Discussion Materials
4 The Market is Poised for Rapid Growth • The overall manufacturing industry remains only a third outsourced, leaving ample room for growth and a near doubling in the market’s size, assuming OEMs eventually outsource ~60% of their COGS
Industrial Infrastructure Indicators Suggest a Rebound in 2013 Key Gl obal Indus tri a l Infras tructu re Indi cato rs Economic
2010
2011
-12.2%
-1.2%
4.2%
5.5%
0.2%
2.8%
1.8%
2.2%
Euro Zone Real GDP
-2.1%
2.0%
1.5%
0.7%
China Real GDP
10.7%
9.8%
9.2%
8.0%
India Real GDP
7.0%
8.7%
8.3%
7.0%
Brazil Real GDP
5.0%
5.0%
3.0%
4.0%
-29.0%
-1.0%
-5.0%
2.0%
G7 Global Fixed Investment US Real GDP
2012
2013E
Construction
US Residential Construction SF Housing Starts US Commercial Construction Architectural Billings Index (Average)
554
587
590
600
-8.0%
-14.0%
-3.0%
5.0%
41.3
47.9
48.5
50
46.3
57.3
55.4
55.0
Industrial ISM – Manufacturing PMI (Average) Industrial Production NAFTAClass & Retail Sales (K) US Auto Sales – SAAR
85.5
90.1
93.4
94.0
126.9
153.1
242.0
280.0
11.1
12.5
12.8
13.5
Source: Bloomberg
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5
Despite the Rapid Growth of Offshore Manufacturing and Decline of the US’s Share of Global Manufacturing, US Manufacturing Will See Growth in Certain Areas
• Complex new production introduction and low-volume, high-mix programs should play a major role in the US Manufacturing growth
o These projects require substantial engineering support • Proximity to OEMs and OEMs’ customers will become increasingly important, especially in certain endmarkets
o OEMs are demanding shorter lead times OEMs Are Becoming Increasingly Focused on Low Pricing, Which Has and Will Continue to Enable Them to Gain Market Share
• Focused on making sure manufacturing partners provide low-cost production and the greatest flexibility • Majority of cost is in materials, not labor o Ability to effectively source and manage material consumption is critical to providing cost advantages over in-sourcing and offshore manufacturing
o Designing products for manufacturability drives down overall raw material cost and improves profitability
Skilled, Low-Cost Workforce Provides Distinct Advantages
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Contract Manufacturers with the Highest IP Will Win Market Share • Technology and manufacturing know-how are key points of differentiation • Technical design and manufacturing feasibility will become increasingly critical Generally, High Switching Costs Are Charged to the Clients of Highly Scaled Vendors like TargetCo Minimal CapEx, R&D and Marketing Spend Combined with No Need for Inventory and Aftermarket Presence Result in a Highly Efficient Business Model with Significant Return on Invested Capital
The Industry is Highly Fragmented with Many Sub-scale and Under-capitalized Mom-and-Pop Players, And Hence Ripe for Consolidation
Acquirers Focused on Expanding Geographic Footprint, Expanding Capacity and Rounding Out Product Lines
• Looking to add 5-10% earnings growth • Scale plays are scarce; those of scale will command a premium
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Recognized Industry Leader in High-value, Turnkey Engineering Project Management, Custom Manufacturing and High Quality, Flexible, Cost-efficient Production Solutions
Proprietary Technology Solutions Differentiate TargetCo from its Competition and Make it Less Susceptible to In-sourcing
Highly Attractive Financial Model: Strong Growth, High Profitability, Attractive Margins and Robust Cash Flow
Operating at 40% Capacity – Rapid Growth Opportunity With Current Infrastructure Long-term Sole Supplier to its Customers Deep Manufacturing Know-how and Technical Design Expertise Highly Skilled Workforce
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Trusted Strategic Partner that Grows with its Clients Over Time Highly Differentiated Full-life Cycle Business Model Creates Strategic Partner Relationships with OEM Customers
Industry Mix Includes End-Markets that are at all Points of the Cyclicality Spectrum Well-positioned to Benefit From Major Industry Trends Under-penetrated in Current End-markets Strong Platform for Additional Growth Unique Strategic Asset with Numerous Future Exit Opportunities
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10 Large, Attractive Market Opportunity
Multi-billion market Global opportunity spans many geographies, including the US, Europe and Asia
Highly fragmented industry
Outstanding Growth and Financial Performance
One of the fastest-growing companies in the industry Attractive margins driven by high operating leverage Strong cash flow generation
Proven, Scalable Business Model
TargetCo
sales risk Business model scales well Excellent cost position vs. competitors
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Outsourcing of complex, custom manufacturing to continue
Alternative energy a large and rapid growth segment
Many opportunities in the Oil & Gas Sector
Excellent Platform for Future Growth
inorganic and organic growth The company is scratching the surface of the market despite its success Large amounts of “runway” lie ahead for additional expansion Competitive acquirer can leverage TargetCo solution to significantly improve profitability of its existing revenue stream
Blue-chip client base “Sticky” customer base Turnkey solutions provider
Highly Favorable Industry Trends
Highly and consistently profitable model Capital-efficient, with no inventory or aftermarket
TargetCo is an attractive platform for both
Diverse and High-Quality Client Base
Excellent Management Team
World-class management team headed by
founder who started and grew business Over 64 years of industry experience Recognized as leaders and visionaries in the industry Adapted and implemented ISO 9001 processes Proven ability to integrate and leverage acquisitions
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Proprietary State-of-The-Art Technology
Technology is a key differentiator for TargetCo Represents a generational leap ahead of competitors
Platforms are robust, scalable, and adaptable for future growth
Capabilities in manufacturing feasibility, technical
design and business and quality systems differentiate the company from a typical “Job Shop” World-class manufacturing facility with the state-of-the-art technology
12 Financial Sponsors
Strategic Rationale
Scarce asset Platform for
consolidation Strong free cash flow and operating leverage Recurring nature of revenues Scalable Many likely to deploy significant amounts of capital
Industrial Manufacturing Services
Metal Processing and Engineering Services
Benefit from new
product offerings in adjacent categories Industry reputation, relationships and expertise in current end-markets Cost synergy potential Sales force synergies
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Scarce asset Expand product
offerings Expand footprint with existing customer base Opportunity to sell into new customer base Most have contract manufacturing services Accretive
Commercial & Aerospace and Defense Manufacturing
Engineered Products
New avenue for
growth that mitigates inventory and aftermarket sales risk Tangential to current product offerings Scarce asset Penetrate, new large customers Leverage manufacturing capabilities for internal products Accretive
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New avenue for
growth – diversify exposure to A&D Expand sub-prime relationships Tangential to current product offerings Most have contract manufacturing services Accretive Scarce asset
Diversified Industrials
New avenue for growth
Deepen penetration
at existing customers
Exposure to new industries
Scarce asset Penetrate, new large customers
Leverage
manufacturing capabilities for internal products Accretive
13 Private Equity Investors – North East Current Portfolio Name
Location
Fund Size
Partner
Potential Platform Companies
New York, NY
$800M
Peter Zimmerman
Boston, MA
$1.5B
Adam Abramson
New York, NY
$1.2B
Daniel Haynes
New York, NY
$1.7B
Damon Ball
Cambridge, MA
$600M
Travis Metz
Providence, RI
$800M
Michael Joe
Simonds International; Precision Engineered Products
New York, NY
$750M
John Becker
Central Industrial Supply
Engineered Products Engineered Controls, Chromalox
Consolidated Precision Products
A&A Manufacturing
ARNCO Corporation, Chromalox
MK Systemy
Eemax, L-Com, Lumen Dynamics, UltraVolt
BOA Holding
Industrial Controls Aavid Thermalloy
Source: Company Website, CapitalIQ
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Outsourced Manufacturing
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Fleetwood Motorhomes
Mark Andy, Micro-Poise Measurement Systems
14 Private Equity Investors – South East Current Portfolio Name
Location
Fund Size
Partner
Boca Raton, FL
$700M
Ari Zur
Miami, FL
$1B
Brett Wiener
Potential Platform Companies
Outsourced Manufacturing
Engineered Products
GED Integrated Solutions
Private Equity Investors – International Current Portfolio
Name
Location
Fund Size
Partner
Potential Platform Companies
Euromezzanine Conseil
Paris, France
$900M
Bruno Froideval
AFE
London, UK
$7.2B
Ken Beaty
Dubai, UAE
$1B
David Smoot
Doncasters Group
Source: Company Website, CapitalIQ
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Outsourced Manufacturing
Engineered Products
15 Industry Presence
Aerospace
Defense
Energy
Industrial
Engineering and Manufacturing Services
Company
Acquisition History
Source: CapitalIQ 1). Revenue reporting subsidiaries
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# of Holding Companies(1)
# of Acquisitions since 2008
Total $ Value
Avg. Deal Size
7
NA
NA
NA
98
9
613M
$153M
14
6
180M
$60M
13
6
583M
$97M
3
3
NA
NA
10
1
NA
NA
11
3
9M
$9M
10
1
35M
$35M
29
7
1,051M
$150M
12
3
61M
$20M
37
1
25M
$25M
18
2
1,252M
$626M
12
NA
NA
NA
16 Industry Presence
Aerospace
Defense
Energy
Industrial
Aerospace & Defense Manufacturing
Engineered Products
Company
Source: CapitalIQ 1). Revenue reporting subsidiaries
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# of Holding Companies(1)
Acquisition History
# of Acquisitions since 2008
Total $ Value
Avg. Deal Size
41
5
283M
$57M
33
17
355M
$22M
51
5
623M
$158M
88
18
NA
NA
58
11
2,200M
$440M
37
6
344M
$57M
20
4
59M
$15M
16
4
800M
$200M
5
10
1,265M
$126M
8
2
383M
$192M
30
5
1,100M
$220M
38
10
932M
$104M
4
1
10M
$10M
20
10
2,313M
$231M
36
8
2,299M
$575M
17 Industry Presence
Aerospace
Defense
Energy
Industrial
Diversified Industrials
Company
Acquisition History
# of Holding Companies(1) 127
Source: CapitalIQ 1). Revenue reporting subsidiaries
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# of Acquisitions since 2008 40
Total $ Value 4,475M
Avg. Deal Size $447M
238
37
3,291M
$299M
33
NA
NA
NA
266
45
9,9491M
$1,055M
133
14
1,289M
$322M
128
15
22M
$22M
304
13
4,932M
$986M
101
13
5,255M
$1,05M
573
55
21,993M
$1,158M
191
12
2,924M
$487M
287
49
246M
$25M
70
6
470M
$118M
262
40
3,299M
$330M
618
51
1,920M
$274M
72
11
561M
$187M
127
15
7,515M
$751M
1
NA
NA
NA
76
9
12M
$6M
209
14
3,164M
$288M
19
CY+1E
CY+2E
CY+1E
CY+2E
Source: CapitalIQ
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Gross Margin CY+1E
3Yr CY+1E
3Yr
5Yr EBITDA
20
CY+1E
CY+2E
CY+1E
CY+2E
Source: CapitalIQ
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Gross Margin CY+1E
3Yr CY+1E
3Yr
5Yr EBITDA
21 EV/CY Revenue
CY-1 CY
CY-1 CY
CY-1 CY
Market Val ue/CY N et Income
CY-1 CY
CY-1 CY
EV/CY EBITDA
CY-1 CY
CY-1 CY
CY-1 CY
Source: Company filings, CapitalIQ
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CY-1 CY
CY-1 CY
CY-1 CY
CY-1 CY
22
CY+1E
CY+2E
Source: CapitalIQ
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CY+1E
CY+2E
CY+1E
CY+2E
CY+1E
CY+2E
23
CY+1E
CY+2E
Source: CapitalIQ
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CY+1E
CY+2E
CY+1E
CY+2E
CY+1E
CY+2E
24
Source: CapitalIQ
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25
Source: CapitalIQ
Š 2015 Sutherland Global Services
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26
Source: CapitalIQ
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