2017 Private Capital Markets Report - … various types of capital in the private markets from ... , MBA Director Marketing ... EBITDA multiple (70%), revenue multiple (11%) and EBITDA

Dr. Craig R. EverettAssistant Professor of FinanceDirector, Pepperdine Private Capital Markets Project

2017 Private Capital Markets Report

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PEPPERDINEPRIVATECAPITALMARKETSPROJECT|PRIVATECAPITALMARKETSREPORT–2017

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PEPPERDINEPRIVATECAPITALMARKETSPROJECT

DirectorCRAIGR.EVERETT,PhD

ResearchSupport

IRINASHAYKHUTDINOVA,MBA

DirectorMarketing&CommunicationsLISAPERRY,MBA

PEPPERDINEUNIVERSITYGraziadioSchoolofBusiness&Management

DeanDR.DERYCKJ.VANRENSBURG

ExecutiveDirector,PeateInstituteforEntrepreneurship&FoundingDirector

JOHNK.PAGLIA,PHD

ExecutiveDirectorofMarketing&CommunicationsMELISSAMIKOLAJCZAK,MA,MBA


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FINANCIALSPONSORS

Dun&Bradstreet

RESEARCHPARTNERS

InternationalBusinessBrokersAssociation(IBBA)

M&ASource

RESEARCHSPONSORS

AllianceforMergersandAcquisitionsAdvisorsAssociationforCorporateGrowth(ACG)BusinessValuationResources(BVR)

CommercialFinanceAssociation(CFA)CommunityBank(LinkedInGroup)

CommunityBankingGroup(LinkedInGroup)CorporateBanking(LinkedInGroup)DealFlowSource(LinkedInGroup)

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GraziadioAlumniNetwork(GAN)InternationalBusinessValuationAssoc.(LinkedInGroup)

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Valuation(LinkedInGroup)VentureCapital(LinkedInGroup)

SURVEYDESIGN,DISTRIBUTION,ANDOTHERSUPPORT

RobertT.Slee LetitiaGreen BrettPalmerLeonardLanzi NevenaOrbach GaryLaBrancheGrayDeFevere BradTriebsch DennisGanoJanHanssen GaryW.Clark LinhXavierVuong

RobertZielinski M.ToddStemler MichaelNallKevinD.Cantrell PatrickGeorge SimonJames,PhD

EricNath BrianCove HowardJ.Lothrop,CFAJeriHarmon RobBrougham


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TABLEOFCONTENTS

INVESTMENTBANKERSURVEYINFORMATION.....................................................................................................4

OperationalandAssessmentCharacteristics..................................................................................................4

PRIVATEEQUITYSURVEYINFORMATION............................................................................................................12

OperationalandAssessmentCharacteristics................................................................................................12

BANKANDASSET-BASEDLENDINGSURVEYINFORMATION................................................................................20


Asset-BasedLendingSpecificCharacteristics...............................................................................................27

MEZZANINESURVEYINFORMATION...................................................................................................................29


LIMITEDPARTNERSURVEYINFORMATION.........................................................................................................37


VENTURECAPITALSURVEYINFORMATION.........................................................................................................43


ANGELINVESTORSURVEYINFORMATION..........................................................................................................49


BUSINESSAPPRAISERSURVEYINFORMATION....................................................................................................55


BROKERSURVEYINFORMATION.........................................................................................................................59


BusinessTransactionsValuedUnder$499Thousand..................................................................................68

BusinessTransactionsValuedUnderfrom$500to$999Thousand.............................................................71

BusinessTransactionsValuedUnderfrom$1to$1.99Million....................................................................75

BusinessTransactionsValuedUnderfrom$2to$4.99Million....................................................................78

BusinessTransactionsValuedUnderfrom$5to$50Million.......................................................................82

FACTORSURVEYINFORMATION.........................................................................................................................88


BUSINESSOWNERSURVEYINFORMATION.........................................................................................................94


ABOUTTHEAUTHOR........................................................................................................................................112

INDEXOFTABLES.............................................................................................................................................113

INDEXOFFIGURES............................................................................................................................................116



PEPPERDINEPRIVATECAPITALMARKETSSURVEY

The Pepperdine private cost of capital (PCOC) survey was originally launched in 2007 and was the firstcomprehensiveand simultaneous investigationof themajorprivate capitalmarket segments. This year’s surveywas deployed in January 2017 and specifically examined the behavior of senior lenders, asset-based lenders,mezzanine funds, private equity groups, venture capital firms, angel investors, privately-held businesses,investment bankers, business brokers, limited partners, and business appraisers. The Pepperdine PCOC surveyinvestigates, for each private capitalmarket segment, the important benchmarks thatmust bemet in order toqualifyforeachparticularcapitaltype,howmuchcapitalistypicallyaccessible,whattherequiredreturnsareforextending capital in today’s economic environment, and outlooks on demand for various capital types, interestrates,andtheeconomyingeneral.Ourfindingsindicatethatthecostofcapitalforprivately-heldbusinessesvariessignificantlybycapitaltype,size,and risk assumed. This relationship is depicted in the Pepperdine Private Capital Market Line, which appearsbelow.

Figure1.PrivateCapitalMarketRequiredRatesofReturn

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

80.0%

1quartile Median 3quartile Median2016

Banks (4.0% - 6.5%)

ABL(5.5%- 14.0%)

PEG(20.5%- 27.5%)

VC(25.0%- 35.0%)

Mezz(10.0%- 24.0%)

Angel(35%- 60%)



Thecostofcapitaldatapresentedbelowidentifiesmedians,25thpercentiles(1stquartile),and75thpercentiles(3rdquartile)ofannualizedgrossfinancingcostsforeachmajorcapitaltypeanditssegments.Thedatarevealthatloanshavethelowestaveragerateswhilecapitalobtainedfromangelshasthehighestaveragerates.Asthesizeofloanorinvestmentincreases,thecostofborrowingorfinancingfromanyofthefollowingsourcesdecreases.

Table1.PrivateCapitalMarketRequiredRatesofReturn

1stquartile Median 3rdquartile

Bank($1MCFloan) 6.0% 6.5% 8.0%

Bank($5MCFloan) 5.1% 5.5% 6.5%

Bank($10MCFloan) 4.4% 5.3% 5.9%

Bank($25MCFloan) 3.8% 5.0% 5.0%

Bank($50MCFloan) 3.5% 4.0% 4.3%

ABL($1Mloan) 9.4% 14.0% 15.8%

ABL($5Mloan) 10.0% 10.0% 12.3%

ABL($10Mloan) 8.6% 10.0% 12.0%

ABL($25Mloan) 6.5% 8.0% 8.0%

ABL($50Mloan) 5.5% 5.5% 6.3%

Mezz($1Mloan) 18.0% 24.0% 24.5%

Mezz($5Mloan) 15.0% 17.0% 17.5%

Mezz($10Mloan) 13.0% 15.5% 20.0%

Mezz($25Mloan) 11.5% 14.5% 16.5%

Mezz($50Mloan) 10.8% 13.5% 16.0%

Mezz($100Mloan) 9.5% 10.0% 13.0%

PEG($1MEBITDA) 21.8% 27.5% 33.8%

PEG($5MEBITDA) 21.0% 25.5% 31.5%

PEG($10MEBITDA) 21.0% 23.0% 30.0%

PEG($25MEBITDA) 20.8% 21.0% 28.8%

PEG($50MEBITDA) 16.5% 21.0% 21.0%

PEG($100MEBITDA) 14.0% 20.5% 21.0%

VC(Seed) 25.0% 35.0% 60.0%

VC(Startup) 25.0% 35.0% 55.0%

VC(EarlyStage) 15.0% 25.0% 50.0%

VC(Expansion) 15.0% 25.0% 50.0%

VC(LaterStage) 15.0% 25.0% 50.0%

Angel(Seed) 45.0% 60.0% 67.5%

Angel(Startup) 35.0% 40.0% 52.5%

Angel(EarlyStage) 30.0% 35.0% 47.5%

Angel(Expansion) 30.0% 35.0% 45.0%

Angel(LaterStage) 25.0% 35.0% 35.0%



INVESTMENTBANKERSURVEYINFORMATIONThemajorityofthe88respondentstotheinvestmentbankersurveyindicatedincreasingpresenceofstrategicbuyersmakingdealsoverthelasttwelvemonths.Theyalsoreportedincreasesindealflow,leverageanddealmultiples,marginpressureoncompaniesandimprovedgeneralbusinessconditions.Domesticgovernmentregulationsandtaxeswereidentifiedasthemostimportantcurrentissuefacingprivately-heldbusinesses,followingbyeconomicuncertaintyandaccesstocapital.Economicuncertaintywasidentifiedasthemostimportantemergingissue.Otherkeyfindingsinclude:

• Approximately50%ofrespondentsexpecttoclosesixormoredealsinthenext12months.

• Thetopthreereasonsfordealsnotclosingwerevaluationgap(30%),unreasonableseller/buyerdemand(21%),andnomarketforbusiness(12%).

• Respondentsindicatedageneralbalancebetweencompaniesworthyoffinancingandcapitalavailableforthe

same.Thereisareportedshortageofcapitalforthosecompanieswithlessthan$1millioninEBITDA,butageneralsurplusforcompanieswith$1millioninEBITDAormore.

• Themostpopularvaluationmethodsusedbyrespondentswhenvaluingprivately-heldbusinesseswereguidelinecompanytransactions,discountedfutureearnings,andcapitalizationofearningsapproaches.

• Whenusingmultiplestodeterminethevalueofabusiness,themostpopularmethodsusedbyrespondents

whenvaluingprivately-heldbusinesseswererecast(adjusted)EBITDAmultiple(70%),revenuemultiple(11%)andEBITDA(unadjusted)multiple(9%)approaches.

OperationalandAssessmentCharacteristics

Approximately6%oftherespondentsdidn’tcloseanydealsinthelasttwelvemonths;55%closedbetweenoneandfivedeals,while38%closedsixdealsormore.

Figure2.PrivateBusinessSalesTransactionsClosedintheLast12Months

6%

12%

22%

12%10% 10%

6%

1%

5%4%

12%

0%

5%

10%

15%

20%

25%

0 1 2 3 4 5 6 7 8 10 Morethan10



INVESTMENTBANKERcont.

Figure3.BusinessTypesThatWereInvolvedintheTransactionsClosedintheLast12Months

Themajorityofdeals(82%)took5to12monthstoclose.14%ofcloseddealstookmorethanoneyeartoclose.

Figure4.AverageNumberofMonthstoCloseOneDeal

Nearly53%ofrespondentsexpecttoclosebetweenoneandfivedeals,while46%expecttoclose6dealsormore.

Figure5.PrivateBusinessTransactionsExpectedtoCloseintheNext12Months

64%

38%

36%34%

34%

21%

15%10%8%

4%

16%

ManufacturingBasicmaterials&energyWholesale&distributionBusinessservicesInformationtechnologyConsumergoods&servicesFinancialservices&realestateMedia&entertainmentHealthcare&biotechConstruction&engineeringOther

4%

18%

25%22%

18%

11%

1% 1%

0%

5%

10%

15%

20%

25%

30%

3- 4months 5- 6months 7- 8months 9- 10months

11- 12months

13- 18months

19- 24months

morethan24months

1%

5%

9%

15%

19%

4%

14%

3%

8% 6%

15%

0%

5%

10%

15%

20%

25%

0 1 2 3 4 5 6 7 8 10 Morethan10



INVESTMENTBANKERcont.Approximately27%ofdealsterminatedwithouttransactingoverthepastyear.

Figure6.PercentageofBusinessSalesEngagementsTerminatedWithoutTransacting

Thetopthreereasonsfordealsnotclosingwere:valuationgapinpricing(30%),unreasonablesellerorbuyerdemand(21%)andnomarketforbusiness(12%).

Figure7.ReasonsforBusinessSalesEngagementsNotTransacting

Ofthosetransactionsthatdidn’tcloseduetoavaluationgapinpricing,approximately64%hadavaluationgapinpricingbetween11%and30%.

Figure8.ValuationGapinPricingforTransactionsThatDidn’tClose

73%

27%Transacted

Nottransacted

30%

21%12%

9%

7%6%

5% 10%

Valuationgapinpricing

Unreasonablesellerorbuyerdemand

Nomarketforbusiness

Sellermisrepresentations

Lackofcapitaltofinance

Economicuncertainty

Insufficientcashflow

Other

12%

33%

31%

14%

2%8%

1-10%

11- 20%

21-30%

31-40%

41-50%

Greaterthan50%



INVESTMENTBANKERcont.Theweightsofthevariousvaluationmethodsusedbyrespondentswhenvaluingprivately-heldbusinessesincluded26%forguidelinecompanytransactionsmethod.

Figure9.UsageofValuationMethods

Themostpopularmultiplemethodusedbyrespondentswhenvaluingprivately-heldbusinessesistherecast(adjusted)EBITDAmultiplemethod,utilizedby70%ofrespondents.

Figure10.UsageofMultipleMethods

Averagedealmultiplesontransactionsfromthepriortwelvemonthsasobservedbyrespondentsvariedfrom3.6to8.8.

Table2.MedianDealMultiplesbyEBITDASizeofCompany

EBITDA ManufacturingConstruction

&engineering

Cons.goods&services

Wholesale&

distribution

Businessservices

Basicmaterials&energy

Healthcare&biotech

IT Financialservices

Media&entertain. Avg.

$0K-$999K 4.0 3.0 4.0 4.0 4.3 5.0 5.0 2.0 2.5 2.0 3.6

$1M-$4.99M 5.5 5.0 6.0 5.3 6.0 5.3 5.5 6.5 5.0 3.5 5.4

$5M-$9.99M 6.8 5.8 8.0 6.0 7.0 6.0 7.5 7.0 5.8 5.0 6.5

$10M-$24.99M 7.0 7.0 8.5 7.0 6.3 7.0 9.0 8.5 6.0 7.5 7.4

$25M-$49.99M 7.5 7.3 9.0 7.0 6.8 8.5 9.0 9.0 n/a n/a 8.0

$50M+ 10.0 7.8 9.0 7.0 6.8 10.0 11.0 10.0 7.5 n/a 8.8

26% 25%22%

6% 5% 4%

13%

0%5%

10%15%20%25%30%

Guidelinecompany

transactionsmethod

Discountedfutureearningsmethod

Capitalizationofearningsmethod

Guidelinepublic

companymethod

Gutfeel Adjustednetassetmethod

Other

70%

11% 9% 4% 3% 2% 1%0%

20%

40%

60%

80%

Recast(Adjusted)EBITDAmultiple

Revenuemultiple

EBITDA(unadjusted)multiple

Cashflowmultiple

Netincomemultiple

Other EBITmultiple



INVESTMENTBANKERcont.Averagetotalleveragemultiplesobservedbyrespondentsvariedfrom2.5to5.6.

Table3.MedianTotalLeverageMultiplesbySizeofCompany


&engineering

Cons.goods&services

Wholesale&distribution

Businessservices


Healthcare&biotech


Media&entertain.

Median,allindustries

$0K-$999K 3.5 2.0 2.0 3.0 2.5 n/a 3.0 3.0 1.0 n/a 2.5

$1M-$4.99M 4.0 3.8 3.5 3.5 3.0 3.5 4.3 4.0 3.8 2.8 3.6

$5M-$9.99M 4.0 4.0 4.0 4.3 4.0 n/a 4.3 4.3 5.3 n/a 4.3

$10M-$24.99M 4.5 4.0 4.5 4.5 5.0 n/a 5.5 4.5 7.5 n/a 5.0

$25M-$49.99M 5.0 4.5 4.8 4.5 5.0 n/a 6.0 5.0 n/a n/a 5.0

$50M+ 6.0 4.8 5.8 5.8 5.5 n/a 6.5 5.0 n/a n/a 5.6

Averageseniorleveragemultiplesobservedbyrespondentsvariedfrom1.8to4.6.

Table4.MedianSeniorLeverageMultiplesbySizeofCompany


&engineering

Cons.goods&services

Wholesale&

distribution

Businessservices


Healthcare&biotech


Media&entertain. Avg.

$0K-$999K 2.5 1.8 2.0 1.5 2.0 n/a 2.5 1.0 2.0 1.0 1.8

$1M-$4.99M 2.8 2.0 2.0 2.3 2.0 2.5 3.0 2.0 3.3 2.0 2.4

$5M-$9.99M 3.0 2.5 2.5 2.5 2.0 n/a 4.3 2.5 3.5 n/a 2.8

$10M-$24.99M 3.5 3.0 4.0 2.5 3.0 3.0 5.0 2.5 n/a n/a 3.3

$25M-$49.99M 5.0 3.0 4.0 3.0 3.3 n/a 5.8 2.5 n/a n/a 3.8

$50M+ 7.0 3.5 5.0 3.0 3.5 n/a 6.3 3.0 5.3 n/a 4.6

Approximately33%ofbusinesssalestransactionsclosedinthelast12monthsinvolvedcontingentearnout.

Figure11.ComponentsofClosedDeals

33%30%

28%

23%

15%

0%

5%

10%

15%

20%

25%

30%

35%

40%

Contingentearnout SellerFinancing/SellerNote

Rollover LoweredmultipleofEBITDA

Adjustedamountofequitysold



INVESTMENTBANKERcont.Approximately55%ofclosedbusinesssalestransactionsoverthepast12monthsinvolvedstrategicbuyers.

Figure12.PercentofTransactionsInvolvedStrategicandFinancialBuyers

Approximately30%ofrespondentsdidnotwitnessanypremiumpaidbystrategicbuyers,while46%sawpremiumsbetween1%and20%.

Figure13.PremiumPaidbyStrategicBuyersRelativetoFinancialBuyers

Approximately51%ofclosedbusinesssalestransactionsthatinvolvedfinancialbuyersoverthepast12monthswereplatforminvestments.

Figure14.PercentofTransactionsInvolvedStrategicandFinancialBuyers

55%

45%Strategicbuyers

Financialbuyers

30%

16%

30%

10%

1% 3%

9%

0%5%10%15%20%25%30%35%

Nopremium Yes,1-10%more

Yes,11-20%more

Yes,21-30%more

Yes,31-40%more

Yes,41-50%more

Yes,>50%more

51%49% Platforminvestments

Follow-oninvestments



INVESTMENTBANKERcont.Respondentsindicatedageneralbalancebetweencompaniesworthyoffinancingandcapitalavailableforthesame.Thereisareportedshortageofcapitalforthosecompanieswithlessthan$1millioninEBITDAbutageneralsurplusforcompanieswith$1millioninEBITDAormore.

Table5.BalanceofAvailableCapitalwithQualityCompanies

EBITDA

Companiesworthyoffinancing

GREATLYexceedcapitalavailable

Companiesworthyof

financingexceedcapitalavailable

Generalbalance

Capitalavailableexceeds

companiesworthyoffinancing

CapitalavailableGREATLYexceeds


Score(-2to2)

$0K-$999K 25% 27% 27% 16% 4% -0.5$1M-$4.99M 5% 15% 39% 32% 8% 0.2$5M-$9.99M 0% 6% 30% 47% 17% 0.8$10M-$24.99M 2% 0% 24% 38% 36% 1.0$25M-$49.99M 0% 3% 17% 29% 51% 1.3$50M-$99.99M 0% 0% 19% 22% 59% 1.4$100M+ 0% 0% 10% 28% 62% 1.5

Respondentsindicatedageneraldifficultywitharrangingseniordebtforbusinesseswithlessthan$1millioninEBITDA.

Table6.HowDifficulttoArrangeSeniorDebtforTransactionsoverthePast12Months

EBITDA Extremelydifficult Difficult Somewhat

difficult Neutral Somewhateasy Easy Extremely

easyScore(-3to3)

$0K-$999K 15% 15% 24% 9% 24% 12% 0% -0.5

$1M-$4.99M 4% 4% 9% 17% 37% 26% 2% 0.7

$5M-$9.99M 0% 7% 7% 7% 33% 29% 17% 1.2

$10M-$24.99M 0% 0% 9% 4% 22% 30% 35% 1.8

$25M-$49.99M 0% 8% 0% 0% 8% 31% 54% 2.2

$50M-$99.99M 0% 0% 0% 0% 0% 38% 63% 2.6

$100M+ 0% 0% 0% 0% 0% 14% 86% 2.9

Themajorityofthe78respondentstotheinvestmentbankersurveyindicatedincreasingpresenceofstrategicbuyersmakingdealsoverthelasttwelvemonths.Theyalsoreportedincreasesindealflow,leverageanddealmultiples,marginpressureoncompaniesandimprovedgeneralbusinessconditions.

Table7.GeneralBusinessandIndustryAssessment:Todayversus12MonthsAgo

Decreasedsignificantly

Decreasedslightly

Stayedaboutthesame

Increasedslightly

Increasedsignificantly

%increase

%decrease

Netincrease/decrease

Dealflow 4% 22% 27% 36% 10% 47% 26% 21%

Leveragemultiples 3% 14% 55% 27% 1% 28% 16% 12%

Dealmultiples 1% 10% 47% 36% 5% 42% 12% 30%

Amountoftimetosellbusiness 0% 6% 57% 30% 6% 36% 6% 30%

Difficultyfinancing/sellingbusiness 3% 13% 63% 18% 3% 21% 16% 5%

Generalbusinessconditions 1% 11% 36% 49% 3% 52% 12% 40%

Strategicbuyersmakingdeals 1% 8% 38% 50% 3% 53% 10% 43%

Marginpressureoncompanies 1% 9% 53% 32% 4% 36% 11% 26%

Buyerinterestinminoritytransactions 5% 8% 41% 36% 10% 45% 14% 32%



INVESTMENTBANKERcont.Duringthenexttwelvemonths,respondentsexpectfurtherincreasesindealflow,leverageanddealsmultiples,strategicbuyersmakingdeals,marginpressureoncompaniesandimprovinggeneralbusinessconditions.

Table8.GeneralBusinessandIndustryAssessmentExpectationsovertheNext12Months

Decreasesignificantly

Decreaseslightly

Stayaboutthesame

Increaseslightly

Increasesignificantly %increase %

decrease


Dealflow 0% 6% 23% 52% 18% 70% 6% 64%


Dealmultiples 0% 12% 49% 35% 4% 39% 12% 27%


Difficultyfinancing/sellingbusiness 3% 18% 68% 10% 1% 12% 21% -9%


Strategicbuyersmakingdeals 0% 7% 31% 51% 12% 63% 7% 56%


Buyerinterestinminoritytransactions 3% 3% 56% 33% 5% 39% 5% 33%Respondentsbelievedomesticgovernmentregulationsandtaxesisthemostimportantcurrentissuefacingprivately-heldbusinesses,whereasdomesticeconomicuncertaintyisthemostimportantemergingissue.

Figure15.IssuesFacingPrivately-HeldBusinesses

33%

31%

28%

15%

6%

4%

3%

6%

19%

26%

12%

19%

23%

17%

14%

5%

0% 5% 10% 15% 20% 25% 30% 35%

Governmentregulationsandtaxes

Economicuncertainty(Domestic)

Accesstocapital

Politicaluncertainty/elections

Economicuncertainty(International)

Inflation

Competitionfromforeigntradepartners

Other

Today'sissue Emergingissue

Great researchrequires great funding.Beginning with the 2018 Private Capital Markets Report, each of our financial sponsors will receive a full-page advertisement in appreciation for underwriting our important research.

If your organization is interested in becoming a donor, please contact Dr. Craig Everett at [email protected].



PRIVATEEQUITYSURVEYINFORMATIONApproximately56%ofthe38participantswhorespondedtotheprivateequitygroupsurveyindicatedthattheymakeinvestmentsinthe$1millionto$5millionrange.Nearly52%ofrespondentssaidthatdemandforprivateequityisupfromtwelvemonthsago,thisisupfrom42%ofrespondentsindicatingincreaseddemandinJanuary2016.Otherkeyfindingsinclude:

• Respondentsindicatedflatqualityofcompaniesseekinginvestment.Theyalsoreporteddecreaseinexpectedreturnsonnewinvestments,improvedgeneralbusinessconditionsandincreaseddealmultiples.

• Respondentsexpectfurtherincreasesindemandforprivateequity,dealmultiples,valueofportfoliocompaniesandgeneralbusinessconditions.

• Thetypesofbusinessesrespondentsplantoinvestinovernext12monthsareverydiversewithover21%

targetingmanufacturingandanother18%planningtoinvestinbusinessservices.

• Respondentsbelievedomesticeconomicuncertaintyisthemostimportantcurrentandemergingissuefacingprivately-heldbusinesses.

• Themostpopularvaluationmethodsusedbyrespondentswhenvaluingprivately-heldbusinesseswerediscountedfutureearningsandcapitalizationofearningsapproaches.

• Whenusingmultiplestodeterminethevalueofabusiness,themostpopularmethodsusedbyrespondentswhenvaluingprivately-heldbusinesseswererecastEBITDAmultiple(40%)andcashflowmultiple(22%).


Thelargestconcentrationofcheckswrittenwasinthe$1million-$5millionrange(56%),followedby$10-$25million(37%),and$5million-$10million(30%).

Figure16.TypicalInvestmentSize

Respondentsreportedonbusinesspractices,andtheresultsarereflectedbelow.

Table9.PEGFundData

1stQuartile Median 3rdQuartile

Vintageyear(yearinwhichfirstinvestmentmade) 2010 2014 2015

Sizeoffund($millions) 17.5 75 163

Targetednumberoftotalinvestments 8 8 14

Targetfundreturn(grosspretaxcashoncashannualIRR%) 18% 25% 30%

Expectedfundreturn(grosspretaxcashoncashannualIRR%) 15% 20% 30%

26%

56%

30%37%

19%

7% 11% 11%

0%10%20%30%40%50%60%

Lessthan$1M

$1M-$4.99M

$5M-$9.99M

$10M-$24.99M

$25M-$49.99M

$50M-$99.99M

$100M-$499.99M

$500M+



PRIVATEEQUITYcont.Thetypesofbusinessesrespondentsplantoinvestinovernext12monthsareverydiversewithnearly21%targetingmanufacturingandanother17%planningtoinvestinbusinessservices.

Figure17.TypeofBusinessforInvestmentsPlannedoverNext12Months

Approximately46%ofrespondentsmadebetweenoneandthreeinvestmentsoverthelasttwelvemonths.

Figure18.TotalNumberofInvestmentsMadeintheLast12Months

Figure19.NumberofFollow-onInvestmentsMadeintheLast12Months

21%

17%

16%12%

10%

7%

4% 4%

2% 1%

6%

ManufacturingBusinessservicesHealthcare&biotechConsumergoods&servicesFinancialservices&realestateWholesale&distributionBasicmaterials&energyInformationtechnologyConstruction&engineeringMedia&entertainmentOther

23%

12% 12%

23%

8% 8% 8% 8%

0%

5%

10%

15%

20%

25%

0 1 2 3 4 5 7 Morethan10

31%

15%

23%

12%8%

4%8%

0%

5%

10%

15%

20%

25%

30%

35%

0 1 2 3 4 5 Morethan10



PRIVATEEQUITYcont.Themajority(69%)ofrespondentsplantomakeonetothreeinvestmentsoverthenext12months.

Figure20.NumberofTotalInvestmentsPlannedoverNext12Months

Figure21.NumberofFollow-onInvestmentsPlannedoverNext12Months

Approximately83%ofbuyoutinvestmentswereintherangebetween$0millionand$10millionofEBITDA.

Figure22.SizeofBuyoutInvestmentsintheLast12Months

15%

35%

19%

8%12%

4%8%

0%5%

10%15%20%25%30%35%40%

1 2 3 4 5 8 Morethan10

16%20%

36%

8% 8%4%

8%

0%

5%

10%

15%

20%

25%

30%

35%

40%

0 1 2 3 4 5 Morethan10

23%

47%

13%7% 3% 3% 3%

0%

10%

20%

30%

40%

50%

$0K- $999KEBITDA

$1M- $4.99MEBITDA

$5M- $9.99MEBITDA

$10M-$24.99MEBITDA

$25M-$49.99MEBITDA

$50M-$99.99MEBITDA

$100M+EBITDA



PRIVATEEQUITYcont.Averagedealmultiplesforbuyoutdealsforthepriortwelvemonthsvaryfrom5.0to8.5timesEBITDAdependingonthesizeofthecompany.Expectedreturnsvaryfrom20%to27.5%.

Table10.GeneralCharacteristics–BuyoutTransactions(medians)

EBITDAsize$0K-$999KEBITDA

$1M-$4.99MEBITDA

$5M-$9.99MEBITDA

$10M-$24.99MEBITDA

$25M-$49.99MEBITDA

$50M-$99.99MEBITDA

Numberofinvestments(total) 21 33 17 3 3 3

Averagesizeofinvestment(inmillionUSD) 1.5 3 4 7.5 7.5 25

Expectedtimetoexit(years)(median) 4 5 5 4.5 2 2

Equityas%ofnewcapitalstructure(median) 45% 35% 30% 10% 5% 5%

%oftotalequitypurchased(median) 80% 75% 65% 15% 5% 5%

Averagedealmultiple(multipleofEBITDA) 3 4 4.5 6 n/a n/aMediantotalexpectedreturns(grosscashoncashpre-taxIRR) 27.5% 26% 23% 21% 21% 20.5%

Approximately27%ofnon-buyoutinvestmentswereintherangebetween$0millionand$1millionofEBITDA.

Figure23.SizeofNon-BuyoutInvestmentsintheLast12Months

Averageexpectedreturnsonnon-buyoutdealsvaryfrom15%to50%.

Table11.GeneralCharacteristics–Non-BuyoutTransactions(medians)

$0K-$999KEBITDA

$1M-$4.99MEBITDA

$5M-$9.99MEBITDA

$10M-$24.99MEBITDA

$25M-$49.99MEBITDA

$50M+EBITDA

Numberofinvestments 7 2 3 3 n/a 2 AveragesizeofinvestmentinmillionUSD 0.5 2 2.5 25 n/a n/a Expectedtimetoexit(years)(medians) 6 3 4 5 n/a 5.5 Equityas%ofnewcapitalstructure 10% 20% 20% 45% n/a 60% %oftotalequitypurchased 25% 25% 50% 65% n/a 50%

Averagedealmultiple(multipleofEBITDA) 4 3.5 4.5 5 n/a 9.3

Totalexpectedreturns(grosscashoncashpre-taxIRR) 50% 27.5% 27.5% 25% n/a 16%

27%

23%

14%

9% 9%

5%

14%

0%

5%

10%

15%

20%

25%

30%

$0K- $999KEBITDA

$1M- $4.99MEBITDA

$5M- $9.99MEBITDA

$10M-$24.99MEBITDA

$25M-$49.99MEBITDA

$50M-$99.99MEBITDA

$100M+EBITDA



PRIVATEEQUITYcont.Whenvaluingabusiness,approximately29%oftheweightisplacedondiscountedfutureearningsmethod.

Figure24.UsageofValuationApproaches

Theweightsofthevariousmultiplemethodsusedbyrespondentswhenvaluingprivately-heldbusinessesincluded40%forrecast(adjusted)EBITDAmultipleand22%forcashflowmultiple.


29%

23%

11% 11% 11%8%

6%

0%

5%

10%

15%

20%

25%

30%

35%



Guidelinecompany

transactionsmethod

Adjustednetassetmethod

Gutfeel Guidelinepublic

companymethod

Other

40%

22%

15%12%

8%3%

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

RecastEBITDAmultiple

Cashflowmultiple

EBITDAmultiple Revenuemultiple

Netincomemultiple

EBITmultiple



PRIVATEEQUITYcont.Respondentsreportedonitemsrequiredtocloseonedeal.

Figure26.ItemsRequiredtoCloseOneDeal

Respondentsreportedexitstrategiesthatincludesellingtoprivatecompany(35%),sellingtoanotherprivateequitygroup(27%),andsellingtoapubliccompany(17%).

Figure27.ExitPlansforPortfolioCompanies

10 6.8 3 1.5

48

159

2

98

24.312

5

0

20

40

60

80

100

120

Businessplansormemorandumsreviewed

Meetingswithprincipalsconducted

Proposallettersortermsheetsissued

Lettersofintentsigned


35%

27%

17%

8%5%

5%

2% 1% Selltoaprivatecompany

SelltoanotherPEG

Selltoapubliccompany

Managementbuyout

Other

IPO

LiquidateorBankrupt

Selltoahedgefund



PRIVATEEQUITYcont.Mostoftherespondentsbelievethenumberofcompanies“worthyoffinancing”exceeds“capitalavailable”forthecompanieswithlessthan$1MinEBITDA.Whereasforthelargercompanies,“capitalavailable”exceedsthenumberofcompanies“worthyoffinancing.”

Table12.TheBalanceofAvailableCapitalwithQualityCompaniesfortheFollowingEBITDASize

CompaniesworthyoffinancingGREATLY

exceedcapitalavailable

Companiesworthyof

financingexceedcapitalavailable

Generalbalance

Capitalavailableexceeds


CapitalavailableGREATLYexceeds


Score(-2to2)

$0K-$999K 14% 27% 23% 27% 9% -0.1

$1M-$4.99M 14% 18% 32% 23% 14% 0.0

$5M-$9.99M 0% 5% 47% 26% 21% 0.6

$10M-$14.99M 0% 6% 28% 44% 22% 0.8

$15M-$24.99M 0% 0% 33% 28% 39% 1.1

$25M-$49.99M 0% 0% 29% 29% 41% 1.1

$50M-$99.99M 0% 0% 29% 24% 47% 1.2

$100M+ 0% 0% 19% 44% 38% 1.1

Relativetotwelvemonthsago,respondentsindicatedincreasesindemandforprivateequity,qualityofcompaniesseekinginvestment,amountofnon-controlinvestmentsanddealmultiples.Theyalsoreportedadecreaseinexpectedreturnsonnewinvestments,increaseinexpectedinvestmentholdingperiodandimprovedgeneralbusinessconditions.

Table13. GeneralBusinessandIndustryAssessment:Todayversus12MonthsAgo


Decreasedslightly

Stayedaboutthesame

Increasedslightly


%increase

%decrease


Demandforprivateequity 0% 4% 44% 24% 28% 52% 4% 48%

Qualityofcompaniesseekinginvestment 0% 19% 46% 35% 0% 35% 19% 15%

Averageinvestmentsize 0% 23% 46% 27% 4% 31% 23% 8%

Non-controlinvestments 0% 0% 52% 38% 10% 48% 0% 48%

Expectedinvestmentholdingperiod 0% 8% 69% 23% 0% 23% 8% 15%

Dealmultiples 0% 15% 31% 42% 12% 54% 15% 38%

Exitopportunities 0% 16% 40% 36% 8% 44% 16% 28%

Expectedreturnsonnewinvestments 0% 50% 27% 15% 8% 23% 50% -27%

Valueofportfoliocompanies 0% 0% 38% 50% 12% 62% 0% 62%


Sizeofprivateequityindustry 0% 4% 36% 40% 20% 60% 4% 56%



PRIVATEEQUITYcont.Respondentsexpectfurtherincreasesindemandforprivateequity,decreasingexpectedreturnsonnewinvestments,andimprovinggeneralbusinessconditions.



Decreaseslightly

Stayaboutthesame

Increaseslightly

Increasesignificantly

%increase

%decrease


Demandforprivateequity 0% 4% 28% 44% 24% 68% 4% 64%



Non-controlinvestments 0% 5% 75% 20% 0% 20% 5% 15%

Expectedinvestmentholdingperiod 0% 8% 60% 32% 0% 32% 8% 24%

Dealmultiples 0% 20% 40% 40% 0% 40% 20% 20%





Sizeofprivateequityindustry 0% 4% 42% 42% 13% 54% 4% 50%

Respondentsbelievedomesticeconomicuncertaintyisthemostimportantcurrentandemergingissuefacingprivately-heldbusinesses.


40%

20%

20%

12%

4%

4%

0%

16%

36%

12%

8%

16%

12%

8%

4%

16%

Economicuncertainty(domestic)

Accesstocapital



Economicuncertainty(international)


Inflation

Other

0% 5% 10% 15% 20% 25% 30% 35% 40% 45%

Currentissue Emergingissue



BANKANDASSET-BASEDLENDINGSURVEYINFORMATIONTherewere54responsestothebankandasset-basedlendingsurveys.Over36%ofrespondentsbelievethatgeneralbusinessconditionswillimproveoverthenext12monthsandover66%saiddemandforloanswillincrease.Otherkeyfindingsinclude:

• Overthelasttwelvemonthsrespondentswereseeingslightlyincreasedseniorandleveragemultiples,withincreaseindemandforbusinessloansandimprovedgeneralbusinessconditions

• Respondentsalsoexpectincreasesindemandforbusinessloans,lendingcapacityofbanks,improvinggeneralbusinessconditions,totalandleveragemultiples,andfurtherincreaseininterestrates.

• Currently,27%lendersseegovernmentregulationsandtaxesanddomesticeconomicuncertaintyasthetop

issuefacingprivately-heldbusinessestoday,followedbyaccesstocapital(24%)andinternationaleconomicuncertainty(20%).


Respondentsreportedonthetypeofentitythatbestdescribestheirlendingfunction.

Figure29.DescriptionofLendingEntity

Themajority(68%)reportparticipatingingovernmentloanprograms.

Figure30.ParticipationinGovernmentLoanPrograms

36%

32%

12%

12% 8% Commercialbank

Communitybank

Commercialfinancecompany

Privatebanker

Corporatebank

68%

32%Yes

No



BANKScont.Thelargestconcentrationofloansizeswasbetween$0millionand$5million(70%).


Respondentsreportedonall-inratesforvariousindustriesandloantypes.

Table15.All-inRatesbyLoanSizeandIndustry

Loansize Lessthan

$1M$1M-$4.99M

$5M-$9.99M

$10M-$24.99M $25M+ $100M $500M

Manufacturing 7.8% 5.5% 4.8% 5.0% 4.5% 4.0% 3.0%

Consumergoodsandservices 6.5% 6.0% 5.0% 5.0% 4.5% 4.0% 3.0%

Wholesale&distribution 6.5% 5.8% 4.8% 4.5% 4.5% 4.0% 3.0%

Businessservices 7.8% 5.8% 5.0% 5.0% 4.5% 4.0% 3.0%

Basicmaterials&energy 7.0% 5.5% 4.8% 4.5% 4.5% 4.5% 4.0%

Healthcare&biotech 6.5% 5.5% 5.0% 4.5% 3.5% 3.5% 2.6%

Informationtechnology 8.3% 6.8% 5.5% 5.0% 4.5% 3.5% 3.0%

Financialservices 8.0% 4.8% 5.0% 5.0% 3.5% 3.5% 3.5%

TypicalFixed-RateLoanTerm(months) 60 60 60 60 60 60 60

Table16.All-inRatesbyLoanType

$1M $5M $10M $25M $50M $100M $500M

Cashflowloan 6.5% 5.5% 5.5% 5.3% 5.0% 4.0% 3.5%

Workingcapitalloan 7.0% 4.8% 4.0% 3.5% 3.5% 3.5% 3.5%

Equipmentloan 6.5% 5.0% 4.5% 3.8% 3.0% 3.0% 3.0%

Realestateloan 5.8% 5.0% 5.0% 5.0% 4.8% 4.5% 4.0%

35% 35%

22%

28%

22%

11%

7%

2%

0%

5%

10%

15%

20%

25%

30%

35%

40%

Lessthan$1million

$1-$5million $6-$10million

$11-$25million

$25-$50million

$50-$100million

$100-$500million

Greaterthan$500million



BANKScont.SeniorleveragemultiplesarereportedbelowforthevariousindustriesandEBITDAsizes.

Table17.SeniorLeverageMultiplebyEBITDASizeEBITDAsize $0K-$999K $1M-$4.99M $5M-$9.99M $10M-$24.99M $25M-$49.99M $50M+

Manufacturing 1.5 1.8 1.9 1.9 3.0 3.0Construction&engineering 1.0 1.3 1.5 1.8 1.9 2.8Consumergoods&services 0.5 1.3 1.4 1.8 2.3 3.0Wholesale&distribution 1.5 2.0 2.0 2.3 2.3 3.0Businessservices 1.5 1.5 1.5 2.4 2.5 3.0Basicmaterials&energy 1.3 1.9 1.9 2.0 2.0 2.3Healthcare&biotech 1.3 2.0 2.3 2.4 2.5 2.5Informationtechnology 1.3 2.0 2.4 2.5 2.8 2.8Financialservices 1.4 1.5 1.9 2.0 2.0 2.0Media&entertainment 1.3 2.0 2.0 2.3 2.3 3.0Totalmedian 1.3 1.8 1.9 2.1 2.3 2.9Variousfeesasreportedbylendersareasfollows.

Table18.FeesCharged


Closingfee 0.1% 0.6% 1.0%

Modificationfee 0.2% 0.3% 0.5%

Commitmentfee 0.0% 0.3% 1.0%

Underwritingfee 0.0% 0.2% 0.6%

Arrangementfee 0.0% 0.2% 0.5%

Prepaymentpenalty(yr1) 0.5% 2.0% 3.0%

Prepaymentpenalty(yr2) 0.9% 1.5% 2.8%

Unusedlinefee 0.2% 0.3% 0.5%

Refinancingwasthemostcommonlydescribedfinancingmotivationat32%,followedbymanagementbuyoutat18%.

Figure32.BorrowerMotivationtoSecureFinancing(past12months)

32%

18%15%

11% 9%5%

10%

0%5%10%15%20%25%30%35%

Refinancingexistingloansorequity

Managementbuyout

Financeworseningoperatingconditions

Expansion Workingcapital

fluctuations

Acquistion Other



BANKScont.Totaldebt-servicecoverageratio(orfixedchargecoverage)wasthemostimportantfactorwhendecidingwhethertoinvestornot.

Table19.ImportanceofFinancialEvaluationMetrics

Unimportant Oflittleimportance

Moderatelyimportant Important Very

importantScore(1to5)

Currentratio 31% 22% 17% 19% 11% 2.6

SeniorDSCRorFCCratio 11% 3% 20% 29% 37% 3.8

TotalDSCRorFCCratio 8% 3% 16% 30% 43% 4.0

Seniordebt-to-cashflow 15% 12% 30% 18% 24% 3.2

Totaldebt-to-cashflow 6% 17% 19% 22% 36% 3.7

Debt-to-networth 17% 8% 33% 28% 14% 3.1

Table20.FinancialEvaluationMetricsAverageData

Averageborrowerdata Limitnottobeexceeded

Currentratio 1.35 1.05

SeniorDSCRorFCCratio 1.5 1.2

TotalDSCRorFCCratio 1.3 1.15

Seniordebttocashflow 2.4 3.1

Totaldebttocashflow 3.0 4.0

Debttonetworth 2.0 3.0

Respondentsreportedonthepercentageofloans(bysize)thatrequirepersonalguaranteeandcollateral.

Table21.PersonalGuaranteeandCollateralPercentageofOccurrencebySizeofLoan(%)

Loan size Less than $1M $1M - $4.99M $5M - $9.99M $10M - $24.99M $50M - $99.99M $100M+Personalguarantee 95% 95% 95% 55% 0% 0%

Collateral 83% 93% 95% 90% 95% 70%

Approximately25%ofcashflowapplicationsweredeclined.

Table22.ApplicationsData

Reviewed Offered Booked Declined

Cashflowbased 664 40% 35% 25%

Collateralbased 683 41% 36% 24%

Realestate 517 42% 23% 28%



BANKScont.Approximately31%ofapplicationsweredeclinedduetopoorqualityofearningsand/orcashflowfollowedby20%thatweredeclinedduetoinsufficientcollateral.

Figure33.ReasonforDeclinedLoans

Respondentsbelievegovernmentregulationsandtaxesanddomesticeconomicuncertaintyarethemostimportantissuesfacingprivately-heldbusinessestoday.


31%

20%

18%

6%

5%

5%

4%

4%

3%

3%

2%

Qualityofearningsand/orcashflow

Insufficientcollateral

Debtload

Sizeofcompany

Customerconcentrations

Insufficientoperatinghistory

Weakeningindustry

Sizeoravailabilityofpersonalguarantees

Insufficientcredit

Insufficientmanagementteam

Economicconcerns

37%

37%

24%

20%

9%

9%

6%

4%

16%

18%

13%

10%

9%

22%

8%

4%


Economicuncertainty(domestic)

Accesstocapital

Economicuncertainty(international)



Inflation

Other




BANKScont.Respondentsindicatedincreasesindemandforbusinessloans,duediligenceefforts,improvedgeneralbusinessconditions,loansoutstanding,decreasedloanfees,andinterestrates.



Decreasedslightly

Stayedaboutthesame

Increasedslightly


%increase

%decrease


Demandforbusinessloans(applications) 0% 9% 25% 48% 18% 66% 9% 57%

Generalunderwritingstandards 4% 18% 49% 13% 16% 29% 22% 7%

Creditqualityofborrowersapplyingforcredit 2% 11% 59% 25% 2% 27% 14% 14%

Duediligenceefforts 0% 2% 52% 30% 16% 45% 2% 43%

Averageloansize 0% 2% 49% 40% 9% 49% 2% 47%

Averageloanmaturity(months) 0% 7% 69% 19% 5% 24% 7% 17%

Percentofloanswithpersonalguarantees 0% 8% 82% 8% 3% 10% 8% 3%

Percentofloansrequiringcollateral 0% 0% 82% 5% 14% 18% 0% 18%

Sizeofinterestratespreads(pricing) 0% 42% 30% 26% 2% 28% 42% -14%

Loanfees 0% 28% 53% 16% 2% 19% 28% -9%

Seniorleveragemultiples 0% 14% 59% 18% 9% 27% 14% 14%

Totalleveragemultiples 0% 14% 48% 24% 14% 38% 14% 24%

Focusoncollateralasbackupmeansofpayment 0% 8% 70% 15% 8% 23% 8% 15%

SBAlending 13% 13% 47% 20% 7% 27% 27% 0%

Lendingcapacityofbank 0% 19% 43% 38% 0% 38% 19% 19%


Appetiteforrisk 9% 20% 39% 30% 2% 32% 30% 2%

Loansoutstanding 11% 0% 32% 42% 16% 58% 11% 47%

Nonaccrualloans 11% 11% 56% 17% 6% 22% 22% 0%

Number/tightnessoffinancialcovenants 0% 6% 83% 11% 0% 11% 6% 6%

Standardadvancerates 0% 5% 90% 5% 0% 5% 5% 0%



BANKScont.Respondentsexpectfurtherincreasesindemandforbusinessloans,averageloansize,lendingcapacityofbank,seniorandtotalleveragemultiples,improvinggeneralbusinessconditions,focusoncollateralasbackupmeansofpayment,andleveragemultiples,decreasingpercentofloanswithpersonalguarantees.



Decreaseslightly

Stayaboutthesame

Increaseslightly


%increase

%decrease


Demand for business loans (applications) 0% 5% 31% 50% 14% 64% 5% 60%

General underwriting standards 0% 7% 71% 15% 7% 22% 7% 15%

Credit quality of borrowers applying for credit 0% 12% 54% 32% 2% 34% 12% 22%

Due diligence efforts 0% 0% 63% 34% 2% 37% 0% 37%

Average loan size 0% 0% 48% 43% 10% 52% 0% 52%

Average loan maturity (months) 0% 3% 80% 15% 3% 18% 3% 15%

Percent of loans with personal guarantees 0% 8% 86% 6% 0% 6% 8% -3%

Percent of loans requiring collateral 0% 11% 61% 17% 11% 28% 11% 17%

Size of interest rate spreads (pricing) 0% 22% 39% 39% 0% 39% 22% 17%

Loan fees 0% 20% 58% 20% 3% 23% 20% 3%

Senior leverage multiples 0% 5% 68% 26% 0% 26% 5% 21%

Total leverage multiples 0% 5% 68% 26% 0% 26% 5% 21%

Focus on collateral as backup means of payment 0% 5% 70% 16% 8% 24% 5% 19%

SBA lending 8% 15% 46% 8% 23% 31% 23% 8%

Lending capacity of bank 0% 5% 47% 37% 11% 47% 5% 42%

General business conditions 0% 18% 40% 40% 3% 43% 18% 25%

Appetite for risk 0% 15% 63% 23% 0% 23% 15% 8%

Loans outstanding 0% 0% 32% 58% 11% 68% 0% 68%

Nonaccrual loans 0% 11% 83% 6% 0% 6% 11% -6%

Number/ tightness of financial covenants 0% 11% 78% 11% 0% 11% 11% 0%

Standard advance rates 0% 5% 85% 10% 0% 10% 5% 5%



BANKScont.

Asset-BasedLendingSpecificCharacteristics

Accordingtorespondentsapproximately25%ofasset-basedloanswereissuedtofinancialservices&realestatecompanies.

Figure35.IndustriesServedbyAsset-BasedLenders

Approximately83%ofthecompaniesthatbookedasset-basedloansinthelasttwelvemonthshadEBITDAsizeoflessthan$5million.

Figure33.TypicalEBITDASizesforCompaniesBooked

Respondentsreportedonall-inratesbytypeandsizeofcurrentbookedloansandtheresultsarereportedbelow.

Table25.All-inRatesonCurrentAsset-BasedLoans(medians)

MarketableSecurities

AccountsReceivable Inventory Equipment Realestate Working

capital

TypicalFixed-RateLoanTerm

(months)

Lessthan$1million n/a 14.0% 14.0% 12.0% 12.0% 14.0% 16

$1-5million 9.3% 10.5% 12.0% 12.0% 9.4% 10.0% 28

$5-$10million n/a 10.0% 10.0% 10.0% 8.0% 10.0% 28

$10-25million n/a 8.0% 8.0% 9.0% 8.0% 8.0% 16

$25-50million n/a 5.5% 7.0% 8.0% 7.8% 5.5% 16

$50-100million n/a 4.0% n/a n/a n/a 5.5% 52

25%

19%

13%8%

8%

5%

5% 4%

3%10% Financialservices&realestate

Manufacturing


Businessservices

Informationtechnology

Construction&engineering

Consumergoods&services


Healthcare&biotech

Other

19%

64%

10% 4% 4%0%

20%

40%

60%

80%

NegativeEBITDA $0-5millioninEBITDA

$6-10millioninEBITDA

$11-50millioninEBITDA

$51+millioninEBITDA



BANKScont.Respondentsreportedonstandardadvanceratesandtheresultsarereflectedbelow.

Table26.StandardAdvanceRate(orLTVratio)forAssets(%)

TypicalLoan UpperLimit

1stquartile Median 3rdquartile 1stquartile Median 3rdquartile

Marketablesecurities 70% 100% 100% 70% 100% 100%

Accountsreceivable 85% 85% 85% 85% 85% 90%

Inventory-lowquality 19% 25% 30% 20% 30% 39%

Inventory-intermediatequality 34% 38% 43% 35% 43% 54%

Inventory-highquality 50% 55% 60% 50% 60% 73%

Equipment 50% 53% 80% 54% 73% 85%

Realestate 50% 65% 75% 65% 70% 80%

Land 5% 23% 46% 5% 5% 45%

RespondentsreportedonvaluationstandardsusedtoestimateLTVratios.

Figure37.ValuationStandardsUsedtoEstimateLTVRatio

Accordingtorespondents,receivables,inventoryandtermfinancingcombinedloanshadthehighestrateofdecline(48%)overthelasttwelvemonths.

Figure34.Asset-BasedLoansDeclineRate

Purchaseprice

DepreciatedValue(Book) Facevalue FairMarket

ValueForced

liquidationOrderly

liquidation Other

Equipment 12% 0% 0% 6% 35% 41% 0%

Realestate 11% 0% 0% 67% 0% 6% 11%

AccountsReceivable 6% 12% 47% 6% 12% 6% 0%

Inventory 18% 6% 6% 6% 24% 29% 0%

0%10%20%30%40%50%60%70%

17.5% 17.5% 17.5%8%

15%

48%

0.0%10.0%20.0%30.0%40.0%50.0%60.0%

Receivablesbased

Inventorybased Equipmentbased

Otheroperatingassetbased(norealestate)

Realestatebased(only)

A/R+Inventory+TermFinancingCombined



MEZZANINESURVEYINFORMATIONThemajorityofthe24participantsthatrespondedtothemezzaninesurveytypicallybookdealsinthe$5millionto$10millionrange.Over24%planoninvestinginmanufacturingcompaniesoverthenext12months,followedby20%inbasicmaterials&energy.Otherkeyfindingsinclude:

• Relativeto12monthsago,respondentsindicatedincreasesindemandformezzaninecapital,averageinvestmentsize,leveragemultiples,andimprovedgeneralbusinessconditions.Theyalsoreporteddecreasesinwarrantcoverage,loanfees,andexpectedreturnsonnewinvestments.

• Respondentsexpectfurtherincreaseindemandformezzaninecapital,leveragemultiples,appetiteforrisk,andimprovinggeneralbusinessconditions;anddecreaseingeneralunderwritingstandards,warrantcoverage,andexpectedreturnsonnewinvestments.

• Approximately35%ofrespondentsbelieveeconomicuncertaintyisthemostimportantissuefacingprivately-

heldbusinessestoday.


Approximately65%ofrespondentsareSBICFirms.

Figure35.SBIC(smallbusinessinvestment)Firms

Thelargestconcentrationoftypicalloansizesisbetween$5millionand$10million.


65%

35% Yes

No

13%

35%

83%

43%

13%4% 4%

0%

20%

40%

60%

80%

100%

Lessthan$1M $1M- $4.99M $5M- $9.99M $10M-$24.99M

$25M-$49.99M

$50M-$99.99M

$100M-$499.99M



MEZZANINEcont.Respondentsreportedonbusinesspracticesandtheresultsarereflectedbelow.

Table27.MezzanineFundData



Sizeoffund($millions) 125 175 275




Thetypesofbusinessesthatmezzaninelendersplantoinvestinovernext12monthsareverydiversewithover24%targetingmanufacturing,followedby20%whoplantoinvestinbasicmaterials&energy.


Approximately57%ofrespondentsmade5investmentsormoreoverthelast12months.


24%

20%

15%

11%

11%

6%

3%3%2% 2% 3%

Manufacturing



Financialservices&realestate


Businessservices


Media&entertainment

Consumergoods&services

Healthcare&biotech

Other

9%

4% 4%

13% 13%

9%

4%

13% 13%

9% 9%

0%

2%

4%

6%

8%

10%

12%

14%

0 1 2 3 4 5 6 7 9 10 Morethan10



MEZZANINEcont.Figure38.NumberofFollow-onInvestmentsMadeintheLast12Months

Approximately70%ofrespondentsplantomake5investmentsormoreoverthenext12months.



4%

22%

13%

26%

9%

13%

9%

4%

0%

5%

10%

15%

20%

25%

30%

0 1 2 3 4 5 6 Morethan10

4% 4%

9%

13%

17% 17%

4% 4%

17%

9%

0%2%4%6%8%10%12%14%16%18%20%

0 2 3 4 5 6 7 8 10 Morethan10

9%

22%

13%

30%

9%

13%

4%

0%

5%

10%

15%

20%

25%

30%

35%

0 1 2 3 4 5 7



MEZZANINEcont.Approximately34%ofsponsoreddealswereintherangebetween$5millionand$10millionofEBITDA.

Figure41.SizeofSponsoredDealsintheLast12Months

ResultsofresponsestosponsoreddealsbasedonsizeofborrowerEBITDAarereportedbelow.

Table28.SponsoredDealsbyEBITDASize(medians)

EBITDA size $0K - $999K

$1M - $4.99M

$5M - $9.99M

$10M - $24.99M

$25M - $49.99M $50M+

%ofdealswithwarrants 100% 50% 50% 67% 0% 0%

Averageloanterms(years) 2.5 5.0 5.0 5.0 5 6

Seniorleverageratio(multipleofEBITDA) 2.5 2.5 2.5 3.75 4.25 4.5

Totalleverageratio(multipleofEBITDA) 3.5 3.5 3.5 4.5 5.75 6

Averageloansize($millions) 4 4 7.5 15 35 15

Cashinterestrate 11% 12% 11% 11% 10.5% 9%

PIK 0% 2% 1% 0% 0% 0%

Warrantsexpectedreturn(IRRcontribution) 9% 3% 1% n/a n/a n/a

Totalexpectedreturns(grosscashonpre-taxIRR) 24% 17.0% 16% 15% 14% 10%

Table29.InvestmentTypebySizeofInvesteeCompany,SponsoredDeals

Subdebtonly BlendedSr./Jr. Other

$0K-$999KEBITDA 0% 100% 0%

$1M-$4.99MEBITDA 14% 71% 0%

$5M-$9.99MEBITDA 0% 73% 18%

$10M-$24.99MEBITDA 0% 50% 50%

$25M-$49.99MEBITDA 0% 75% 25%

8%

21%

34%

18%

11%8%

0%

5%

10%

15%

20%

25%

30%

35%

40%

$0K- $999KEBITDA

$1M- $4.99MEBITDA

$5M- $9.99MEBITDA

$10M- $24.99MEBITDA

$25M- $49.99MEBITDA

$50M+EBITDA



MEZZANINEcont.Approximately41%ofnon-sponsoreddealswereintherangebetween$1millionand$5millionofEBITDA.

Figure42.SizeofNon-SponsoredDealsintheLast12Months

Resultsofresponsestonon-sponsoreddealsbasedonsizeofinvesteeEBITDAarereportedbelow.

Table30.Non-SponsoredDealsbyEBITDASize(medians)

EBITDA size $0K-$999K $1M-$4.99M $5M-$9.99M $10M-

$24.99M

%ofdealswithwarrants 100% 50% 100% 0%

Averageloanterms(years) 3 5 5 5

Seniorleverageratio(multipleofEBITDA) 2.5 2.5 2.5 3

Totalleverageratio(multipleofEBITDA) 3.5 3.5 4 4

Averageloansize($millions) 2 7.5 7.5 25

Cashinterestrate 11% 11% 11% 8.5%

PIK 4% 2% 1.5% n/a

Warrantsexpectedreturn(IRRcontribution) 2.5% 9% 9.0% n/a

Totalexpectedreturns(grosscashonpre-taxIRR) 19% 17% 17% 11.0%

Table31.InvestmentTypebySizeofBorrowerCompany,SponsoredDeals

Seniordebtonly Subdebtonly BlendedSr./Jr. Other

$0K-$999KEBITDA 0% 100% 0% 0%

$1M-$4.99MEBITDA 8% 54% 8% 31%

$5M-$9.99MEBITDA 11% 67% 11% 11%

$10M-$24.99MEBITDA 50% 0% 50% 0%

$25M-$49.99MEBITDA 0% 100% 0% 0%

9%

41%

34%

6% 6%3%

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

$0K- $999KEBITDA

$1M- $4.99MEBITDA

$5M- $9.99MEBITDA

$10M- $24.99MEBITDA

$25M- $49.99MEBITDA

$50M+EBITDA



MEZZANINEcont.Acquisitionloanwasreportedby38%ofrespondentsasamotivationtosecuremezzaninefunding,followedbymanagementorownerbuyoutat19%.

Figure43.BorrowerMotivationtoSecureMezzanineFunding(past12months)


Totaldebtservicecoverageratiowasthemostimportantfactorwhendecidingwhethertoinvestornot,followedbytotaldebt-to-cashflowratio.

Table32.ImportanceofFinancialEvaluationMetrics




SeniorDSCRorFCCratio 0% 10% 45% 35% 10% 3.5

TotalDSCRorFCCratio 0% 0% 0% 50% 50% 4.5

Seniordebt-to-cashflowratio 0% 5% 40% 35% 20% 3.7

Totaldebt-to-cashflowratio 0% 0% 10% 25% 65% 4.6

38%

19%

16%

15%

4%

2%

6%

Acquisitionloan

Managementorownerbuyout

Refinancing

Financinggrowthorconstruction

Workingcapitalfluctuations

Financeworseningoperationsconditionsordistress

Other

20

6 4 2

33

105 3

68

1910

5

01020304050607080








MEZZANINEcont.

Table33.FinancialEvaluationMetricsAverageData

Averageborrowerdata Limitnottobeexceeded

SeniorDSCRorFCCratio 1.5 1.4

TotalDSCRorFCCratio 1.4 1.2

Seniordebttocashflowratio 2.5 2.5

Totaldebttocashflowratio 3.6 4.6

Respondentsbelievedomesticeconomicuncertaintyisthemostimportantissuefacingprivately-heldbusinessestoday.


50%

33%

21%

13%

8%

4%

0%

0%

33%

13%

13%

33%

4%

17%

21%

8%

0% 10% 20% 30% 40% 50% 60%



Accesstocapital




Inflation

Other




MEZZANINEcont.Relativeto12monthsago,respondentsindicatedincreasesindemandformezzaninecapital,averageinvestmentsize,leveragemultiples,andimprovedgeneralbusinessconditions.Theyalsoreporteddecreasesinwarrantcoverage,loanfees,andexpectedreturnsonnewinvestments.



Decreasedslightly

Stayedaboutthesame

Increasedslightly

Increasedsignificantly %increase

%decrease


Demandformezzaninecapital 0% 9% 52% 35% 4% 39% 9% 30%

Creditqualityofborrowersseekinginvestment 4% 13% 52% 22% 9% 30% 17% 13%


Averageinvestmentmaturity(months) 0% 5% 77% 18% 0% 18% 5% 14%

Generalunderwritingstandards 0% 9% 77% 9% 5% 14% 9% 5%

Warrantcoverage 10% 33% 43% 10% 5% 14% 43% -29%

PIKfeatures 0% 5% 75% 20% 0% 20% 5% 15%

Loanfees 0% 13% 83% 4% 0% 4% 13% -9%





Respondentsexpectfurtherincreaseindemandformezzaninecapital,leveragemultiples,appetiteforrisk,andimprovinggeneralbusinessconditions;anddecreaseingeneralunderwritingstandards,warrantcoverage,andexpectedreturnsonnewinvestments.


Decrease

significantlyDecreaseslightly

Stayaboutthesame

Increaseslightly

Increasesignificantly %increase

%decrease


Demandformezzaninecapital 0% 5% 65% 25% 5% 30% 5% 25%

Creditqualityofborrowersseekinginvestment 5% 5% 70% 20% 0% 20% 10% 10%


Averageinvestmentmaturity(months) 0% 0% 89% 11% 0% 11% 0% 11%

Generalunderwritingstandards 0% 10% 85% 5% 0% 5% 10% -5%

Warrantcoverage 6% 28% 61% 0% 6% 6% 33% -28%

PIKfeatures 0% 11% 79% 11% 0% 11% 11% 0%

Loanfees 0% 10% 80% 10% 0% 10% 10% 0%







LIMITEDPARTNERSURVEYINFORMATIONApproximately38%ofthe40respondentsinthelimitedpartnersurveyreporteddirectrealestatefundsasbeingthebestrisk/returntrade-offinvestmentclassandanother32%reporteddirectinvestmentsasbeingthebestrisk/returntrade-offinvestmentclass.Whenaskedaboutwhichindustrycurrentlyoffersthebestrisk/returntrade-off,20%ofrespondentsreportedhealthcare&biotech,followedby13%reportinginformationtechnology,andanother10%reportingbasicmaterialsandenergy.Otherkeyfindingsinclude:

• Onaveragerespondentstargettoallocate27%oftheirassetstodirectinvestments,26%torealestatefundsand9%tobuyoutprivateequityand9%tohedgefunds.Respondentsexpectthehighestreturnsof10%fromdirectinvestmentsandrealestatefunds,9%fromventurecapital,and8%fromgrowthprivateequity.

• Respondentsindicatedincreasedallocationtoprivateequity,realestatefundsanddirectinvestments,and

decreasedallocationtoallotheralternativeassetsinthelasttwelvemonths.Theyalsoreportedimprovedbusinessconditionsandincreasedexpectedreturnsonnewinvestments.

• Respondentsalsoexpectfurtherincreasesinallocationtoallotheralternativeassetsexceptmezzanineand

hedgefunds,improvingbusinessconditionsandincreasingexpectedreturns.OperationalandAssessmentCharacteristics

Approximately40%ofrespondentsindicatedbeingfamilyofficefollowedbyprivateinvestor(20%).

Figure45.EntityType

40%

20%

14%

9%

6%3%3% 6%

Familyoffice

Privateinvestor

Investmentcompany

Publicpensionfund

Bankorinvestmentbank

Governmentalagency

Endowment

Other



LPcont.Approximately35%ofrespondentsreportedtheirassetcategorybeinglessthan$50million,while24%werebetween$50millionand$500million.

Figure46.AssetsunderManagementorInvestableFunds

Respondentsreportedontheir%oftotalassetallocationsfor“AlternativeAssets”.

Figure47.CurrentAssetAllocationfor"AlternativeAssets"(%oftotalportfolio)

Figure48.TargetAssetAllocationfor"AlternativeAssets"(%oftotalportfolio)

35%24%

12% 12% 18%

0%20%40%60%80%100%

6%18%

9%15%

9%3%

9% 6% 3%

21%

0%

20%

40%

60%

80%

100%

0% 1% - 10% 11%- 20% 21% - 30% 31% - 40% 41% - 50% 51% - 60% 61% - 70% 81% - 90% 91% - 100%

3%9% 12%

18% 18%

3% 6% 6% 3%

21%

0%

20%

40%

60%

80%

100%

0% 1% - 10% 11%- 20% 21% - 30% 31% - 40% 41% - 50% 51% - 60% 61% - 70% 71% - 80% 91% - 100%



LPcont.Onaverage,respondentstargettoallocate27%oftheirassetstodirectinvestments,26%torealestatefunds,9%toprivateequity-buyoutsand9%tohedgefunds.

Figure49.TargetAssetAllocationbyAssets

Onaverage,respondentsexpectthehighestreturnsfrominvestmentsindirectinvestments,realestatefunds,andventurecapital.

Figure50.AnnualReturnExpectationsforNewInvestments

27%

26%

9%

9%

7%

7%

5%

4%

2%

0% 5% 10% 15% 20% 25% 30%

Directinvestments

Realestatefund

Privateequity- buyout

Hedgefund

Venturecapital

Privateequity- growth

Privateequity- distressed

Mezzanine

Secondaryfunds

10% 10% 9%8%

6% 6%4%

3% 2%1%

3%

0%2%4%6%8%10%12%



LPcont.Approximately38%ofthe40respondentsinthelimitedpartnersurveyreportedrealestatefundsasbeingthebestrisk/returntrade-offinvestmentclassandanother32%reporteddirectinvestmentsasbeingthebestrisk/returntrade-offinvestmentclass.

Figure51.AssetswiththeBestRisk/ReturnTrade-offCurrently

Whenaskedaboutwhichindustrycurrentlyoffersthebestrisk/returntrade-off,20%ofrespondentsreportedhealthcare&biotech,followedby13%reportinginformationtechnology,andanother10%reportingbasicmaterialsandenergy.

Figure52.IndustrywiththeBestRisk/Return

Withregardtothegeographicregionswiththebestrisk/returntrade-offs,94%ofrespondentsreportedNorthAmerica.

Figure53.GeographicRegionsoftheWorldOfferingtheBestRisk/ReturnTradeoffCurrently

38%

32%

9%6%

6% 6% 3%Realestatefunds

Directinvestments

Privateequity- distressed

Venturecapital

Privateequity- growth

Hedgefund

Mezzanineinvestment

20%

13%

10%7%3%

3%3%

3%3%

33%

Healthcare&biotechInformationtechnologyBasicmaterials&energyFinancialservicesManufacturingConsumergoods&servicesWholesale&distributionBusinessservicesMedia&entertainmentOther

94%

3%3%NorthAmerica

Central&EasternEurope

Otheremergingmarkets



LPcont.Regardingthegeographicregionswiththebestrisk/returntrade-offsintheUS,40%ofrespondentsreportedWestCoast,20%reportedSouthandanother20%reportedMidwest.

Figure60.GeographicRegionsintheUSOfferingtheBestRisk/ReturnTradeoffCurrently

Accordingtorespondents,generalpartnerandspecificstrategyarethemostimportantfactorswhenevaluatinginvestmentfollowedbyhistoricalfundperformanceonallfunds.

Table36.ImportanceofFactorsWhenEvaluating




Historicalfundperformanceonallfunds 3% 0% 30% 48% 18% 3.8Returnedcapitalfrommostrecentfund(DistributiontoPaid-inorDPI) 3% 9% 30% 36% 21% 3.6

Residualvalueofmostrecentfund(ResidualValuetoPaid-inorRVPI) 3% 13% 13% 59% 13% 3.7

Generalpartner 6% 3% 12% 24% 55% 4.2

Specificstrategy 0% 3% 16% 41% 41% 4.2

Specificlocation 6% 15% 52% 9% 18% 3.2

Gutfeel/instinct 0% 18% 42% 27% 12% 3.3

Respondentsbelievegovernmentregulationsandtaxesarethemostimportantcurrentissuefacingprivately-heldbusinesses.


40%

20%

20%

12%4% 4% WestCoast

South

Midwest

Southeast

Mountain

Mid-Atlantic

52%42%

36%30%

27%21%

12%0%

30%30%

42%15%

24%27%

36%9%

0% 10% 20% 30% 40% 50% 60%

GovernmentregulationsandtaxesEconomicuncertainty(Domestic)Politicaluncertainty/elections

CompetitionfromforeigntradepartnersAccesstocapital

Economicuncertainty(International)Inflation

OtherCurrentissue EmergingIssue



LPcont.Respondentsindicatedincreasedallocationtoprivateequity,directinvestmentsandrealestatefunds,anddecreasedallocationtoallotheralternativeassetsinthelasttwelvemonths.Theyalsoreportedimprovedgeneralbusinessconditionsandexpectedreturnsonnewinvestments.


Characteristics Decreasedsignificantly

Decreasedslightly

Stayedaboutthesame

Increasedslightly


%increase

%decrease


Allocationtoventurecapital 6% 19% 65% 10% 0% 10% 26% -16%

Allocationtoprivateequity 0% 13% 61% 23% 3% 26% 13% 13%

Allocationtomezzanine 11% 11% 68% 11% 0% 11% 21% -11%

Allocationtohedgefunds 19% 4% 67% 11% 0% 11% 22% -11%

Allocationtosecondaryfunds 8% 8% 81% 4% 0% 4% 15% -12%

Allocationtorealestatefunds 0% 10% 53% 23% 13% 37% 10% 27%

Directinvestments 7% 4% 25% 46% 18% 64% 11% 54%


Expectedreturnsonnewcapitaldeployed 3% 10% 52% 29% 6% 35% 13% 23%

Respondentsalsoexpectfurtherincreasesinallocationtoallotheralternativeassetsexceptmezzanineandhedgefunds,improvingbusinessconditionsandincreasingexpectedreturns.


Characteristics Decreasesignificantly

Decreaseslightly

Stayaboutthesame

Increaseslightly

Increasesignificantly %increase%decrease


Allocationtoventurecapital 3% 10% 67% 17% 3% 20% 13% 7%

Allocationtoprivateequity 0% 6% 55% 33% 6% 39% 6% 33%

Allocationtomezzanine 0% 14% 76% 10% 0% 10% 14% -3%

Allocationtohedgefunds 11% 11% 64% 11% 4% 14% 21% -7%

Allocationtosecondaryfunds 4% 8% 77% 8% 4% 12% 12% 0%

Allocationtorealestatefunds 0% 7% 43% 43% 7% 50% 7% 43%

Directinvestments 3% 7% 37% 30% 23% 53% 10% 43%


Expectedreturnsonnewcapitaldeployed 0% 13% 48% 29% 10% 39% 13% 26%



VENTURECAPITALSURVEYINFORMATION Ofthe25participantswhorespondedtotheventurecapitalsurvey,approximately44%ofrespondentsexpectanincreasingsizeoftheventurecapitalindustry.Themajority(89%)ofrespondentsplantomakethreeinvestmentsormoreoverthenext12months.Otherkeyfindingsinclude:

• Thetypesofbusinessesrespondentsplantoinvestinthenext12monthsareverydiversewithover34%targetinginformationtechnologyandanother30%planningtoinvestinfinancialservices.

• Respondents’exitstrategiesincludesellingtoapubliccompany(42%)followedbysellingtoaprivatecompany(24%).

• Respondentsbelieveaccesstocapitalisthemostimportantissuefacingprivately-heldbusinessestoday.OperationalandAssessmentCharacteristics

Approximately56%ofrespondentsmadefiveinvestmentsormoreoverthelasttwelvemonths.



11%

17% 17%

22%

6% 6% 6%

17%

0%

5%

10%

15%

20%

25%

0 2 4 5 7 8 10 Morethan10

29%

6%

24% 24%

6% 6% 6%

0%

5%

10%

15%

20%

25%

30%

35%

2 3 4 5 6 8 9



VENTURECAPITALcont.Themajority(61%)ofrespondentsplantomakefourinvestmentsormoreoverthenext12months.



Respondentsreportedonbusinesspracticesandtheresultsarereflectedbelow.

Table39.VCFundData



Sizeoffund($millions) $18 $75 $125




6% 6%

28%

22%

6% 6% 6%

11% 11%

0%

5%

10%

15%

20%

25%

30%

0 2 3 4 5 6 7 8 Morethan10

12% 12% 12%

24%

18%

12% 12%

0%

5%

10%

15%

20%

25%

1 2 3 4 5 6 10



VENTURECAPITALcont.Thetypesofbusinessesrespondentsplantoinvestinovernext12monthsareverydiversewithover34%targetingInformationtechnology,andanother30%planningtoinvestinfinancialservices.


Respondentsreportedonavarietyofstatisticspertainingtotheirinvestments.

Table40.GeneralInformationonInvestmentsbyCompanyStages

Seed Startup EarlyStage Expansion LaterStage

NumberofInvestmentsMadeinLasttwelvemonths

35 48 63 42 29

AverageSizeofInvestment($million)

1stQuartile 0.5 0.75 1.5 2 5.5

Median 0.5 1.5 2.5 3.5 10

3rdQuartile 0.5 1.5 4 8.5 10

Average%ofTotalEquityPurchased(fullydilutedbasis)

1stQuartile 15% 13% 15% 7.5% 5%

Median 15% 15% 15% 15% 5%

3rdQuartile 35% 25% 25% 15% 20%

TotalexpectedReturns(grosscashoncashpretaxIRR)onnewinvestments 1stQuartile 28% 20% 18% 20% 23%

Median 35% 25% 23% 23% 23%

3rdQuartile 39% 29% 32% 23% 28%

ExpectedTimetoExit(years)

1stQuartile 5 4 3.5 2.5 3

Median 5 5 4 3 4

3rdQuartile 7 5 5 4.5 5

Averagecompany'pre-money'value($million)

1stQuartile 2.5 3.5 4.5 20 65

Median 2.5 7.5 10 25 100

3rdQuartile 3.5 7.5 15 55 100

AverageCompanyValueatTimeofInvestment(post-money$millions) 1stQuartile 4.0 10 7.5 37.5 75

Median 7.5 15 25 50.0 95

3rdQuartile 15.0 15 25 62.5 100

34%30%

10% 9% 8%3% 2% 1% 3%

0%

10%

20%

30%

40%


Financialservices Construction&engineering

Media&entertainment

Manufacturing Businessservices Healthcare&biotech


Other



VENTURECAPITALcont.Respondentsreportedonwheretheyplantoinvestoverthenext12months.TheresultsreflectinvestmentthroughouttheU.S.

Figure60.GeographicLocationofPlannedInvestmentoverNext12Months

Whenvaluingthecompany,approximately20%ofrespondentsuseguidelinepubliccompanymethodand20%usecapitalizationofearningsmethodwhenvaluingprivately-heldbusinesses.


Theweightsofthevariousmultiplemethodsusedbyrespondentswhenvaluingprivately-heldbusinessesincluded59%forrevenuemultipleand13%forrecast(adjusted)EBITDAmultiplemethods.


42%

22%

11%7% 5% 3% 3% 2% 5%

0%

10%

20%

30%

40%

50%

WestCoast NewEngland South Midwest OutsideofUS

20% 20% 19%16%

12%7% 6%

0%

5%

10%

15%

20%

25%

Guidelinepublic

companymethod


Guidelinecompany

transactionsmethod

Gutfeel Discountedfutureearnings

method


Other

59%

13% 8% 8% 7% 4% 1%0%10%20%30%40%50%60%70%

Revenuemultiple

Recast(Adjusted)EBITDAmultiple


Cashflowmultiple

EBITmultiple Netincomemultiple

Other



VENTURECAPITALcont.Respondentsreportedonitemsrequiredtocloseonedeal.


Respondents’exitstrategiesincludesellingtoapubliccompany(42%)followedbysellingtoaprivatecompany(24%).


Respondentsbelieveaccesstocapitalisthemostimportantissuefacingprivately-heldbusinessestoday.

Figure64.CurrentIssuesFacingPrivately-HeldBusinesses

238 2 1

60

133 2

98

256 5

0

20

40

60

80

100

120






42%

24% 19%11%

3% 1% 1%0%10%20%30%40%50%

Selltoapubliccompany

Selltoaprivatecompany

IPO Selltoprivateequitygroup

Liquidateorbankrupt

Selltoahedgefund

Managementbuyout

61%

22%

17%

17%

11%

6%

6%

11%

28%

22%

22%

6%

0%

22%

22%

17%

0% 10% 20% 30% 40% 50% 60% 70%

Accesstocapital






Inflation

Other

Todayissue Emergingissue



VENTURECAPITALcont.Respondentsindicatedincreasesindemandforventurecapital,follow-oninvestments,valueofportfoliocompanies,presenceofsuperangelsinspaceformerlyoccupiedbyVCs,andimprovedgeneralbusinessconditions.



Decreasedslightly

Stayedaboutthesame

Increasedslightly


%increase

%decrease


Demandforventurecapital 0% 0% 39% 33% 28% 61% 0% 61%


Follow-oninvestments 6% 11% 28% 56% 0% 56% 17% 39%



Timetoexitdeals 0% 18% 29% 35% 18% 53% 18% 35%

Expectedreturnsonnewinvestments 0% 17% 56% 28% 0% 28% 17% 11%



PresenceofsuperangelsinspaceformerlyoccupiedbyVCs 0% 24% 24% 47% 6% 53% 24% 29%

Sizeofventurecapitalindustry 0% 33% 22% 39% 6% 44% 33% 11%

Appetiteforrisk 11% 22% 44% 17% 6% 22% 33% -11%

Respondentsexpectfurtherimprovinggeneralbusinessconditions.



Decreaseslightly

Stayaboutthesame

Increaseslightly


%increase

%decrease


Demandforventurecapital 0% 6% 22% 39% 33% 72% 6% 67%









PresenceofsuperangelsinspaceformerlyoccupiedbyVCs 0% 18% 29% 41% 12% 53% 18% 35%

Sizeofventurecapitalindustry 0% 22% 33% 33% 11% 44% 22% 22%




ANGELINVESTORSURVEYINFORMATIONOfthe46participantswhorespondedtotheangelinvestorsurvey,themajority(67%)ofrespondentsplantomakebetweentwoandfourinvestmentsinthenexttwelvemonths.Otherkeyfindingsinclude:

• Approximately32%ofrespondentsbasevaluationsongutfeelwhenvaluingprivately-heldbusinesses.

• Whenusingmultiplestodeterminethevalueofabusiness,themostpopularmethodsusedbyrespondentswererevenuemultiple(30%),andEBITDAmultiple(22%).

• Thetypesofbusinessesrespondentsplantoinvestinovernext12monthsareverydiversewith22%targeting

informationtechnologyandanother20%planningtoinvestinhealthcareorbiotech.

• Respondentsindicatedincreaseindemandforangelcapital,sizeofangelindustry,qualityofcompaniesseekinginvestmentandimprovedgeneralbusinessconditions.Theyalsoreportedworsenedexitopportunitiesanddecreasedexpectedreturnsonnewinvestments.

• Respondents’exitstrategiesincludesellingtoapubliccompany(33%)andsellingtoaprivatecompany(28%).


Approximately64%ofrespondentsmadebetweentwoandfourinvestmentsoverthelasttwelvemonths.



3%

11%

36%

14% 14%

6%3%

11%

3%

0%5%

10%15%20%25%30%35%40%

0 1 2 3 4 5 6 7 Morethan10

31% 31%

17%

6% 6%3% 3%

0%

5%

10%

15%

20%

25%

30%

35%

0 1 2 3 4 5 7



ANGELcont.Themajority(67%)ofrespondentsplantomakebetweentwoandfourinvestmentsoverthenext12months.



Thetypesofbusinessesrespondentsplantoinvestinovernext12monthsareverydiversewithover22%targetinginformationtechnologyandanother20%planningtoinvestinhealthcare&biotech.


3% 3%

36%

19%

11%8%

11%

3% 3% 3%

0%5%

10%15%20%25%30%35%40%

0 1 2 3 4 5 6 7 9 Morethan10

17%

31%

23%

9%

3%6% 6%

3% 3%

0%5%

10%15%20%25%30%35%

0 1 2 3 4 5 6 8 Morethan10

22%

20%

14%10%

9%

9%

3%3% 2%1%

7%

InformationtechnologyHealthcare&biotechBasicmaterials&energyFinancialservices&realestateManufacturingBusinessservicesConsumergoods&servicesConstruction&engineeringWholesale&distributionMedia&entertainmentOther



ANGELcont.Respondentsreportedonavarietyofstatspertainingtotheirinvestments.

Table43.GeneralInformationonInvestmentsbyCompanyStages

Seed Startup Early Stage Expansion

Number of investments made in last twelve months

1st Quartile 91 30 28 14

Average Size of Investment

1st Quartile $25,000 $25,000 $25,000 $75,000

Median $75,000 $100,000 $75,000 $150,000

3rd Quartile $250,000 $150,000 $150,000 $150,000

Average % of Total Equity Purchased (fully diluted basis)

1st Quartile 6% 5% 2% 2.5%

Median 13% 10% 3% 3%

3rd Quartile 26% 20% 6.75% 17.5%

Total EXPECTED Returns (gross cash on cash pretax IRR) on New Investments (%)

1st Quartile 25% 25% 15% 15%

Median 35% 35% 25% 15%

3rd Quartile 60% 55% 50% 28%

Expected Time to Exit (years)

1st Quartile 3 3 3 3

Median 5 4 3.5 3

3rd Quartile 5 5 4.5 3.5

Average company 'pre-money' value

1st Quartile $75,000 $550,000 $1,500,000 $3,250,000

Median $350,000 $950,000 $3,500,000 $4,500,000

3rd Quartile $1,500,000 $2,500,000 $4,750,000 $8,750,000

Average Company Value at Time of Investment (post-money value)

1st Quartile $300,000 $750,000 $1,375,000 $4,000,000

Median $750,000 $1,000,000 $3,750,000 $4,250,000

3rd Quartile $1,500,000 $4,000,000 $4,625,000 $12,500,000 Respondentsreportedonwheretheyplantoinvestoverthenext12months.TheresultsreflectinvestmentthroughouttheU.S.

Figure70.GeographicLocationofPlannedInvestmentoverNext12Months

45%

11%10%

8%

7%5% 5%

4%5%

WestCoast Southeast

Midwest GreatLakes

South Mountain

NewEngland Mid-Atlantic

OutsideofUS



ANGELcont.Respondentsreportedontheirgeographicallimitsforinvestments.

Figure71.GeographicalLimitforInvestment

Approximately32%ofrespondentsbasevaluationsongutfeelwhenvaluingprivately-heldbusinessesfollowedbycapitalizationofearningsmethod(12%).


Theweightsofthevariousmultiplemethodsusedbyrespondentswhenvaluingprivately-heldbusinessesincluded30%forrevenuemultipleand22%forEBITDAmultiplemethods.


11%14%

8%

16%

51%

2-hourdrive

4-hourdrive

State/province

Region

Norestriction

32%

19%17%

11%

4%2% 15%

Gutfeel



Guidelinecompanytransactionsmethod


Guidelinepubliccompanymethod

Other

30%

22%15%

11%

9% 9% 4%Revenuemultiple

EBITDAmultiple

Cashflowmultiple

RecastEBITDAmultiple

EBITmultiple

Netincomemultiple

Other



ANGELcont.Respondentsreportedonitemsrequiredtocloseonedeal.


Respondents’exitstrategiesincludesellingtoapubliccompany(33%)andsellingtoaprivatecompany(28%).


Respondentsbelieveaccesstocapitalisthemostimportantcurrentissuefacingprivately-heldbusinesses.


104.5 2 1

157 3 1

30

134 2.25

010203040






33%

28%

11%

7%

6%6% 5% 4% Selltoapubliccompany

SelltoaprivatecompanySelltoprivateequitygroupOtherIPOSelltoaventurecapitalfundManagementbuyoutLiquidateorbankrupt

40%

31%

29%

17%

14%

11%

6%

6%

40%

11%

14%

26%

6%

11%

20%

9%

Accesstocapital




Inflation



Other

0% 5% 10% 15% 20% 25% 30% 35% 40% 45%




ANGELcont.Respondentsindicatedincreaseindemandforangelcapital,sizeofangelindustry,qualityofcompaniesseekinginvestmentandimprovedgeneralbusinessconditions.Theyalsoreportedworsenedexitopportunitiesanddecreasedexpectedreturnsonnewinvestments.



Decreasedslightly

Stayedaboutthesame

Increasedslightly


%increase

%decrease


Demandforangelcapital 6% 6% 35% 29% 24% 53% 12% 41%

Sizeofangelfinanceindustry 3% 9% 36% 36% 15% 52% 12% 39%




Exitopportunities 0% 27% 52% 21% 0% 21% 27% -6%






Respondentsexpectfurtherincreasesinallbusinesscharacteristics.



Decreaseslightly

Stayaboutthesame

Increaseslightly


%increase

%decrease


Demandforangelcapital 6% 6% 31% 29% 29% 57% 11% 46%

Sizeofangelfinanceindustry 3% 14% 31% 43% 9% 51% 17% 34%












BUSINESSAPPRAISERSURVEYINFORMATION

Accordingtothe131businessappraisersurveyrespondents,governmentregulationsandtaxesarethemostimportantissuefacingprivately-heldbusinesstoday.Respondentsindicatedincreasesinnumberofengagements,feesforservices,competition,andimprovedgeneralbusinessconditionsoverthelasttwelvemonths.Theyalsoexpectslightlyworseningbusinessconditionsinthenexttwelvemonths.Otherkeyfindingsinclude:

• Whenusingvaluationmethodstodeterminethevalueofabusiness,themostpopularmethodsusedbyrespondentswerediscountedfutureearningsmethod(33%),capitalizationofearningsmethod(25%)andguidelinecompanytransactionsmethod(17%).

• Recast(adjusted)EBITDAmultipleisthemostpopularwhenusingmultiplevaluationmethod• Respondentsuseanaveragerisk-freerateof3.16%andamarket(equity)riskpremiumof6.14%• Averagelong-termterminalgrowthisestimatedat3.28%


Mostofthecompaniesvaluedbyrespondentshaveannualrevenuesfrom$1millionto$50million.

Figure75.AnnualRevenuesofCompaniesValued

Appraisers,onaverage,applya33%weighttodiscountedfutureearningsmethodwhenvaluingaprivately-heldbusiness.


31% 36%

63% 62%72%

44%32%

17%

0%10%20%30%40%50%60%70%80%

Lessthan$500Kinrevenues

$500K-$999Kinrevenues

$1M-$4.99Minrevenues





$500M+inrevenues

33%

25%17%

11%

10%1%

3%Discountedfutureearningsmethod


Guidelinecompanytransactionsmethod


Guidelinepubliccompanymethod

Gutfeel

Other



APPRAISERScont.Respondentsusingmultiples-basedapproachesindicateapreferenceforusingrecast(adjusted)EBITDAmultiples(41%),followedbyrevenuemultiples(24%).


Respondentsindicatedusinganaveragerisk-freerateof3.16%,averagemarket(equity)riskpremiumof6.14%andaveragelong-termgrowthrateof3.28%.

Figure78.AverageRisk-FreeRateandMarket(equity)RiskPremiumandLong-TermGrowthRate

FigurebelowindicatesconsiderabledifferencesinDLOMsacrosssizesofcompaniesandsubjectinterests.

Figure79.DiscountforLackofMarketability(DLOM)byRevenueSizes

41%

24%

12%

9%6% 5%

3%Recast(Adjusted)EBITDAmultiple

Revenuemultiple

Cashflowmultiple


EBITmultiple

Netincomemultiple

Other

3.16%

6.14%

3.28%

0% 1% 2% 3% 4% 5% 6% 7%

Risk-freerate

Market(equity)riskpremium

AverageLong-termterminalgrowthrate(%)

17.1%

15.7%

13.8%

11.9%

32.2%

29.4%

25.9%

23.2%

0% 5% 10% 15% 20% 25% 30% 35%

$100,000inrevenues

$1Minrevenues

$25Minrevenues

$250Minrevenues

Controlinterest Minorityinterest



APPRAISERScont.Only28%ofrespondentsarecomfortapplyingpubliccostofcapitaltoprivately-heldcompanieswithannualrevenueslessthan$1million.

Figure80. OverallComfortLevelwithApplyingPublicCostofCapitaltoPrivately-heldCompaniesofVariousSizes

Figure81. ExplicitForecastPeriodforHigh-GrowthCompaniesbyRevenueSizes(years)

Respondentsindicatedincreasesinnumberofengagements,feesforservices,competition,andimprovedgeneralbusinessconditionsoverthelasttwelvemonths.



Decreasedslightly

Stayedaboutthesame

Increasedslightly


%increase

%decrease


Numberofengagements 4% 12% 32% 38% 13% 52% 16% 35%

Timetocompleteatypicalappraisal 2% 16% 61% 19% 3% 22% 17% 5%

Feesforservices 1% 7% 56% 33% 3% 36% 8% 28%

Competition 0% 3% 57% 33% 7% 40% 3% 37%

Costofcapital 1% 10% 63% 24% 2% 25% 11% 14%

Market(equity)riskpremiums 0% 4% 76% 19% 1% 20% 4% 15%

Discountsforlackofmarketability(DLOM) 0% 8% 84% 7% 1% 8% 8% 0%

Companyspecificriskpremiums 1% 7% 76% 15% 1% 16% 8% 8%



28% 33%45%

62%

85% 89% 89%

0%

20%

40%

60%

80%

100%

<$1M $1M- $5M $5M- $25M $25M-$100M

$100M-$500M

$500M- $1B >$1B

6.0

5.9

6.0

0 1 2 3 4 5 6 7 8

Privateoperatingcompanywith$1MinEBITDA





APPRAISERScont.Respondentsexpectslightlyworseningbusinessconditionsinthenexttwelvemonths.


Characteristics Decreasesignificantly

Decreaseslightly

Stayaboutthesame

Increaseslightly


%increase

%decrease


Numberofengagements 2% 7% 34% 48% 9% 0% 8% -8%

Timetocompleteatypicalappraisal 1% 14% 69% 16% 0% 1% 15% -14%

Feesforservices 0% 5% 50% 40% 2% 3% 5% -2%

Competition 0% 1% 58% 35% 5% 2% 1% 1%

Costofcapital 0% 1% 40% 56% 1% 2% 1% 2%

Market(equity)riskpremiums 0% 2% 57% 34% 3% 4% 2% 2%

Discountsforlackofmarketability(DLOM) 1% 5% 80% 8% 0% 5% 6% -1%

Companyspecificriskpremiums 1% 5% 70% 18% 2% 5% 5% 0%

Generalbusinessconditions 0% 7% 42% 44% 5% 2% 7% -5%

Appetiteforrisk 2% 8% 46% 37% 4% 5% 9% -5%

Respondentsbelievegovernmentregulationsandtaxesisthemostimportantissuefacingprivately-heldbusinessestoday.

Figure82. IssuesFacingPrivately-HeldBusinesses

40%

36%

18%

15%

5%

3%

3%

7%

23%

27%

8%

23%

7%

18%

14%

7%

0% 5% 10% 15% 20% 25% 30% 35% 40% 45%



Accesstocapital




Inflation

Other

Today'sissue Emergingissue



BROKERSURVEYINFORMATIONApproximately36%ofthe373participantsforthebrokersurveysaidtheyexpecttoclosesixdealsormoreinthenext12months.Otherkeyfindingsinclude:

• Approximately17%ofbusinesslistings/engagementsterminatedwithoutclosinginthelast12months.

• Respondentsindicatedincreasesindealflow,ratioofbusinessessoldtototallistings,businessexitopportunities,difficultysellingbusinessandimprovedgeneralbusinessconditions.

• 41%ofrespondentsclosedmoredealsin2016thanin2015.


Approximately20%oftherespondentsdidn’tcloseanydealinthelasttwelvemonths;63%closedbetweenonetofivedeals,while17%closedsixormoretransactions.

Figure83.PrivateBusinessSalesTransactionsClosedintheLastTwelveMonths

Approximately62%ofrespondentsareplanningtoclosebetweenoneandfivebusinesssalestransactionsinthenext12months.

Figure84.PrivateBusinessSalesTransactionsExpectedtoCloseintheNextTwelveMonths

20%

17%19%

11%9%

7%5%

2% 1% 1% 2%

6%

0%

5%

10%

15%

20%

25%

None 1 2 3 4 5 6 7 8 9 10 >10

20%

17%19%

11%9%

7%5%

2% 1% 1% 2%

6%

0%

5%

10%

15%

20%

25%

None 1 2 3 4 5 6 7 8 9 10 >10



BROKERcont.Respondentsindicatedtypicalsizesoftransactionstheyarecurrentlyworkingon.

Figure85.TypicalSizeofBusinessTransactions

Respondentsindicateoutofallbusinesstransactionstheyworkedoninthelast12months33%wereclosed,44%arecontinuedmarketing,6%areinescrowand16%wereterminatedwithoutclosing.

Figure86.BusinessTransactionsintheLast12Months

Nearly41%ofrespondentsclosedmoretransactionsin2015thanin2014,14%ofrespondentsclosedequalamount.

Figure87.DidRespondentsCloseMoreTransactionsin2016thaninPreviousYears

45%37% 32% 29% 28%

0%10%20%30%40%50%

Dealsvaluedunder$499,999

Dealsvaluedfrom$500,000to$999,999

Dealsvaluedfrom$1millionto$1.99

million

Dealsvaluedfrom$2millionto$4.99

million

Dealsvaluedfrom$5millionto$50

million

44%

7%

31%

17% continuedmarketing

inescrow

closed

terminatedwithoutclosing

0%20%40%60%80%100%

Yes No Equalamount2015 41% 44% 15%

2014 38% 45% 17%

2013 42% 47% 11%

2012 37% 49% 14%

2011 42% 42% 16%

2010 45% 43% 12%



BROKERcont.Approximatelyin43%ofbusinesstransactionssellershadplannedfortheirexit.

Figure88.ClosedBusinessTransactions

Respondentsindicatedifficultytoarrangeseniordebtfortransactionswithannualrevenuesunder$500thousands.

Table48.HowDifficulttoArrangeSeniorDebtforTransactionsoverthePast12Months

RevenuesizeExtremelydifficult Difficult Somewhat

difficult Neutral Somewhateasy Easy Extremely

easyScore(-3to3)

$100K 24% 16% 20% 15% 6% 12% 7% -0.9

$500K 7% 15% 18% 14% 25% 15% 7% -0.1

$1M 4% 6% 15% 23% 26% 18% 8% 0.2

$5M 2% 10% 10% 20% 31% 19% 8% 0.3

$10M 7% 5% 16% 31% 19% 15% 7% 0.0

$15M 6% 8% 11% 30% 25% 13% 8% 0.1

$25M+ 9% 9% 6% 41% 15% 9% 12% 0.0Approximately60%ofrespondentsindicatebestclientsarrivedbyreferrals.

Figure89.In2016,BestClientArrivedBy:

20%24%

43%

31%

0%

10%

20%

30%

40%

50%

wereinternalbuyers includedrealestate sellershadplannedfortheirexit

utilizedSBAcomponents

60%6%5%5%

4%4%4%

1%1%6% Referral

NetworkingColdcallingDigitalGeneralmailerTargetmailerCompanybrandingPublication/mediasourcePublicspeaking/seminarsOther



BROKERcont.Nearly27%ofreferralswerepastclients.

Figure90.TypesofReferrals

Figure91.TypesofPublication/MediaSource

Approximately69%ofrespondentsindicateditwas‘buyer’smarket’fordealsvaluedunder$500thousands,whereasonly32%ofrespondentsindicateditwas‘buyer’smarket’fordealsvaluedbetween$5millionand$50million.

Figure92.WasItBuyer'sorSeller’sMarketintheLast3Months

27%

22%13%

10%4%

25% Pastclient

Accountant

Attorney

Financialadvisor

Lender

Other

25%

75%

Article

Web

69%60%

48%40%

32%31%40%

52%60%

68%

0%10%20%30%40%50%60%70%80%

Dealsvaluedunder$499,999

Dealsvaluedfrom$500,000to$999,999

Dealsvaluedfrom$1millionto$1.99million

Dealsvaluedfrom$2millionto$4.99million

Dealsvaluedfrom$5millionto$50million

Buyer'smarket

Seller'smarket



BROKERcont.Table49.NumberofNewClientsintheLast3Months

Dealsize Greatly

decrease Decrease Staythesame Increase Greatlyincrease

Score(1to5)

Dealsvaluedunder$499,999 8% 12% 53% 22% 5% 3.8

Dealsvaluedfrom$500,000to$999,999 7% 12% 59% 19% 3% 4.0

Dealsvaluedfrom$1millionto$1.99million 6% 11% 63% 17% 2% 4.1

Dealsvaluedfrom$2millionto$4.99million 7% 8% 57% 28% 1% 3.8

Dealsover$5million 7% 9% 56% 24% 3% 3.8

Mediannumberofmonthsfromlisting/engagementtoclosevariesfrom7to10months.

Figure93.MedianNumberofMonthsfromListing/EngagementtoClosebyDealSize

MediannumberofmonthsfromLOI/Offertoclosevariesfrom2to4months.

Figure94.MedianNumberofMonthsfromLOI/OffertoClosebyDealSize

MedianSDEmultiplepaidvariesbetween2.3and3.9.

Figure95.MedianSDEMultiplePaidbyDealSize

7 78.5 9 10

0

5

10

15

<500K 500K- 1M 1M- 2M 2M- 5M 5M- 50M

23 3 3

4

0

2

4

6

<500K 500K- 1M 1M- 2M 2M- 5M 5M- 50M

2.3 2.8 3.3 3.8 3.9

0

2

4

6

<500K 500K- 1M 1M- 2M 2M- 5M 5M- 50M



BROKERcont.MedianEBITDAmultiplepaidvariesbetween2.0and5.5.

Figure96.MedianEBITDAMultiplePaidbyDealSize

SDEnotincludingworkingcapitalwasthemostpopularmultipletypeusedfordealsvaluedunder$2million,whileEBITDAincludingworkingcapitalwasthemostpopulartypefordealsvaluedbetween$2millionand$50million.

Figure97.MultipleTypesbyDealSize

2.0 2.3

4.34.8

5.5

0

1

2

3

4

5

6

<500K 500K- 1M 1M- 2M 2M- 5M 5M- 50M

0.0%10.0%20.0%30.0%40.0%50.0%60.0%70.0%80.0%90.0%100.0%

<500K 500K-1M

1M- 2M 2M- 5M 5M-50M

SDEincludingworkingcapital 27.3% 25.0% 18.8% 37.5% 6.5%

SDEnotincludingworkingcapital 65.2% 63.3% 53.1% 25.0% 0.0%

EBITDAincludingworkingcapital 1.2% 1.7% 18.8% 16.7% 45.2%

EBITDAnotincludingworkingcapital 6.2% 10.0% 9.4% 16.7% 12.9%

TTMEBITDAincludingworkingcapital 0% 0.0% 0.0% 0.0% 22.6%

TTMEBITDAnotincludingworkingcapital 0.0% 0.0% 0.0% 4.2% 12.9%



BROKERcont.

Figure98.BuyerTypebyDealSize

Reasonnumberoneforsellerstogotomarketwasretirement.

Figure99.ReasonforSellertoGotoMarketbydealSize

0%20%40%60%80%100%

<500K 500K-1M

1M- 2M 2M- 5M 5M-50M

1sttimeindividual 52% 32% 28% 21% 3%

individualwhoownedabusiness 30% 40% 41% 29% 3%

existingcompany/strategicbuyer 12% 25% 28% 29% 42%

PEfirm- Platform 0% 2% 0% 4% 32%

PEfirm- Add-on 0% 0% 0% 13% 13%

Other 6% 2% 3% 4% 6%

0%20%40%60%80%100%

<500K 500K- 1M 1M- 2M 2M- 5M 5M- 50MRecapitalization 3% 0% 0% 4% 13%Burntout 22% 28% 13% 8% 16%Familyissues 5% 5% 6% 0% 6%Health 7% 3% 9% 4% 3%Newopportunity 9% 7% 13% 13% 3%Relocation/moving 8% 7% 6% 0% 0%Retirement 35% 47% 50% 67% 48%Unsolicitedoffer 1% 0% 0% 0% 3%Other 10% 3% 3% 4% 6%



BROKERcont.Buyingajobwasthenumberonemotivationforbuyerfordealsvaluedunder$1million,whilehorizontaladd-onwasthenumberonemotivationforbuyerfordealsvaluedbetween$1millionand$50million.

Figure100.NumberOneMotivationforBuyerbyDealSize

Averagepercentageoffinal/sellingpricerealizedtoasking/benchmarkpricewas92%.

Figure101.MedianPercentageofFinal/SellingPriceRealizedtoAsking/BenchmarkPricebyDealSize

0%10%20%30%40%50%60%70%80%90%100%

<500K 500K-1M

1M- 2M 2M- 5M 5M- 50M

Buyingajob 55% 35% 25% 25% 0%

BetterROIthanotherinvestment 6% 20% 22% 13% 10%

Verticaladd-on 8% 7% 19% 25% 23%

Horizontaladd-on 19% 23% 28% 25% 35%

Other 12% 15% 6% 13% 32%

89% 93% 94% 96%

122%

92%

0%

20%

40%

60%

80%

100%

120%

140%

<500K 500K- 1M 1M- 2M 2M- 5M 5M- 50M All



BROKERcont.

Figure102.BuyerLocationbyDealSize

Figure103.FinancingStructurebyDealSize

0.0%

20.0%

40.0%

60.0%

80.0%

100.0%

<500K 500K- 1M 1M- 2M 2M- 5M 5M- 50Mwithin20miles 70.2% 56.7% 43.8% 25.0% 9.7%

within50miles 14.9% 11.7% 15.6% 8.3% 9.7%

within100miles 1.9% 8.3% 9.4% 16.7% 6.5%

morethan100miles 13.0% 23.3% 31.3% 50.0% 74.2%

0%20%40%60%80%100%

<500K 500K- 1M 1M- 2M 2M- 5M 5M- 50MBuyersequity 65% 43% 32% 35% 59%

Seniordebt 20% 40% 55% 42% 24%

Sellerfinancing 11% 13% 11% 19% 4%

Earnout 1% 1% 1% 4% 1%

Sellerretainedequity 0% 0% 0% 0% 3%

Mezzaninefinancing 0% 0% 0% 0% 3%

Other 3% 2% 1% 0% 5%



BROKERcont.

BusinessTransactionsValuedUnder$499Thousand

Figure104.NumberofMonthsfromEngagement/ListingtoClose

Figure105.NumberofMonthsfromLOI/OffertoClose

Figure106.IndustryType

5%

2%4%

8% 9%10% 10%

7%5% 4%

2% 3%

7%

14%

6%4%

0%

5%

10%

15%

<1month 2months 4months 6months 8months 10months 12months 1.6- 2years

9%

17%

35%

19%

8%2% 2% 2% 1% 1% 1% 2%

0%

10%

20%

30%

40%

<1month

1month 2months

3months

4months

5months

6months

7months

9months

10months

12months

1.1- 1.5years

18%19%

16%

12%

6% 6%7%

1%3%

1% 1%

9%

0%

5%

10%

15%

20%

25%

Restaurants Consumergoods&Retail

Services-personal

Businessservices

Healthcare&biotech


Manufact. Basicmaterials&energy

Services-financial



Other



BROKERcont.Figure107.SDEMultiplePaid

Figure108.EBITDAMultiplePaid

Figure109.MultiplePaid

6%1% 1%

4% 2%

12%9%

25%

9%

17%

3%6%

2% 1% 1% 1% 1%0%

10%

20%

30%

40%

50%

0.25 0.75 1 1.25 1.5 1.75 2 2.25 2.5 2.75 3 3.25 3.5 3.75 4.25 4.5 5.5

25% 25%

8%

17%

8% 8% 8%

0%

10%

20%

30%

40%

50%

0.25 1.75 2.25 2.75 3.25 3.75 4.25

27.3%

65.2%

1.2%6.2%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

SDEincludingworkingcapital

SDEnotincludingworkingcapital

EBITDAincludingworkingcapital

EBITDAnotincludingworkingcapital



BROKERcont.Figure110.BuyerType

Figure111.ReasonforSellertoGotoMarket

Figure112.BuyerLocation

52%30%

12% 6% 1sttimeindividual

individualwhoownedabusiness

existingcompany/strategicbuyer

Other

35%

22%

8% 9%

5%7%

3%1%

10%

0%

5%

10%

15%

20%

25%

30%

35%

40%

Retirement Burntout Relocation/moving New/betteropportunity

Familyissues Health Recapitalization Unsolicitedoffer Other

70%

15%

2%

13%

0%

10%

20%

30%

40%

50%

60%

70%

80%

within20miles within50miles within100miles morethan100miles



BROKERcont.Figure113.NumberOneMotivationforBuyer

Figure114.FinancingStructure

BusinessTransactionsValuedfrom$500to$999Thousand


55%

19%

8% 6%12%

0%

10%

20%

30%

40%

50%

60%

Buyingajob Horizontaladd-on Verticaladd-on BetterROIthanotherinvestment

Other

65%

20%11%

1% 3%

0%10%20%30%40%50%60%70%

Buyersequity Seniordebt Sellerfinancing Earnout Other

2%5%

10%15% 17%

7%10% 10%

7%2% 2%

10%3% 2%

0%10%20%30%40%50%



BROKERcont.



Figure118.SDEMultiplePaid

3%

13%

23% 22%18%

7% 5% 3% 2% 2% 2%

0%

5%

10%

15%

20%

25%

<1month

1month 2months

3months

4months

5months

6months

7months

8months

10months

>2years

17%13% 13% 12% 10% 10%

7% 7%2%

10%

0%10%20%30%40%50%

9%

2% 2%8%

13%

28%

11% 11%

4% 6%2% 2% 2%

0%10%20%30%40%50%

0.25 1 1.75 2.25 2.5 2.75 3 3.25 3.5 3.75 4 5.25 7.25



BROKERcont.



Figure121.BuyerType

14% 14% 14% 14% 14% 14% 14%

0%

10%

20%

30%

40%

50%

0.75 1.25 2 2.5 4 4.25 5.25

25%

63%

2%10%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%





32%

40%

25%

2% 2%1sttimeindividual



PEfirm- Platform

Other



BROKERcont.



Figure124.NumberOneMotivationforBuyer

47%

28%

7% 7% 5% 3% 3%

0%10%20%30%40%50%

57%

12% 8%

23%

0%

10%

20%

30%

40%

50%

60%


35%

23%20%

7%

15%

0%5%

10%15%20%25%30%35%40%

Buyingajob Horizontaladd-on BetterROIthanotherinvestment

Verticaladd-on Other



BROKERcont.


BusinessTransactionsValuedfrom$1to$1.99Million



43%40%

13%

1% 2%

0%

10%

20%

30%

40%

50%

Buyersequity Seniordebt Sellerfinancing Earnout Other

13%

9%

6%

16%

6%

3% 3%

16%

13%

6%

9%

0%2%4%6%8%

10%12%14%16%18%

3months4months6months7months8months9months 10months

12months

1.1- 1.5years

1.6- 2years

>2years

6%

38%

25%

13%

6%3% 3% 3% 3%

0%

5%

10%

15%

20%

25%

30%

35%

40%

1month 2months 3months 4months 6months 7months 8months 9months 12months



BROKERcont.




BROKERcont.

16% 16%

9%6%

16%

3%

28%

6%

0%

5%

10%

15%

20%

25%

30%

Manufact. Consumergoods&Retail


Services-personal


Healthcare&biotech

Businessservices Other

4% 4%9% 9%

22% 22%

4%9%

4%9%

4%

0%10%20%30%40%50%

1.75 2 2.5 2.75 3 3.25 3.5 3.75 4 4.25 4.75

11% 11% 11%

33%

11% 11% 11%

0%

10%

20%

30%

40%

50%

0.25 2.75 3.75 4.25 4.75 5.25 7.25



BROKERcont.


Figure132.BuyerType


19%

53%

19%9%

0%

50%

100%





28%

41%

28%3% 1sttimeindividual



Other

50%

13% 13% 9% 6% 6% 3%0%20%40%60%80%100%



BROKERcont.




44%

16%

9%

31%

0%

10%

20%

30%

40%

50%


28%25%

22%19%

6%

0%10%20%30%40%50%

Horizontaladd-on Buyingajob BetterROIthanotherinvestment

Verticaladd-on Other

55%

32%

11%1% 1%

0%

20%

40%

60%

80%

100%

Seniordebt Buyersequity Sellerfinancing Earnout Other



BROKERcont.

BusinessTransactionsValuedfrom$2to$4.99Million




8%

17%

4%

17%13%

8% 8% 8% 8% 8%

-10%

10%

30%

50%

5months 6months 7months 8months 9months 11months

12months

1.1- 1.5years

1.6- 2years

>2years

29%25%

8%4%

17%

4% 4% 4% 4%

0%10%20%30%40%50%

2months 3months 4months 5months 6months 7months 9months 11months 1.1- 1.5years

29%

21%17%

8% 8%4% 4% 4% 4%

0%5%10%15%20%25%30%35%40%45%50%

Manufact. Businessservices


Healthcare&biotech


Consumergoods&Retail

Services-financial


Other



BROKERcont.




7%

13% 13%

20%

7%

27%

7% 7%

0%

10%

20%

30%

40%

50%

3 3.25 3.5 3.75 4 4.25 5 6.5

11%

22% 22%

11% 11% 11% 11%

0%

10%

20%

30%

40%

50%

2.25 4.25 4.75 5 6.25 8.5 9

38%

25%17% 17%

4%

0%10%20%30%40%50%60%70%80%90%

100%




EBITDAnotincludingworking

capital

TTMEBITDAnotincludingworking

capital



BROKERcont.Figure143.BuyerType



21%

29%29%

4%13%

4%1sttimeindividual



PEfirm- Platform

PEfirm- Add-on

Other

67%

13% 8% 4% 4% 4%

0%20%40%60%80%100%

Retirement New/betteropportunity

Burntout Recapitalization Health Other

25%

8%17%

50%

0%

20%

40%

60%

80%

100%




BROKERcont.Figure146.NumberOneMotivationforBuyer


BusinessTransactionsValuedfrom$5to$50Million


25% 25% 25%

13% 13%

0%5%10%15%20%25%30%35%40%45%50%

Verticaladd-on Buyingajob Horizontaladd-on BetterROIthanotherinvestment

Other

42%35%

19%4%

0%

20%

40%

60%

80%

100%

Seniordebt Buyersequity Sellerfinancing Earnout

3%6%

3%

13%

3%6%

10%13%

10%

16%

6%10%

0%

10%

20%

30%

40%

50%

3months

4months

5months

6months

7months

8months

9months

10months

12months

1.1- 1.5years

1.6- 2years

>2years



BROKERcont.




23%26%

6%13% 13%

6%3% 3%

6%

0%10%20%30%40%50%

2months 3months 4months 5months 6months 7months 8months 12months 1.1- 1.5years

39%

19%13%

6% 6% 6%10%

0%10%20%30%40%50%

Manufact. Healthcare&biotech



Businessservices

Consumergoods&Retail

Other

50% 50%

0%10%20%30%40%50%60%70%80%90%

100%

1.5 6.25



BROKERcont.



Figure154.BuyerType

5%10% 10%

5% 5%10% 10% 10% 10%

5% 5%10%

5%

0%10%20%30%40%50%

3.75 4.25 4.5 4.75 5 5.25 5.5 5.75 6 6.25 6.5 7.25 >10

6%

45%

13%23%

13%

0%20%40%60%80%100%



EBITDAnotincludingworking

capital

TTMEBITDAincludingworking

capital

TTMEBITDAnotincludingworking

capital

3% 3%

42%

32%

13%6%

1sttimeindividual



PEfirm- Platform

PEfirm- Add-on

Other



BROKERcont.




48%

16% 13%6% 3% 3% 3% 6%

0%10%20%30%40%50%

10% 10% 6%

74%

0%

50%

100%


35%

23%

10%

32%

0%

10%

20%

30%

40%

50%

Horizontaladd-on Verticaladd-on BetterROIthanotherinvestment

Other



BROKERcont.


Table50.ExpectationsofBusinessListings/EngagementsfromNewClientsintheNext3Months

Dealsize Greatlydecrease Decrease Staythesame Increase Greatly

increaseScore(1to5)

Dealsvaluedunder$499,999 1.4% 4.7% 36.3% 52.8% 4.7% 3.5

Dealsvaluedfrom$500,000to$999,999 1.1% 2.7% 35.7% 55.1% 5.4% 3.6

Dealsvaluedfrom$1millionto$1.99million 1.2% 2.4% 37.3% 56.6% 2.4% 3.6


Dealsover$5million 0.7% 2.7% 49.7% 43.5% 3.4% 3.5

Table51.ExpectationsforBusinessValuationMultiplesintheNext3Months

Dealsize Greatlydecrease Decrease Staythesame Increase Greatly

increaseScore(1to5)

Dealsvaluedunder$499,999 0.5% 6.2% 81.5% 11.8% 0.0% 3.0

Dealsvaluedfrom$500,000to$999,999 1.1% 3.2% 80.5% 15.1% 0.0% 3.1



Dealsover$5million 0.7% 2.7% 70.7% 24.0% 2.0% 3.2

59%

24%4% 3% 3% 1% 5%

0%

50%

100%

Buyersequity Seniordebt Sellerfinancing

Sellerretainedequity

Mezzaninefinancing

Earnout Other



BROKERcont.

Comparedtotwelvemonthsago,respondentsindicatedincreasesindealflow,ratioofbusinessessoldtototallistings,businessexitopportunitiesandimprovedgeneralbusinessconditions.Duringthenexttwelvemonths,respondentsexpectfurtherincreasesindealflow,marginpressureoncompanies,andimprovinggeneralbusinessconditions.



Decreasedslightly

Stayedaboutthesame

Increasedslightly


%increase

%decrease

Netincrease

Dealflow 7% 12% 35% 35% 11% 46% 19% 27%

Ratioofbusinessessold/totallistings 6% 14% 48% 25% 6% 31% 21% 10%

Dealmultiples 3% 7% 66% 21% 2% 24% 10% 14%

Businessexitopportunities 3% 9% 54% 29% 5% 34% 13% 21%


Difficultysellingbusiness 2% 11% 54% 28% 5% 33% 13% 20%

Businessopportunitiesforgrowth 2% 5% 53% 35% 4% 39% 7% 32%



Table53.GeneralBusinessandIndustryAssessment:ExpectationsovertheNext12Months


Decreaseslightly

Stayaboutthesame

Increaseslightly

Increasesignificantly %increase

%decrease

Netincrease

Dealflow 0% 3% 23% 54% 20% 74% 3% 70%

Ratioofbusinessessold/totallistings 0% 2% 31% 54% 13% 67% 2% 65%

Dealmultiples 0% 5% 61% 30% 4% 34% 5% 29%

Businessexitopportunities 0% 4% 47% 40% 9% 49% 4% 45%


Difficultysellingbusiness 2% 21% 61% 16% 0% 16% 23% -7%

Businessopportunitiesforgrowth 1% 3% 48% 42% 7% 49% 3% 45%





FACTORSURVEYINFORMATION Approximately55%of16respondentstothefactorsurveysaidtheprimaryusesoffactoringfacilitiesarefinancingworkingcapitalfluctuations,followedbyexpansion(22%),andfinanceworseningoperationsconditions(16%).Factoringfacilitiesarerelativelyshort-termcomparedtootherinvestmentswithrespondentsreportingapproximately60%offactoringfacilitieshavelessthanorequalto12monthsterm.Otherkeyfindingsinclude:

• Respondentsreportedapproximately21%oftheircompany’sgrossinvoicesoverthelasttwelvemonthswereoriginatedfromwholesale&distribution.Manufacturingwasresponsiblefor20%ofinvoicesfollowedbybusinessservicesat17%.

• Whenaskedaboutconditionscomparedtotwelvemonthsagonearly53%ofrespondentssaidtheysawdecreaseddemandforbusinessfactoringlinesinthelast12months.Approximately40%oflendersindicatedincreasedgeneralbusinessconditionsinthelasttwelvemonths.

• Nearly47%ofrespondentsbelievegovernmentregulationsandtaxesarethemostimportantissuefacing

privately-heldbusinessestoday,followedbyeconomicuncertainty(40%)andaccesstocapital(20%).OperationalandAssessmentCharacteristics

Approximately55%ofrespondentsindicatedworkingcapitalfluctuationsastheprimaryusesoffactoringfacilities.

Figure159.PrimaryUseoftheFactoringFacilitiesOvertheLast12Months

Respondentsreportedapproximately21%oftheircompany’sgrossinvoicesoverthelasttwelvemonthswereoriginatedfromwholesale&distribution.

Figure160.IndustriesforGrossInvoicesfortheLast12Months

55%22%

16%4%3%

Financeworkingcapitalfluctuations

Expansion

Financeworseningoperationsconditions

ProjectFinancing

Other

21%

20%

17%9%

6%3%2%

1%1% 20%

Wholesale&distributionManufacturingBusinessservicesConstruction&engineeringInformationtechnologyHealthcare&biotechRetail&consumerservicesBasicmaterials&energyMedia&entertainmentOther



FACTORcont.Factoringfacilitiesarerelativelyshort-termcomparedtootherinvestmentswithrespondentsreportingapproximately60%offactoringfacilitieshavelessthanorequalto12monthsterm.

Figure161.TermofCurrentTypicalFactoringFacility

Respondentsreportedaverageadvancerateschargedforvarious-sizedfacilitiesrangefrom22%to80%onamonthlybasis.

Figure162.CurrentAverageAdvanceRatesforVarious-SizedFacilities

Nearly100%ofrespondentschargewiretransfer/ACHfee,while36%ofrespondentschargeduediligencefee.

Table54.FeesCharged

13%

47%20%

7% 13%1- 6months

7- 12months

13- 18months

19- 24months

Morethan24months

80%

63% 63%50%

33%22%

0%

20%

40%

60%

80%

100%

$100,000 $500,000 $1,000,000 $5,000,000 $10,000,000 Greaterthan$10,000,000

100%

36%

15% 14% 14% 14% 7% 7%

0%

20%

40%

60%

80%

100%

Wiretransfer/ACHfees

Duediligencefees

Samedayfundingfee

Applicationfees

Filingfees UCCSearch Invoiceprocessing

Accountsetup



FACTORcont.Table55.MedianPercentageorAmountCharged

Percentage orAmount

Applicationfees n/a $225Duediligencefees 0.1% $3,250Invoiceprocessing n/a $25Wiretransfer/ACHfees n/a $150Filingfees n/a $50UCCSearch n/a $150Linefee 1% $100Samedayfundingfee n/a $225

Approximately36%ofrespondentsareusingprimeratetopriceitems.

Figure163.UsageofReferenceRates

Table56.Spread(%)

1stquartile Median 3rdquartileTiedtoprime 2 2.5 3.5Tiedtothree-monthLIBOR 4 4 4Tiedtosix-monthLIBOR 3 3 3

Figure164.PercentageofFactoringBusiness-RecoursevsNon-recourse

36%

10% 10% 14%

0%

20%

40%

60%

80%

100%

TiedtoPrime Tiedto1MonthLIBOR Tiedto3MonthLIBOR Other

62%31%

7%Recourse

Non-recourse

Other



FACTORcont.Respondentsreported95%oftheircurrentpurchaseswereonanotificationbasis.

Figure165.PercentageofPurchasesonaNon-notificationBasis

Nearly100%ofrespondentsrequirepersonalguaranteeand93%requireabackgroundcheck.

Table57.TypicalCurrentRequirements

Requirement %LienonA/Rassets 80%Backgroundcheck 93%Personalguarantee 100%Financialstatements 87%Lienonallassets 67%Performanceguarantee 64%Audit 23%

Table58.Discountfee(%)onOutstandingInvoicesforNotificationBasis

$0-$25K

$25K-

$50K$50K-$100K

$100K-$250K

$250K-$1M

$1M-$5M

$5M-$10M

$10M-$25M

$25M-$50M

$50M-$100M $100M+

First30days

1stquartile 2.5% 2.2% 2.0% 1.9% 1.2% 1.0% 0.7% 0.9% 0.8% 0.8% 0.6%

Median 3.0% 3.0% 2.5% 2.4% 1.6% 1.0% 0.9% 1.0% 1.0% 1.0% 1.0%

3rdquartile 3.6% 3.0% 2.8% 2.6% 2.1% 1.8% 1.5% 1.1% 1.3% 1.3% 1.3%

Next15days(31-45)

1stquartile 1.0% 1.5% 1.3% 1.0% 1.0% 0.8% 0.4% 1.0% 1.0% 1.0% 1.0%

Median 1.5% 1.5% 1.3% 1.3% 1.0% 1.0% 0.6% 1.0% 1.0% 1.0% 1.0%

3rdquartile 1.8% 1.7% 1.5% 1.5% 1.3% 1.0% 0.8% 1.0% 1.0% 1.0% 1.0%

Next15days(46-60)

1stquartile 1.3% 1.5% 1.3% 1.0% 0.5% 0.5% 0.5% 0.5% 0.5% 0.5% 0.5%

Median 1.6% 1.5% 1.3% 1.3% 1.0% 0.6% 0.5% 0.5% 0.5% 0.5% 0.5%

3rdquartile 1.8% 1.7% 1.5% 1.5% 1.3% 0.9% 0.5% 0.5% 0.5% 0.5% 0.5%

5%

95%

Non-notifcation Notification



FACTORcont.

Table59.ExpectedTotalWrite-off–PercentageofReceivablesPurchasedonNewArrangements(%)


Expectedtotalwrite-off 0.5% 0.5% 0.75%

Table60.AverageNumberofDaysOutstandingReceivables

1stquartile Median 3rdquartileDuringLast12Months 35 40 45ExpectedforNext12Months 35 40 45

Accordingtothe43%ofrespondents,themostsignificantconcerntofactoringbusinessislackofqualitybusinessesorpoorfinancialhealth.

Figure166.MostSignificantConcerntoFactoringBusiness

Respondentsbelievegovernmentregulationsandtaxesarethemostimportantcurrentissuefacingprivately-heldbusinesses.

Figure167.CurrentIssuesFacingPrivately-HeldBusinesses

43%

17%6%

6%

28%

Lackofqualitybusinesses/poorfinancialhealth

Businesseslackofunderstandingoffactoringasafinancingsource

Lackofcapitaltodeploy

Returnoftraditionalbusinesslending

Other

47%

40%

20%

13%

7%

0%

0%

20%

33%

7%

0%

7%

27%

7%



Accesstocapital




Inflation

0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50%




FACTORcont.Respondentsindicateddecreasesindemandforbusinessfactoringlines,creditqualityofborrowers,interestratespreads,feesandimprovedgeneralbusinessconditions.



Decreasedslightly

Stayedaboutthesame

Increasedslightly


%increase

%decrease


Demandforbusinessfactoringlines(applications) 27% 27% 7% 40% 0% 40% 53% -13%

Creditqualityofborrowersapplyingforcredit 7% 27% 60% 7% 0% 7% 33% -27%

TimetoprocessFacility 0% 27% 53% 20% 0% 20% 27% -7%

Averagefacilitysize 7% 7% 60% 20% 7% 27% 13% 13%

Averagefacilityterm(months) 0% 0% 93% 7% 0% 7% 0% 7%


Fees 0% 40% 53% 7% 0% 7% 40% -33%

Standardadvanceratesonreceivables 7% 0% 67% 27% 0% 27% 7% 20%


Respondentsexpectfurtherdecreasesininterestratespreads,feesandimprovinggeneralbusinessconditions.



Decreaseslightly

Stayaboutthesame

Increaseslightly


%increase

%decrease


Demandforbusinessfactoringlines(applications) 7% 27% 27% 27% 13% 40% 33% 7%

Creditqualityofborrowersapplyingforcredit 0% 27% 60% 13% 0% 13% 27% -13%

TimetoprocessFacility 0% 13% 60% 20% 7% 27% 13% 13%

Averagefacilitysize 0% 7% 57% 14% 21% 36% 7% 29%

Averagefacilityterm(months) 0% 14% 86% 0% 0% 0% 14% -14%


Fees 0% 29% 64% 7% 0% 7% 29% -21%

Standardadvanceratesonreceivables 0% 0% 87% 13% 0% 13% 0% 13%




BUSINESSOWNERSURVEYINFORMATION

Ofthe1,034privately-heldbusinessesthatrespondedtothesurvey,10%hadbusinessesthatinvolvedmanufacturing,another10%wereinconstruction&engineering,another10%wereinprofessional,scientificortechnicalservices,followedbybusinessservices(9%).Approximately58%ofbusinesseshaveannualrevenueslessthan$1million.Nearly88%ofbusinessownersreporthavingtheenthusiasmtoexecutegrowthstrategies,yetjust51%reporthavingthenecessaryfinancialresourcestosuccessfullyexecutegrowthstrategies.Oftherespondentswhowereseekingfinancinginthelast12months,approximately51%anticipatedtoraiselessthan$100,000incapital.Approximately45%ofrespondentsreportedthattheywereseekingbankbusinessloansorbusinesscreditcardfinancingasasourceoffunding,followedbyfriendsandfamily(23%).Ofallfinancingoptions,bankloansemergedasthefinancingsourcewiththehighest“willingness”forsmallbusinesstouse,followedbybusinesscreditcards.Resultsalsoshowedthat71%ofprivately-heldbusinessesthatsoughtbankloansoverthepast12monthsweresuccessful.Surveyresultsindicatedthatbusinessownerswhoraisedcapitalonaveragecontacted2.3banks.Nearlythreequartersofbusinesses(73%)areplanningtohireadditionalworkers.Approximately45%ofrespondentsbelievegovernmentregulationsandtaxesarethenumberoneissuesmallbusinessesfacetoday,another31%believeaccesstocapitalisthemostimportantcurrentissue,followedbydomesticeconomicuncertainty(23%)andhealthcarecosts(23%).Accordingtosmallbusinesses,ofthosepoliciesmostlikelytoleadtojobcreationin2016,regulatoryreformemergedasnumberone(27%)followedbyincreasedaccesstocapital(24%),andtaxincentives(22%).Thestudyshowedthatofthosethatdoplantohire,salesandmarketingskills(34%)andskilledlabor(34%)areingreatestdemandfollowedbyservice/customerservice(27%).Also,85%ofcompaniesplanningtohireindicatethey’dneedtotrainthosetheyhire.36%ofrespondentsbelievethatgeneralbusinessconditionsimprovedinthetwelvemonthscomparedto49%surveyedyearago.OperationalandAssessmentCharacteristics

Theprivately-heldbusinesssurveyresultsweregeneratedfrom1,034participants.ThelocationsofbusinessesaredistributedoverallregionsoftheUnitedStates.

Figure168.RespondentsDistributionbyState

0 - 23 - 56 - 1011 - 1516 - 2526 - 5051 - 100more than 100

CA

OR

WA

MT ND MN

IDWY

SD

NVUT

AZ

CO

NM

TX

NE

KS

OK AR

LAMS AL

FL

GA

TNSC

NC

VAWVKYMO

ILIA

WIMI

INOH

MD

PANJ

NY

ME

NHVTMARI

CT

HIAK



BUSINESSOWNERcont.Businessesinvolvedinmanufacturingaccountedfor12%ofrespondentsfollowedbyprofessional,scientificortechnicalservices(11%)andbusinessservices(9%).

Figure169.DescriptionofEntity

Approximately55%ofbusinesseshavelessthanorequaltofiveemployees.

Figure170.NumberofEmployees

10%10%

10%

9%7%7%6%

5%5%

4%3%

3%3% 3%

2% 2%

2%

1%

1%

7%

ManufacturingConstruction&engineeringProfessional,scientificortechnicalservicesBusinessservicesHealthcare&biotechRetailtradeInformationtechnologyorservicesWholesale&distributionRealestateorrentalandleasingConsumergoods&servicesTransportationandwarehousingFinanceorinsuranceArts,entertainmentorrecreationForestry,fishing,huntingoragricultureEducationalservicesBasicmaterials&energyRestaurantsUnclassifiedestablishmentsHotel/motelorrelatedservicesOtherservices

6%

27%

22%12%

12%

10%4% 5%

1%

0 1-2

3-5 6-10

11-20 21 - 50

51 - 100 101- 500

Morethan500



BUSINESSOWNERcont.Approximately70%oftherespondentsareactivecontrolownersoftheirbusinesses.

Figure171.OwnershipRole

Approximately58%ofrespondentshavelessthanorequalto$1Minannualrevenues,followedby22%reportingbetween$1Mand$5M.

Figure172.AnnualRevenues

70%2%

8%

1% 9%

1%7%

2%

Controlowner(>50%)whoactivelyoperatesthebusinessControlowner(>50%)whopassivelymanagesthebusinessShared-controlowner(exactly50%)whoactivelyoperatesthebusinessShared-controlowner(exactly50%)whopassivelymanagesthebusiness)Non-controlowner(<50%)whoactivelyoperatesthebusinessNon-controlowner(<50%)whopassivelymanagesthebusinessManagerorexecutivewithnoownershipinterestinthebusinessOther

4% 17%

26%

11%

22%

6% 6%

2% 2%

2%

1% 1%

$0$1- $99K$100K- $499K$500K- $999K$1M- $4.99M$5M- $9.99M$10M- $24.99M$25M- $49.99M$50M- $99.99M$100M- $499.99M$500M+Unknown



BUSINESSOWNERcont.Averagechangeinannualrevenuesinthelast12monthswas1.8%.

Figure173.AnnualRevenuesChangeintheLast12Months

Onaveragerespondentsexpecttheirannualrevenuestogrowby9.4%inthenext12months.

Figure174.AnnualRevenuesChangeExpectationsintheNext12Months

4% 2% 2% 3% 4% 3% 4%2% 4%

25%

10%6%

10%5% 5% 4%

1% 1%5%

1.8%

-4%1%6%

11%16%21%26%31%

Decline Increase

1% 1% 1% 1% 1% 2% 2%

20%

15%

11%13%

10%

5% 6%

2% 3%

7%9.4%

-4%

1%

6%

11%

16%

21%

Decline Increase



BUSINESSOWNERcont.

Approximately78%ofbusinesseshavenetincomelessthanorequalto$500,000,9%ofthosehavenegativenetincome.

Figure175.NetIncome

Approximately39%ofrespondentsarecurrentlynotfinancedbyanyexternalcapitalsources.Nearly27%and24%ofrespondents’businessesarefinancedbybankbusinessloansandbusinesscreditcardfinancing,respectively.

Figure176.CurrentSourcesofFinancing

9%

39%30%

9% 9%

2% 1%1%

Negative

$0- $99K

$100K- $499K

$500K- $999K

$1M- $4.99M

$5M- $9.99M

$10M- $24.99M

$50M- $99.99M

Unknown

21%

3%9%

1%

16%16%

24%

9%

27%

2% 4% 2% 2% 2% 3% 2% 4% 2% 4%

39%

0%5%

10%15%20%25%30%35%40%45%



BUSINESSOWNERcont.Amongthebusinessesthattriedtoraisecapitalinthelast12months45%appliedforbankbusinessloanand71%weresuccessful,whereas40%ofrespondentsdidn’ttrytoraisecapitalfromanysource.

Figure177.CapitalSourcesContactedToRaiseCapitalintheLast12Months

Figure178.SuccessRates

23%

9% 9%3%

14%17%

21%

10%

45%

6% 9% 6%3% 5%

9% 9% 11%5% 2%

6%

0%5%

10%15%20%25%30%35%40%45%50%

81%

40%

83%

27%

86%

66%

83%80%71%

37%

61%

43%33%

78%81%

37%27%

34%46%

30%

48%

0%10%20%30%40%50%60%70%80%90%

100%



BUSINESSOWNERcont.Onaveragerespondentswhosuccessfullyraisedcapitalcontacted3differentcapitalproviders.

Figure179.AverageNumberofCapitalProvidersContacted

Approximately77%ofrespondentsattemptedtoraiselessthan$1millioninthelast12months.

Figure180.AmountofCapitalAttemptedtoRaiseinthelast12Months

3.2 3.23.9 3.6

2.82.1 1.7 2.0 2.3 2.7

3.5 3.2

6.0

2.5 2.8

5.0 5.4 5.2

3.8 3.74.2

01234567

51%

21%

6%

5% 6%

4%3% 2% 2%

lessthan$100K

$100K- $499K

$500K- $999K

$1M- $1.99M

$2M- $4.99M

$5M- $9.99M

$10M- $24.99M

$25M- $49.99M

$100M+



BUSINESSOWNERcont.Approximately37%ofrespondentstooklessthan7daystocompletefinancingprocess.

Figure181.AverageTimetoCompleteFinancingProcessinDays

32%ofrespondentsspentlessthanonedayduringtheprocesstosuccessfullyobtainfinancing(timespentbyallemployeesandhiredoutsidersmakinginquiries,submittingproposals,meetingwithcapitalproviders,furnishingdocuments).

Figure182.DaysSpentDuringtheProcesstoSuccessfullyObtainFinancing

37%

18%

12% 12%6%

3% 2% 1% 2% 1% 2% 2%

0%5%

10%15%20%25%30%35%40%

Lessthan7days

7days-15days

15days- 1

month

1- 2months

2- 3months

3- 4months

4- 5months

5- 6months

6- 8months

8- 10months

10- 12months

Morethan12months

32%

13%10%

8%

3%7%

1%3%

1% 2% 3% 3% 3%

10%

0%

5%

10%

15%

20%

25%

30%

35%

Lessthan1day

1day 2days 3days 4days 5days 6days 7days 8days 10days

11- 15days

16- 20days

21- 30days

Morethan30days



BUSINESSOWNERcont.Amongthoserespondentswhowerenotabletoobtainexternalfinancinginthelast12months44%areplanningtoimprovethefinancialhealthoftheirbusinessesbeforeattemptingtoraisecapitalinthefuture.

Figure183.NextStepstoSatisfyFinancialNeeds

Amongthoserespondentswhodidn’tattempttoobtainanyexternalfinancinginthelast12months,26%saidtheirbusinesseswouldberejectedforfunding,followedby18%ofrespondentswhohavesufficientfinancingalreadyinplace,and13%ofrespondentswhosaidtherewereunfavorableeconomicconditionsorlowdemandforproducts/services.

Figure184.ReasonsforNotTryingtoObtainCapitalintheLast12Months

44%

16%

13%

11%

5%

2%

1%

8%

0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50%

Improvefinancial'health'ofthecompany

Lookforalternativesourcesoffinancing

Continuelookingfortraditionalcapitalproviders

Lookforapartner/equityinvestor

Sellawholebusiness

Sellpartofabusiness

Ceaseoperations/liquidate

Other

26%

18%

13%

12%

7%

7%

5%

2%

11%

0% 5% 10% 15% 20% 25% 30%

Mybusinesswouldberejectedforfunding

Sufficientfinancingalreadyinplace

Unfavorableeconomicconditionsorlowdemandforproducts/services

Mybusinessisgeneratingenoughcashflowtofundoperations(includinggrowthorexpansion)

Idonothavetheknowledge/expertisetopursueexternalfinancing

Costoffinancing/waitingforcheaperfinancing

Lossofcontrol/flexibility

Idonothavethetimetopursueexternalfinancing

Other



BUSINESSOWNERcont.Accordingtotherespondents,“bankloans”asacategoryisthemostappealingoptiontoobtainfinancing.

Figure185.WillingnesstoObtainFinancing

Approximately48%ofrespondentsindicatedincreasingrevenuesfromcurrentproductsorservicesastheareatheirbusinessesaremostfocusedontoday.

Figure186.TheMostImportantAreatoFocusOn

2.4

3.4 3.2

2.3 2.52.9

3.5 3.4

4.0

3.43.1

2.5

1.72.0 1.9

2.8 2.8 2.92.5

2.2

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

Friend

sand

family

Grants(SBIR,STTR,etc.)

Tradecred

it

Crow

dfund

ing

Cred

itcard-pe

rs.

Loan-pe

rs.

Cred

itcard-bu

siness

Lease

Bankloan

CDFI/Creditu

nion

Assetb

ased

lend

er

Busin

esso

nlinemarketplacelend

er

Loan-taxp

reparatio

ncompany

Factor

Merchantcashadvance

Angelcapita

l

Venturecapital

Privateeq

uitygroup

Mezzanine

Hedgefund

investmen

t

Notwilling

Somewhat unwilling

Neutral

Somewhat willing

Willing touse

48%

17%11% 9% 9% 6%

0%

10%

20%

30%

40%

50%

60%

Increasingrevenuesfrom

currentproducts/services

Expandingproduct/service

lines

Findingtalentedpeople

Raisingfinancing/securing

capital

Reducingexpenses

Other



BUSINESSOWNERcont.

Approximately27%ofrespondentsarenotplanningtohireadditionalemployeesinthenext12months,while32%ofrespondentsareplanningtohireoneortwoadditionalemployeesinthenexttwelvemonths.

Figure187.AmountofEmployeesPlannedtobeHired

Approximately18%ofrespondentsbelieveeconomicuncertaintyintheU.S.marketisthenumberonereasonpreventingthemfromhiring,followedbyconsumer/businessdemand(16%).

Figure188.ReasonsPreventingPrivately-HeldBusinessesfromHiring

Accordingtorespondents,ofthosepoliciesmostlikelytoleadtojobcreationin2016,regulatoryreformemergedasnumberone(27%)followedbyincreasedaccesstocapital(24%).

Figure189.GovernmentPoliciestoLeadtoJobCreation

27%

37%

17%

8%4% 3% 1% 1%

0%

10%

20%

30%

40%

0 1- 2 3 - 5 6 - 10 11- 20 21-50 51-100 Morethan100

18%16%

14%9%8%

1%1%

1%32%

0% 5% 10% 15% 20% 25% 30% 35%

Economicuncertainty/confidence(domestic)


Abilitytofindqualifiedemployees

Inflation

Other

27%

24%22%

10%6%

4% 8%

Regulatoryreform

Increasedaccesstocapital

Taxincentives

RepealormodifyAffordableCareAct

Educationreform

IncreasedcompetitivenesswithforeigntradepartnersOther



BUSINESSOWNERcont.Forthosebusinesseswhichdoplantohire,salesandmarketingskills(34%)andskilledlabor(34%)areingreatestdemandfollowedbyservice/customerservice(27%).

Figure190.TheSkillsinDemandforNewHires

85%ofbusinessesplanningtohireindicateneedtotrainthosetheyhire.

Figure191.NeedforTrainingofNewHires

34%

34%

27%

21%

18%

15%

13%

11%

5%

5%

8%

0% 5% 10% 15% 20% 25% 30% 35% 40%

Sales&marketing

Skilledlabor

Service/customerservice


Management

Finance/financialmanagement

Entrepreneurship

Unskilledlabor

Humanresources

Globalbusiness

Other

85%

15% Yes

No



BUSINESSOWNERcont.Approximately19%ofrespondentsindicatedtheirbusinesscostofequitycapitalisintherangeof9%-10%.

Figure192.CostofEquityCapital

Privately-heldbusinesseswithrevenueslessthan$5milliononaveragehavealmostthesamedesiretoexecutegrowthstrategies(86%)asprivately-heldbusinesseswithrevenuesgreaterthan$5million(94%).However,privately-heldbusinesseswithsmallerrevenuesreportlowerlevelsofnecessaryresources(people,money,etc.)togrow(46%)ascomparedtoprivately-heldbusinesseswithhigherrevenues(68%).

Figure193.UsageofFinancialAnalysisbyRevenueSizes

6% 6%

10%9%

19%

9%

3%

7%

2%

10%

2% 1%

5%

0%

2%

0% 1% 1% 0% 1% 0%1% 1% 0% 0% 0% 1% 1%

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

61%

45%

66%

73%

11%

58%

64%

46%

86%

78%

72%

73%

83%

26%

85%

77%

68%

94%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90%100%

Prepareanannualbudget

Havefinancialstatementsauditedorreviewed(notjustcompiled)byaCPAannually?

Haveamissionandvisionstatementmadeknown

Engageinplanningbeyondthecurrentyear

Haveanoutsideboardofdirectors

Havekeyperformance indicatorsreviewed

Haveasolidgrowthstrategy

Havenecessaryresources(people,money,etc.)togrow

Havethedesire,drive,andenthusiasmtogrowandexecutegrowthstrategies?

Revenueslessthan$5million Revenuesmorethan$5million



BUSINESSOWNERcont.Respondentsreportedontheirlevelofknowledgefinancingcomponents(scale0-4:none,some,moderate,very,completely).

Figure194.LevelofKnowledgeofFinancingComponents

Mostoftherespondentsareplanningtotransfertheirownershipinterestinmorethanfiveyearsfromnowwhileonly43%plantotransfertheirownershipatthefirstavailableopportunity.

Figure195.AnticipationoftheOwnershipTransfer

0.0

1.0

2.0

3.0

4.0

Typesoffinancing

Specificfirmstocontacttoseekvarioustypesoffinancing

Advantages/disadvantagesofvarioustypesoffinancing

"Costsofcapital"

Processtoobtain

financing

Specificbenchmarkstoqualify

forfinancing

Financingacceptance

rates

Wholesample 2.2 1.9 2.0 2.1 2.0 2.1 1.8

<$5million 2.1 1.8 1.9 2.0 1.9 2.0 1.7

$5- $100million 2.6 2.3 2.5 2.6 2.5 2.4 2.2

4% 3%6% 8%

3%

14%

28%

13%

5%

14%

0%5%

10%15%20%25%30%

Inlessthanoneyear

1year 2years 3years 4years 5years Between5and10years

Between10and15years

Between15and20years

After20years



BUSINESSOWNERcont.Assumingrespondentsbusinesseswereeligibletoraisefinancingfrombothprivateequityandapublicstockoffering(IPO),58%ofthemwouldchooseprivateequity.

Figure196.PrivateEquityvsInitialPublicOffering

Whenaskedaboutgeneralview,56%ofrespondentsindicatedprivateequityasfavorablefinancingsource.

Figure197.GeneralViewsonInitialPublicOfferingandPrivateEquity

0%

20%

40%

60%

80%

100%

Privateequity Initialpublicoffering(IPO)

Unsure

Wholesample 58% 13% 29%

<$5million 57% 13% 30%

$5- $100million 63% 13% 24%

Favorable Neitherfavorablenorunfavorable Unfavorable

IPO 32% 35% 33%PE 56% 26% 18%

32% 35% 33%

56%

26%18%

0%

20%

40%

60%

80%

100%



BUSINESSOWNERcont.Privately-heldbusinesseswithannualrevenueslessthan$5millionaremoreconcernedaboutaccesstocapitalthanthosewithrevenuesgreaterthan$5million.Largerprivately-heldbusinessesaremoreconcernedaboutgovernmentregulationsandtaxes.

Figure198.TheNumberOneIssueFacingPrivately-HeldBusinessesTodaybyRevenueSizes

Figure199.TheNumberOneEmergingIssueFacingPrivately-HeldBusinessesbyRevenueSizes

44%

33%

25%

25%

18%

10%

9%

8%

5%

49%

19%

19%

18%

16%

4%

3%

4%

2%

0% 10% 20% 30% 40% 50% 60%


Accesstocapital


Healthcarecosts


Inflation



Other


25%

25%

23%

20%

20%

16%

15%

12%

5%

21%

19%

19%

15%

15%

15%

9%

10%

4%

0% 5% 10% 15% 20% 25% 30%

Healthcarecosts



Inflation



Accesstocapital


Other




BUSINESSOWNERcont.Mostofrespondentsindicatedincreasedunitsalesandpricesoflaborandmaterials,flataccesstocapital,andslightlyimprovedgeneralbusinessconditions.

Table63.GeneralBusinessandIndustryAssessment:TodayVersusTwelveMonthsAgo


Decreasedslightly

Stayedabout

thesame

Increasedslightly

Increasedsignificantly %increase %

decrease


Unitsales 9% 15% 25% 31% 20% 51% 24% 27%

Pricesoflaborandmaterials 1% 4% 37% 46% 13% 58% 5% 54%

Netincome 9% 17% 25% 33% 16% 50% 26% 24%

Inventorylevels 2% 14% 59% 19% 6% 25% 16% 8%

Capitalexpenditures 4% 10% 46% 28% 12% 40% 14% 26%

Opportunitiesforgrowth 4% 10% 28% 36% 23% 58% 14% 45%

Accesstobankloans 8% 10% 54% 20% 7% 28% 18% 10%

Accesstoequitycapital 7% 10% 61% 16% 5% 22% 17% 5%

Pricesofyourproductsorservices 1% 7% 43% 43% 5% 49% 8% 41%

Timetocollectreceivables 2% 9% 64% 19% 7% 26% 10% 15%

Numberofemployees 2% 7% 62% 25% 3% 28% 9% 19%

Competition 1% 9% 53% 28% 9% 36% 10% 26%



Probabilityofbusinessclosure 19% 21% 45% 11% 5% 16% 39% -23%

Timeworryingabouteconomy 8% 16% 41% 20% 15% 35% 24% 12%



BUSINESSOWNERcont.Participantsofthesurveybelievealmostallgeneralbusinesscharacteristicswillincreaseinthenext12months.

Table64.GeneralBusinessandIndustryAssessmentExpectationsOvertheNext12Months


Decreasedslightly

Stayedabout

thesame

Increasedslightly

Increasedsignificantly %increase %decrease


Unitsales 1% 5% 19% 49% 25% 75% 7% 68%

Pricesoflaborandmaterials 1% 3% 34% 55% 7% 62% 4% 57%

Netincome 1% 7% 19% 49% 24% 73% 8% 64%

Inventorylevels 2% 7% 56% 29% 6% 36% 8% 27%

Capitalexpenditures 3% 8% 46% 32% 10% 43% 11% 31%

Opportunitiesforgrowth 1% 5% 25% 41% 29% 69% 6% 63%

Accesstobankloans 4% 5% 54% 28% 8% 36% 10% 26%

Accesstoequitycapital 5% 5% 57% 25% 9% 34% 9% 25%

Pricesofyourproductsorservices 1% 3% 40% 51% 5% 56% 4% 51%

Timetocollectreceivables 2% 8% 69% 18% 3% 21% 10% 11%

Numberofemployees 1% 2% 45% 46% 6% 52% 3% 49%

Competition 2% 6% 56% 30% 6% 36% 8% 28%



Probabilityofbusinessclosure 23% 22% 44% 7% 4% 12% 45% -33%

Timeworryingabouteconomy 11% 20% 45% 14% 11% 24% 31% -7%



ABOUTTHEAUTHOR CraigR.Everett,PhDDirector,PepperdinePrivateCapitalMarketsProjectCraigR.EverettisanassistantprofessoroffinanceatPepperdineGraziadioSchoolofBusinessandManagementandDirectorofthePepperdinePrivateCapitalMarketsProject.Histeachingandresearchinterestsincludeentrepreneurialfinance,privatecapitalmarkets,businessvaluationandbehavioralcorporatefinance.HeholdsaPhDinfinancefromPurdueUniversity,anMBAfromGeorgeMasonUniversity,andaBAinquantitativeeconomicsfromTuftsUniversity.Dr.Everettistheauthorofthebest-sellingchildren'sfantasynovel,TobyGoldandtheSecretFortune,whichincorporatessuchfinancialliteracytopicsassaving,investing,banking,entrepreneurship,interestrates,returnoninvestment,andnetworth.HisresearchhasappearedintheWallStreetJournal,CNBC,USAToday,andtheNewYorkTimes,beenpublishedinanumberofjournalsandbeenpresentedatdomesticandinternationalconferences.CraigEverettismemberoftheBetaGammaSigmaHonorSociety,FinancialExecutivesInternational,andtheLosAngelesWorldAffairsCouncil.Dr.Everettisacertifiedmergers&acquisitionsadvisor(CM&AA),andaregisteredinvestmentadvisor(RIA)withthestateofCalifornia.Contact:[email protected]

ABOUTPEPPERDINEGRAZIADIOSCHOOLOFBUSINESSANDMANAGEMENT

Aleaderincultivatingentrepreneurshipanddigitalinnovation,thePepperdineGraziadioSchoolofBusinessandManagementfocusesonthereal-worldapplicationofMBA-levelbusinessconcepts.TheGraziadioSchoolprovidesstudent-focused,globally-orientededucationthroughpart-time,full-time,andexecutiveMBAprogramsatourfiveSouthernCalifornialocations,SiliconValleyandSantaBarbaracampuses,aswellasthroughonlineandhybridformats.Inaddition,theGraziadioSchooloffersavarietyofmasterofscienceprograms,abachelorofscienceinmanagementdegree-completionprogram,andthePresidentsandKeyExecutivesMBA,aswellasexecutiveeducationcertificateprograms.FollowtheGraziadioSchoolonFacebook,onTwitterat@GraziadioSchool,InstagramandLinkedIn.



INDEXOFTABLES Table1.PrivateCapitalMarketRequiredRatesofReturn.......................................................................................................3

Table2.MedianDealMultiplesbyEBITDASizeofCompany...................................................................................................7

Table3.MedianTotalLeverageMultiplesbySizeofCompany................................................................................................8

Table4.MedianSeniorLeverageMultiplesbySizeofCompany..............................................................................................8

Table5.BalanceofAvailableCapitalwithQualityCompanies...............................................................................................10

Table6.HowDifficulttoArrangeSeniorDebtforTransactionsoverthePast12Months.......................................................10

Table7.GeneralBusinessandIndustryAssessment:Todayversus12MonthsAgo...............................................................10

Table8.GeneralBusinessandIndustryAssessmentExpectationsovertheNext12Months..................................................11

Table9.PEGFundData.........................................................................................................................................................12

Table10.GeneralCharacteristics–BuyoutTransactions(medians).......................................................................................15

Table11.GeneralCharacteristics–Non-BuyoutTransactions(medians)...............................................................................15

Table12.TheBalanceofAvailableCapitalwithQualityCompaniesfortheFollowingEBITDASize........................................18

Table13.GeneralBusinessandIndustryAssessment:Todayversus12MonthsAgo..............................................................18

Table14.GeneralBusinessandIndustryAssessmentExpectationsovertheNext12Months................................................19

Table15.All-inRatesbyLoanSizeandIndustry.....................................................................................................................21

Table16.All-inRatesbyLoanType........................................................................................................................................21

Table17.SeniorLeverageMultiplebyEBITDASize................................................................................................................22

Table18.FeesCharged..........................................................................................................................................................22

Table19.ImportanceofFinancialEvaluationMetrics............................................................................................................23

Table20.FinancialEvaluationMetricsAverageData.............................................................................................................23

Table21.PersonalGuaranteeandCollateralPercentageofOccurrencebySizeofLoan(%)..................................................23

Table22.ApplicationsData...................................................................................................................................................23



Table25.All-inRatesonCurrentAsset-BasedLoans(medians).............................................................................................27

Table26.StandardAdvanceRate(orLTVratio)forAssets(%)...............................................................................................28

Table27.MezzanineFundData.............................................................................................................................................30

Table28.SponsoredDealsbyEBITDASize(medians)............................................................................................................32



Table29.InvestmentTypebySizeofInvesteeCompany,SponsoredDeals............................................................................32

Table30.Non-SponsoredDealsbyEBITDASize(medians).....................................................................................................33

Table31.InvestmentTypebySizeofInvesteeCompany,SponsoredDeals............................................................................33

Table32.ImportanceofFinancialEvaluationMetrics............................................................................................................34

Table33.FinancialEvaluationMetricsAverageData.............................................................................................................35



Table36.ImportanceofFactorsWhenEvaluating.................................................................................................................41



Table39.VCFundData..........................................................................................................................................................44

Table40.GeneralInformationonInvestmentsbyCompanyStages.......................................................................................45



Table43.GeneralInformationonInvestmentsbyCompanyStages.......................................................................................51





Table48.HowDifficulttoArrangeSeniorDebtforTransactionsoverthePast12Months.....................................................61

Table49.NumberofNewClientsintheLast3Months..........................................................................................................63

Table49.ExpectationsofBusinessListings/EngagementsfromNewClientsintheNext3Months.......................................86

Table50.ExpectationsforBusinessValuationMultiplesintheNext3Months......................................................................86


Table52.GeneralBusinessandIndustryAssessment:ExpectationsovertheNext12Months...............................................87

Table53.FeesCharged..........................................................................................................................................................89

Table54.MedianPercentageorAmountCharged.................................................................................................................90

Table55.Spread(%)..............................................................................................................................................................90

Table56.TypicalCurrentRequirements................................................................................................................................91

Table57.Discountfee(%)onOutstandingInvoicesforNotificationBasis.............................................................................91



Table58.ExpectedTotalWrite-off–PercentageofReceivablesPurchasedonNewArrangements(%).................................92

Table59.AverageNumberofDaysOutstandingReceivables.................................................................................................92



Table62.GeneralBusinessandIndustryAssessment:TodayVersusTwelveMonthsAgo....................................................110

Table63.GeneralBusinessandIndustryAssessmentExpectationsOvertheNext12Months.............................................111



INDEXOFFIGURES Figure1.PrivateCapitalMarketRequiredRatesofReturn......................................................................................................2

Figure2.PrivateBusinessSalesTransactionsClosedintheLast12Months.............................................................................4

Figure3.BusinessTypesThatWereInvolvedintheTransactionsClosedintheLast12Months...............................................5

Figure4.AverageNumberofMonthstoCloseOneDeal..........................................................................................................5

Figure5.PrivateBusinessTransactionsExpectedtoCloseintheNext12Months...................................................................5

Figure6.PercentageofBusinessSalesEngagementsTerminatedWithoutTransacting............................................................6

Figure7.ReasonsforBusinessSalesEngagementsNotTransacting.........................................................................................6

Figure8.ValuationGapinPricingforTransactionsThatDidn’tClose.......................................................................................6

Figure9.UsageofValuationMethods.....................................................................................................................................7

Figure10.UsageofMultipleMethods.....................................................................................................................................7

Figure11.ComponentsofClosedDeals...................................................................................................................................8

Figure12.PercentofTransactionsInvolvedStrategicandFinancialBuyers............................................................................9

Figure13.PremiumPaidbyStrategicBuyersRelativetoFinancialBuyers..............................................................................9

Figure14.PercentofTransactionsInvolvedStrategicandFinancialBuyers............................................................................9

Figure15.IssuesFacingPrivately-HeldBusinesses.................................................................................................................11

Figure16.TypicalInvestmentSize.........................................................................................................................................12

Figure17.TypeofBusinessforInvestmentsPlannedoverNext12Months...........................................................................13

Figure18.TotalNumberofInvestmentsMadeintheLast12Months...................................................................................13

Figure19.NumberofFollow-onInvestmentsMadeintheLast12Months............................................................................13

Figure20.NumberofTotalInvestmentsPlannedoverNext12Months.................................................................................14

Figure21.NumberofFollow-onInvestmentsPlannedoverNext12Months.........................................................................14

Figure22.SizeofBuyoutInvestmentsintheLast12Months.................................................................................................14

Figure23.SizeofNon-BuyoutInvestmentsintheLast12Months.........................................................................................15

Figure24.UsageofValuationApproaches.............................................................................................................................16

Figure25.UsageofMultipleMethods...................................................................................................................................16

Figure26.ItemsRequiredtoCloseOneDeal.........................................................................................................................17

Figure27.ExitPlansforPortfolioCompanies.........................................................................................................................17




Figure29.DescriptionofLendingEntity.................................................................................................................................20

Figure30.ParticipationinGovernmentLoanPrograms.........................................................................................................20

Figure31.TypicalInvestmentSize.........................................................................................................................................21

Figure32.BorrowerMotivationtoSecureFinancing(past12months)..................................................................................22

Figure33.TypicalEBITDASizesforCompaniesBooked..........................................................................................................27

Figure34.Asset-BasedLoansDeclineRate............................................................................................................................28

Figure35.SBIC(smallbusinessinvestment)Firms.................................................................................................................29






Figure41.SizeofSponsoredDealsintheLast12Months......................................................................................................32

Figure42.SizeofNon-SponsoredDealsintheLast12Months..............................................................................................33

Figure43.BorrowerMotivationtoSecureMezzanineFunding(past12months)...................................................................34


Figure45.EntityType............................................................................................................................................................37

Figure46.AssetsunderManagementorInvestableFunds....................................................................................................38

Figure47.CurrentAssetAllocationfor"AlternativeAssets"(%oftotalportfolio).................................................................38

Figure48.TargetAssetAllocationfor"AlternativeAssets"(%oftotalportfolio)...................................................................38

Figure49.TargetAssetAllocationbyAssets..........................................................................................................................39

Figure50.AnnualReturnExpectationsforNewInvestments.................................................................................................39

Figure51.AssetswiththeBestRisk/ReturnTrade-offCurrently............................................................................................40

Figure52.IndustrywiththeBestRisk/Return........................................................................................................................40

Figure53.GeographicRegionsoftheWorldOfferingtheBestRisk/ReturnTradeoffCurrently..............................................40









Figure60.GeographicLocationofPlannedInvestmentoverNext12Months........................................................................46

Figure61.UsageofValuationMethods.................................................................................................................................46



Figure64.CurrentIssuesFacingPrivately-HeldBusinesses....................................................................................................47






Figure70.GeographicLocationofPlannedInvestmentoverNext12Months........................................................................51

Figure71.GeographicalLimitforInvestment........................................................................................................................52




Figure75.AnnualRevenuesofCompaniesValued.................................................................................................................55

Figure76.UsageofValuationMethods.................................................................................................................................55


Figure78.AverageRisk-FreeRateandMarket(equity)RiskPremiumandLong-TermGrowthRate......................................56

Figure79.DiscountforLackofMarketability(DLOM)byRevenueSizes................................................................................56

Figure80.OverallComfortLevelwithApplyingPublicCostofCapitaltoPrivately-heldCompaniesofVariousSizes..............57

Figure81.ExplicitForecastPeriodforHigh-GrowthCompaniesbyRevenueSizes(years)......................................................57


Figure83.PrivateBusinessSalesTransactionsClosedintheLastTwelveMonths..................................................................59

Figure84.PrivateBusinessSalesTransactionsExpectedtoCloseintheNextTwelveMonths................................................59

Figure85.TypicalSizeofBusinessTransactions.....................................................................................................................60

Figure86.BusinessTransactionsintheLast12Months........................................................................................................60

Figure87.DidRespondentsCloseMoreTransactionsin2016thaninPreviousYears............................................................60

Figure88.ClosedBusinessTransactions................................................................................................................................61



Figure89.In2016,BestClientArrivedBy:.............................................................................................................................61

Figure90.TypesofReferrals.................................................................................................................................................62

Figure91.TypesofPublication/MediaSource......................................................................................................................62

Figure92.WasItBuyer'sorSeller’sMarketintheLast3Months..........................................................................................62

Figure93.MedianNumberofMonthsfromListing/EngagementtoClosebyDealSize........................................................63

Figure94.MedianNumberofMonthsfromLOI/OffertoClosebyDealSize........................................................................63

Figure95.MedianSDEMultiplePaidbyDealSize..................................................................................................................63

Figure96.MedianEBITDAMultiplePaidbyDealSize............................................................................................................64

Figure97.MultipleTypesbyDealSize...................................................................................................................................64

Figure98.BuyerTypebyDealSize.........................................................................................................................................65

Figure99.ReasonforSellertoGotoMarketbydealSize......................................................................................................65

Figure100.NumberOneMotivationforBuyerbyDealSize...................................................................................................66

Figure101.MedianPercentageofFinal/SellingPriceRealizedtoAsking/BenchmarkPricebyDealSize...............................66

Figure102.BuyerLocationbyDealSize.................................................................................................................................67

Figure103.FinancingStructurebyDealSize..........................................................................................................................67

Figure104.NumberofMonthsfromEngagement/ListingtoClose.......................................................................................68

Figure105.NumberofMonthsfromLOI/OffertoClose.......................................................................................................68

Figure106.IndustryType......................................................................................................................................................68

Figure107.SDEMultiplePaid................................................................................................................................................69

Figure108.EBITDAMultiplePaid..........................................................................................................................................69

Figure109.MultiplePaid.......................................................................................................................................................69

Figure110.BuyerType..........................................................................................................................................................70

Figure111.ReasonforSellertoGotoMarket.......................................................................................................................70

Figure112.BuyerLocation....................................................................................................................................................70

Figure113.NumberOneMotivationforBuyer......................................................................................................................71

Figure114.FinancingStructure.............................................................................................................................................71

















































Figure159.PrimaryUseoftheFactoringFacilitiesOvertheLast12Months..........................................................................88

Figure160.IndustriesforGrossInvoicesfortheLast12Months............................................................................................88

Figure161.TermofCurrentTypicalFactoringFacility............................................................................................................89

Figure162.CurrentAverageAdvanceRatesforVarious-SizedFacilities.................................................................................89

Figure163.UsageofReferenceRates....................................................................................................................................90

Figure164.PercentageofFactoringBusiness-RecoursevsNon-recourse.............................................................................90

Figure165.PercentageofPurchasesonaNon-notificationBasis...........................................................................................91

Figure166.MostSignificantConcerntoFactoringBusiness...................................................................................................92

Figure167.CurrentIssuesFacingPrivately-HeldBusinesses..................................................................................................92

Figure168.RespondentsDistributionbyState......................................................................................................................94

Figure169.DescriptionofEntity............................................................................................................................................95

Figure170.NumberofEmployees.........................................................................................................................................95

Figure171.OwnershipRole...................................................................................................................................................96

Figure172.AnnualRevenues.................................................................................................................................................96

Figure173.AnnualRevenuesChangeintheLast12Months..................................................................................................97

Figure174.AnnualRevenuesChangeExpectationsintheNext12Months............................................................................97

Figure175.NetIncome.........................................................................................................................................................98

Figure176.CurrentSourcesofFinancing...............................................................................................................................98

Figure177.CapitalSourcesContactedToRaiseCapitalintheLast12Months.......................................................................99

Figure178.SuccessRates......................................................................................................................................................99



Figure179.AverageNumberofCapitalProvidersContacted...............................................................................................100

Figure180.AmountofCapitalAttemptedtoRaiseinthelast12Months............................................................................100

Figure181.AverageTimetoCompleteFinancingProcessinDays........................................................................................101

Figure182.DaysSpentDuringtheProcesstoSuccessfullyObtainFinancing........................................................................101

Figure183.NextStepstoSatisfyFinancialNeeds................................................................................................................102

Figure184.ReasonsforNotTryingtoObtainCapitalintheLast12Months........................................................................102

Figure185.WillingnesstoObtainFinancing........................................................................................................................103

Figure186.TheMostImportantAreatoFocusOn...............................................................................................................103

Figure187.AmountofEmployeesPlannedtobeHired.......................................................................................................104

Figure188.ReasonsPreventingPrivately-HeldBusinessesfromHiring................................................................................104

Figure189.GovernmentPoliciestoLeadtoJobCreation.....................................................................................................104

Figure190.TheSkillsinDemandforNewHires...................................................................................................................105

Figure191.NeedforTrainingofNewHires.........................................................................................................................105

Figure192.CostofEquityCapital........................................................................................................................................106

Figure193.UsageofFinancialAnalysisbyRevenueSizes....................................................................................................106

Figure194.LevelofKnowledgeofFinancingComponents...................................................................................................107

Figure195.AnticipationoftheOwnershipTransfer.............................................................................................................107

Figure196.PrivateEquityvsInitialPublicOffering..............................................................................................................108

Figure197.GeneralViewsonInitialPublicOfferingandPrivateEquity...............................................................................108

Figure198.TheNumberOneIssueFacingPrivately-HeldBusinessesTodaybyRevenueSizes.............................................109

Figure199.TheNumberOneEmergingIssueFacingPrivately-HeldBusinessesbyRevenueSizes........................................109

Documents

2017 Private Capital Markets Report - … various types of capital in the private markets from ... , MBA Director Marketing ... EBITDA multiple (70%), revenue multiple (11%) and EBITDA