Transcript Slide 1

Recent Trends in Middle Market M&A
March 7, 2008
Barry E. Steiner
Managing Director
Member: NYSE, AMEX, FINRA, SIPC
Capital Raising | Mergers & Acquisitions | Fairness & Solvency Opinions | Valuations | Restructuring | Financial Advisory
MIAMI • NEW YORK • HOUSTON • COLUMBUS • MELVILLE • BOCA RATON • CHICAGO • PRINCETON
• PALO ALTO • LOS ANGELES
Factors Driving M&A Market Activity
Investor
Confidence
Economic
Environment
Stock Market
Performance
CEO
Confidence
Credit Markets
M&A
ACTIVITY
Shareholder
Activism
Corporate
Scandals
Valuation
Political
Landscape
Geopolitical
Situation
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U.S. M&A Activity Continued to Increase During 2007
• Since mid-2003, favorable economic and market conditions have created a near perfect M&A deal environment.
• The rapid pace of M&A activity in the first half of 2007 was followed by a dramatic slowdown during the second half
of the year.
• Despite the dramatic slowdown directly resulting from the credit market crisis, the M&A market maintained its fifth
consecutive year of growth in 2007.
Total
(# of Deals)
Deal Value
(Deal Value - $Bn)
14,000
$1,800
$1,500
10,500
$1,200
7,000
$900
$600
3,500
$300
-
$1998
# of Deals >$1.0 Billion
# of Deals - Middle Market(1)
# of Deals - Undisclosed
1998
186
5,661
7,099
1999
1999
221
4,624
6,333
2000
2000
229
4,602
6,719
2001
2002
2001
131
3,343
4,789
2003
2004
2002
70
3,168
4,242
2005
2003
98
3,295
4,822
2006
2007
2004
150
3,476
5,696
2005
191
3,842
5,932
2006
250
4,058
7,031
2007
304
4,134
7,490
(1) Middle-Market defined as transactions with a deal value under $1bn. This definition is consistent throughout the presentation.
Sources of Information: Thomson Financial.
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2007 M&A Trends
• The strongest segment of the U.S. M&A market during 2007 was in billion-dollar-plus transactions.
• U.S. M&A activity represented nearly 35% of all global M&A transactions in 2007 and over 40% of the total dollar
volume for the year.
• Divestitures were a major source of M&A deal volume in 2007, accounting for approximately 40% of all middle-
market transactions.
• Private equity continued to play a significant role in the M&A markets.
• The median EBITDA multiple for M&A transactions in 2007 was 11.4x.
• Key elements which presented favorable environment have changed.
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2007 M&A Trends (continued)
• Most of the key market drivers have become uncertain or turned negative creating an uncertain M&A environment for
2008.
M&A Activity in the Last Five Months of 2006 and 2007
August - December 2006 August - December 2007
Number of Middle Market Deals
Deals with Undisclosed Values
Total
$1 Billion + Deals
Sources of Information: Thomson Financial.
1,714
2,913
4,627
117
1,633
3,019
4,652
77
% Change
-4.7%
3.6%
0.5%
-34.2%
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M&A Activity by Industry
• Technology is the most active sector, representing 19% of all announced M&A transactions in 2007. The following
chart details total U.S. M&A activity in 2007 by number of announced transactions.
Consumer Staples
7%
Real Estate
5%
Retail
4%
Telecom
3%
Energy and Power
7%
Technology
19%
Materials
8%
Healthcare
8%
Industrial
12%
Media/Entertainment
8%
Business Services
9%
Sources of Information: Thomson Financial.
Financial
10%
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M&A Payment Methods
• The following chart details U.S. middle-market M&A payment methods during the last ten years. During 2007, over
65% of all U.S. middle-market transactions were completed with an all cash consideration.
All Cash
All Stock
2001
2002
Cash/Stock
Other
100%
75%
50%
25%
0%
1998
1999
2000
2003
2004
2005
2006
2007
Note: Data is based on number of U.S. middle-market M&A deals.
Sources of Information: Thomson Financial.
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Corporate M&A Activity
• Corporate M&A activity accounted for over 87% of all U.S. M&A transactions in 2007 and is expected to increase in
2008.
• The number of deals involving a corporate acquiror increased for the fifth straight year in 2007.
• The following chart outlines all corporate M&A activity in the U.S. during the last ten years.
Public Acquirors
(# of Deals)
Non-Public Acquirors
14,000
10,500
2,599
2,556
3,533
7,000
2,632
9,812
3,500
8,118
2,536
2,997
5,205
4,477
4,543
2001
2002
2003
3,821
4,268
3,009
3,127
5,438
5,757
6,147
6,148
2004
2005
2006
2007
7,454
1998
1999
2000
Sources of Information: Thomson Financial.
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Private Equity Fundraising Activity
• 2007 was a record year for private equity fundraising activity.
• Increased availability of capital, as well as declining valuations and a need to make add-on acquisitions to existing
portfolio companies should drive private equity buy-side activity in 2008.
• The following chart shows funds raised by private equity firms during the last ten years.
($Bn)
$302
$320
$257
$240
$184
$168
$160
$101
$117
$117
$99
$67
$80
$54
$0
1998
1999
2000
2001
Sources of Information: Dow Jones Private Equity Analyst.
2002
2003
2004
2005
2006
2007
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U.S. Private Equity Activity
• 2007 experienced 12% growth from 2006 in deal flow for private equity backed U.S. acquisitions.
• Private equity firms continue to focus on private company acquisition targets – 59% of all private equity backed
acquisitions in 2007.
• The following chart outlines historical U.S. private equity buy-side activity from 1998 through 2007.
(# of Deals)
Total
(Deal Value - $Bn)
Deal Value
1,500
$500
1,200
$375
900
$250
600
$125
300
-
$1998
# of Deals >$1.0 Billion
# of Deals - Middle Market
# of Deals - Undisclosed
1998
4
172
222
1999
1999
11
184
191
Sources of Information: Thomson Financial.
2000
2001
2000
12
183
262
2002
2001
4
144
175
2003
2004
2002
10
174
198
2005
2006
2003
15
250
333
2007
2004
42
410
367
2005
42
266
726
2006
76
308
927
2007
83
298
1,086
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Middle-Market Valuation
• The combination of strong demand and favorable financing conditions have kept valuations at the upper end of their
historical ranges.
• The following chart details median U.S. middle-market enterprise value to EBITDA multiples during the last ten years.
(EV/EBITDA Multiple)
11.4x
12.0x
9.9x
10.1x
9.2x
8.0x
9.2x
7.9x
7.7x
7.9x
7.6x
2000
2001
2002
2003
9.7x
4.0x
0.0x
1998
1999
Sources of Information: Thomson Financial.
2004
2005
2006
2007
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Aggregate M&A Market Valuation
• The following chart details average enterprise value to EBITDA multiples across different sectors for all U.S. M&A
activity during the last ten years.
(EV/EBITDA Multiple)
25.0x
20.6x
20.0x
16.8x
15.0x
15.0x
14.5x
12.8x
12.0x
11.8x
11.5x
10.0x
10.5x
10.6x
9.3x
8.8x
8.8x
5.0x
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Sources of Information: Thomson Financial.
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Overview of Financing Environment
• One of the primary factors driving the M&A boom of the last five years has been the substantial amount of liquidity
available to finance acquisitions.
• High equity prices and low interest rates, coupled with a friendly financing environment, led to creating very high
demand for financing and to continuously increasing acceptable levels of debt to EBITDA.
• The availability of friendly financing helped to drive up valuations by allowing private equity firms to compete and bid
against strategic buyers.
• The chart below lays out average debt multiples in middle-market M&A transactions during the last ten years for deals
below and above $50mm in EBITDA.
< $50mm EBITDA
(Debt/EBITDA Multiple)
> $50mm EBITDA
7.0x
6.2x
6.0x
5.0x
5.4x
5.4x
5.3x
4.7x
4.7x
4.1x
4.6x
4.0x 4.2x
4.0x
4.1x
3.4x
3.9x 4.0x 3.8x
4.8x
4.7x
5.6x
4.7x
4.2x
3.0x
2.0x
1.0x
0.0x
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
Sources of Information: Standard & Poor’s Leveraged Commentary & Data.
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2008 and Beyond
• Capital that moved to the sidelines as valuations got pricier, is now poised to return.
• More realistic debt pricing, leverage ratios and return expectations.
• Good companies will continue to be high in demand.
• New M&A announcements in the first month of 2008 rose just 3% from the previous month, but aggregate M&A
spending dropped 17%.
• It is likely that M&A will slow in the short-term as buyers, sellers and sources of capital adjust to some of the changing
elements in the financial landscape.
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Miami, FL
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