North American Middle Market M&A Update Q3 2017

Market Overview

M&A activity continues to be driven by positive macroeconomic factors, despite political
and regulatory uncertainty

Middle market M&A trends in Q2 2017 continued to indicate strong opportunities
for sellers. The current demand for acquisitions is in excess of the supply of assets
for sale in the market, consequently driving premium valuations. The
overwhelmingly positive market sentiment combined with nominal organic growth
opportunities is leading to high demand for acquisitions by strategic buyers. In
addition, the abundance of capital available in the debt markets has fueled
leverage multiple expansion to the highest level exhibited in a 10-year period, at
4.2x total debt/EBITDA. Strong leverage reads coupled with high demand for
deals continues to promote robust valuations in the middle market, evidenced by
transaction multiples remaining above 10-year historical averages. The
fundamentals of the market remain at all-time highs as demonstrated by:

  • Equity markets hitting all-time highs in Q2 2017 (S&P and Dow Jones
    Industrial Average ended the quarter at 2,423 and 21,349, respectively)
  • Consumer confidence levels remain above 95 for the seventh straight
  • Fed anticipation of GDP growth of 2.2% in 2017, increasing its March
    estimate by 10bps
  • Historically low unemployment rate (4.4%)

The current M&A market is optimally positioned for sellers given the decline in
quality deal volume and favorable macroeconomic trends.

Quarton Adds Debt Advisory Group to Capitalize on Favorable Credit Conditions

In June 2017, Quarton International launched its Debt Advisory Group, which
functions as a fully outsourced capital markets desk driving top-of-market
execution supporting LBOs/acquisition financings, dividend recapitalizations,
refinancings and balance sheet restructurings for private, public and private equity
clients. The debt markets remain at historically favorable levels as evidenced by
the highest middle market leverage levels since pre-recession (outlined below)
and loose monetary policy which continues to make financing readily available. A
favorable financing environment will continue to drive higher M&A multiples in the
middle market throughout the remainder of 2017.

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