Industry Overview: Aerospace & Defense Supplemental Discussion - - PowerPoint PPT Presentation

Industry Overview: Aerospace & Defense Supplemental Discussion Materials

Materials Presented by: January 2018

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Executive Summary

• The purpose of this presentation is to highlight CWC’s qualifications and capabilities in

investment banking by addressing the following: − Introduction of CWC and the investment banking team − CWC’s relevant investment banking qualifications − CWC’s expertise in the Aerospace & Defense industry

• Communicate key trends that will dominate A&D transaction discussion in the near-medium term
• Become a resource for business owners and operators who may eventually require capital raising

and M&A services to achieve their financial and strategic objectives Columbia West Capital, LLC (“CWC”) appreciates the opportunity to present our firm and to provide

• ur observations regarding the Aerospace & Defense industry

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Agenda

Section Topic I. Overview of Columbia West Capital II. Aerospace & Defense Market Overview III. M&A Market Overview IV. Investor & Capital Landscape V. CWC Value Offering VI. Appendix

• I. Overview of Columbia West Capital, LLC

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Overview of Columbia West Capital

• Our senior partners bring investment banking experience from major-bracket investment banking firms

including: − Morgan Stanley − Deutsche Bank − Credit Suisse

• Our senior partners bring a wealth of hands-on operating and transaction experience in growth

companies and major corporations − More than 55 transactions worth over $15.0 billion dollars

• CWC delivers a full range of advisory services including:

I. Mergers and Acquisitions II. Capital Raising III. Strategic Financial Advisory IV. Business Valuation CWC is a FINRA-registered investment banking firm focused on providing world-class financial advisory services to middle-market companies

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• Sell Side Advisory
• Buy Side Advisory
• Leveraged Buyouts
• Management Buyouts
• Public to Private
• Debt Capital
• Senior Facilities
• Subordinated
• Mezzanine
• Equity
• Growth Capital
• Shareholder Liquidity
• Restructuring
• Leveraged

Recapitalizations

• Financial Consulting
• Fairness Opinions
• Business Valuation
• Strategic Alternatives

Evaluation

• Product Line

Valuation

Overview of Columbia West Capital

Mergers & Acquisitions Business Valuation Strategic Advisory Capital Raising

CWC offers a full range of traditional investment banking advisory services

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Overview of Columbia West Capital

Why Columbia West Capital?

I. Credibility and Reputation. CWC’s deal team has long-established reputations with leading Wall Street financial institutions and major corporations, providing our clients with unparalleled access to providers of capital II. Focused Attention. We work with our clients as partners to achieve their goals. We view ourselves as the extension of our client's senior management team, and the full resources of our experience and expertise are available throughout the entire process. We succeed as a team. We limit our engagements to a few select clients that receive 100% of our attention and our highest priority III. Entrepreneurial Spirit. We offer our clients the expertise and capabilities of a large investment banking firm with the energy and focused attention of a small entrepreneurial firm. As business owners and operators

• urselves, we can relate to entrepreneurs on a more personalized level during the capital raising process unlike
• ur larger competition

IV. Experience Counts. Our senior partners have a wide array of experience and a depth of knowledge in many disciplines and across geographies. Our partners have both extensive deal experience from large Wall Street firms and middle market boutiques as well as hands-on senior management experience

Our Senior Investment Banking Professionals have a breadth of industry experience that reflects the diversity of the Southwest economy.

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Overview of Columbia West Capital

CWC’s track record of results is based on industry expertise, creativity, and superior execution at each step of the process

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Superior Senior- Level Attention at Each Stage of the Process Dedication to Middle-Market M&A and Capital Raising Unparalleled Commitment and Attention to Detail Innovative Strategies and Outstanding Negotiating Skills Deep Knowledge of Industry and Business Model Institutional Knowledge of Potential Buyers and Investors

• Determining optimal

process timing

• Crafting the

appropriate process

• Identifying the right

group of buyers or investors

• Appropriately

conveying the “story” and growth

• pportunities
• Assembling a qualified,

competitive group of investors

• Positioning and

presenting the Company in the best light possible

• Fully understanding all

buyer proposals to develop a “true” comparison between

• ffers
• Determining the most

advantageous time to negotiate with potential buyers and investors

• Deciphering and

evaluating advantages with proposals

• Developing counter

proposal(s) and the best script to deliver them

Critical “Back-End” Process Considerations Critical “Front-End” Process Considerations

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CWC A&D Deal Team Biographies

John Farr, Managing Director & Partner

John Farr has spent his career serving companies in the Consumer, Manufacturing, Industrial Technology, and Aerospace & Defense industries. His transaction experience includes public and private companies such as Honeywell International, General Electric, Nutraceutical International, Boeing, General Dynamics, Kroger Inc., the Vanguard group, and Atrium Innovations.

• Mr. Farr was previously with Honeywell Aerospace’s Mergers & Acquisitions team

making acquisitions in the commercial and business aviation and defense markets. Additionally, Mr. Farr was the Finance Manager for a $525 million MRO division. Previously he worked with PNC Equity Management, a $1 billion private equity group engaged in growth equity, leveraged buyout, and mezzanine loan investing primarily in consumer, manufacturing, distribution, and services businesses. Mr. Farr began his investment banking career in New York where he worked as an Analyst and Associate with the Private Placement team at Deutsche Bank Alex Brown. He originated, structured, and placed investment grade and mezzanine loan transactions for a variety of industries.

• Mr. Farr earned a B.A. in Economics and Business Administration from Vanderbilt

University and an MBA with concentrations in Finance, Accounting, and Strategy from the Kellogg School of Management.

• Mr. Farr is registered with FINRA (formerly

NASD) and has series 7, 63, and 24 securities licenses. He is a past recipient of The M&A Advisor’s national 40 Under 40 Award, is involved with several finance industry

• rganizations, and is a frequent speaker on the topics of M&A and capital raising.
• Honeywell

Aerospace M&A

• PNC Private Equity
• Deutsche Bank

Prior Experience

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David Barnett, Managing Director & Partner

David Barnett brings more than 20 years experience in both public and private sector investments to Columbia West Capital. Previously, he spent more than 8 years at Morgan Stanley working mainly with owners and operators of closely held businesses. He has been involved in successfully structuring and executed transactions in both the corporate and commercial real estate arena. Additionally, he has worked in the US Senate, focusing exclusively in healthcare legislation, and later developed a governmental affairs team at a 530 bed hospital and the 3rd largest home health care company in the United States. Recently he was Chairman of the City of Scottsdale Planning Commission, Trustee and past Treasurer of the Desert Botanical Garden, Greater Phoenix Economic Council (GPEC) International Leadership Committee member and is also involved in numerous other volunteer organizations. Mr. Barnett has a B.S. in Political Science from Arizona State University, and a Masters of Public Policy – Regulatory Affairs from the College of William and Mary.

• Mr. Barnett is registered with FINRA (formerly

NASD) and holds Series 7 and Series 63 securities licenses.

CWC A&D Deal Team Biographies

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CWC A&D Deal Team Biographies

Evan Brindley, Analyst

Evan Brindley joined Columbia West Capital in 2016, assisting senior bankers with transaction execution including valuation analysis and industry research across a broad range of industries and assisting in the preparation of pitch books, investment memoranda, marketing materials and in all aspects of due diligence and client

• management. Prior to joining CWC, Evan worked as a M&A Summer Analyst for

Hexagon AB in their Corporate Strategy division. Evan received a B.S. in Business Administration and Finance from The University

• f Alabama and an MBA with a concentration in Finance from the W.P. Carey School
• f Business. Evan is a Registered Representative with FINRA and holds Series 63

and Series 79 securities licenses.

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CWC Aerospace & Defense Coverage

Columbia West Capital’s Select Company Coverage:

H Y M A T I C

• II. Aerospace & Defense Industry Overview

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Recent Public Market Performance – Stock Price

Where is Aero & Defense today? By stock market performance, A&D has shined recently even in a robust market 3 Yr Average 2017 DJIA 11.1% 25.1% S&P 500 8.5% 19.4% Russell 2000 8.0% 13.1% DJ Global ex U.S. N/A 24.6% MSCI EAFE 7.8% 25.0% iShares Asia 50 33.7% 17.5% S&P A&D Select Industries Index 16.3% 32.1%

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Share Enterprise Value as a Multiple of LTM Price % of Market Enterprise Revenues EBITDA EBITDA Aerospace & Defense 29-Dec-17 52 Wk High Value Value LTM 2018 LTM 2018 Margin The Boeing Company $294.91 98.5% $175,642 $176,437 1.93x 1.92x 15.7x 14.8x 12.3% Airbus SE 99.66 93.0% 77,187 80,174 1.02x 1.00x 33.2x 10.3x 3.1% Embraer S.A. 23.93 91.2% 4,439 5,981 0.96x 1.02x 9.6x 7.6x 9.9% BAE Systems plc 7.74 84.0% 24,659 26,987 1.12x 1.02x 10.9x 8.9x 10.3% General Dynamics Corporation 203.45 94.7% 60,747 62,907 2.02x 2.02x 12.8x 13.5x 15.8% Northrop Grumman Corporation 306.91 98.6% 53,426 58,638 2.29x 2.30x 15.4x 15.4x 14.9% Raytheon Company 187.85 97.6% 54,305 57,432 2.32x 2.26x 15.3x 14.9x 15.1% Lockheed Martin Corporation 321.05 99.1% 92,055 103,459 2.08x 2.04x 16.7x 14.8x 12.5% Booz Allen Hamilton Holding Corporation 38.13 96.1% 5,560 7,077 1.18x 1.14x 12.4x 12.0x 9.4% Science Applications International Corpora 76.57 85.2% 3,275 4,181 0.96x 0.95x 13.8x 13.7x 7.0% L3 Technologies, Inc. 197.85 98.9% 15,460 18,436 1.67x 1.84x 13.3x 14.8x 12.6% CACI International Inc 132.35 89.8% 3,259 4,363 1.00x 0.98x 12.0x 11.3x 8.3% ManTech International Corporation 50.19 94.2% 1,957 1,808 1.10x 1.05x 14.3x 13.8x 7.7% Honeywell International Inc. 153.36 97.9% 116,064 122,834 3.10x 3.03x 15.1x 14.6x 20.5% Triumph Group, Inc. 27.20 78.2% 1,350 2,749 0.84x 0.88x 7.6x 10.6x 11.0% HEICO Corporation 94.35 93.0% 7,197 8,037 5.27x 4.70x 21.6x 18.9x 24.4% Moog Inc. 86.85 96.5% 3,112 3,701 1.48x 1.41x 11.5x 10.6x 12.8% Parker-Hannifin Corporation 199.58 99.4% 26,589 31,553 2.49x 2.26x 16.1x 13.3x 15.5% Mean 93.7% 1.82x 1.77x 14.8x 13.0x 12.4% Median 95.4% 1.58x 1.62x 14.1x 13.6x 12.4%

Public Valuation Snapshot

Source: S&P Capital IQ

($ in millions except share price data )

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70 100 130 160 Jan-16 Apr-16 Jul-16 Oct-16 Jan-17 Apr-17 Jul-17 Oct-17 Commercial Primes Defense Primes Federal IT Engines & Components MRO S&P 500 PUBLIC AEROSPACE & DEFENSE SECTOR PERFORMANCES

Recent Public Market Performance – Market Cap

Source: S&P Capital IQ; Individual indexes constructed by Columbia West Capital for benchmarking purposes only

64.2% 48.9% 48.3% 46.8% 37.9% 37.6%

Two-Year Total Return

Donald Trump Elected President

s

Beginning of 2018

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Sector Performance Drivers

Commercial, Engines, & MRO Federal IT

• Flight Demand
• New gen aircraft orders escalating
• Global commercial a/c delivery up

19% in ‘17

• Aircraft

transition improving margins on flat revenue

• Sentiment
• IATA

Economist anticipates 2018 growth above the long-term historical trend

• 7 Years of growth
• M&A activity and momentum?

e.g. Airbus/Bombardier

• Global unrest
• Cyber security concerns
• Digitization of Everything
• Connectivity
• C4ISR
• UAVs
• Combat Modernization, e.g. FCS

Source: CAPA Center for Aviation Fleet Database

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Global Commercial Aviation Landscape

Source: Bureau of Transportation Statistics

Available Seat-Miles Annual Passenger Volume Annual Load Factor Total Flights

1,364 1,281 1,301 1,349 1,367 1,410 1,474 1,569 1,665 500 750 1,000 1,250 1,500 1,750 2,000 2008 2009 2010 2011 2012 2013 2014 2015 2016

(in millions of miles)

78.7% 79.7% 81.9% 81.6% 82.5% 82.8% 82.7% 82.7% 82.4% 76% 77% 78% 79% 80% 81% 82% 83% 84% 2008 2009 2010 2011 2012 2013 2014 2015 2016 810 768 787 802 813 825 852 897 932

• 200

400 600 800 1,000 1,200 2008 2009 2010 2011 2012 2013 2014 2015 2016

(in millions of passengers)

10,717 10,032 10,000 9,968 9,805 9,711 9,542 9,534 9,715 8,750 9,000 9,250 9,500 9,750 10,000 10,250 10,500 10,750 11,000 2008 2009 2010 2011 2012 2013 2014 2015 2016

(in thousands of flights)

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Recent Macro Performance

Source: Department of Defense; Investing in the Defense, Homeland Security, and Space Market 2017 (SPADE Defense Index)

Bush Era Obama Era Trump Era

Department of Defense Annual Budget*

($in billions)

Proposed Budget

• D.O.D. budget has more than doubled over the past 20 years with volatile changes in spending under various

administrations

• Proposed 2018 increase includes more missile defense, compensation for soldiers, JSF-35s, subs and an

“Overseas Contingency Operations“ component of $66 billion

Fiscal Year

*Includes Overseas Contingency Operations budget

DEFENSE SPENDING

$437 $468 $479 $535 $601 $666 $666 $691 $687 $646 $578 $581 $560 $581 $584 $692 $0 $100 $200 $300 $400 $500 $600 $700 $800 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

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GOVERNMENT INVOLVEMENT

• Offshore funds come home
• Tax Rate drop to 21% from 35%. Greater profits to re-invest in

̶ Capital Expenditures ̶ New Hires ̶ Technology

• Immediate expensing of qualified tangible property (to 2022) and Section 179

increase

• Greater return on current investments
• Perception of continued market health

Current Aerospace & Defense Events and Trends

• Spending needs for OCO, Border Wall, Cybersecurity and Tech will create headlines

and debates in near-medium term

• Still requires an appropriations bill to lift the budget caps $80 billion+

Budget Tax Cuts & Job Act

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Privatization/ Outsourcing

GOVERNMENT INVOLVEMENT

• Pressure to reduce defense budget will proliferate the outsourcing trend
• Addresses a perception of waste, offset by security and safety concerns
• Boon to non-traditional suppliers
• SpaceX quoted $90M to launch GPS III satellites into orbit, while United Launch

Alliance (Boeing/Lockheed) averages $422M per rocket

• Industry must rethink legacy technologies and processes for cost-cutting and

innovation

• Recent study posted to NASA website warns that continuing traditional contracting

and funding arrangements will lead to continued missed budgets, advocating for more “commercial practices”

• Space and Federal IT the most relevant sectors, esp. cybersecurity software

Current Aerospace & Defense Events and Trends

• March 2017:
• Rep. Brian Babin, Chairman of the Space subcommittee: “Tax-dollars

spent on the [International Space Station] will not be spent on… the Moon and Mars…What opportunities will we miss if we maintain the status quo?”

• December 2017: Trump signed a presidential order directing NASA to prepare a return

to the moon

• Ramifications: Government support for space, shift away from ISS? Too early to say

NASA Pledge

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TECHNOLOGY

Current Aerospace & Defense Events and Trends

Connectivity Telematics Artificial Intelligence MSG-3 Automation Big Data

• Industry 4.0 implies a "smart factory“ where cyber-

physical systems can monitor physical processes and make decentralized decisions. Via the Internet, these systems could communicate with each other and with humans

• 4.0 epitomizes automation, machine learning, and

allows for reduced labor, greater speed and product customization

• Continued adoption of software in hardware
• Additive manufacturing, cyber-physical systems, the Internet of Things, are all

evolutionary steps towards full automation

• Connectivity leads to efficiency, safety, speed, profit margins, and vulnerability
• Sensors evolving from singular purpose to networked data gathering
• Second generation Telematics will create more data and visibility
• Greater ability to analyze performance by part, by vendor, by MRO shop, etc.
• Do you perform a hot section inspection on an engine performing perfectly?
• Data Capture allows for faster problem resolution, reduced R&D costs
• MSG-3 suggests MRO transitions from task oriented steps to a flexible system which

packages tasks at an airline’s discretion, driven by MRO software and data

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CYBERSECURITY

• Defense Federal Acquisition Regulation Supplement 252.204.7012.

̶ Calls for the safeguarding of covered information and incident reporting,

• bligating

contractors to comply with regulations protecting classified information. Contractors required to complete a compliance readiness assessment with gap analysis and implementation plan ̶ Contractors required to report cyber incidents to Pentagon within 30 days ̶ Immediate compliance; must have plan for 2018 with near-term implementation

• Unprecedented Cyber Incidents

̶ 2010 Iranian nuclear plant shutdown by “Stuxnet” virus (US/Israel*) ̶ 2015 U.S. Office of Personnel Management hacked, 23 million federal ̶ employee records compromised ̶ 2016 Facebook and Yahoo hacked, manipulated (directly or indirectly, Russia*) ̶ 2016 NSA hacked, tools exposed ̶ 2016 Ukrainian power plant shutdown (Russia*) ̶ 2017 WannaCry ransomware locked over 300,000 computers (North Korea*) ̶ 2017 Kapersky Lab backdoor (Russia*)

• The next Cold War is now
• Cyber Security is an ongoing annual expense, not a patch

Current Aerospace & Defense Events and Trends

Cybersecurity

*Allegedly

• III. M&A Market Overview

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Recent A&D M&A Market Landscape

Source: Capital IQ and company filings; PWC Quarterly Aerospace & Defense M&A Report

Market Highlights Total Number of Global A&D Transactions Total Global A&D Transaction Value Average Transaction Valuation as a Multiple of EBITDA

76 68 50 87 66 62 77 59 73 61 67 84 60 62 54 52 10 20 30 40 50 60 70 80 90 100 110 1Q14 1Q15 1Q16 1Q17 10.3x 11.2x 10.3x 14.4x 9.8x 8.3x 13.5x 12.3x 10.8x 10.7x 0.0x 2.0x 4.0x 6.0x 8.0x 10.0x 12.0x 14.0x 16.0x 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 $2.0 $17.0 $1.0 $6.0 $12.0 $4.0 $47.0 $5.0 $10.0 $6.0 $6.0 $17.0 $12.0 $6.0 $44.0 $0 $5 $10 $15 $20 $25 $30 $35 $40 $45 $50 $55 1Q14 1Q15 1Q16 1Q17 (includes disclosed deal values only; $ in billions)

• Benefiting from abundant equity and debt capital,

low interest rates and high stock prices

• Recent upturn in large acquisition offers: Orbital

ATK, Rockwell Collins, Embraer

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Capabilities

• Acquisition of adjacent lines or products
• Exposure to long-term contracts, key programs
• Vertical and horizontal integration is likely
• Recent examples: Airbus/Bombardier and Boeing/Embraer
• Engineering talent: New tech requires multi-functional teams
• Adoption of software into hardware
• More budget moving to smaller, private contractors
• Spin-off of capabilities
• New players
• Especially Space, C4ISR, Security, Cyber Warfare, “Wall” builders, and Fed IT generally

A&D Industry Motivations for M&A

Scope Privatization/ Cost Cutting Technology

• New, critical technology: UAVs, UUVs, VR, dynamic predictive trend monitoring,

industry 4.0, Big Data, MSG-3, Exoatmospheric Kill Vehicles, cyber threats

• Legacy arsenal is a sunk cost; the budget must shift to tech and IT today. These

technology advances require huge expenditures that must be funded

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Select Strategic Transactions

Target Company Acquiring Company Date A&D Sector Transaction Comments

December 2017 (pending) OEM

• Pursuit of scope
• Response to Airbus/

Bombardier

• Ex. of Industry Consolidation

September 2017 (pending) Avionics/Tech Systems

• Creation of a well positioned

global aerospace systems supplier

• Accretive to UTC earnings
• Highly synergistic acquisition

September 2017 (pending) Technology Systems

• Provides new capabilities,

innovation and growth

• pportunities for Northrup
• Cost savings and revenue

synergies November 2017 UAVs/Tech Systems

• Creates new product line of

autonomous tech systems for military and commercial

• Adds scope

October 2016 Additive Manufacturing

• Provides new capabilities,

innovation and growth

• pportunities

October 2015 Fire Suppression

• Profitable, accretive purchase
• Extends product offerings

with niche, high margin fire suppression

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Consolidation

• More Investors with larger funds will increase acquisition volume and larger business

purchases while sustaining higher valuations

• According to PWC, Arizona ranked as the second most attractive aerospace

manufacturing market in the U.S.

• In Arizona: LAI/RLJ Equity, Aimco Precision/Spell Capital, Systems 3/Stephens

Manufacturing

• Small companies may struggle to compete with increased tech and cybersecurity-

related regulations and supply chain requirements

• To reduce that cost/production unit, they may seek to become part of a larger
• rganization

What’s On The Horizon For M&A?

More Private Equity Continued Shift to IT

• Expect IT-capable firms to fair well in performance or as M&A targets: L3, BAE, GD,

Harris, Peraton, Mantech, CACI International, Palantir, etc.

• Arizona & West Coast meet D.C.

Acqui-Hires

• Small teams comprising consultancy-like companies will be acquired to fill

competency gaps, esp. bringing software and big data into traditional manufacturing environments

• Vast majority of A&D M&A activity already involves small, private target companies
• f less than $100M in revenue

• IV. Investor & Capital Landscape

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$947 $1,269 $1,691 $1,766 $1,152 $788 $898 $1,205 $1,142 $1,364 $2,121 $2,390 $1,945 $1,457 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Compelling Trends Total U.S. Transaction Value 2004-2017

Current State of M&A: Abundant Capital for Scarce Assets

Several factors are triggering robust M&A activity, resulting in market-high valuations:

($ in billions)

Strategics Want to Unload Surplus Cash Intense Competition at Premium Valuations Favorable Middle- Market M&A Environment

• S&P 500 constituents had roughly $1.54

trillion in excess cash available in 2016

• Strategics are turning to strategic M&A to

catalyze stagnant performance

• Strategics have shown a willingness to

pay large premiums for synergistic targets

• Roughly $754 billion in global private

equity capital overhang existed at the end

• f 2016
• Aggregate deal value has soared since

2012

• Public and private equities are trading at

historical highs; healthcare companies are receiving premiums

Favorable trends expected through 2018 and beyond

• Despite
• il

and gas turmoil including numerous bankruptcies, middle-market M&A activity has remained stable over the last few years

• Median

EV/EBITDA multiples have steadily expanded since 2012

• Preqin

estimates available capital for private equity “dry powder” grew to over $800 billion at the end of 2017

Source: S&P Capital IQ

Source: FactSet; PitchBook; Preqin

31

Private Equity Capital Explosion

Availability of private capital gives company owners more options than ever before to structure their exit and capital raising goals

1,608 1,844 2,077 2,251 2,484 2,711 3,001 3,345 3,584 3,742 3,919 4,005 4,093 4,270 4,443 4,558 4,719 $577 $590 $593 $657 $708 $881 $1,155 $1,468 $1,421 $1,575 $1,712 $1,793 $1,940 $2,184 $2,239 $2,387 $2,486 $0 $500 $1,000 $1,500 $2,000 $2,500 $3,000

• 500

1,000 1,500 2,000 2,500 3,000 3,500 4,000 4,500 5,000 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Number of Private Equity Firms Assets Under Management ($ in billions)

Source: Preqin

32

Recent PE A&D Acquisition Activity

Source: Capital IQ and company filings; PWC Quarterly Aerospace & Defense M&A Report

Total Aggregate Deal Value By PE Firms Total Number of A&D Acquisitions By PE Firms

11 24 30 26 40 33 30 5 10 15 20 25 30 35 40 45 2011 2012 2013 2014 2015 2016 2017 (includes disclosed deal values only; $ in billions) $0.2 $2.7 $0.1 $0.8 $0.8 $0.8 $1.1 $2.5 $1.6 $0.7 $3.5 $4.9 $0.7 $2.3 $3.3 $0.0 $1.0 $2.0 $3.0 $4.0 $5.0 $6.0 1Q14 3Q14 1Q15 3Q15 1Q16 3Q16 1Q17 3Q17

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Private Debt Capital

• According to S&P 500’s Global

Market Intelligence,

• ver

the past 6 years, leveraged-backed M&A loan volume has reached all-time highs over the previous three quarters averaging close to $80 billion in each period

• LBO

volume approached $35 billion in Q317

• Favorable

interest rate conditions + clear guidance from the Fed, look for 2018 leveraged loan volume to steadily increase

• Private debt capital is readily available and enjoys low interest rates in this current market
• Growth capital from mezzanine providers has become a more attractive debt solution for strategic needs
• The emergence of alternative debt providers has enabled LBO activity, propelling a favorable environment

for sellers– including for smaller companies

Market Spotlight

Source: S&P Global Market Intelligence (graph)

34

Middle Market Capital Structure Products

Cost of Capital Security

M o r e L e s s M o r e E x p e n s i v e L e s s E x p e n s i v e

Debt Equity

Senior Debt

• Little flexibility to negotiate

terms

• Fully amortizing over 3-5 years
• Personally guaranteed

Asset Backed Loan “ABL”

• Secured by specific assets

(A/R, Inventory, PP&E)

• L+200 – L+400 cash pay

Cash Flow Loan

• Secured by all the assets and

equity of the company

• <2x Senior Debt/EBITDA
• L+300 – L+600 cash pay

Unitranche Debt

• A hybrid product providing

characteristics of both senior debt and mezzanine debt

• Some flexibility to negotiate

terms

• Secured by all the assets and

equity of the company

• Requires a senior position to all
• ther debt tranches
• Up to 4x Total Debt/EBITDA
• L+800 – L+1,000 cash pay
• Low /No amortization
• 5-7 year term

Mezzanine Debt

• Some flexibility to negotiate

terms

• Subordinate to senior debt
• Unsecured
• Up to 4x Total Debt/EBITDA
• L+1,200 – L+1,400 cash pay
• Possible 1%-4% PIK and/or

1%-4% warrants

• Non-amortizing

Preferred Equity

• Cash or PIK pay often 6%-9%
• Warrants, amount to be

negotiated

• Return must be paid before

any common equity receives a return

• May require a board seat
• Targeted hold period 5-7 years

Common Equity

• Expected return on investment
• f 25%-30%
• Investors require boards seats
• Targeted hold period 5-7 years

• V. CWC Value Proposition

36

• Sell Side Advisory
• Buy Side Advisory
• Leveraged Buyouts
• Management Buyouts
• Public to Private
• Debt Capital
• Senior Facilities
• Subordinated
• Mezzanine
• Equity
• Growth Capital
• Shareholder Liquidity
• Restructuring
• Leveraged

Recapitalizations

• Financial Consulting
• Fairness Opinions
• Business Valuation
• Strategic Alternatives

Evaluation

• Product Line

Valuation

Overview of Columbia West Capital

Mergers & Acquisitions Business Valuation Strategic Advisory Capital Raising

Columbia West Capital offers a full range of traditional investment banking advisory services while providing tailored solutions to meet every client’s goals Products and Services Provided by Columbia West Capital

37

Financing Case Study – TYR Tactical

• CWC delivered the following value to the transaction:

− Provided analytics around a risk-weighted potential contract pipeline including revenue and margin impact to get investors comfortable with the projections and recognize the value of the Company − Applied competitive pressure to ensure investors they submitted their best offers − Supported an expedited due diligence process which included debt and equity investors − Saved the Company $600k+ per year vs. expectation

• Properly positioning the revenue trajectory with data gave investors

confidence to support this Company’s transition

• TYR Tactical is a specialty product company that develops and manufactures

a comprehensive offering of best-in-class body armor and load carriage solutions to special operations forces, U.S. and foreign military, government agencies, law enforcement, and corrections

• CWC implemented a full auction process entailing 80 investor contacts and 7

viable term sheets

• The challenge: Revenue pipeline was not predictable, including speculative

contracts

38

M&A Case Study – Msi Testing & Engineering Inc.

• MSi provides metallurgical testing and engineering services to a variety of

industries including Aerospace, Steel, Automotive and Industrial sectors

• The two owners had different goals they sought to achieve: one desired

immediate retirement, the other wanted to retain his responsibilities and compensation and grow the Company with the help of new ownership

• CWC delivered the following to the transaction:

− Ran a full auction, Sourcing several offers from both strategic and financial buyers − Advised the owners on which buyer would best suit them to reach their individual goals: SGS, the world’s leading inspection, verification, testing and certification company − Structured a deal to enable one owner to exit after a six-month transition, while the other owner entered an employment agreement allowing him to maintain his role and continue to grow the firm

• Achieved a highly attractive transaction with regard to valuation,

structure and employment terms

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How CWC Provides These Opportunities

1. Experience with M&A and capital raising transactions 2. Significant Network of buyers, equity and debt capital with deep relationships 3. Expertise in the middle-market 4. Attentive to client needs, properly positioning the company to provide the best available outcomes for stakeholders

John Farr Managing Director & Partner 480.664.3949 jfarr@columbiawestcap.com Evan Brindley Analyst 480.664.3949 ebrindley@columbiawestcap.com Columbia West Capital, LLC 14624 N. Scottsdale Rd., Suite 124 Scottsdale, Arizona 85254 www.columbiawestcap.com How can Columbia West Capital help grow or sell your business?

Questions?