1. M & A a n d C a p i t a l M a r k e t s U p d a t e – 2 Q 2 0 2 0M & A a n d C a p i t a l M a r k e t s U p d a t e – 2 Q 2 0 1 9
CONFIDENTIAL
M&AandCapitalMarketsUpdate
1
2 Q 2 0 2 0
2. M & A a n d C a p i t a l M a r k e t s U p d a t e – 2 Q 2 0 2 0
CONFIDENTIAL 2
TheContinuedImpactof COVID-19on theFinancialMarkets
7.4x
Avg. Middle Market
EV/EBITDA Multiple(1)
92%
of Deals Closed Had an EV
Below $250 Million
$3.4 Trillion
Current Cash Balance of S&P
500 Companies
Note: (1) Middle market defined as transactions with values at or below $250 million. Source: GF Data, Capital IQ
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Unemployment Reaches Highest Levels Since the Great Depression
Jan 20: 3.6%
Jun 20: 11.1%
↑208%
“Overall M&A deal activity saw a significant decline in 2Q 2020 as deals continued to be
put on hold. Strategic buyers continued to build their cash reserves through reduced M&A
activity and spending as uncertainty surrounding the impact of COVID and the global
economy persisted. Private Equity fundraising saw a slight increase in 2Q but is on pace
for its lowest levels since 2015.
Transactions are moving forward, but as lenders take on higher levels of risk and
underwriting standards increase, borrowers may see an increased cost of capital for
borderline deals as they are potentially pushed to the next tier of lenders.”
JJ Lane – Vice President
3. M & A a n d C a p i t a l M a r k e t s U p d a t e – 2 Q 2 0 2 0
CONFIDENTIAL
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
10 Year 20 Year 30 Year
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
0.0%
1.0%
2.0%
3.0%
4.0%
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
1,000
1,500
2,000
2,500
3,000
3,500
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Source: Capital IQ, St. Louis Fed, European Central Bank, U.S. Department of the Treasury as of 6/30/2020
3
0.08%
1.3%
1.1%
0.6%
MacroEconomicFactorsImpactingtheM&AEnvironment
1Q 2020: 2,585
2Q 2020: 3,100
↑19.9%
S&P 500 Surged Back 20% in 2Q 2020… …While U.S. Real GDP Declined for the First Time in a Decade
Fed Funds Rate Continue Their Downward Spiral… …As Treasury Yields Continued to Decline
Q2: -9.54%
4. M & A a n d C a p i t a l M a r k e t s U p d a t e – 2 Q 2 0 2 0
CONFIDENTIAL
$2,425 $2,391 $2,399
$2,002 $2,107 $2,169 $2,195 $2,079
$2,979
$3,371
1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q
2018 2019 2020
Cash Balance
1,049 916 1,038 1,085 1,040 980 1,109 1,105 1,012
527
235
198
252 260 216 218
232 254
218
73
95
128
102 104
76 100
92 128 62
27
1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q
2018 2019 2020
Under $100M $100M-$500M +$500M
$369 $428 $339 $325 $411 $501 $284 $281 $154
$58
1,379
1,242
1,392 1,449
1,332 1,298
1,433 1,487
1,292
627
0
200
400
600
800
1,000
1,200
1,400
1,600
$0
$100
$200
$300
$400
$500
$600
1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q
2018 2019 2020
Deal Value Deal Count
$895 $999 $736 $764 $900 $946 $670 $883 $547 $289
13,010
12,146 12,241 13,155 12,292 11,657
12,452
13,470
11,803
8,404
7,500
8,500
9,500
10,500
11,500
12,500
13,500
14,500
$0
$200
$400
$600
$800
$1,000
$1,200
1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q
2018 2019 2020
Deal Value Deal Count
…With the U.S. M&A Market Mirroring the Global DeclineGlobal M&A Activity Continued to Plummet…
U.S. Middle Market Deals Also Dropped off in 2Q(1)… …As S&P 500 Cash Reserves Increased Due to COVID-19 Concerns
4
($ in billions)
Note: (1) Middle market defined as transactions with values at or below $250 million. Source: GF Data, Capital IQ
($ in billions)
($ in billions)
M&ADeal VolumeandValue
5. M & A a n d C a p i t a l M a r k e t s U p d a t e – 2 Q 2 0 2 0
CONFIDENTIAL
$31.0 $30.8 $30.1 $31.0 $32.1 $35.0 $37.5 $39.9 $37.2 $36.1
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020*
Median Deal Value Average
6.7x
7.3x
8.4x
9.9x
7.0x 7.0x
9.4x
7.2x 7.2x 7.0x
8.9x 8.5x 9.0x 9.4x
Manufacturing Business Services Health Care Consumer Distribution Media & Telecom Technology
2019 YTD 2020
6.7x 6.7x
7.3x
7.2x
7.1x
7.4x
2015 2016 2017 2018 2019 2020*
Median Deal Value
Middle Market EV / EBITDA Multiples Stayed Strong with Media & Telecom Deals Experiencing the Largest Increase
5
$34.1M Historical
Average
Note: (*) 2020 annual run rate as of 6/30/2020 (1) Middle market defined as transactions with values at or below $250 million. Source: Pitchbook, GF Data, Capital IQ
5 Year Average
M&AValuationTrends
Median Middle Market M&A Deal Values Retreated(1)…
($ in millions)
…But U.S. Middle Market EV / EBITDA Multiples Remained Steady
6. M & A a n d C a p i t a l M a r k e t s U p d a t e – 2 Q 2 0 2 0
CONFIDENTIAL
1,429 1,627 1,560 2,053 2,152 2,248 2,423 2,898 2,923 958
1,010
1,196
965
1,183 1,306 1,218
1,302
1,470 1,384
384
58.6% 57.6% 61.8%
63.4% 62.2% 64.9% 65.0% 66.3% 67.9%
71.4%
40.0%
45.0%
50.0%
55.0%
60.0%
65.0%
70.0%
75.0%
80.0%
0
1,000
2,000
3,000
4,000
5,000
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020*
Add-On Non Add-On Add-On %
4.6x 4.4x 6.1x 7.2x 5.4x 5.2x 6.2x 5.8x 5.9x 5.4x
4.6x 4.2x
4.0x
5.7x
4.4x 5.3x
5.9x 5.8x 6.8x 8.8x
9.1x 8.4x
10.0x
12.8x
10.0x
10.5x
12.2x 11.5x
12.7x
14.2x
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020*
Debt/EBITDA Equity/EBITDA
$76 $101 $160 $175 $153 $223 $248 $210 $314 $102
172
197
289
354 355 361
411
379
320
101
0
100
200
300
400
500
$0
$50
$100
$150
$200
$250
$300
$350
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020*
Capital Raised Number of Funds
PE buyout multiples increased further as more groups invest in
technology and other hot sectors
Add-on deals accounted for the highest percentage of LBOs in
history
As the overall economy and impact of COVID weigh on PE
groups, portfolio companies are being held on for longer
periods of times
U.S.PrivateEquityM&AEnvironment
6
($ in billions)
Note: (*) 2020 annual run rate as of 6/30/2020 Source: Pitchbook, GF Data, Capital IQ
PE Buyout Multiples Continue to Climb
PE Fundraising Saw a Slight Increase in 2Q PE Add-On Deal Continued to Increase as a % of Total Deals
7. M & A a n d C a p i t a l M a r k e t s U p d a t e – 2 Q 2 0 2 0
CONFIDENTIAL
34.1% 34.1% 34.3% 40.8%
12.5% 8.5% 7.3%
5.8%
42.5% 43.7% 48.3% 39.3%
10.9% 13.7% 10.0% 14.1%
$10-$25mm $25-$50mm $50-$100mm $100-$250mm
Senior Debt Sub Debt Equity Rollover Equity
3.0x 3.3x 3.0x 3.2x 3.3x
0.8x
0.9x
0.8x 0.8x 0.5x
3.8x
4.2x
3.8x 4.0x 3.8x
2016 2017 2018 2019 2020*
Senior Debt / EBITDA Sub Debt / EBITDA
Debt MultiplesDebt Pricing(1)
LeverageMultiples&Pricing
Debt & Equity Contribution
7
Debt Type
Company Size /
Lender Type
1Q 2020 2Q 2020
Senior Cash Flow Debt
Bank L+ 3.0% - 4.5% L+ 3.8% - 4.5%
Non-Bank <$7.5 Million
EBITDA
L+ 5.5% - 7.5% L+ 7.0% - 8.5%
Non-Bank >$15.0 Million
EBITDA
L+ 4.0% - 5.5% L+ 6.5% - 8.0%
<$5.0 Million EBITDA L+ 7.5% - 10.0% L+ 9.0% - 10.5%
Unitranche Debt >$10.0 Million EBITDA L+ 5.5% - 7.5% L+ 8.0% - 9.5%
>$20.0 Million EBITDA L+ 5.0% - 6.5% L+ 7.0% - 8.0%
Subordinated /
Mezzanine Debt
<$5.0 Million EBITDA 11.5% - 14.5% 13.0% - 14.5%
>$10.0 Million EBITDA 10.0% - 12.0% 11.0% - 12.5%
>$20.0 Million EBITDA 8.5% - 11.0% 10.5% - 11.5%
Note: (*) 2020 annual run rate as of 6/30/2020 (1) Source: GF Data, Capital IQ LCD, SPP Capital
