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Inside this issue: Digging Deep for a Recovery

2012 started out strong and the outlook featured robust growth levels for machinery manufacturers serving the mining and construction industries, but fundamentals in the U.S. and high growth prospects in emerging markets have since cooled. However, despite China’s dampening growth and continued pressure on Europe, developing economies continue play an important role in the growth plans of equipment manufacturers.

Industry Trends & Outlook

Machinery Industry Trends

M&A Trends

Machinery Industry Outlook

Key Developments

Company News

M&A Announcements

Transaction in Focus

Acquisition of CWS Industries (Mfg) Corp by International Equipment Solutions

October | 2012

Industrial Practice Update

2

3

4

Mergers & Acquisitions . Capital Raising . Financial Opinions & Valuations . Restructuring & Bankruptcy

Western Reserve Partners LLC provides M&A, capital raising and other financial advisory services to middle market companies across a focused set of industry verticals, including industrial, business services, consumer, healthcare, technology and real estate. With 30 professionals in three offices (including affiliates), Western Reserve delivers thoughtful advice, keen market insight and superior execution to its clients, both nationally and internationally. Western Reserve’s managing directors average nearly 30 years of experience and have directly executed more than 600 transactions throughout their careers.

Western Reserve is a member of M&A International, the world’s largest alliance of investment banking firms, as well as World Services Group, a global consortium of middle market focused law firms and other advisors, which provides unparalleled access to global companies and investors. We are a FINRA-member broker / dealer and member of SIPC.

CLEVELAND . COLUMBUS . DALLAS

www.wesrespartners.com

Developed and Emerging Markets

Change in GDP (%)

U.S. Machinery M&A Activity

Source: Capital IQ (includes announced transactions of U.S. targets with disclosed enterprise values greater than $10 million)

# of transactions

Industry operators have employed acquisition strategies as a means to reap more immediate benefits of high growth markets and diversify into more favorable industry segments. M&A activity has been strong this year, with 23 transactions with disclosed deal values announced through Q3’12, representing $6.3 billion in deal value, a significant increase from 2011.

$ in millions

Source: IMF

(2.0%)

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

United States E.U. Japan Australia Latin America Developing Asia Russia

2010 2011 2012P 2013P

5956

16

4743

9 86

$0

$2,000

$4,000

$6,000

$8,000

$10,000

$12,000

$14,000

$16,000

0

10

20

30

40

50

60

70

2007 2008 2009 2010 2011 Q1 '12 Q2 '12 Q3 '12

Number of Transactions Deal Value

Industry Trends & Outlook 2



62%

-10%

9%1%

-80%

-40%

0%

40%

80%

120%

Jan 07

Jul 07

Jan 08

Jul 08

Jan 09

Jul 09

Jan 10

Jul 10

Jan 11

Jul 11

Jan 12

Jul 12

Large Cap Machinery Mid Cap MachineryDow Jones Industrial Average S&P 500

Source: Capital IQ (Contact WRP for Index Constituants)

Indexed to 1/2/2007

Machinery Industry Trends

Mining Slowing in 2012. The U.S. coal market stalled in 2012 and demand in China tapered more quickly than expected; 2013 may see a decline in mining capital expenditures as miners are delaying capacity expansions and commodity price declines. Cancellations of equipment purchases have been minimal, however.

Orders Light. Increasing EPA regulatory issues coupled with persistently low natural gas prices throughout 1H’12 resulted in a pullback in coal production in the U.S., which ultimately led to delays in large equipment machinery orders and project approvals.

U.S. Construction Fundamentals Improving. U.S. construction is showing signs of healing as value of construction put in place has been slowly moving upward since the first quarter of 2011.

Replacement Demand Bridging the Gap. Despite tepid growth in construction and mining in the U.S., equipment sales have been propped up by underlying replacement demand.

Date Acquirer / Target (Target Description)

Enterprise Value ($mm)

EV / EBITDA

Aug-12 GE Transportation / Fairchild International Inc. Manufactures underground coal mining equipment such as scoops, haulage systems and maintenance vehicles

ND ND

Aug-12 ESCO Corp. / Ulterra Drilling Technologies Produces drill bits for the oil and gas drilling sector

$325 ND

Jul-12 IES / CWS Industries (Mfg) Corp. Manufactures attachments and integrated equipment solutions for heavy equipment

ND ND

May-12 Wabash National Corp. / Walker Group Manufactures stainless steel equipment for chemical, food & beverage, transportation and nuclear industries

$364 6.9x

May-12 Barko Hydraulics / NORCO Equipment Manufactures logging equipment and attachments

ND ND

Apr-12 Toro Co. / Stone Construction Equipment Manufactures professional turf maintenance equipment and services

ND ND

Recent Machinery Transactions

Machinery Index Performance

Machinery M&A Trends

Mining for Growth in 2012. M&A activity in 1H’12 for machinery manufacturers was driven by growth in mining, particularly in resource-rich geographies like Australia and Brazil. Strategic buyers looked to acquisitions in order to take advantage of the high activity levels observed at the beginning of the year.

Consolidation to Continue. Bolt-on acquisitions are likely to continue as the mining industry consolidates and new entrants seek to build strong footholds in select areas of the industry.

Diversity is a Good Thing. Strategic acquirers are targeting add-ons that will expand their technology or capabilities and enable them to access high growth markets like Latin America and the Asia Pacific.

Countering Cyclicality with More End Market Exposure. While cyclicality is inherent in capital equipment businesses, acquirers are gravitating toward targets that will grant them exposure to multiple end markets, particularly those with favorable trends. While construction, mining, oil and gas and agriculture may all have cyclical characteristics, their respective cycle periods differ, and thus upward trends in one may work to offset softness in another.

Machinery Outlook

Global Economy Still Fragile. Doubts surrounding the Eurozone, slowed growth in emerging markets and looming U.S. tax increases may adversely impact durable goods orders, including machinery.

Long Term View Still Expecting Moderate Growth. Notwithstanding the U.S. coal market, the global mining industry holds moderate growth prospects. Declining ore grades, deeper mines and the unwavering desire to increase uptime will continue to support investment in capital equipment, albeit at lower levels that this year’s peak.

China Stimulus May Bode Well for Machinery (at Least in the Near Term). China’s recently announced $150 billion stimulus may help boost equipment sales next year. This provides potential upside to construction equipment manufacturers with exposure to China as the last Beijing stimulus plan led to a 56% growth in heavy equipment sales in 2010. Although, this was followed by a dramatic decline in demand seen in 2011.

Importance of International Markets at the Forefront. Given the changing dynamics of power generation in the U.S. with natural gas units expected to eventually replace coal-fired units, equipment manufacturers with exposure to coal mining will likely place more focus on growth opportunities abroad.

Machinery Sales by Region

0

50,000

100,000

150,000

200,000

250,000

300,000

350,000

400,000

450,000

500,000

2006 2007 2008 2009 2010 2011 2012E 2013E

Europe China N. America India Japan

Units

Source: Off-Highway Research, KHL Group and Western Reserve Partners

3 Key Developments



GE Enters Mining Equipment GE has created a new division called GE Mining through its May 2012 acquisition of Brisbane-based Industrea Ltd and Virginia-based Fairchild International. Both recently acquired units manufacture underground mining equipment. GE purchased Industrea for approximately $490 million; the terms of the Fairchild acquisition were not disclosed. The division will continue to evaluate acquisitions of equipment and service companies as a means to propel revenue growth to $5 billion within the next few years, compared to approximately $2 billion generated last year by its current offerings, as reported by Bloomberg.

Caterpillar Cuts 2015 Forecast At its Analyst Day, Caterpillar cut its 2015 profit forecast to $12-$18 a share from $15-$20, citing global economic weakness and expectations of “anemic and modest” growth. CAT’s revenue forecast for 2015 is $80 billion to $100 billion. The company addressed that despite the pressure on U.S. coal, the demand for coal in emerging markets will remain strong as coal-fired power plants are still being commissioned at much higher levels than those seen in the U.S.

Caterpillar Announces Price Increases Caterpillar announced in a separate SEC filing that it will raise prices up to 3% on most machines worldwide. The price increases will go into effect in January 2013 and will impact equipment list prices and support service rates. In addition to these price actions, price increases up to 7% will apply to select models in certain regions to compensate for new emission rules.

Joy Global Maintains Positive Outlook Based on Emerging Market Strategy Joy Global announced at its Analyst Day that it believes long term growth prospects for China and India are positive, as developing Asian markets continue to industrialize. The company expects significant growth in coal-fired power generation in developing Asia. Joy Global also cited that some power generation has shifted back to coal from natural gas as the price for natural gas rose above $2.50. Management expects this dynamic to continue to support some increase in U.S. coal demand.

CNH Global Forms Committee to Evaluate Fiat Industrial Merger Proposal Fiat Industrial submitted a proposal to merge with CNH, which would create a combined listed entity with an approximate market capitalization of $13 billion. The new structure would be expected to facilitate financing and flexibility for future acquisitions. Fiat Industrial currently owns approximately 88% of CNH Global. CNH Global announced that it has formed a committee to evaluate the offer and hopes to come to a resolution by the end of the year.

Doosan Plans for M&A Activity Next Year Newly-minted Doosan chairman Park Yong-mann announced in April 2012 that the group will look to make acquisitions a larger component of Doosan’s growth strategy next year. Park was instrumental in 42 M&A transactions for Doosan since the early 2000s, including the 2007 acquisition of Bobcat. While Park has stated that the company has evaluated several acquisition targets, no deals are imminent. Doosan has not indicated which business units it intends to grow through acquisitions.

Finning Recently Closed Deal to Acquire Bucyrus Canadian Distribution Business As announced in January 2012, Finning entered into an agreement to purchase Bucyrus Distribution assets from Caterpillar for approximately $465 million. The first phase of the transaction, which included acquisition of Bucyrus South America, U.K. and Ireland distribution business, closed in April. Finning recently announced that it completed the second phase, which included the Canadian business, in early October. The acquisition of the Bucyrus distribution business is expected to generate incremental annual revenue of $700 million.

Titan Machinery Expresses Desire to Continue Expansion through Acquisitions Titan Machinery has closed 14 transactions of various dealer units since the beginning of 2011. According to management, the company remains focused on using acquisitions to continue to further penetrate existing markets and expand into new geographic markets. On its third quarter earnings call, the company announced that of the $410 million revenue generated during the quarter, 44% was from organic growth and 56% was attributable to acquisitions.

AGCO States Interest in Small Acquisitions AGCO Corporation CEO Martin Richenhagen has stated that it is looking to make acquisitions “at the local level” as reported by Milano Finanza. This follows the company’s acquisition of Brazil-based Santal Equipamentos, a manufacturer of sugar cane harvesting equipment. AGCO acquired 60% of the target company for $31 million. In 2011, the company also purchased GSI Holdings Corp., a manufacture of grain storage and protein production systems, for $932 million.

Farm Equipment Manufacturers Expect Little Disruption from Drought As reported by The Wall Street Journal, executives at several farm equipment manufacturers such as Deere & Company, AGCO Corporation and CNH Global expect continued investment in machinery due to higher commodity prices and crop insurance proceeds offsetting the negative impact of poor harvests. Increased commodity prices will also likely prompt increased equipment sales abroad, particularly in Latin America as the price increases could incent farmers to plant more crops than usual in hopes that the higher prices are sustained.

Industrial Group Contacts

This newsletter is published solely for the general information of clients and friends of Western Reserve Partners LLC. Information contained in this publication is based on data obtained from sources we deem to be reliable; however, we do not guarantee or represent that it is accurate or complete, and it should not be relied upon as such. Opinions expressed are our current opinions as of the date appearing on this material only. This material should not be read as advice or recommendations, and we are not soliciting any action based upon receipt of this information. Nothing in this publication is intended to be an offer to buy or sell or the solicitation of an offer to buy or sell any specific security or company. The testimonials presented are applicable to the individuals depicted and may not be representative of the experience of others. The testimonials are not paid and are not indicative of future performance or success.

Joseph G. Carson Managing Director

216.574.2102 [email protected]

Matthew J. Mueller Vice President 216.574.2103

[email protected]

Rebecca L. White Vice President 216.574.2109

[email protected]

Kevin J. Mayer Director


Justin A. Wolfort Vice President – Business Development


Kevin M. White Director


Company Overview CWS Industries (Mfg) Corp. is a leading manufacturer of top-quality attachments and integrated equipment solutions for heavy equipment with facilities in Surrey, British Columbia and Edmonton, Alberta. The Company’s products range from buckets, cabs, couplers, tire manipulators, blades, cable reels, grapples, thumbs and rippers for a variety of heavy equipment, including excavators, loaders and crawlers CWS provides custom products to some of the world's harshest environments, including the mining, oil and gas, forestry, agriculture and construction end markets.

Transaction Overview Western Reserve worked with CWS’s shareholders for several years, representing them on the sale of the Company’s subsidiary, LANTEC Winch & Gear Inc., and advising them on the appropriate transaction timing for CWS. Western Reserve ran a competitive process to identify a highly strategic buyer for the business and drive value for the shareholders. CWS will operate as a wholly owned subsidiary of International Equipment Solutions, LLC, a portfolio of KPS Capital Partners, LP.

Ken Thompson, CWS’s majority shareholder said, “We have truly enjoyed working with Western Reserve over the past several years, through the sales of both LANTEC and CWS. In addition to their extensive transaction experience, Western Reserve has a keen understanding of the capital equipment industry, which led to highly strategic partnerships for both businesses. We have highly valued their guidance and support throughout the past several years.”

4 Transaction in Focus


Mark A. Filippell Managing Director


has been acquired by


and

have formed an Equity

Joint Venture


The David J. Joseph Company

a wholly owned subsidiary of


Series C Redeemable

Convertible Participating

Preferred Stock

Bankruptcy Estate of

Driggs Farms of Indiana,

Inc.

Land-O-Sun Dairies, LLC

an affiliate of Dean Foods


has been recapitalized

Valuation Services

a portfolio company of

has been recapitalized by


Senior Credit Facility


and

Members of Management


Bill Burke

and



has been recapitalized

Fairness Opinion to the

Board of Directors

has sold its

Construction and

Engineering

Services Division to

John A. Martell

and

Bonnie M. Martell

has sold its

Cephalosporin

Finishing Facility to

a division of


and



and



an Affiliate of

Partners in Plastics, Inc.


and


A portfolio company of




Financial Advisory

Services

The Ready-Mix Assets and Eastern

Cement Corporation of

have been acquired by

a division of

CRH plc

The Assets of

Schwab Materials, Inc.

have been acquired by







Fairness Opinion

has been

reorganized by

Timeshare

Acquisitions LLC

Fairness Opinion

has completed a reverse

stock split

has been reorganized by

Artemiss, LLC

an affiliate of


Valuation Services

has acquired

Dan T. Moore

Company, Inc.

Financial OpinionFairness Opinion


a portfolio company

of Marlin Equity Partners

has sold its coupon

redemption operations to

a portfolio company of Marlin Equity Partnersa portfolio company of Marlin Equity Partners


The undersigned acted as exclusive financial advisor to CWS Industries (Mfg) Corp. in this transaction

July 2012


Partners in

Plastics, Inc.

a member of the

has acquired








funds managed by

Oaktree Capital

Management, L.P.






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