Increasing Market Value & Exit Opportunities

in Connected Lighting/IOT

Mike Gagnon

Alumage Advisors

DISCLAIMER: Alumage Advisors, LLC provides no legal opinions or company investment recommendations

Alumage IntroductionConnected Lighting/IOT Strategies --- Financing/M&A/CEO Advisory Services

• Executed $1.2B in deals; increased shareholder value by $2.6B

• Semiconductors...Network Infrastructure...Venture Capital...Lighting

• Profiled 300 SSL companies across >60 product/market/channel attributes

• Evaluated 5,000 LED Products >10,000 Lumens since 2013

* Includes product & financing strategies, related transactions, CEO advisory, reports/briefings, and advisory boards

(Strategic Partnership)

(Companies highlightedduring presentation)

State of The Lighting IndustryDeclining Profits & Market Value - Pure Plays

• DJIA – 28% Market Value Y-Y

• Acuity (AYI) – 29% @ $6.3B M.V.

• Aggregate Publics** – 27% @ $800M M.V.

** Lumenpulse, Dialight, LSI Industries, Revolution, Energy Focus, Orion, Lighting Science (M.V. ranked)

AYI Stock Price, 12 months, 2/2/18

DJIA 2/2/18

• DJIA – 28% Market Value Y-Y

• Eaton (ETN) – 21% @ $38B M.V.

• Hubbell (HUBB) – 6% @ $7.4B

• Cree (CREE) – 21% @ $3.4B• Impressive, considering LED excess

capacity in KOR (OLED transition for TVs) & gov’t capital eqpt support for CN mfrs

ETN, 12 months, 2/2/18

CREE 2/2/18

HUBB 2/2/18

State of The Lighting IndustryDeclining Profits – Other Publics (w/Lighting)

• Sales -

• CAGR -

• Profits -

• Market Value -

State of The Lighting IndustryPrivates – Same as Publics?

AYI 12 Mo. Stock Price, 2/2/18

Global Indoor LED Luminaire Revenues(Strategies Unlimited, 2018)

Sales $5M -------- $25M ----- $100M

• Profits 20%+ EBITDA >$10M EBITDA

@ 25-50% CAGR + path to $25M EBITDA

• Growth niches with proprietary, defensible products & services; mgmt team w/1 visionary, 1-3 great managers

State of The Lighting IndustryExit Metrics: Privates-by-Publics*

* Canaccord Genuity M&A requirements as presented to Alumage clients

• Sales $5M -------- $25M ----- $100M

• Profits 20%+ EBITDA >$10M EBITDA

@ 25-50% CAGR + path to $25M EBITDA

• Growth niches with proprietary, defensible products & services; mgmt team w/1 visionary, 1-3 great managers

• >5% and $3M, 20% growth (”OEM supplier” model*)

State of The Lighting IndustryExit Metrics: Privates-by-Publics

* Minimum “Buy-side M&A” requirement as discussed by OEM Supplier to Alumage Sept, 2017

State of The Lighting IndustryExit Metrics: Privates-by-Publics

State of The Lighting IndustryExit Metrics: Privates-by-Publics

Increasing Market Value Differentiating in Niches

• Top 3 suppliers in any Served Available market (SAM) generally achieve 60-80% of the profits• Identify a SAM nearest to core competencies,

inc. highest entry barriers• Deliver Company & Product Features with

100:1 cost-performance benefit vs nearest competitor

• Say NO to all other extraneous distractions (aka “opportunities”)

• (Applicable to acquirers, acquirees, or “lifestyle” companies)

“Exploring valuation and exit strategies for SSL companies in connected Lighting” – LEDs Magazine Newsletter, 1/23/18

(Porter’s Generic Strategies & 5 Forces)

Increasing Market Value SAM Nearest Core Competencies

• Identify core competencies at the lowest level where one’s highest entry barrier(s) exist• Example 1: Start-up mfr with thermal/materials

background developed industrial high bay luminaire

• Drill Down: Proprietary thermal management (T.M.) technology enabled smaller, lighter luminaires at >$5 savings for heat sinks

• Solution: Far better to have a dominant cost-performance advantage within the smaller T.M. market, than a nominal benefit and much smaller market share as a luminaire mfr

Alumage has profiled ~300 luminaire, driver, control & module mfrs across 60+ strategy attributes

Increasing Market Value SAM Nearest Core Competencies

• Identify core competencies at the lowest level where one’s highest entry barrier(s) exist• Example 2: Pre-LED luminaire mfr was a dominant

supplier to the food processing industry

• Drill Down: Successful at developing & leveraging installation, service, utilities, OSHA, etc. relationships

• Growth Options: Identified healthcare, defense, and education verticals with needs for “certified” lighting products, dealing with gov’t agencies, etc.

Increasing Market Value 100:1 Cost-Performance Benefit

• Aka...Monetizing one’s Value Proposition (MVP)• Combine “value creators” of interest to the

customer with the “must haves”• Product specs, channel, customer service, quality, etc. • Analog Devices (NYSE: ADI) ID’d ~15 value creator

categories...and 5-10 metrics in each category

• 100:1 cost-performance benefit across multiple attributes• Product cost (price) just one factor• Customer costs of doing business with ADI, i.e. ease of

integrating into their product, delivery time, returns process, etc., etc.

• Results: As a MVP team leader, we re-ignited growth trajectory...from $500M-to-$1B over next 4 years

Market NichesIndoor...C&I...Connected

• Indoor - Highest growth (vs outdoor) • paybacks now <1 year• 80% less energy w/dimming, motion, controls

• C&I - Multiple “High Lumen Output” (HLO) verticals...high bay +• 10-30,000 lumens - factories, warehouses, big box

retail, defense, food processing, hazardous, architectural, healthcare, horticulture, etc.

• 30,000+ lumens – airport hangars, convention centers, sports, etc.

• (outdoor – flood, high mast highways/ports, sports )

• Connected Lighting – still early; move slowly, choose carefully

Global Indoor LED Luminaire Revenues(Strategies Unlimited, 2018)

C&I Vertical Market & Commoditization Trends

• 1st year since 2013 where Smart Lighting trends slowed AND reversed• Increased competition in commodity products & some

verticals not requiring all Smart Lighting features

• Shorter Product life cycles (30% annual turnover) enabled by • “pin compatible” LEDs with leap-frog performance,

utilizing programmable drivers from original luminaire design

• SAM selections, differentiators and cost/performance benefits must transcend above trends

Alumage has evaluated >5,000 High Lumen Output products across 40 specifications since 2013

• The entire SSL ecosystem facing the same competitive challenges, i.e. “Top 3 Suppliers = 60-80% of the profits”

• Same guidance for 1) identifying one’s SAM in line with core competencies, 2) delivering features with 100:1 benefits, and 3) saying “No” apply

C&I Vertical Market & Commoditization Trends

After 2015, similar analyses available only via “private client” services

Connected Lighting – The Big Picture

Aggregate of 40+ submittals, 8/17, for SIL Connected Lighting Track

Connected Lighting/IOT – Where to Begin?

Aggregate of 40+ submittals, 8/17, for SIL Connected Lighting Track

A data collection platform that also lights spaces

Is this different from traditional lighting control?

YES

OpportunityEnabling intelligent lighting devices with the right type and amount of data can result in reduced energy consumptions and improved lighting performance

ThreatThe collected data may enable other revenue streams that compete with lighting and energy performance

What is a Connected Lighting System

U.S. DoE, 4/27/16

Connected Lighting Market Development

• Still early stage, emerging market • Multiple connectivity, security, etc. choices

• Trials increasing in all segments

• LaaS programs increasing to mitigate connected lighting product acquisition costs• ESCOs, mfrs, utilities & 3rd parties

• Requires mfrs with deep pockets, staying power • Publics

• Well-funded privates (lighting and IOT-centric)

Connected Indoor LED Luminaire Revenues(Strategies Unlimited, 2018)

Connected Lighting Systems & Controls MfrsMost Common “Mentions”

Systems Controls

C&I Home C&I & Home

Acuity Belkin Cimcon Lutron

Cooper Cree Control14 Murata

Digital Lumens FEIT DimOnOff OSRAM

Enlighted GE Echelon Petra

GE Insteon GE Philips

Legrand Leviton Honeywell Schneider

Lutron LIFX Huagong Telematics

OSRAM Lutron Leafnut TVILight

Philips OSRAM Legrand Zengge

Zumtobel Wink

• And don’t forget the semiconductor guys...AMS (sensors)...Infineon, Maxim,ON Semi, Power Integration, TI, etc. (driver ICs)

Indoor Connected Lighting (IOT Companies)

“While the LED revolution may be over, the story of intelligent lighting is just beginning.” Techcrunch, 12/20/2015

• Acuity – Atrius IOT...the Internet of Us

• Cree/Cisco – Smartcast PoE Intelligence Platform

• Digital Lumens – IOT-Based Business Intelligence ($65M invested, founded 2008)

• Lunera – Cloud Managed, Connected, IOT Platform ($25M+, 2007)

• Noribachi – Pulse IOT & Digital Services (wealthy private, 2007)

• Enlighted – the IOT Solutions Company ($80M+, 2009)

• Gooee – Enterprise IOT Ecosystem ($8M, 2014)

• Stack Lighting – Smart Lighting Lamps ($15M, 2013, defunct)

PlatformPartnersPrograms

Indiana Jones Holy Grail Scene

Example - Enlighted Luminaire Partners

>500 VC-Funded IOT Companies

• Evaluate partner candidates w/similar market focus

• Additional IOT companies in AI, security, etc.

CB Insights Industry Reports

Exit Options - Select Transactions

SIL, February 2017, Canaccord Genuity

• Leviton/Birchwood Lighting, 5/17• Linear, spec-grade luminaires

• 4th acquisition in new, lighting SBU

• OSRAM/Digital Lumens, 8/17• “Leading U.S. Software Platform Provider”

• Priced @ “mid-double digits” ($65M invested)

• Harbour Group/Green Creative, 10/17• P.E. fund making 2nd lighting acquisition in 2017

• Also acq ILP from P.E. fund, Pfingston, 4/17

Exit Options - Types of Buyers

• Lighting, Controls & Energy Management Publics• Primarily EBITDA driven

• Exceptions for high growth niche opportunities

• Private Equity Funds (Harbour Group, Pfingston, etc.)• Roll-ups, with lead SSL manufacturer

• IPO or sell Group to large publics

• SSL Ecosystem Consolidators (Luminaires Group, etc.)

• 1+1=3 mergers (Light Efficient Design/RemPhos)• “I appreciate your mentorship and guidance through the years,

and consider you a true friend.” – D. Gershaw, CEO Remphos, 2/15/18

“Sweet Spot” for Luminaire,Driver & Controls Mfrs

Increasing Market Value Differentiating in Niches - Summary

• Top 3 suppliers in any Served Available market (SAM) generally achieve 60-80% of the profits• Identify a SAM nearest to core competencies, inc.

highest entry barriers

• Deliver Company & Product Features with 100:1 cost-performance benefit vs nearest competitor

• Choose Connected Lighting partnerships wisely

• Leverage LaaS

AND

• Can’t be all things to all customers...start thinking about “1+1 = 3”, Best-in-Class combos

Let’s Talk

Alumage Advisors Strategies Unlimited

Typical Custom Engagements

Thank You

Mike Gagnon

Alumage Advisors, LLC

mgagnon@alumageadvisors.com

978-828-5456

Skype: michael.gagnon01

www.alumageadvisors.comConnected Lighting/IOT Strategies, Financing/M&A/CEO Advisory