UNDERSTANDING YOUR LIQUIDITY OPTIONS IN TODAY'S …• General worldwide macro events &general trends in U.S. economy, reflected in volatility of U.S. debt & equity markets, have a

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LIQUIDITY EVENTS: M&A UPDATE & LIQUIDITY OPTIONS

July 24, 2019

UNDERSTANDING YOUR LIQUIDITY OPTIONS IN TODAY'S MARKET

TO RECEIVE CPE CREDIT

• Individuals

Participate in entire webinar Answer polls when they are provided

• Groups

Group leader is the person who registered & logged on to the webinar Answer polls when they are provided Complete group attendance form Group leader sign bottom of form Submit group attendance form to [email protected] within 24 hours of webinar

• If all eligibility requirements are met, each participant will be emailed their CPE certificate within 15 business days of webinar

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TONY GIORDANOPresident & Managing Director

• Joined BKD Capital Advisors in 2007• More than 30 years of financial advisory services experience

• Founder & Managing Partner Santana Partners, LLC• Partner & Vice President Daniels & Associates, L.P.• Commercial Banker – The Fuji Bank, Ltd.; The Sumitomo Bank, Ltd.; &

United Jersey Bank• Managed investment & commercial banking transactions totaling over $5.0

billion• Experience in many industries, including M&D, food & beverage, technology,

telecom, media, retail, hospitality, construction, real estate, health care & insurance

• Fordham University – Certificate Program for Advanced Study in Business –Corporate Finance, 1992

• Regis University – MBA, 1987• Fairfield University – B.S., Marketing, 1984• FINRA Registered Representative

• Series 7, Series 24 & Series 63

Denver

TABLE OF CONTENTS

About BKDCA

Economic Outlook

M&A Trends

Capital Markets

Valuations

Liquidity Options

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ABOUT BKD CAPITAL ADVISORS

BKD, LLP – BREADTH & DEPTH OF RESOURCES

• Audit & Tax• BKD Capital Advisors• BKD Wealth Advisors• Transaction Services

• Forensics & Valuation Services• Risk Management• Special Tax Services

• 40 offices in 18 states

• Approximately 380 Partners & Managing Directors

• More than 2,700 employees

• Seven industry niche groups• Manufacturing & Distribution, Energy, Health Care,

Financial Services, Construction & Real Estate, Technology & Telecom & Not-for-Profit

• Clients in all 50 states & internationally

• End-to-end client service proposition

BKD/BKDCA Office

BKD OfficeKey Service Offerings

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BKD CAPITAL ADVISORS PROFILE

• Wholly owned investment banking subsidiary founded in 1994 • Diverse transaction experience spanning multiple industries, sales channels &

end markets• Focused on high-quality middle-market transactions with enterprise values

from $10 million–$300 million, as well as preparatory consulting engagements• Active senior banker involvement from start to finish, with support from a highly

qualified team of junior bankers & associates/analysts • More than half of our investment bankers are senior bankers• All engagements include multiple senior bankers

Why BKD Capital Advisors?

Middle market-focused with deep M&D experience Relationship culture We are advisors, not facilitators; plan for success Senior bankers execute transactions Tailored approaches to planning & executing Outstanding domestic & international reach Creative approach to positioning & selling “futures” Data- & fact-centric Breadth of complementary BKD services

Client Industry

33%

32%

18%

12%5%

Mfg. & Dist.Health CareBusiness ServicesFinancial ServicesConsumer & Retail

Transaction Type

82%

13%5%

Sell-SideM&ABuy-SideM&A

43%

38%

19%

Strategic

PEG

PE-backedStrategic

Buyer Type

ECONOMIC OUTLOOK

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2019 ECONOMIC OUTLOOK: MACRO VIEWGrowth

• The labor market remains healthy with the June unemployment rate at 3.7 percent, close to its lowest level in 50 years.

• The U.S. economy grew at a healthy 3.1% rate in the first quarter of 2019, but signs are mounting that growth will slow through the remainder of the year.

• Slight cooling in the manufacturing sector & a drop in trucking shipment are signs of a possible economic slowdown in the future.

• ISM Manufacturing Index stood at 51.7 at the end of June—approaching a two-year low—falling from 58.2 in January. When this index falls below 50, the economy is typically contracting.

• The Cass Freight Index has tracked below 2018 levels for each month of 2019, most recently posting 1.23 in May, compared to 1.31 a year prior.

Key Considerations

• In the first quarter, consumer spending, which accounts for 70% of economic activity, slowed to 0.9% rate gain. Economists believe consumer spending will rebound in the second quarter.

• Business investment growth nearly doubled from 2017 to 2018 & accounted for almost one third of GDP growth for the year—overall capital spending has fallen in 2019; however, investment in intellectual property research & development increased from Q1 to Q2 of 2019, & is higher than it was in the same quarter a year prior. [1]

• While inflation is projected by the Congressional Budget Office to rise to 2.7 percent by 2020, the Bureau of Economic Analysis found that inflation in Q1 of 2019 had fallen under 2.0 percent, below the previous quarter & the 2018 Q1 rate, & below the Federal Open Market Committee’s (FOMC) symmetric 2 percent objective.

Source: [1] St. Louis Federal Reserve Bank – “Data Series 387”

2019 ECONOMIC OUTLOOK: POLITICS & PUBLIC POLICY

Taxes

• Positive effect on corporate bottom lines from tax reform will continue to be felt in 2019—however, in a smaller magnitude as some of the temporary provisions begin to expire.

Political Climate

• Continues to be a difficult political climate between Congress & the Administration in addition to moving into the Presidential election cycles—campaigning for the 2020 election is already underway.

Trade Policy & Global Outlook

• Global conflict over trade—whether tariffs, anti-dumping/countervailing duties (AD/CVD), or international trade agreements—continues to be one of the biggest threats to economic growth.

• China GDP slowed to 6.2% in the second quarter, the weakest rate in 27 years, as the country’s trade war with the U.S. took its toll.

• Global growth has continued to soften this year. The World Bank has identified subdued investment in emerging markets & rising public debt as key dampeners for growth.

• Global growth in 2019 has been downgraded to 2.6 percent, 0.3 percent below previous forecasts.• Other concerns include uncertainty surrounding issues like Brexit negotiations & the Italian budget crisis.

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2019 ECONOMIC OUTLOOK: INTEREST RATES

Credit Market

• The current Fed funds rate is set at 2.5 percent—raised by the Board of Governors from 2.25 percent in December of 2018.

• On 7/10/19, Federal Reserve Chairman Jerome Powell testifying before the House Financial Services Committee, highlighted ongoing risks to the United States economy from the trade war, low inflation & a global economic slowdown—signaling a rate cut may be likely when the Fed meets again in late July.

• On 7/16/19 Chairman Powell repeated his pledge to “act as appropriate” to keep the economic expansion going as his fellow central bankers move toward an expected interest rate cut at the July 30–31 Federal Open Market Committee policy meeting.

• The availability of capital & historically low interest rates should continue to support vibrant M&A activity. 3-month LIBOR as of 7/15/19 is 2.30325%. Prime rate as of 7/15/19 is 5.50, up from 5.00 one year ago.

Leveraged Finance

• The increased volatility in equity markets at the end of 2018 had ripple effects in the credit market for deals.• Total leveraged finance volume for the first quarter was $191 billion. This represented a 41% increase from the fourth quarter of 2018

but a decrease of nearly 20% on a year-over-year basis. • A survey of M&A lenders by William Blair found that the perceived condition of the leverage finance market improved

over the last quarter, up from 3.9 to 4.2 out of 5.0.• Lenders reported that the two main factors influencing this market are overall economic health & rising interest rates.

CAPITAL MARKETS & M&A TRENDS

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CURRENT M&A CONDITIONS

• We expect middle-market M&A activity in the U.S. will remain active for at least another 12 to 18 months, driven by an abundance of equity looking for deals & accommodating credit markets, among other forces.

• Many are assessing strategic options, such as whether to exit, find a partner to help them get their business to the next level or become a consolidator.

• Near-term deal activity will continue to be fueled by:• Ongoing access to capital & financing• Strengthened balance sheets of strategic buyers • Increasing private equity activity

• U.S. corporations have $927 billion in cash on balance sheets & are increasing acquisition activity. [1]

• Private equity firms have $1.2 trillion in capital to invest. [2]

• Debt markets are healthy with lenders active & competitive in M&A lending.• The current M&A market presents both opportunities & challenges

• Companies with excellent management teams, above average margins, multiple growth opportunities can be highly valued.• Strong competition for quality assets as both corporates & private equity continue to seek deals to fuel growth & deploy capital.• General worldwide macro events & general trends in U.S. economy, reflected in volatility of U.S. debt & equity markets, have a direct

impact on M&A market activity.• Assuming a relatively stable economy, we anticipate the remainder of 2019 & 2020 to be an active M&A market with attractive

valuation multiples.

Sources: [1] St. Louis Federal Reserve – “Nonfinancial corporate business; checkable deposits and currency; asset, Level”, [2] Preqin – “Private Equity Dry Powder”

Corporations continue to view acquisitions as an important component of their growth strategy & many are capital-rich, aggressive buyers.

• Nearly $1.0 trillion in cash on the balance sheets of U.S. nonfinancial companies rated by Moody’s.• In addition to domestic cash on balance sheets, about 72% of S&P companies also hold cash in offshore

tax havens. For all U.S.-based companies, cash held overseas is estimated at approximately $3.5 trillion as of the end of 2018.

STRATEGIC BUYERS

$70$92

$311

$116

$150

$190

$143 $145$165

$181$161

$177 $170 $164$182

$313

$0

$50

$100

$150

$200

$250

$300

$350

$BB

Cash Repatriated from Overseas by U.S. Firms

644.1 660.0 688.5

808.8 849.4

972.5 953.4 927.0

-

200.0

400.0

600.0

800.0

1,000.0

2012 2013 2014 2015 2016 2017 2018 2019

$BB

Domestic Cash on Corporate Balance Sheets – Q1

Source: St. Louis Federal Reserve

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Private equity has become an important capital source for middle-market companies over the last decade.

• Growth in capital available to private equity firms has been driven by institutional investors, endowments, pension funds, insurance companies & wealthy individuals who are continuing to embrace private equity as an alternative assets class.

• The $1.2 trillion in dry powder currently available to private equity investors represents over $2.0 trillion in purchasing power due to leverage.

U.S. PRIVATE EQUITY GROUPS

$560$519

$674 $672

$790$874

$978

$1,154

$0

$200

$400

$600

$800

$1,000

$1,200

$1,400

2011 2012 2013 2014 2015 2016 2017 2018

$BB

U.S. PEG Dry Powder

Source: Preqin

• The fourth quarter saw a significant shift in market sentiment, particularly in November & December, as economic & political uncertainty forced lenders to re-evaluate their risk appetite & underwriting guidelines.

• Below is survey data collected from lenders on quarterly expectations for the M&A lending environment through Q1 2019.

LEVERAGED LENDING: CHANGING EXPECTATIONS

6.0%11.0% 23.0% 9.0%

43.0%

54.0%48.0%

66.0%

51.0% 35.0% 29.0% 25.0%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Q2 2018 Q3 2018 Q4 2018 Q1 2019

Pricing

Increase Remain the same Decrease

Source: William Blair

4.0% 3.0% 23.0% 11.0%

41.0%

51.0%

43.0%

65.0%

55.0% 46.0% 34.0% 25.0%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Q2 2018 Q3 2018 Q4 2018 Q1 2019

Leverage & Terms

Tighten Remain the same Loosen

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• The significant percentage of lenders who expect pricing to increase & leverage & terms to tighten in 2019 reflect the market dynamics that closed out 2018.

• The markets expect pricing, leverage & terms to either remain the same or further shift in favor of lenders over the course of 2019.

• Below is survey data collected from lenders on expectations for the M&A lending environment in 2019.

LEVERAGED LENDING: LOOKING AHEAD

11.0%

71.0%

18.0%

Pricing Expectations

Increase Remain the same Decrease


19.0%

61.0%

19.0%

Leverage & Terms Expectations

Tighten Remain the same Loosen

• Total leverage multiples for middle-market LBOs remained relatively flat in the fourth quarter of 2018, but have increased during Q1 2019.

DEAL LEVERAGE: MIDDLE MARKET


5.2x4.8x

4.2x4.5x

4.9x

5.4x

4.7x4.9x

5.2x5.5x

5.8x

5.0x5.3x

5.9x6.1x

5.6x 5.6x6.0x

0.0x

1.0x

2.0x

3.0x

4.0x

5.0x

6.0x

7.0x

Q1 2017 Q2 2017 Q3 2017 Q4 2017 Q1 2018 Q2 2018 Q3 2018 Q4 2018 Q1 2019

Leverage Multiples, Transactions Under $1 BB – All Industries

Sr. Debt/EBITDA Total Debt/EBITDA

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DEAL LEVERAGE: LOWER MIDDLE MARKET

• Low interest rates, substantial available capital & a stable economic outlook has resulted in fairly consistent leverage multiples over the past few years with the exception of a small uptick in 2017.

• The favorable debt market has stabilized equity commitments in recent years as a percentage of transaction value.

• Higher valuation multiples & greater equity contributions in deals have caused expected returns to the private equity funds to decline.

• YTD 2019 is through Q1

1.0x0.8x 0.8x 0.9x 0.8x

3.0x3.0x

3.4x3.0x

3.3x

0.0x

0.5x

1.0x

1.5x

2.0x

2.5x

3.0x

3.5x

4.0x

4.5x

2015 2016 2017 2018 YTD 2019

Historical Leverage Multiples, U.S. PEG Transactions Under $250MM

Sub. debt/EBITDA Sr. debt/EBITDA

13.7% 11.8% 10.8% 11.4% 11.1%

43.2% 43.4% 44.6% 39.8% 45.5%

43.0% 44.9% 44.7% 48.9% 43.4%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2015 2016 2017 2018 YTD 2019

Equity & Debt Contributions, U.S. PEG Transactions Under $250MM

Sub. Debt Sr. debt Equity

Source: GF Data

VALUATIONS

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MIDDLE-MARKET M&A METRICS: VALUATION

• Middle-market M&A deal activity has proven to be resilient, with transactions garnering healthy multiples across the spectrum of deal sizes & investors continuing to use high amounts of leverage.

• As valuation multiples have increased, private equity firms have had to increase the amount of equity invested in transactions; however, financial buyers still only participate in roughly 17.5% of M&A activity by deal size.

• Below are historical data on middle market M&A transactions.

Source: S&P Capital IQ

M&A MARKET DATA: TRANSACTION VALUES BY SECTOR

Trailing Twelve Months Through June 2019

Sector TV ($MM) Transaction Count TEV/Revenue TEV/EBITDACommunication Services $89,496 1,279 2.25x 12.54xConsumer Discretionary $119,878 2,078 1.242x 11.12xConsumer Staples $42,954 771 0.87x 12.93xEnergy $295,859 684 2.79x 8.80xFinancials $80,994 1,413 3.46x 28.51x*Health Care $274,697 1,951 4.18x 15.01xIndustrials $212,571 3,231 1.00x 10.27xInformation Technology $355,495 2,304 2.70x 17.27xMaterials $59,084 1,121 1.63x 10.13xReal Estate $225,627 3,623 10.55x 16.29xUtilities $40,600 341 2.19x 6.80xTotal $1,797,255 18,796 1.84x 11.54x

Source: S&P Capital IQ

-

50

100

150

200

250

300

CommunicationServices

ConsumerDiscretionary

ConsumerStaples

Energy Financials Health Care Industrials InformationTechnology

Materials Real Estate Utilities

Tra

nsac

tion

size

($B

B)

M&A Total Transaction Values by Sector

2017 2018 YTD 2018 YTD 2019

*Includes outliers

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LOWER MIDDLE-MARKET DATA: TEV/EBITDA FOR PRIVATE EQUITY TRANSACTIONS

• GF Data Resources is a subscription database that tracks deal activity for approximately 250 middle- market private equity firms.• Transactions in the $10 to $250 million TEV range & at multiples of 3–15x Trailing Twelve Month

Adjusted EBITDA are reported (excluding outliers). 2019 year-to-date data is through Q1.

Source: GF Data

Industry 2003 - 2014 2015 2016 2017 2018 YTD 2019 Total N=Manufacturing 5.9x 6.6x 6.1x 6.8x 7.0x 6.7x 6.1x 1339Business Services 6.1x 6.4x 7.3x 7.5x 7.2x 7.4x 6.5x 611Health Care Services 6.8x 7.8x 7.6x 8.1x 7.8x 6.9x 7.2x 301Retail 6.4x 5.5x 7.0x 7.6x 7.0x 9.2x 6.6x 99Distribution 6.1x 6.7x 7.5x 7.7x 7.1x 6.2x 6.4x 317Media & Telecom 7.2x 6.4x 6.6x 8.2x 8.6x NA 7.2x 50Technology 6.8x 8.0x 7.4x 10.2x 9.6x 7.0x 7.7x 101Other 5.8x 5.6x 6.9x 6.5x 7.1x 5.4x 6.1x 336

Total N= 3154

• Deal valuations relative to earnings (EBITDA multiples) in the lower middle market are consistently trending upwards, yielding higher premiums when compared to prior years.

• Total deal value in the lower middle market has increased in recent years, even as deal volume has fallen. • There is a distinct valuation bias toward larger companies. YTD 2019 is data through Q1.

LOWER MIDDLE-MARKET M&A METRICS: VALUATION

5.8x 6.2x 6.1x6.6x 6.2x 6.1x6.4x 6.8x 6.7x 6.9x 7.2x 7.1x7.0x

8.0x6.9x

8.5x9.3x

7.4x7.5x

9.1x

7.2x

9.3x 9.0x 9.3x

0.0x

2.0x

4.0x

6.0x

8.0x

10.0x

2003-2014 2015 2016 2017 2018 YTD 2019

TEV/EBITDA Multiples by Year – All Industries

$10-25MM $25-50MM $50-100MM $100-250MM

Source: GF Data

5.8x 6.3x 5.9x 5.7x6.2x 6.6x 6.6x 6.6x7.4x

8.1x9.3x

7.1x

9.1x 9.3x 8.9x 9.2x

0.0x

2.0x

4.0x

6.0x

8.0x

10.0x

2016 2017 2018 YTD 2019

TEV/EBITDA Multiples by Transaction Type, Platform Transactions – All Industries

$10-25MM $25-50MM $50-100MM $100-250MM

5.8x 6.4x 6.1x 5.8x6.5x 6.5x

8.0x 8.1x7.1x

8.0x 7.9x

6.0x

10.8x

8.1x

0.0x 0.0x0.0x2.0x4.0x6.0x8.0x

10.0x12.0x

2016 2017 2018 YTD 2019

TEV/EBITDA Multiples by Transaction Type, Add-On Transactions – All Industries

$10-25MM $25-50MM $50-100MM $100-250MM

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Recast FinancialPerformance/Projections/Positioning

Negotiating Process

Marketing

Capital Markets & M&A Activity

Business Fundamentals

Industry Fundamentals

COMPONENTS OF VALUE

1

2

3

4

5

6

VALUATION CONTINUUM

Premium Valuation

Base Valuation Factors Premium Valuation Factors

• Average Business Risk• Stable Business Model• Market/GNP Growth Prospects• Solid Management• Attractive Asset Base or Intellectual

Property

• Attractive Growth Prospects• Scale; Margin Expansion Possibilities• Defensible Market Niche• Demonstrated Strength of Management• Auction Style, Disciplined Sales Process

“Outlier” Valuation Factors

• Strong Strategic Position• High Organic Growth with Inorganic

Growth Opportunities• Readily Scalable Business Model• Excellent Management• Below Average Business Risk

Valuation Range

“Outlier” Valuation

“Base” Asset Valuation

Pro

bab

ilit

y

Premium Valuation

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LIQUIDITY OPTIONS

STRATEGIC OPTIONS ANALYSIS

• BKDCA’s Strategic Options Analysis (SOA) is an excellent tool that can provide clients with the information they need to consider their succession plans & understand their liquidity options. Key components provided include

• A market analysis • Review of investment considerations & potential red flags• Estimated valuation range (after tax proceeds analysis)

based on market analysis• Discussion of liquidity event options

• Full sale• Majority or minority recapitalization• Management buyout• Dividend recap• ESOP (ESOP Group)• Growth investment option

• Discussion of process & timing

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• Operating companies that provide comparable products & services • Often competitors, suppliers or customers

• Could also be unrelated to target or its industry• Companies looking to diversify revenue streams• Companies seeking to build upon their business model &/or competencies to enhance earnings or

reduce risks • Buyer motivations are multifaceted & varied, including

• Strategic positioning• Market share; new channels• New products & processes• New customers or deeper penetrations• Technologies• Scale; synergies; earnings enhancements• Management skills; corporate know-how• Diversification• Accelerated growth; seeking higher margins & earnings

STRATEGIC BUYERS

• Primary advantages • Potentially, deep universe of buyers• Perspectives of risks & returns among candidate buyers can vary significantly• Long-term investment horizons• Often lower return hurdles (typically meaning higher valuations)• May be motivated to grow in industry with average or below-average prospects• Often, can bring deeper management talent• Typically, cash/stock buyers with lower transitional demands

• Issues• Confidentiality• Tire kickers; data seekers• Protecting sensitive performance data, IP, know-how• Industry knowledge—double-edge sword• Consolidation more prevalent• What is current management’s role going forward?• Is there a good culture fit?• Potential loss of jobs

STRATEGIC BUYERS

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• Firms with capital & resources that look to buy companies & utilize value-creation strategies • Private Equity Groups can vary significantly

• Traditional buyout funds• Firms with “buy & hold” strategies• Firms with existing holdings• Generalists vs. industry-specific funds• Firms with CEO partners• Special situation funds

• Hold periods often relatively short • Generally, 3–7 years, although there are many “buy & hold” firms

• Family Office • Typically longer holding period than traditional private equity fund

• Leverage is often deployed to enhance returns• Financial buyers usually become strategic buyers as they execute their growth strategies

• Add-on acquisition vs. platform acquisition• PEGs have closed roughly 15%–20% of middle-market deals in past 10 years

FINANCIAL BUYERS

• In general, PEGs have been successful investors in middle market• Disciplined buyers (pay for quality; shy from average)• Deploy resources to assist growth

• Success has led to expanding universe of PEGs with large pool of capital• Current overhang is roughly $1.2 trillion

• Primary advantages• Large universe of efficient buyers• Hot deals can garner aggressive bidding• Equity stakes for incumbent management; noteworthy wealth creation• Use solid capital resources to pay for excellence• Very focused growth agendas in need of management teams & infrastructure

• Issues• More need to sell industry attributes; due diligence scrutiny• Use of leverage• Aggressive growth & earnings enhancements is hard work• Must have capable management team• Possibility of near-term & medium-term sale

FINANCIAL BUYERS

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RECAPITALIZATIONS• A portion of equity is purchased & selling shareholder(s) often retain meaningful stake & continue to operate company.

• Popular for owners who desire to diversify their personal wealth, yet remain active in growing the business & recognizing future wealth.

• Selling majority stake – Advantages• Provide liquidity to ownership • Retain minority equity position that could potentially double or triple in value in 5 to 10 years• New investors provide capital/resources & will work with management to formulate growth plan & assist in execution• Key management remains with company (2- to 3-year transition period) with board representation• If platform transaction, company typically continues to operate independently

• Selling majority stake – Issues• New investor now controls company• New investor will most likely leverage balance sheet (but operating risk now lies with new investor)• Could experience major restructuring if acquired by portfolio company

• Selling minority stake – Advantages • Ownership retains control• New investor can provide resources (financial & operating)

• Selling minority stake – Issues• Will most likely see lower enterprise valuation due to minority investment• Operate with some leverage • Investor will have some minority protections (first right of refusal, preemptive rights, anti-dilution provisions, redemption rights, board

representation, etc.)

RECAP EXAMPLE – 25% ROLLOVERMajority Recapitalization: 25% Equity Rollover Scenario

Assumed EBITDA at Close 7,000,000 Financing Sources

Senior Bank Debt 3.00x

Valuation Multiple 7.00x Subordinated Debt 1.00x

Buyer Equity Investment 75%

Total Enterprise Value 49,000,000 Existing Shareholder Equity Rollover in NewCo 25%

*Assuming the Company is Cash and Debt Free at transaction close

Pro Forma Capital Structure Post Transaction

Sources Uses

Senior Debt 23,000,000 Cash at Closing to Existing Shareholder 43,750,000

Subordinated Debt 7,000,000 Shareholder Rollover Equity 5,250,000 Buyer's Equity Investment 15,750,000 Estimated Transaction Expenses (Legal, Accounting, Financing) 2,000,000 Existing Shareholder Rollover Equity 5,250,000 Total 51,000,000 51,000,000

Existing Shareholder Equity % Post Transaction 25%

Business Growth Post Transaction: 25% Equity Rollover ScenarioEBITDA @ Close 2019P 2020P 2021P 2022P

Total Recast EBITDA (Projected) 7,000,000 7,750,000 8,500,000 9,250,000 10,000,000 Growth Rate YOY n/a 10.7% 9.7% 8.8% 8.1%


Annual Debt Repayment / Amortization % 15% 15% 15% 15% 15%

Pro Forma Total Debt (15% Annual Amortization) 30,000,000 25,500,000 21,000,000 16,500,000 12,000,000

Valuation Multiple 7.0x 7.5x 8.0x 8.5x 9.0x

Total Enterprise Value 49,000,000 58,125,000 68,000,000 78,625,000 90,000,000 Implied Total Equity 21,000,000 32,625,000 47,000,000 62,125,000 78,000,000

Implied Existing Shareholder Equity Value 5,250,000 8,156,250 11,750,000 15,531,250 19,500,000

Implied Existing Shareholder Annual Return on Equity N/A 55% 44% 32% 26%

Implied IRR / CAGR 39%

Total Value to Existing Shareholders 49,000,000 51,906,250 55,500,000 59,281,250 63,250,000

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RECAP EXAMPLE – 35% ROLLOVERMajority Recapitalization: 35% Equity Rollover Scenario








Sources Uses




Business Growth Post Transaction: 35% Equity Rollover ScenarioEBITDA @ Close 2019P 2020P 2021P 2022P


Pro Forma Capital Structure



Valuation Multiple 7.0x 7.5x 8.0x 8.5x 9.0xTotal Enterprise Value 49,000,000 58,125,000 68,000,000 78,625,000 90,000,000 Implied Total Equity 21,000,000 32,625,000 47,000,000 62,125,000 78,000,000

Implied Existing Shareholder Equity Value 7,350,000 11,418,750 16,450,000 21,743,750 27,300,000 Implied Existing Shareholder Annual Return on Equity N/A 55% 44% 32% 26%Implied IRR / CAGR 39%


RECAP EXAMPLE – 75% RETAINEDMinority Recapitalization: 75% Equity Retained Scenario








Sources Uses




Business Growth Post Transaction: 75% Equity Retained ScenarioEBITDA @ Close 2019P 2020P 2021P 2022P


Pro Forma Capital Structure



Valuation Multiple 5.50x 7.50x 8.00x 8.50x 9.00xTotal Enterprise Value 38,500,000 58,125,000 68,000,000 78,625,000 90,000,000 Implied Total Equity 10,500,000 32,625,000 47,000,000 62,125,000 78,000,000

Implied Existing Shareholder Equity Value 7,875,000 24,468,750 35,250,000 46,593,750 58,500,000 Implied Existing Shareholder Annual Return on Equity N/A 211% 44% 32% 26%Implied IRR / CAGR 65%


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LEVERAGE RECAP

• Leverage recap (leverage company & pay dividend/buy out shareholders)• Advantages

• Do not give up any equity (potentially minority stake – 25%) • Allows for liquidity event to owners without a sale

• Issues• Have to service debt prior to distributions• Financial covenants can impact operating flexibility• Company more susceptible to macro events—industry or macro economic events• Risk of bankruptcy

• Owners often recognize team’s leadership contributed greatly to his or her wealth creation.

• High-performing teams in solid companies can execute rewarding deals.

• Personal capital investments do not need to be large, but they do need to be meaningful.

• Capital resources (senior/junior debt & private equity) to facilitate deals for solid, well-managed companies.

• Main element in MBO is control & continuity of management & business operations.• Equity rewards can be far more rewarding if team controls deal & pursues capital partners in competitive process

• Advantages• Reward most meaningful long-term contributors• Operating team remains in control of process• Company maintains culture & community presence• Due diligence issues are rare, as are purchase price modifications• Can retain small equity stake in Newco• Balance sheet integrity can be maintained

• Issues• Lack of strategic value• Requires capable team with demonstrated results• Team needs to have clear vision & articulate a compelling plan• Operate with some leverage

MBOS

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• Advantages• Retain control & continue to run company (regardless of level of ESOP ownership)• Favorable tax treatment

• Reduce or even eliminate corporate income tax • Company repays acquisition debt with pre-tax dollars• Interest & principal on acquisition debt is tax deductible

• Preserve culture, jobs & community• Provide stockholder liquidity (over time) tax efficiently• Reward key management & long-term employees• Uniquely position company for growth via acquisitions

• Issues• Sell company at fair market value; could potentially “leave money on the table”• Stockholder liquidity may be realized over time, not immediate

ESOPS

• Often once-in-a-lifetime decision• Issues are complex & impact many who have contributed to success of enterprise• Emotional aspects are real• Getting it right is perfect stepping stone to next chapter of life• There are no go-to plans or established formulas/rules

• Assessing client’s situation, objectives, dynamics of company & its industry are critical steps• Approach should be tailored to client’s desires

LIQUIDITY EVENTS CONCLUSIONS

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TIMING

SELL-SIDE PROCESS

Month 1 Month 7Month 6Month 5Month 4Month 3Month 2

Mar

ketin

g Pr

oces

s

Phase I Phase II Phase III Phase IV

Pre-Marketing Financial Diligence

Draft CM & Finalize Buyers List

Prepare Online Data Room

Market Receive Indication of

Interest

Management Visits

Buyer DiligenceSolicit &

Negotiate Letter of

IntentConfirmatory Diligence

Document & Negotiate Transaction

Close

Prepare for Market

Market

Negotiate & Close

Phase I: Preparation Phase II: Marketing Phase III: Evaluation Phase IV: Negotiations & Closing

BKDCA believes that the key to a successful transaction is keeping all parties on a highly disciplined timeline, with clear & well-defined milestones. It is critical to avoid “deal drift”.

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SELL-SIDE PROCESS

Phase I: Preparation

Phase II: Marketing

Phase III: Evaluation

Phase IV: Negotiation & Closing

• BKD Capital Advisors works closely with the Company to understand the business, its value drivers & any potential issues• Analysis & development of marketing materials, including the Executive Profile & CM• Research & development of list of potential buyers, focusing on high-probability strategic & financial buyers• Potential buyer list reviewed & approved by client

• BKDCA confidentially initiates dialogue with prospective buyers; Executive Profile deployed• Interested parties sign an NDA &, as appropriate, receive the CM• BKDCA answers questions from prospective buyers regarding the company, the process & desired deal structure • Target date of IOI submission established; IOI’s provide deal structure & range of value

• BKDCA & the client review IOIs & determine the top candidates based on perceived “fit” with the client’s objectives• Top candidates are invited to attend management presentations; opportunity to showcase the company as well as learn more about the

prospective buyers • Top candidates are granted access to additional company information to firm up the valuation & deal structure that they will include in

LOI• Prospective buyers submit their LOI; BKDCA works with the client to determine which ones have the greatest merit

• BKDCA helps negotiate terms with the selected buyers to maximize value for the client; once terms are accepted, LOI is executed• Buyer’s diligence initiated, including a detailed review of business & financial information; Quality of Earnings report (“QoE”) likely to be

performed • Buyer will request access to key personnel at the company; however, the most sensitive discussions are delayed• Buyer’s legal team drafts documents & negotiates with the Company’s legal team; BKDCA will work closely with Company legal team to

ensure the terms of the LOI are fully represented & remains actively engaged, as needed, through closing

CONTINUUM OF SUCCESSION PLANNING

• In addition to traditional tax & audit services, BKD provides a continuum of succession planning services. BKD can assist with its broad spectrum of experienced personnel, helping clients navigate through succession planning & execute transactions, including our BKDnextAdvisors.

• Mergers & acquisitions

• Capital raising• Debt & equity

recapitalizations• Management

buyout• Strategic planning

• Personal financial planning

• Retirement planning• Investment

management• Education planning• Estate & legacy

planning• Survivor assistance

• ESOP feasibility study

• Accounting & tax for ESOP structuring

• Other consulting services for ESOPs

BKD ESOP Advisory Group

• Buy-side due diligence

• Sell-side due diligence

• Quality of Earnings reports

• Data analytics

BKD Transaction

Services Group

• Identify & prioritize business issues

• Implement a plan to achieve long-term succession & continuity goals

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Questions?

CONTINUING PROFESSIONAL EDUCATION (CPE) CREDIT

BKD, LLP is registered with the National Association of State Boards of Accountancy (NASBA) as a sponsor of continuing professional education on the National Registry of CPE Sponsors. State boards of accountancy have final authority on the acceptance of individual courses for CPE credit. Complaints regarding registered sponsors may be submitted to the National Registry of CPE Sponsors through its website: www.nasbaregistry.org.

The information contained in these slides is presented by professionals for your information only & is not to be considered as legal advice. Applying specific information to your situation requires careful consideration of facts & circumstances. Consult your BKD advisor or legal counsel before acting on any matters covered.

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CPE CREDIT

• CPE credit may be awarded upon verification of participant attendance

• For questions, concerns or comments regarding CPE credit, please email the BKD Learning & Development Department at [email protected]

For a complete list of our offices & subsidiaries, visit bkd.com or contact:

Thank You!Tony Giordano

President & Managing Director, BKD Capital Advisors

[email protected]

303.861.4545

Documents

UNDERSTANDING YOUR LIQUIDITY OPTIONS IN TODAY'S …• General worldwide macro events &general trends in U.S. economy, reflected in volatility of U.S. debt & equity markets, have a