Current Economic Conditions Affecting Your Business

1. Current Economic Conditions Affecting Your Business

2. 2014 M&A Outlook Favorable US economic trends Substantial cash, increasing M&A activity US banks’ recovery & lending policies Favorable valuations

3. Favorable 2014 US Trends Labor costs, labor unions, manufacturing costs down US preeminence returns & recovering US Dollar Positive inflows into equity after 5 years No bubble yet, stock market peak likely off, top near Technology gains continue US banks continue recovery and improve lending

4. M&A Outlook • For Financial Investors • Slow 2013, prior uncertainties now clearer, substantial cash • For Strategic Acquirers • Increasing international interest in southeastern US • Substantial cash, balance sheets, growth planning • For US Economy & Lending • Favorable trends and policies • For Liquidity & Diversification • Valuations, structure, alternatives and opportunities

5. Potential Sectors • Investors predict 4 industries having most potential for growth in 2014: • Health care, financial services • Technology • Energy • Manufacturing • Changing regulations in healthcare and financial services, increased O&G production, evolving world of technology, and US manufacturing opportunities will increase investment activity

6. Energy / O&G Sector • M&A Drivers: • New technology • Geographic growth • Product/service growth • Customer growth • Challenges: • Regulatory uncertainty • Valuation disparities • Volatile energy prices • Inability to forecast future performance

7. All-In Valuations Note: 2013 H1 volume is annualized Source: GF Data

8. All-In Valuations Source: GF Data

9. Size Premium Please note that N for 2003-08 encompasses six years of activity. 2013 Data is through 3Q. Source: GF Data

10. TEV/EBITDA – By Industry Please note that N for 2003-08 encompasses six years of activity. 2013 Data is through 3Q Source: GF Data

11. Transaction Structure Trends Source: GF Data

12. So how does all this effect the value of my business? • Price does not equal value • Three valuation approaches – • Asset approach • Market approach • Income approach • Typical buyers – • Strategic buyers • Financial buyers

13. Example Company

14. Valuation based on EBITDA multiple

15. Assuming average 2013 transaction structure

16. From the buyer’s perspective

17. Investors Looking to Put Capital to Work Investors wary in 2013 due to uncertainty surrounding politics, monetary policy, global issues, and economic environment Private equity ended 2013 with a record high $1 trillion of dry powder… 2013 reported best year for PE fundraising since financial crisis Strategic buyers continue to hold large amounts of cash – another $1 trillion

18. Increasing Activity in 2014 • Seller activity affected by: • Diversification objectives • Liquidity goals • Continuing profitability trends • Succession issues, exit planning • Buyer Activity fueled by: • Large cash reserves, low interest rates • Improved consumer confidence • Opportunities in emerging markets • Middle market most active sector

19. Igniting Dry Powder • 2013 should have been a banner year for PE deals, but deal volume decreased. • Sellers accessed loose debt markets and did more than $60bn in dividend recapitalizations • Capital “under pressure,” or nearing the end of a fund’s investment period, actually declined • Asian markets cooled considerably • Strategics spent the post-recession years cleaning up their balance sheets had the cash to spend on M&A • IPOs soared on the back of historically strong equity markets

20. Igniting Dry Powder • PE fund-raising surged in 2013 • $461bn in new capital worldwide • 21% increase over 2012 • Debt markets open and eager to finance new deals • The excess of unassigned capital will keep asset valuations high in all industries • Strategic partnerships between corporations and PEs (and hedge funds) will increase the number of “hybrid” deals, and increase demand

21. For strategic buyers • Generating organic growth continues to be a challenge in the current economic environment • Slow economic growth • Weak aggregate demand • Near-zero inflation • M&A remains the best way for corporations to act on growth opportunities • PE funds believe they are best positioned to assist with growth mandates • Expect to see PE-sponsorships for corporate M&A

22. Unallocated capital in PE

23. Private Equity IRRs

24. Value of a business with $1mm in free cash

25. Why This is Good News • Confluence of factors: • IRRs have a inverse relationship with your company’s valuation. • PE IRRs remain lower, the base of capital has expanded, debt markets are hungry • PE firms still believe they can run your business better than you • 2014 could be the right time to partner with PE to create liquidity and diversify.

26. M&A By Sector

27. M&A by Sector

28. Healthcare Industry Metrics: Southeast US TEV/Total Revenue

29. Healthcare Industry Metrics: Southeast US EBIT and EBITDA Multiples

30. Manufacturing: U.S. Middle Market TEV/EBITDA

31. Manufacturing: U.S. Middle Market Number of Transactions

32. A Seller’s Market PEs and strategic buyers have cash on hand, ready to deploy After an historic year for equities, shareholders will demand additional share price appreciation, and M&A is the fastest way to achieve those results In the manufacturing space, watch for firms to build by buying, often in partnership with PEs or possibly hedge funds Health care companies can expect renewed deal volume as volatility declines with a proliferation of understanding the complexities of Obamacare