U.S.

M&A Quarterly Insights

Executive Summary

This report, created by the BMO Capital Markets Mergers & Acquisitions team, provides an
update on selected key trends that we are observing in the public M&A markets.

Seth Prostic Are acquisition premiums, which are at a

historically low level during this active M&A
Managing Director
Co-Head of U.S.
market, approaching a new normal?
Mergers & Acquisitions
When we visit with clients we frequently hear how surprised
they are at the high EBITDA multiples buyers have continued to
“We expect acquisition pay for businesses over the past 18 months. While the M&A
premiums to remain market remains robust in terms of transaction multiples, many
are surprised to hear about the dramatic compression of stock
near historically low price premiums buyers have been paying recently to acquire
levels as long as the public companies. While stocks of acquired companies, on
average, have consistently traded at roughly 80-85% of their
equity markets continue respective 52-week high prior to acquisition during the stock
market’s bull run over the past nine years, acquisition premiums
to trade near all-time
continue to decrease. The median five day acquisition premium1
highs.” for public companies this year2, at 21%, is the lowest we have
observed since 2004 – and median purchase premiums for
transactions larger than US$500 million are now in the 15% -
20% range. We expect acquisition premiums to remain near
historically low levels as long as the equity markets continue to
trade near all-time highs.

We look forward to your reactions to the BMO M&A team’s

thoughts and analysis of market trends in the enclosed report.

1. The premium in this document is defined as a five day premium. BMO analyzed one day as well as thirty day volume weighted average prices,
both of which yielded similar trends.
2
2. YTD2018 and ‘18 YTD in this document is defined as through July 31, 2018.
U.S. M&A Quarterly Insights

2018 Remains an Active Year

~40%
21% Median market
premiums during the
Great Recession
3%
Median acquisition Median 3-year historical
premium in ’18 YTD revenue growth rate of
publicly acquired
approaching a
companies in ‘18 YTD
15-year low

~3,500
Days
15-20% 12.8x
Current median
Length of current Median acquisition LTM EBITDA transaction
multiple, slightly lower
bull market, longest
in U.S. history
premium for larger than than the median
statistic of 13.4x
$500MM transactions in ‘17
‘18 YTD

4.9x
Difference between
26%
Median acquisition
premium for sub

23.3x
median LTM EBITDA
$500MM transactions
multiple of largest
quartile of transactions
(~14x) and smallest ‘18 YTD top quartile
quartile of transactions LTM EBITDA multiple
(~9x) of publicly acquired

3.5x
companies

18% Increase in median LTM

7.3x EBITDA multiple paid
Median NTM EBITDA
growth rate of publicly
acquired companies in
by sponsors for publicly
‘18 YTD bottom acquired companies
‘18 YTD
quartile LTM EBITDA
multiple of publicly over the last 3 years
acquired companies

3
 U.S. M&A Quarterly Insights

Premiums vs. Acquisition Multiples

Are we entering a new norm for what is now considered a “market” acquisition
premium during the tenth year of the U.S. equity bull market?

 During the Great Recession, Five Day Premium vs. EV / LTM EBITDA Transaction Multiples
median market premiums rose
to near 40% as equities began
5 Day Premium EV / LTM EBITDA
to recover from the 2009 trough
 Beginning in 2013 when the
equity markets began to hit all- 16.0x 37% 38% 37% 40%
36% 36%
time highs, we have seen a 33%
relatively consistent downward 14.0x
28% 26% 30%
trend in acquisition premiums 13.1x 13.4x
(with the exception of 2016) 12.8x
12.0x 12.0x 11.9x 12.0x
 The YTD2018 median 11.1x 20%
acquisition premium of 21% is 10.5x 27%
10.0x 22%
approaching its 15-year low of 9.8x 9.8x 21%
20%, achieved in 2004 9.0x
10%
 These historically low 8.0x

acquisition premiums have

corresponded with historically 6.0x --
high acquisition multiples, with
the median public company
EV / LTM(1) EBITDA acquisition
multiple of 13.4x in 2017 and
12.8x in YTD2018 EV / LTM EBITDA Transaction Multiples vs. Five Day Premium
 Statistically, acquisition
premiums and transaction 2010 – YTD2018
multiples for public company 40%

targets have had an inverse 2010

R² = 0.6729
correlation
2012
 The chart on the right shows 2011
35%
a relatively strong negative
correlation between five day 2016
premiums and transaction
multiples
30%
 As long as the equity markets
continue to trade near all-time 2013
2015
highs, we expect “market”
2014
acquisition premiums to remain 25%
in the low- to mid- 20% range
2017

YTD2018
20%
9.0x 10.0x 11.0x 12.0x 13.0x 14.0x

Source: FactSet
Note: Premium data presented as five day premiums. Premium data includes all public pending / closed deals with U.S. targets. Additionally, transaction
multiple data only includes transactions with EV / LTM EBITDA multiples between 3x and 40x. All data presented is median data. 4
1. Throughout the document, “LTM” is defined as last twelve months and “NTM” is defined as next twelve months.
 U.S. M&A Quarterly Insights

Premiums by Size of Acquisition

Median Premium by Transaction Value

 Larger companies ($500mm+
<$500mm $500mm-$1,000mm
transaction values) have $1,001mm-$5,000mm >$5,000mm
received 15-20% premiums in 50%
2017 – YTD2018

 Smaller company (<$500mm 45%

transaction values) premiums
continue to be meaningfully 40%
higher than those of
larger deals
35%
 At 26%, the smaller
company premium is at its
lowest level since 2006 30%

 Over the past two years, 25%

there has been a noticeable
convergence of premium
percentages for transactions 20%
larger than $500mm
15%

10%

Source: FactSet
5
Note: Premium data presented as five day premiums. Premium data includes all public pending / closed deals with U.S. targets.
 U.S. M&A Quarterly Insights

Percentage of 52-Week High Analysis

Five Day Premium vs. % of 52-Week High

 Since the onset of the bull
market in late 2009, equities % of 52 Week High 5 Day Premium
of publicly traded acquired 100%

companies have consistently

88% 88% 87%
been trading around 80-85% 87% 85%
83% 83% 81% 79% 83% 80%
of 52-week highs just prior to
announcement of acquisition 80%

 Although the equity markets

have traded near 52-week 62%
64%
highs for much of this
60%
decade, premiums have
continued to compress, as
buyers have been less willing
to pay fulsome premiums on
40%
top of high underlying trading 36% 37% 38% 36% 37%
multiples 33%
28%
 Target boards and selling 26% 27%
24% 24%
22%
shareholders have become 20% 21%
more comfortable with
accepting lower premiums
given the following:
 Uncertainty about the --
duration of the current bull
market and economic
expansion, which
influences confidence in
organic growth visibility
 Focus on historically
strong acquisition EBITDA
multiples
 Deprioritizing a high
acquisition premium given
the above as well as the
target’s historically strong
stock prices

Source: FactSet
6
Note: Premium data presented as five day premiums. Premium data includes all public pending / closed deals with U.S. targets.
 U.S. M&A Quarterly Insights

Historical Transaction Trending Analysis

Median Statistics of Publicly Acquired Companies

 Although there has been
LTM EBITDA Margin 3-Year Historical Revenue Growth
significant multiple expansion
NTM Revenue Growth NTM EBITDA Growth
in the broader M&A market 30%
since the Great Recession,
the underlying fundamentals
of these public M&A targets 26%
25%
have not dramatically 23%
improved 22%
20% 20%
 As a result, acquirers on 18% 18%
17%
18%
average are paying higher 17% 16% 16% 17%
transaction multiples in the 15% 15% 15% 15% 14% 16%
current M&A market for
similar quality businesses 13%

as have been available in 10%

10%
9% 8% 9%
the past
7%
6%
5% 5%
 Clearly, buyers are pricing 5% 5% 5%
risk differently in the current 4% 4%
3% 3%
2% 3%
M&A market 2%
-- 1%
2010 2011 2012 2013 2014 2015 2016 2017 YTD2018

Source: FactSet
Note: Premium data includes all public pending / closed deals with U.S. targets. Additionally, transaction multiple data only includes transactions with EV / 7
LTM EBITDA multiples between 3x and 40x. All data presented is median data.
 U.S. M&A Quarterly Insights

Strategic vs. Sponsor Transaction Multiples and Premiums

Strategic vs. Sponsor LTM Transaction Multiples

 Over the past 15 years, the
median acquisition multiple Strategic Sponsor
and acquisition premium of

13.8x
13.3x

13.0x
12.9x
strategic buyers have

12.4x

12.2x
12.2x

11.9x
11.4x

11.3x
11.1x

10.8x
10.7x
exceeded that of sponsor

10.5x

10.3x

9.9x
9.6x
buyers by ~2.5x and

8.9x

8.9x

8.4x
7.7x
7.4x
~700bps, respectively
 Several interesting underlying
trends are apparent when
comparing strategic to
sponsor buyers over the past
several years
 YTD2018 median
purchase premium is 21%
for each of strategic and
sponsor buyers – the last Strategic vs. Sponsor Five Day Premiums
time the median sponsor
premium exceeded that of Strategic Sponsor
the median strategic
40%

premium was in 2003

40%

39%

38%
37%

33%
33%

 While strategic buyers

32%

31%
29%

29%
28%

28%
have historically paid

25%

23%
22%

21%
21%

21%
higher multiples than
18%

17%
sponsors, they have been
13%

acquiring businesses with

higher margins and
growth profiles
(refer to pages 9-10)
 While median sponsor
acquisition multiples have
been increasing, median
strategic multiples have
remained relatively flat

Source: FactSet
Note: Premium data includes all public pending / closed deals with U.S. targets. Additionally, transaction multiple data only includes transactions with EV / 8
LTM EBITDA multiples between 3x and 40x. All data presented is median data.
 U.S. M&A Quarterly Insights

Financial Sponsor Acquisitions

Multiples and Margins for Financial Sponsor Acquisitions

 Over the last three years, there
has been a steady increase in EV / LTM EBITDA Multiple LTM EBITDA Margin
the median transaction
multiples that sponsors have 14.0x 20%
paid for public company
acquisitions 12.0x
16%
 Based on historical analysis 10.0x
since 2010, there appears to 8.0x 12%
be a strong correlation
between the EBITDA margin of 6.0x 8%
public companies acquired by
4.0x
financial buyers and the
4%
median EV / LTM EBITDA 2.0x
transaction multiple paid
-- --
 Given the growth profile of the
companies acquired by
financial sponsors over the last
few years has not dramatically
changed, improving target
Operating Metrics for Financial Sponsor Acquisitions
EBITDA margins are the
largest driver of the observed
multiple expansion LTM EBITDA Margin 3-Year Historical Revenue Growth

 With the decrease in NTM Revenue Growth

sponsor underwritten 20%

returns in today’s M&A 18%
market, sponsors could be 17%
gravitating toward higher 16%
15% 15%
margin and more stable 14%
14%
businesses as they seek to 12% 11%
reduce operating risk 11%
10% 10%
 While growth is traditionally
thought of as the largest driver 7%
7%
6%
of value, sponsor risk profile is 5%
6% 5%
3% 4%
changing as buyers are willing 4% 4% 4%
5%
to pay premiums for higher 3% 3% 3%
2%
2%
EBITDA margin companies 1%
--
 In light of more modest topline 2010 2011 2012 2013 2014 2015 2016 2017 YTD2018

growth expectations, the ability

to execute on an acquisition
strategy is also increasingly
important to sponsors as a
strategy to drive future growth

Source: FactSet
Note: Premium data includes all public pending / closed deals with U.S. targets. Additionally, transaction multiple data only includes transactions with EV / 9
LTM EBITDA multiples between 3x and 40x. All data presented is median data.
 U.S. M&A Quarterly Insights

Strategic Buyer Acquisitions

Operating Metrics for Strategic Acquisitions

 Given the relatively consistent LTM EBITDA Margin 3-Year Historical Revenue Growth
target operating profile over NTM Revenue Growth EV / LTM EBITDA Multiple
the last few years, we are not 30% 15.0x
surprised that the median 13.8x
strategic buyer acquisition 13.3x
12.9x 13.0x
25%
multiple has remained 12.2x 12.0x
11.4x 11.3x 22%
relatively constant 10.5x
20% 10.3x
 The most pronounced change 17% 9.0x
17% 17%
is the rapidly increasing 16%
15% 15% 15%
EBITDA margin profile in 14% 14%

YTD2018 11% 6.0x

11% 11%
10%
8%
7%
5% 3.0x
5% 5% 5% 5%
5%
4%
4% 3% 3% 3%
2% 2%
-- 0% 0.0x

Operating Metric Premiums for Strategic vs. Sponsor Acquisitions

 Interestingly, strategics are 10%

LTM EBITDA Margin NTM Revenue Growth
buying businesses with higher
median LTM EBITDA margin
and revenue growth than
sponsors 7%
6%

5%
5% 5%
4% 4%
4%
3%
3%
2%
2% 2%

-- (0%)
(0%)
(1%)

(2%)
(3%)
(4%)
(5%)
2010 2011 2012 2013 2014 2015 2016 2017 YTD2018

Source: FactSet
Note: Premium data includes all public pending / closed deals with U.S. targets. Additionally, transaction multiple data only includes transactions with EV / 10
LTM EBITDA multiples between 3x and 40x. All data presented is median data.
 U.S. M&A Quarterly Insights

Quartile Analysis

EV / LTM EBITDA Transaction Multiple Quartile Medians

 Since the Great Recession, Bottom Quartile Top Quartile
30.0x
while buyers have been
increasingly willing to pay 25.0x 25.2x
22.1x 23.3x 23.3x
21.9x 21.8x
greater EBITDA multiples for 20.0x 19.2x 19.5x 20.1x
higher quality businesses, 15.0x
we’ve observed little multiple 10.0x
expansion in the bottom 6.3x 7.2x 6.6x 7.3x 7.5x 7.3x
5.0x 5.5x 6.2x 6.1x
quartile of transaction --
multiples 2010 2011 2012 2013 2014 2015 2016 2017 YTD2018
Delta Between Top and Bottom Quartiles
 The relative multiple 20.0x
expansion can most easily be
18.0x 17.7x
observed by comparing the
16.4x
medians of the top and 16.0x
15.5x
16.1x 15.7x 16.0x
bottom quartiles of EV / LTM 14.0x 13.9x
EBITDA transaction multiples 12.9x
12.3x
12.0x
 The increasing delta
10.0x
between these two
metrics shows the 8.0x
2010 2011 2012 2013 2014 2015 2016 2017 YTD2018
divergence that is
Top Quartile Median
becoming quite apparent
in the market LTM EBITDA Margin 3-Year Historical Revenue Growth NTM Revenue Growth
25%
 The current frothy M&A
20%
market does not apply to
more challenging 15%
business profiles, where 10%
the market is not seeing
5%
an appreciable increase in
--
valuation 2010 2011 2012 2013 2014 2015 2016 2017 YTD2018
Bottom Quartile Median
 While top quartile transaction
multiple businesses continue 25%
to display higher quality 20%
fundamentals, there appears 15%
to be little in the historical
10%
trends to explain the
divergence in transaction 5%

multiples that we are --

observing in the market (5%)
2010 2011 2012 2013 2014 2015 2016 2017 YTD2018

Source: FactSet
Note: Premium data includes all public pending / closed deals with U.S. targets. Additionally, transaction multiple data only includes transactions with EV /
LTM EBITDA multiples between 3x and 40x. All data presented is median data.
Bottom Quartile represents the 25% of transactions in a given year with the smallest EV / LTM EBITDA transaction multiple.
11
Top Quartile represents the 25% of transactions in a given year with the largest EV / LTM EBITDA transaction multiple.
 U.S. M&A Quarterly Insights

Quartile Analysis (cont’d)

LTM EBITDA Multiples Based on Target Transaction Value

 The EBITDA multiple Bottom Quartile Top Quartile
differential between the 16.0x

largest and smallest quartiles 14.0x

has increased to 3.8x EV / 12.0x
LTM EBITDA over the last 10.0x
five years vs. only 1.7x EV / 8.0x
LTM EBITDA over the 6.0x
preceding five year period

LTM EBITDA Delta Between Top and Bottom Quartiles

 Buyers are placing a greater 6.0x

5.2x
value on scaled businesses 5.0x 4.9x
4.0x
 Since the Great 3.7x 3.9x

Recession, buyers have 3.0x 2.9x

2.4x
been willing to ascribe 2.0x
1.6x 1.6x 1.4x
increasingly greater 1.0x 1.1x
0.4x
multiples to the largest --
quartile of companies

5 Day Premiums Based on Target Transaction Value

Bottom Quartile Top Quartile
 The expanding EBITDA 60%
multiple premium paid for top 50%
vs. bottom quartile sized 40%
targets does not translate into 30%
stock price purchase 20%

premium differential 10%

--

5 Day Premiums Delta Between Bottom and Top Quartiles

30%
 While historically the smallest
25% 26%
quartile businesses were
acquired at significantly 20%
17% 16% 16% 17%
higher purchase premiums 15%
14%
than largest quartile 10% 11%
9%
7% 7%
businesses, this spread has 5% 4%
compressed to its lowest --
levels since the onset of the
Great Recession

Source: FactSet
Note: Premium data includes all public pending / closed deals with U.S. targets. Additionally, transaction multiple data only includes transactions with EV /
LTM EBITDA multiples between 3x and 40x. All data presented is median data.
Bottom Quartile represents the 25% of transactions in a given year with the smallest EV / LTM EBITDA transaction multiple.
12
Top Quartile represents the 25% of transactions in a given year with the largest EV / LTM EBITDA transaction multiple.
 U.S. M&A Quarterly Insights

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Note: As of July 31, 2018. 13

 U.S. M&A Quarterly Insights

BMO M&A Overview and Recent Highlights

 Global M&A practice with ~100 M&A

professionals in nine offices around the world,
Experienced with ~70 M&A professionals in the U.S.
Team  Including over 40 Managing Directors and
Portfolio Company of

Directors C$2.6 billion

Sale of 
Sale of D+H Collateral 
Management Services 
business  to
 Sell-side, buy-side  Activism defense
and cross-border  Leveraged and to
Portfolio Company of
advisory management
Full Product  Recapitalizations buyouts Financial Advisor Financial Advisor
Pending August 2018
Capabilities and restructurings  Strategic alternatives
 Fairness opinions review
 Takeover defense

 US$337 billion of transaction value in 480+

Proven deals since 2011(1)
US$370 million
Results  Average deal size of US$1.2 billion(1) since
2017
Sale of the rights 
to USL261 to
US$1.3 billion
Acquisition of

 Deep sector expertise in close alignment

Americas 
with BMO’s industry groups
Approach  M&A professionals partner with industry Financial Advisor Financial Advisor
June 2018 May 2018
experts to drive enhanced insights and
execution

On its sale of a controlling
interest in

US$245 million US$825 million US$400 million US$500 million

Sale to Sale to Sale of Medical Office Building  Acquisition of
To a Lovell Minnick Partners – led 
portfolio to 
buyer group

Financial Advisor Financial Advisor Financial Advisor Financial Advisor Financial Advisor

May 2018 April 2018 January 2018 January 2018 December 2017

Subsidiary of
US$470 million
US$5.9 billion US$850 million Sale to
Sale to Acquisition of 
Acquisition of Sale to
Brocade Communications Systems,  Merchants’ Choice 
Inc. Payment Solutions

Special Advisor
Financial Advisor to Board of Columbus Financial Advisor Financial Advisor Financial Advisor
November 2017 November 2017 October 2017 October 2017 August 2017

1. Bloomberg, completed deals where an acquirer or target is located in North America. Market data as of August 01, 2018.
14
U.S. M&A Quarterly Insights

Contacts

Lyle Wilpon Seth Prostic Rob Stewart Eric Nicholson Geoff Barsky
Managing Director Managing Director Managing Director Managing Director Managing Director
Head of Global Advisory Co-Head of U.S. Co-Head of U.S. Head of Middle Market Head of Canadian &
New York, NY Mergers & Acquisitions Mergers & Acquisitions Mergers & Acquisitions International M&A
Tel.: (212) 702-1738 Chicago, IL New York, NY Minneapolis, MN Toronto, ON
lyle.wilpon@bmo.com Tel.: (312) 293-8365 Tel.: (212) 702-1131 Tel.: (612) 904-5710 Tel.: (416) 359-5660
seth.prostic@bmo.com robertb.stewart@bmo.com eric.nicholson@bmo.com geoff.barsky@bmo.com

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