Jim Crooks

Partner

Pricewaterhouse Coopers LLP

YOUR ROADMAP TO A SUCCESSFUL TRANSITION

Business Transitions Forum

How to Build a Saleable Business: Your Roadmap to a Successful Transition

November 2017

What we’ll focus on today…

Influences on the M&A Market1.

Deal Activity & Trends2.

Transaction Process 3.

Potential Deal Issues4.

Influences on the M&A Market

Strong capital markets

1 Excludes Financials; all years calculated using S&P constituents as at October 2017 for comparability; in USD 2 Moody’s Seasoned AAA Corporate Bond Yield3 Excludes Real Estate, Mezzanine and Distressed private equity funds; in USD4 Latest ‘global PE dry powder waiting to be deployed’ data available is as of May 2017Sources: Capital IQ, Preqin

S&P 500 companies 1

Corporate bond yield 2

Cash of S&P 500 companies1

Global PE ‘dry powder’ 3

13.4xEV/EBITDA

3.9%Yield

$1.3Trillion

2015 $745Billion

2016 14.5xEV/EBITDA

3.7%Yield

$1.5Trillion

$821Billion

2017 YTD

15.1xEV/EBITDA

3.8%Yield

$1.6Trillion

$9064

Billion

State of capital markets in Canada

13.3x $74.4CAD Billion

S&P/TSX Composite Index

(excluding Energy & Financials)

Cash & EquivalentsEV/EBITDA Multiple

Source: Capital IQ, Pitchbook, PwC Analysis as of October 2017173 of 251 companies on the index included

Canadian Private Equity Dry Powder

$77.5CAD Billion

-6%

-1%

5%

10%

15%

20%

Oct-16 Nov-16 Dec-16 Jan-17 Feb-17 Mar-17 Apr-17 May-17 Jun-17 Jul-17 Aug-17 Sep-17 Oct-17

US (S&P 500) Canada (S&P/TSX) UK (FTSE 100) China (Shanghai)

Global equity markets buoyant over the last year

Source: Capital IQ, PwC Analysis

+19%

+8%

+10%

+6%

Bull or Bear – where will the market go in 2018?

Dec 31, 2015 Dec 31, 2016 Oct 31, 2017 2018

S&P 500 2,044 2,239 2,575

?

NASDAQ 5,007 5,383 6,728

S&P/TSX 13,010 15,288 16,026

Gold (US$/oz) $1,060 $1,152 $1,271

Silver (US$/oz) $13.80 $15.99 $16.68

Oil (WTIUS$/bbl)

$37.04 $53.72 $54.38

Cdn / US FX 1.39 / 0.72 1.34 / 0.74 1.29 / 0.78

Poll: Bull or Bear – where do you think the market will go in 2018?

1 2

38 →

42

19→

25

42→

46

30→

40

33→

37

29→

41

We’re not getting younger…

Source: United Nations Population Division, World Population Prospects, 2015 revision (2015 – 2050)

Source: Alberta Treasury Board and Finance, Population Projections

…and an aging population is driving succession activity

Alberta Population by Age Group

1997 – 2.8 million 2017 – 4.3 million

23% 38%

2041

31%90+

85 to 8980 to 8475 to 7970 to 7465 to 6960 to 6455 to 5950 to 5445 to 4940 to 4435 to 3930 to 3425 to 2920 to 2415 to 1910 to 14

5 to 90 to 4

Deal Activity & Trends

Energy$56.6

Materials$8.7

Real Estate$6.3

Industrials$8.7

Consumer Discretionary

$3.5

Consumer Staples$9.0

Healthcare$2.8

Financials$2.5

Information Technology

$9.2

Telecommunication Services

$4.5

Utilities$5.2

Source: Capital IQ as of November 6, 2017 (CAD $ billions)

$117Billion

Over 1,500 transactions in Canada over the past 12 months…

Energy$17,418

Materials$23

Real Estate$98

Industrials$1,180

Consumer Discretionary

$162

Consumer Staples

$8

Healthcare$45

Information Technology

$663 Utilities$435

…and 8% of those deals were in Alberta

Source: Capital IQ as of November 6, 2017 (CAD $ millions)

$20Billion

107

9489

97

112

103

138131

141 143

0

20

40

60

80

100

120

140

160

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Dea

l C

ou

nt

Private equity is very active in Canada

Source: Pitchbook, PwC Analysis

Source: Preqin Q2 2017 Report; Capital IQ S&P 500 Q2 2017, excluding financials (USD $ billions)

Lots of cash looking for a home…

Global private equity

capital ($b)

$527

$1,597$627

$906

S&P 500 cash & ST

investments

($b)

2006 2017

…..debt is readily available

4.6x 5.2x 4.7x5.5x 5.2x 5.7x 5.4x

6.2x

3.5x4.0x

3.8x3.8x 4.0x

4.5x 5.3x4.6x

2010 2011 2012 2013 2014 2015 2016 2017 Q1

0

2

4

6

8

10

12

Debt/EBITDA Equity/EBITDA

Source: Pitchbook, PwC Analysis

US Private Equity Transactions

8.1x

10.8x

Observations on Private Equity buyers

Debt contributions of 4-5 x EBITDA are common in the US

Canadian PE’s multiples are not as strong as US PE’s –Debt of 3-4x

PE’s are becoming specialised –acting more like strategic buyers

Strong valuations are driving significant due diligence

Source: PitchBook M&A Report Q4 2016 and Q1 2017

Poll: What do you think is the most common reason for selling?

3 Special situations

1 Succession 2 Approached by potential buyer

4 Business is great

Drivers for Mid-Market Deals

Succession/Retirement Approached by a potential buyer or investor

Special situations• shareholder• matrimonial• health• financial distress

Opportunistic

Transaction Process

Strategic options for a shareholder

Recapitalization

Sale to strategic buyer

Sale to financial buyer (private equity)

Management buyout

IPO

Family transition

Exclusive Sale Process

Targeted Sale Process

Auction Process

Potential sale process options

Transaction process summary

Time leading up to process

Sale Preparation

Formal Marketing

Due Diligence &

Final Offers

Negotiation & Closing

Every deal is different: 16 – 36+ weeks

Areas of due diligence

Commercial Financial Tax Legal Environmental

Areas of due diligence

• Products and/or services and life cycles

• New product and/or services development

• Geographic concentration

• Competitors

• Customer/supplier dependence

• Industry outlook

Commercial

Areas of due diligence

• Quality of earnings

• Normalizations

• Working capital analysis

• Margin analysis

• Data room

• Business plan review

Financial

Potential Deal Issues

Market conditions

Business impact

Deal structure

Do your due diligence

Know the target’s “value”

Emotional impact

Confidentiality and disruption

Competitive tension

Be ready for taxes

Clean house and be prepared

Transaction Considerations

Transaction considerations

Sell SideBuy Side

Poll: What do you think is the biggest value disruptor in a deal?

Significant deal issues

1 Lack of preparation

Flawed sale processChange in financial performance2

3

4

5

Market changes

Presentation key highlights

Market conditions are excellent for vendors

Strategic and private equity buyers are very active

Demographic shift and favourable economic conditions are impacting market activity

Continue to focus on business operations

Do your homework and be prepared

If I had one hour to save the worldI would spend fifty-five minutes defining

the problem and only five minutesfinding the solution!

- Albert Einstein

Any questions?

Jim Crooks

Managing Director and Partner

PricewaterhouseCoopers Corporate Finance Inc. *

PricewaterhouseCoopers Corporate Finance LLC * *

jim.m.crooks@ca.pwc.com

604 806 7306

* Jim Crooks is a Partner with PricewaterhouseCoopers LLP (Canada) and a Managing Director with PricewaterhouseCoopers Corporate Finance Inc. PricewaterhouseCoopers Corporate Finance Inc. conducts an investment banking

business in Canada, and is owned by PricewaterhouseCoopers LLP, an Ontario limited liability partnership and a member firm of PricewaterhouseCoopers International Limited. Each member firm of PricewaterhouseCoopers

International Limited is a separate legal entity.

* * Jim Crooks is a FINRA Registered Representative with PricewaterhouseCoopers Corporate Finance LLC, which is owned by PricewaterhouseCoopers LLP (US), a Delaware limited liability partnership and a member firm of

PricewaterhouseCoopers International Limited. Each member firm of PricewaterhouseCoopers International Limited is a separate legal entity. PricewaterhouseCoopers Corporate Finance LLC conducts an investment banking

business in the United States and is a member of FINRA and SIPC, and is not engaged in the practice of public accountancy.