Winter 214 VISION INTEGRITY EXPERIENCE 213 Mergers & Acquisitions Review and 214 Outlook ONE NORTH SHORE CENTER 12 FEDERAL STREET, 2ND FLOOR PITTSBURGH, PA 15212 MERGERS & ACQUISITIONS CORPORATE FINANCE FAIRNESS OPINIONS DISCLOSURE: Raptor Partners LLC is a registered broker-dealer with the U.S. Securities Exchange Commission and a member of the Financial Industry Regulatory Authority. This document is not a research report, as such term is defined by applicable laws and regulations. The information in this report has been obtained from third-party sources deemed to be reliable, but is not represented to be complete. This document has been prepared for general information purposes only and does not represent a complete analysis of any specific security, industry or issuer. This information contained in this document does not represent an offer or a solicitation of an offer to buy or sell securities of any form or to participate in any particular trading strategy. This document does not consider the investment objectives or financial situation of any individual or entity. Raptor Partners has provided, may continue to provide, or may seek to provide investment banking services for companies included in this document.
Winter 214 213 M&A Activity Relatively Flat Following Strong 212 M&A deal volume was flat in 213, following a strong year in 212. Global deal volume declined.9% to 4,544 transactions compared to 4,93 in 212 with aggregate announced value increasing 4.7%. U.S. M&A activity outperformed the global market, with volume increasing 3.7% to 16,133 deals compared to 15,553 in 212. U.S. aggregate announced deal value increased by 11.% to $936 billion compared to $843 billion the prior year. The outperformance in the U.S. came on the heels of another strong year in 212, in which M&A deal volume was up 1.6%. M&A activity in 212 was assisted by an increase in selling which occurred in anticipation of higher capital gains tax rates at the end of that year. U.S. M&A activity in 213 was highlighted by several blockbuster M&A transactions as investors appetites for bigger acquisitions improved. The third largest transaction in U.S. history was announced in September 213, when Verizon reached an agreement to acquire Vodafone s 45% interest in Verizon Wireless for $13 billion. Berkshire Hathaway and 3G Capital announced the acquisition of H.J. Heinz Company for $28 billion in February 213, making it the largest ever takeover in the food industry. American Airlines and US Airways announced an $11 billion merger to create the world s largest airline. In February 213, Dell announced an agreement to be taken private by its founder Michael Dell in partnership with technology investment firm Silver Lake for $28 billion. Global Annual M&A Activity U.S. Annual M&A Activity 5, $3, 17,5 15,553 16,133 $1,5 4, 3, 2, 27,229 35,633 39,87 4,93 4,544 $2, $1, 14, 1,5 7, 8,78 12,362 14,58 $1,2 $9 $6 1, 3,5 $3 $ $ Excludes minority interest purchases and share buybacks. Excludes minority interest purchases and share buybacks. Global Quarterly M&A Activity U.S. Quarterly M&A Activity 15, $2, 4,5 4,312 4,335 4,11 $625 12, 9, 6, 3, 1,15 1,49 1,416 1,18 1,12 9,9941,118 8,595 8,565 8,489 9,188 8,163 1,639 1,713 9,912 9,837 1,156 $1,6 $1,2 $8 $4 3,6 2,7 1,8 9 2,768 2,896 2,957 3,16 3,765 3,829 3,493 3,466 3,5543,536 3,52 3,647 3,919 3,769 $5 $375 $25 $125 $ $ Excludes minority interest purchases and share buybacks. Excludes minority interest purchases and share buybacks. 1 VISION INTEGRITY EXPERIENCE
Winter 214 U.S. Transaction Volume by Deal Size * *Excludes acquisition of Verizon Wireless minority interest from Vodafone plc. Data only includes control interest transactions. and Raptor Partners M&A Transaction Control Premiums and Minority Discounts Median Public M&A Control Premiums* Years Ended December 31, One Day Premium 34.8% 31.3% 3.9% 37.8% 28.7% One Week Premium 35.9% 32.6% 31.8% 37.2% 33.2% Four Week Premium 41.3% 36.8% 33.9% 38.7% 38.1% * and Raptor Partners Median Public Discounts for Minority Ownership* Years Ended December 31, One Day Discount -25.8% -23.8% -23.6% -27.4% -22.3% One Week Discount -26.4% -24.6% -24.1% -27.1% -24.9% Four Week Discount -29.2% -26.9% -25.3% -27.9% -27.6% M&A Transaction Volume by Geographic Region Mergers and acquisitions activity was reflective of the general economic climates in each region with Europe lagging for a second consecutive year. The region limped out of a record six quarter double dip recession in the second quarter of 213 to finish the year completing 6.7% fewer deals than the prior year. The U.S. modestly improved deal volume in 213 (+3.7%) following a strong 212. Asia, led by China and the emerging markets, continued its strong growth in M&A in 213 with a 22% increase in transactions, compared to 212 s growth of 6.8%. Tansactions Announced 18, 16, 14, 12, 1, 8, 6, 4, 2, United States Europe Asia 2 VISION INTEGRITY EXPERIENCE
Winter 214 M&A Aggregate Deal Value by Region Despite China s economy growing at its slowest pace in over twenty years, Asia s M&A market experienced its largest number of deals and largest aggregate announced deal value in over five years. Asia s aggregate value of deals reached $485.9 billion compared to $388.9 billion in 212, representing a 24.9% increase. The Asian region continues to account for an increasing proportion of all global deals. In 213, Asia accounted for 21.9% of global deals compared to 17.8% in 212. European M&A deal value continued to struggle throughout 213, remaining relatively unchanged compared to the prior year and accounting for $523.1 billion of global value, a 1.9% decrease. The U.S. continues to represent the largest proportion of M&A aggregate deal value by a significant margin. The United State s posted a solid 11.% increase in deal value totaling $936 billion compared to $843. billion in 212, based on an increase in large transactions. U.S. transactions over $1 billion represented 59.1% of U.S. activity in 213 versus 54.3% in 212. $1, $9 $8 $7 $6 $5 $4 $3 $2 $1 $ U.S. Middle Market M&A Multiples Total Transaction Value United States Europe Asia Valuation multiples, as measured by Enterprise Value/EBITDA, strengthened for U.S. middle market (enterprise value < $5mm) transactions in 213. Multiples for the group increased to 1.2x in 213 from 9.x in 212. The increase was primarily driven by a strong increase in the valuations paid for the larger companies in the group (enterprise value between $1mm and $5mm). Typically there is a size premium paid for larger companies based on greater financial wherewithal and critical mass. The premium expanded in 213 as buyers competed to offset slow organic growth with bigger acquisitions. Valuation multiples for public companies have also been expanding as a result of the sharp increase in equity markets during 213. Enterprise Value/EBITDA* 12.x 1.x 8.x 6.x 4.x 2.x.x <$1mm $1mm - $5mm Combined Enterprise Value <$1mm 8.1x 8.9x 1.3x 8.1x 8.2x $1mm - $5mm 8.2x 11.1x 11.6x 1.1x 1.9x Combined 8.1x 1.3x 1.8x 9.x 1.2x and Raptor Partners. 3 VISION INTEGRITY EXPERIENCE
Winter 214 Sector Spotlight Of the five industry groups tracked by Raptor Partners in 213, deal volume increased for the Business Services and Healthcare & Life Sciences sectors; the Technology & Software sector remained flat; and the Industrial & Material and Consumer Products & Services sector declined. The aggregate announced deal value increased in the Business Services, Healthcare & Life Sciences and Technology & Software sectors, while the Consumer Products & Services and Industrial & Materials sectors saw a decline. Business Services U.S. Deal Statistics 15x 3, Sales 1. 1.2x 1.16x.88x.97x Revenue $ $59.3 $42. $44.6 $4.5 $4. Observations (68) (99) (119) (89) (15) 9x 8.8x 1.2x 9.7x 9.x 8.4x 2,4 1,8 EBITDA 8.8x 1.2x 9.7x 9.x 8.4x EBITDA $ $17.9 $22. $1.7 $27.2 $28.1 Observations (15) (3) (37) (31) (36) Volume 1,817 2,517 2,538 2,51 2,285 Value ($ Bil.) $79.9 $63.9 $57.9 $5.8 $71.5 & Raptor Partners 6x 3x x 1.1x 1.2x 1.2x.9x 1.x 1,2 6 Sales EBITDA Volume Significant Business Services Transactions: 12/18/13 Valassis Communications Inc. Harland Clarke Holdings Corp. $1.8 B.9x 7.3x 12/9/13 US Foods, Inc. Sysco Corporation $8.3 B.4x 1.5x 8/26/13 TMS International Corp. Pritzker Organization $1. B.4x 6.7x 7/28/13 Omnicom Group Inc. Publicis Groupe SA $2.5 B 1.4x 9.7x 6/13/13 Belo Corp. Gannett Co., Inc. $2.2 B 3.x 8.3x 5/28/13 Lender Processing Services, Inc. ServiceLink, L.P. $3.9 B 1.9x 11.3x 1/2/13 Zipcar, Inc. Avis Budget Group, Inc. $.6 B 2.x 12.1x Consumer Products & Services U.S. Deal Statistics 15x 3, Sales.9x 1.26x 1.33x.98x 1.18x Revenue $ $53. $55.2 $4.9 $1.9 $133.2 Observations (1) (155) (165) (18) (16) 9x 9.5x 8.9x 8.4x 9.3x 9.9x 2,4 1,8 EBITDA 9.5x 8.9x 8.4x 9.3x 9.9x EBITDA $ $44.9 $3.4 $27. $28.2 $65.7 Observations (32) (64) (5) (76) (53) Volume 1,868 2,319 2,463 2,94 2,741 Value ($ Bil.) $115.6 $115. $84.1 $189.6 $169.7 & Raptor Partners 6x 3x x.9x 1.3x 1.3x 1.x 1.2x 1,2 6 Sales EBITDA Volume Significant Consumer Products & Services Transactions: 12/19/13 The Jones Group Inc. Sycamore Partners $2.2 B.6x 9.8x 7/29/13 Saks Incorporated Hudson's Bay Company $2.7 B.8x 1.2x 7/9/13 Harris Teeter Supermarkets, Inc. The Kroger Co. $2.4 B.5x 7.3x 5/29/13 Smithfield Foods, Inc. Henan Shineway Industry Group $7.3 B.5x 9.2x 5/29/13 Stewart Enterprises Inc. Service Corp. International $1.5 B 2.6x 11.7x 2/14/13 H. J. Heinz Company Berkshire Hathaway Inc. $28.7 B 2.4x 13.6x 2/5/13 Virgin Media, Inc. Liberty Global plc $24.8 B 3.8x 9.4x 4 VISION INTEGRITY EXPERIENCE
Winter 214 Sector Spotlight (Continued) Healthcare & Life Sciences U.S. Deal Statistics Sales 1.21x 1.59x 1.83x 2.3x 1.83x Revenue $ $2.7 $39. $36.4 $53.1 $59.9 Observations (94) (162) (157) (115) (75) EBITDA 7.7x 1.4x 9.6x 9.2x 9.6x EBITDA $ $25.3 $21.3 $23.4 $21.3 $28.5 Observations (25) (49) (46) (45) (19) Volume 847 1,182 1,99 1,197 1,262 Value ($ Bil.) $19. $119.4 $166.2 $11.1 $112.2 & Raptor Partners 16x 8x 4x x 1.4x 9.6x 7.7x 9.2x 9.6x 1.2x 1.6x 1.8x 2.x 1.8x 1,6 1,2 8 4 Sales EBITDA Volume Significant Healthcare & Life Sciences Transactions: 11/19/13 Patheon Inc. JLL Partners $1.9 B 1.8x 14.5x 11/7/13 Santarus, Inc. Salix Pharmaceuticals, Inc. $2. B 5.9x 24.3x 7/29/13 Health Management Associates Inc. Community Health Systems, Inc. $7.7 B 1.3x 8.6x 6/24/13 Vanguard Health Systems Inc. Tenet Healthcare Corp. $4.3 B.7x 8.2x 5/27/13 Bausch & Lomb Holdings Inc. Valeant Pharmaceuticals International $8.7 B 2.8x 14.6x 4/15/13 Life Technologies Corporation Thermo Fisher Scientific, Inc. $16. B 4.1x 13.1x 8/11/13 Cardiocom, LLC Medtronic, Inc. $.2 B 4.x NA Industrials & Materials U.S. Deal Statistics Sales.82x.89x.93x.86x 1.1x Revenue $ $22.6 $54.8 $47.1 $1. $14.7 Observations (93) (144) (172) (149) (95) EBITDA 7.1x 8.6x 9.2x 8.7x 8.6x EBITDA $ $1.2 $35. $13.7 $26.7 $35. Observations (18) (46) (56) (51) (33) Volume 1,172 1,462 1,554 1,98 1,43 Value ($ Bil.) $31.9 $74.2 $111.5 $111.4 $97.7 & Raptor Partners 15x 9x 6x 3x x 8.6x 9.2x 8.7x 8.6x 7.1x.8x.9x.9x.9x 1.1x 29 21 211 212 LTM 2, 1,6 1,2 8 4 Sales EBITDA Volume Significant Industrial & Material Transactions: 9/16/13 Boise Inc. Packaging Corporation of America $2. B.8x 6.8x 9/5/13 Kaydon Corporation SKF USA Inc. $1.3 B 2.6x 12.7x 6/28/13 AS America, Inc. LIXIL Corporation $.5 B.7x 18.3x 4/24/13 Buckeye Technologies Inc. Georgia-Pacific LLC $1.6 B 1.8x 8.6x 3/8/13 Gardner Denver Inc. Kohlberg Kravis Roberts & Co. L.P. $4.1 B 1.6x 8.3x 3/4/13 Ferro Corp. A. Schulman, Inc. $.9 B.5x 16.3x 1/14/13 Saint-Gobain Containers, Inc. Ardagh Group S.A. $1.7 B NA 6.5x 5 VISION INTEGRITY EXPERIENCE
Winter 214 Sector Spotlight (Continued) Technology & Software U.S. Deal Statistics Sales 1.46x 1.57x 1.9x 1.66x 1.68x Revenue $ $44.2 $38.5 $31.6 $39.9 $52.9 Observations (149) (225) (216) (165) (119) EBITDA 9.2x 11.x 12.x 1.8x 11.2x EBITDA $ $4.7 $18. $2.2 $15.3 $25.8 Observations (43) (65) (78) (48) (33) Volume 1,573 2,115 2,57 2,64 2,52 Value ($ Bil.) $9.3 $136.6 $128.4 $13.4 $124.5 & Raptor Partners 15x 9x 6x 3x x 12.x 1.8x 11.2x 9.2x 11.x 1.5x 1.6x 1.9x 1.7x 1.7x Sales EBITDA Volume 2,5 2, 1,5 1, 5 Private Equity Activity Significant Technology & Software Transactions: 12/2/13 Responsys, Inc. Oracle Corporation $1.7 B 8.2x NA 12/16/13 LSI Corporation Avago Technologies Wireless $6.5 B 2.5x 17.8x 11/5/13 GXS Group, Inc. Open Text Corporation $1.1 B 2.4x NA 9/1/13 BMC Software, Inc. Bain Capital/Golden Gate Capital $6.6 B 3.1x 11.2x 9/9/13 Molex Incorporated Koch Industries, Inc. $6.9 B 1.9x 11.4x 6/4/13 ExactTarget, Inc. Salesforce.com, Inc $2.5 B 7.1x NA 2/5/13 Dell Inc. Silver Lake $27.9 B.4x 6.1x The aggregate value of announced private equity transactions increased significantly in 213 to levels not seen since the leveraged buyout boom between 25 and 27. The increase was led by several blockbuster transactions involving private equity including: Berkshire Hathaway and 3G Capital s acquisition of H.J. Heinz Company for $28 billion, Dell s $28 billion going private transaction involving Silver Lake and Michael Dell, the acquisition of BMC software by Bain Capital and Golden Gate Capital for $8.4 billion, and the acquisition of Gardner Denver by Kohlberg Kravis Roberts for $4.1 billion. The attractive credit markets with very low interest rates, the improving U.S. economy, and the abundant private equity capital available have led to a significant increase in the size of leveraged transactions investors have been willing to complete. These transactions were basically unheard of for the previous five years due to the global economic crisis, which resulted from extremely loose credit conditions. Private Equity Sponsored Acquisitions* Private Equity Platform Acquisitions 4, $5 1,5 $2 3, 2, 1, 2,264 1,795 2,574 2,745 3,53 3,174 $375 $25 $125 1,2 9 6 3 1,32 841 1,13 914 1,26 929 $16 $12 $8 $4 $ $ and Raptor Partners. *Includes platform acquisitions and acquisitions made by existing private equity sponsored portfolio companies. and Raptor Partners. 6 VISION INTEGRITY EXPERIENCE
Winter 214 LBO Financing Leveraged multiples on middle market LBO transactions (EBITDA<$5 million) increased significantly during the first nine months of 213 to levels not reached in six years. Total debt-to-ebitda multiples on LBO transactions averaged 5.3x in 213 versus 4.5x in 212. Significant amounts of capital on the sidelines and a lack of alternative investments with attractive yields has resulted in lenders becoming more aggressive on highly levered transactions. Leverage multiples are continuing to move towards their precredit crisis peak in 27. The average equity contribution on LBO transactions also increased in 213 pushing overall purchase price multiples to levels also not seen since 27. Middle Market Average LBO Leverage Multiples* 6.x 5.x 4.x 3.x 2.x 5.6x 4.5x 3.3x 4.2x 4.3x 4.5x 5.3x 1.x.x 27 28 29 21 211 212 1Q-3Q13 214 U.S. M&A Outlook Total Debt/EBITDA Source: Standard & Poor s Leveraged Commentary & Data. A number of the same positive indicators, in place during 213, continue to point to a strong M&A market for 214: Relatively slow U.S. and global economic growth continues to cause strategic companies to search for growth through acquisitions. Companies are enjoying the cheapest cost of capital since the 195 s, with average corporate bond yields around 5%. Strong corporate balance sheets remain flush with record levels of cash. According to Moody s cash balances for nonfinancial companies are approaching $1.5 trillion, an 81% increase since 26. Significantly improved equity markets in 213 give buyers increasing rationale to take on larger transactions through the use of their own stock as a portion of the currency. Corporate carve-out or divestiture activity is expected to continue to be strong as companies shed slower growth or nonstrategic divisions to focus on core competencies. Private equity investors are liquidating portfolio companies or recapitalizing them at record levels, resulting in a record return of cash to investors and additional capital available for new investment. Although the conditions are set for a strong M&A market in 214, several risks and unknowns exist which could slow the market. Currently, the Federal Reserve has been very aggressively working to stimulate the economy through its quantitative easing policy. The Fed embarked on an $85 billion monthly bond buying program in September 212 in order to depress interest rates. Following improvement in the economy, the Fed has begun tapering its bond purchases including a $1 billion reduction announced in December 213 and another $1 billion reduction announced in January 214. An increase in interest rates could have the effect of slowing the fragile economic recovery due to increased borrowing costs and disrupting the equity markets. These could both negatively affect the M&A market in 214. In addition, continued uncertainty in the global economy, including the emerging markets, high unemployment in the U.S. and political turmoil in Washington D.C. are all potential risk that continue to hang over the market. 7 VISION INTEGRITY EXPERIENCE
O N 12 F P S C S,2 F, PA 15212 P : F : E M : (412) 281 5151 (412) 564 99. $35+ Billion in Experience Advisory Services: has sold its Watertown Deep Drawn Products Division has been acquired by Mergers & Acquisi ons HARWOOD CAPITAL LLP LAIRD TECHNOLOGIES PLC Corporate Carve outs & Dives tures advisor to Accellent. advisor to Summit Data Communications. to Cross Border Transac ons Fairness Opinions Valua ons Strategic Alterna ves Corporate Finance $7,5, has completed a Capital Structure Restructuring has been acquired by MODIFIED DUTCH AUCTION TENDER OFFER CHART INDUSTRIES SERIES A PREFERRED STOCK advisor to Mastech Holdings in connection with this offer. advisor to SeQual Technologies and rendered a fairness opinion. advisor to Cerêve in connection with this financing. Private Capital Raising Takeover Defense Healthcare, Life Sciences & Safety Business Services So ware & Technology Specialty Manufacturing Consumer Products & Services For the last 3 years, our professionals have assisted private and public companies navigate the turbulent terrain of mergers, acquisi ons and private capital, with over $35 billion in transac onal experience. For a confiden al discussion on how Raptor Partners can serve your company s needs, please call Craig A. Wolfanger, Execu ve Managing Director, at (412) 281 111. www.raptorllc.com