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1,557
1,066 1,039 1,150 1,209
1,391 1,503
1,346
917
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906 896
173 211 263 259163
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2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 LTM 1Q11
1Q10 2Q10 3Q10 4Q10 1Q11
Number of Transactions Deal Value
$ in billions
Source: Thomson Financial
# of transactions
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$ in billions
Corporate Purposes Debt Repayment M&A Working Capital OtherSource: Reuters LPC / DealScan
Western Reserve Partners deliverscustomized investment bankingsolutions for middle-marketcompanies. The firm’s ManagingDirectors average more than 15years of experience and havedirectly executed more than 550transactions. Western Reserve isa member of M&A InternationalInc., the world’s leading alliance ofinvestment banking firms, with 44members and more than 500professionals across 39 countries.
Middle Market Update
Inside this issue:
Western Reserve Partners LLC200 Public Square
Suite 3750Cleveland, OH 44114
Phone: 216.589.0900www.wesrespartners.com
2011
First Quarter
Highlights in Mergers & Acquisitions
Q1’11 M&A activity was significantly lower than Q4’10 and slightly lower than Q1’10
While the volume of Q1’11 M&A closings did not impress, Western Reserve haswitnessed a substantial increase in pitch activity and expects the remainder of the yearto be increasingly active
Improving equity markets continue to diminish buyer-seller valuation gaps
Global economic uncertainty, especially high oil prices, will remain a key factor forbusinesses contemplating large strategic transactions
Highlights in Capital Markets
Refinancings and dividend recapitalizations have supported mediocre lending activitythat was 40% lower than Q4’10 but 61% higher than Q1’10
With most lenders unable to meet their first quarter lending budgets in Q1’11, demandimproved for larger middle market companies when opportunities to lend did arise
Successful middle market companies and private equity firms contemplating leveragedbuyout transactions have thus been able to secure better lending terms
M&A Markets Overview 2
Private Equity Activity in Q1
Leveraged Buyout Financing
Corporate Activity
Capital Markets Overview 3
Debt Financing Costs
Lending for M&A
Refinancing Activity
Transaction in Focus 4
Sale of Astor & Black to Castanea Partners
Middle Market M&A Activity
Middle Market Loan Issuance
Mergers & Acquisitions l Capital Raising l Real Estate l Restructuring & Bankruptcy l Valuation Services
Middle Market Update First Quarter 2011
M&A Markets Overview 2
Private Equity Activity in Q1
Private equity firms invested 55% more capital inQ1’11 than Q1’10, although the $28 billion ofinvested capital was less than half that of Q4’10
In Western Reserve’s Midwest footprint, privateequity deal volume increased in proportion to otherregions in the U.S. when compared with Q1’10
Q1’11 had a record proportion of add-ontransactions to total buyouts as private equity firmsfocused on growing existing platform companies
Western Reserve anticipates more private equityexits over 2011 as portfolio company fundamentalsimprove, limited partners await distributions and4,000 portfolio investments continue aging
Leveraged Buyout Financing
With below-expected LBO deal flow in Q1’11,lenders have become particularly aggressivepursuing the opportunities that do exist, supportinghigher purchase prices or lower equitycontributions and thus shifting leverage to privateequity sponsors
Accordingly, lenders have eased restrictions byaccepting higher leverage ratios, longer facility livesand lighter covenants, although pricing has notdeclined significantly
Despite lender competition for traditional & uppermiddle market deals (i.e. companies with EBITDA of$20mm - $75mm), lower middle market companiesremain subject to tighter deal terms and scrutiny
Middle Market LBO Leverage Multiples
Private Equity Acquisitions
Net Income of S&P 500 CompaniesCorporate Activity
Net income for many large corporations has hitnew highs due to successful cost cutting initiativescombined with a modest recovery in demand forgoods and services
Western Reserve has witnessed a significantincrease in strategic acquirer activity as corporateearnings continue to improve and corporationscontinue to stockpile cash
Western Reserve and its clients are observing thatlarge corporate acquirers are willing to offer cashfor strategic add-ons as they seek to sustainrevenue and earnings growth
Mergers & Acquisitions l Capital Raising l Real Estate l Restructuring & Bankruptcy l Valuation Services
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Capital Invested # of dealsSource: Pitchbook
$ in billions # of deals
2.7x 2.9x3.5x 3.7x 4.0x
2.9x 2.7x3.3x 3.5x
1.3x1.7x
1.8x 1.6x1.5x
1.6x1.2x
1.1x1.1x
0.0x
1.0x
2.0x
3.0x
4.0x
5.0x
6.0x
2003 2004 2005 2006 2007 2008 2009 2010 2011
1st Lien Debt:EBITDA Total Debt:EBITDA
Source: Reuters LPC / Dealscan
Debt:EBITDA
($150)
($100)
($50)
$0
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Source: Capital IQ
$ in billions
Capital Markets Overview
Debt Financing Costs
Low interest rates and corporate earnings growthhave helped increase demand in the high yield andleveraged loan markets
Investor demand for corporate paper has pusheddown interest rates, widening the gap betweenlarge corporate yields and middle market yields
As yields for large corporates continue downwards,investor demand for return is shifting towardsmiddle market companies
However, lower middle market companies are stillhaving difficulty obtaining advantageous terms inthe credit markets
3
Refinancing Activity
Refinancing volume supported Q1 lending with $15billion of middle market loan issuance, accountingfor 75% of corporate lending
Refinancing activity has taken 20% of the pressureoff the large amount of non-sponsored credit set tomature over the next several years, although $220billion remains set to come due through Q4’16
Lenders expect refinancing to continue playing amajor role as companies take advantage of lowbenchmark rates and amplified competition foreven incumbent credits
Lending for M&A
Capital market activity related to M&A transactionswas more subdued in Q1’11 than Q4’10
With significant cash reserves, corporations soughtless M&A-related lending in Q1’11, althoughlenders have recently reported having moreconversations regarding financing for strategicacquisitions
Leveraged buyout revolver spreads declined inQ1’11 vs. 2010, enabling private equity firms toaccess credit at cheaper rates
While M&A activity was below expectations,dividend recapitalizations remained relativelystrong at $2.8 billion in Q1’11, although this waswell below the record $4.4 billion achieved in Q4’10
Volume of Non-Sponsored Loans Coming Due
Average Yields (4-year Term)
M&A Loan Volume, Corporate vs. Private Equity
Mergers & Acquisitions l Capital Raising l Real Estate l Restructuring & Bankruptcy l Valuation Services
Middle Market Update First Quarter 2011
4.0%
5.0%
6.0%
7.0%
8.0%
9.0%
4Q
09
1Q
10
Ap
r-1
0
May
-10
Jun
-10
Jul-
10
Au
g-1
0
Sep
-10
Oct
-10
No
v-1
0
De
c-1
0
Jan
-11
Feb
-11
Mar
-11
Middle Market Large CorporationsSource: Reuters LPC / Dealscan
Yield to 4-Years
$0
$5
$10
$15
$20
$25
$30
2Q
11
3Q
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1Q
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As of 9/30/10 As of 3/31/11Source: Reuters LPC / Dealscan
$ in billions
$0
$2
$4
$6
$8
$10 1
Q0
6
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Non-Sponsored M&A Loan Volume LBO Loan Volume
Source: Reuters LPC / Dealscan
$ in billions
Company Overview
Founded in 2004 by CEO David Schottenstein, Astor & Black is a leading purveyor of finely tailored custom clothes, including fully-canvassed, handmade suits, shirtsand casual apparel. The company, based in Columbus, Ohio, utilizes its network of professional clothiers and cutting-edge internet technologies to offerunparalleled product quality, customer service and price points relative to those offered by conventional department store brands and shop-owner tailors. Astor &Black counts high profile business executives, professional athletes and celebrities among its customers and is the official clothier of Bentley Motors.
Transaction Overview
Astor & Black’s owner, David Schottenstein, sought to bring on a private equity investor to achieve partial liquidity and partner with an experienced operator ofluxury apparel companies to help develop and execute the company’s growth strategy. Astor & Black retained Western Reserve as its exclusive investment bankerto assist in this process. Through a competitive yet highly confidential process, Western Reserve introduced Astor & Black to a range of financial partners andmanaged the marketing and transaction negotiations processes.
Ultimately, Boston-based Castanea Partners presented Astor & Black with a superior outcome in both value and transaction structure. Castanea Partners ownsbranded consumer product companies such as Betsey Johnson, Ippolita, Urban Decay and Donald Pliner, among others. Castanea’s operating partners are formerco-CEOs of The Neiman Marcus Group.
Western Reserve’s transaction experience in the consumer industry as well as its deep marketing and negotiating experience with financial sponsors were essentialto find the best partner and receive maximum value for Astor & Black’s shareholders.
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Contacts
Main Phone:216.589.0900
This newsletter is published solely for the general information of clients and friends of Western Reserve Partners LLC. Information contained in this publication is based on data obtainedfrom sources we deem to be reliable; however, we do not guarantee or represent that it is accurate or complete, and it should not be relied upon as such. Opinions expressed are ourcurrent opinions as of the date appearing on this material only. This material should not be read as advice or recommendations, and we are not soliciting any action based upon receipt ofthis information. Nothing in this publication is intended to be an offer to buy or sell or the solicitation of an offer to buy or sell any specific security or company.
Transaction in Focus 4
Joseph G. CarsonManaging Director
Ralph M. Della RattaManaging Director
Charles V. AquinoDirector
David D. DunstanManaging Director
Victor F. FarisManaging Director
Kevin J. MayerDirector
Mark A. FilippellManaging Director
Kenneth A. HirschManaging Director
Kevin M. WhiteDirector
Mergers & Acquisitions l Capital Raising l Real Estate l Restructuring & Bankruptcy l Valuation Services
has been reorganized by
Timeshare Acquisitions LLC
has been acquired by
has been acquired by
Fairness Opinion
has been acquired by
Fairness Opinion
a div is ion of
Financial
Advisory Services
&
have formed an Equity
Joint Venture
has been acquired by
Financial
Advisory Services
Harpoon Joint
Venture Equity
a portfolio company
of Marlin Equity Partners
has sold its coupon
redemption operations to
a portfolio company of Marlin Equity Partnersa portfolio company of Marlin Equity Partners
has been acquired by
The David J. Joseph Company
a wholly owned subsidiary of
has been acquired by
Series C Redeemable
Convertible Partic ipating
Preferred Stock
Bankruptcy Estate of
Driggs Farms of Indiana,
Inc.
Land-O-Sun Dairies, LLC
an affiliate of Dean Foods
has been acquired by
Refinancing
Financial
Advisory Services
Valuation Advisory
Services
a portfolio company of
has been recapitalized bySeries A Preferred Stock
Financial Advisory
Services
Valuation Advisory
Services
has been acquired by
Senior Credit Facility
has been recapitalized by
and
Members of Management
has been recapitalized by
and
Members of Management
has been recapitalized by
Bill Burke
and
a portfolio company of
Financial
Advisory Serv ices
has been acquired by
BC Investment
Partners LLC
Has acquired and merged with
McCormack Advisors
International, LLC
has been acquired by
has been acquired by
has been acquired by
and
Members of Management
A portfolio company of
has been acquired by
A portfolio company of
Partners in Plastics, Inc.
has been acquired by
an Affiliate of
has been acquired by
A portfolio company of
has been acquired by
has been recapitalized and
merged withhas sold its Large Aerospace Turbine
Engine Component Repair Business to
SR Technics Airfoil
Services Limiteda wholly-owned subsidiary of
Financial Advisory
Services
has sold certain assets to
Recapitalization
Financial
Advisory Services
The Ready-Mix Assets and Eastern
Cement Corporation of
have been acquired by
a div is ion of
CRH plc
The Assets of
Schwab Materials, Inc.
have been acquired by
Fairness opinion to the
Board of Directors
has sold its
Construction and
Engineering
Services Divis ion to
John A. Martell
and
Bonnie M. Martell
a div is ion of
has been
acquired by
has been acquired by
March 2011
has been recapitalized by
The undersigned acted as exclusive financial advisor to Astor & Black Custom Clothiers in this transaction
