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Private Capital Assessment . Case for a Hybrid Model For Investment. Data Sources. PEG sponsorship discussions (6 months) Trends McGladrey Capital Markets, EisnerAmper , Pitchbook Grant Thornton, WSJ, ACG TCG Contact with +200 Investment Bankers Consultants active in M&A

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private capital assessment

Private Capital Assessment

Case for a Hybrid Model

For

Investment

data sources
Data Sources
  • PEG sponsorship discussions (6 months)
  • Trends
    • McGladrey Capital Markets, EisnerAmper, Pitchbook
    • Grant Thornton, WSJ, ACG
  • TCG Contact with +200 Investment Bankers
  • Consultants active in M&A
  • Business owners-Lower Middle Market (LMM)
  • Corporate Development Executives (Strategics)
  • Prior Operational and Acquisition experience
observations affecting pe
Observations affecting PE
  • Governmental/Regulatory
    • Reporting, transparency, costs
  • Economic shock - Asset Supply vs. Demand
    • Significant Dry Powder($2.5 trillion ), dearth of quality assets
  • NA market maturity = recession accelerated consolidation in segments
  • Hypercompetitive behavior for quality assets
    • Strategics aggressively pursuing deals; PEGs trying to put $ to work
  • Owner sophistication has grown
    • Strategic vs. Financial buyer options understood
    • Fatigue from frequent buyer contact w/increasing aversion to Financial Buyer(“the “multiple”)
  • Financial Buyer
    • Disruption to historical model and ability to put money to work.
    • Expectations conundrum -Entry EV, holding period, available assets to build, Exit EV.
  • LMM environment
    • Number and availability of assets; majority below platform criteria($30-$50M revenues)
    • Need for space expertise and efficient M&A processes
    • DD similar regardless of deal size (No elasticity)
slide4

Macro View- M&A Market Structure

External Influences

  • Trends
  • Deal Values
  • Deal Volumes
  • Asset Quality
  • Government
  • Capital
  • Globalization
  • Investor Behavior
  • Capital Sources
  • Service Providers
  • Owners
  • Models -Criteria
  • Returns
  • Value
  • Risk
  • Shock
  • Regulations
  • Monetary Policy
  • Psychology

MARJON LLC

slide5

Macro View- M&A Market Structure

Influencers

Trends

Behavior

Returns

  • (2009-2011)
  • Restrictive Policies
  • Added Complexity
  • Capital Availability-Significant
  • Increasing global competition
    • Excess NA Capacity
    • Inefficiency will continue
    • to be driven out of NA
  • Shock
  • Forced Efficiency-Co. survival
  • Capital gridlock-For LMM Cos.
  • Economic Uncertainty
  • Political Uncertainty
  • Investor Behavior
  • Capital Sources
  • Service Providers
  • Owners
  • Models -Criteria
  • Returns
  • Value
  • Risk

MARJON LLC

slide6

Macro View- M&A Market Structure

Influencers

Trends

Behavior

Returns

  • (2009-2011)
  • Enterprise Values Increasing
    • Multiples (+2-3X)
  • Deal Volume Decreasing (-40%)
  • Equity ratio high
  • Deal Mix Shifting to Strategics
    • Synergy vs. Leverage
    • Holding period not relevant
    • “Paying Up”-Significant cash
  • Platform Quality
    • Bigger better assets “Mined”
    • Significant bifurcation in LMM
    • Good or very poor
  • Bolt on Quality
    • Reasonable number of Assets availabile
    • Good or very poor
  • Trends
  • Restrictive Policies
  • Added Complexity
  • Capital Availability-Significant
  • Increasing global competition
    • Excess NA Capacity
    • Inefficiency will continue
    • to be driven out of NA
  • Shock
  • Forced Efficiency-Co. survival
  • Capital gridlock-For LMM Cos.
  • Economic Uncertainty
  • Political Uncertainty
  • Investor Behavior
  • Capital Sources
  • Service Providers
  • Owners
  • Models -Criteria
  • Returns
  • Value
  • Risk

MARJON LLC

slide7

Macro View- M&A Market Structure

Trends

Behavior

Returns

Influencers

  • (2009-2011)
  • Enterprise Values Increasing
    • Multiples (+2-3X)
  • Enterprise Values Increasing
    • Multiples (+2-3X)
  • Deal Volume Decreasing (-40%)
  • Equity ratio high
  • Deal Mix Shifting to Strategics
    • Synergy vs. Leverage
    • Holding period not relevant
    • “Paying Up”-Significant cash
  • Platform Quality
    • Bigger better assets “Mined”
    • Significant bifurcation in LMM
    • Good or very poor
  • Bolt on Quality
    • Reasonable number of Assets availabile
    • Good or very poor
  • Hyper competitive
    • Quality assets & scale
  • Disruptive -Rational Returns?
    • IRRs dropping
  • PE model
    • Generic? Spreadsheet?
    • Future Earn out advantage?
  • Strategics’ advantage increasing
    • Economies of scale
    • DD -No elasticity in process
    • Operational Knowledge
    • Space Knowledge
  • Quality IB behavior
    • Shop Strategics first
    • Mind share with “players”
  • LMM PEG –Rationalization
    • Specialize & build skill
    • Thrive vs. Survive
  • Owner sophistication
    • Financial buyer vs. strategic
    • Risk- future appreciation (PE)
    • Fatigue-contact (4-6x/week)
  • Owner financial security
    • The Devil you know
    • Post liquidity Uncertainty
  • Trends
  • Restrictive Policies
  • Added Complexity
  • Capital Availability-Significant
  • Increasing global competition
    • Excess NA Capacity
    • Inefficiency will continue
    • to be driven out of NA
  • Shock
  • Forced Efficiency-Co. survival
  • Capital gridlock-For LMM Cos.
  • Economic Uncertainty
  • Political Uncertainty
  • Returns
  • Value
  • Risk

MARJON LLC

slide8

Macro View- M&A Market Structure

Trends

Behavior

Returns

Influencers

  • (2009-2011)
  • Enterprise Values Increasing
    • Multiples (+1-2X)
  • Deal Volume Decreasing (-20%)
  • Deal Mix Shifting to Strategics
    • Synergy vs. Leverage
    • Holding period not relevant
    • “Paying Up”-Significant cash
    • Global view
  • Platform Quality
    • Bigger better assets “Mined”
    • Significant bifurcation in LMM
    • Good or very poor
  • Bolt on Quality
    • Reasonable number of Assets available
    • Good or very poor
  • Hyper competitive
    • Quality assets & scale
  • Disruptive -Rational Returns?
    • IRRs dropping
  • PE model
    • Generic? Spreadsheet?
    • Future Earn out advantage?
  • Strategics’ advantage increasing
    • Economies of scale
    • DD -No elasticity in process
    • Operational Knowledge
    • Space Knowledge
  • Quality IB behavior
    • Shop Strategics first
    • Mind share with “players”
  • LMM PEG –Rationalization
    • Specialize & build skill
    • Thrive vs. Survive
  • Owner sophistication
    • Financial buyer vs. strategic
    • Risk- future appreciation (PE)
    • Fatigue-contact (4-6x/week)
  • Owner financial security
    • The Devil you know
    • Post liquidity Uncertainty
  • Historical expectations -Misaligned ?
    • Gap - current LMM environment
  • Favor the Strategic buyer
    • PEG with existing platforms
  • Risk to acquire –Increasing
    • Expense, Time
    • Entry EV increasing
  • Risk to Grow –Increasing
    • Management skill decreasing (small co)
    • Operation resource rationalized
    • Uncertainty
  • Exit Risk- ?
    • ? Achievable returns
    • LP Expectations
    • Holding period
    • Achievable exit EV
    • Recap potential
  • Trends
  • Restrictive Policies
  • Added Complexity
  • Capital Availability-Significant
  • Increasing global competition
    • Excess NA Capacity
    • Inefficiency will continue
    • to be driven out of NA
  • Shock
  • Forced Efficiency-Co. survival
  • Capital gridlock-For LMM Cos.
  • Economic Uncertainty
  • Political Uncertainty

TCGHYBRID

MARJON LLC

slide9

Macro View M&A Market Structure

  • Acquisition Model Summary
  • Returns

MARJON LLC