Q4 2018 Market Report - Croft & Bender...Note: Middle-market transactions are defined as those with a disclosed transaction value of less than $1 billion. 22.7% 33.9% 32.5% Public

Q4 2018 Market Report

Mergers & Acquisitions • Private Equity • Financial Advisory

4401 Northside Parkway • Suite 395 • Atlanta, Georgia 30327 (404) 841-3131 • www.croft-bender.com • Member SIPC and FINRA

DEAL CRITERIA

MERGERS & ACQUISITIONS

• Buy side/sell side• Enterprise Values up to $300 million• Exceptions to typical EBITDA criteria:– High growth companies– Technology companies– Special situations

EQUITY & DEBT CAPITAL RAISES

• Middle-market companies• Emerging growth businesses• Large market opportunity• Experienced management team• Differentiated product or service• Greater than $10 million capital need

BROAD INDUSTRY EXPERTISE

BUSINESS SERVICES

Information ServicesMarketing Services Financial Services

Outsourced Services A/R Management

StaffingConsulting

TECHNOLOGY

Software/SaaSFinancial Technology

Human Capital ManagementInternet Marketing

E-CommerceSecurity/ComplianceBusiness IntelligenceTelecommunications

INDUSTRIAL

General ManufacturingBuilding Products

LogisticsSpecialty Contracting

DistributionIndustrial Services

ChemicalsDurable Goods

HEALTHCARE

Healthcare ITClinical Services

Outsourced ServicesAlternate Site Care

Medical Products/Distribution

CONSUMER

Products/ServicesFranchisingRestaurants

RetailEntertainment/Leisure

OVERVIEW

Since 1996, Croft & Bender has provided superior M&A, private capital raising, andfinancial advisory services to middle-market and emerging growth companies. Thesenior professionals have completed more than 1,000 corporate financeengagements, resulting in deep experience across a broad set of industries and typesof transactions. In addition, the firm manages C&B Capital, three growth equity fundswith over $82 million under management.

CONTACT US

Frank H. “Bo” Briggs, IIIManaging [email protected](404) 841-0639

Edward S. Croft, IIIManaging [email protected](404) 841-0055

R. Neale FisherManaging [email protected](404) 574-2906

Ronald B. GoldmanManaging [email protected](404) 841-0735

Steve B. TyeManaging [email protected](404) 841-9351

Erik M. ZalenskiManaging [email protected](404) 841-9826

Kyle C. [email protected](404) 574-2897

Michael J. JanovecVice [email protected](404) 328-4839

Matthew A. VealVice [email protected](404) 841-0056

W. Christopher SchatzmanBusiness [email protected](404) 328-4837

4401 Northside ParkwaySuite 395Atlanta, Georgia 30327Phone: (404) 841-3131Fax: (404) 841-3135www.croft-bender.comMember SIPC and FINRA 2

REPRESENTATIVE TRANSACTIONS

BUSINESS SERVICES TECHNOLOGY INDUSTRIAL HEALTHCARE

Regent is a leading manufacturer and distributor of custom cabinets and

countertops to the multi-family construction industry.

has been recapitalized by

CONSUMER

has been acquired by

VNS is a leading supplier and manufacturer of building products.

Service Brands is a leading multi-concept residential services franchisor.


HRI is a leading franchisor of in-home consumer services.

has soldHarris Research, Inc.

Franchisor of

to

Bridge2 Solutions provides the leading SaaS platform enabling the

redemption of loyalty reward points for goods and services.

has received an equity investment from

The Erosion Company provides erosion control and related site services

to the construction industry.



Coverall is a leading franchisor of commercial cleaning services.


Juniper Landscaping is a leading provider of landscaping services to

commercial customers.

Carousel Designs is a leading online provider of original and custom-

designed baby bedding, fabric and nursery décor.


Mudlick Mail provides data-driven, direct mail and related marketing

solutions to small and medium-sized businesses.


Secretariat is a leading provider of dispute resolution advisory services to

public and private sector clients across the world.



ML Healthcare provides financing and access to care for patients unable to

afford medical services.

Dominion Youth Services a leading provider of behavioral and mental

health support services to the youth and adolescent market.


Nuesoft Technologies is a leading provider of SaaS solutions and RCM services for the healthcare industry.


HCSC is a leading provider of hospice and palliative care services

in the Southeast.


3

4th Source is a leading provider of nearshore software development and IT

services to sophisticated clients with complex technology requirements.


Lexington Manufacturing is a leading provider of engineered components to window and door OEMs in the United

States and internationally.


AN GLOBAL

has merged with

a portfolio company of

ControlScan is a leading provider of security and compliance solutions.

Gro Solutions provides a digital sales platform for financial institutions.


ASP is the leading swimming pool cleaning franchisor in the U.S.


a portfolio company of

FEATURED TRANSACTION

4

DEAL OVERVIEW

COMPANY OVERVIEW Lexington Manufacturing, Inc. (“Lexington”) is a leading provider of

engineered components to window and door OEMs in the U.S. andinternationally

The Company’s products are comprised of a variety of materials,including hardwoods, softwoods, aluminum, plastics, MDF, particleboardand other panel products

Lexington has nearly 200 employees across three manufacturing plants

The Company was wholly owned by co-founders Bob and John Dimke,who started the Company in 1981 with their father

Croft & Bender was engaged to help the Company evaluate strategicalternatives, including a majority recapitalization or strategic sale

Croft & Bender worked with the Company to build a financial model,develop marketing materials, conduct management presentations,manage the diligence process and negotiate with potential buyers

Croft & Bender ran a competitive process that included a broad group ofpotential partners

Croft & Bender successfully negotiated the sale of the Company toWatkins Associated Industries

DEAL OVERVIEW

COMPANY OVERVIEW Gro Solutions, Inc. (“Gro”) provides a leading digital sales platform for

financial institutions

The Gro platform enables customers to make personalizedrecommendations and cross-sell products — from deposit accounts toloans for both retail and business clients

Gro’s solution combines advanced, multichannel account opening withtargeted marketing capabilities and a shopping cart experience

In 2017, C&B Capital helped put together a Series A equity round thatincluded several leading Southeastern venture capital funds (TTV Capital,BIP Capital, and BLH Ventures)

Following the transaction, Steve Tye served as a board observer, advisingthe company on growth initiatives and strategic opportunities

Given the knowledge and relationships C&B had in the Fintech space, inmid-2018 the Company engaged Croft & Bender to assist in evaluating itsstrategic alternatives

Croft & Bender worked with the Company to contact and managediscussions with a targeted group of potential strategic acquirors

Croft & Bender successfully negotiated the sale of the Company to Q2Holdings, Inc. (NYSE:QTWO)


Lexington Manufacturing is a leading provider of engineered components to window and door OEMs in the United

States and internationally.

Gro Solutions provides a digital sales platform for financial institutions.


Note: Middle-market transactions are defined as those with a disclosed transaction value of less than $1 billion.

22.7%

33.9%32.5%

Public Equity Markets Middle Market Deal Volume

($ in billions)

Cash on Corporate Balance Sheets

($ in trillions)

Private Equity Dry Powder

($ in billions)

Middle Market EBITDA Multiples Middle Market Leverage Multiples

KEY CAPITAL MARKETS DATA

$614 $594 $557$669 $681

$743$830

$1,026

$1,197

'10 '11 '12 '13 '14 '15 '16 '17 '18

$5.3 $5.4 $5.6$5.9 $6.0

$5.7 $5.9$6.3

$6.0

'10 '11 '12 '13 '14 '15 '16 '17 '18

4.2x 4.3x4.5x

4.8x5.3x 5.3x 5.3x

5.5x 5.5x

'10 '11 '12 '13 '14 '15 '16 '17 '18

5

$342 $347 $347 $327

$396 $385 $385 $380 $384

'10 '11 '12 '13 '14 '15 '16 '17 '18

8.6x9.2x

8.1x 8.4x9.2x

8.6x9.2x 9.4x

8.9x

'10 '11 '12 '13 '14 '15 '16 '17 '18

(20.0%)

0.0%

20.0%

40.0%

60.0%

80.0%

12/15 6/16 12/16 6/17 12/17 6/18 12/18

S&P 500 NASDAQ Dow Jones

[1] Indexed relative to 2012.[2] Indexed relative to 1985.

Unemployment RateConsumer Confidence(2)

Real GDP Growth Industrial Production(1)

Retail Sales

($ in billions)

Consumer Spending

($ in trillions)

KEY ECONOMIC DATA

6

100

102

104

106

108

110

Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4

'14 '15 '16 '17 '18

70

80

90

100

110

120

130

140


'14 '15 '16 '17 '18

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%


'14 '15 '16 '17 '18

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%


'14 '15 '16 '17 '18

$1,000

$1,100

$1,200

$1,300

$1,400


'14 '15 '16 '17 '18

$10

$11

$12

$13

$14

$15


'14 '15 '16 '17 '18

AVERAGE PUBLIC MULTIPLES & U.S. DEAL ACTIVITY BY SELECT INDUSTRY GROUPS

*Latest twelve months as of December 31, 2018.Note: EV = Enterprise Value.

General Industrial IT Consulting & Other Services

Building Products Trading Companies & Distributors

Consumer ServicesRetailing

11.0x 9.9x

11.2x 11.1x 9.9x

1.3x 1.2x 1.4x 1.4x 1.2x

2,3032,425

2,145 2,169 2,261

0

500

1,000

1,500

2,000

2,500

3,000

0x

2x

4x

6x

8x

10x

12x

2014 2015 2016 2017 2018

EV/EBITDA Multiple EV/Revenue Multiple

# of M&A Transactions

11.1x 10.7x 11.5x 12.8x

10.7x

1.8x 1.7x 1.8x 1.8x 1.6x

264

341

270 275291

0

50

100

150

200

250

300

350

400

0x

2x

4x

6x

8x

10x

12x

14x

2014 2015 2016 2017 2018



11.8x 11.8x 13.7x

11.3x 9.9x

0.8x 0.8x 0.8x 0.8x 0.7x

272

319

277 248

300

0

50

100

150

200

250

300

350

0x

2x

4x

6x

8x

10x

12x

14x

16x

2014 2015 2016 2017 2018



13.2x 12.9x 13.5x 15.7x

14.5x 1.3x 1.2x 1.3x 1.4x 1.4x

496600

491

366376

0

100

200

300

400

500

600

700

0x

5x

10x

15x

20x

2014 2015 2016 2017 2018



12.4x 12.3x 12.9x 13.9x 12.1x

2.3x 2.3x 2.5x 2.8x 2.4x

1,1121,057

905

810848

0

200

400

600

800

1,000

1,200

0x

2x

4x

6x

8x

10x

12x

14x

16x

2014 2015 2016 2017 2018



10.4x

9.7x

11.0x 10.7x 9.3x

1.2x 1.1x 1.4x 1.4x 1.2x

6155

63 63

84

0

20

40

60

80

100

0x

2x

4x

6x

8x

10x

12x

2014 2015 2016 2017 2018



7

AVERAGE PUBLIC MULTIPLES & U.S. DEAL ACTIVITY BY SELECT INDUSTRY GROUPS

Healthcare Facilities Healthcare Software

Healthcare Services Data Processing & Outsourced Services

General Software & ServicesApplication Software

*Latest twelve months as of December 31, 2018.Note: EV = Enterprise Value.

12.1x 11.3x 11.6x 12.4x 12.1x

2.0x 1.8x 1.8x 1.8x 1.8x

409463

415

301254

0

125

250

375

500

0x

2x

4x

6x

8x

10x

12x

14x

2014 2015 2016 2017 2018



25.9x

20.7x 21.4x 23.9x 24.3x

4.3x 3.5x 3.7x 4.1x 3.9x

67 6562

52

44

0

25

50

75

0x

5x

10x

15x

20x

25x

30x

2014 2015 2016 2017 2018



11.2x 10.5x 10.0x 10.3x 10.0x

1.2x 1.1x 1.0x 1.0x 1.0x

396464

416 426 408

0

100

200

300

400

500

0x

2x

4x

6x

8x

10x

12x

2014 2015 2016 2017 2018



15.4x 15.0x 16.1x 19.7x 19.3x

4.7x 4.5x 4.7x 5.9x 6.0x

58 6064

9097

0

20

40

60

80

100

120

0x

5x

10x

15x

20x

25x

2014 2015 2016 2017 2018



22.9x 22.9x 24.3x 26.8x 26.1x

5.2x 4.8x 5.2x 5.8x 5.7x

878954

842 908 896

0

200

400

600

800

1,000

0x

5x

10x

15x

20x

25x

30x

2014 2015 2016 2017 2018



13.4x 13.6x 15.7x

18.3x 16.6x

3.2x 3.1x 3.5x 4.0x 3.9x

1,3761,522

1,3251,420 1,440

0

400

800

1,200

1,600

0x

5x

10x

15x

20x

2014 2015 2016 2017 2018



8

Median VC Round Size by Stage

($ in millions)

U.S. VC Activity by Year

U.S. Growth Equity Activity by Year U.S. Growth Equity Deal Size Metrics

($ in millions)

U.S. Private Equity Deals by Deal Size

(# of deals)

U.S. Private Equity Activity by Year

PRIVATE CAPITAL DATA

$1

8

$2

4

$2

2

$2

2

$4

0

$4

6

$4

0

$4

3

$6

6

536

630 644 661

874964

841930

1,057

0

200

400

600

800

1,000

1,200

$0

$10

$20

$30

$40

$50

$60

$70

'10 '11 '12 '13 '14 '15 '16 '17 '18

Deal value ($B)

# of deals closed

$2

89

$3

44

$3

71

$4

40

$5

29

$5

56

$6

09

$6

08

$6

65

2,743

3,1233,494

3,407

4,204 4,365 4,350 4,5524,578

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

5,000

5,500

$0

$100

$200

$300

$400

$500

$600

$700

$800

'10 '11 '12 '13 '14 '15 '16 '17 '18

Deal value ($B)

# of deals closed

$3

1

$4

5

$4

2

$4

8

$7

1

$8

3

$7

7

$8

3

$1

31

5,4096,759

7,882

9,301

10,573 10,740

9,200 9,489

8,948

0

2,000

4,000

6,000

8,000

10,000

12,000

$0

$20

$40

$60

$80

$100

$120

$140

'10 '11 '12 '13 '14 '15 '16 '17 '18

Deal value ($B)

# of deals closed

$1.0 $1.2

$5.2

$6.4

$10.0

$11.4

$0

$2

$4

$6

$8

$10

$12

'10 '11 '12 '13 '14 '15 '16 '17 '18

Angel/Seed

Early VC

Later VC

$169.9

$200.0

$40.0 $47.0

$0

$50

$100

$150

$200

$250

'10 '11 '12 '13 '14 '15 '16 '17 '18

Median pre-money valuation

Median deal size

2,027

1,861

985 1,143

1,073 1,196

0

500

1,000

1,500

2,000

2,500

'10 '11 '12 '13 '14 '15 '16 '17 '18

Under $25M

$25M-$100M

$100M-$500M

9

Croft & Bender LP (www.croft-bender.com) is a leading middle market investment bank focused on the advisory needs of clients nationwide. The firmhas extensive industry knowledge, transaction expertise, and a commitment to its clients’ success. Croft & Bender LP provides sell-side and buy-sideadvisory, capital raising, and financial advisory.

Investment banking services are provided by Croft & Bender, a registered broker-dealer and member of FINRA and SIPC.

THIS REPORT MAY CONTAIN REFERENCES TO REGISTERED TRADEMARKS, SERVICE MARKS AND COPYRIGHTS OWNED BY THIRD-PARTY INFORMATIONPROVIDERS. NONE OF THE THIRD-PARTY INFORMATION PROVIDERS IS ENDORSING THE OFFERING OF, AND SHALL NOT IN ANY WAY BE DEEMED ANISSUER OR UNDERWRITER OF, THE SECURITIES, FINANCIAL INSTRUMENTS OR OTHER INVESTMENTS DISCUSSED IN THIS REPORT, AND SHALL NOT HAVEANY LIABILITY OR RESPONSIBILITY FOR ANY STATEMENTS MADE IN THE REPORT OR FOR ANY FINANCIAL STATEMENTS, FINANCIAL PROJECTIONS OROTHER FINANCIAL INFORMATION CONTAINED OR ATTACHED AS AN EXHIBIT TO THE REPORT. FOR MORE INFORMATION ABOUT THE MATERIALSPROVIDED BY SUCH THIRD PARTIES, PLEASE CONTACT US AT THE ADDRESSES OR NUMBERS AT THE BEGINNING OF THE REPORT.

The information and views contained in this report were prepared by Croft & Bender LP. It is not a research report, as such term is defined by applicablelaw and regulations, and is provided for informational purposes only. It is not to be construed as an offer to buy or sell or a solicitation of an offer to buyor sell any financial instruments or to participate in any particular trading strategy. The information contained herein is believed by Croft & Bender to bereliable, but Croft & Bender makes no representation as to the accuracy or completeness of such information. Transaction numbers include thosetransactions that closed during the year they appear under and the industry classification assigned to the target by S&P Capital IQ. Croft & Bender and/orits affiliates act as advisers or lenders to, have positions in and effect transactions in securities of companies mentioned herein and also may provide,may have provided, or may seek to provide investment banking services for those companies. In addition, Croft & Bender and/or its affiliates or theirrespective officers, directors and employees may hold long or short positions in the securities, options thereon or other related financial products ofcompanies discussed herein. Opinions, estimates and projections in this report constitute Croft & Bender’s judgment and are subject to change withoutnotice. The financial instruments discussed in this report may not be suitable for all investors, and investors must make their own investment decisionsusing their own independent advisors as they believe necessary and based upon their specific financial situations and investment objectives. Also, pastperformance is not necessarily indicative of future results. No part of this material may be copied or duplicated in any form or by any means, orredistributed, without Croft & Bender’s prior written consent. Sources of information include S&P Capital IQ and Pitchbook.

DISCLOSURES

10

Documents

Q4 2018 Market Report - Croft & Bender...Note: Middle-market transactions are defined as those with a disclosed transaction value of less than $1 billion. 22.7% 33.9% 32.5% Public