R I V E R S I D E A DV I S O R S , I N V E ST M E N T B A N K I N G FO R T H E LOW E R M I D D L E M A R K E T | 1

LOWER MIDDLE-MARKET REPORTM&A MARKETS OUTLOOK

Affiliate of PMCF

FEBRUARY 2017

TRUMP ADMINISTRATION IMPACTThe M&A market is cautiously optimistic for 2017, as the Trump administration is expected to implement a series of fiscal policies that are likely to benefit the economy and M&A activity, including:

• Relaxing the regulatory environment.

• Initiating a government infrastructure program.

• Lowering or simplifying individual and corporate tax rates.

Reduced regulatory burdens and an infrastructure program are expected to boost GDP, while reduced taxes are expected to increase returns on capital and valuations. Small businesses that have struggled to meet regulations and absorb the costs of the regulations are perceived to greatly benefit from the Trump administration. Small companies will experience economic growth and job creation at levels not seen in recent years.

Growth in business activity is expected to increase the demand for capital. Business owners will invest and position their busi-nesses to benefit from a growing economy. Capital partners and financing transactions should increase from 2016 to meet this development.

QUARTERLY GDP GROWTH: Q4 2012 — Q4 2016

6.0% -

5.0% -

4.0% -

3.0% -

2.0% -

1.0% -

0.0% -

-1.0% -

-2.0% - Q4‘12

Q1‘13

Q2‘13

Q3‘13

Q4‘13

Q1‘14

Q2‘14

Q3‘14

Q4‘14

Q1‘15

Q2‘15

Q3‘15

Q4‘15

Q1‘16

Q2‘16

Q3‘16

Q4‘16

0.1%

2.8%

0.8%

-1.2%

3.1%

4.0% 4.0%

5.0%

2.3%2.0%

2.6%

2.0%

0.9% 0.8%

1.4%

3.5%

1.9%

Source: U.S. Bureau of Economic Analysis

The U.S. economy muddled along in 2015 and 2016, averag-ing 1.9 percent GDP growth. Q416 GDP matched the average of the past two years.

Riverside Advisors is dedicated to advising family and entrepreneurial businesses in the lower middle-market with values up to $20 million.

2 | R I V E R S I D E A DV I S O R S , I N V E ST M E N T B A N K I N G FO R T H E LOW E R M I D D L E M A R K E T

M&A MARKET ACTIVITYOverall transaction activity remains subdued compared to recent years. 4Q16 experienced 10,272 closed transactions, down 788, or 7.1 percent from 3Q16 and 4,266, or 29.3 percent from the prior year quarter. This dynamic is pushing valuations higher for good businesses. Capital is abundant and buyers are aggressively seeking out opportunities to invest in well- positioned businesses even if return expectations are reduced from historical levels.

4Q16 transaction value has seen a decrease of approximately 11.1 percent from the prior year quarter as several large transactions have failed to close in 2016.

In coming quarters, Riverside expects an uptick in transaction activity as businesses coming to market take advantage of higher valuation multiples realized throughout 2016.

MIDDLE-MARKET DEAL VALUATIONSTransaction size correlates to valuation: As transaction size increases, valuations tend to increase. Larger transactions have more access to capital, management depth, market position, breadth of products/services and customers. As a result, investors perceive risk to be lower on larger deals and pay higher multiples.

The chart to the right highlights EBITDA transaction multiples by transaction size. For transactions in the $10 to $25 million range, the historical (2003-2016) average EBITDA multiple is 5.5x. This valuation is two full turns lower than the average EBITDA multiple for transactions between $100 to $250 million.

LOWER MIDDLE-MARKET HISTORICAL VALUATIONSLower middle-market transaction deal multiples in the $10 to $25 million range averaged 6.0x EBITDA as of September year-to-date 2016. This is a slight increase from the 5.9x EBITDA in 2015 and has been relatively consistent over the past 5 years. Prior to 2012, valuations for transactions between $10 to $25 million averaged approximately 5.6x EBITDA. The increase in valuations are partially driven by low interest rates and available capital fueled by Federal Reserve monetary policy.

EBITDA multiples reflect adjusted EBITDA covering a broad range of industries, and may not be indicative for a specific company.

U.S. QUARTERLY M&A VALUE & VOLUME: Q4 2013 — Q4 2016

$1,000 -

$900 -

$800 -

$700 -

$600 -

$500 -

$400 -

$300 -

$200 -

$100 -

$0 -

- 16.0

- 15.0

- 14.0

- 13.0

- 12.0

- 11.0

- 10.0

- 9.0

- 8.0

Transaction VolumeTransaction Value

Billi

ons

Tran

sact

ed

Thou

sand

s Cl

osed

Q4‘13

Q1‘14

Q2‘14

Q3‘14

Q4‘14

Q1‘15

Q2‘15

Q3‘15

Q4‘15

Q1‘16

Q2‘16

Q3‘16

Q4‘16

14.1

11.9

724685 626 925676 835 927904 888 855 826773 789

12.7

14.7

12.8

14.7

13.1 13.5

14.5

11.911.4

11.110.3

Source: Capital IQ, Deals Closed

LOWER MIDDLE-MARKET REPORTM&A MARKETS OUTLOOK

MIDDLE-MARKET DEAL MULTIPLES (2003-2016 AVERAGE)

- Total

-100-250

-50-100

-25-50

-10-25

-

Tran

sact

ion

Rang

e ($

mm

’s)

0x 1x 2x 3x 4x 5x 6x

6.2x1.3x

7.6x1.7x

6.8x

6.2x1.3x

5.5x1.0x

1.4x

7x 8x

TEV/EBITDA TEV/Revenue

Source: GF Data, January 2017

LOWER MIDDLE-MARKET DEAL MULTIPLES (TRANSACTION VALUE $10-$25 MILLION)

6.2x -

6.0x -

5.8x -

5.6x -

5.4x -

5.2x -

5.0x -

4.8x -

EV/E

BITD

A

2003-2010 2011 2012 2013 2014 2015 2016 YTD

5.6x

5.3x

6.0x

5.8x

5.4x

5.9x6.0x

Source: GF Data, September 2016

R I V E R S I D E A DV I S O R S , I N V E ST M E N T B A N K I N G FO R T H E LOW E R M I D D L E M A R K E T | 3

FEBRUARY 2017

Number of Deals Aggregate Transaction Value ($Bil)

12 Months Ended 12 Months Ended

Deal Size 10/31/2016 10/31/2015 Change 10/31/2016 10/31/2015 Change$10M to $24.9M 457 639 -28.5% $7.4 $10.5 -29.5%

Under $10M 866 1,058 -18.1% 2.8 3.7 -24.3%

LOWER MIDDLE-MARKET DEAL ACTIVITY

While 2015 was a very active M&A year, 2016 returned to 2014 levels. Transactions for the 12 months ended October 31, 2016 were down approximately 30 percent compared to the prior 12 months.

Source: Factset

100% -

75% -

50% -

25% -

0% -2012 2013 2014 2015 2016 YTD

36.9% 38.0% 43.1%38.6% 42.6%

16.4%

46.6% 49.7% 43.5%46.7% 44.3%

12.3%13.4%

14.7% 13.1%

Senior Debt Sub Debt Equity

Source: GF Data September, 2016

Key Interest Rates 1/27/2017 12/27/2016 1/27/2016Prime Rate 3.75% 3.75% 3.50%

LIBOR - 1 month 0.78% 0.76% 0.43%

LIBOR - 3 month 1.04% 1.00% 0.62%

US Treasury - 2 year 1.21% 1.23% 0.83%

US Treasury - 5 year 1.95% 2.06% 1.40%

US Treasury - 10 year 2.49% 2.56% 1.98%

DEBT AND EQUITY CONTRIBUTION BY YEAR

Bank Financing Upfront Fees LIBOR SpreadAsset Based Loans 25–50 bps 200–350 bps

Cash Flow 50–75 bps 350–550 bps

Mezzanine Financing Unsponsored SponsoredUpfront Fees 2.0% 1.5%–2.0%

Current Pay-Coupon 11.0%–12.0% 10.0%–11.0%

Payment-in-Kind (PIK) Interest 1.0%–2.5% 0.5%–1.0%

All-in IRR 14.0%–16.0% 11.0%–12.0%

Note: Bank and mezzanine financing guidance is based on mezzanine and commercial lenders.

CREDIT MARKET OVERVIEW• Lending environment remains favorable

• Larger deals enjoy more favorable terms as lenders look for added assurance that comes from size

• Nonbank capital providers are aggressive and willing to structure and price loans that traditional banks are unable to do

4 | R I V E R S I D E A DV I S O R S , I N V E ST M E N T B A N K I N G FO R T H E LOW E R M I D D L E M A R K E T

Suite 425Two Towne SquareSouthfield, MI 48076

CHICAGO OFFICE225 West Washington Street Suite 2700 Chicago, Illinois 60606

SOUTHFIELD OFFICETwo Towne Square Suite 425 Southfield, Michigan 48076

RIVERSIDE ADVISORSRiverside Advisors is a middle-market investment bank focused on family and entrepreneur businesses. Led by professionals with more than 20 years of experience, Riverside is committed to meeting the unique needs of middle-market companies and their owners. Services include sale advisory, acquisition advisory, readiness review and transaction planning, and capital raising.

Riverside focuses on lower middle-market transactions up to $20 million in value. Transactions in excess of $20 million are executed by P&M Corporate Finance.

Additional plastics, medical technology, and industrial specific market reports can be accessed at pmcf.com.

JOHN A. EBEManaging Director

312.602.3545 john.ebe@riversideadv.com

PHILIP C. GILBERTManaging Director

248.223.3326 phil.gilbert@pmcf.com