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Smart M&A
VOLUME 1 :: ISSUE 3
M&A news, trends and success stories for the middle market
plus
SELLING YOUR
BUSINESS
ACCELERATED
GROWTH
M&A ACTIVITY
CARVING
OUT A
NICHE
Harwood Capital targets
public-to-private market
PRESENTED BY

Delivering Growth Solutions
to the Global Middle Market
As a leading independent investment bank advising middle market
companies in the U.S. and internationally for over 20 years,
BGL provides specialized industry expertise, broad transaction
experience, and a shared entrepreneurial spirit that can help you
increase and preserve your company’s value.
• M&A Advisory
• Capital Raising
• Financial Restructuring
• Fairness Opinions & Valuations
• Strategic Advisory
Please visit www.bglco.com
Transactions involving securities are completed through Brown Gibbons Lang & Company Securities, Inc., an affiliate
of Brown Gibbons Lang & Company LLC and member FINRA
CHICAGO • CLEVELAND • SALT LAKE CITY
MICHAEL E. GIBBONS
Senior Managing Director & Principal
Construction Materials and Building Products,
Cross-Border M&A
mgibbons@bglco.com
SCOTT T. BERLIN
Managing Director & Principal
Metals & Metals Processing
sberlin@bglco.com
EFFRAM E. KAPLAN
Managing Director & Principal
Business Services and Environmental Services
ekaplan@bglco.com
ANDREW K. PETRYK
Managing Director & Principal
Basic Industrials
apetryk@bglco.com
JOHN C. RIDDLE
Managing Director & Principal
Healthcare and Life Sciences
jriddle@bglco.com
MANFRED R. STEINER
Managing Director & Principal
Health Systems and Health Facilities
msteiner@bglco.com
JOHN R. TILSON
Managing Director & Principal
Consumer Products and Security Services
jtilson@bglco.com
KEVIN H. SARGENT
Director & Principal
Basic Industrials
ksargent@bglco.com
NICO A. BOLZAN
Director
Real Estate
nbolzan@bglco.com

VOLUME 1 :: ISSUE 3
M&A news, trends and success stories for the middle market
Smart M&A
Editor: Rebecca A. Dickenscheidt
Managing Editor: Ann M. Gynn
Associate Editor: Danielle Toth
Contributing Editors:
Erik Cassano & Dennis Seeds
Art Director: Stacy Vickroy
Publisher: Michael Marzec
Cover photography: Peter Crane
10
A PUBLICATION BY BROWN GIBBONS LANG & COMPANY
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The information contained in this publication was derived from proprietary research conducted by a division or owned or affiliated
entity of Brown Gibbons Lang & Company LLC. Any projections,estimates or other forward-looking statements contained
in this publication involve numerous and significant subjective assumptions and are subject to risks, contingencies, and
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constitutes an offer to buy or sell or the solicitation of an offer to buy or sell any security.
4 PERSPECTIVE
What makes the grade in valuation?
Michael E. Gibbons
5 NEWS & NOTES
6 MIDDLE MARKET PERSPECTIVE
Rennillo Deposition & Discovery
9 MIDDLE MARKET PERSPECTIVE
Jim Abel, CPI Corp.
10 COVER FEATURE
Carving out a niche: Harwood Capital targets
public-to-private market
15 FIRST PERSON :: BGL INSIGHTS
Scott T. Berlin
16 VIEWPOINT :: RANDY MARKEY
Inform, engage and execute your way
to accelerated growth
18 VIEWPOINT :: DENISE A. CARKHUFF
Don’t trip as you skip to a sale
20 FIRST PERSON :: GLOBAL INSIGHTS
Ivan Alver, Co-founder, Global M&A Norway
22 MARKET TRENDS :: M&A ACTIVITY
Brown Gibbons Lang & Company is a
leading independent investment bank
serving middle market companies and
their owners throughout the United States and internationally.
BGL’s professionals are experts in mergers & acquisitions,
debt & equity placements, financial restructurings, and fairness
opinions & valuations with industry expertise across the global
growth sectors of the economy. www.bglco.com.
If you have a question, need more information, or would like to
obtain a digital copy of Smart M&A, contact BGL’s Wendy Neal
at wneal@bglco.com.
VOLUME 1 ISSUE 3 :: Smart M&A 3

PERSPECTIVE :: MICHAEL E. GIBBONS
What makes the grade in valuation?
Michael E. Gibbons is the founder of
Brown Gibbons Lang & Co., and serves
as senior managing director and principal.
You can reach him at (216) 241-2800 or
mgibbons@bglco.com.
Buyers are being
more disciplined
in their approach
to acquisitions.
4 Smart M&A :: VOLUME 1 ISSUE 3
Market uncertainty puts not only
valuations to the test but also a
buyer’s willingness and ability
to transact. However, my experience has
shown that quality remains the trump
card, and solid middle market businesses
will always attract buyers and financing
sources, even in the most challenging
periods. That being said, buyers are being
more disciplined in their approach to
acquisitions, causing a flight to quality
that is pushing up purchase price multiples
for the best companies. Envision a quality
“scorecard,” which buyers are using to
assign an overall grade—A, B or C—to a
business based on the number of positive
attributes tallied. The key factors driving
the valuation multiple are:
Leadership at the helm. Management
teams must possess depth and experience
and demonstrate a strong commitment to
the future growth of the business.
Earnings quality. Recurring revenues
with stable and predictable cash flows are
in focus. Companies that performed with
cash flows that held up during the recent
downturn are garnering higher multiples.
Size. EBITDA size is a measure of
stability, with $10 million a defining
threshold in the marketplace. For companies
with cash flow in excess of this amount, the
so-called “larger company” premium can
equate to a valuation multiple of 1x or more
of EBITDA.
Growth. Healthy growth can command
a purchase multiple in the high single-
to low double-digits, depending on the
industry and prospects for a business.
Sought-after targets are those that bring
identifiable synergies and opportunities to
grow through acquisitions.
Industry. Industry and growth often
go hand in hand, and generally speaking,
sectors that have proven their resilience
through the downturn, such as food,
technology, healthcare, and business
services, are attracting greater buyer
interest. Cyclical businesses draw more
skepticism, although quality companies
are garnering significant attention and
attractive multiples.
THE SCORE:
Grade A businesses possessing all
of these characteristics are attracting
significant interest from both corporate and
private equity buyers at robust valuations of
8x EBITDA or more.
Grade B businesses possessing most
of the characteristics are being sold at
respectable valuations from a historical
perspective, with purchase multiples in the
6x to 8x range, but are highly scrutinized
during due diligence.
Grade C businesses are more challenging
in terms of attracting interest, as buyers
and lenders are focusing their attention on
higher quality companies. Valuations are
modest, causing some owners to hold and
wait for a longer trend line of improving
performance.
Key drivers of M&A and ultimately
deal value are buyer appetite and capital
availability. Corporate and private equity
buyers with capital to spend suggest more
will be on the hunt for acquisitions in
2012. For middle market companies that
can make the grade, there are hungry
buyers at healthy valuations.

CLEANING UP
BGL’s environmental services team
recapitalized ECS Refining, LLC, an
industry leading electronic waste
(e-waste) recycler, with ZS Fund, L.P.
Established in 1980, ECS is one
of the largest full-service recycling
and end-of-life service providers for
electronics, industrial equipment, and
related hazardous waste in the United
States. ECS’ unique and broad set
of capabilities represents a complete
“end-to-end” solution for IT and other
electronic products (i.e., zero landfilling
or overseas processing), spanning
precious metals recovery and refining,
cathode ray tube (CRT) glass recycling,
and asset management, refurbishment,
and resale. In 2011, the company was
featured on Inc. magazine’s list of Fastest
Growing Private Businesses in America.
“Although I am extremely proud of
the business that we have developed
over the past 32 years, I am most
excited about our future and newly
formed partnership with ZS,” stated
Jim Taggart, CEO and founder
of ECS. With rising volumes of
e-waste, advantageous legislation,
and increasing green initiatives within
our targeted customer audience, our
business stands well-positioned to
accelerate its growth by capitalizing on
the platform we have created.”
Effram Kaplan, head of BGL’s
business and environmental services
practice commented, “We are very
excited for ECS management and ZS
to execute on their pursuit of furthering
ECS’s position in the marketplace as the
preferred provider of e-waste recycling
services in the U.S.”
BGL’s Global M&A German partner
advised Metallurgica on its sale to
Cookson Group plc (LKE: CKSN).
Cookson acquired 100 percent
of the outstanding shares of
Metallurgica in the transaction. The
acquisition included the operations of
Metallurgica Beteiligungsesellschaft
mbH and Metallurgica Gesellschaft
fur Huttenwerkstechnik mbH & Co.
KG, based in Mülheim an der Ruhr,
Germany, and Metallurgica North
America, LP, based in Canfield, Ohio.
Founded in 1957, Metallurgica is
one of the world’s leading suppliers of
metallurgical fluxes, which are mineral
powders used alongside refractory
products to absorb impurities and
help lubricate and prevent oxidation
in molten steel during the production
process. The company supplies
products to more than 350 customers
in 45 countries and generated revenue
of approximately $62 million in 2011.
Metallurgica will be integrated
into Cookson’s Engineered Ceramics
division, whose subsidiary company
Vesuvius Group SA, is a leading
TEST AND
VALIDATE
Celsis Analytical Services (Celsis AS)
was acquired by AAIPharma Services
Corporation, a portfolio company of
Water Street Healthcare Partners. BGL’s healthcare group represented Celsis
International, the parent company of Celsis AS as well as other diagnostics and
research tools businesses.
Celsis AS provides cost-effective, outsourced cGMP-certified laboratory
services with industry leading sample turnaround times via its laboratory operations
in Edison, New Jersey, and St. Louis, Missouri. Both testing centers, comprising
65,000 square feet of laboratory facilities, are additive to AAIPharma’s existing
business. The combined entity offers a comprehensive suite of methods validation
and testing services for biotechnology, pharmaceutical and consumer products
manufacturers, raw materials suppliers, and manufacturers of agricultural and
veterinary medicine products.
“We are excited to integrate the Celsis AS business with AAIPharma, creating
one of the largest and most experienced materials testing businesses in the United
States,” says Patrick Walsh, CEO of AAIPharma Services.
IN A FLUX
NEWS & NOTES :: BRIEFING
supplier of advanced consumable
refractory products and systems to
the global steel and foundry industries
and specialty products to the glass and
solar industries.
“Because of the owner family’s request
for the highest possible confidentiality,
the organization of the sale process,
especially the due diligence investigation,
required a particular degree of tact and
skill. Due to the good cooperation of
Vesuvius during the whole sale process,
the owner family is now very satisfied
with having handed over the company—
that determined for many decades
the family’s life—to a strategic market
participant that is considered to be
the best possible buyer due to its
complementary product portfolio and
identical customer groups,” says Christian
Kollmann, Global M&A Germany.
VOLUME 1 ISSUE 3 :: Smart M&A 5

MIDDLE MARKET PERSPECTIVE :: RENNILLO DEPOSITION & DISCOVERY
Perfect timing
Rennillo Deposition
& Discovery found the
right buyer to make
the right deal
6 Smart M&A :: VOLUME 1 ISSUE 3
Rennillo Deposition & Discovery
personifies the definition of a
well-run, family-owned business.
Lou Rennillo, his wife, Irene, and his
son, Nicholas, each brought unique assets
to cultivate a business that would find,
in less than a decade after its founding,
national firms in the deposition and
litigation support services industry
“courting” the company.
Even with the attention of industry
buyers, the Rennillos stayed the course,
intent to see the fruits of their labor. “The
company had not reached its optimal size
to sell, and I was still too young to cash
out,” Lou says with a laugh. “And Nicholas
wanted to gain more experience before
reaching a point to consider taking over
the business.” While that represents some
of the considerations that are tangible, the
intangibles made up the rest of the story.
The Rennillo family enjoyed working
together and took pleasure in watching the
DISCOVERY
&
business grow and retain satisfied clients.
Even more important, all three Rennillos
needed each other in the business. It was
DEPOSITION
a few years later that Rennillo was courted
again and the family decided to sell—when RENNILLO
the timing and buyer were right.
Lou and Nicholas Rennillo shared their
COURTESY
thoughts about growing and selling the
family business: PHOTO

HOW DID RENNILLO DEPOSITION &
DISCOVERY BEGIN OPERATIONS?
Lou: As an active court reporter and
former partner in a litigation services firm,
I spent more than 20 years in the field
building relationships with law firms and
regulatory agencies. When the former
partnership dissolved in 1998, I retained
some of the client base from the business,
which formed the origins of Rennillo
Deposition & Discovery. My wife, Irene,
left practicing law full-time to come on as a
partner that same year. Our son, Nicholas,
also joined the company in 1998 while
he was completing his second year at the
Cleveland-Marshall College of Law. He
was always hard-working and grounded,
willing to do whatever was needed.
Nicholas came on as an employee and
with a great deal of perseverance and sweat
equity, later became a partner.
WHAT WERE KEY CONTRIBUTORS
TO THE COMPANY’S GROWTH?
Lou: We each brought complementary skill
sets, and the diversity of our professional
and educational backgrounds contributed
to Rennillo’s growth. I had been a court
reporter my entire career, so when we started
the business, I was out with the clients every
day shaking hands and writing depositions.
Irene’s career as a litigator offered a unique,
end-user perspective which served as
knowledge for the firm’s strong operational
backbone, as well as the design of its services.
Her penchant for strong protocols and
procedures eliminated business or client
confidentiality risks. Irene also handled all
legal matters, making sure the attorneys
followed the civil rules and procedures.
Nicholas oversaw sales and marketing
and was responsible for new business
development, including managing several key
client relationships. He was also instrumental
in developing our technology platform.
Nicholas: I was also in the field doing
video depositions and shaking hands.
Lou: My initial thought was that once
Nicholas graduated from law school, he
RENNILLO DEPOSITION & DISCOVERY :: MIDDLE MARKET PERSPECTIVE
The company was
back on a growth
track where the
potential of
exploring a sale
made sense.
– Lou Rennillo
Rennillo Deposition & Discovery
would work for a reputable litigation
house and bring business to the firm. Even
though he chose not to practice law, some
of the contacts that Nicholas made while
attending law school went on to firms that
eventually became our clients, which was a
significant source of revenue for the firm.
Lou: Rennillo expanded into multidistrict
litigation in 2003. In 2005, we
were selected as the dedicated court
reporting firm for the Commercial Money
Centers Leasing Litigation, one of the
largest multi-district litigations ever in the
Federal Northern District of Ohio. We
completed 500 depositions over a two-year
period, which was the largest case ever
handled by a court reporting firm. We
reinvested the cash flows from that case
back into the company.
Our use of industry-leading technology
differentiated us in the marketplace.
We stayed abreast of developments in
the litigation markets on the East and
West Coasts, which begin filtering to
the Midwest typically after a period
of about five years. Technological
advancements brought increasing demand
for videography in depositions and trial
presentations. We attended seminars on
technology and started bringing those
offerings to Ohio before our competition.
We opened an office in Columbus a
few months before the transaction closed.
The expansion represented a substantial
commitment to the Ohio market. We
already had a recurring base of referral
work in Cleveland, so the new office
expanded our footprint to the Columbus
and Cincinnati markets.
We grew our employee base more than
four-fold by the time we sold the company
in 2011.
NEARLY ALL BUSINESSES WERE HIT BY
THE RECENT ECONOMIC DOWNTOWN.
HOW WAS YOUR COMPANY IMPACTED?
DID IT AFFECT YOUR DECISION TO SELL?
Lou: It was the first time during my years
in the profession, so since 1965, that an
economic downturn negatively impacted
the court reporting industry. Typically
when the economy softens, deposition
and litigation work pick up. In this recent
recession, it was the opposite. Everybody
tightened their belts.
We decided to be more proactive and
hired our first salesperson. She was a
former court reporter and owner of a court
reporting firm, so she brought a number of
business contacts which helped accelerate
our growth.
WITH SUCH A SUCCESSFUL MOVE, DID
IT CREATE AN INTEREST THAT THE TIME
MIGHT BE RIGHT TO SELL?
Lou: The company was back on a growth
track where the potential of exploring a
sale made sense. It was about a year later in
2010 that the partners decided to see what
the market had to offer.
Nicholas: I knew Effram Kaplan at BGL;
we went to grade school together and knew
each other during our high school years. I’d
kept in contact with Effram over the years,
and initiated discussions when the prospect
of selling became more concrete.
Lou: We were impressed with the depth
of experience of Effram and the BGL team
and decided to hire BGL to represent the
company in its sale.
continued on page 8
VOLUME 1 ISSUE 3 :: Smart M&A 7

MIDDLE MARKET PERSPECTIVE :: RENNILLO DEPOSITION & DISCOVERY
Perfect timing
continued from page 7
CAN YOU DESCRIBE THE PROCESS OF
FINDING JUST THE RIGHT BUYER?
Lou: BGL marketed the company in a
competitive sale process that included a
targeted universe of “strategic” firms in the
court reporting industry, as well as private
equity firms. They prepared a 50-page
marketing document that detailed our
history, operations, and financial position,
which was provided to the prospective
buyers. Selected firms were invited to meet
and interview management. Through the
process we got to know our own company
better. We realized what our market
value was, which exceeded our initial
expectations.
Nicholas: I was surprised by both the
amount of capital and number of private
equity firms looking to invest in the space. I
had never been involved in a transaction like
this, so it was an eye-opener.
Lou: The most difficult decision,
ultimately, was determining who the right
partner would be. It is the area where
we spent most of our time. As Irene and
I would begin to transition out of the
business, we wanted to make sure that
Nicholas could stay on with a company
that possessed a strong foundation and
future. We felt that Veritext was the most
fiscally responsible company in the court
reporting industry, and its private equity
partner, Investcorp, could provide that
foundation. Veritext also had national
and international clients that could bring
additional work to Rennillo.
Nicholas: As to the question of when is
the right time to sell, for us the time was
right because of the changing dynamics in
the litigation services industry, particularly
within our local marketplace. For us to
have access to more of a national platform
was a positive move for the company.
WHAT OTHER FACTORS DID YOU FEEL
WERE IMPORTANT IN THE TRANSACTION
PROCESS?
Lou: BGL understood why we were
successful and the investment attributes
that would make us an attractive
acquisition candidate in the marketplace.
8 Smart M&A :: VOLUME 1 ISSUE 3
As to the question of when is the right time
to sell, for us the time was right because of the
changing dynamics in the litigation services
industry, particularly within our local market.
– Nicholas Rennillo, Rennillo Deposition & Discovery
Their guidance was right on point. They
serviced us as well as we serviced our clients
over the years.
Nicholas: I probably worked the
closest with BGL during the process.
Beginning from day one when we retained
BGL as our advisor up to the final closing
of the sale, they were hugely supportive.
They provided great advice throughout
and really ran a tremendous process.
WHAT ADVICE CAN YOU GIVE FOR A
FAMILY BUSINESS THAT IS LOOKING
TO SELL?
Lou: Don’t try to sell your company on
your own. We couldn’t have attracted the
caliber of buyers had we tried to manage the
sale process on our own. Also, get clarity on
the transition period following the sale—
understand the roles of the senior managers
that are staying on and their involvement in
the decision making going forward.
If you’re being acquired by a strategic
buyer, particularly where there will be
material integration efforts, it’s important to
put a good integration plan in place so that
you can hit the ground running post-sale.
Nicholas: Integration of systems and
procedures posed logistical challenges
during the first six months, particularly as
we migrated to a new IT platform. Overall,
however, it has been a great move to
partner with a larger enterprise. n
Nicholas Rennillo is now vice president of
Rennillo Deposition & Discovery, a Veritext
company, and Lou and Irene Rennillo continue
to be involved in an advisory capacity.

CPI makes tough choices
to move forward
It hasn’t been an easy few years for CPI
Corp. as a slow economy has people less
willing to spend money on its traditional
portrait services.
To counter that trend, and to position
itself to come out stronger on the other side
of the recession, the company continued to
make acquisitions in 2011 and broadened
its services beyond the traditional newborn
and children’s portraits, says CPI board
member and interim President and CEO
Jim Abel.
CPI specializes in portraiture
photography, running studios in Sears and
Walmart, and in 2010, acquired Kiddie
Kandids, with studios based in Toys
“R” Us and Babies “R” Us. In 2011, it
completed the acquisition of Portraits by
Bella, a high-end photographic portraiture
chain based in San Francisco, with studios
in malls that target the engagement and
wedding picture business.
Abel says the company continues to
look for opportunities to position itself for
growth when the economy improves and
people have more disposable income.
HOW DID YOUR BUSINESS PERFORM
LAST YEAR?
On a macro basis, the high unemployment
level has put more pressure on our
customer base. A lot of our customers
bore the brunt of unemployment, and
that was exacerbated by the expiration
of unemployment benefits. In addition,
fuel prices were very high. As a result,
the competition for disposable income
increased over the past 18 months.
When you consider the type of business
we have, consumers can make a decision
not to spend money on photos more easily
than they can to not spend money on gas
or food. There has been more pressure on
pricing from that reduction in disposable
income than has been from competition in
the marketplace.
In the fourth quarter of 2011, which is
JIM ABEL, CPI CORP. :: MIDDLE MARKET PERSPECTIVE
normally the strongest season for portrait
services, the company’s performance
declined significantly as continued market
pressures were exacerbated by inefficiencies
in operating performance. This resulted in
liquidity issues for the company.
HOW IS 2012 SHAPING UP?
With GDP growth of about 1 percent,
sales have been pretty flat, and I see 2012
as more of the same. We are probably
going to see that base business continue
in a no-growth situation for another year
or so until there is some break in the
employment picture.
The company has continued to experience
very tepid demand, and has moderated its
outlook for the year. This has resulted in
studio closures for all brands and reductions
in force to align the overhead structure with
the business demand. Liquidity concerns
will persist until the company’s financial
performance improves.
HOW WILL CPI MEET THESE
CHALLENGES?
We have restructured our field sales
organization to improve management
coverage of our studios and focused
our efforts on improving the customer
“We’re trying to expand the
product offering and market reach
that we have and see that as a real
opportunity to grow as the overall
market conditions begin to change
over the next couple of years.”
– Jim Abel, CPI Corp.
experience through better training of studio
sales personnel and photographers.
In addition, the marketing programs
have been reviewed to provide more
clarity and value to the customer. We
are committing more resources to local
marketing efforts directed by studio
personnel, which we believe will attract
more customers and be more responsive to
their changing needs.
We are also conducting more business
electronically, which helps on the cost
profile and makes it easier for people to
make appointments, view photos, and look
at different finishes.
Also, people have the ability to take their
own digital images, and that has had an
impact on our business. Instead of getting
formal portraiture work done, people are
taking their own photos. However, they
don’t know how to organize them, or
create collages, and that is an area that we
are exploring, as well.
We’re trying to expand the product
offering and market reach that we have and
see that as a real opportunity to grow as the
overall market conditions begin to change
over the next couple of years. We are very
invested in the market and have been active
in the industry consolidation, scrutinizing
opportunities but not wanting to overinvest
until we see how the strength of the market
shakes out. n
For more information, contact Jim Abel at
(314) 231-1575 or www.cpicorp.com.
VOLUME 1 ISSUE 3 :: Smart M&A 9

COVER FEATURE
10 Smart M&A :: VOLUME 1 ISSUE 3

PHOTOS BY PETER CRANE
OUT A
CARVING
NICHE
Harwood Capital targets
public-to-private market
By Erik Cassano
Christopher Mills has spent more than 35 years in the investment business
on both sides of the Atlantic, as an asset manager and in private equity,
negotiating the purchase and sale of companies across a diverse range of
industries. But it wasn’t until the 1990s, after stints at Samuel Montagu &
Co. and Aetna Inc., that Mills would find his niche.
After founding J.O. Hambro Capital Management Limited in 1992, which he
helped grow to a $12 billion fund management business, Mills ventured into private
equity, forming U.K.-based Harwood Capital Management in 2011 after J.O. Hambro
was sold. Today, with more than $1.0 billion in assets under management, Harwood’s
investment business consists of closed-end mutual funds, private wealth management,
private equity, and real estate.
It is in the private equity arena where Mills has carved out a niche by identifying
strong but undervalued businesses, partnering with management, and in the case
of public companies, taking them private. “We are looking to build specialist niche
businesses in industries where we have depth of expertise,” Mills says. “We focus on
relatively small public companies, considered micro cap companies (defined by market
capitalization) in the United States.”
“The management teams at these companies want to have liquidity, and they want
to have a long-term business plan that they can believe in and not be concerned about
corporate raiders trying to take them over.”
VOLUME 1 ISSUE 3 :: Smart M&A 11

COVER FEATURE
Quality private equity firms are not finding it
hard to raise money, added to which there is
a significant amount of accumulated unspent
capital that needs to be invested.
12 Smart M&A :: VOLUME 1 ISSUE 3
From the London headquarters of
Harwood Capital Management, Mills spoke
about the company’s investment strategy
and how the global financial and economic
climate will impact investing activity.
What are your thoughts on the global
financial situation, and in particular,
what is going on in Europe and the
United Kingdom? How has it affected
deal flow?
The real fundamental parameters behind
most European economies are truly dire.
Budget deficits and unemployment rates
are significantly higher than publicized,
and there is simply not enough money to
solve the problem. Politicians are in denial
hoping the markets don’t wake up and
discover they are not wearing any clothes.
A classic example of this denial is
the sale of the post office by the British
government. The post office has £28
billion (US$44 billion) in its pension
scheme, and the government is saying,
“OK, we have that amount to spend.” But
because the government does not take the
liability of those pensions onto its balance
sheet, it is saying “We have a £28 billion
surplus.” The reality is it is taking on a
£38 billion (US$60 billion) deficit on the
pension scheme.
This muddled thinking is going on
across the whole of Europe. When you
look at the British government’s pension
fund deficit, which doesn’t appear on its
balance sheet, it is more than £1 trillion
(US$1.6 trillion), or around 75 percent of
GNP. If you add it to the actual budget
deficit, which is what anybody in the
real world does, the true deficit is at 180
percent of GDP. Germany is at 150 or

160 percent. So the deficits are massively
worse than anyone is talking about.
When the European governments
really work to address their deficits, a
number of questions will arise. What will
the impact be on corporate profitability?
What will the impact be on the financial
markets when interest rates rise because
governments are no longer injecting money
into the economy? Ironically, certain areas
of the economy stand to benefit, such as
the savings sector. However, the resulting
contraction in consumer spending will
negatively impact most other sectors.
We are trying to direct our private
equity fund investing toward global
business-to-business or defensive businesses
that are less impacted by a recession.
How are challenges facing private
equity from a regulatory, operational
or fundraising perspective impacting
deal flow?
Quality private equity firms are not
finding it hard to raise money, added to
which there is a significant amount of
accumulated unspent capital that needs to
be invested. However, there are genuine
concerns around the availability of bank
financing in Europe. The reality is bank
balance sheets are shrinking, and their
appetite for risk is virtually zero, so when
you can find the financing, it is expensive.
Our deal flow is still healthy, although
it is becoming more challenging to find
opportunities as liquidity in the public
markets is limited, making it difficult
to acquire our initial stakes. We are
typically pursuing microcap businesses at
reasonable valuations and niche businesses
outside of an auction process.
continued on page 14
Water Street Healthcare Partners’
Peter Strothman talks about
AAIPharma Services Corporation
and the acquisition of Celsis
Analytical Services. BGL advised
Harwood Capital on the Celsis
divestiture, which was completed
in December 2011.
What are trends driving growth in the
pharma services industry?
Pharma companies no longer have the
old blockbuster model available to them,
so they are trying to outsource their fixed
costs and turn them into variable costs
as a way to preserve margins, which
is creating substantial tailwinds for the
outsourcing industry in pharmaceutical
services. Growth in the outsourced
component of R&D is projected to be
fairly substantial. Even if growth in global
R&D spending slows, the outsourced
component is growing at a much faster
rate because of that dynamic.
Can you offer your perspective
on your investment in AAIPharma
Services?
We formed AAIPharma Services in a
corporate carve out in July 2009. In AAI,
we saw a real differentiated asset in drug
development. It was a business with a
30-year history and a reputation as a
customer-service oriented provider with
scientific expertise that was second to
none. We also looked at the competitive
landscape, which is highly fragmented. We
saw the opportunity to continue to build
scale by growing organically and through
acquisition. The core business that we were
buying was a great platform for that.
AAI is a problem solver for drug
development companies—pharma
companies that either want to outsource
their business to us or solve drug
formulation issues they can’t on their
own—whether it is analytical services
or formulation development, laboratory
services related to drug development, or
clinical and commercial manufacturing
that we perform as a result of that
capability. We are in a position relative to
A buyer’s perspective
WATER STREET
TALKS DEAL
drug development to provide a full suite
of services, and that resonates with our
clients in a meaningful way.
The investment has been a
tremendous success. We are growing our
customer base, increasing our penetration
in existing relationships and adding new
customers—the “who’s who” of pharma
and biotechs. When you look at the
financial performance, it verifies it.
What led you to the decision to
pursue a transaction with Celsis
Analytical Services?
We acquired AAI as a platform for
acquisitions. Celsis was a competitor and
on our radar screen, and its business fit
strategically with our growing presence
in the material testing space. Celsis
augmented our capabilities in that area
and expanded our capacity with the
addition of two new sites. Importantly,
it also gave us access to many new
customers, increasing our customer base
across the organization nearly two-fold.
How do you see consolidation
shaping the industry going forward?
There will continue to be consolidation.
If you look at the drug development
space, in particular for pharma services
outsourcing, there are a variety of
opportunities in the United States and
internationally. And it is a fragmented
landscape. The challenge is being able
to gauge the direction the industry is
moving and identifying the best platform
upon which to build additional capabilities
and be there five years from now when
these services are very important to the
customers that are innovating. That is why
we invested in AAI and why we are going
to continue to invest in the space. The
tailwinds are there. It is all about picking
the right investments.
Water Street Healthcare Partners is a
strategic private equity firm focused
exclusively on the healthcare industry.
For more information about Water Street,
visit waterstreet.com.
VOLUME 1 ISSUE 3 :: Smart M&A 13

COVER FEATURE
What is the importance of developing
a niche that your competitors have
not filled?
We can access the public markets and
acquire equity stakes in listed companies
while seeking to build meaningful, longterm
relationships with the management
teams of those businesses. We are building
that relationship early on, before the
company is in a sale process, and are able
to gauge the appetite for going private.
Other firms wait for the announcement
that a public company is evaluating strategic
alternatives and then make a move. When
we approach the senior managers about a
management buyout, we have cultivated that
relationship, and because we have an equity
stake in the company, it makes it more
difficult for other parties to bid.
There is no question that there are
hundreds of companies that are too small
and the cost associated with being public
doesn’t make economic sense. The proactive
management teams of those companies see
going private as an opportunity to build a
successful and more valuable business with a
new financial partner.
As a private equity investor in
healthcare, where will the deal
opportunities lie?
Broadly, we are looking for specialized,
niche businesses with attractive growth
profiles, recurring revenue and high free
cash flow, and defensible market positions.
We have been successful in identifying
those businesses where we can partner with
strong management teams to drive growth.
Within healthcare, we are focusing
on niche product companies that are less
susceptible to macro industry pressures.
One of our portfolio companies, Bionostics,
is a global manufacturer of liquid control
solutions employed in medical diagnostic
testing equipment. A primary market is
14 Smart M&A :: VOLUME 1 ISSUE 3
The proactive management teams of those
companies see going private as an opportunity
to build a successful and more valuable business
with a new financial partner.
diabetes, which is seeing a growing patient
population given that the number of
diabetics is increasing every year. Our 10cent
diabetes test will not likely be subject
to regulatory controls but is critical to
preserving the lives of diabetic patients.
Another company is the global market
leader in the supply of cryo-preserved
human liver cells used in early-stage drug
testing by pharmaceutical companies,
which is driven by the level of spending on
pharmaceutical research and therefore is
less impacted by macro trends.
We also own a company that is a
global supplier of specialist plastics to the
orthopedic market. The company is one of
only two suppliers of ultra high molecular
weight polyethylene, an engineered plastic
material used in part design, for specific
applications in orthopedic implants.
Every plastic component produced that
requires the use of this medical grade
polymer is supplied by our company or
our competitor. The cost of our part in
the context of a hip or knee replacement is
probably less than 1 percent, so our growth
will be driven by the number of hip and
knee implants and not by price issues.
Celsis Analytical Services was acquired
in a take-private of Celsis International
plc in 2009. Tell us about the Celsis
investment and divestment.
Celsis is a case study example of a
candidate for a take-private transaction.
It was a strong business that had
consistently grown. However, the group
was a mini conglomerate with limited
synergies between the various divisions.
Further, management was located in the
United States, so investors in the U.K. had
little interest in the equity.
By taking the company private, we
were able to significantly reduce expenses
relating to the cost of being a plc and
bring focus to the group, and in this
effort, carve out certain businesses for
divestment. We completed the sale of
one of the divisions, Celsis Analytical
Services, in December 2011. In doing
so, we will earn back our invested capital
and dedicate resources to the remaining
holding, Celsis Rapid Detection, to
better capitalize on growth opportunities
available to that business. This worldleading
company manufactures
diagnostic kits used to test for microbial
contamination in liquid products sold into
the pharmaceutical, personal care, dairy,
and beverage markets.
Looking ahead, what are the primary
challenges in evaluating acquisition
opportunities?
We are opportunistic as we look for
investment opportunities, typically
seeking businesses that are undervalued
and/or underinvested from a management
and strategic growth perspective.
Because of our unique investment focus,
particularly as it relates to public-toprivate
transactions in our local market,
we continue to see opportunities to
generate attractive returns. n

PHOTO BY JIM BARON
Scott T. Berlin
Scott Berlin leads BGL’s effort in the metals and metals processing industry.
Below, he shares his insights on M&A activity in the sector.
HOW IS THE METALS SECTOR PERFORMING?
Metals is a cyclical industry, and right now we are experiencing an upswing in the cycle.
Fundamentals are strong and company performance has continued to improve over the last
several quarters. Corporate and private equity buyers are looking to acquisitions for growth,
resulting in an active M&A market. Lenders are lending again, and there is availability of senior
and junior capital to support acquisition financing. I would expect the next few quarters to
continue to be strong, both in terms of company performance and the level of M&A activity.
HOW ARE DEALS GETTING FINANCED?
Many of the public companies are profitable and have accumulated cash and, in the
current low interest rate environment, have been able to secure favorable terms on their credit
facilities. That leaves ample “dry powder” to pursue acquisitions.
Capital providers are looking to grow assets, and funding for
acquisitions is available. High-quality M&A transactions are attracting
significant interest with multiple bidders in auctions and lenders
competing to win the financing.
We have several active engagements in the metals space. In two
transactions involving private equity buyers, the financing consists
of senior debt and equity (without junior capital), with term debt
provided by international banks. In another transaction, a strategic
buyer is writing a check for the company.
HOW HAS THE SALE PROCESS CHANGED DURING YOUR
TWO DECADES OF EXPERIENCE AS A FINANCIAL
ADVISOR AND HOW ARE YOU MEETING CLIENTS’
NEEDS?
Prospective sellers today are more sophisticated and
know they have many “options,” particularly for
those with high-quality businesses. As a result, we
are taking on much more of an advisory role to
analyze the future growth prospects and strategic
direction of a business as a way to maximize the
alternatives available to our clients.
Buyers are more disciplined and the level of
due diligence, including quality of earnings and
third party industry reviews, has never been more
rigorous. Despite the increasing complexity, we must
still adhere to tight timeframes, paying close attention
to hitting major milestones and company performance
metrics during a process, while always keeping the
lines of communication open. n
You can reach Scott Berlin at (216) 241-2800 or
sberlin@bglco.com.
BGL INSIGHTS :: FIRST PERSON
Managing Director & Principal, Brown Gibbons Lang & Company
On the Side
First job: In high school, I leased
a snow plow from my uncle and, in
exchange, I gave him 25 percent of
the revenue I earned from plowing
driveways. On heavy snow days, I might
plow as many as 25 driveways before
and after school.
Favorite sport: Snow skiing.
Vacation spot: The Summit in
Colorado for snow skiing or any sandy
beach, particularly the Lake Erie islands
in Ohio.
Favorite hobby: Endurance car racing.
Our favorite series is the 24 Hours
of LeMons; we participate in
roughly 8 to 10 races a year.
Currently reading: Avoiding
the Entitlement Trap. We
are parents to three young
children, ages 10, 8, and
6, so our daily schedule
is geared around their
school and extra-curricular
activities. The book talks
about teaching children to
be responsible and selfsufficient—helpful
traits as
they enter the teen years.
People are surprised to learn that:
I like to race cars.
Favorite wine: Chardonnay from
any region.
VOLUME 1 ISSUE 3 :: Smart M&A 15

VIEWPOINT :: RANDY MARKEY
Inform, engage and execute
your way to accelerated growth
Close your eyes … imagine that you have fallen asleep
for five years. You wake up and everything is perfect
… how do you know? What is happening?
Imagine a world where you come to work every
day and you are presented with solutions rather than problems …
imagine further that those solutions had already been implemented,
and you were simply being informed of the activity rather
than being asked for permission! Imagine a world where your
competitors are two or three steps behind you on every front …
cost structure, product innovation, customer experience, growth,
employee retention … every business metric that matters to you.
Imagine a world where the burden of your company’s success was
lifted from your shoulders and was fully embraced by each and
every employee and associate in your organization. It can be so!
If I were to ask 10 people in your company to tell me
what purpose your company serves and why it exists, how
many different answers would I get? Two? Five? Seven? In my
experience working with middle-market companies, it is more
likely that the answer falls between eight and 10!
How powerful would it be if the 10 people gave the same
16 Smart M&A :: VOLUME 1 ISSUE 3
What if everybody in your organization
was focused on making every customer
interaction truly exceptional, and had
the sense of accountability and
authority to ensure that it happened?
answer? What if everybody in your company understood from the
moment they got out of bed what they were going to do that day
to contribute to your company’s important objectives as defined
by you? What if everybody in your company understood exactly
your company’s five major strategic objectives, and felt empowered
to apply their knowledge, expertise and creativity to improve the
performance of the processes and systems that they touch every
day? What if everybody in your organization was focused on
making every customer interaction truly exceptional, and had the
sense of accountability and authority to ensure that it happened?
It is powerful. I know because I have seen it in action. More
importantly, I am delighted to be in a position to be living it
now in my current role at global X. It can all be boiled down
to effective leadership and three simple steps: Inform. Engage.
Execute like crazy.
INFORM
Provide everybody in the company with the information they need
to understand context. Asking people to take action “because I
am the boss and I said so” is ineffective, yet we see it all the time
in small to mid-sized companies. People need to understand the
“why” of the “what” we are asking them to do. The first piece of
context development is a clearly articulated vision. It sounds hokey
and touchy-feely, but it is important to paint a picture of what
the company will be five to seven years from today. What is true
about your company’s position in the market? What is true about
your competition? What is true about your customers and the
experiences they have with your firm that inspire them to choose
to do business with your company over others? What is true about
your culture, your people and the systems and tools they have to
support their delivery of value to customers? As the old saying
goes, “if you don’t know where you are going, every road takes you
there.” Give your people a destination … the “why” of what you
are asking them to buy.

ENGAGE
Engage them in the process of defining what they will do … what
actions will they take to drive the outcomes articulated in your
vision. Collaboration is the key to ownership of the results broadly
distributed throughout the company (notice that I did not say
“down into the organization” … there is no “down” in successful
growth companies.) A very effective means of engagement that I
have experienced is to ask how certain outcomes will be measured
to determine that success has been achieved. Once measures have
been defined and targets set for each, it is much easier for folks
to conceive of what must be done to move the needle on each
measure closer to the target. These actions may be prioritized by
the team into three to five “strategic imperatives” for each year of a
five-year plan. By engaging the team in defining success and what
actions are necessary for its achievement, the odds of realizing your
vision for growth increase exponentially.
EXECUTE LIKE CRAZY
Waking up to the future that you portrayed in your vision
requires a lot of hard work and discipline. A rigorous focus
on execution, results and learning from experience is required
for the outcomes that you and your team defined to become
reality. Walking the walk, communication, accountability,
decision rights, repeatable processes … all necessary elements to
effective execution. In our organization, I am frequently heard
RANDY MARKEY :: VIEWPOINT
repeating the statement like a drum beat … “the hard things
should be hard and the easy things should be easy, but let’s not
allow the easy things to be hard.” Having clarity of roles, clarity
of authority, repeatable systems and processes and weekly or
monthly forums for the sharing of what went right, what went
wrong and what we can and will do better are critical to achieving
successful, profitable growth.
Although this may be a gross oversimplification of the process,
it really is this straightforward. The hard part is in the leadership
required to shepherd the team through the process and sustain
performance over the long haul. Creating clarity of vision,
ownership over results and authority to take action with every
member in our organization has been the key to unlocking our
company’s growth potential. We now must continually challenge
ourselves to lead the team every day to learn more, move faster and
EXECUTE like crazy. If you are seeking accelerated growth, give it
a try … you will be pleasantly surprised by the knowledge, energy
and creativity that is unlocked in your team. I promise. n
Randy Markey is leading the effort to accelerate growth at global X in
Cleveland. global X is a market maker in transferable tax assets. The
company provides equity financing to high-quality projects in historic
preservation, renewable energy and film production infrastructure that
yield benefits to investors in the form of tax savings. He can be reached
at (216) 241-6689 or rmarkey@globalxtax.com.
VOLUME 1 ISSUE 3 :: Smart M&A 17

VIEWPOINT :: DENISE A. CARKHUFF
Don’t trip as you skip to a sale
The biggest day in a business owner’s life: the day she
sells her company. Ironically, many business owners
do not take the proper time to prepare for this lifealtering
event. Perhaps, when business owners reach
such success in life, they develop false confidence about abilities
they do not possess. Maybe, they get caught up in the momentum
and excitement and forget to keep a professional distance from
the buyer. I have seen any number of mistakes made. From my
experiences, I have some practical and simple advice to increase
the purchase price received, preserve it throughout the transaction
process, and ensure a successful close.
Hire good advisors. Having top-notch investment banking,
1. law and accounting firms to guide you through the process
is essential. Of course, you need a seasoned team from each
18 Smart M&A :: VOLUME 1 ISSUE 3
that is truly focused on your deal. Make sure that the team that
pitches you is the team that actually works on your deal. You
should include the team members in the engagement letter. For
example, the investment banking firm could be considered in
material breach (and not entitled to a tail fee if terminated and a
deal is consummated with another investment banking firm) if key
members of the deal team are changed.
Have a good process. Once you’ve hired the right advisors,
2. it is important to listen to and trust them. This seems like
simple advice but it is the most common mistake I see made by
sellers. It is hard for business owners who are accustomed to being
in the lead chair to take a back seat to the advisors. It is a buyer’s
dream to get direct access to the business owner, to develop a
rapport and to get the seller to start empathizing with the buyer
(particularly, when the seller is also rolling some of his equity into
the buyer entity). Business owners should allow their advisors to
be the “bad guys.” The advisors know all the tricks the buyers will
try to pull. You will get a much better deal if you let your advisors
do the job you hired them to do. Trust them on content and trust
them on timing. If they ask you to go quiet, go quiet. If they ask
you to go quickly, go quickly. Pausing at the right time can lead to
an increased purchase price. Moving quickly at the right time can
feed momentum and preserve a deal that might otherwise die.
Know your sins. You must always know more about
3. your company and its little problems than the potential
buyers. Once you get your arms around all the “issues” with your
company, you can strategize a plan with your advisors on how
and when to introduce them to bidders. Being on top of an issue
can prevent a hit to purchase price or the request for a dollar one
specific indemnity. Looking organized and “clean” will give buyers
confidence in you and keep them from digging deeper. Before you
start your sale process, take the time (with the guidance of your
legal advisor) to clean up your company and, for example, update
your record books, employment and option documentation (e.g.,
make sure you are 409A compliant), update expired contracts,
obtain missing signatures to contracts and get old liens that relate
to retired debt released.
Know your assets. Make sure you know all items that
4. justify your ideal purchase price. Also, have a grip on what
tax benefits arise out of the transaction as a result of retiring
options, paying bonuses and accruing other selling expenses. As a
seller, these should be your benefits even if they don’t arise until
a post-closing period. Your accountant and lawyer should work
together to quantify the value of the tax benefits. Be smart about
every component of the purchase price. Have a supported view on
what the working capital peg should be. Be aware of any item that

could potentially be deducted from the purchase price proceeds
you will receive. With your lawyer’s guidance, develop a view on
which items you will push onto the buyer. For example, the buyer
might try to reduce the purchase price by ordinary course bonuses
accrued through closing. You will want to head that off at the
beginning of negotiations.
Have your own house in order. Before you sell your
5. company, be sure to have trusted tax and financial
advisors help structure whatever estate, tax or other planning
that might work for your particular situation. Be aware if a
particular sale structure will be more punitive to you from a tax
perspective than another. I witnessed a deal fall apart when the
seller didn’t appreciate his tax position and the impact it had on
his ultimate proceeds. His proposed remedy for the issue was a
non-starter for the private equity buyer. Had he known this at
the beginning of the process, this factor would have pushed him
towards a strategic buyer.
These five pieces of advice are where I most commonly see
DENISE A. CARKHUFF :: VIEWPOINT
You must always know more
about your company and its little
problems than the potential buyers.
private company sellers trip up in their sale process. If you follow
the above advice as a business owner, you will not trip as you skip
into your new role as a business seller. n
Denise A. Carkhuff is a partner in Jones Day’s Cleveland Office. The
views expressed herein are the personal views of the author and do
not necessarily reflect those of the firm. For further information, please
visit www.jonesday.com or contact Denise at (216) 586-1079 or
dcarkhuff@jonesday.com.
VOLUME 1 ISSUE 3 :: Smart M&A 19

FIRST PERSON :: GLOBAL INSIGHTS
Ivan Alver
Co-founder, Global M&A Norway
Ivan Alver is the co-founder of Global M&A Norway, which
along with Brown Gibbons Lang & Co., is a member of
Global M&A, the world’s leading partnership of top-tier
independent financial advisory firms serving the middle market.
Alver is the previous chairman and current board member of
Global M&A. A graduate of Concordia University, Montreal, he
has been an investment banker since 1997. Prior to that, he was
an executive in the aquaculture industry, serving as controller,
marketing director and head of business development.
What trends are driving capital inflows to the region?
Total foreign direct investment in Norway in 2010 totaled
approximately US $174 billion, of which 53 percent represented
equity capital. Geographically, foreign direct investment is
dominated by EU countries and the United States, combined
accounting for roughly 73 percent of all investments.
By sector, oil and gas (O&G) attracted the lion’s share of
capital inflows, accounting for 29 percent of all foreign direct
investments. The Norwegian O&G sector has significant
knowledge and experience in deep sea and harsh environment
exploration and production, and is at the forefront of both
upstream and downstream engineering and technology
development. While the tax rate for O&G companies in Norway
is high (78 percent), O&G exploration companies can deduct 78
percent of all losses related to search and exploration activities,
which can be considerable. This attracts investment from foreign
exploration companies in O&G exploration on the Norwegian
shelf, which in turn fuels the domestic O&G services sector.
Recently, there have been several new discoveries of large oil and
gas deposits in the North Sea with multibillion-dollar investment
20 Smart M&A :: VOLUME 1 ISSUE 3
potential, which most likely will increase the drive for capital
inflows to Norway in the coming years.
In terms of other sectors attracting investment, services directed
toward the public sector are considered attractive, having generally
been less affected by the financial crisis and the current Euro crisis.
Retail is also considered a strong and stable sector in the region.
With a large O&G industry and a large public sector, consumer
purchasing power actually increased during the financial crisis due
to lower interest rates.
What industries are expected to see increased investment in
the region and why?
The Nordic region, and Norway in particular, is considered more
of a safe haven in these turbulent markets. As such, we continue to
see strong interest within many industrial sectors. Less attractive are
sectors where the operating companies are experiencing increased
pricing pressure from central European suppliers—suppliers who
are chasing volumes because their home markets have declined
while at the same time are under pressure to reduce costs as a result
of the financial crisis.
Who will be the buyers? Comment on corporate and private
equity investment in the region.
We continue to see strong interest from both corporate and private
equity buyers, probably due to the safe-haven aspects of the Nordic
market. During the second half of 2011, we saw some U.S. and
central European corporate buyers withdrawing from processes due
to challenges in their home markets, in part driven by share price
volatility and an increased focus on capital ratios.
In 2012, this trend seems to have reversed, and we are seeing
those industrial buyers coming back to the market. A recent survey
among the major Norwegian law firms concluded that 2011 was a
very strong year for M&A and that 2012 is off to an even stronger
start. Some even reported a record number of transactions in 2011.
They saw very little difference in the level of interest between
corporate and private equity buyers.
Norway is richly endowed with natural resources. As the world’s
second largest gas exporter and sixth largest oil exporter,
expertise clearly resides in your country. How is that expertise
translating into cross-border acquisitions and investments?
The Norwegian O&G sector has been extremely innovative with
significant opportunity for private entrepreneurs. This has been a
requirement for finding solutions to the challenges of deep water
exploration and production. Statoil, the major operator on the
Norwegian shelf, has consistently encouraged innovation and
startups to increase competition among suppliers and promote
the advancement of new technologies and concepts. With the

development of challenging new deep sea O&G fields in
other parts of the world, we now see a clear trend that these
companies are both looking internationally for growth and are
themselves attractive acquisition targets.
Norway’s sovereign wealth fund is the world’s second largest,
valued at $500 billion in 2011. Does the fund directly invest
in acquisitions?
The purpose of the fund is to invest a portion of the large surplus
generated by the Norwegian petroleum sector. The fund does not
invest in acquisitions, only listed shares, with a portfolio allocation
of 60 percent to the international equity markets. The fund does
make direct investments in real estate and can invest up to 5
percent of the portfolio in such interests. The fund was valued at
$573 billion as of year-end December 2011, equating to roughly
1 percent of the global equity markets. 2011 With GDP roughly by Sector 1.8 (in percent NOK mill)
of portfolio holdings in European equities, the fund is said to be
the largest stock owner in Europe. The Norwegian Oil Ministry & Gas of
Finance forecasts the fund will reach $717 billion Health by Services 2014 and $1
trillion by 2019.
Industrials
What are the keys to a successful cross-border Trade transaction?
& Retail
180,756
Financial Services
106,345 106,345
Understanding cultural differences is important. Many buyers 2011 GDP by Sector (in NOK mill)
Building & Construction
141,118 Fish Industry Industry 19,938 19,938
have addressed this issue by professionalizing their M&A
Oil & Gas
600,095
Mergers & Acquisitions Activity in the Norwegian Market
Public Services
teams. Corporate buyers have hired M&A professionals. Private 132,577 Agriculture 16,777
Health Services Latest Twelve Months* 235,854
equity firms have opened up local offices. M&A Education advisors have 109,278 Industrials
187,959
become more experienced in cross-border transactions. There
Trade & Retail
180,756
Financial Services
106,345
Industrials
6
12
is still room for improvement, for example, in the way target
Building & Construction
141,118
Energy
8
4
companies are approached; in the professionalism Fish Industry of data room 19,938
Mergers Mergers Public MERGERS Services & Acquisitions & ACQUISITIONS 132,577 Activity in the ACTIVITY Norwegian IN THE Market Market NORWEGIAN MARKET
preparations and due diligence processes; in the ability to accept Latest
Latest Latest Twelve
Twelve Twelve Months*
Months* Months* Information Technology
5
4
Agriculture
Education
109,278
16,777
$0-$100 million
the inherent principles in the chosen SPA jurisdiction; and in
Financial Services Consumer 6
3
By Industry106,345
Discretionary
Number of transactions
> $100 million
how far the negotiations (or renegotiations) can be taken. Many
Fish Industry 19,938
Industrials Telecom 6 4
3
12
Industrials
6
12
believe the Nordic region is a homogenous market; however,
Agriculture 16,777
Financials
5
2
Energy
8
4
there are significant differences in how a Norwegian, a Finn, a
Energy
8
4
Consumer Staples 4 1
Swede or a Dane would negotiate. Mergers & Acquisitions Activity in the Norwegian Information Technology Market 5
4
Latest Twelve Months*
How do M&A transactions in the region differ By from Industry Latest Twelve Consumer Months* Discretionary Utilities 6 1 1 3 Transaction Type
other regions?
Industrials
6
Very little. We have observed that it can be less challenging to
scale down operations here than in many other regions. Energy The
social security system works well, and it is relatively easy to reduce
Telecom
Telecom
12
Industrials Financials 6
Financials
8
Energy
Consumer 4 8
Staples
Information Technology Consumer Staples 5
4
3
Healthcare 2
4
3
5
12 2
*Transaction activity as of March 31, 2012 (count excludes transactions (45) with undisclosed values)
Source: Ernst 5 & Young 2
4
4 1
4 4 1
Information Technology
5
manning if done correctly. This is probably the flip side of the
high taxes we have. Fortunately, a limited Consumer number Discretionary of transactions 6
are driven by downscaling; the rationale for acquisitions is
Telecom 4
centered on building larger, stronger companies. n
4
Consumer Discretionary
Telecom 3
Financials
3
Materials
6
Materials
Utilities
4
Utilities
Healthcare 5
2 2
$0-$100 million
3
2 2
> $100 million
$0-$100 million
1 1
3
1
> $100 million
1
22
Cross-Border
60%
Cross-Border
60%
Financials
If you want to learn more about the opportunities in Norway, contact
Consumer Staples 4
Ivan Alver at + 47 90 84 04 56 or ia@sagacorporate.no.
Number of Transactions
Materials
Utilities
1
2
1
5
BGL’s Global Reach
Brown Gibbons Lang & Company with its Global M&A partnership
provides support and opportunities locally and internationally for
clients buying or selling companies as well as financings, corporate
restructurings and other corporate finance transactions.
With partner offices in more than 40 countries across 5
continents, we are represented in all key markets and use a
common infrastructure to deliver seamless access to the best
buyers, investors, sellers and opportunities around the globe.
With access to the expertise of 12 industry sector teams and
over 300 senior advisors, Brown Gibbons Lang will put together an
international team appropriate for each particular mandate.
2011 GDP by Sector (in NOK mill)
2011 GDP by Sector (in Health NOK Services mill)
Number of Transactions
Number of Transactions
2011 GDP by Sector (in NOK mill)
2011 GDP BY SECTOR (in NOK mill)
Oil & Gas Industrials
Oil & Gas
Trade & Retail
Health Services
Health Services
Building & Construction
Industrials
Industrials
Public Services
Trade
Trade
&
Retail
Retail
Oil & Gas
Education
Building Building & & Construction
ConstructionFinancial
Services
235,854
Public Services Fish Industry
187,959
Agriculture
Education
141,118
106,345
19,938 132,577
16,777
109,278
180,756
235,854
235,854
141,118
187,959
187,959
132,577
180,756
180,756
109,278
187,959
235,854
VOLUME 1 ISSUE 3 :: Smart M&A 21
600,095
600,095
Cross
By
By
Industry
Industry Transactio
Transac 6
Number of Transactions
600,095
Information Technology Materials 5 2
Mergers & Acquisitions Consumer Discretionary
Activity in the Norwegian 6 Market
2 4
3
$0-$100 million
> $0-$100 $100 million million
By Industry
> $100 million
Transaction Type
Number of Transactions
2
600,095
By Industry Transa
Consumer Staples Healthcare 4 1 2
2
Materials
*Transaction activity as of March 31, 2012 (count excludes transactions (45) with undisclosed values)
2
Source: Ernst
2
& Young
*Transaction activity as of March 31, 2012 (count excludes transactions (45) with undisclosed values)
1
Utilities
Source: Ernst & Young
1 1
Healthcare
2
*Transaction activity as of March 31, 2012 (count excludes transactions (45) with undisclosed values)
Source: Ernst & Young
Domestic
Domestic 40%
40%
Cross-Bord
Cross- 60%
60

MARKET TRENDS : M&A ACTIVITY
Off the sidelines?
The start of the year brought improved
sentiment, as the talked-
about fear of a double-dip recession
had waned, setting a tone of
cautious optimism in the market.
However, mixed signals on the
strength of the U.S. recovery,
coupled with uncertainty in the
global economy, are tempering
investor enthusiasm.
Capital excess and a slow
growth economy still have M&A
in focus. The economic downturn
sidelined many buyers and sellers,
and now three years into a
recovery with limited M&A activity,
there is pent up demand to pursue
transactions. Buyers remain
hungry but are taking a cautious
approach to acquisitions.
THE BUYERS
Buyers are exhibiting discipline in the face of market uncertainty.
With the 2008/9 recession in the rear view mirror, they are taking a
hard look at quality of earnings and the sustainability of future cash
flows. Now that the survivors have proven their staying power, selectivity
rests on differentiation and growth prospects of businesses, with
premium valuations garnered by those companies that are showing
growth and offer tangible synergies and a platform off which to build
scale and expand through acquisition.
With organic growth still muted for many companies, acquisitions
remain critical to bolstering the top line. Corporate buyers
have fortified their balance sheets and recognize that their cash
stockpile cannot sit idle for long. Further, time is closing in for private
equity to make a meaningful dent in the capital surplus.
The overriding theme of too much capital chasing too few deals is
driving a feeding frenzy for quality middle market businesses. Valuation
multiples are ticking up in competitive auctions seeing multiple
bidders, with corporate buyers playing a bigger role in middle market
M&A. As lenders compete aggressively in an effort to grow their
loan books, buyers that are seeking acquisition financing are able to
secure more favorable terms.
22 Smart M&A :: VOLUME 1 ISSUE 3
ECONOMY
• Sentiment of guarded optimism given mixed signals
on strength of U.S. recovery.
• Eyes are on risks in the global economy.
• Market is fragile and susceptible to further shocks.
MIDDLE MARKET M&A OUTLOOK
• Middle market expected to remain active.
• Buyers have substantial dry powder to invest and
are actively looking for quality deals.
• Selectivity rests on differentiated assets.
VALUATION
• Quality is permeating transaction valuations and structures.
• Excess capital and scarce deal flow has kept prices elevated.
ACQUISITION FINANCING
• Highly competitive market for premium assets.
• Debt multiples have expanded to accommodate
higher valuations.
• Pricing spreads are beginning to widen with cautionary tone
in the market; flight to quality dictating borrower terms.
THE SELLERS
In the M&A market, timing is everything. For
many business owners, the decision to sell will
be driven by the view of the economy and the
prospects of growth going forward. As positive
trend lines in performance support stronger
EBITDA levels, current market dynamics will
likely entice more sellers to come off the sidelines
to ride the rising tide and stay ahead of
potential tax changes on the horizon.
For sellers of quality businesses, the barometers
of a favorable exit window are in place:
purchase price multiples, by many accounts, are
trending up; buyers, which there is no shortage
of, evidenced by excess capital in search of
assets; and access to financing, which is easier
to come by, as the credit markets are accommodating
acquisition activity.
Macro risk presents a formidable concern and
has produced dramatic swings in investor risk
appetite. It is the health of the economy that will
determine how long that window stays open.

PRIVATE EQUITY INVESTING: EYE ON THE MIDDLE
M&A ACTIVITY : MARKET TRENDS
By the numbers, private equity continues to prove its worth as buyers and builders of middle market businesses.
The middle market (companies valued between $25 million and $1.0 billion) grabs a sizable share of private equity
deal flow and dollars, having accounted for three out of every five private equity transactions since 2000 and 74
percent of all private equity capital invested in 2011.
The Deals
The Deals
SHARE OF THE MIDDLE MARKET IN 2011
Share of the Middle Market in 2011
Deal Flow
100%
80%
60%
40%
20%
0%
14 26 47 55 82 154 225
128
170
16%
53%
127
239
32%
The Lower Middle Market The Core Middle Market
$25M-$100M $100M-$500M
DEAL Deal FLOW Flow BY by YEAR Year CAPITAL Capital INVESTMENT Investment BY by YEAR Year
236 385
479
613
337 460 527 632
804
682
88 44
495
503
212
327
165
450 531
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
$25M-$100M $100M-$500M $500M-$1B
Deal counts and values re�ect private equity buyout transaction activity only.
The Dollars
432
Billions in unspent
private equity capital
looking to be
deployed into new
investments.
Capital Investment Industry
45%
Capital
Capital
Overhang
Overhang
($
($
billions)
billions)
The Upper Middle Market
$500M-$1B
347
$700
$600
$500
$400
$300
$200 $200
7%
160
320
48%
100%
80%
60%
40%
20%
0%
$9.1
$27.0
$18.5 $32.9
$25.9
$47.9
6%
9%
4%
13%
14%
$36.8 $51.8
$82.6
$103.1
20%
34%
$100.9 $139.6
$127.0
$162.4
$8.7 $12.1 $18.0 $23.7 $26.9 $30.9 $32.9
$48.6 $24.6
$94.9
$24.2
$41.7
$16.1
$103.9
$95.1
$98.5
$103.9
$18.3 $15.5
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
PRIVATE EQUITY CAPITAL OVERHANG
$25M-$100M $100M-$500M $500M-$1B
Private Equity Capital Overhang
$463
$436
$530
$576 $561
$477 $477
Business Products & Services (B2B)
Consumer Products & Services (B2C)
Healthcare
Information Technology
Financial Services
Energy
Materials & Resources
$456 $456
$432 $432
$100
$100
$-
$-
2006
2006
2007
2007
2008
2008
2009
2009
2010
2010
2011
2011
2012
2012
*As of 3/31/2012
Vintage Year
Source: PitchBook.
VOLUME 1 ISSUE 3 :: Smart M&A 23

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