2010 Middle-Market M&A Review and Outlook

Middle-Market M&A Review and Outlook April 2010 Benning Associates LLC 101 Federal Street - Suite 1900 Boston, MA 02110 www.BenningLLC.com (617) 261-3999 Confidential

[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],The financial services industry is changing – we are a new type of M&A advisor for a new economic paradigm. Experienced, efficient and lean. Overview of Benning Associates BA Believes in More Technology and Less Mahogany Who We Are ,[object Object],[object Object],How We Do It ,[object Object],[object Object],[object Object],[object Object],What We Do ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

Our team is a re-united group of successful investment bankers poised to serve a market requiring close coordination and agility Overview of Benning Associates Team DNA in Place ,[object Object],[object Object],[object Object],[object Object],Robert Roose Vice President Matt Brochu Associate Miles Littlefield Associate Greg Benning Founder Jay Remington Founder Pete Cahill Managing Director Senior Banking Team Execution Professionals

BA offers an array of services customized to the needs of middle-market clients Overview of Benning Associates Scope of Services Scope of Services Acquisition Search Business Sales and Divestitures Capital Sourcing Outsourced Corp. Development Retained Advisory Specialty Advisory Assignment Description Why Benning Associates? ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

No one said middle-market dealmaking today was easy…

Leading economic indicators improved throughout 2009, but are deals on the horizon in 2010? Leading Indicators: Conditions Improving? Good Reasons for Optimism in 2010 Leading Economic Indicators ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

2010: Venture capital investors will strongly consider monetizing their investments via the “right” sale opportunity Leading Indicators: Conditions Improving? Capital Markets Show Improvement Relative to a Bottom Source: Yahoo Finance, data through 3/24/10 Source: Yahoo Finance, data through 3/24/10 ,[object Object],[object Object],The VIX has retreated to historical levels, indicating a normalizing market 2004 – 2010YTD S&P 500 Volatility Index 2008 – 2010YTD S&P 500 Volatility Index

2010: Venture capital investors will strongly consider monetizing their investments via the “right” sale opportunity Leading Indicators: Conditions Improving? Capital Markets Show Improvement Relative to a Bottom Source: Yahoo Finance, data through 3/24/10 Source: Yahoo Finance, data through 3/24/10 ,[object Object],[object Object],The Dow Industrial Index has returned to pre-financial crisis levels 2004 – 2010YTD Dow Jones Industrial Index 2008 – 2010YTD Dow Jones Industrial Index

Leading Indicators: Conditions Improving? Forward-Looking Economic Signals Are Less Bad Leading economic indicators have improved markedly and brought a greater sense of stability—an important requirement for deals that make sense right now to transact Source: The Conference Board, data through 12/31/09 Source: Bureau of Labor Statistics, data through 3/20/10 Source: Bureau of Labor Statistics, data through 2/28/10 Source: Standard & Poor’s, data through 12/31/09 Average Discounted Spread of Leveraged Loans Weekly Initial Unemployment Claims Average Weekly Manufacturing Hours CEO Sentiment of Economic Conditions

Despite the fresh start of a new calendar year and upbeat leading economic indicators, uncertainly has still managed to impact the M&A market 2009 Hope vs. Q1 2010 Reality What Happened? “ What a difference six weeks make. It's only taken that long for the green shoots of optimism that had been burgeoning in M&A by the end of last year to be choked off by rising uncertainty and market volatility.” – The Deal Magazine, February 19, 2010 Another Shake-Up ,[object Object],[object Object],[object Object],[object Object],[object Object]

2009 Hope vs. Q1 2010 Reality >$5B Global M&A Transactions Globally, mega deals saw a dramatic drop over the last 90 days ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],Source: Dealogic Note: Transactions with disclosed Deal Value greater than $5 billion, excluding minority deals, financial services, real estate, and insurance transactions 2009 – 2010 Global M&A Transaction Volume and Value

2009 Hope vs. Q1 2010 Reality <$250MM National M&A Transactions Nationally, there was a modest drop in deal volume and a greater drop in deal value between Q4 09 and Q1 10 ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],Source: Dealogic Note: Transactions with disclosed Deal Value less than $250 million, excluding minority deals, financial services, real estate, and insurance transactions 2009 – 2010 National M&A Transaction Volume and Value

2009 Hope vs. Q1 2010 Reality <$250MM Massachusetts M&A Transactions In Massachusetts, this quarter-over-quarter decline was significantly more pronounced ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],Source: Dealogic Note: Transactions with disclosed Deal Value less than $250 million, excluding minority deals, financial services, real estate, and insurance transactions 2009 – 2010 Massachusetts M&A Transaction Volume and Value

2009 Hope vs. Q1 2010 Reality <$100MM National M&A Transactions Nationally, there was a drop in deal volume and deal value between Q4 09 and Q1 10 ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],Source: Dealogic Note: Transactions with disclosed Deal Value less than $100 million, excluding minority deals, financial services, real estate, and insurance transactions 2009 – 2010 National M&A Transaction Volume and Value

2009 Hope vs. Q1 2010 Reality <$100MM Massachusetts M&A Transactions Again, in Massachusetts, this quarter-over-quarter decline was significantly more pronounced ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],Source: Dealogic Note: Transactions with disclosed Deal Value less than $100 million, excluding minority deals, financial services, real estate, and insurance transactions 2009 – 2010 Massachusetts M&A Transaction Volume and Value

Healthcare and software deals have dominated middle-market M&A in Massachusetts in 2010 2009 Hope vs. Q1 2010 Reality <$250MM Massachusetts M&A Transaction Overview 2010 <$250m Massachusetts M&A Transaction List

There are several key areas to look for M&A activity in the lower middle-market in 2010 Lower Middle-Market Insights Where will the growth come from? Key Insights on Sub-$100MM Deals ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

Lower Middle-Market Insights Divestitures to Drive Sub-$100MM Deal Activity Source: Dealogic. Note: Excludes financial services, real estate, and insurance transactions. ,[object Object],[object Object],We foresee a sizeable increase in divestiture volume in 2010 as companies re-focus, sell off non-core businesses and seek funding without additional borrowing 2000 – Q1 2010 Divestitures as % of US M&A <$100MM

Lower Middle-Market Insights Private Acquirors Increasingly Active in the Sub-$100MM M&A Market ,[object Object],[object Object],[object Object],[object Object],[object Object],With public buyers sitting on cash more and more in recent quarters, it is important to consider the universe of healthy private companies that may be looking to grow via the right deal Source: Dealogic. Note: Excludes financial services, real estate, and insurance transactions. Also excludes sponsor-backed transactions. 2000 – Q1 2010 Private Acquirors as % of Acquirors in US M&A <$100MM

Lower Middle-Market Insights Cross-Border M&A Attractive But Challenging Source: Dealogic. Note: Excludes financial services, real estate, and insurance transactions. ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],We expect this trend line to continue as foreign buyers exploit currency advantages and the US loses market share in the global economy 2000 – Q1 2010 Cross Border Buyers as a % of US M&A <$100MM

Lower Middle-Market Insights Regional Segments of Cross Border Buyers While not surprising given the progress made in the Chinese and Indian manufacturing and service sectors, this shift has important implications for M&A planning, strategy, execution and tactics Source: Dealogic. Note: Excludes financial services, real estate, and insurance transactions. ,[object Object],[object Object],[object Object],2000 – Q1 2010 Regional Breakdown of Buyers as % of US M&A <$100MM

Lower Middle-Market Insights Health Care M&A Has Bucked Negative M&A and Financing Market Trends Health care M&A will continue its growth into 2010 as acquirors look to add new revenue and financing becomes more accessible Source: Dealogic. ,[object Object],[object Object],[object Object],[object Object],2000 – Q1 2010 Global Health Care Transactions <$100M

Lower Middle-Market Insights Life Sciences Deals Drive Overall Health Care Transaction Growth Pharma continues to search for the next blockbuster, leading to available financing and healthy exits for many early- and mid-stage life sciences companies with promising data ,[object Object],[object Object],[object Object],Source: Dealogic. 2000 – Q1 2010 Global Life Sciences Transactions <$100M

2010 Middle-Market M&A Review and Outlook

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