© 2008 Northern Trust Corporation northerntrust.com

The Northern Trust ExperienceThe Northern Trust ExperienceA C C E S S . E X P E R T I S E . S E R V I C E .

Robert JankSenior Vice President

Robert MorganSenior Vice President

Positioning Closely Held Businesses For Sale ― Trends In Private Equity

Gerard MazurczakSenior Vice President

The Northern Trust Experience

Question #1

What trends are you seeing that will impact our clients regarding how they position their closely held business for sale or succession?

The Northern Trust Experience

Jerry Mazurczak

Unprecedented pool of Private Equity capital

Strong earnings

Baby boomers reaching retirement age

Cap gains rate at 15%

Consolidation trends

Credit market turmoil

Weak U.S. Dollar

What trends are you seeing that will impact our clients regarding how they position their closely held business for sale or succession?

The Northern Trust Experience

Bob Jank

Turmoil in the credit markets is affecting pricing,structure and availability of bank credit

The amount of leverage that banks will allow hasdecreased during this phase of the credit cycle

As a result: Sellers must reduce their price expectations

Find buyers who can provide more equity

Be patient until cycle turns

What trends are you seeing that will impact our clients regarding how they position their closely held business for sale or succession?

The Northern Trust Experience

Bob Morgan

M&A markets are driven by the convergence of buyer and seller expectations

2006 and the first half of 2007 was characterized by record breaking numbers for deal flow and capital raised

The liquidity provided by the debt markets and increasing fund sizes led to very frothy valuations

Contraction in the debt markets have implications for buyers and sellers

Reduced purchase prices – Slowly

Higher equity contributions

Slower deal pace

Returns???

What trends are you seeing that will impact our clients regarding how they position their closely held business for sale or succession?

The Northern Trust Experience

Trends in the Buyout Market

Source: Thompson Buyouts, July 7, 2008

US - Based Deal Volume by Quarter

16

4051

103

4638 42

68

115

10

37

57 61

105

4661

140132

0

20

40

60

80

100

120

140

Dea

l Vo

lum

e in

$B

illio

ns

Q1 16 40 51 103 46

Q2 38 42 68 115 10

Q3 37 57 61 105

Q4 46 61 140 132

2004 2005 2006 2007 2008

The Northern Trust Experience

Trends in the Buyout Market

Purchase Price/EBITDA by Deal Size(Includes Fees)

Source: S&P LCD- M&A Stats, June 2008

7.2x

8.3x 8.3x8.9x 9.1x

8.5x 8.8x

10.3x10.9x

7.6x

8.4x8.6x7.8x

6.8x

7.7x

0.0x

2.0x

4.0x

6.0x

8.0x

10.0x

12.0x

2004 2005 2006 2007 LTM 6/08

<$250mm $250-$499mm >$500mm

The Northern Trust Experience

Trends in the Buyout Market

Average Debt Multiples of Middle Market Loans(Defined as Issuers with EBITDA of less than $50M)

Source: S&P LCD- M&A Stats, June 2008

3.8x

4.2x

4.7x 4.7x

5.6x

4.5x

4.1x

0.0x

1.0x

2.0x

3.0x

4.0x

5.0x

6.0x

2003 2004 2005 2006 2007 1H08 2Q08

The Northern Trust Experience

Question #2

How would you recommend preparing a business and its owners for a liquidity event?

The Northern Trust Experience

Bob Jank

Start getting audited statements now

Remove / identify personal “adjustments” from statements Club membership

Cars, planes

Travel Expenses

If real estate is owned by the family not corporation, increase the lease to market rate

“Institutionalize” clients

Commit to the decision

How would you recommend preparing a business and its owners for a liquidity event?

The Northern Trust Experience

Jerry Mazurczak

Owners Restructure ownership to minimize taxes, move

appreciation to future generation

Sales to defective grantor trusts

GRAT’s

Charitable trusts/entities

LLC strategies

Delaware non-grantor trusts

Dynasty trusts

Design infrastructure for a post sale family enterprise / family office

Create a personal plan for life after business is sold

How would you recommend preparing a business and its owners for a liquidity event?

The Northern Trust Experience

Jerry Mazurczak

Business Obtain professional valuation

Clean up negatives, build out positives

Move real estate out of the business

Get environmental report

Prepare audited financials

Consider “stay bonuses” for key managers

How would you recommend preparing a business and its owners for a liquidity event?

The Northern Trust Experience

Bob Morgan

What they will look for: Strengths and weaknesses of management team

Audited financial statements / one-time or family expenses

Retaining relationships with key clients

Recurring / stable cash flow streams- addbacks

Ability to service debt

Growth in some form

Exit scenarios

Deal killers Inability to conduct thorough due diligence

“Waffling”

How would you recommend preparing a business and its owners for a liquidity event?

Private equity firms will conduct a significant amount of due diligence in their review process.

The Northern Trust Experience

Question #3

What process do you recommend for obtaining the best transaction price / best overall value for the business?

The Northern Trust Experience

Bob Morgan

All depends on the sellers definition of “value” Corporate versus family sellers

Market has become significantly moreintermediated in the last ten years

Range from large investment banks to one-off business brokers

Considerations: Price

Discretion / confidentiality

Speed

Treatment of existing employees

Roll-over of ownership

Hire good service providers: law firm,accountants, investment bank

What process do you recommend for obtaining the best transaction price / best overall value for the business?

The Northern Trust Experience

Jerry Mazurczak

Clarify goals and risk appetite / financial preferencesOptimize after tax proceeds

All cash at closing

Business owner role post closing

Retention of management

Retention of employees

Identify value preferencesBuyer culture similar to seller

Commitment to community

Only strategic buyer

Certain buyers not acceptable

What process do you recommend for obtaining the best transaction price / best overall value for the business?

The Northern Trust Experience

Jerry Mazurczak

Select transaction preference IPO Sale of stock Sale of assets ESOP Recapitalization Combination

Choose the best team for transaction and identified goals Trusted advisors, attorneys, accountant, key business execs, Board members, trustees, family members Additional expertise

Investment banker

Transaction attorney

Estate planner

Match expertise to most probable buy expertise

What process do you recommend for obtaining the best transaction price / best overall value for the business?

The Northern Trust Experience

Bob Jank

IPO: Price vs. Ongoing expense Administrative aggravation “Constant report card”

Private Equity: Price vs. Impact on employees Potential requirement to stay for some time

Synergistic Buyer: Price vs. Loss of privacy Impact on employees Selling to a rival

ESOP: Great tax treatment and high regard for employees vs. Lower price Ongoing “responsibility” in the event of performance downturn

What process do you recommend for obtaining the best transaction price / best overall value for the business?

The Northern Trust Experience

Bob Jank

Best scenario I have seen: Sell to synergistic buyer who offers earn out provided that:

Buyer pays a fair price

Buyer has a proven track record of treating acquired employees well

Buyer has a proven track record of treating “earn out” fairly

Seller recognizes that buyer will bring some real synergies

What process do you recommend for obtaining the best transaction price / best overall value for the business?

© 2008 Northern Trust Corporation northerntrust.com

Thank You

Positioning Closely Held Businesses For Sale ― Trends In Private Equity