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Cascadia Capital Presentation to CFO Roundtable June 2012

Cascadia Capital Presentation to CFO Roundtable June 2012. Current State of the Markets. Tough …. Current State of the Markets. Really Tough …. Cascadia Capital – A Diversified Investment Banking Boutique. Thematic Approach. Product Specialties. Industry Groups. Mergers & Acquisitions.

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Cascadia Capital Presentation to CFO Roundtable June 2012

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  1. Cascadia Capital Presentation to CFO Roundtable June 2012

  2. Current State of the Markets Tough …

  3. Current State of the Markets Really Tough …

  4. Cascadia Capital – A Diversified Investment Banking Boutique Thematic Approach Product Specialties Industry Groups Mergers & Acquisitions Middle Market • Sellside Transactions • Buyside Transaction • Mergers of Equals • Corporate Divestitures Thematic approach and multiple product offerings provide a unique combination of domain expertise, deal execution experience and relevant industry relationships Sustainable Industries Capital Raising • Majority Equity Raise • Growth Equity Capital • Recapitalizations • Mezzanine and Debt Capital • Project Finance Information Technology and Internet Strategic Advisory • Restructurings • Corporate Valuations & Fairness Opinions 3

  5. Equity Financing Strong Track Record Maximizing Value, Speed and Certainty 4

  6. US M&A Market Conditions – Strong Valuations But Tempering Volume • Domestic M&A experienced a recovery through 2010 and 2011 • Cash-rich strategics sought consolidating transactions • Debt markets recovered in 2010 enabling private equity volumes to rebound off lows • Valuations recovered as competition returned to the transaction market place • Valuations bottomed in 2009 due to the lack of available debt and corporate borrowing limitations • Valuations improved throughout 2010, but 2011 and Q1 2012 have indicated recovery is still in process • 2010 saw a flurry of activity as sellers raced against expiring changes in tax rates • Tax breaks were inevitably extended through 2012 and similar activity is expected now that another extension is unlikely U.S. Middle Market Deal Volume & Median EBITDA Multiples Source: Dealogic

  7. 2012 Observations Monthly Deal Volume (# deals) LBO vs. Strategic Median EBITDA Multiples 2012 YoY Monthly Volume Change Source: Capital IQ • Strategic M&A volume is down over 25% year-to-date through April, suggesting strategic buyers displaying caution towards acquiring growth in 2012 • Selling to a strategic buyer involves sending the right message to the right person at the right time, which opens a process up to potential timing variances • During 2011, financial buyers outbid strategic buyers, on average, in two of four quarters • Current private equity “overhang” (committed but uninvested capital) estimated at $425 billion • Financial players are most aggressive on deals involving EBITDA in excess of $10 million

  8. Size Does Matter in Private Equity Deals • EBITDA multiple differentials between smaller and larger sized deals in 2011 widened significantly • In 2010, the spread between the $10 - $25 million range deal size and the $100 - $250 million range deal size was 0.9x EBITDA • In 2011, that same spread widened to 2.7x • Smaller companies have a harder time obtaining significant leverage which limits competition in processes from private equity players 2011 Multiples by Deal Size Buyout EBITDA Multiples Over Time Source: GF Data Resources

  9. PNW M&A Activity – Activity by Industry Comparison • In PNW industry deal activity, materials led occupying 21.6% of transaction volume in Q1 2012 • IT and Financial sectors also boasted strong percentages around 20% slightly behind Materials • Consumer Discretionary maintains a healthy portion of transaction count at 10.8% • PNW deals segmented by industry shows some critical differences when compared to national data • Financials on a national level occupy a much larger portion of deal activity relative to the PNW • IT transactions in the PNW are double the percentages at the national level • The 21.6% of Material related deals done in the PNW is far greater than the mere 5% shown nationally 1Q2012 US & CA Transactions by Industry 1Q2012 PNW Transactions by Industry Source: Capital IQ Note: Pacific Northwest defined as Montana, British Columbia, Washington, Oregon, and Idaho

  10. Debt Markets Update • FED announced “extended period” of very low fed funds rate through 2014, enabling corporate borrowers to lock in very low rates for term loans and take advantage of attractive floating rates • Spreads on ABL loans sit at L+225, with larger loans even cheaper • Leveraged loans generally at L+400 with a 1% LIBOR floor • Senior leverage levels of at least 3.0x are common, with some lenders willing to stretch to 4x or higher for larger, more stable deals • Mezzanine lenders, squeezed by aggressive senior lenders and competition from other sub-debt providers, have lowered IRR expectations since the downturn • Cash pay + PIK + fees + warrants yield base-case return expectations of 15% range, however more competitive deals will generate lower IRR’s in 11-13% range • No-call provisions are far less common now • Total leverage (senior + mezzanine) of 3.0x - 4.0x most common, with some providers willing to go as high as 5.0x Source: KeyBanc

  11. Corporate Balance Sheet Cleanup • Profits of S&P 500 non-financial companies relative to US GDP are at record levels • Balance sheets are stronger than they have ever been • Total cash and short-term investments of non-financial companies in the S&P 500 hit $1.1 trillion at the end of Q3 2011 • This is a 70% increase from 2007 and a 200% increase in the past 10 years • Shareholders are beginning to pressure companies to either put this cash to work or return the cash in the form of dividends • Valuations across the broader markets remain relatively depressed, representing deep value opportunities Balance Sheets of S&P 500 Non-Financials $ in Billions Source: Wall Street Research Source: Capital IQ 10

  12. Massive Private Equity Overhang • Backlog of uninvested capital will drive current deal dynamics • Over $425 billion of committed capital looking for deals as of May 2012 • Over $200 billion of this overhang scheduled to reach the end of investment periods between Q4 2011 and 2013(1) ; Money must be invested or will be returned to limited partners • Pension funds are increasing allocation to private equity • Pensions funds increased allocation to 8.8% in 2010 from 3% in 2000(1) • Pensions funds are underfinanced by anywhere from $700 billion to $4 trillion(1) • By increasing their allocation to private equity, pension funds hope to compensate for negative returns of last few years and simultaneously meet pension requirements of baby boomer retirees (1) Source: Wall Street Research

  13. Impact of Bush Tax Cut Expiration • Joint Select Committee on Deficit Reduction failed to reach a compromise on extension/alteration • Potential for loss did not motivate Republicans to compromise in negotiations • Enables Democrats to draw stark compromise between parties in 2012 presidential election • We currently do not see a paradigm that would result in further extension • Would likely require a Republican controlled government, a major political tradeoff on entitlements, or a major economic contraction 12

  14. Conclusions: Thoughts on Capital Market Activity In 2012 • The fundamentals were right for strong M&A and capital market activity in 2011 • Early 2011 saw a substantial increase in M&A and capital market activity • In late 2011, the EU sovereign debt crisis derailed this momentum • Derailed momentum exasperated through first half of 2012 • The fundamentals are even better for a resurgence of M&A and capital market activity in 2012 • Profits and balance sheets of S&P 500 non-financial companies are stronger than they have ever been • Significant private equity cash overhang needing to be invested in 2012 • Pension funds are increasing their allocation to private equity, thus creating additional overhang • Markets will remain skittish as EU challenges persist • US markets are looking better and better by default • Presidential election typically stagnates market activity • In addition to market fundamentals, many analysts believe the capital gains tax rate will rise in 2013 above the current 15%, spurring M&A activity in 2012 • Business owners, including financial sponsors, are likely to attempt exiting investments during 2012 in order to pay the lower rate • Global equity markets are generally undervalued 13

  15. Thank you! • Jamie Boyd • Managing Director • Cascadia Capital, LLC • 206.436.2514 • jboyd@cascadiacapital.com 14

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