HydraulicIns.tuteAnnualMee.ng2017 1
March9,2017
Fluid Handling Industry
©2017GlobalEquityConsul.ng,LLC.AllRightsReserved
HydraulicIns.tuteAnnualMee.ng2017 2
OVERVIEW
Reviewof2016
! OverallM&AAc.vity! FluidHandlingIndustryM&A
! IndustryPerformance
ALookAheadto2017
! M&AOutlook! IndustryOutlook
3HydraulicIns.tuteAnnualMee.ng2017
aboutThomasHaan
FINRARegisteredInvestmentBankingRepresenta.ve
Opera8ngDirector,CityCapitalAdvisors,LLCPrincipal,GlobalEquityConsul.ng,LLC
PreviousExperience:PresidentEagleBurgmannIndustries;PresidentFlowserveCorpora.onFlowSolu.ons(MechanicalSeal)Division,COODurametallicCorp.
Educa2on:SchoolofBusiness-WesternMichiganUniversity
Tom's40yearcareerhasbeenintheFluidHandlingIndustryasaseniorexecu.veandadvisorforbothpublicandprivatelyheldcompanies.Hehasextensive
interna.onalexperiencehelpingbusinessesachieveenhanced
profitablegrowth.TomhasservedontheBoardof
DirectorsoftheHydraulicIns.tuteandaschairmanofits
AssociateMemberCouncil.HeisapastpresidentoftheFluid
SealingAssocia.on.
4HydraulicIns.tuteAnnualMee.ng2017
aboutGlobalEquityConsul.ng
BusinessDevelopment• StrategicAc2on®Planning–teambasedstrategydevelopmentandexecu.on
• BusinessValua.ons-• Execu.onsupportfororganicgrowthini.a.vesandenhancingvalue
o Marke.ngandMarketCoverageDevelopment
! SalesChannelDevelopment
! SalesForceEffec.venessPAWNFAB
o TeamEffec.veness–
! KepnerTregoeProblemSolving
• Buy-side–inorganicgrowththroughacquisi.ons• Sell-side–planandexecutethesaleofabusiness
• Capitalraise-forgrowthorownerliquidity
5HydraulicIns.tuteAnnualMee.ng2017
aboutCityCapitalAdvisors
Mission:toprovideseniorlevelcorporatefinanceadviceandunparalleledexecu.onservicestoleadingmiddlemarketcompaniesandtheirowners.
MemberofFINRAandSIPC
• EachManagingDirectorhas20+yearsexperience;collec.velytheyhavecompleted500+transac.onstotaling$60+billioninvalue.
• ProvidesM&Aadvisoryandotherinvestmentbankingservicestoprivateandpublicallyheldmiddlemarketcompaniesvaluedbetween$50and$500million.
6HydraulicIns.tuteAnnualMee.ng2017
aboutCityCapitalAdvisors
Mission:toprovideseniorlevelcorporatefinanceadviceandunparalleledexecu.onservicestoleadingmiddlemarketcompaniesandtheirowners.
MemberofFINRAandSIPC
GeneralM&AReview
IndustryM&AReview
ReviewM&AAc.vity2016
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GlobalM&AAc.vityDeals
HydraulicIns.tuteAnnualMee.ng2017
Value(inbillions)
Source:Ins.tuteforMergers,Acquisi.ons&Alliances.
8
$0
$1,000
$2,000
$3,000
$4,000
$5,000
$6,000
-
10,000
20,000
30,000
40,000
50,000
60,000
NumberofDeals DealValue
U.S.M&AAc.vityDeals
HydraulicIns.tuteAnnualMee.ng2017
Value(inbillions)
Source:DealogicandFactSet.
9
$-
$500
$1,000
$1,500
$2,000
$2,500
-2,0004,0006,0008,00010,00012,00014,00016,000
NumberofDeals DealValue
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U.S.EV/EBITDAMedianValua.onMul.ples8.2x 9.3x 10
.8x
10.2x
11.4x
9.1x
8.0x 9.5x
9.8x
8.9x
8.5x 10
.1x
9.8x
9.9x
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Source:S&PCapitalIQ.
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MiddleMarketPrivateEquityValua.ons
Source:GFData.
TEV 2003–2011 2012 2013 2014 2015 2016 TotalNumberofTransac8ons
$10M-$25M 5.6x 5.8x 6.0x 5.6x 5.9x 6.0x 5.7x 1015
$25M-$50M 6.2x 6.2x 6.8x 6.6x 6.7x 6.4x 6.3x 764
$50M-$100M 6.8x 6.7x 6.8x 8.4x 7.8x 7.3x 7.0x 525
$100M-$250M 7.3x 7.4x 7.5x 7.8x 9.0x 9.0x 7.6x 248
Total 6.2x 6.3x 6.5x 6.7x 6.7x 6.9x 6.4x
NumberofTransac.ons
1,484 247 162 215 235 209 2,552
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MiddleMarketQualityPremium
Source:GFData.
TEV 2003–2011 2012 2013 2014 2015 2016 Total
AboveAverageFinancials
6.1 6.3 6.8 6.9 7.3 7.3 6.4
OtherBuyouts 6.0 6.1 6.0 6.2 5.9 6.1 6.0
Premium/(Discount)
102% 103% 114% 111% 124% 119% 106%
Incidence 55% 66% 59% 53% 55% 59% 57%
IndustryM&AReview2016
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HydraulicIns.tuteAnnualMee.ng2017 14
4945
7667
48
2012 2013 2014 2015 2016
PumpIndustryM&AAc.vity
Transac.onac.vityreturnedtomorenormallevelsin2016.However,thereiss.llstrongbuy-sideinterest.
25
117
5
2016
In2016therewasareturntoamoretypicalmix
ofendusemarketsserviced
bytargetcompanies.
PumpIndustryM&AAc.vityBreakdownbyTargetIndustry
Diversified Oil&Gas Water Other
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56%
40%
4%
NorthAmerica
Europe/MiddleEast/Africa
RestoftheWorld
DealAc.vitybyTargetedGeographies
20162015
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49%
45%
6%
StrategicVs.FinancialBuyers
Buyersareoverwhelminglystrategic
Financialbuyersaredownfrom10%in2016.
StrategicBuyers
48Transac.ons2016
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AtlasCopco(7)
AxFlow(3)
2016MostAc.ve
2016
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Pentair(2)
Sulzer(2)
Trelleborg(2)
Timken(2)
$.2 $1 $2 $3
GEmergerwithBakerHughescreates$32billionrevenuecompany
XylemacquiresSensus$1.7billion
BilfingerSEdivestsitswatertechnologiesdivision-$213million
Pentairdivestsvalves&controlsbusinesstoEmerson-$3.15billion
2016LargestDeals$BillionsDealValue
AkastorASAdivestsFjordsProcessing$146million
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$6 $7 $8 $4 $5
PumpIndustryValua.ons-2016
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ExpectedDealEnvironment
DrivingForces
Outlook
LookingForwardM&AOutlook-2017
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LookingForwardGeneralM&AOutlook
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Ourthoughtsabout2017:
• Marketislikelytobemorebalancedwithmoresellerswillingtoconsideratransac.on.
• Valua.onsarelikelytoremainstrongasbothstrategicandprivateequitybuyerscompeteforqualitybusinesses.Interestrateincreasesarelikelytobemodestandnothaveamajorimpactonvalua.ons.
• OutlookfortheU.S.businessclimateismostlyposi.ve–reducedtaxesandregula.onswithanincreaseininfrastructurespending.
LookingForwardDrivingForces
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PrimarySellerMo.va.ons
• Provideliquiditytoowners• Takeadvantageofcurrentstrongvalua.ons• Alleviateownerfa.gue• Strategicrealignment
LookingForwardDrivingForces
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PrimaryBuyerMo.va.ons
• Acquiringgrowthopportuni.es:technology,products,geography
• Strategicrealignments–drivenbyopportunityormarketreali.es
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LookingForwardM&AOutlook2017–FHI
• TheforcingthataredrivingthegeneralM&Aac.vitywillalsobemo.va.ngbuyersandsellersinthefluidhandlingindustrysoweseethecurrentlevelofac.vitycon.nuingin2017.
• Whetherornotweseeacon.nua.oninstrengtheningofvalua.onsoraflapeningismorelikelytobedrivenbytheoutlookforgrowththanbyinterestrates.
• Consolida.onofdistribu.onandservicecompaniesislikelytocon.nuetoincrease.
• Targetcompanieswillnotonlybeonesservingend-usemarketnicheswithaboveaveragegrowthoutlooksbutalsocompaniesthathavetechnologiesand/orservicecapabili.esthatarefocusedonenhancingcustomerefficienciesbyimprovingequipmentreliabilityandenergyefficiency,whichmayincludesomever.calintegra.onofsupplychains.
IndustryPerformanceandOutlook2017
HydraulicIns.tuteAnnualMee.ng2017
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IndustryProfitabilityMetrics(MedianLTM)
GrossProfit%ofSales
EBITDA%ofSales
EBIT%ofSales
31.5% 12.7% 8.7%
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IndustryGrowthMetrics(Median3-YearCAGR)
Revenue EBITDA EPS
0.4% 0.2% -2.2%
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IndustryOutlook2017
Company RevenueOutlook EPSOutlook
AppliedIndustrialTechnologies 0% 7.6%
Colfax -1.0% 7.0%
Dover 11% 7.7%
Flowserve -8.5% -21.6%
IDEX 1.5% 10.8%
Xylem 23% 12%
Representa.veCompanies-2017Outlook
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U.S.PumpandCompressorIndustryOutlookNACISCode33391
IndustryOutlook2016
Source:IBISWorld
AnnualRevenueGrowth(CAGRrealgrowth)2016–20212.8%(upfrom1.7%)
• Industrialproduc.onindex(outputofmining,manufacturing,electricandgasu.li.esexpectedtorisefrom104.0in2016to112.6in2021
• Expectedrecoveryintheworldpriceofcrudeoil• Thevalueofu.li.esconstruc.onexpectedtoincreaseatanannualrateof11.2%overtheperiod
• Increaseinhousingstartsisexpectedtoincreaseatanannualrateof2.9%overthenextfiveyears
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IndustryOutlook2017
TheOpportuni2es• Superiorinsightstoevolvingneedsandwants• Superiorexecu.on• Innova.ontogainshare–buyitorbuildit• Changethescopeoftheindustry
• Systemsvs.products• Servicefleetsandsystemsvs.products
Ques.ons&AnswerSession
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©2015GlobalEquityConsul.ng,LLC.AllRightsReserved
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