Quebec Transaction Snapshot - First quarter 2019 - EY

Quebec Transaction Snapshot - First quarter 2019 - EY

Quebec Transaction Snapshot - First quarter 2019 - EY

Of note during Q1‑2019 was the significant decrease in the number of transactions completed by financial players to just 5 from 20 in Q4‑2018: a sign that financial sponsors are less inclined to deploy capital under economic volatility? Based on our recent Global Divestment Study, if private equity firms (”PEs“) are less acquisitive, they continue to be active sellers, exiting businesses that have hit performance targets and responding to opportunities. They are focused on exit value and speed while market conditions continue to favor sellers. The study reveals that more than half of PEs believe geopolitical shifts and macroeconomic volatility will affect exit decisions going forward: 82% of PEs expect cross‑border trade agreements, Brexit, non‑tariff barriers and tax policy changes to push transaction costs higher, which in turn will impact their divestment strategy and timing.

I hope you enjoy this edition and those that follow, First quarter 2019 Quebec Transaction Snapshot Rising Uncertainty The first quarter of 2019 continues to be tainted by market uncertainty as growth remains positive but has become more uneven. China’s growth recession and the consequences of the trade war between China and the US are continuing to impact business and investment decisions worldwide. As volatility and economic uncertainty heighten, market players will keep guessing about the direction of the various tailwinds resulting from the current state of global trade and Brexit. Tightening of monetary policy and excessive debt will also continue to fuel market volatility and disrupt financial markets as observed in H2‑2018.

Volatility will continue to make for challenging decision‑making, especially with regards to capital allocation to gain competitive advantage. Transaction volume in Quebec during the first quarter of the year continued to reflect market volatility and uncertainty, as volume dropped by 58 transactions from a total of 142 deals in Q1‑2018 to just 84 in Q1‑2019. The number of Quebec acquirers also decreased significantly to reach the lowest point over the last eight quarters to 51 when compared to 107 in Q1‑2018. Quebec acquirers also made fewer investments outside the province, which may be an indication that global uncertainty is weighing on their global transaction appetite.

Todd Caluori, CPA, CA, CBV Editor in Chief and Senior Vice President M&A Lead Advisory

Quebec Transaction Snapshot - First quarter 2019 - EY

2 | Quebec Transaction Snapshot In a set of sub-sectors synonymous with connectivity, creativity and innovation, the bar for business excellence is set high — and getting higher. Companies need to embrace new technology, develop new distribution models and satisfy the demands of an empowered and outspoken consumer base. Whether it’s the multitude of digital content or traditional platforms, users and audiences now have more choice than ever before, and that set of choices is growing daily.

For TMT companies, integration and adaptability are becoming critical success factors.

At the same time, it’s important for businesses to manage costs, exceed stakeholder expectations and comply with new regulations. We work to anticipate market trends, manage risks and identify the opportunities that will help our clients achieve their goals and compete more effectively and efficiently. Our sector specialists help dynamic and ambitious companies grow into market leaders. We capitalize on our extensive experience, business insights and hands‑on, responsive service to help TMT companies achieve their full potential. EYO’s sector-focused teams This edition’s focus: EYO’s Technology, Media & Telecommunications Sector Team (”TMT“) Ernst & Young Orenda Corporate Finance Inc.

(”EYO“) is the M&A Lead Advisory group within EY’s Transaction Advisory Services practice in Canada. EYO focuses on mergers, acquisitions, divestitures, management buy-outs, leveraged buy-outs and financings in the Canadian mid‑market. Our M&A practice also focuses on selected sectors in Canada, one of which is the TMT sector.

Transaction Advisory Services Plastic & Packaging Consumer Products & Retail Technology, Media & Telecommunications Real Estate Mining & Resources Manufacturing Food & Beverage With a wide variety of transactions completed in the sector over the years in Canada, EYO has gained a strong reputation as a leading M&A and financing advisor to TMT companies. To benefit from our independence, objectivity, integrated multidisciplinary capabilities, global reach and a wealth of deal experience in the TMT sector, contact: Derek Van der Plaat Senior Vice President +1 416 943 4485 Selected recent TMT transactions: *Ernst & Young Orenda Corporate Finance Inc.

EY* acted as exclusive financial advisor to G2 Research. has been acquired by *Ernst & Young Orenda Corporate Finance Inc. A portfolio company of has been acquired by EY* acted as exclusive financial advisor to Landmark Cinemas of Canada and Triwest Capital Partners.

*Ernst & Young Orenda Corporate Finance Inc. *Ernst & Young Orenda Corporate Finance Inc. EY* acted as exclusive financial advisor to Paul Gioia and other members of the management team in structuring, managing, leading, and financing the transaction. has been acquired by its current management team led by Paul Gioia.

Quebec Transaction Snapshot - First quarter 2019 - EY

First quarter 2019 | 3 Canadian economic indicators 2018 2019 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Exchange rate (US/CDN)1 79.1 77.5 76.5 75.7 75.2 74.9 75.2 75.4 Real GDP (chain weighted)2 1.3 2.6 2.0 0.4 0.7 2.3 2.2 1.5 Consumer spending2 1.5 1.7 1.3 0.7 2.1 1.6 1.6 1.4 Government spending2 1.9 0.9 1.6 -0.6 2.6 2.0 2.0 2.0 Business investment2 7.0 -1.4 -10.8 -10.9 4.5 3.8 3.2 2.9 Residential construction2 -9.7 0.6 -5.5 -14.7 2.0 0.0 0.5 0.0 Exports2 1.0 14.6 3.3 -0.2 1.1 2.2 2.2 1.6 Imports2 4.7 5.2 -8.6 -1.1 2.5 2.4 2.1 2.0 CPI, all items3 3.3 1.2 2.6 1.1 1.1 2.3 2.3 2.1 Overnight rate4 1.25 1.25 1.50 1.75 1.75 1.75 1.75 1.75 Three-month T-Bills4 1.14 1.21 1.47 1.66 1.65 1.65 1.65 1.65 90-day BAs4 1.67 1.74 1.95 2.20 2.14 2.00 2.00 2.00 10-year bond yield4 2.24 2.28 2.28 2.32 1.86 1.70 1.80 1.85 Unemployment rate4 5.8 5.9 5.9 5.7 5.8 5.7 5.7 5.7 Personal income3 5.4 4.7 3.7 3.2 3.4 3.7 4.1 3.9 Housing starts ('000s)5 224 218 197 217 187 213 210 208 1 Quarter average 2 Quarter over quarter % change, annual rate 3 Year over year % change 4 Quarter average in % 5 Quarter average, annual rate □ Estimates Source: BMO Capital Markets Economics as at 12 April 2019.

Quebec Transaction Snapshot - First quarter 2019 - EY

• 4 January 2019: Dublin-based Keywords Studios PLC (“KSP”), a leading provider of technical services to the video game industry in Ireland and internationally, acquired Quebec City-based Sunny Side Up Creative Inc. (“Sunny”) for total consideration of $5.9 million. Sunny produces high quality marketing assets for game publishers and developers. The acquisition will complement and build on KSP’s game trailer and marketing service offerings. ► • 5 January 2019: Montreal-based BCE Inc., acquired St‑Hyacinthe‑based Groupe Maskatel LP (“Maskatel”), a provider of telecommunications and broadcasting services.

The acquisition brings together Maskatel's deep local knowledge and BCE’s reach and breadth as a leader in the growth of wireless broadband, internet, TV and media services across the country. Terms of the transaction were not disclosed.

• 10 January 2019: Toronto-based Canadian Imperial Bank of Commerce, The Toronto-Dominion Bank, Visa Canada Corporation and Saint‑Laurent-based Air Canada collectively acquired Montreal-based Aimia Canada Inc. (“Aimia”). Aimia operates as a provider of loyalty programs for online shoppers. The acquisition will enable smooth transition of Aimia’s Aeroplan members’ points to Air Canada's new loyalty program launching in 2020. The aggregate purchase price for the acquisition consists of $450.0 million in cash plus $47.0 million in cash for pre‑closing adjustments.

• 15 January 2019: Montreal-based Foodtastic Inc., a franchisor of multiple restaurant concepts in Quebec, acquired Montreal‑based Les Rôtisseries Au Coq Ltée (“Au Coq”) specializing in the delivery and take out of rotisserie style chicken.

As a result of the acquisition, Au Coq will be able to leverage Foodtastic’s marketing, purchasing and operational systems to better serve its existing franchisees. Terms of the transaction were not disclosed. • 22 January 2019: Montreal-based Clairus Group Canada Inc. (“CGC”), a provider of replacement, repair, and recalibration services for automotive glass, acquired Ohio-based Advanced Auto Glass, Inc. (“AAG”), a provider of glass installation services. The acquisition of AAG lays the groundwork for CGC’s first operational cluster in the Midwest/Great Lakes Area in the US. Terms of the transaction were not disclosed.

• 25 January 2019: California-based Vantage Data Centers, LLC. (“VDC”), a provider of data centre solutions such as data center planning and layout design, acquired Quebec City-based 4Degrés Colocation Inc. (“4Degrés”) for total consideration of US$200.0 million. 4Degrés provides data centre solutions for businesses and institutions in Quebec, Canada. The acquisition of 4Degrés expands VDC's coast-to-coast presence in North America to six additional markets.

• 28 January 2019: Anjou-based AlimPlus Inc., a distributor of food products to restaurant owners, hotel complexes, institutions, and businesses, acquired Drummondville-based AOF Service Alimentaire inc.

(“AOF”), a distributor of food and non‑food products to hotels and restaurants in Quebec. The acquisition of AOF positions Alimplus to expand further by extending its geographic coverage in the east of Quebec. Terms of the transaction were not disclosed. • 1 February 2019: Montreal-based TECSYS Inc., a developer of supply chain management software for distribution and warehousing companies acquired Denmark-based PCSYS A/S for total consideration of DKK 67.0 million (approximately $13.7 million), subject to adjustments. PCSYS A/S is a developer of solutions for data capture within supply chain management.

The acquisition will expand TECSYS’s footprint in the European market.

• 1 February 2019: Montreal-based Lightspeed POS Inc., a commerce-enabling software company primarily selling software as a service to retailers, restaurants and e-commerce companies acquired Netherlands-based Shappz BV. Shappz BV operates as a developer and provider of application software to boost sales. Terms of the transaction were not disclosed. • 2 February 2019: Montreal-based Ocean Spray Cranberries, Inc. (“OSC”), an agricultural cooperative that produces, processes, and delivers cranberry products acquired Manseau-based Atoka Cranberries Inc., a provider of cranberry farming, processing, and packaging services.

The acquisition will expand OSC’s manufacturing footprint in Canada. Terms of the transaction were not disclosed.

• 6 February 2019: Montreal-based Cirque du Soleil Inc., a global live entertainment leader, acquired Calfornia-based The Works Entertainment, Inc., a producer of high‑quality shows such as cabaret-style shows and circus art shows throughout the world. The acquisition will expand Cirque du Soleil’s foothold in the live entertainment business from circus arts. The acquisition was financed using a portion of a new US$120.0 million unsecured credit facility made available by the Fonds de Solidarité FTQ and the Caisse de dépôt et placement du Quebec. Terms of the transaction were not disclosed.

• 6 February 2019: Montreal-based Lallemand Inc., a leading company in the research, development and production of yeasts, bacteria, and related products, acquired California-based Scott Laboratories, a leading provider of innovative products for the North American wine, craft brewing and distilled spirits industries.

The partnership will bring their clients both global experiences in winemaking innovation, as well as a voice in influencing the trends of future product development. Terms of the transaction were not disclosed.

• 20 February 2019: Valcourt-based BRP Inc., a designer and manufacturer of power sports vehicles and propulsion systems, acquired selected assets of California-based Faster Faster Inc., a manufacturer of electric motorcycles. The acquisition is in sync with BRP’s ongoing interest in new technologies and alternate energy sources for the power sports industry. Terms of the transaction were not disclosed. • 25 February 2019: Montreal-based TFI International Inc. (“TFI”), a North American leader in the transportation and logistics industry acquired Missouri-based Schilli Corporation, a company specialized in the transportation of dry and liquid bulk and dedicated fleet solutions throughout the Midwest, Southeast and Gulf Coast regions of the US.

The acquisition will help boost TFI’s tank presence across the eastern US, a targeted growth region of TFI. Terms of the transaction were not disclosed.

*  All amounts are in Canadian dollars unless otherwise indicated. Sources: S&P Capital IQ and company press releases. 4 | Quebec Transaction Snapshot Illustrative Quebec transactions*

Quebec Transaction Snapshot - First quarter 2019 - EY

• 1 March 2019: Montreal-based Axium Infrastructure inc. (“Axium”), an independent portfolio management firm dedicated to generating long-term investment returns, acquired a 50% equity interest in a solar portfolio located in Ontario comprised of nine operating solar facilities with a total generating capacity of 101 MW DC from Mitsubishi Corporation. The acquisition of the portfolio is in line with Axium’s objective of assembling a strong and diversified renewable energy portfolio in North America.

Terms of the transaction were not disclosed.

• 1 March 2019: Laval-based Savaria Corporation. (“Savaria”), one of the global leaders in the accessibility industry acquired Florida‑based Florida Lifts LLC for total consideration of US$5.6 million. Florida Lifts is a full-service elevator and lift company serving the Central and South Florida market for over 13 years. The acquisition will allow Savaria to grow its presence in Florida. • 7 March 2019: Saint-Mathias-sur-Richelieu-based Fraco Products Ltd. (“Fraco”), a manufacturer of mast climbing work platforms, transport platforms, and hoists, acquired Spain‑based Saltec, S.A. The acquisition will allow Fraco to increase its production capacity and accelerate its planned manufacturing activities in Europe.

Terms of the transaction were not disclosed. • 14 March 2019: Saint-Laurent-based CAE Inc., a leading provider of simulation and modeling technologies and integrated training services for the civil aviation and defence industries, acquired the Business Aircraft Training (”BAT“) business of Bombardier Inc. for a total consideration of US$645.0 million. In addition to the agreement to acquire Bombardier’s BAT business, CAE has agreed to pay US$155.0 million to monetize its existing future royalty obligations under the current Authorized Training Provider (ATP) agreement it has with Bombardier.

The acquisition will provide CAE with the ability to address the training market for customers operating Bombardier business jets.

• 21 March 2019: Montreal-based MTY Food Group Inc. (“MTY”), a leading franchisor and operator of quick-service restaurants in Canada and internationally, acquired the assets of Ontario-based South St. Burger Co., a chain of gourmet burger restaurants. The acquisition will solidify MTY's presence in the gourmet burger market. Terms of the transaction were not disclosed. • 21 March 2019: Montreal-based Caisse de Dépôt et Placement du Quebec (“CDPQ)”, a long-term institutional investor, acquired a minority stake in Illinois-based Hilco Trading, LLC (“Hilco”), an independent financial services company.

Through this partnership, CDPQ will support the long-term strategy and continued growth of Hilco. Furthermore, CDPQ will target annual investments of approximately US$150.0 million alongside Hilco in distressed assets and other special situations. Terms of the transaction were not disclosed.

• 26 March 2019: Ontario-based Dane Creek Capital Corp. (“DCCC”), a merchant banking venture with a focus on the pet industry, acquired Dorval-based RawPaw Natural Foods Inc. (“RawPaw”), a leading distributor and marketer of pet supplements to complement a raw pet food diet. The acquisition of RawPaw will provide DCCC with additional strength in the fast-growing area of natural pet supplements and support its growing belief in the connection between raw feeding and the use of pet supplements. Terms of the transaction were not disclosed. • 26 March 2019: Ontario-based Altium Packaging Canada, a subsidiary of Consolidated Container Company (“CCC”), a leading manufacturer and supplier of rigid plastic packaging solutions, acquired Sainte-Claire-based Plastique Micron Inc.

(“PMI”), a leading manufacturer of plastic containers in eastern Canada. The acquisition of PMI will allow CCC to broaden its portfolio in the specialized pharmaceutical, health, and nutraceuticals markets while expanding its footprint in Canada. Terms of the transaction were not disclosed.

• 28 March 2019: Montreal-based IPL Plastics Inc. (“IPL”), a leading provider of packaging solutions, acquired Belgium‑based Loomans Group N.V., a tooling and manufacturing business with significant in-mold labelling expertise for total consideration of US$85.5 million. The acquisition is in-line with IPL's acquisition strategy and will enable the company to diversify its geographic footprint and serve a broader customer base. • 29 March 2019: Gatineau-based LiveWell Canada Inc. (“LiveWell”), a leading company in advanced research of CBD and other cannabinoids, acquired Ontario-based Acenzia Inc., an advanced developer and manufacturer of natural health products and dietary supplements for total consideration of $14.9 million including an $8.0 million earn-out payment.

LiveWell will leverage Acenzia’s state-of-the-art manufacturing capabilities and distribution networks within the supplements markets to deliver health and wellness products to targeted consumer markets. • 30 March 2019: Montreal-based Richelieu Hardware Ltd. (“Richelieu”), a leading importer, distributor, and manufacturer of specialty hardware and complementary products in North America acquired three specialty hardware distributors: Alberta-based Lion Industries Inc., Ontario-based Blackstone Building Products Inc., and Ontario-based TruForm Building Products Inc. The acquisitions will reinforce Richelieu’s presence in these markets, increase its business in the window and door manufacturers segment, and add approximately $12.0 million in annual sales.

Terms of the transaction were not disclosed. First quarter 2019 | 5

Quebec Transaction Snapshot - First quarter 2019 - EY

6 | Quebec Transaction Snapshot All values reported in Canadian dollars unless otherwise stated. 1 Closed transactions only. Due to the existence of private transactions, not all deals have reported values. Historical M&A activity (Source: S&P Capital IQ) In terms of transaction mix for Q1-2019: • There were a total of 84 closed transactions involving Quebec‑ based companies during the quarter ended 31 March 2019. This is lower than the 113 transactions closed during the previous quarter, and is also lower than the Q1‑2018 level of 142 transactions. The total is below the rolling eight‑quarter average of approximately 121 transactions.

Note, however, that past experience has shown that the number of identified transactions at quarter‑end tends to underestimate the actual number of deals closed during the quarter, as announcements are sometimes deferred.

• There were a total of 5 acquisitions completed by a financial sponsor in Q1‑2019, representing a ratio of 16 to 1 for transactions completed by strategic buyers versus financial buyers, which is higher than the 10 to 1 ratio recorded for the last eight quarters. • In terms of transaction size, total reported value was $3.9 billion, below the $4.9 billion recorded in the previous quarter, and below the average of $8.3 billion for the last eight quarters. From a total of 27 deals with reported values, there were 2 deals in excess of $500 million and 2 between $100 and $500 million. The number of transactions below $100 million stood at 23, under the eight‑quarter average of 36.

• The average transaction size based on deals with reported values (excluding mega‑deals) decreased from approximately $79.6 million to $56.5 million, and is below the rolling eight‑ quarter average of $63.1 million. • The most active sectors in terms of deal volume in Q1 2019 were IT Products & Services, Commercial & Professional Services and Retail & Distribution. Over the last eight quarters, IT Products and Services, Metals & Mining and Commercial & Professional Services were the most active sectors. • In terms of targets, out of 51 acquisitions closed by Quebec‑ based companies during the quarter, 12 targets were based in Quebec (23.5%), above the eight‑quarter average of 19.7%, 18 targets were based in the rest of Canada, 14 in the US and 7 in the rest of the world.

• In terms of acquirers, out of the 45 Quebec‑based companies acquired during the quarter, 12 were acquired by Quebec‑based acquirers (26.7%), below the eight‑quarter average of 34.8%, 11 acquirers were based in the rest of Canada, 14 in the US and 8 in the rest of the world. Transactions involving Quebec-based companies over the last eight quarters 1 Q2-2017 Q3-2017 Q4-2017 Q1-2018 Q2-2018 Q3-2018 Q4-2018 Q1-2019 # of transactions by a financial sponsor # of transactions by a strategic buyer Reported values (C$, millions) # of transactions C$, millions $20,000 $15,000 $10,000 $5,000 $0 200 150 100 50 126 116 132 142 158 100 113 84 113 13 105 11 124 8 134 8 140 18 92 8 93 20 79 5 Counterparty mix over the last eight quarters Counterparty mix over the last quarter Counterparty mix over the last eight quarters Counterparty mix over the last quarter Quebec with US Quebec with rest of world Quebec with Quebec Quebec with rest of Canada 12 29 28 15 140 438 254 139 Transactions involving Quebec-based companies over the last eight quarters, by deal size (in C$, millions) Q2-2017 Q3-2017 Q4-2017 Q1-2018 Q2-2018 Q3-2018 Q4-2018 Q1-2019 # of transactions Undisclosed value $0-$20 million $20-$100 million $100-$500 million $500-$1,000 million >$1,000 million 150 100 50 126 2 2 6 7 28 81 116 3 1 6 24 10 72 132 1 2 5 33 20 71 142 1 1 8 34 10 88 152 6 9 29 108 100 1 6 14 17 62 113 1 2 4 13 15 78 84 1 1 2 5 18 57 Number of Quebec transactions by industry over the last eight quarters E n e r g y & U t i l i t i e s C o n s u m e r G o o d s H e a l t h c a r e I n d u s t r i a l s F o o d & B e v e r a g e C o n s t r u c t i o n & E n g i n e e r i n g R e t a i l & D i s t r i b u t i o n I T p r o d u c t s & S e r v i c e s M a t e r i a l s M e d i a & T e l e c o m m u n i c a t i o n s M e t a l s & M i n i n g R e a l E s t a t e F i n a n c i a l s T r a n s p o r t C o m m e r c i a l & P r o f e s s i o n a l S e r v i c e s 160 140 120 100 80 60 40 20 143 119 100 91 74 61 59 54 54 50 41 36 33 29 27 F i n a n c i a l s F o o d & B e v e r a g e T r a n s p o r t R e a l E s t a t e M e d i a & T e l e c o m m u n i c a t i o n s H e a l t h c a r e C o n s t r u c t i o n & E n g i n e e r i n g I n d u s t r i a l s M a t e r i a l s C o n s u m e r G o o d s C o m m e r c i a l & P r o f e s s i o n a l S e r v i c e s E n e r g y & U t i l i t i e s R e t a i l & D i s t r i b u t i o n M e t a l s & M i n i n g I T P r o d u c t s & S e r v i c e s 16 14 12 10 8 6 4 2 4 3 3 3 4 16 10 6 1 2 2 2 12 9 7 Number of Quebec transactions by industry over the last quarter

First quarter 2019 | 7 EY’s Quebec public company review1 (Source: S&P Capital IQ) 1. Ernst & Young Orenda’s Quebec public company indices are capitalization-weighted, while multiples by industry are based on an arithmetic average. Indices and trading multiples are updated periodically to reflect new entrants/exits. Current data may not correspond with those shown in previous editions. 2. For the purposes of this analysis, small caps include companies with market capitalization between $5.0 and $250.0 million, mid-caps include companies between $250.0 million and $2.5 billion, and large caps include companies with a market capitalization above $2.5 billion.

Quebec TEV/EBITDA trading multiples by industry 31 March 2019 31 December 2018 F i n a n c i a l s H e a l t h C a r e M a t e r i a l s M e t a l s & M i n i n g C o n s u m e r G o o d s F o o d & B e v e r a g e E n e r g y & U t i l i t i e s R e a l E s t a t e R e t a i l & D i s t r i b u t i o n T r a n s p o r t S e r v i c e s I T P r o d u c t s & I n d u s t r i a l s C o m m e r c i a l & P r o f e s s i o n a l S e r v i c e s & C o n s t r u c t i o n E n g i n e e r i n g 7.5x 16.7x 16.0x 12.2x 10.9x 15.3x 10.9x 11.2x 7.0x 12.8x 7.5x 9.0x 7.7x 8.0x 8.0x 8.2x 18.7x 17.8x 14.2x 10.9x 15.2x 11.2x 12.2x 9.5x 12.1x 8.8x 9.8x 7.4x 11.5x 9.1x M e d i a & T e l e c o m m u n i c a t i o n s 130 120 110 100 90 80 Mar-17 Mar-18 Jun-18 Sep-18 Dec-18 Mar-19 Jun-17 Sep-17 Dec-17 Stock price evolution over the last eight quarters2 S&P TSX Quebec large caps Quebec mid caps Quebec small caps Quebec large caps Quebec mid caps Quebec small caps Mar-17 Mar-18 Jun-18 Sep-18 Dec-18 Mar-19 Jun-17 Sep-17 Dec-17 TEV/EBITDA evolution over the last eight quarters2 14.0x 13.0x 12.0x 11.0x 10.0x 9.0x 8.0x 7.0x

According to the EY Global Private Equity Divestment Study, market data underlines the message that a heated PE exit environment has shifted to a normalized but brisk pace, with volumes leveling off. In 2018, PE firms made 1,175 exits globally, slightly above the total volume of 1,149 exits seen in 2017 — down from a peak in 2014. Deal values remained strong in 2018, hitting US$385.2b and on par with US$385.8b in 2017. At the same time, IPOs have seen increasing interest. Fourteen percent of firms say their last major divestment involved taking an asset public, up from 2% the year before. Perhaps most significantly, 27% expect their exits to IPO in the next 18–24 months.

From where you sit today, where do you expect your exits to go over the next 18–24 months? Q 66% 7% 27% Trade/strategic buyers IPO Sponsors Private equity exit strategies are changing in a resilient yet volatile marketplace Despite uncertainty from tariffs, a trade war, desynchronized growth and geopolitical concerns, the market offers sellers a resilient yet competitive environment. PE firms continue to be active sellers, exiting businesses that have hit performance targets and responding to opportunistic approaches. They are scrutinizing hold periods and divestment strategies to avoid missing out on attractive valuations.

2019 Global Corporate Divestment Study Private equity results Will you set the divestment pace, or try to keep up with it?

Introduction In the past 12 months, we have seen attractive valuations and competition for assets as private equity (PE) firms divest portfolio companies. After an extended period of elevated dealmaking, PE exits leveled off in 2018. However, by historical standards, exit activity remains high and many firms anticipate this strong pace to continue in 2019. PE firms are focused on exit value and speed while deal conditions are favorable. They are prepared to move quickly as market volatility, particularly on the debt side, picks up and sector convergence continues to transform businesses across industries.

Preparation is critical, as it helps portfolio companies focus on long-term growth potential once PE has exited the picture, and supports the value story for the next owner of the business. Data and analytics will play a crucial role. 8 | Quebec Transaction Snapshot

What will influence the next wave of exits? More than half (54%) of PEs believe geopolitical uncertainty and macroeconomic volatility will affect exit decisions in the next 12 months. Cross-border trade agreements, Brexit, non- tariff barriers and tax policy changes such as the incoming OECD/G20 Base erosion and profit shifting (BEPS) project will all factor into decisions. Eighty-two percent of firms expect these geopolitical shifts to push operational costs higher. This will require PEs to factor these rising costs into their divestment strategy and timing. At the same time, the majority of firms (59%) are anticipating the impact of sector convergence on their portfolios.

Technological advances are driving the need to redefine business strategies and the capital investments required to support technology for future growth in their portfolio companies.

PEs say opportunism will continue to influence divestments, with 74% ready to jump at unsolicited bids. This underscores the importance of preparing businesses for sale early to maximize exit value and speed in an unplanned divestment scenario. Overall, few PEs (23%) say they expect a reduction in multiples in the next 12 months, but the majority (78%) say they are prepared to exit portfolio businesses quickly in the event of a market correction over that same period. Over the past 12 months, PE has taken a pragmatic approach to exits: 41% say their last divestment was triggered primarily by a business achieving its EBITDA goals, while 20% say it was driven by a portfolio company’s weak competitive position.

But other market forces are at work, potentially influencing the next wave of exits.

Which triggers prompted your most recent exit? Select the most important. Q Portfolio company’s weak competitive position in the market Opportunistic (unsolicited approach by a buyer) Increase in multiple Reached EBITDA target Sector convergence Fund dynamics (e.g., need to wind down a fund) Geopolitical uncertainty/ macroeconomic volatility 41% 20% 16% 10% 6% 6% 1% First quarter 2019 | 9

How are exit strategies changing? Where are the value creation opportunities? However, there are other areas where PE might be leaving money on the table. Most notably, while 62% of PEs say digitalization of the business was an important element of the value story in their last divestment, only 11% cite digital enhancements as the most important element of their portfolio companies’ strategy.

In other areas, PE clearly applies their experience as owners of many businesses — 78% say innovation is one of the most important elements of their companies’ business strategies, reflecting PE’s determination to help portfolio companies drive sustainable growth.

However, PE firms will need to show buyers that their value creation plans have been implemented if they expect to achieve their anticipated returns. PE firms tend to be hands-on owners, with 81% reporting they interact, at minimum, monthly with portfolio companies to drive value. And while cost reduction and improvements to working capital top the list of value creation strategies, PE firms are also actively involved with helping companies plan for channel expansion, making changes to products and service offerings and bolt-on acquisitions. In your last major exit, which of the following were important to developing your value story and divestment thesis.

Select all that apply.

Q Product innovation Acquisitive growth Digitalization of the business Strength of the management team Organic growth 78% 75% 62% 56% 55% While exit timing is a key consideration right from the point of acquisition, 42% say they determine the right time to sell one-year pre-sale, down from 61% last year. Instead, a growing number (38%, up from 21% last year), say their exit timing is becoming more opportunistic. Against this backdrop, PE firms are primarily working with portfolio businesses to reshape strategy and create value during their period of ownership. More than half (58%) say strategy is the area where they get most involved with their portfolio companies, followed by M&A (42%), well ahead of any other areas.

What are the most important aspects of your exit strategy that you consider when you make an acquisition? Select the top two. Q Cost savings opportunities Market position Potential exit timing M&A opportunities Management team Organic growth potential IPO opportunity 54% 36% 34% 33% 17% 16% 10% This year’s survey suggests a change in emphasis for many PE firms. When acquiring businesses, their top two exit considerations are the company’s market position (54%) and the potential exit timing (36%). During this extended period of competitive valuations, buyers have shifted focus away from organic growth potential (16%), a top priority a year ago for 43% of PE firms.

10 | Quebec Transaction Snapshot

Data and analytics can drive better outcomes at every stage of the private equity value chain, from management of portfolio companies to better decision-making at exit. But this requires investment both in technology and talent. How are analytics helping to improve exit outcomes? PE firms are using analytics tools to uncover critical insights on both the way into and out of portfolio investments. While most (87%) of firms say they used analytics to make their latest exit decision, they also point out that most value was created during the diligence process prior to acquisition and in pre-sale preparation at exit.

But many are still working through this process: applying data- driven analytics consistently in their portfolio reviews is still a significant issue for 80% of PE firms — up from 64% last year. Data standardization is also a challenge for PE firms — working with dozens or even hundreds of portfolio companies across multiple industries, each with their own KPIs and reporting protocols, makes it difficult to get an overall view. However, firms have made progress — 75% of PEs now have access to portfolio management tools that enable them to standardize reporting across the portfolio, while two-thirds (66%) use technology that gives them real-time access to management performance.

Analytics at the fund level How can firms use data and analytics to drive EBITDA and growth to position an asset for sale? And how can analytics help sellers present the value story to buyers? Many firms are improving their use of data, but with tacit acknowledgement that there is room for improvement. Less than a third (30%) say they are very effectively managing portfolio businesses real-time and capitalizing on customer and margin opportunities. Less than a quarter (22%) are very effective at using data tools to position and validate their businesses for potential buyers. For example, social media analytics can be applied to transaction scenarios to uncover and anticipate trends throughout the portfolio.

“Social listening” — where data from social media channels are captured and reviewed — can monitor customer buying patterns and preferences, as well as spotting and rectifying reputational risks and customer complaints before they get out of hand.

Giving potential buyers access to portfolio business data makes a big impression. According to 66% of PE firms, providing more detailed information — including the outputs from advanced analytics exercises such as stress testing and predictive modelling — can help underpin the valuation and provide an evidence- based value story during an exit. Sales volumes, customer churn and pipeline are important, but items like customer service and satisfaction — key indicators of both vulnerabilities and success — should also be on management’s radar.

At the portfolio company level The market continues to offer opportunities to trade assets at attractive valuations, with PEs looking to take a more opportunistic approach to divestments.

However, to maximize value, PE firms will need to be prepared to move quickly when these opportunities present themselves. They also need to be adaptable, as they expect a shift in buyers — including more strategics — competing for their assets. PE firms are building up their exit playbooks, with more discipline and rigour in the portfolio review process to prepare for their next wave of exits. In building, executing and monitoring more wide‑ranging value creation strategies for each asset, PEs can articulate a detailed value story to buyers.

Analytics is providing a huge opportunity for PE firms, with many only just beginning to tap its potential. Analytics tools provide a way to make more informed decisions throughout the exit life cycle, from identifying long-term growth strategies for portfolio businesses to securing greater divestment value. Private equity conclusion First quarter 2019 | 11

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