Mergers & Acquisitions | Debt & Equity Placements | Strategic Advisory Services

Seattle

CLE Materials

May 2018

2

2018 Pacific Northwest Deals SpotlightPanel Discussion

Moderator:Walt Maas – Shareholder, Karr, Tuttle Campbell

Panelists:Charley Geiger – Principal, Blue Point Capital Partners

Nicholas E. Ferrer – Partner, Perkins Coie LLP Brian Murphy – President and Managing Director, Meridian Capital

Bradaigh Wagner – Managing Director, Endeavour Capital Mark D. Working – Co-Founder, Zachary Scott Investment Bankers

3

National M&A Trends

4

M&A Activity – North America

$1

,76

8.2

$1

,12

4.5

$7

30

.7

$1

,02

7.8

$1

,13

0.1

$1

,29

6.7

$1

,26

9.3

$1

,81

2.8

$2

,13

2.0

$2

,14

7.6

$1

,80

4.0

10,026

8,672

6,825

8,621

9,877

10,89010,450

13,06614,035

12,480

10,465

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

$0

$500

$1,000

$1,500

$2,000

$2,500

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017*

Deal Flow ($B) Deal Count(#)*Estimated Projection

Source: Standard & Poor’s, Pitchbook

Record Deal Flow in 2015 and 2016 – slight decline in activity in 2017

5

US Private Equity Deal Flow by Year

$2

89

$3

38

$3

66

$4

36

$5

13

$5

51

$5

99

$5

74

$8

9

1101

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

5,000

$0

$100

$200

$300

$400

$500

$600

$700

2010 2011 2012 2013 2014 2015 2016 2017 2018*Deal Value ($B) Estimated Deal Value ($B) # of Deals Closed # of Estimated Deals Closed

*Estimated ProjectionSource: Standard & Poor’s, Pitchbook

PE Activity Increasing, Playing Larger Role in the M&A Markets

6

M&A Activity – Number of Deals by Deal Size

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017*

Under $100M $100M-$250M $250M-$500M $500M-$1B $1B-$5B $5B+

*Estimated ProjectionSource: Standard & Poor’s, Pitchbook

Transactions under $100 Million consistently represent over 65% of all deals

7

Median and Average Deal Size

$21 $24 $25 $25 $31 $30 $30 $40

$223 $216$241

$280

$308

$342

$413 $418

$0

$50

$100

$150

$200

$250

$300

$350

$400

$450

2010 2011 2012 2013 2014 2015 2016 2017*

Median Average

*Estimated Projection

Source: Standard & Poor’s, Pitchbook

Median deal size has nearly doubled since 2010 to $40 million

8

M&A Activity – Number of Deals by Sector

0

5,000

10,000

15,000

20,000

25,000

30,000

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017*

B2B B2C Energy Financial Services Healthcare IT Materials & Resources

*Estimated ProjectionSource: Standard & Poor’s, Pitchbook

B2B, B2C and IT industries driving strong M&A activity

9

Pacific Northwest Transaction Statistics – 2017 and 2018 YTD

10

PNW Transaction Statistics – 2017 and 2018 YTD

2017 Deal Value

2018 YTD Deal Volume

2017 Deal Volume

2018 YTD Deal Value

Source: Pitchbook

Deal value represent data from 132 of 605

transactions

1111

D e a l s b y I n d u s t r y

0

20

40

60

80

100

120

140

BusinessServices

Consumer Distribution FinancialServices

Healthcare Industrials Manufacturing Technology

Num

be

r o

f D

ea

ls

Deal Volume by Industry

2017 2018 YTD

$0.0

$2,000.0

$4,000.0

$6,000.0

$8,000.0

$10,000.0

$12,000.0

BusinessServices

Consumer Distribution FinancialServices

Healthcare Industrials Manufacturing Technology

To

tal V

Alu

e (

$M

)

Deal Value by Industry

2017 2018 YTD

Source: Pitchbook

Transaction value represents data from 132 of

605 transactions

PNW Transaction Activity by Industry – 2017 and 2018 YTD

Key Highlights

• Q1 2018 deal activity in region on

pace to match 2017 volume

• Technology and healthcare industries

continue to drive local deal activity

given significant level of local

entrepreneurial talent

• Industrial activity driven by

construction and building products

transactions as investors seeks

access to attractive PNW dynamics

12

Factors Driving M&A Activity

1313

Alignment of Macro Trends and Business Considerations

2011 2012 2013 2014 2015 2016 2017 2018 2019+

2018

Where are we in

market cycle?

Macro Valuation Trends

• Valuations remain strong, but have experienced several years of above average multiples

• Significant debt and equity financing chasing limited transactions

• Likely a continued rising interest rate environment

• Strong macroeconomic performance

• Positive businesses owner sentiment

Business Considerations

• What are realistic growth assumptions?

• Impact on business valuation if multiples normalize?

• Investment needs in consolidating markets?

14

Median US EV/EBITDA Multiples

5.0

x

4.9

x

3.6

x 4.6

x

5.0

x

4.2

x

5.1

x

5.4

x

5.7

x

5.2

x

5.7

x

3.9

x

3.4

x

3.8

x 3.5

x 4.1

x

4.1

x 3.4

x 4.2

x

4.3

x

5.2

x

4.8

x

8.9x

8.3x

7.4x

8.1x

9.1x

8.3x 8.4x

9.6x10.0x

10.5x 10.5x

0x

2x

4x

6x

8x

10x

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017*

Debt/EBITDA Equity/EBITDA Valuation/EBITDA*Estimated ProjectionSource: Standard & Poor’s, Pitchbook

Historically high valuations and leverage for past 3 years

15

Source: Standard & Poor’s, Pitchbook. Chart $ in billions.

Over $1 Trillion in Available Capital Driving Valuations

As of June 2017, $1.1 trillion in capital commitments were available for PE and VC firms to invest.

Private Equity, $961.5

Venture Capital, $145.4

16

Timing and Valuation Considerations… When multiples are constant

Assumptions

Business Growth Rate 12%

Discount Rate - Time Value of Money 5%

Discount Rate - Execution Risk 0%

Beginning Multiple 10.0x

Multiple % Decline 0%

Year EBITDA MultipleEnterprise Value

(Future Dollars)

Enterprise Value

(Today's

Equivalent)

2017 10.00$ 10.0x $100.00 $100.00

2018 11.20$ 10.0x $112.00 $106.67

2019 12.54$ 10.0x $125.44 $113.78

2020 14.05$ 10.0x $140.49 $121.36

17

Assumptions

Business Growth Rate 12%

Discount Rate - Time Value of Money 5%

Discount Rate - Execution Risk 0%

Beginning Multiple 10.0x

Multiple % Decline -20%

Year EBITDA MultipleEnterprise Value

(Future Dollars)

Enterprise Value

(Today's

Equivalent)

2017 10.00$ 10.0x $100.00 $100.00

2018 11.20$ 8.0x $89.60 $85.33

2019 12.54$ 8.0x $100.35 $91.02

2020 14.05$ 8.0x $112.39 $97.09

Timing and Valuation Considerations…When multiples normalize

18

General Valuation Drivers

19

Understanding Key Value Drivers in Your Industry…

Industry GeneralistNiche Market /

Industry FocusedFocus

Generic / Low

Barriers to EntryStrategic / Value-add

Product/

Services

RegionalNational Footprint /

ReputationReputation

Below Average

Margins

Operational Leverage

and High MarginsProfitability

Customer

Concentration

Diverse Customer

BaseCustomer Base

Early Stage Business

with Low Volume

Established Business

with Large ClienteleSize/Scale

One-time ProjectsContracted /

RecurringRevenue Profile

Increasing Multiple

20

Consistent, Strong

Performance

• Established Market

Position

• High Customer

Retention Driving

Recurring Revenue

• Differentiated Service

Offering

• Diverse End Market

Exposure

Consistency

Infrastructure

• Systems and

Processes in Place

• Reporting Capabilities

to Support Business

Decisions

• Management Team in

Place to Execute

Growth Plan

• Ability to Integrate Add-

on Acquisitions

Scalability

Near-term, Tangible

Growth Opportunities

• Industry is Poised for

Growth and

Consolidation

• Achievable Growth

Opportunities

• Exposure to Attractive

Regions

• Ability to Clearly

Articulate Growth

Initiatives

Visibility

What Drives the Multiple that Investors are Willing to Pay?

Minimize Perceived Risk

Maximize Perceived Reward