McGladrey's Quarterly Private Equity Deal Flow Profile

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Business Productsand Services:McGladreys Quarterly

Private Equity Deal

Flow Profile

1Q 2011Insight | Analysis

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Business Products and Services

McGladreys Quarterly Private Equity Deal Flow Profile

McGladrey Announces the Quarterly Private Equity Deal Flow Prof

McGladrey is proud to introduce the Quarterly Private Equity Deal Flow Pro le for the business

products and services industry. Powered by PitchBook, the Deal Flow Pro le o ers a full representa-

tion of U.S. private equity deal activity, performance and trends for the industry. Business products

and services was selected for its signi cant bearing on U.S. private equity investments as it has

historically accounted for 35 percent of deal activity.

Dedicated to serving the middle marketthe primary area of private equity investment

McGladrey meets the needs of private equity rms and their portfolio companies with integratedtransaction advisory, tax, audit and consulting services. Our experience spans a wide range of

sectors within business products and services and we serve thousands of manufacturing, distribu-

tion, transportation and construction companies. We also serve hundreds of private equity rms

with business products and services investments and have provided transaction advisory services

on many deals in this industry.

Because of our industry expertise, we understand the key trends and challenges impacting deal

ow in business products and services. We will be sharing those insights through this report at the

beginning of each quarter, as well as through a mid-quarter Spotlightreport on a key sector within

the industry.

Donald A. Lipari

National Executive Director, Private Equity Services

RSM McGladrey, Inc.

212.372.1235

[email protected]

www.mcgladrey.com


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B2B Private Equity Deal Flow

B2B Private Equity Deal Flow By

Year

Source: PitchBook

The business products and services (B2B) industry is

the largest industry for U.S. private equity investment,

accounting for 31 percent of all deals in 2010. With a

16 percent increase in B2B deal ow from 2009, 2010

marked the end of a two-year downward trend for the

industry with 475 completed deals and a total of $29.8

billion of capital invested. 4Q 2010 was the most

active quarter since 3Q 2008 with 133 completed

deals, and the $9.5 billion that was invested was over

six times greater than the lowpoint of 2009 (2Q 2009

saw only $1.43 billion in PE deals). The last three

quarters of 2010 were particularly good, with a total of

357 deals and $27.5 billion of capital invested.

The top sector in the business products and services industry during 2010 was commercial services with 238 deals, followed by

commercial products with 161 deals and transportation with 39 deals. In 2010, a number of positive trends developed in the B2B

industry, including an increase in the median deal amount and the return of signi cant exit activity. This report pro les these

trends and additional key data to give a more thorough understating of private equity activity in the U.S. business products and

services industry.

B2B Private Equity Deal Flow By Quarter

Source: PitchBook


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Deal Activity by Sector

Source: PitchBook

Deal Flow DetailsInvestment preferences in the B2B industry have been shifting over

the last few years away from commercial products and toward

commercial services. In 2010, for example, commercial services

companies accounted for 50 percent of all B2B deals, up from 46

percent in 2005 and 36 percent in 2001.

The most active sub-sectors of the B2B industry were media and

information services and industrial supplies and parts, with 53 and

37 deals respectively. The sub-sector that saw the biggest increase

in activity compared to 2009 was media and information services

with a 76 percent jump. The government services sub-sector saw

the biggest decline with a 50 percent drop in activity and only eight

completed deals.

PE Transactions (Count) by Sector

Source: PitchBook

Median Deal Size ($M)

Source: PitchBo

Capital Invested DetailsIn 2010, the median B2B private equity buyout increased by 188

percent to $127M from only $44M in 2009. There was a three-year

high of 23 deals above $500M in 2010, a result of the returning PE

appetite for larger deals that also drove the median deal size

increase.

The capital invested in commercial services companies has steadily

grown to account for 42 percent of the total capital invested in the

B2B industry. The other business products and services sector,

dominated by the buildings and property sub-sector, received a

larger share of B2B investment in 2010, accounting for 17 percent of

invested capital during the year. Aerospace and defense led all B2B

sub-sectors in 2010 with $3.65 billion of invested capital.

PE Transactions (Total $ Amount) by Sector

Source: PitchBook

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Companies Receiving Their First PE Financing

Source: PitchBook

First Time Deals in the B2B Industry

This chart highlights the number of deals within the B2B industry that represent a rst-time outside investment received by a company

and the portion of the overall private equity deal ow that these investments constitute. In 2010, rst-time deals accounted for 76

percent of the overall deal ow in the B2B industry, which closely matches the long-term average in the industry at about 80 percent.

Interestingly, the share of deal ow consisting of rst-time deals has been on a steady decline over the last ve years hitting a low of

70 percent in 2Q 2010. This trend is the result of PE rms investing in more previously PE or VC-backed companies.

Selected Business Products and Services 2010 PE Transactions

Company Name

Associated Materials

TransUnion

The SI Organization

ATC Technology

Investor(s)

Hellman & Friedman

Madison Dearborn Partners

Veritas Capital

Greenbriar Equity Group, GENCO

Sector

Commercial Products

Commercial Services

Other

Commercial Services

Amount ($M)

1,300

1,020

815

513

Distribution System

Health Grades

Screenvision

Revenew International

FrontLine Marketing

MediaTrust

Protective Products of

America

www.mcgladrey.com

Vestar Capital Partners

Shamrock Holdings

Levine Leichtman Capital

Partners

Acosta, AEA Investors

Ropart Asset Management

Sun Capital Pa


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mercial Services

mercial Services

mercial Services

mercial Services

mercial Services

Commercial Products 294

160

51

36

19

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B2B Private Equity Exits (Count) by Quarter

Source: PitchBook

Private Equity Exit Activity

Private equity exits in the business products and services industry rebounded from 2009s total of 68 exits to 116 in 2010, although it was still

the second worst year for exit activity in the B2B industry since 2005 and barely surpassed half of 2007s total of 202. The bump in exits during

2010 was led by PE-to-PE sales (secondary deals), which increased 3.5x from 2009s 13 deals to 46 in 2010. Overall, sales to corporate/strategic

acquirers continued to be the primary exit method for private equity B2B investments. For those investors who decided not to exit or

couldnt exit in 2009, they were rewarded in 2010 with a rebound in values and larger exit opportunities, as shown by the increase in themedian sale amount from $86 million in 2009 to $159 million in 2010. The most active sectors for exits during 2010 were commercial services

with 52 and commercial products with 43. With plenty of PE dry powder available and corporations looking forward to using available cash

for additional growth, 2011 has the potential to be a strong year for PE exits in the B2B industry.

B2B PE Exits (Count) by Year

Source: PitchBook

B2B PE Exits by Sector

Source: PitchBook

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The following list shows a detailed breakdown of the PitchBook industry codes for the business products and services industry.

1. Business Products and Services (B2B):

1.1 Commercial Products

1.1.1 Aerospace and Defense

1.1.2 Building Products

1.1.3 Distributors/Wholesale

1.1.4 Electrical Equipment

1.1.5 Industrial Supplies and Parts

1.1.6 Machinery

1.1.7 Other Commercial Products

1.2 Commercial Services

1.2.1 Accounting, Audit and Tax Services

1.2.2 BPO/Outsource Services

1.2.3 Construction and Engineering

1.2.4 Consulting Services

1.2.5 Education and Training Services

1.2.6 Environmental Services

1.2.7 Human Capital Services

1.2.8 Legal Services

1.2.9 Logistics

1.2.10 Media and Information Services

1.2.11 O ce Services

1.2.12 Printing Services

1.2.13 Security Services

1.2.14 Other Commercial Services

1.3 Transportation

1.3.1 Air

1.3.2 Marine

1.3.3 Rail

1.3.4 Road

1.3.5 Infrastructure

1.3.6 Other Transportation

1.4 Other Business Products and Services

1.4.1 Buildings and Property

1.4.2 Conglomerates

1.4.3 Government

1.4.4 Other Business Products and Services

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move. Thats what you can expect from McGladrey.

Thats the power of being understood.

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McGladrey meets the needs of private equity firms and their portfolio companies with integrat

transactionadvisory, tax, audit, consulting and investment banking services. Clients benefit from a singlecontactservice model and teams that operate as strategic partners throughout the private equity life Our transac-tion advisory services emphasize responsiveness and drive appropriate purchase price and op

exit price. Weoffer scalable audit and tax services to meet the business needs of our fund and portfolio comclients, andcontinually monitor tax and regulatory changes to inform clients of relevant issues. Our invesbankingpractice provides carefully tailored acquisition opportunities or divestiture services.

RSM McGladrey and McGladrey & Pullen LLP which, combined, operate under the McGladrey b

and are the

fifth largest U.S. provider of assurance, tax and consulting services with 7,000 professionals aassociates innearly 90 offices. The two firms operate as separate legal entities in an alternative practice stInvestmentbanking services are provided by McGladrey Capital Markets LLC (broker-dealer licensed by thand member

FINRA).

RSM McGladrey, Inc. and McGladrey & Pullen, LLP are members of the RSM International (RS


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McGladrey's Quarterly Private Equity Deal Flow Profile