M&A Outlook: Turning Point or Roadblock Ahead for the Capital Markets? Pepperdine Private Capital Markets Project presents the findings from its Spring 2011 survey of private lenders and investors, and the privately-held companies they serve.

1. M&A Outlook Graziadio Alumni Network May 19, 2011 John K. Paglia, Ph.D., CFA, CPA Associate Professor of Finance Senior Researcher, Pepperdine Private Capital Markets Project

6. What are Owners Focusing on Today?

11. Median Deal Multiples by Financial Buyers Investment Banker Survey (Spring 2011) Industry $1M EBITDA $5M EBITDA $10M EBITDA $15M EBITDA $25M EBITDA $50M EBITDA $100M EBITDA Service 4.0 5.0 6.0 7.0 7.0 8.0 12.0 Mfg. 4.0 5.0 6.0 5.3 6.0 7.0 10.0 Retail 3.5 5.0 6.0 7.0 6.0 7.5 8.5 Wholesale 4.8 5.3 3.3 4.0 6.5 7.0 8.0 Distribution 4.3 5.3 5.0 4.5 5.3 6.5 6.0 Oil and Gas 4.5 4.0 4.0 5.0 6.0 7.0 NA Restaurant 3.0 3.0 3.5 4.0 6.0 6.0 NA Healthcare 5.0 6.5 6.8 6.0 6.0 7.0 7.0 Technology 5.0 7.0 8.0 9.0 8.0 10.5 9.0 Media / Ent. 5.5 5.5 4.0 7.0 7.0 8.0 7.5 Average 4.4 5.2 5.3 5.9 6.4 7.5 8.5

13. Business Transfer Intentions (Spring 2011)

14. Business Transfer Timing (Spring 2011)

17. 40% of Business Sale Engagements Expired Without a Transaction

18. Valuation Gaps for Non-Transacted Engagements

19. Difficulty Securing Senior Debt? Very difficult Difficult Somewhat Difficult Neutral Somewhat Easy Easy Very Easy % Difficult $1M EBITDA 41.3% 27.3% 19.8% 8.3% 2.5% 0.0% 0.8% 88.4% $5M EBITDA 12.7% 14.4% 33.9% 23.7% 10.2% 1.7% 3.4% 61.0% $10M EBITDA 6.6% 10.5% 15.8% 25.0% 27.6% 11.8% 2.6% 32.9% $15M EBITDA 5.8% 5.8% 19.2% 19.2% 28.8% 19.2% 1.9% 30.8% $25M EBITDA 6.5% 4.3% 17.4% 21.7% 19.6% 21.7% 8.7% 28.2% $50M EBITDA 11.4% 5.7% 5.7% 20.0% 28.6% 14.3% 14.3% 22.8% $100M+ EBITDA 12.9% 6.5% 3.2% 25.8% 22.6% 12.9% 16.1% 22.6%

20. Balance of Capital with Opportunities Companies worthy of financing GREATLY exceed capital available Companies worthy of financing exceed capital available General balance between companies worthy of financing and capital available Capital available exceeds companies worthy of financing Capital available GREATLY exceeds companies worthy of financing Score $1M EBITDA 28.6% 37.1% 20.0% 11.4% 2.9% -0.8 $5M EBITDA 13.2% 30.9% 32.4% 17.6% 5.9% -0.3 $10M EBITDA 5.7% 17.0% 39.6% 24.5% 13.2% 0.2 $15M EBITDA 4.9% 22.0% 29.3% 31.7% 12.2% 0.2 $25M EBITDA 6.3% 15.6% 31.3% 18.8% 28.1% 0.5 $50M EBITDA 13.8% 10.3% 13.8% 31.0% 31.0% 0.6 $100M EBITDA 18.5% 11.1% 14.8% 22.2% 33.3% 0.4 > $100M EBITDA 14.8% 11.1% 14.8% 11.1% 48.1% 0.7

21. Top Issues Facing Privately Held Businesses (Today versus Emerging) Today Emerging