M&A, Private Equity and Capital Markets Update April 211 DRAFT
M&A Market Drivers DRAFT
Macroeconomic Conditions Favorable For M&A GDP growth expected to continue The second half of 29 exhibited the first positive GDP growth since the second quarter of 28, signaling the start of economic recovery which continued through 21. GDP growth is expected to be in the range of 2 3% in 211. 6.% 4.% 2.%.% (2.%) Historical and Projected U.S. GDP Growth 5.% 3.7% 3.2% 2.3% 2.9% 3.4% 3.3% 3.3% 2.6% 2.8% 1.6% 1.7%.6% 1Q8 3Q8 4Q8 1Q9 2Q9 2Q7 3Q7 4Q7 2Q 8 (.7%) 3Q9 4Q9 1Q1 2Q1 3Q1 4Q1 1Q11 2Q11 3Q11 (.7%) (4.%) (6.%) (4.%) (4.9%) Unemployment rate has leveled and is beginning to show signs of improvement Private sector payroll gains equaled 192, in February, reflecting payroll gains in manufacturing, construction, profession and business services, health care and transportation and warehousing. Recent declines, if sustainable, would be encouraging. (8.%) 12.% 1.% 8.% 6.% 4.% 2.% (6.8%) U.S. Unemployment Rate.% 21 22 23 24 25 26 27 28 29 21 211 Housing starts stabilized during 21 Two rounds of homebuyer tax incentives appear to have stabilized housing activity. However, the housing sector is likely to remain weak in 211. Source: Bureau of Economic Analysis and Bloomberg; Bureau of Labor Statistics; U.S. Census Bureau 7 6 5 4 3 2 1 Q1 5 Q2 5 Q3 5 Q4 5 Q1 6 Q2 6 Q3 6 U.S. Housing Starts (s) Q4 6 Q1 7 Q2 7 Q3 7 Q4 7 Q1 8 Q2 8 Q3 8 Trailing Twelve Month Average Q4 8 Q1 9 Q2 9 Q3 9 Q4 9 Q1 1 Q2 1 Q3 1 Q4 1 3
Macroeconomic Conditions Favorable For M&A (cont.) Consumer confidence is at a three-year high Consumers' assessment of the current state of the economy and labor market has improved moderately reflecting income prospects but mixed outlook on employment conditions. 14 12 1 8 6 4 2 U.S. Consumer Confidence Index (1985=1) 21 22 23 24 25 26 27 28 29 21 211 U.S. International Trade Deficit Year-over-year the U.S. trade deficit increased significantly early in 211 January exports totaled $167.7 billion and imports totaled $214. billion, resulting in a goods and services deficit of $46.3 billion. The deficit increased $11.7 billion from January 21 to January 211. $25B $2B $15B $1B $5B 21 22 23 24 25 26 27 28 29 21 211 Exports Imports U.S. dollar exchange rates are weak Exchange rates remain well below their historical averages with the USD/EUR and USD/YEN rates at.755 and 81.55, respectively on 12/31/1. The continued weak dollar makes U.S. companies more attractive to foreign buyers. Source: U.S. Census; Conference Board; oanda.com, 1/11/211. Strength of USD Compared to the EURO and YEN (21-21) 13% 12% 11% 1% 9% 8% 7% 6% 5% 21 22 23 24 25 26 27 28 29 21 USD to EUR USD to YEN 4
Equity Markets Have Rebounded U.S. Market Performance (January 1, 2 - December 31, 21) (1) The steady rise in the equity markets between 22-27 was accompanied by a large increase in M&A activity. The market decline in 2H 28 resulted in a sharp fall-off in M&A activity which lasted through the end of 29. As the economy emerged from the recession, equity markets rallied and a recovery in M&A activity has occurred. 18 NASDAQ Composite Index Russell 2 DJ Industrial Average S&P 5 16 14 12 1 8 6 4 2 2 21 22 23 24 25 26 27 28 29 21 1-- Russell 29.3% NASDAQ (8.2%) S&P 5 (15.5%) DJIA (3.3%) 1-Year (1/1/1 12/31/1) % Return Russell 22.4.% NASDAQ 14.9.% S&P 5 11..% DJIA 9.4.% Price / Next Twelve Months' Earnings (2-21) 3.x 25.x 2.x Forward P/E(x) 15.x MedianForward P/E = 15.3x 1.x 5.x Source: Factset, 1/12/11..x 2 21 22 23 24 25 26 27 28 29 21 1 Yr 5
Credit Markets are Strengthening Loan volume in 211 should be similar to 21 As the credit markets came to a stand-still in 2H 28 and 29, leveraged loan activity fell from a peak of $675B to $125B. 21 saw a significant increase in leveraged loan volume, with $38B issued during the year. Low interest rates should provide support for speculativegrade demand in 211. $8. $7. $6. $5. $4. $3. $2. $1. $. Leveraged Loan Volume Since 21 Proceeds Amount ($B) Number of Issues 1,6 $675.9 1,4 1,2 $456.7 $492.9 1, $314.8 $38.1 8 $239.4 6 $144.4 $123.7 $168.2 $125.3 4 2 21 22 23 24 25 26 27 28 29 21 The speculative-grade default rate should continue to decline in 211 Between 24 and 27, default rates were significantly below the long- M&A activity. The surge in default rates during 28 29 reflected poor credit underwriting and a challenging economic environment. projection for September 211 is 2.4%) may lead to increased credit availability and a boost in M&A volume. Leverage levels declined significantly in 28 and 29 as the credit market all but closed for M&A deals but have since rebounded due to both improved credit markets and earnings Source: 14.% 12.% 1.% 8.% 6.% 4.% 2.%.% 6.x 5.x 4.x 3.x 2.x 1.x.x U.S. Corporate Default Rate Long-Term Average Default Rate = 5.% 3.3% 21 22 23 24 25 26 27 28 29 21 Middle Market Debt Multiples of Leveraged Loans Bank Debt/EBITDA Non-Bank Debt/EBITDA 5.6x.4 4.7x 4.7x 4.5x 4.2x.4.6 4.2x 3.9x 3.8x.8 3.4x.8.8.8.8 3.3x.6.7 5.2 4.3 4.1 2.8 3.1 3.4 3.7 3.4 3. 2.6 21 22 23 24 25 26 27 28 29 21 6
Private Equity Funds Have Significant Deployable Capital Private equity deal flow trending up Private Equity Deal Flow ($B) Both the number of deals and disclosed deal value showed a slow recovery from 29. Average disclosed deal size almost doubled in 21 to slightly above $3 million per disclosed transaction. $6. $5. $4. $3. $2. $1. $78.4 $86.7 $116.8 Disclosed Deal Value $286.8 $215.6 Number of Deals $532.4 $54.5 $169.2 $119.2 $239.3 2,5 2, 1,5 1, 5 Fundraising remained difficult in 21 with modest recovery expected in 211 Numerous funds withdrew from fundraising or settled for much less than their targeted amounts. Middle-market funds had the most success and accounted for more than half of total funds raised. $. $45. $4. $35. $3. $25. $2. $15. $1. $5. $. 21 22 23 24 25 26 27 28 29 21 Private Equity Fundraising ($B) $394.2 $357.4 $26.6 $217.6 $189.7 $114.7 $131. $9.1 $63.9 $15. 21 22 23 24 25 26 27 28 29 21 With dry powder of ~$485B, PE firms have buying power in excess of $1.5 trillion over the next 2-3 years. with significant uninvested capital already committed. $6 $5 $4 $51 $58 $45 $38 $485 $3 $259 $2 $166 $193 $187 $178 $1 Source: Preqin, Thomson Reuters; Pitchbook $ 21 22 23 24 25 26 27 28 29 21 7
M&A Market Activity DRAFT
Significant Improvement in M&A Activity Overall M&A activity experienced a modest recovery in 21 Overall U.S. M&A Market Activity M&A activity steadily increased from the 22 low point through the first half of 27, then declined significantly. Activity remained depressed in 28 and 29, but improved in 21 with volume and value increasing 57% and 33%, respectively. $1,5 $1,2 $9 $6 $725 $417 Implied Enterprise Value ($B) $855 $774 $532 $1,17 Number of Transactions $1,66 $62 $65 $84 3, 2,5 2, 1,5 1, $3 5 $ 21 22 23 24 25 26 27 28 29 21 Middle Market M&A activity has shown a robust recovery U.S. M&A Market Activity (Between $1MM and $5MM) Middle Market deal activity rose above pre-recession levels - and PE buyers were driven by anticipated tax rate changes. $6 $5 $4 $3 $2 $44 $48 $43 Implied Enterprise Value ($B) $48 $42 $43 $38 $22 $17 Number of Transactions $43 $41 $35 $24 $26 $54 $5 7 6 5 4 3 2 $1 1 $- 1Q 7 2Q 7 3Q 7 4Q 7 1Q 8 2Q 8 3Q 8 4Q 8 1Q 9 2Q 9 3Q 9 4Q 9 1Q 1 2Q 1 3Q 1 4Q 1 - Large transaction activity has recovered from depressed levels Large M&A transactions (>$5MM) have recovered after bottoming out in 4Q 28 and showed signs of stabilization in 21 $4 $35 $3 $25 $2 $15 $1 $5 $221 U.S. M&A Market Activity (Greater Than $5MM) Implied Enterprise Value ($B) Number of Transactions $357 $242 $194 $191 $183 $151 $151 $151 $137 $111 $82 $89 $95 $59 $43 14 12 1 8 6 4 2 Source: CapitalIQ, 1/11/211. $- 1Q 7 2Q 7 3Q 7 4Q 7 1Q 8 2Q 8 3Q 8 4Q 8 1Q 9 2Q 9 3Q 9 4Q 9 1Q 1 2Q 1 3Q 1 4Q 1-9
Modest Recovery of LBO Market 211 should continue recovery for LBO market The overall LBO market came to a virtual standstill in 2H 27. As credit markets eased in late 29 and 21, activity increased significantly but remains well below the pre-recession levels. Secondary LBOs, which nearly came to a standstill in 28 29, represented 38% of all LBOs in 21. $25 $225 $2 $175 $15 $125 $1 $75 $5 $25 $- Overall U.S. LBO Market Activity Deal Value ($B) Number of Transactions 25 225 $182 2 175 79.5% decline 15 $15 125 1 $54 75 $3 $37 5 $19 $2 $24 $29 $8 $9 $13 $4 $2 $6 $1 25 1Q 7 2Q 7 3Q 7 4Q 7 1Q 8 2Q 8 3Q 8 4Q 8 1Q 9 2Q 9 3Q 9 4Q 9 1Q 1 2Q 1 3Q 1 4Q 1 U.S. LBO Market Activity (Between $1MM and $5MM) Middle market LBO activity remained at stable but modest levels in 21 Middle market LBOs remained stable displaying the preference of private equity firms to deploy capital for smaller investments. $1. $9. $8. $7. $6. $5. $4. $3. $2. $1. $- Deal Value ($B) Number of Transactions 1Q 7 2Q 7 3Q 7 4Q 7 1Q 8 2Q 8 3Q 8 4Q 8 1Q 9 2Q 9 3Q 9 4Q 9 1Q 1 2Q 1 3Q 1 4Q 1 7 6 5 4 3 2 1 Large LBOs are not likely to recover to pre-recession levels in the foreseeable future $18 U.S. LBO Market Activity (Greater Than $5MM) Deal Value ($B) Number of Transactions 4 Mega deals (>$5B) were a significant component of prerecession activity and were virtually non-existent in 21. Most large LBOs in the post-recession environment are in the $1B-$3B range. $16 $14 $12 $1 $8 $6 32 24 16 $4 $2 8 Source: CapitalIQ, 1/11/211. $- 1Q 7 2Q 7 3Q 7 4Q 7 1Q 8 2Q 8 3Q 8 4Q 8 1Q 9 2Q 9 3Q 9 4Q 9 1Q 1 2Q 1 3Q 1 4Q 1 1
Cross-Border M&A Transactions US Acquisitions by Foreign Buyers Cross-border M&A activity involving domestic targets came to a near standstill in 29 but there was significant improvement in 21. Foreign acquisitions by U.S. buyers have followed the same general trend as domestic target M&A activity, peaking in 27 and subsequently falling precipitously before rebounding in 21. $4. $35. $3. $25. $2. $15. $1. $5. $. $35. $3. Implied Enterprise Value ($B) Number of Transactions $358.8 $298.3 $215. $188.9 $149.3 $168.7 $134.5 $59.6 $45.8 $67.1 $67.1 2 21 22 23 24 25 26 27 28 29 21 Foreign Acquisitions by U.S. Buyers Implied Enterprise Value ($B) Number of Transactions $33.6 $248.7 6 5 4 3 2 1 6 5 $25. $2. $15. $1. $5. $116.7 $16.1 $51. $74.4 $1.8 $117.4 $122.4 $89.2 $119. 4 3 2 1 $. 2 21 22 23 24 25 26 27 28 29 21 Source: SDC Platinum, 1/11/11. Number of transactions includes those with undisclosed values and values greater than $1MM. Implied enterprise value includes only transactions greater than $1MM. 11
M&A Activity by Industry - 21 In 21, Financials dominated M&A, representing nearly onethird of all targets. M&A Activity by Industry - 21 1% 2% 4% 8% 14% The Consumer Discretionary and Industrial sectors were favorites among private equity buyers in 21. 33% 11% 11% 13% 3% Year-over-Year Change (# of Deals) Industry Total PE-Backed Energy 68.9% 85.7% Materials 19.7% 117.4% Industrials 62.5% 41.4% Consumer Discrt. 38.1% 42.1% Consumer Staples 37.% 41.2% Healthcare 39.3% 85.2% Financials 83.8% 114.3% IT 47.3% 52.2% Telecom 25.% N/M Utilities 32.5% 2.% Total 56.1% 66.% Private Equity Activity by Industry 21 1% 2% 5% 13% 1% 14% 19% 1% 5% 21% Energy Materials Industrials Consumer Discretionary Consumer Staples Healthcare Financials Information Technology Source: CapitalIQ, 3/21/11. Telecom Utilities 12
M&A Activity by Industry Last Five Years In the last five years, Financials, Information Technology and Consumer Discretionary have been the most dominant sectors in the overall M&A market. M&A Activity by Industry Last Five Years 1% 2% 8% 17% 5% 13% The Consumer Discretionary and Industrial sectors were favorites among private equity buyers in last five years representing over half of all deals. 22% 17% 12% 3% Private Equity Activity by Industry Last Five Years 1% 2% 4% 12% 9% 8% 8% 25% 5% 26% Energy Materials Industrials Consumer Discretionary Consumer Staples Healthcare Financials Information Technology Source: CapitalIQ, 3/21/11. Telecom Utilities 13
Southeast and Florida M&A Market Activity DRAFT
Southeast M&A Activity Experiencing Recovery M&A activity soared in Southeast during 21, with all states exhibiting significant growth in deal activity. 35 Southeastern M&A Activity (# of deals) 3 25 2 15 249 2 11 39 62 289 293 21 21 19 23 39 43 69 88 218 13 1 4 59 163 16 14 22 38 23 26 46 57 1 3 5 117 122 137 96 81 156 25 26 27 28 29 21 Florida Georgia North Carolina South Carolina Alabama Financial sector deals accounted for nearly half of the deals in the Southeast during 21. The Consumer Discretionary and Healthcare sectors were the next two most popular segments for deal activity combining to account for slightly more than one quarter of total deals. 35 3 25 2 Southeastern M&A Activity by Industry 15 1 5 25 26 27 28 29 21 Financials Healthcare Consumer Discretionary Industrials Information Technology Materials Consumer Staples Telecommunication Services Utilities Energy Source: CapitalIQ, 3/21/21. Includes transactions with enterprise value greater than $1 million. 15
Florida M&A Activity Continues Growth in 21 Florida M&A activity continued its steady growth (over fifty percent over last year) and all deal size segments experienced over twenty five percent growth in yearover-year deal value. $5. $45. $4. $35. $3. Florida M&A Activity by Deal Value Last Six Years $25. $2. $15. $1. $5. $. 25 26 27 28 29 21 $1 mm - $5 mm $5 mm - $1 mm $1 mm - $25 mm $ 25 mm - $5 mm > $5 mm Financial sector deals accounted for nearly fifty-five percent of deals in Florida during 21. The Consumer Discretionary and Industrial sectors also saw large amounts of deal activity within the state of Florida. 18 16 14 12 1 8 6 4 2 Florida M&A Activity by Industry Last Five Years 25 26 27 28 29 21 Financials Consumer Discretionary Industrials Healthcare Information Technology Materials Telecommunication Services Consumer Staples Utilities Energy Source: CapitalIQ, 3/21/21. Includes transactions with enterprise value greater than $1 million. 16
211 Outlook DRAFT
211 M&A Outlook GDP growth is one of the best predictors of M&A activity. With positive GDP growth projected for 211, improvement in M&A activity over the next 12 months is also predicted. The stock market recovery suggests increased M&A activity in 211. Improvement in the availability of credit was seen 21. Continued easing of the credit markets will support increased M&A activity. Capital overhang for private equity funds continues to remain near record highs. Necessary deployment of this capital bodes well for increased M&A activity going forward. Healthcare and financial regulation, improving consumer sentiment and revitalization of manufacturing activity may provide an impetus for increased M&A activity in the healthcare, financial, consumer discretionary and industrial sectors (leaders in 21) heading into 211. 211 Outlook Economic Environment Stock Market Performance Credit Market Strength Investor Confidence CEO Confidence Bankruptcies / Restructuring Political Landscape Shareholder Activism Valuation The dollar has remained generally weak versus other currencies, which may provide an opportunity for foreign buyers. 18