2012 Industrials Report: First Half

283 Members are currently hosting 719 Industrials Opportunities 362 Members are seeking acquisitions or investments in Industrials Construction and Engineering is relatively over-supplied while Aerospace and Defense has seen the highest relative demand levels The East Coast has the highest relative demand while the West Coast has the highest relative supply of Opportunities

The Private Markets in Real Time

Introduction
AxialMarket is an online network for deal professionals. Our primary tools enable deal professionals to source opportunities, manage deal processes and manage relationships all in one place. As a service to our network and to the broader deal community, we publish reports on transactional activity. Unlike other reports on deal activity that focus on historical transactions, we provide real-time visibility into live and future transactions.

Industrials Overview
This report analyzes the 790 Industrial Opportunities that were hosted on AxialMarket in Q1 & Q2 2012, representing more than $7 billion in total revenue. The Industrials category, which is comprised of both Capital Goods and Transportation, accounted for 19% of all opportunities but represented nearly 44% of the pursuits. AxialMarket Members are able to share Opportunities with others on a 1-to-1 basis and then can continue the conversations when the other Member indicates they would like to Pursue a deeper conversation. The interest level in the Industrials category was extremely strong in the first half of 2012. AxialMarket has grown at an extremely rapid rate in the past year. Total Opportunities and Total Pursuits were greater in the first half of 2012 than the entirety of 2011. Opportunities: High-level summary of a particular deal, shared with other relevant Members on a confidential 1-to-1 basis. Transaction Profiles: Forward-looking investment criteria defined and updated by Members. These are then matched and presented on live Opportunities. Pursuits: Confirmed interest in a presented Opportunity.
Utilities 1% Financials 2% Consumer Staples 6% Energy 8% Materials 7% Consumer Discretionary 25%

Opportunities by Industry

Business Services 15%

Industrials 19%

Technology 9%

Health Care 8%

Opportunities by Quarter
Q1 2011 350 300 250 200 150 100 50 0 Q2 2011 Q3 2011 Q4 2011 Q1 2012 Q2 2012

AxialMarket Terms

Capital Goods

Transportation

Capital Goods
Since the beginning of the year, Aerospace and Defense companies garnered the most interest, followed closely by Electrical Components and Heavy Electrical Equipment. Construction and Engineering as well as Building Products had the least amount of interest shown on a peropportunity basis, despite having margins in line with the rest of the Capital Goods sector. Dock Reed, of the Reed Group, represented an Electrical Components deal earlier in the year that received a tremendous amount of interest. As he explained, There is definitely significant interest in the manufacturing, electrical and energy sectors. Private equity seems to be more aware of how underserved the markets are than the general public is. John Stack, Managing Director and leader of the aerospace practice at the McLean Group clarified the uptick in A&D, noting that while the industry remains cyclical, current commercial backlog visibility is providing opportunities to exit businesses, secure resources required to meet higher planned rates and create/expand platforms. Interest in acquiring well-positioned aerospace supply chain companies remains high for both strategics and sponsors. He continued, noting that fleet growth and expectations for higher aircraft utilization are also fueling activity in maintenance, repair and overhaul (MRO) as well as fixed based operators (FBO). He also expects to see a continued focus on technology, electronics and composites. Capital Goods: Opportunities
Q1 150 Q2

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Transportation
Transportation: Opportunities
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The number of Transportation Opportunities has grown steadily since the beginning of the year. We noticed that transportation deal flow seems to be somewhat consistent quarter over quarter. Pursuit levels, on the other hand, seem to vary more irregularly. A good example is Railroads, which was impacted by a single Opportunity with outsized interest in the Q1 but reverted to the mean in Q2. In the middle of Q2 we separated Third Party Logistics from the Air Freight and Logistics and the Trucking categories. Despite the relative newness of the category it had immediate uptake, showing both a significant number of opportunities and strong average interest levels. Air Freight and Logistics followed a similar trend, showing solid interest in Q2 as well, as both Opportunity and Pursuit numbers increased. Trucking, which would seem to be a related industry, had roughly half the Pursuit rate of 3PL and Air Freight despite representing nearly twice the Opportunities.

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Industrials in Context
The remainder of the report is based on a snapshot of the market on June 26, 2012, examining all Transaction Profiles and Opportunities that were currently active on AxialMarket. Active market data, representing real-time interest and in-progress deals, can help give a sharper understanding of where the market is presently and where deals will be closing in the next few months. Below are two charts to give context for where Industrials stands in the current market. The first chart shows Industrials as a percentage of total demand from Members seeking to deploy capital or acquire companies. The second chart shows Industrials as a percentage of total supply from Members seeking to sell a company or raise capital. These charts are sorted in descending order in an effort to illuminate the differences in supply and demand across sectors. The demand by industry is more evenly spread, while supply of Opportunities is more concentrated in sectors like Consumer Discretionary and Industrials. Industrials, while ranking highest in demand, falls second to Consumer Discretionary in number of Opportunities. As an overall percentage of the market, there is relatively more supply in Industrials than demand.

Active Demand by Industry

Financials 6% Utilities 3%

Active Opportunities by Industry

Financials Consumer 3% Utilities 1% Staples 6%

Energy 7% Materials 9% Consumer Staples 10% Business Services 11%

Industrials 15%

Materials 7% Energy 7% Health Care 8%

Consumer Discretionary 14%

Consumer Discretionary 24%

Health Care 12%

Technology 13%

Technology 9%

Industrials 20% Business Services 15%

Participant Breakdown
283 Members are currently hosting a total of 719 Opportunities in the Industrials sector. Opportunities are represented by Investment Banks, M&A Advisors, Business Brokers, Corporations, and Financial Sponsors selling holdings or seeking LBO financings. As shown below, 10% of of Opportunities are capital raises - growth, mezzanine or LBO financings, 8% are distressed investments, and 82% are buyouts. 362 Members are seeking to either make acquisitions or provide capital in the Industrials sector. The most recent data showed that Members are split pretty evenly between three types of acquisition styles: platform acquisitions for financial sponsors, corporate acquirers and add-on acquisitions for current financial holdings. Debt financing is the newest and fastest growing segment on the network.

Active Investment Strategy

Distressed 8% Capital Raise 10%

Active Investment Preference

Debt
2%

Add-Ons 31%
Buyouts 82%

Platforms 35%

Corporations 32%

Industry Supply and Demand

The graph below shows the normalized supply and demand data for the Industrials sectors, comparing the relative demand for acquisitions or capital raises against the relative supply of Opportunities. The Construction and Engineering sub-sector has the largest mismatch of supply and demand. There are significantly more Opportunities than average in Construction and Engineering relative to all other sectors and the demand from potential acquirers or lenders has remained soft. It appears that at least for the next few months, exits and multiples will be lower in Construction and Engineering than in the broader market. Also impacted are Building Products, which are directly related to Construction and Engineering, as well as Trucking. Though the difficulties for C&E and Building Products can be attributed to the continuing weakness in real estate, Trucking seems to be potentially more effected by variations in gas prices. Strangely however, we note that 3PL companies are getting significant interest, despite being directly connected to Trucking companies and other relatively weak shipping sectors. Third Party Logistics (3PL) is a special case in this chart. As Opportunities are created more rapidly than Transaction Profiles are updated, the shift towards using the 3PL industry designation has happened much more quickly on the Supply side. If youre a Member interested in 3PL companies, there is a short term advantage in being the first to market.

Supply of Deals vs. Demand of Buyers

Demand Supply

A&D Building Products Construction Machinery & Trucks Electrical Components Electrical Equipment Industrial Conglomerates Industrial Machinery Safety Equipment Distributors Air Freight Airlines Airport Services Highways & Railtracks Marine Shipping Marine Ports Railroads Trucking 3PL

Demand > Supply

Equal

Supply > Demand

10

Interest:

Regional Supply and Demand

In addition to examining the supply and demand on a per-industry basis, we thought it would be interesting to examine the Industrials sector based on region. While many Members of AxialMarket will consider Opportunities both in the United States and Internationally, this report covers only Opportunities and Transaction profiles in the United States. The maps represent Opportunities, Transaction Profiles and the overlap of the two, based on the eight regions of the United States. The first map, in green, represents the distribution of Transaction Profiles, which describe the interest in potential acquisitions or investment by a Member. The darker shades of green indicate more interest and the lighter shades indicate less interest. There is significant demand along the Eastern Seaboard and in the South Central. The West Coast and Northeast have relatively less demand. The second map, in blue, represents the distribution of Opportunities, based on the headquarters location of each company. In contrast to the demand map, the opportunities map indicates that there is a relative abundance of Opportunities on the West Coast and in the Great Lakes regions. Opportunities seem to be thin in the Northeast and the Middle South. When we combine the two maps, only the South Central section, seems to have equally matching supply and demand. The Eastern Seaboard and South seem to have relatively higher demand while the West Coast has a relatively higher supply of Opportunities. Interest:

Opportunities:

Combination:

The Private Markets in Real Time

AxialMarket is the largest network of qualified deal professionals in the world with more than 7,000 Members. Our Members include: Family Offices and HNW Individuals Corporate Development Professionals Senior Lenders Entrepreneurs and Business Owners Mezzanine Debt Providers Private Equity Investors Investment Bankers and M&A Advisors Our primary tools enable deal professionals to source opportunities, manage deal processes and manage relationships all in one place. To request an invitation visit https://www.axialmarket.com/request-invite/ For more information contact: Cody Boyte Marketing Manager AxialMarket 646-616-8948