Q2 2015 Overview

While the overall economy, as measured by real GDP, increased 2.3%, in Q2 2015, the Trans-

portation and Infrastructure (T&I) industries have largely continued the growth trajectory

experienced since 2011. With the exception of freight volumes, and truck tonnage, T&I oper-

ational metrics monitored by EdgePoint generally outperformed the overall economy in Q2

2015.

4,534

0

1,000

2,000

3,000

4,000

5,000

Q4'11

Q1'12

Q2'12

Q3'12

Q4'12

Q1'13

Q2'13

Q3'13

Q4'13

Q1'14

Q2'14

Q3'14

Q4'14

Q1'15

Q2'15

(thousands)

Source: WardsAuto

374

0

100

200

300

400

500

600

Q4'11

Q1'12

Q2'12

Q3'12

Q4'12

Q1'13

Q2'13

Q3'13

Q4'13

Q1'14

Q2'14

Q3'14

Q4'14

Q1'15

Q2'15

(Units)

Source: General Aviation Manufacturers Association

1,187

1,000

1,200

1,400

Q4'11

Q1'12

Q2'12

Q3'12

Q4'12

Q1'13

Q2'13

Q3'13

Q4'13

Q1'14

Q2'14

Q3'14

Q4'14

Q1'15

Q2'15

(thousands)

Source: St. Louis Federal Reserve

132.5

100.0

110.0

120.0

130.0

140.0

Q4'11

Q1'12

Q2'12

Q3'12

Q4'12

Q1'13

Q2'13

Q3'13

Q4'13

Q1'14

Q2'14

Q3'14

Q4'14

Q1'15

(Index)

Source: St. Louis Federal Reserve

$1,058

$0

$300

$600

$900

$1,200

Q4'11

Q1'12

Q2'12

Q3'12

Q4'12

Q1'13

Q2'13

Q3'13

Q4'13

Q1'14

Q2'14

Q3'14

Q4'14

Q1'15

Q2'15

(millions)

Source: St. Louis Federal Reserve

$274.4

$0

$50

$100

$150

$200

$250

$300

$350

Q4'11

Q1'12

Q2'12

Q3'12

Q4'12

Q1'13

Q2'13

Q3'13

Q4'13

Q1'14

Q2'14

Q3'14

Q4'14

Q1'15

Q2'15

(millions)

Source: St. Louis Federal Reserve

Putting aside the spike in activity as a result of changes in capital gains rates in 2012, reported transaction activity in the T&I sectors

has remained consistent each quarter. Q2 2015 activity was characterized by a number of high profile deals across the T&I sectors.

Q2 2015 M&A activity in the Automotive industry was marked by

uncharacteristically high private equity interest. Of the approxi-

mately 20 reported transactions, five of the more high profile

deals were completed by formidable private equity firms, includ-

ing Bain Capital and Sterling Investment Partners. This suggests

to EdgePoint that Automotive, historically a segment consid-

ered relatively undesirable to private equity, increasingly repre-

sents a positive investment thesis to financial investors.

Two strategic transactions were notable in the second quarter,

including the decision of Magna to exit its interiors business and

the acquisition of a tool and die builder by Tesla Motors,

Inc. Struggling to be profitable in this segment, the sale of the

Magna interiors business to Grupo Antolin, if completed, will

create a $5.5 billion interiors company and give Grupo Antolin

the ability to serve better its primary customers in Mexi-

co. Demonstrating its need to ensure ample supplier focus to

meet demanding production requirements, Tesla acquired

Michigan-based Riviera Tool, its first acquisition, citing the need

to ensure production supply. This fact pattern of vertical inte-

gration, which runs counter to the supply chain philosophy of

the Automotive industry for the past 20 years, suggests to Edge-

Point that there is tightness in the supply chain such that acqui-

sition of non-core assets may be necessary in the future.

Aerospace M&A activity in Q2 2015 was seemingly driven by

high strategic rationale. GKN’s acquisition of Sheets Manufac-

turing, for example, was driven largely by GKN’s need for cer-

tain technology capabilities to fulfill a Boeing project. H-D

Manufacturing, a growing manufacturer of mission critical

components, established its Aerospace platform in the sec-

ond quarter through the acquisition of Firstmark Corp and

Precision Aero Corporation. Aerospace represents a very logi-

cal end market extension for H-D, whose core business was

energy consumables and motion control products. Finally,

the need for a channel to place more content on new aero-

space platforms was ITT’s strategic motivation to acquire

Hartzell Aerospace. With proven technologies in environ-

mental control systems, Hartzell Technology was viewed as a

logical product addition to ITT’s actuation, flow control, and

energy absorption business.

These transactions, and others, cause EdgePoint to conclude

that the pursuit of technologies and market access continue

to be the strategic motivation in the aerospace industry and

that emerging and nimble suppliers will be of strategic inter-

est to the largest industry participants.

Source: CapIQ, Press Releases

-25

25

75

125

175

225

275

Q2 '12 Q3 '12 Q4 '12 Q1 '13 Q2 '13 Q3 '13 Q4 '13 Q1 '14 Q2 '14 Q3 '14 Q4 '14 Q1 '15 Q2 '15

Engineering Rail Logistics Aerospace Construction Automotive

Source: CapIQ

Reported M&A activity in the construction sector was un-

noteworthy in the second quarter. Reported activity general-

ly constituted smaller regional transactions across a variety of

end markets, with visibly more transactions involving compa-

nies with an alternative energy construction emphasis.

Q2 2015 participants of the Engineering industry have fo-

cused on acquisitions to expand service offerings and geo-

graphic footprint. In an effort to deepen its environmental

capabilities, serial-acquirer WSP Global, Inc. purchased both

SPL Consultants, Ltd and Levelton Consultants in the second

quarter. Eager for access to the robust U.S. civil engineering

market, U.K. based RPS Group, acquired Klotz Associates. This

acquisition, the first in North America for RPS Group, demon-

strates the attractiveness of civil infrastructure spending in

the United States for European firms. Reported M&A activity

in Q2 2015 suggests that engineering firms are interested in

service offering expansion and new geographies.

The scarcity of core acquisition targets was evident in the first

half of 2015 through a number of international acquisitions

by U.S. companies. Genesee & Wyoming closed the largest

deal of the year with its acquisition of UK based Freightlin-

er. The strategic rationale for this transaction appears to be

synergy opportunity with the Australian business units and

greater interest in the significant intermodal activities of

Freightliner. EdgePoint understands that suppliers to G&W in

the U.S. can expect to see opportunities to supply Freightliner

as it gets integrated into the G&W supplier procurement pro-

gram.

The most active buyer in the first six months of 2015 was L.B.

Foster, who made three acquisitions that give insight into the

Company’s market direction. Chemical processing equip-

ment manufacturer Chemtec, NDT provider Inspection Oil-

field Services, and UK TEW Engineering represent non-core

investments relative to LBF’s traditional infrastructure materi-

als business. The transactions illustrate both the scarcity of

acquisition opportunities in the Company’s core markets, but

also its strategy to create market verticals within its infrastruc-

ture materials business for which to offer a greater spectrum

of products and services to existing customers.

Other international transactions in Q2 2015 included Wab-

tec’s acquisition of Spanish passenger train component com-

pany Metalcaucho. This transaction, when combined with the

announced Wabtec – Faiveley merger in August, illustrates

that Wabtec has high interest in the passenger transit market

in Europe. Considering the background of its President Ray

Betler, a former Bombardier executive, this is not surpris-

ing. The recent acquisition activity of Wabtec also continues

to highlight the shortage of North American rail investment

opportunities. One interesting takeaway from the Metalcau-

cho transaction was Wabtec’s tolerance for the automotive

element of the business.

Q2 2015 M&A activity in the Trucking and Logistics sector was

vibrant, with some high profile transactions. Radiant Logistics

closed three transactions in the second quarter, including the

$85 million acquisition of Wheels Group. All three transac-

tions served the purpose of filling capability gaps at Radiant,

including the addition of truck brokerage and air terminal

capabilities, to Radiant’s largely freight forwarding busi-

ness. XPO Logistics continued their acquisition streak, ac-

quiring drayage operator Bridge Terminal Transport in Q2

2015. Echo Global Logistics in a $411 million transaction,

seeking continued market share in the 3PL business.

While most transactions in the second quarter involved asset-

light companies, cargo shipping company Horizon was ac-

quired by Matson in a consolidation transaction seemingly

motivated to reduce the competitive landscape. Many ana-

lysts project that the transaction will have the effect of in-

creasing the cost of imported goods to Hawaii.

Source: CapIQ, Press Releases

Equity valuations for transportation and infrastructure investment, as measured by enterprise value (EV) / EBITDA multiples of the

publicly traded company universe, trended slightly lower in Q2 2015. As depicted in the charts below, valuation multiples, while

slightly lower, remain near record levels for each of the transportation and infrastructure segments.

0.0x

2.0x

4.0x

6.0x

8.0x

10.0x

12.0x

14.0x

16.0x

18.0x

Q1 2012 Q3 2012 Q1 2013 Q3 2013 Q1 2014 Q3 2014 Q1 2015

Source: CapIQ

0.0x

2.0x

4.0x

6.0x

8.0x

10.0x

12.0x

14.0x

16.0x

18.0x

Q1 2012 Q3 2012 Q1 2013 Q3 2013 Q1 2014 Q3 2014 Q1 2015Source: CapIQ

0.0x

2.0x

4.0x

6.0x

8.0x

10.0x

12.0x

14.0x

16.0x

18.0x

Q1 2012 Q3 2012 Q1 2013 Q3 2013 Q1 2014 Q3 2014 Q1 2015

Source: CapIQ

0.0x

2.0x

4.0x

6.0x

8.0x

10.0x

12.0x

14.0x

16.0x

18.0x

Q1 2012 Q3 2012 Q1 2013 Q3 2013 Q1 2014 Q3 2014 Q1 2015

Source: CapIQ

0.0x

2.0x

4.0x

6.0x

8.0x

10.0x

12.0x

14.0x

16.0x

18.0x

Q1 2012 Q3 2012 Q1 2013 Q3 2013 Q1 2014 Q3 2014 Q1 2015

Source: CapIQ

0.0x

2.0x

4.0x

6.0x

8.0x

10.0x

12.0x

14.0x

16.0x

18.0x

Q1 2012 Q3 2012 Q1 2013 Q3 2013 Q1 2014 Q3 2014 Q1 2015

Source: CapIQ

$-

$70,000

$140,000

$210,000

$280,000

$350,000

Q1 2012 Q3 2012 Q1 2013 Q3 2013 Q1 2014 Q3 2014 Q1 2015

(millions)

Source: CapIQ

$-

$20,000

$40,000

$60,000

$80,000

$100,000

Q1 2012 Q3 2012 Q1 2013 Q3 2013 Q1 2014 Q3 2014 Q1 2015

(millions)

Source: CapIQ

$-

$1,700

$3,400

$5,100

Q1 2012 Q3 2012 Q1 2013 Q3 2013 Q1 2014 Q3 2014 Q1 2015

(millions)

Source: CapIQ

$-

$3,500

$7,000

$10,500

$14,000

$17,500

Q1 2012 Q3 2012 Q1 2013 Q3 2013 Q1 2014 Q3 2014 Q1 2015

(millions)

Source: CapIQ

$-

$5,000

$10,000

$15,000

$20,000

$25,000

Q1 2012 Q3 2012 Q1 2013 Q3 2013 Q1 2014 Q3 2014 Q1 2015

(millions)

Source: CapIQ

$-

$20,000

$40,000

$60,000

$80,000

$100,000

Q1 2012 Q3 2012 Q1 2013 Q3 2013 Q1 2014 Q3 2014 Q1 2015

(millions)

Source: CapIQ

Revenue for the transportation and infrastructure industry, as tracked by the public company registrants, is beneath FY 2014 levels.

Currency woes and declining oil prices have affected the automotive, rail, and freight industry. However, public spending in civil in-

frastructure and defense have lifted the aerospace, construction and engineering sectors. Q2 2015 Automotive industry revenue is

5.7% lower than the prior year, the result of decreased international demand from a strong U.S. dollar. Q2 2015 revenue reported by

the aerospace industry was 1.6% higher than the previous year, the result of strong commercial aircraft deliveries. Both the con-

struction and engineering industries benefitted from large public works projects in the second quarter. Upgrades to airports, bridg-

es and railways, contributed to year over year increases of 14.9% and 13.4%, respectively. Rail industry revenue declined 5.2% year

over year due to the decrease in coal shipments. Trucking and logistics revenue declined 5.3% due to lower fuel surcharges.

-8.0%

-6.0%

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

FY 2015 FY 2016 FY 2017

Source: CapIQ 0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

FY 2015 FY 2016 FY 2017

Source: CapIQ

-5.0%

0.0%

5.0%

10.0%

15.0%

20.0%

FY 2015 FY 2016 FY 2017

Source: CapIQ

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

FY 2015 FY 2016 FY 2017Source: CapIQ

-3.0%

-2.0%

-1.0%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

FY 2015 FY 2016 FY 2017

Source: CapIQ -1.0%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

FY 2015 FY 2016 FY 2017

Source: CapIQ

Industry analysts project continued growth in all T&I sectors through 2017. A variety of factors, including the stronger national

economy and increased infrastructure funding, are expected to drive revenue growth. According to analyst consensus, the Automo-

tive industry will experience a revenue decline in FY 2015 relative to the prior year, but will recover in FY 2016 and 2017 as replace-

ment demand increases and global currencies rebalance. Aerospace industry revenue is forecast by analysts to grow 2.1% per year

through 2017 as the demand for fuel efficient planes and the retirement of older vintage aircraft drives increase production. Con-

struction and engineering revenues are projected to decelerate after 2015, the result of projections for interest rates. After declining

modestly in 2015, analyst consensus is that revenue from the Rail industry will grow 5.5% and 4.0% in 2016 and 2017, respectively.

Analysts project that the west coast port strikes will impact revenue in FY 2015; however, the consensus is that Trucking and Logis-

tics revenue will return to normal growth in FY 2016 and FY 2017 as the shortage of available drivers results in an increase in rates.

According to IHS, light vehicle production will grow 1.5% an-

nually through 2017, driven by increased demand for vehicles

as a result of a stronger overall economy, lower unemploy-

ment, and a favorable wage growth environment.

Because of scheduled retirements, Boeing forecasts the need

for 7,890 new airplane deliveries between 2015 and 2034. The

deliveries are driven by the large portion of the installed fleet

that is nearing its retirement, as well as the demand for great-

er fuel efficiency.

Total freight industry revenue is projected by the American

Trucking Association to grow at 4.2% annually through 2017.

The increase is driven by projections for product consump-

tion and the international shipment of goods.

While the ABI index has trended lower over the past year, it

registered above 50 in Q2 2015, which is indicative of con-

struction expansion through at least the next 18 months.

$-

$200,000

$400,000

$600,000

$800,000

$1,000,000

2015 2016 2017

(millions)

Source: American Trucking Association

Projected T&I operational metrics are indicative and supportive of slow, but steady, revenue growth for the T&I industries. Both light

vehicle production and aerospace deliveries are projected to growth less than 1.5% per year through 2017.

5,000

5,500

6,000

6,500

7,000

7,500

2015 2016 2017

Source: Boeing

10,000

11,000

12,000

13,000

14,000

15,000

16,000

17,000

18,000

19,000

2015 2016 2017

(thousands)

Source: IHS

40

42

44

46

48

50

52

54

56

58

Q2'12

Q3'12

Q4'12

Q1'13

Q2'13

Q3'13

Q4'13

Q1'14

Q2'14

Q3'14

Q4'14

Q1'15

Q2'15

Source: Architecture Magazine

This market publication is not an offer to sell or a solicitation of an offer to buy any security. It is not intended to be directed to investors as a basis for making an investment

decision. This publication does not rate or recommend securities of individual companies, nor does it contain sufficient information upon which to make an investment deci-

sion. The information in this market publication was obtained from sources believed to be reliable, but its accuracy cannot be guaranteed. It is not to be construed as legal,

accounting, financial or investment advice. Information, opinions and estimates reflect EdgePoint Capital’s judgment as of the date of publication and are subject to change

without notice. EdgePoint Capital undertakes no obligation to notify any recipient of this market publication of any such change. The charts and graphs used in this market

publication have been compiled by EdgePoint Capital solely for illustrative purposes. All charts are as the date of issuance of this market publication, unless otherwise noted.

The rail industry indices may not be inclusive of all companies in the rail industry and is not a composite index of the rail industry sector returns. Index and sector returns are

past performance, which is not an indicator of future results This market publication is not directed to, or intended for distribution to any person in any jurisdiction where such

distribution would be contrary to law or regulation, or which would subject EdgePoint Capital to licensing or registration requirements in such jurisdiction.

Sell-Side Advisory

Laser Xpedited

Transportation

has sold to

Private Investment Firm

Sell-Side Advisory

Louis Perry &

Associates, Inc.

has sold to

CDM Smith

Sell-Side Advisory

SIFCO Industries, Inc.

has sold its Applied Surface

Concepts business to

Norman Hay PLC

Sell -Side Advisory

General Electric

has sold its

Rail Transit Parts

Business to Wabtec

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