institutional leveraged loan volume looks like it will eclipse 2007 s $535 billion and 2013 s all-time high of $607 billion. Pricing is also coming in significantly. For pro rata, price tightening is less pronounced as the best mid to high BB names see pricing in the range of L+150. For Term Loan Bs, however, our analysis of tranches over $200 million denominated in U.S. dollars finds that more than 50 borrowers either have spreads of L+200 or are in-market with price talk of L For reference, zero loans re-priced to L+200 in 2016 according to S&P Capital IQ data. One client, for example, is looking to reduce spread on a large Term Loan B from L+275 to L Price tightening is a trend we expect to continue throughout the fourth quarter. TIGHTER HY SPREADS ARE ATTRACTIVE FOR NEW ISSUERS MORE DEALS HAVE B+ OR WORSE RATING 950 bps 100% 850 bps 90% 750 bps 650 bps 550 bps 450 bps 350 bps 250 bps 150 bps Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15 Jul-15 Oct-15 80% 70% 60% 50% 40% 30% 20% 10% 0% 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 Jan-16 Apr-16 Jul-16 Oct-16 Jan-17 Apr-17 Jul-17 Source: S&P Capital IQ LCD, PNC Capital Markets LLC, Bloomberg B+ or Worse BB- or Better

13 Debt Capital Markets 4 ($ in Billions) M&A UPTICK, REFINANCING SUSTAIN U.S. I-GRADE LOAN MARKET $300 $200 $100 We don t see demand for loans drying up anytime soon. Collateralized loan obligations, which purchase more than half of all institutional loans, raised $12.1 billion in an unusually busy August and another $8.9 billion in September, according to S&P Capital IQ data. Plus, the largest loan ETFs are still holding 5 10% of their assets in cash as they work to invest existing dollars from the massive investor inflows from earlier in the year. One trend we re watching in 4Q 2017 is the credit quality $0 1Q11 3Q11 1Q12 3Q12 1Q13 3Q13 1Q14 Refinancing 3Q14 1Q15 3Q15 M&A 1Q16 3Q16 1Q17 3Q17 of new-issue deals. Issuers rated B+ or worse accounted for a staggering approximately 85% of TLB volume last quarter, up substantially from approximately 60% at the beginning of the year. I-GRADE DRAWN SPREADS In the high yield bond market, spreads over treasuries, as measured by the Option Adjusted Spread, are among 300 BBB their lowest levels post-recession. And volume is robust. 250 A bps Recession INVESTMENT GRADE H92 2Q95 2Q97 2Q99 2Q01 2Q03 2Q05 2Q07 2Q09 2Q11 2Q13 2Q15 2Q17 Based on our conversations with borrowers, banks are looking to book funded assets. As such, lenders welcomed last quarter, which saw another meaningful step-up in M&A loan volume, bridge loans backing M&A and a meaningful quarter for refinancing volume. % of Respondents Reporting Net Tightening / Loosening BANKS LOOSEN STANDARDS FOR SECOND STRAIGHT QUARTER 20% 10% 0% -10% -20% After six periods of net tightening, banks appear to be loosening standards 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 Sources: Thomson Reuters LPC, Federal Reserve, PNC Capital Markets LLC In fact, last quarter saw an 8% jump over the prior year period for a total of $168.5 billion, according to Thomson Reuters data. Also, the last two quarters both topped $60 billion in new-money issuance, which is new loan supply to the market. This hasn t happened since 2Q 3Q Loan pricing continues to stay relatively flat, with increasing regulatory costs making it difficult for banks to drastically reduce spreads as in past cycles. Banks are still looking to hit lending targets and are slightly loosening their lending standards to do so. The Federal Reserve s most recent Senior Loan Officer Opinion Survey echoes our own investor conversations, which show respondent banks on average loosening their lending standards.

14 Debt Capital Markets 5 Finally, in investment grade bonds, we re seeing a robust market where investors are piling in for new deals. Bond spreads over applicable treasury bonds are at significant period lows, and investors are oversubscribing deals a few times over. AVERAGE I-GRADE CORPORATE BOND SPREAD OVER TREASURY 175 bps 150 bps Data from PNC Capital Markets fixed-income syndicate desk show that on average investment grade bond deals are oversubscribed 3.1x year-to-date. In short, the market remains open and attractive for issuers to price new transactions. 125 bps 100 bps 75 bps Jul-16 Aug-16 Sep-16 Oct-16 Nov-16 Dec-16 Jan-17 Feb-17 Mar-17 Apr-17 May-17 Jun-17 Jul-17 Aug-17 Sep-17 Oct-17 REAL ESTATE SYNDICATED REAL ESTATE VOLUME $120.0 $100.0 $93.8 $108.2 $109.2 $110.6 $91.5 $99.4 $80.0 $60.0 $40.0 $20.0 $47.5 $57.9 $21.1 $26.5 $20.2 $20.4 $19.0 $81.6 $62.3 $39.4 $31.9 $54.4 $58.2 $63.1 $74.6 $58.1 $ Volume ($ in Billions) YTD 3Q17 REIT Loan Volume Non-REIT Loan Volume 10 Year REIT Loan Volume Average 10 Year Non-REIT Loan Volume Average Participants in the real estate loan markets are having quite different experiences depending upon the segment of the market in which they lend. REIT markets have outperformed volume expectations year-to-date, while the market for construction loans continues to be shaped by regulatory and portfolio balance (real estate as a percentage of total loan portfolio) considerations. Term lending markets have been strengthened by great interest on the part of multiple market participants and a relative lack of product. Sources: Bloomberg, Thomson Reuters LPC, PNC Capital Markets LLC

15 Debt Capital Markets 6 The REIT markets are trending toward total volumes that would markedly exceed 2015 s record levels. These levels were unexpected based on a lack of any material movement in pricing or structure and many borrowers having refinanced. Year-to-date volumes totaled $99.4 billion as of September 30 versus $66.2 billion in Meanwhile, pricing continues at virtually the same levels as in the past 18 months. REIT structural adjustments have been minimal, with most changes being to conform documents to existing market standards. The sole exception to this trend has been the re-examination of capitalization rates used for portfolio valuation, particularly in the case of retail-focused companies. Project-related markets continue to be a tale of haves and have nots as lenders employ heavy scrutiny of construction lending opportunities. Large, institutional borrowers with strong banking relationships and strong projects attract the most capital and the tightest pricing. Others find that attracting a bid can be more difficult, and, in some cases, pricing for these borrowers has increased to compensate for the lack of market liquidity. The property types attracting the most construction loan dollars continue to be multifamily and well-leased office. Retail, given the transformational and disruptive forces at work in the industry, has become much more difficult to finance. Finally, term lending saw the most aggressive lender behavior over the past quarter. Going against the trend, spreads actually have tightened for the best located, strongly leased, low leveraged deals. Life insurance companies have maintained strong appetite through the past quarter and, combined with CMBS and bank competition, helped drive demand for funded commitments. Into the fourth quarter, lenders will carefully watch developments in geopolitical relationships, regulatory and tax policy, interest rate movement and retail transformation as they refine their approach to lending in 2018 and through the late innings of an economic cycle. FOR MORE INFORMATION Visit pnc.com/dcm. Services such as public finance investment banking, securities underwriting, loan syndication, and securities sales and trading are provided by PNC Capital Markets LLC ( PNCCM ). PNCCM, member FINRA and SIPC, is a wholly-owned subsidiary of The PNC Financial Services Group, Inc. ( PNC ) and affiliate of PNC Bank, National Association ( PNC Bank ) The PNC Financial Services Group, Inc. All rights reserved. CIB ENT PDF

16 MARKET INSIGHTS 4Q 2017 ESOP INSIGHTS ATTRACT. RETAIN. MOTIVATE AND BUILD VALUE: THE EFFECT OF ESOPS ON THE WORKFORCE By Julie Williams, Managing Director, National Lead of ESOP Solutions, PNC Bank Even as they forecast a brighter future for the working class, economists also worry that the new age of tight labor markets and rising wages will create a different sort of challenge. As Alan B. Krueger, a Princeton University economist who was the chief economic adviser to President Barack Obama, put it, We are heading for a labor shortage. 1 ESOPS THROUGH THE LENS OF THE EMPLOYEE Employee Stock Ownership Plans (ESOPs) are often described and explored from the perspective of the business owner. They address ownership transition goals, provide flexibility and offer attractive tax benefits. Beyond the economic benefits, they may also appeal to an owner s desire to protect employees and provide opportunities for employees to participate in the financial rewards of ownership. In fact, the belief that ownership improves outcomes for both companies and employees underlies the support for employee ownership among lawmakers, which continues today on a bi-partisan basis, decades after ESOPs were passed into law. According to the Department of Labor, there are nearly 7,000 ESOPs across every major industry. ESOP-owned companies employ more than 13 million workers and hold more than $270 billion of employer stock for the benefit of the participants. 2 Of these 7,000 ESOPs, approximately 4,000 are 100% ESOP owned. In a competitive labor market where attracting and retaining talent is a mounting challenge, the benefits of employee ownership can be a significant differentiator. Many studies corroborate the notion that employee ownership yields positive outcomes for the company and benefits that employees can readily recognize. FIVE REASONS THAT ESOPS ENHANCE OUTCOMES FOR EMPLOYEES 1. ESOPs provide employees access to financial ownership as a company benefit. ESOPs are broad-based employee benefit plans. All employees participate. Hourly workers, administrative staff, middle management and senior leadership can gain ownership and create wealth that may have been out of their reach due to lack of access to capital. 2. ESOPs typically improve job stability. ESOPs perform better in economic downturns and frequently experience less turnover and fewer layoffs. The General Social Survey (GSS), an analysis by the National Center for Employee Ownership (NCEO), showed that employees in the U.S. who were employee owners were four times less likely to be laid off during the Great Recession than employees without employee stock ownership. 3 The 2014 GSS, performed by the NCEO in partnership with the Employee Ownership Foundation, provides evidence that ESOP-owned companies reduced unemployment ESOP Insights 1

17 ESOP Insights 2 costs to the federal government by more than $17 billion in Specifically, ESOP-owned companies alone resulted in estimated savings of approximately $8 billion. 3. ESOPs may improve the success of the business and job satisfaction. ESOPs can result in higher productivity and wages. Employee owners decisions often reflect their awareness of their ownership stake. It is widely believed that job satisfaction is a result of ownership (and improved fortunes) and contributes to stability in the workforce, efficiencies and continuity for the business. A great majority of ESOP-owned firms agree that employee ownership positively affects overall productivity of employee owners and that it increases financial performance (revenue and profitability) of their businesses. 4 Many attribute the improved corporate performance to the ownership mentality greater attachment, loyalty and willingness to work hard; lower turnover; and more frequent suggestions for innovations by employees. Ownership by employees is most effective when combined with worker empowerment through participatory management and other techniques ESOPs can provide superior retirement benefits. Employers have traditionally offered defined benefit plans to their employees, but the high costs associated with these plans have caused many employers to switch to alternate retirement plan options. ESOP companies tend to contribute higher levels to the ESOP vs. the average for other defined contribution benefit plans. Furthermore, ESOP companies are more likely than non-employee owned companies to offer their employees more than one qualified retirement plan ESOPs often preserve jobs and perpetuate culture and legacy. Owners who choose to transfer their businesses to their employees often do so out of a desire to protect employees from drastic changes or from job eliminations under new ownership. An ESOP structure allows the company to continue to operate the business independently and consistent with the current strategy. This is a benefit to not only the owner, who is optimizing a key objective to perpetuate legacy and culture, but also to the employees whose jobs depend on it. ADDITIONAL CONSIDERATIONS While ESOPs can have significant benefits for owners, management and employees, they are not the best strategy in every situation. As you consider an ESOP, ask yourself the following questions: Does your company have consistent earnings? ESOPs tend to be best suited for businesses with consistent and predictable earnings so that they are well-positioned to service the transaction debt and future repurchase obligation requirements. Are you anticipating compelling strategic offers? ESOPs can pay no more than fair market value for the stock. If the selling shareholder is seeking to maximize his or her sale price, then an ESOP may not be the best means to achieve this goal. Do you require upfront liquidity? When selling to an ESOP, a meaningful portion of the total sale proceeds may be deferred and paid to the seller over a period of time. In addition, the stock in the employees ESOP accounts may experience greater appreciation because the company does not pay income taxes. The combined effect of higher contribution levels and the potential for strong equity returns on the stock is one reason ESOPs can provide greater retirement assets for employees compared to the alternatives. In practice, ESOP participants are actually better off by a considerable margin in terms of retirement assets. Moreover, by their design, ESOPs are particularly better for lower income and younger employees than typical 401(k) plans. 7

18 ESOP Insights 3 ABOUT JULIE WILLIAMS Julie Williams is Managing Director and the National Lead of ESOP Solutions for PNC Bank. She has more than 15 years of experience advising companies and business owners on various aspects of ESOP transactions. Clients and prospects of PNC Bank leverage her knowledge and experience as they evaluate the benefits and considerations of using an ESOP as an ownership transition and liquidity solution. Williams also serves as a resource for PNC clients as they execute their corporate strategy with the added complexity of ESOP ownership. Prior to joining PNC, Williams held senior positions with major financial institutions in the Midwest, focusing on ESOPs. Williams earned a bachelor s degree in business administration from the University of Michigan and a master s degree in business administration from the University of Chicago, Booth School of Business. She is licensed by FINRA with a Series 79 and Series 63. FOR MORE INFORMATION Ask how PNC s ESOP Solutions group helps companies transition to an ESOP structure and assists existing ESOP clients in maximizing performance. Contact Julie Williams at julie.williams@pnc.com or Joint report issued by ESCA and NCEO: Economic Growth Through Employee Ownership, How states can save jobs and address the wealth inequality gap through ESOPs. August Great Recession defined by the National Bureau of Economic Research, December 2007 June Employee Ownership Foundation 23rd Annual Economic Performance Survey (EPS) of ESOP companies. September Shared Capitalism at Work: Employee Ownership, Profit and Gain Sharing, and Broad-Based Stock Options, edited by Douglas L. Kruse, Richard B. Freeman, and Joseph R. Blasi, The University of Chicago Press, National Bureau of Economic Research, Page NCEO Survey; 2010 NCEO project funded by the Employee Ownership Foundation found that 56% of the ESOP companies have at least one additional employee retirement plan. By contrast, only about 44% of all companies otherwise comparable to ESOPs have any retirement plan, and many of these are funded entirely by employees. In a survey by PlanSponsor Magazine in 2013, 95% of ESOP companies offered 401(k) plans compared to 86% for respondents overall. ESOPs were also slightly more likely to offer defined benefit plans and profit sharing plans. 7 PNC and PNC Bank are registered marks of The PNC Financial Services Group, Inc. ( PNC ). Banking products and services provided by PNC Bank, National Association, a wholly-owned subsidiary of PNC and Member FDIC. Products and services may also be provided by or conducted through other subsidiaries of PNC. This article was prepared for general information purposes only and is not intended as legal, tax or accounting advice or as recommendations to engage in any specific transaction, including with respect to any securities of PNC, and do not purport to be comprehensive. Under no circumstances should any information contained in this article be used or considered as an offer or commitment, or a solicitation of an offer or commitment, to participate in any particular transaction or strategy. Any reliance upon any such information is solely and exclusively at your own risk. Please consult your own counsel, accountant or other advisor regarding your specific situation. Neither PNC Bank nor any other subsidiary of The PNC Financial Services Group, Inc. will be responsible for any consequences of reliance upon any opinion or statement contained here, or any omission The PNC Financial Services Group, Inc. All rights reserved. CIB ENT PDF

19 MARKET INSIGHTS 4Q 2017 RECENT TRANSACTIONS HARRIS WILLIAMS & CO. SELL-SIDE ADVISORY Harris Williams & Co. advised Womack Electric Supply, a leading electrical distributor providing products and services to commercial, residential, industrial, institutional and energy end markets, on its sale to Crescent Electric Supply Company. The firm advised Keg Logistics, LLC, a portfolio company of Bregal Sagemount, on its sale to Seaport Capital. Keg Logistics is a leading provider of keg management solutions to more than 1,000 craft brewers and wineries in the U.S. and Europe. Harris Williams & Co. advised Safway Group, a portfolio company of Odyssey Investment Partners, LLC, on its merger with Brand Energy & Infrastructure Services, Inc., a portfolio company of Clayton, Dubilier & Rice. Safway Group is a leading provider of scaffolding, access and multiservice solutions to the petrochemical, refining, industrial and commercial markets, among others. Harris Williams & Co. provided advisory services to The Sterling Group and the board of DexKo Global Inc., a leading manufacturer of highly engineered running gear technology, on DexKo s sale to funds managed by KPS Capital Partners, LP. SOLEBURY CAPITAL IPO/BLOCK TRADE ADVISORY Solebury Capital advised on an IPO of $522 million for Venator in August 2017, the largest U.S. IPO of the quarter. The deal was a spinout of Huntsman Corporation. Solebury Capital advised on a follow-on of $429 million for Floor & Decor, a portfolio company of Ares Management LLC and Freeman Spogli & Co. in the retail space, in July This was the company s first follow-on since its April 2017 IPO, with the stock up by 90.5% and pricing at a 1.3% premium to launch. Solebury Capital advised on a block trade of $1.1 billion for US Foods, a Clayton, Dubilier & Rice and KKR portfolio company in the food and beverage space, in September This represents Solebury s fourth advisory assignment for US Foods, having raised $4.6 billion in proceeds. Solebury Capital advised on a block trade of $1.0 billion for TransUnion, an Advent International and Goldman Sachs PIA portfolio company in the business services space, in July The block was bid at a 0.50% discount to last sale and was upsized from the original offering size due to significant demand. This transaction represents Solebury s seventh advisory assignment for TransUnion, having raised $4.9 billion in proceeds. PNC DEBT CAPITAL MARKETS ACTIVITY Served as Lead Left, Administrative Agent, Joint Lead Arranger and Joint Bookrunner on EQT Corporation s $2.5 billion revolving credit facility and served as Joint Lead Arranger and Joint Bookrunner on EQT Midstream Partners, LP s $1 billion revolving credit facility. The revolvers backed EQT s $6.5 billion acquisition of Rice Energy. Served as Lead Left, Administrative Agent, Joint Lead Arranger and Joint Bookrunner on DSW Inc. s $300 million revolving credit facility. Served as Joint Lead Arranger and Sole Bookrunner on Pharmaceutical Research Associates, Inc. s $550 million incremental term loan facility that backed the company s $530 million acquisition of Symphony Health Solutions. Served as one of four active bookrunners for a two-part, $2.25 billion bond offering for Sunoco Logistics Partners Operations, the current issuing entity of Energy Transfer Partners. The Issuer will use proceeds to redeem its 6.5% notes due 2021, repay revolver outstandings and for general partnership purposes. PNC and PNC Bank are registered marks of The PNC Financial Services Group, Inc. ( PNC ). Banking products and services provided by PNC Bank, National Association, a wholly-owned subsidiary of PNC and Member FDIC. Products and services may also be provided by or conducted through other subsidiaries of PNC. Services such as public finance investment banking, securities underwriting, loan syndication, and securities sales and trading are provided by PNC Capital Markets LLC ( PNCCM ). PNCCM, member FINRA and SIPC, is a wholly owned subsidiary of The PNC Financial Services Group, Inc. ( PNC ) and affiliate of PNC Bank, National Association ( PNC Bank ). Investment banking services are provided by Harris Williams LLC, a registered broker-dealer and member of FINRA and SIPC, and Harris Williams & Co. Ltd., which is a private limited company incorporated under English law with its registered office at 5th Floor, 6 St. Andrew Street, London EC4A 3AE, UK, registered with the Registrar of Companies for England and Wales (registration number ). Harris Williams & Co. Ltd. is authorized and regulated by the Financial Conduct Authority. Harris Williams & Co. is a trade name under which Harris Williams LLC and Harris Williams & Co. Ltd. conduct business. Harris Williams LLC is a subsidiary of The PNC Financial Services Group, Inc. Equity capital markets advisory and related services are provided by Solebury Capital LLC, a registered broker-dealer and member of FINRA and SIPC. Solebury Capital LLC is a subsidiary of The PNC Financial Services Group, Inc. Lending products and services, as well as certain banking products and services, may require credit approval The PNC Financial Services Group, Inc. All rights reserved. CIB ENT PDF