Middle Market Economic Outlook: At a Glance

1www.cit.com/middlemarketoutlook

Welcome to Today’s Web Seminar!

October 29, 20142:00 PM ET/11:00 AM PT

Presented by: Hosted By:


Moderator

Danielle Fugazy is a freelance journalist covering the private equity industry. Since pursuing a freelance career in 2006, Fugazy has written for numerous publications including Mergers & Acquisitions Journal, ACG’s Middle Market Growth, Investors Dealers’ Digest, Private Equity Professional Digest, Venture Capital Journal, Dealmaker Magazine and Portfolio.com. She also regularly conducts video interviews for Thomson Reuters and Privcap.

Prior to pursuing a freelance career, she was Editor of Buyouts Magazine, a Thomson Reuters publication. She previously served as Managing Editor of sister publication Private Equity Week and was a periodic contributor to Buyouts.

Fugazy began her financial journalism career with WebFinance, covering the online financial services beat. She has served as moderator and panelist at several industry events and she is a graduate of University of Massachusetts, Amherst.


Panelists

Jeffrey Kilrea is Co-Head and Managing Director of CIT Sponsor Finance. CIT Sponsor Finance provides cash flow and asset-based senior debt for private equity-backed transactions in the middle market throughout the United States and Canada. Kilrea has over 25 years of experience in the commercial finance sector and is based in our Chicago office. Prior to CIT, Kilrea was the Co-President of the Corporate Finance Business for CapitalSource, Inc. (NYSE: CSE). While at CapitalSource, he started and served as Managing Director of the Media and Communications specialty lending group and also led its Sponsor Finance initiative. Prior to CapitalSource, he was a Senior Vice President with GE Capital in the Sponsor Finance Group. Before then, he was with FINOVA Capital Corporation and helped with the development of its Media & Communications and Corporate Finance lending practices. He holds a bachelor's degree in finance from Northern Illinois University.

Thomas Hobbis is Co-Head and Managing Director of CIT Sponsor Finance. CIT Sponsor Finance provides cash flow and asset-based senior debt for private equity-backed transactions in the middle market throughout the United States and Canada. Hobbis has nearly 25 years of experience in the Finance sector. Before joining CIT, Hobbis was a Managing Director at SunTrust Robinson Humphrey where he covered New York, Chicago and Boston-based private equity firms. Previously he was a Director in the Acquisition Finance Group at ING Capital, where he initiated a new calling effort and was responsible for providing acquisition financing to financial sponsors for U.S. middle market leveraged buyouts. Prior to ING, Hobbis was a Director of the Transportation and Logistics Investment Banking Group at ABN AMRO. While at ABN AMRO, he commenced full-time coverage of the airline sector. Before ABN AMRO, he was with ING Barings and held origination and execution positions in several commercial and investment banking groups. Hobbis holds an MBA in International Finance from Fordham University and a BA from Gettysburg College.


Research Background and Methodology For the third year in a row, CIT (NYSE: CIT), a leading provider of commercial lending and leasing

services, partnered with KRC Research to conduct a survey of middle market executives and business leaders.

KRC Research fielded an online survey among 301 U.S. middle market executives representing a range of industries, including apparel, commercial real estate, communications, energy, entertainment, finance, healthcare, industrials, information services and technology, metals, mining, restaurants, retail and transportation, among others.

Twenty-seven percent were public companies; 73% were private.

Fieldwork was conducted in August of 2014.

Respondents had to be in a leadership role at firms with revenues between $25 million and $1 billion.

Researchers defined leadership roles as: Owner, Board Member, C-Suite Executive (Chief Executive Officer, Chief Operating Officer, Chief Financial Officer, Chief Information Officer, Chief Investment Officer, or other C-Suite title), or SVP/VP/Director.

Firms needed to have the majority (50%+) of their employees based in the United States.


Better Off Today Than a Year Ago Many middle market executives offer a favorable assessment of their companies: The

majority not only say they are in a strong position now, but also that they are stronger than a year ago.

Over half of middle market companies (55%) surveyed have experienced workforce growth over the past 12 months.


Cautious About the U.S. Economy Only a minority believe the U.S. economy is

doing well right now. Nearly a third (27%) describe the U.S. economy

as strong, 30% say it is weak and the rest characterize it as neutral.

This is compared with 2013 when 41% described the U.S. economy as weak and only 15% said it was strong.

There is optimism much closer to home, with 51% describing their local economy as strong.

This audience also proves optimistic about the direction of the U.S. economy: 46% expect it to be stronger in 12 months.


Growth on the Horizon


Workforce Expansion Expected Sixty-two percent of executives expect to increase their workforce over the next 12

months.

More than half (58%) report that business demand and opportunities will lead to an increase in workforce.


Talent Management Top of Mind Sixty-eight percent of executives are concerned about their ability to retain top talent

and 65% are concerned about their ability to hire top talent.


The Impact of the Middle Market on the U.S. Economy

A little impact on the U.S. economy

A moderate impact on the U.S. economy

A major impact on the U.S. economy

0 10 20 30 40 50 60

4%

37%

59%

Fifty-nine percent of middle market executives believe the middle market has a major impact on the U.S. economy.


How the Middle Market Differentiates Itself Fifty-six percent of respondents believe the middle market differentiates itself from

small and big businesses through its ability to innovate.


Satisfied With Financing Ninety percent of respondents said they are satisfied with their company’s access to

financing, up almost 10 points from 2013.


Satisfied With Financial Lender Ninety-four percent report being satisfied with their current financial lender, and more

than four out of five say they are satisfied with the variety of financing alternatives available to them and the cost of financing.


Top Ten Uses of Financing Over the Next 12 Months

Refinancing

Training and development of talent

Research and development

Expanding manufacturing/service capability

Acquisitions

Hiring staff

Investing in IT

U.S. expansion

Working capital

Plant and equipment

0 5 10 15 20 25 30 35 40

13%

15%

16%

17%

21%

21%

25%

27%

29%

34%


Interest Rate Expectations


Top Areas of Concern While 69% of executives rate their company as strong, there are still several issues

that cause trepidation among middle market executives.


Seeking Lower Taxes or Sale


Regulatory Concerns: A Closer Look

FDA regulations/ food labeling laws

OSHA

FCC/ communication

EPA regulations/ environmental

Financial regulations/ banking regulations (non specific)

Immigration reform

Labor bills/ minimum wage/ OFCCP

Transportation bill/ transportation funding/ FMCSA/ trucking regulations

Tax code/ rising taxes/ tax reform

Affordable Care Act

0 5 10 15 20 25

2%

2%

2%

3%

3%

4%

4%

4%

13%

23%

Pending federal legislation and/or regulations with greatest impact


Dissatisfaction with Congress and the President Views of middle market executives align with the general public when it comes to our

elected officials. Two-thirds say they disapprove of President Obama’s job performance, which is consistent with

opinions from 2013. Congress fares even worse: 84% say they disapprove of Congress’s job performance, an

improvement over 2013, when 95% disapproved.


Congressional Support Lacking The vast majority believe Congress is doing too little to support both small (86%) and

middle market (77%) businesses.


Middle Market Looks to Republicans to Lead Congress Looking ahead to the upcoming elections this November, the majority say a

Republican-controlled Congress would be good for their company (55%), as compared to only one in five thinking a Democrat-controlled Congress would be good for their company (21%).


Expectations for 114th U.S. Congress The middle market is expecting the next session of Congress to take up a diverse

agenda, with tax reform topping the list.

Additionally, three-fourths want changes to healthcare reform, investments in infrastructure and increasing domestic energy production to be on the agenda for the next session of Congress.

Regulatory, immigration and tort reform are also important. Fewer think raising the federal minimum wage should be taken up by the 114th Congress.


Majority Support GOP Presidential Candidate in 2016 Election Looking toward 2016, just over half would like the

next president to be a Republican (54%), while 30% are hoping to have another Democrat in office. The remaining 16% say they do not know.

The three most popular Republican candidates are New Jersey Governor Chris Christie, former Florida Governor Jeb Bush and the 2012 Republican nominee, former Massachusetts Governor Mitt Romney.

On the Democratic side, former Secretary of State Hillary Clinton generates the greatest support. New York Governor Andrew Cuomo falls into a second tier, receiving less than half as much support as Clinton.


The Middle Market: By the Numbers

THE MIDDLE MARKET AND THE

U.S. ECONOMY

WORKFORCE: HIRING AND RETAINING

TALENT

THE MIDDLE MARKET AND CONGRESS

EXPECTATIONS FOR 114TH CONGRESS

69PERCENT SAYING CURRENT

STATE OF THEIR COMPANY IS STRONG

68PERCENT SAYING THEY ARE CONCERNED ABOUT THEIR

ABILITY TO RETAIN TOP TALENT

84PERCENT SAYING THEY

DISAPPROVE OF CONGRESS’S JOB PERFORMANCE

84PERCENT SAYING THEY WANT

CONGRESS TO TAKE ACTION ON TAX REFORM

51PERCENT SAYING THEY BELIEVE THEIR LOCAL ECONOMIES ARE

STRONG

65PERCENT SAYING THEY ARE CONCERNED ABOUT THEIR

ABILITY TO HIRE TOP TALENT

77PERCENT SAYING THAT

CONGRESS IS DOING TOO LITTLE TO SUPPORT THE

MIDDLE MARKET


CHANGES TO THE AFFORDABLE CARE ACT

27PERCENT SAYING THEY BELIEVE

THE U.S. ECONOMY IS PERFORMING STRONGLY

47PERCENT SAYING IT IS

DIFFICULT TO RETAIN TOP TALENT

45PERCENT SAYING THAT

CONGRESS IS DOING TOO MUCH TO SUPPORT BIG

BUSINESSES


INVESTMENTS IN THE COUNTRY’S INFRASTRUCTURE


Learn more at:

www.cit.com/middlemarketoutlook

Middle Market Economic Outlook: At a Glance

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