3. Emerging Growth & Middle Market
Small Large
Companies Middle Market Companies
P O P U L A T I O N
5.4MM 300,000 2,000
G D P
15% 40% 45%
V A L U A T I O N
2‐3x 4‐11x 12x +
5 150 500 1,000
Revenues
($millions)
Source: Middle Market M&A (2012)
3
14. PEG Multiples
8.0
7.5
TEV / EBITDA
TEVs of $10‐250 million
Total Enterprise Value (TEV) / EBITDA
7.0
Total Enterprise Value*
6.5
$10mm to $25mm
$25mm to $50mm
6.0
$50mm to $100mm
$100mm to $250mm
5.5
5.0
4.5
2003 ‐ 2006 2007 2008 2009 2010 H1 2011
Year of Transaction Closing
Source: GF Data Resources
14
15. Broad Valuations
12.5
73
11.5
TEV / EBITDA
10.5
Total Enterprise Value (TEV) / EBITDA
8
9.5
$1mm to $10mm
EBITDA
$10mm to $25mm
8.5
$25mm to $50mm
$50mm to $100mm
7.5
$100mm to $250mm
1
$250mm to $1B
6.5
5.5
4.5 0
2006 2007 2008 2009 2010 H1 2011
Year of Transaction Closing
*North American M&A targets of strategics and private equity investors
15
17. The Drag on Growth and the Ability
to Get Deals Done
• The bar is set high for target company performance
• Relatively few high performers vs. available capital
• Little cash flow financing for lower middle market
deals
• Time to close
• Lots of attention to emerging growth & middle
market companies
• Widening Size Premium
17
18. Positive Deal Drivers
• Strategics actively seeking growth w/o betting the farm
• Target company performance improvements creating more
viable candidates
• PEGs have time pressure to invest funds
• Modest economic growth generally supports buy vs. build
• Credit markets relatively open for larger middle market deals
• Valuations are rebounding
• Cross border interest
• Lots of attention to the emerging growth & middle market
companies
18
25. Focus on Real Value Creation
…not just growth
1 Strategic Health
(products, services, market position, etc…)
2 Management Team Strength
(without the owner / operator)
3 Dependence on the Owner
4 Scalable Infrastructure
5 Capital Formation
25