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Current Economic Conditions Affecting Your Business

Favorable US economic trends Substantial cash, increasing M&A activity US banks’ recovery & lending policies Favorable valuations

2014 M&A Outlook

Labor costs, labor unions, manufacturing costs down

US preeminence returns & recovering US Dollar Positive inflows into equity after 5 years No bubble yet, stock market peak likely off, top near Technology gains continue US banks continue recovery and improve lending

Favorable 2014 US Trends

For Financial Investors Slow 2013, prior uncertainties now clearer, substantial

cash For Strategic Acquirers

Increasing international interest in southeastern US Substantial cash, balance sheets, growth planning

For US Economy & Lending Favorable trends and policies

For Liquidity & Diversification Valuations, structure, alternatives and opportunities

M&A Outlook

Investors predict 4 industries having most potential for growth in 2014: Health care, financial services Technology Energy Manufacturing

Changing regulations in healthcare and financial services, increased O&G production, evolving world of technology, and US manufacturing opportunities will increase investment activity

Potential Sectors

M&A Drivers: New technology Geographic growth Product/service growth Customer growth

Challenges: Regulatory uncertainty Valuation disparities Volatile energy prices Inability to forecast future performance

Energy / O&G Sector

All-In Valuations

Note: 2013 H1 volume is annualized Source: GF Data

All-In Valuations

Source: GF Data

TEV 2003-08 2009 2010 2011 2012 2013 YTD

Total N =

10-25 5.4 4.9 5.3 5.2 5.5 6.0 5.4 312

25-50 6.1 6.2 6.1 5.8 6.3 7.7 6.1 266

50-100 6.7 6.5 6.8 7.4 6.6 7.2 6.8 196

100-250 7.7 8.8 6.8 7.5 7.5 6.0 7.6 62

Total 6.1 5.9 6.1 6.1 8.2 7.0 6.1 836

N = 479 29 73 93 131 31 836

Size Premium

Please note that N for 2003-08 encompasses six years of activity. 2013 Data is through 3Q.

Source: GF Data

TEV/EBITDA – By Industry

Industry 2003-08 2009 2010 2011 2012 2013 YTD

Total N =

Manufacturing 5.9 5.7 5.9 6.0 5.9 5.8 5.9 749

Business services 6.1 5.8 6.0 6.5 5.8 6.6 6.1 310

Health care services

6.7 6.3 6.7 7.4 7.3 7.7 6.9 165

Retail 6.5 5.2 5.5 6.1 6.3 5.1 6.3 54

Distribution 6.0 5.6 5.4 6.0 6.3 7.6 6.0 186

Publishing/Media 7.4 7.4 4.2 6.1 11.4 5.9 7.3 33

Technology 5.7 6.6 5.5 8.1 7.4 NA 6.3 38

Other 5.7 6.4 5.7 5.1 6.3 6.7 5.8 205

N = 964 91 191 193 228 73 1740

Please note that N for 2003-08 encompasses six years of activity.2013 Data is through 3Q

Source: GF Data

2009 2010 2011 2012 2013 YTD0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

52% 51% 48% 47% 47%

18%14% 15% 16% 14%

30%36% 37% 37% 40%

Senior DebtSub DebtEquity

Transaction Structure Trends

Source: GF Data

Price does not equal value

Three valuation approaches – Asset approach Market approach Income approach

Typical buyers – Strategic buyers Financial buyers

So how does all this effect the value of my business?

Example Company

Net Sales $50,000,000

Net Income $3,500,000Interest Expense 800,000Depreciation 2,250,000EBITDA $6,550,000

Balance Sheet -Current Assets $10,000,000PP&E (net) 25,000,000Other Assets 500,000 Total Assets $35,500,000

Current Liabilites $7,000,000Long-Term Debt 15,000,000Equity 13,500,000

$35,500,000

Valuation based on EBITDA multipleEBITDA 6,550,000

TEV/EBITDA 6 (for Mfg/Similar Size/2013)

Total Enterprise Value 39,300,000

Less Interst Bearing Debt -15,000,000

Value of Equity 24,300,000

Income as % of Revenue 7.0%EBITDA as % of Revenue 13.1%

Inventory Turns 8xDebt to Book Equity 1.1Debt to Value based on Multiple 0.6

Assuming average 2013 transaction structure

Purchase Price $43,000,000

Sources -Senior Debt 40.0% $17,200,000Sub Debt 15.0% 6,450,000Equity 45.0% 19,350,000

$43,000,000

Uses -Acquire company $40,000,000Transaction Expenses 3,000,000

$43,000,000

From the buyer’s perspective

2014 2015 2016 2017 2018 2019Grow

EBITDA 5% 6,550,000 6,877,500 7,221,375 7,582,444 7,961,566 8,359,644

Capital Exp -2,000,000 -2,100,000 -2,205,000 -2,315,250 -2,431,013 -2,552,563Principal Payments -2,457,143 -2,457,143 -2,457,143 -2,457,143 -2,457,143Interest on Senior -1,032,000 -860,000 -688,000 -516,000 -344,000Interest on Sub Debt -967,500 -967,500 -967,500 -967,500 -967,500Free Cash Flow 320,857 731,732 1,154,551 1,589,911 2,038,438

Investors wary in 2013 due to uncertainty surrounding politics, monetary policy, global issues, and economic environment

Private equity ended 2013 with a record high $1 trillion of dry powder… 2013 reported best year for PE fundraising since financial crisis

Strategic buyers continue to hold large amounts of cash – another $1 trillion

Investors Looking to Put Capital to Work

Seller activity affected by: Diversification objectives Liquidity goals Continuing profitability trends Succession issues, exit planning

Buyer Activity fueled by: Large cash reserves, low interest rates Improved consumer confidence Opportunities in emerging markets

Middle market most active sector

Increasing Activity in 2014

2013 should have been a banner year for PE deals, but deal volume decreased. Sellers accessed loose debt markets and did more

than $60bn in dividend recapitalizations Capital “under pressure,” or nearing the end of a

fund’s investment period, actually declined Asian markets cooled considerably Strategics spent the post-recession years cleaning up

their balance sheets had the cash to spend on M&A IPOs soared on the back of historically strong equity

markets

Igniting Dry Powder

PE fund-raising surged in 2013 $461bn in new capital worldwide 21% increase over 2012

Debt markets open and eager to finance new deals The excess of unassigned capital will keep asset

valuations high in all industries Strategic partnerships between corporations and

PEs (and hedge funds) will increase the number of “hybrid” deals, and increase demand

Igniting Dry Powder

Generating organic growth continues to be a challenge in the current economic environment Slow economic growth Weak aggregate demand Near-zero inflation

M&A remains the best way for corporations to act on growth opportunities PE funds believe they are best positioned to assist

with growth mandates Expect to see PE-sponsorships for corporate M&A

For strategic buyers

Unallocated capital in PE

Private Equity IRRs

5% 10% 15% 20% 25% 30% 35% 40% 45% 50%0

5000

10000

15000

20000

25000

30000

Value (1000s)

Current PE blended IRR

Value of a business with $1mm in free cash

Confluence of factors: IRRs have a inverse relationship with your company’s

valuation. PE IRRs remain lower, the base of capital has

expanded, debt markets are hungry PE firms still believe they can run your business

better than you 2014 could be the right time to partner with PE to

create liquidity and diversify.

Why This is Good News

M&A By Sector

M&A by Sector

TEV/Total Revenue

Healthcare Industry Metrics: Southeast US

EBIT and EBITDA Multiples

Healthcare Industry Metrics: Southeast US

TEV/EBITDA

Manufacturing: U.S. Middle Market

Number of Transactions

Manufacturing: U.S. Middle Market

PEs and strategic buyers have cash on hand, ready to deploy

After an historic year for equities, shareholders will demand additional share price appreciation, and M&A is the fastest way to achieve those results

In the manufacturing space, watch for firms to build by buying, often in partnership with PEs or possibly hedge funds

Health care companies can expect renewed deal volume as volatility declines with a proliferation of understanding the complexities of Obamacare

A Seller’s Market