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Business Services I Q3 2017
Investment Banking I Industry Spotlight
2
Business Services I Industry Spotlight
Q3 2017
Direct Marketing
Digital Media
Data Analytics
Other Marketing Services
Consulting
Staffing and Recruiting
Educational Services and Corporate Training
Engineering Services
Other Professional and Human Capital Services
Specialty Contractors
Technology Distribution and Value Added Resellers
Specialty Distribution
Transportation and Logistics
Facility Services
Security and Safety
Specialty Leasing
Other Commercial and Industrial Services
Investment Banking
Bill Benston
Managing Director
(404) 789-3131
Alan McClure
Managing Director
(404) 279-4508
Bill Tyson
Co-Head, Capital Markets
(804) 916-1481
Jeff Thieman
Managing Director
(615) 687-3067
Sponsor Coverage
Matt Cannan
Managing Director
(312) 704-7139
Debt Capital Markets
Mike Brothers
Managing Director
(312) 704-7362
Ross Breunig
Large Corp. SVP
(407) 999-3111
Craig Wolf
C&R Group Head
(312) 704-2994
Corporate Banking
Business Services Investment Banking
Experienced Senior Leadership
Key Contacts Business Services Investment Banking
Fifth Third Securities’ Business Services Investment Banking Group advises middle market and mid-cap companies on mergers and acquisitions, capital raising, and strategic alternatives in the following sectors:
Commercial & Industrial Services Professional & Human Capital Services
Marketing Services Litigation Services
eDiscovery Processing and Hosting
Document Review
Legal Staffing
Litigation Finance
Deposition Services
Other Litigation Services
Elizabeth Head
Principal
(404) 267-0325
Over 25 years of investment
banking experience with a focus on buy and sell-side mergers and acquisitions and capital raises for middle market companies
Board member for a specialty distribution company
BS – University of Virginia MBA – The Wharton School,
University of Pennsylvania
Over 30 years of financial
services experience with a focus on buy and sell-side mergers and acquisitions and capital raises for middle market companies
Extensive experience representing litigation services companies
BS – University of Virginia MBA – Georgia State University
Over 10 years of investment
banking, private equity, and capital markets experience, with a focus on mergers and acquisitions
Over 4 years of operations and managerial experience in specialty distribution
BBA – University of Georgia MBA – Harvard Business School
Bill Benston – Managing Director Alan McClure – Managing Director Elizabeth Head – Principal
Derek Brust
Managing Director
(312) 704-4125
3
Business Services I Industry Spotlight
Q3 2017
Across all sectors, escalating purchase multiples are driving buyers to evaluate buy and build strategies in order to take advantage of synergies and multiple arbitrage.
Commercial and Industrial Services
Commercial and industrial service providers promote their cost-effective niche services to companies that wish to outsource and thereby focus on their own core competencies. Annual contracts in lieu of episodic projects drive recurring revenue and more attractive valuations.
Value added resellers continue to emphasize the addition of services to complement the sale of hardware. Wrapping recurring revenue around product sales creates additional customer stickiness and drives additional value.
Many dealers and service providers were founded twenty to thirty years ago, and now owners are of retirement age and seeking exits, leading to consolidation of dealer networks.
Distributors seek scale to create leverage with suppliers and drive reductions in overall logistics expense. Additionally, distributors that provide local delivery seek to optimize their distribution network by adding stops to existing routes and creating greater density.
Litigation Services
Technology has been driving M&A, as formerly labor intensive matters can be outsourced to providers with technology-based solutions.
Proliferation of data with paper and electronic files continues to drive growth in litigation services industry and in eDiscovery businesses.
Litigation services industry is estimated to have more than 500 participants eventually dropping to 300, with $8 -10 billion of total revenue.[1]
Industry consolidation is occurring at a rapid rate, driven by the desire to expand into other service offerings with technology-based solutions for collecting, storing, and processing data.
Professional and Human Capital Services
Consulting companies continue to benefit from increasing business complexity in many markets. Certain consulting markets are capitalizing on increasing regulatory and compliance requirements that drive the need for specialized services.
Training providers are leveraging technology to provide cost-effective solutions in specialized areas. Many of these companies are successfully leveraging their expertise and relationships to drive recurring revenue.
Staffing and recruiting companies continue to leverage technology to improve efficiency and client experience.
Marketing Services
Businesses have an increasing awareness of the importance of customer experience, and providers are investing heavily in digital commerce and marketing analytics to capture spend.
Service providers have created niche technology-enabled offerings that would be expensive for companies to replicate for their own use.
[1] Gartner Group Report
[2] CMO Spend Survey 2016-2017 (Gartner)
Market Insights: Business Services Technology-Driven Growth Fuels M&A and Consolidation
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Business Services I Industry Spotlight
Q3 2017
Forestry Resources, Inc. (“FRI”) is headquartered in Fort Myers, Florida and is a leading producer and supplier of mulch and other landscaping products in South Florida.
The Company processes and
packages a variety of mulches, barks, soil, and stone out of two production facilities located in Fort Myers and Webster, Florida. The Company sells its products through direct sales and five company-owned retail stores in Florida.
FRI serves a broad customer base of retailers, distributors, and
commercial landscape, maintenance, and nursery professionals.
Subsector Deep Dive: Landscaping Products and Services
Strategic Rationale Situation Overview
has been acquired by
a portfolio company of
Sell-Side Advisor
Suwannee Lumber Company (“Suwannee”), a competitor in an adjacent market area and a portfolio company of Blue Wolf Capital Partners, was interested in growing its mulch and ground cover business through acquisition. While Suwannee had a strong position in north Florida, FRI provided it with two additional plants in south Florida from which to more efficiently serve growing south and central Florida markets, and FRI provided Suwannee access to key customers.
A number of private equity firms have targeted landscaping products and services as a platform opportunity due the benefits of scale and the fact that the markets are so fragmented and dominated by small local operators
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Business Services I Industry Spotlight
Q3 2017
[1] Source: SiteOne, IBIS World
[2] Source: Harvard JCHS
Subsector Deep Dive: Landscaping Products and Services (Cont.)
Landscaping continues to benefit from economic trends
Improved economic growth, favorable employment trends, and consumer confidence should encourage homeowners and businesses to invest in improving their properties to enhance value
Continued rises in construction starts and an aging population committed to living at home will increase demand for landscaping services and products
Larger industry players will capitalize on recurring maintenance contracts with commercial clients
Construction Activity
Per Capita Disposable Income
Corporate Profits and Investment
Real Estate Values
Government Spending
~2.6% Market Share
Opportunity for consolidation to achieve scale
Positive Industry Trends Highly Fragmented Industry[1]
U.S. Spending on Homeowner Improvement and Repair ($ in billions, four-quarter moving totals)[2]
~10% Market Share
$257 $261 $264 $267 $271 $275 $278 $280 $285 $292 $296 $299 $305 $311 $316 $317 $324
$0
$100
$200
$300
$400
Q22014
Q32014
Q42014
Q12015
Q22015
Q32015
Q42015
Q12016
Q22016
Q32016
Q42016
Q12017
Q22017
Q3 (P)2017
Q4 (P)2017
Q1 (P)2018
Q2 (P)2018
6
Business Services I Industry Spotlight
Q3 2017
0%
20%
40%
60%
80%
100%
120%
May-2016 Sep-2016 Jan-2017 May-2017 Sep-2017
S&P 500 SiteOne Scotts Miracle-Grow
Subsector Deep Dive: Landscaping Products and Services (Cont.)
[1] Source: S&P Capital IQ
Both strategic and sponsor-backed industry consolidators will continue to be acquisitive to gain access to new geographic markets, diversify service offerings, and develop recurring maintenance contracts with commercial clients
Growing and scaling will also be critical to battle pricing pressure in an increasingly competitive industry
Key valuation factors include:
Degree of recurring client engagements (dependence on new construction)
Size – larger firms trade at higher multiples Degree of customer, supplier, or end market concentration Level of value added or differentiated service offering Management/ownership continuity
Importance of procuring raw material
Harder in South Florida and areas without ample timber
Scarce supply places a premium on value of timber contracts
Material from land clearing is typically cheaper than virgin timber
Some regions have two ground cover spreading seasons
Larger producers will sometimes have customer concentration with Lowes, Home Depot, and large home improvement or lawn and garden retailers
Smaller producers often lack the balance sheet and capital to purchase bagging and palletizing equipment and therefore struggle to compete on price
Publicly Traded Share Performance[1] Valuation Commentary
Key Industry Opportunities and Challenges
Landscaping Products Landscaping Services
Landscaping services are increasingly being considered an important means of raising property and resale value
Geographic location and weather events dictate services that can be offered and affect revenue mix
Service providers are affected by quality labor shortages generally, and specifically shortages of temporary foreign workers caused by the current regulatory environment
Material costs, such as fertilizer and herbicide, have consistently increased over the past several years and represent a larger percentage of industry participant sales
Many landscape contractors remain unlikely to raise prices and risk losing business of more price conscious consumers, resulting in modest margin compression
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Business Services I Industry Spotlight
Q3 2017
(20.0%)
0.0%
20.0%
40.0%
60.0%
80.0%
100.0%
120.0%
140.0%
Sep-12 Sep-13 Sep-14 Sep-15 Sep-16 Sep-17
Commercial and Industrial Services
Professional and Human Capital Services
Marketing Services
S&P 500
6.0x
8.0x
10.0x
12.0x
14.0x
16.0x
18.0x
Sep-12 Sep-13 Sep-14 Sep-15 Sep-16 Sep-17
Commercial and Industrial Services
Professional and Human Capital Services
Marketing Services
S&P 500
Subsector Indices’ Stock Price Performance
5-Year Share Price Performance 5-Year EV / Forward EBITDA Performance[1]
Public Market Valuation Trends: Business Services
[1] High trading multiples of CRM are skewing market cap-weighted Marketing index
Note: Details of companies included in the above subsectors are included on the following slides
Note: Chart indices are weighted by company market capitalization
Source: S&P Capital IQ
Median Enterprise
Value
Median %
Change in Price
Median EV /
LTM Multiples
Median EV /
2017E Multiples
Sub-Sector $ in millions 12 Months Revenue EBITDA Revenue EBITDA
Technology Distribution and Value-Added Resellers 7 5,406 19.9% 0.4x 9.3x 0.4x 10.0x
Industrial Distributors 8 5,198 8.1% 1.1x 11.6x 1.1x 10.6x
Facility Services 6 3,396 19.8% 0.9x 13.6x 0.9x 11.2x
Security and Safety 5 1,887 2.8% 1.7x 9.2x 1.7x 8.4x
Commercial and Industrial Services 26 3,384 13.5% 1.0x 10.8x 0.9x 10.4x
Consulting 9 1,371 15.8% 1.1x 11.1x 1.0x 8.0x
Staffing and Recruiting 10 2,146 34.6% 0.5x 10.7x 0.6x 10.0x
Educational Services and Corporate Training 2 413 21.7% 1.4x 14.0x 1.3x 15.8x
Professional and Human Capital Services 21 1,386 25.1% 1.1x 11.1x 1.0x 10.2x
Marketing Services 11 3,637 (7.3%) 1.4x 9.6x 1.3x 9.4x
S&P 500 500 16.0% 2.4x 12.2x 2.3x 11.1x
Number of
Companies
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Business Services I Industry Spotlight
Q3 2017
7.6x
6.3x
6.1x
7.1x
5.1x
5.1x
7.1x
6.2x
7.3x
13.9x
14.0x
11.5x
9.7x
10.0x
11.2x
14.8x
11.7x
10.6x
9.7x
10.3x
8.1x
8.8x
10.5x
9.4x
9.9x
Industrial Distributors
Marketing Services
Consulting
Educational Services and Corporate Training
Technology Distribution and Value-AddedResellers
Security and Safety
S&P 500
Staffing and Recruiting
Facility Services
Public Market Valuation Trends: Business Services
[1] In this chart, the blue bar shows the range of EV/Forward EBITDA over the past five years. The multiple in white font is the current EV/Forward EBITDA multiple. Source: Company filings and S&P Capital IQ.
% Change in Stock Price 5-Year EV / Forward EBITDA Multiple Range[1]
Low Current High
20.2x 16.4x
3.9%
36.9%
53.1%
64.4%
72.1%
74.0%
74.9%
87.6%
184.9%
8.1%
(7.3%)
15.8%
21.7%
19.9%
9.4%
16.0%
34.6%
19.8%
Industrial Distributors
Marketing Services
Consulting
Educational Services and Corporate Training
Technology Distribution and Value-AddedResellers
Security and Safety
S&P 500
Staffing and Recruiting
Facility Services
1 Year 5 Year
9
Business Services I Industry Spotlight
Q3 2017
8.0x
9.3x
8.7x
7.2x
8.1x8.4x 8.3x 8.4x
9.3x
9.9x 9.7x10.0x 10.2x
8.8x 8.7x9.0x
8.3x8.8x 9.0x
8.7x 8.7x 8.9x
9.6x9.3x
10.2x
8.5x
6.0x
8.0x
10.0x
12.0x
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 YTD8/2016
YTD8/2017
Financial Buyers Strategic Buyers
0
4,000
8,000
12,000
16,000
20,000
24,000
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 3Q 2016 3Q 2017
Under $25mm $25 to $500mm Above $500mm Undisclosed
U.S. M&A Volume and Valuation Trends
Median Transaction Multiples (Enterprise Value / LTM EBITDA)
Transaction Volume
Note: This data represents the entire U.S. market (all industries) Source: PitchBook, S&P Capital IQ, and S&P Capital IQ LCD
Recession Recession
’16 vs. ’17
▼ 15%
‘07 to ‘11 Median Financial = 8.4x Strategic = 8.8x
‘12 to ‘16 Median Financial = 9.3x Strategic = 8.9x
10
Business Services I Industry Spotlight
Q3 2017
M&A Activity increased slightly in the third quarter, and exceeded deal value in 3Q 2016.
Average middle market transaction multiples have rebounded in 2017, though this metric is largely driven by industry or business services segment mix. Given the breadth of the types of businesses that comprise business services, the range of transaction multiples can be quite large.
Multiples are a function of numerous factors including:
Customer concentration
Customer stickiness
Episodic versus recurring revenue
EBITDA margin, which is often a proxy for the value add component of the product or service offering
Business Services M&A Announced Deal Value ($ in billions)
Business Services M&A Announced Deal Volume
Business Services M&A Closed Deal Average EV / EBITDA Multiple
Source: Fifth Third Securities, S&P Capital IQ Note: Middle Market defined as transactions with disclosed deal values less than $1 Billion, EV – Enterprise Value, NA – Not Available; The companies involved in the represented business services transactions are categorized by CapIQ in one or more of the following subsectors: Commercial and Professional Services, Services Outsourcing, or Data Processing and Outsourced Services.
Middle Market M&A Trends Business Services Specific Activity
9.7x 9.6x 9.3x 9.0x
10.8x
9.7x
11.0x
2011 2012 2013 2014 2015 2016 2017
0
20
40
60
80
100
120
3Q
12
4Q
12
1Q
13
2Q
13
3Q
13
4Q
13
1Q
14
2Q
14
3Q
14
4Q
14
1Q
15
2Q
15
3Q
15
4Q
15
1Q
16
2Q
16
3Q
16
4Q
16
1Q
17
2Q
17
3Q
17
$0
$1
$2
$3
$4
$5
$6
$7
3Q
12
4Q12
1Q
13
2Q
13
3Q
13
4Q
13
1Q
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2Q
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3Q
14
4Q
14
1Q
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1Q
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3Q
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4Q
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1Q
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2Q
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3Q
17
11
Business Services I Industry Spotlight
Q3 2017
Sep-17 The ADT Corporation M.S. Electronics, L.L.C. Provides networked physical security products, installation, and services - -
Sep-17Kingswood Capital Management,
LLCVersar, Inc. (OTCPK:VSRI)
Operates as a project management company, providing technical and management
support to municipalities and companies$13.0 - -
Aug-17MSC Industrial Direct Co., Inc.
(NYSE:MSM)DECO Tool Supply Company, Inc. DECO Tool Supply Company, Inc. provides air and electric tool repair services $42.0 - -
Aug-17 Vector Security, Inc. Security Associates LLC Provides professional security services - - -
Aug-17 Valet Living, LLC Ecurb, LLC Provides dry cleaning, trash pickup, and recycling services - - -
Jul-17 Platinum Equity, LLC United Site Services, Inc. Provides portable toilet, restroom trailer, and temporary fence rental services - - -
Jul-17 AE Industrial Partners, LLC CDI Corp. Provides engineering, information technology (IT), and staffing solutions worldwide $158.0 - -
Jul-17ABM Industries Incorporated
(NYSE:ABM)GCA Services Group, Inc. Provides facility services in the United States and Puerto Rico $1,237.3 - -
Jul-17Alston Capital Partners; PPC
Enterprises LLC
Severn Trent Environmental
Services, Inc.
Provides contract management, customer service, operations support, and systems
improvement for municipal, industrial, and commercial water clients$62.1 - -
Jun-17 Suwannee River Mulch, LLC Forestry Resources, Inc. Produces and supplies mulch and landscaping products to retailers and contractors -
Jun-17 Gemspring Capital LLC Therma CorporationProvides mechanical contracting services for industrial, commercial, and biomedical
users- - -
Jun-17 Penske Truck Leasing Co., L.P. Old Dominion Truck Leasing, Inc.Provides leasing and rental, dedicated contract carriage, contract maintenance, and
commercial maintenance of trucks- - -
M&A Trends: Business Services Sector Transaction Detail
Transaction's Implied Target's
Date Target's Enterprise Enterprise Value / LTM Last Twelve Months ("LTM")
Announced Acquirer Target Business Description Value Revenue EBITDA
Litigation Services ($ in millions)
Commercial and Industrial Services ($ in millions)
Note: Enterprise value equals market capitalization plus minority equity plus debt minus cash Source: Company Filings, S&P Capital IQ
Sep-17 Counsel On Call Dsicovery LLCProvides high-quality litigation technology, electronic discovery and digital forensics
services to law firms and corporations. - - -
Sep-17 U.S. Legal Support Wheeler & Hallford Inc. Offers court reporting services to the legal profession - - -
Aug-17 Pohlman Reporting Company Amicus Court Reporters Provides deposition reporting services - - -
Aug-17 Lexitas DEITZ Court Reporting Provides deposition reporting and legal videography services. - - -
Aug-17 Ipro inData Corporation Provides trial presentation services. - - -
Jul-17 Open Text Corporation Guidance Software Provides endpoint investigation solutions for eDiscovery and forensic analysis. $240.0 2.2x -
Jul-17 Veritext Corp. Thomas G. Oakes & Associates Offers court reporting services to the New Jersey legal community. - - -
Jul-17 InfraWare, IncCatuogno Court Reporting &
StenTel TranscriptionOffers court reporting services, such as documentation and transcription services. - - -
Jun-17 Congruity360 KNJ, Inc. Owns and operates an online legal research platform. - - -
Jun-17LexisNexis Legal & Professional,
Inc.Ravel Law, Inc. Provides eDiscovery consulting and professional services. - - -
May-17 Advanced Discovery LLC Superior Review, L.P. Provides discovery consulting, early data assessment, and review services. - - -
Confidential
12
Business Services I Industry Spotlight
Q3 2017
M&A Trends: Business Services Sector Transaction Detail
Transaction's Implied Target's
Date Target's Enterprise Enterprise Value / LTM Last Twelve Months ("LTM")
Announced Acquirer Target Business Description Value Revenue EBITDA
Marketing Services ($ in millions)
Professional and Human Capital Services ($ in millions)
Note: Enterprise value equals market capitalization plus minority equity plus debt minus cash Source: Company Filings, S&P Capital IQ
Sep-17 BG Finance and Accounting, Inc. Smart Resources, Inc. Offers staffing services $8.0 - -
Sep-17Staffing 360 Solutions, Inc.
(NasdaqCM:STAF)firstPRO, Inc. Provides contract staffing services $8.0 - -
Sep-17 GSE Performance Solutions, Inc. Absolute Consulting, Inc. Provides staffing and human resource consulting services $8.8 - -
Sep-17Cooperative Personnel Services,
Inc.Ewing Consulting, Inc. Provides human resources consulting services - - -
Sep-17 Change 4 Growth, LLC Sequent HR Consulting LLC Offers employee engagement and human resource consulting services - - -
Aug-17 CGI Nordic Invesments Affecto PlcProvides business intelligence and enterprise information management solutions and
services $112.8 1.2x 19.2x
Aug-17Transaction Solutions
International Decipher Works Pty Ltd. Cyber Security Specialist in Identity, Access, Governance & Federation $4.0 0.6x 6.7x
Jul-17 Persol HoldingProgrammed Maintenance
Services Provides staffing, maintenance and recruiting services $586.0 0.3x 11.5x
Jul-17 H.I.G Capital NCI, Inc.Provides technology enterprise solutions to U.S. defense, intelligence, health and
civilian government agencies$283.0 0.9x 10.1x
Jul-17 Cincinnati Bell Inc. OnX Enterprise Solutions Ltd. Provider of infrastructure, professional and managed services, and consulting
throughout the United States and Canada$199.0 0.3x 6.9x
Jul-17 Exact Recruiting Solutions, Inc. Healthcare Concepts, Inc. Provides executive recruitment services - - -
Jun-17 Perficient, Inc. (NasdaqGS:PRFT) Clarity Consulting, Inc. Designs, develops, customizes, and implements enterprise software applications $9.4 0.3x -
Jun-17Shaw Communications Inc.
(TSX:SJR.B)ViaWest, Inc. Provides IT solutions and services including cloud storage and IT consulting $1,675.0 - -
Jun-17Cross Country Healthcare, Inc.
(NasdaqGS:CCRN)Advantage RN, LLC Provides travel nurse and healthcare staffing solutions and services $88.0 0.9x 8.8x
Sep-17 Glispa JustAdEnables brands and agencies to easily create, serve, and analyze playable ads and to
boost ad results with the creation of dynamic, interactive creatives at scale- -
Sep-17 RhythmOne YuMe, Inc. Provides digital video brand advertising solutions in the United States and
internationally$185.0 - -
Aug-17 CI Capital Partners AlliedPRA, Inc. Provides destination management and event planning services for business events $22.7 0.2x -
Aug-17 IVE Group Sema Holdings Pty Ltd. Offers cross-channel communications and marketing services $11.7 0.4x 4.9x
Jul-17 Huntsworth PLC The Creative Engagement Group Provides experiential marketing primarily through events and digital marketing,
including virtual and augmented reality$32.0 1.0x 6.8x
Jul-17 H.I.G. Capital BIC Graphic USA Manufacturing Provides custom-imprinted products for the promotional products industry $80.0 0.3x -
Jul-17Next Fifteen Communications
GroupVelocity Partners Limited
Offers business-to-business (B2B) content marketing and content operations for the
technology industry$7.6 1.1x -
Jun-17Antevenio, S.A.
(ENXTPA:ALANT)React2Media LLC
Offers solutions in the areas of user acquisition, display, and email marketing, and
application discovery aspects for advertisers- - -
Jun-17 Eventbrite, Inc. Ticketfly, Inc.Provides ticketing, marketing, and analytics tools to that help event promoters and
venues organize events$200.0 - -
13
Business Services I Industry Spotlight
Q3 2017
Private Equity Activity Business Services
Overall U.S. Private Equity Deal Flow ($ in billions)
U.S. Business Services Private Equity Deal Flow ($ in billions)
U.S. Business Services Private Equity Exits ($ in millions)
U.S. Private Equity deal flow was down during the third quarter of 2017 on a volume basis and up on a deal value basis
Several large private equity transactions were announced in the third quarter driving total deal value
– HPS Investment Partners and Equity Group Investments agreed to acquire Waste Industries USA
– Sycamore Partners agreed to acquire Staples Inc. for $6.9 billion
– Bain Capital acquired a stake in Surgery Partners Inc. which will use the funding to acquire National Surgical Healthcare
Private equity activity started off slow in 2017, yet market fundamentals point to strong deal flow in the year ahead as fundraising has continued at a rampant pace
Business Services private equity disclosed capital invested increased YTD 9/2017 when compared to the same period last year
− 374 deals closed for a total disclosed value of $97 billion during the first three quarters of 2017
The number of private equity exits within Business Services decreased slightly YTD 9/2017 when compared to the same period last year, though the median deal size increased substantially
Source: Fifth Third Securities, PitchBook *3Q17 preliminary PitchBook data as of 9/27/17
$160.0 $143.4 $147.3$186.0 $199.6 $192.0
$132.0
$415.0
389 435 429538 542 501
2011 2012 2013 2014 2015 2016 3Q16 3Q17
Median Deal Size ($) # of Exits
$66.2 $64.8 $70.5
$101.5 $105.9 $88.1
$61.1
$97.0
555 608545
631 593526
387 374
2011 2012 2013 2014 2015 2016 YTD 2016 YTD 2017
Capital Invested ($) # of Deals Closed
0
500
1,000
1,500
$0
$50
$100
$150
$200
$250
1Q
11
2Q
11
3Q
11
4Q
11
1Q
12
2Q
12
3Q
12
4Q
12
1Q
13
2Q
13
3Q
13
4Q
13
1Q
14
2Q14
3Q
14
4Q
14
1Q
15
2Q
15
3Q
15
4Q
15
1Q
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2Q
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3Q
16
4Q
16
1Q
17
2Q
17
3Q
17*
Deal Value ($) # of Deals Closed
14
Business Services I Industry Spotlight
Q3 2017
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
9.0%
10.0%
MM B-rated MM NR
6.12%
6.29%
Note: This data represents the entire U.S. middle market (all industries) Note: The middle market is defined as deal size < $100 million and borrower sales < $500 million [1] Includes both non-sponsored and sponsored transactions; sufficient data not available for MM NR loans in 1Q15 and 1Q17 Source: Bloomberg, S&P Capital IQ LCD, and Thomson Reuters LPC
U.S. Middle Market Loan Market Trends
Loan Volume: Low Level of Supply Continues ($ in billions) Non-Rated Term Loan Yields Tighten Further [1]
Covenant-Lite Volume Surges in 2Q17 ($ in billions) Leverage Multiples Remain Aggressive on Middle Market LBOs
$0.0
$10.0
$20.0
$30.0
$40.0
$50.0
$60.0
$70.0
Non-Sponsored Sponsored
$0.0
$1.0
$2.0
$3.0
$4.0
$5.0
$6.0
$7.0
0.0x
1.0x
2.0x
3.0x
4.0x
5.0x
6.0x
7.0x1st Lien Debt to EBITDA Junior Debt to EBITDA
15
Business Services I Industry Spotlight
Q3 2017 Notes & Definitions
S&P 500 Index- A broad index that includes American Companies. EBITDA- A company's earnings before interest, taxes, depreciation, and amortization, is an accounting measure calculated using a company's net earnings, before interest expenses, taxes, depreciation and amortization are subtracted, as a proxy for a company's current operating profitability. Dry Powder- Refers to cash reserves kept on hand to cover future obligations or to purchase assets. GDP- Gross domestic product is the market value of the goods and services produced by labor and property located in the United States Consumer Sentiment Index- The University of Michigan Consumer Sentiment Index is a consumer confidence index published monthly by the University of Michigan. The index is normalized to have a value of 100 in December 1964 National Unemployment Rate- the percentage of the total labor force that is unemployed but actively seeking employment and willing to work. Non-Farm Payroll- Nonfarm payroll employment is a compiled name for goods, construction and manufacturing companies in the US. It does not include farm workers, private household employees, non-profit organization employees, or government employees . It is an economic indicator released monthly by the United States Department of Labor as part of a comprehensive report on the state of the labor market. Housing Starts- are the number of new residential construction projects that have begun during any particular month. The Economist- offers authoritative insight and opinion on international news, politics, business, finance, science, technology and the connections between them LBO -- leveraged buyout (LBO) is the acquisition of another company using a significant amount of borrowed money to meet the cost of acquisition. The assets of the company being acquired are often used as collateral for the loans, along with the assets of the acquiring company. Industrial Production Index (IPI)- is an economic indicator published by the Federal Reserve Board of the United States that measures the real production output of manufacturing, mining, and utilities Capital Goods Orders. Covenant-lite loans- means that debt is being issued, both personally and commercially, to borrowers with less restrictions on collateral, payment terms, and level of income. IRR-Internal Rate of Return.
About Fifth Third Capital Markets
Fifth Third Capital Markets is the marketing name under which Fifth Third Bank and its subsidiary, Fifth Third Securities, Inc., provide certain securities and investment banking products and services. Banking products and services are offered by Fifth Third Bank. Securities products and services are offered by licensed securities representatives of Fifth Third Securities, Inc., who may be employees of Fifth Third Bank. Important notice This document has been prepared by Fifth Third Bank (“Fifth Third”) or one of its subsidiaries for the sole purpose of providing a proposal to the parties to whom it is addressed in order that they may evaluate the capabilities of Fifth Third to supply the proposed services. It is not intended to provide specific investment advice or investment recommendations and does not constitute either a commitment to enter into a specific transaction or an offer or solicitation, with respect to the purchase or sale of any security. The information contained in this document has been compiled by Fifth Third and includes material which may have been obtained from information provided by various sources and discussions with management but has not been verified or audited. This document also contains confidential material proprietary to Fifth Third. Except in the general context of evaluating our capabilities, no reliance may be placed for any purposes whatsoever on the contents of this document or on its completeness. No representation or warranty, express or implied, is given and no responsibility or liability is or will be accepted by or on behalf of Fifth Third or by any of its subsidiaries, members, employees, agents or any other person as to the accuracy, completeness or correctness of the information contained in this document or any other oral information made available and any such liability is expressly disclaimed. This document and its contents are confidential and may not be reproduced, redistributed or passed on, directly or indirectly, to any other person in whole or in part without our prior written consent. Past performance is No Guarantee of Future Results. Fifth Third Capital Markets is a wholly owned subsidiary of Fifth Third Bank offering investment banking++, debt capital markets+, bond capital markets++, equity capital markets++, financial risk management+, and fixed income sales and trading++. Fifth Third Bank provides access to investments and investment services through various subsidiaries, including Fifth Third Securities. Fifth Third Securities is the trade name used by Fifth Third Securities, Inc., member FINRA/SIPC, a registered broker-dealer and registered investment advisor registered with the U.S. Securities and Exchange Commission (SEC). Registration does not imply a certain level of skill or training. Securities and investments offered through Fifth Third Securities, Inc. and insurance products: + Services and activities offered through Fifth Third Bank ++ Services and activities offered through Fifth Third Securities, Inc © Fifth Third Bank 2017
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Are Not FDIC Insured Offer No Bank Guarantee May Lose Value
Are Not Insured By Any Federal Government Agency Are Not A Deposit
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Composition of Public Company Indices From Slide 4: General Contractors: ACM, TSX:BDT, FLR, GVA, JEC, ORN, TSX:SOX Specialty Contractors: ABM, EME, FIX, LMB, TPC From Slide 6: Commercial and Industrial Services: ABM, TSX:AF, AIT, ARMK, ARW, NasdaqGS:ASCM.A, AVT, AXE, BCO, NasdaqGS:CDW, NasdaqGS:CTAS, NasdaqGS:DXPE, EME, NasdaqGS:FAST, FIX, TSX:FSV, GWW, NasdaqGS:HDS, OM:LOOM, MSM, NasdaqGS:SCSC, VRTV, WCC, TSXV:XX Professional and Human Capital Services: NasdaqGS:ABCO, ACN, SWX:ADEN, ASGN, CBZ, CRAI, FC, FCN, GPX, LSE:HAS, NasdaqGS:HURN, ICFI, KELY.A, KFRC, KFY, NCI, LSE:PAGE, EXNTAM:RAND, RECN, RHI, TBI Marketing Services: ACXM, ADS, TSX:AIM, CRM, HHS, IPG, MDCA, OMC, LSE:UBM, VVI, LSE:WPP
