M&A Market Update

U.S. M&A market activity has slowed from the increases experienced in 2010 for the second quarter ended June 30,
2011:

  • Total deal volume increased approx. 2% from 3,001 deals for the three months ending June 30, 2010 to 3,054
    deals during the comparable period in 2011
  • For the first six months ending June 30, total deal volume increased approx. 3% from 5,610 deals in 2010 to 5,790 deals in 2011 and total dollar value of deals increased 27% from $328 billion in 2010 to $416 billion in 2011

Strategic acquirers have been particularly active, accounting for approximately 82% of total deal volume [1].

Many factors support increased M&A activity in the second half of 2011 including: significant capital availability,
credit market liquidity, and sustained corporate earnings growth. However, this growth may be muted as fears of a
prolonged economic recovery continue due to weak unemployment and housing figures, as well as governmental
budget deficits in the U.S. and abroad.

Available Capital Still at Historically High Levels

Corporations and private equity firms continue to hold significant capital. As of the first quarter of 2011, nonfinancial
U.S. corporations are currently holding in excess of $1.8 trillion in cash [2]. With lower interest rates, such
corporations will deploy cash more aggressively through employee hires or plant improvements and expansions, or
alternatively, through stock buybacks, dividend payouts, or acquisitions. Furthermore, private equity groups have
approximately $485 billion (excluding debt financing) in capital with many managing funds nearing expiration [3].

Credit Markets Supporting LBO Activity

For the second quarter ending June 30, LBO activity decreased (9.4%) from 510 deals in 2010 to 462 deals in 2011.
Total dollar value of deals increased 34% from $29 billion in 2010 to $39 billion in 2011 as improving credit
markets supported larger deals. While deal activity fell, market fundamentals remain strong. In addition, the
market’s first and second half performance compare against a surge of activity in the fourth quarter of 2010 due to
anticipated tax increases.

Strength continued in the credit markets since their rebound in 2010. Total debt to EBITDA multiples for middle
market deals less than $500 million totaled 4.75x – 5.25x and lower for smaller deals. Senior cash flow loan pricing
ranged from LIBOR + 500 to 525 bps for loans less than $100 million. Sponsor equity contributions to LBOs ranged
from 35%-50% of purchase price for the year-to-date period in 2011[4].

Additionally, private equity firms currently own approximately 6,000 companies of which a third have been held for
five years or longer [3]. This will result in significant exit activity given the sustained earnings of their portfolio
companies, and improved liquidity and capital availability.

Corporations Delivering Sustained Corporate Earnings

With a third of S&P 500 companies reporting second quarter earnings as of this publication, earnings results have
been largely positive. According to the S&P, corporate earnings are at their highest level in four years and will
continue their upward trajectory for the remainder of the year. However, for many companies, international
operations have accounted for much of the growth resulting in continued weakness in the U.S. labor markets.

Economic Recovery Hits a Speed Bump

Bolstered by increased corporate earnings, extraordinary governmental stimulus measures, and recovered financial
markets, the U.S. economy appeared well-positioned to avoid lingering fears of a second recession. Recent
economic data has suggested otherwise, as unemployment remains at 9%-10%, housing continues to suffer, and
GDP continues to grow at an anemic pace.

Moreover, governmental deficit spending and debt levels in the U.S. and abroad continue to test confidence in the
global economic markets. According to the Congressional Budget Office, the U.S. is projecting a significant budget
deficit in 2011, with projected cash outlays of $3.7 trillion versus revenues of $2.2 trillion against a backdrop of $14
trillion in debt. In Europe, concerns mount as Greece faces massive austerity measures and additional bailout
packages. Other European nations share similar obstacles.

BellMark Partners, LLC is a boutique investment banking firm that provides financial advisory and investment
banking services to middle market and lower middle market companies in the consumer, industrial, business
services, and healthcare industries. BellMark advises family businesses, entrepreneurial or closely-held companies,
private equity-owned companies, and small-cap public companies on M&A advisory, strategic alternative reviews,
restructuring assignments, and valuations & fairness opinions.

Source: [1] PWC 2Q2011 Study; [2] Marketwatch.com (6/16/11); [3] Pitchbook; [4] Buyouts Magazine (7/4/11)
BellMark Partners, LLC

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