VALUE-ADDED SERVICES DRIVE OUTPERFORMANCE - VALUE-ADDED DISTRIBUTION INDUSTRY UPDATE | FEBRUARY 2021 - Capstone Headwaters

 
VALUE-ADDED SERVICES DRIVE OUTPERFORMANCE - VALUE-ADDED DISTRIBUTION INDUSTRY UPDATE | FEBRUARY 2021 - Capstone Headwaters
VALUE-ADDED SERVICES DRIVE
OUTPERFORMANCE
VALUE-ADDED DISTRIBUTION INDUSTRY UPDATE | FEBRUARY 2021

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VALUE-ADDED SERVICES DRIVE OUTPERFORMANCE - VALUE-ADDED DISTRIBUTION INDUSTRY UPDATE | FEBRUARY 2021 - Capstone Headwaters
Value-Added Distribution
                Value-Added Services Drive Outperformance

TABLE OF CONTENTS                 KEY INDUSTRY TAKEAWAYS

 Key Industry Takeaways          Capstone Headwaters’ Business Services Group is pleased to share its Value-
 Industry Outlook                Added Distribution report. Through our ongoing conversations with active
                                  industry players and analysis of trends during COVID-19, we have identified
 2020 M&A Backdrop               several key takeaways below:
 Industry M&A Overview
                                  1.   Economic indicators for the Manufacturing and Services industries have
 Notable Transactions
                                       displayed a U.S. recovery and are poised for further growth in 2021.
 Select Transactions
 Capstone Deal Highlight         2.   Distribution companies that offer valued added services such as supply
                                       management, product assembly, product bundling, among others, are
 Public Company Data                  viewed favorably relative to their peers.
 Report Contributors
                                  3.   Distributors with the capability to bundle products and provide packaged kits
 Firm Track Record                    foster increased purchasing power and relatively higher margins.

                                  4.   Specialized distributors that serve Healthcare, Aerospace, and other
                                       regulatory-driven industries establish barriers to entry and are perceived
                                       attractive in the M&A market, typically with relatively higher margins.

                                  5.   Distributors with specialized products and services often operate as a low-
                                       run, high margin business and are expected to receive strong interest among
                                       strategic and private equity buyers.
CONTACT                           6.   Private equity firms have amassed $1.3 trillion in dry powder and are
                                       expected to resume buyout activity as debt availability and leverage levels
                                       further normalize in 2021.

                                  7.   Capstone expects M&A activity to normalize in 2021 as sellers that placed
                                       prospective exits on hold in 2020 resume sale processes and buyers
                                       reengage in inorganic growth initiatives.

                                  Capstone Headwaters has developed a full suite of corporate finance solutions,
                                  including M&A advisory, debt advisory, financial advisory, equity capital
Todd McMahon
                                  financing, and ESOP advisory, to help privately owned businesses and private
Head of Investment Banking
                                  equity firmsSophea
                                               through   each stage of the company’s lifecycle, ranging from growth
                                                       Chau
617-619-3334
                                  to an ultimate exit transaction.
                                              Managing Director,
tmcmahon@capstoneheadwaters.com
                                            Consumer & Retail
                                  To learn more about Capstone’s wide breadth of advisory services and Value-
                                  added Distribution industry expertise, please contact Head of Investment Banking
                                  at Capstone Headwaters, Todd McMahon.

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VALUE-ADDED SERVICES DRIVE OUTPERFORMANCE - VALUE-ADDED DISTRIBUTION INDUSTRY UPDATE | FEBRUARY 2021 - Capstone Headwaters
Value-Added Distribution | February 2021

INDUSTRY OUTLOOK

The U.S. economy has begun to see a recovery in                                                                             Key Prospective Buyer Considerations
Manufacturing and Service industries following sharp
declines in activity and sentiment across all industries in                                                                     Diverse and/or Specialized Customer Base
2020. The Institute For Supply Management’s (ISM)                                                                               Buyers often view customer concentration as unfavorable
Purchasing Managers Index has indicated expansions in                                                                           from a valuation perspective. Distributors that operate in
                                                                                                                                specialized, regulatory-driven industries that provide
the Manufacturing (January) and Service (December)                                                                              barriers to entry often peak buyers’ interest.
industries, with readings of 58.7%1 and 57.2%,2
respectively (above 50% indicates expansionary                                                                                  Recurring Revenue
environment). The U.S. economy contracted in 2020 with                                                                          Contract-based revenue promotes stable cash flows and
real GDP (gross domestic product) declining 3.5%,                                                                               transparency into financial forecasts. Operators that
according to the Bureau of Economic Analysis.3 The                                                                              provide recurring services are highly attractive to a
economy has begun to show signs of recovery in 2021                                                                             prospective buyer universe.
and is expected to display promising tailwinds.
                                                                                                                                Low-Run / High Margin Services
                                                                                                                                Low-run, high margin services will often be viewed more
The Distribution industry saw substantial COVID-induced                                                                         attractively relative to their peers, as these distributors
supply chain disruptions and reduced demand. However,                                                                           often have deeper and stickier customer and vendor
despite lingering macroeconomic challenges, the industry                                                                        relationships.
is poised to see heightened demand for its services across                                                                      Value-Added Services
many sectors, although the rate of recovery will vary                                                                           Distributors that provide value-added services such as
depending on end market exposure. Capstone expects                                                                              cable assembly, supply chain management, among others
                                                                                                                                allow distributor’s customers bases to access a one-stop-
distributors that serve Electrical and Connectivity
                                                                                                                                shop for their supply chain.
Solutions end markets to perform relatively well in 2021,
as industries across the economy experience accelerated                                                                                                                Source: Capstone Research
digital transformations.

Following its blockbuster acquisition of Anixter (closed June 2020, $4.5 billion), WESCO (NYSE:WCC) has positioned itself as a
North American leader in the Electrical Distribution space. WESCO indicated its Electrical & Electronic Solutions and
Communications & Security Solutions segments recorded sequential Q3 double-digit sales growth as momentum in
Industrial and Original Equipment Manufacturing markets improved.4 The company has indicated robust secular trends that
will stimulate favorable financial performance, noting that remote connectivity, supply chain relocation to U.S. and Canada,
Internet of Things (IoT) and automation, heightened bandwidth demand, and new fiber optic and 5G connectivity solutions
will drive future growth. As the industry recovers from the downturn, companies serving defensible end markets that can
differentiate and gain competitive advantages with technology and value-added services are expected to outperform peers.

              ISM PMI – Manufacturing vs. Services                                                                                 ISM Services PMI Breakdown

                       ISM Manufacturing                               ISM Services
                                                                                                                                                Services PMI
90%
                                                                                                                 Measure                                  December             November
80%                                                                                                              Business Activity                          59.4                 58.0
                                                                                                                 New Orders                                   58.5                 57.2
70%
                                                                                                                 Employment                                   48.2                 51.5
60%                                                                                                              Supplier Deliveries                          62.8                 57.0
50%                                                                                                              Inventories                                  58.2                 49.3
              Above 50 indicates                                                                                 Prices                                       64.8                 66.1
40%           expansion, below 50
              indicates contraction
                                                                                                                 Backlog of Orders                             48.7                50.7
30%                                                                                                              New Export Orders                             57.3                50.4

20%                                                                                                              Imports                                       51.8                55.0
                                                                                                                 Inventory Sentiment                          47.7                 49.9
      01/18

              04/18

                      07/18

                              10/18

                                      01/19

                                              04/19

                                                      07/19

                                                              10/19

                                                                      01/20

                                                                              04/20

                                                                                      07/20

                                                                                              10/20

                                                                                                      01/21

                                                                                                                 Overall Services PMI                         57.2                 55.9
                                                                                                              Source: Institute for Supply Management® Report On Business® and Capstone Research
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VALUE-ADDED SERVICES DRIVE OUTPERFORMANCE - VALUE-ADDED DISTRIBUTION INDUSTRY UPDATE | FEBRUARY 2021 - Capstone Headwaters
Value-Added Distribution | February 2021

2020 M&A BACKDROP

         Middle Market M&A                                                      Transactions (Disclosed Value)         Transactions (Undisclosed Value)              Total Value ($B)
            Activity Resumes
           Through New and                                20,000                                                                                                                    $500
              Previous Deals                              18,000
                                                          16,000                                                                                                                    $400
  While deal volume across the
  entire market dropped 16.4%                             14,000
                                     Transactions

   YOY, transactions increased                            12,000                                                                                                                    $300

                                                                                                                                                                                          $ in Billions
            by nearly 39% in Q4                           10,000
      compared to the previous                             8,000                                                                                                                    $200
        quarter. The increase in                           6,000
   activity is partially driven by                         4,000                                                                                                                    $100
  deals which were on hold but                             2,000
        are now resuming while                                 0                                                                                                                    $0
       buyers are reengaging in                                                 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020
        M&A growth strategies.
                                                                                                                                                  Source: Capital IQ and Capstone Research
                                                                                                                                                          Note: Enterprise Value < $500mm

     Middle Market Average                                              14.0x
      EBITDA Multiples in Q4
                                                                        12.0x
       Outperform Multiples
                                            Enterprise Value / EBITDA

     on Year-Over-Year Basis                                                      9.3x             9.3x                              9.2x                                9.3x 9.6x
                                                                        10.0x            8.9x 9.1x               8.6x 9.0x 8.6x 8.7x                 8.8x 8.8x 9.0x 8.9x
            The average EBITDA                                                                            7.6x
                                                                                                                                              8.1x
        multiple for Q4 2020 is                                          8.0x
      9.6x EBITDA compared to
       9.3x EBITDA in Q4 2019.                                           6.0x
     Valuations have recovered
                                                                         4.0x
       since Q2, as demand for
           companies that have                                           2.0x
     remained resilient through
         the pandemic trade at                                           0.0x
          normalized multiples.                                                   2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Q4 Q4
                                                                                                                                                            2019 2020
                                                                                                                                                                          Source: Capital IQ
                                                                                                                                Note: Includes multiples 3x-16x Enterprise Value < $500mm

                                                                 $1,400                                                                                                            $1,280.2
    Dry Powder For PE Deals
     Reaches Historic Levels
                                                                 $1,200
     Dry powder has remained
        elevated since the Great                                 $1,000
        Recession, reaching $1.3
                                                                        $800
                                          $ in Billions

   trillion in the second half of
         2020. The war chest of
                                                                        $600
           capital PE firms have
        amassed will need to be                                         $400
           deployed. As a result,
  Capstone expects PE firms to                                          $200
     resume traditional buyout
    activity after sitting on the                                         $0
                sidelines in 2020.                                          2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

                                                                                                                                                                          Source: PitchBook

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VALUE-ADDED SERVICES DRIVE OUTPERFORMANCE - VALUE-ADDED DISTRIBUTION INDUSTRY UPDATE | FEBRUARY 2021 - Capstone Headwaters
Value-Added Distribution | February 2021

INDUSTRY M&A OVERVIEW

Merger and acquisition (M&A) activity in the Value-Added                                        M&A Volume Surges in 2H 2020
Distribution industry rebounded in the second half of                                     While M&A volume remains lower year-over-year, deal
2020, rising 207% quarter-over-quarter (QoQ) in Q3 and                                   activity improved significantly in the second half of 2020,
                                                                                              supporting optimism for the 2021 M&A market.
15% QoQ in Q4. Despite a modest recovery in the second
half of 2020, annual deal volume declined by                                            160                        2019       2020
approximately 44% year-over-year (YOY). The COVID-19
pandemic drove a sharp decline in deal activity in Q2 as

                                                               Number of Transactions
strategic buyers largely placed acquisitions on hold as                                 120
                                                                                                  94
they assessed internal liquidity positions, supply chains,                                                          84                                  81
and operational risks. Meanwhile, private equity (PE) firms                             80              66                            63
swiftly shifted focus from new investment opportunities to                                                                                                   53
                                                                                                                                           46
portfolio-level liquidity and operational risks.
                                                                                        40
                                                                                                                         15
Despite the sharp slowdown in 2020 deal volume, 2021
presents favorable tailwinds as the economic recovery                                    0
continues. Strategic buyers, accounting for 58% of total                                             Q1               Q2                Q3                Q4
deal activity, have displayed increasing appetite to resume
M&A initiatives to bolster geographic reach and value-
added distribution capabilities.

PE firms accounted for 42% of deal activity in 2020, largely                                            2020 Buyer Breakdown
consisting of add-on transactions to stimulate inorganic
growth in existing portfolio companies. For example,
ShoreView Industries-backed Monroe Engineering Group
completed its sixth add-on acquisition, investing in Titan                               STRATEGIC
Wire & Cable, a supplier of connectors, cable, and wire for                                   Private                         28.9%
Solar, Geothermal, Wind, Ski Lift, Telecom, and Industrial                                    Public
markets. The company’s highly attractive value-added                                                                                                      43.9%
services that include cable assembly, consulting, material                               FINANCIAL
management,       among     others,   expand      Monroe’s                                  Platform
geographic reach and product and service offerings.                                         Add-on                          12.8%

Capstone expects a resurgence in M&A activity in the                                                                                    14.4%
Value-Added Distribution industry in 2021 as sellers that
placed prospective exits on hold in 2020 resume sale
processes. In addition, PE firms strapped with $1.3 trillion
in dry powder are expected to pursue a larger percentage                                                Source: Capital IQ, PitchBook, FactSet, and Capstone Research
of acquisitions as debt availability and leverage levels
normalize, according to PitchBook.5

               Todd McMahon, Head of Investment Banking
               “2020 was an anomaly in many ways, and COVID certainly had an impact on deal making in
               Q2 and Q3. The good news is Q4 saw some real resiliency and likewise the continued
               economic recovery bodes well for 2021 activity. We expect both strategic and private equity
               buyers to re-engage throughout the course of 2021.”

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VALUE-ADDED SERVICES DRIVE OUTPERFORMANCE - VALUE-ADDED DISTRIBUTION INDUSTRY UPDATE | FEBRUARY 2021 - Capstone Headwaters
Value-Added Distribution | February 2021

NOTABLE TRANSACTIONS

Several notable transactions have been announced or completed in the industry in 2020. Select transactions are outlined below,
followed by a more comprehensive list on pages seven and eight.

                         Platinum Equity LLC to acquire Ingram Micro Inc.
                         (December 2020, $7.2 Billion)

                         Platinum Equity LLC, a private equity investment firm, announced the acquisition of the world’s largest
                         technology and information technology (IT) distribution and services provider, Ingram Micro Inc., for
                         $7.2 billion (6.9x EBITDA), according to a press release.6 The acquisition of Ingram Micro Inc. from HNA
                         Technology Co., Ltd., a subsidiary of HNA Group, is projected to close by the first half of 2021.

      To Acquire         Founded in 1979, Ingram Micro is a leading distributor of information technology (IT) products and
                         supply chain solutions, serving as an integral piece of the technology and commerce ecosystem.
                         Headquartered in Irvine, California, the company has over 35,000 employees and operations in 60
                         countries, generating over $47 billion in revenue in fiscal year 2019. The company serves a global
                         customer base, focusing on cloud, mobility, technology lifecycle, supply chain and technology solutions.
                         Among their distributed product lines are electrical components including, but not limited to cables,
                         switches, hubs, and routers. Ingram Micro will benefit from retaining current CEO, Alain Monié.

                         “Ingram Micro’s scale, diverse customer and vendor relationships and track record for innovation,
                         create the perfect platform for us to help accelerate growth, both organically and through additional
                         M&A. It also provides exciting opportunities in one of the fastest-growing sectors in technology as
                         corporations continue to migrate to cloud or hybrid solutions,” commented Matthew Louie, Managing
                         Director at Platinum Equity.

                         “Ingram Micro is an industry leader, one of the largest companies in the world and will be a
                         cornerstone investment in our portfolio. We have the resources and the experience to help the
                         company pursue an aggressive agenda of growth and transformation,” said Platinum Equity Chairman
                         and CEO Tom Gores.

                         IEWC Global Solutions acquires Jupiter Communications, LLC
                         (November 2020, Undisclosed)

                         IEWC Global Solutions, an international distributor and solutions provider, announced their acquisition
                         of Jupiter Communications, LLC, a leading supplier of telecommunications power and connectivity
                         solutions, for an undisclosed sum. The acquisition developed from a five-year partnership between the
                         two companies with IEWC being a long-time customer of Jupiter Communications. IEWC is an
                         international distributor of electronics, electrical wire, wire-bundling and protection products., serving
        Acquires         Aerospace & Defense, Automotive, and Broadcast and Communications markets.

                         Founded in 2004, Jupiter Communications is a contract manufacturer, distributor, value-added reseller,
                         and full-service integrator for the Telecommunications industry. Headquartered in Chandler, Arizona,
                         the company’s currently serves the U.S. market, providing products such as power solutions, fiber
                         optics, copper, safety and warning signs, test solutions & antenna alignment, and other tools and safety
                         gear. The company also offers premier value-added services that include bar coding, cable cutting and
                         stripping, labeling, contract warehousing, order fulfillment, sourcing, single and multi order
                         kitting/assembling, and supply chain management.

                         The strategic acquisition will foster operational synergies that are expected to increase product
                         availability and order fulfillment speeds while expanding IEWC’s product offerings. Jupiter
                         Communications will increase its geographic reach through IEWC’s global supply chain and logistics
                         capabilities in addition to IEWC’s domestic and international distribution centers through IEWC’s
                         international network of distribution centers.

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VALUE-ADDED SERVICES DRIVE OUTPERFORMANCE - VALUE-ADDED DISTRIBUTION INDUSTRY UPDATE | FEBRUARY 2021 - Capstone Headwaters
Value-Added Distribution | February 2021

SELECT TRANSACTIONS

                                                                                                                       Enterprise           EV / LTM
Date       Target                Acquirer               Target Business Description                                   Value (mm)        Revenue EBITDA

           Total Equipment       DXP Enterprises        Distributes and provides services for pumps,
12/31/20                                                                                                                     -               -            -
           Company               (Nasdaq:DXPE)          compressors, blowers, and mixers.

                                                        Supplies connectors, cable, and wire for Solar,
12/31/20   Titan Wire & Cable    Monroe Engineering                                                                          -               -            -
                                                        Geothermal, Wind, Telecom, and Industrial markets.

           Tundra Process        Wajax                  Distributes boilers, motors, drives, pre-insulated pipe,
12/30/20                                                                                                                  $99.1            1.5x           -
           Solutions             (TSX:WJX)              and instrumentation products and technical services.

12/23/20   Control Products      Amcon Controls         Supplies building control systems and components.                    -               -            -

                                 Russel Metals          Distributes carbon, stainless, aluminum, and copper
12/22/20   Sanborn Tube Sales                                                                                                -               -            -
                                 (TSX:RUS)              and brass tubing.

           Industrial Electric   Integrated Power       Supplies new and used electric motors, reducers, and
12/15/20                                                                                                                     -               -            -
           Motor Works           Services               controls in the United States.

           Motion Tech           John Henry Foster      Distributes motion control and electro-mechanical
12/14/20                                                                                                                     -               -            -
           Automation            Company                products and components.

                                                        Supplies information technology (IT) products and
12/09/20   Ingram Micro          Platinum Equity                                                                         $7,200.0          0.2x          6.9x
                                                        provides supply chain services.

           OEM Parts             S.W. Anderson          Distributes specialty fasteners, custom components,
12/09/20                                                                                                                     -               -            -
           & Tools               Company                and application tools for Industrial and Power markets.

                                 Midland Metal
12/07/20   Champion Brass                               Supplies machined brass fittings.                                    -               -            -
                                 Manufacturing

           Southern Wire         Southern Rigging       Distributes industrial wire ropes, aircraft cables, and
12/02/20                                                                                                                  $20.0              -            -
           Corporation           Companies              related hardware products.

                                                        Supplies pumps, mechanical brakes, electric motors,
12/02/20   McBroom Electric      Northline Industrial                                                                        -               -            -
                                                        servo controls, and variable speed drives,

           Shingle & Gibb        Graybar Electric       Distributes industrial automation, motion control,
12/01/20                                                                                                                     -               -            -
           Company               Company                machine safety, and power transmission products.

                                 Russell Reid Waste Supplies stainless steel products such as fittings, valves,
11/26/20   Sanitary Solutions                                                                                                -               -            -
                                 Hauling & Disposal accessories, and custom fabrications.

                                 Kyocera
11/24/20   Manor Hardware                               Distributes construction tools.                                      -               -            -
                                 (TSE:6971)

                                                        Supplies pumps, regulators, valves, sensors,
11/17/20   M-I-C                 SemiTorr Group                                                                              -               -            -
                                                        and flow meters.

                                 The Home Depot         Distributes industrial products, operating in Facilities
11/16/20   HD Supply                                                                                                     $8,000.4          1.3x          8.8x
                                 (NYSE:HD)              Maintenance and Construction & Industrial segments.

           Jupiter
11/10/20                         IEWC                   Supplies and markets telecommunications equipment.                   -               -            -
           Communications

           Powrmatic du                                 Distributes heating, air conditioning, ventilation
11/03/20                         Groupe Deschênes                                                                           CF              CF           CF
           Canada                                       products, and electrical products.

11/02/20   Delta Distributors    AD                     Supplies valves, fittings, and other industrial products.            -               -            -

                                                                                            Note: CF = confidential; highlighted deals are Capstone’s transactions
                                                                                                   Source: Capital IQ, PtichBook, FactSet, and Capstone Research

                                                                                                                                                                7
VALUE-ADDED SERVICES DRIVE OUTPERFORMANCE - VALUE-ADDED DISTRIBUTION INDUSTRY UPDATE | FEBRUARY 2021 - Capstone Headwaters
Value-Added Distribution | February 2021

SELECT TRANSACTIONS (CONTINUED)

                                                                                                                  Enterprise           EV / LTM
Date       Target              Acquirer              Target Business Description                                 Value (mm)        Revenue EBITDA

                                                     Supplies cable products for applications such as
10/21/20   DERYtelecom         Cogeco Connexion                                                                      $405.0           3.9x          9.2x
                                                     internet access and phone services.

                               Aircraft Fasteners    Distributes aerospace fasteners and hardware products
10/20/20   SOCIETE AHE                                                                                                  -               -            -
                               International         for the Rotorcraft market.

           Advanced Control    Applied Industrial    Supplies automation products and provides value-
10/07/20                                                                                                                -               -            -
           Solutions           Tech. (NYSE:AIT)      added services.

                               Rotunda Capital       Distributes hardware technologies such as cables,
10/01/20   FireFly Computers                                                                                            -               -            -
                               Partners              adaptors, monitors, and charging carts.

           Central Janitors’   Perrin Bernard
09/15/20                                             Supplies janitorial, cleaning, and facility supplies.              -               -            -
           Supply              Supowitz

           Applied Machine &                         Provides full-service distribution of industrial motion,
09/01/20                     Motion Industries                                                                          -               -            -
           Motion Control                            machine control, and robotics products.

                                                     Distributes garage door fasteners, aircraft cable,
08/28/20   Master Distribution AFC Industries                                                                           -               -            -
                                                     connecting fasteners, hardware and channel fittings.

           BMC Stock           Builders FirstSource Supplies building products and provides services for
08/27/20                                                                                                            $2,785.5          0.7x          9.4x
           Holdings            (Nasdaq:BLDR)        homebuilder and contractor customers.

                               Werner Electric       Distributes Rockwell Automation products in
08/27/20   Assets of WESCO                                                                                              -               -            -
                               Supply Company        Sheboygan Falls, WI.

           Excel Industrial                          Integrates, distributes, and repairs speed drive and
08/13/20                       Benshaw                                                                                  -               -            -
           Electronics                               motion control systems.

           White Cap Business Clayton, Dubilier      Comprises a concrete and construction products
08/11/20                                                                                                            $2,900.0            -            -
           of HD Supply       & Rice                 distribution business.

                                                     Comprises Rexel’s distribution assets in Pittston, PA
07/31/20   Assets of Rexel USA Schaedler Yesco                                                                          -               -            -
                                                     and Johnson City, NY.

                               Advanced Controls     Distributes industrial automation controls including
07/31/20   Adcon Engineering                                                                                            -               -            -
                               & Distribution        motor controls, and industrial wireless products.

           Assets of Baynes    Granite City Electric Supplies electrical fittings, equipment, and lighting
07/14/20                                                                                                                -               -            -
           Electric Supply     Supply Company        products in the United States.

                               Dakota Supply         Distributes electrical, heating, industrial,
06/24/20   Honold & LaPage                                                                                              -               -            -
                               Group                 pipe/valves/fitting, and plumbing products.

           Assets of Dicon     Monroe
06/06/20                                             Provides turnkey assembly and custom wire harnessing.              -               -            -
           Connections         Engineering

           Assets of Apex      Fastenal              Comprises assets related to industrial vending products
03/30/20                                                                                                                -               -            -
           Industrial Tech.    (Nasdaq:FAST)         that include patents, designs, software, and licenses.

                               DXP
03/06/20   Pumping Systems                           Distributes industrial pumps and systems.                        $13.0           0.7x           -
                               (Nasdaq:DXPE)

                                                     Distributes and supplies building automation products,
02/25/20   Kele                The Stephens Group                                                                       -               -            -
                                                     electrical wiring materials and sensors.

           Galco Industrial                          Distributes industrial and commercial electrical and
01/22/20                       Freeman Spogli                                                                           -               -            -
           Electronics                               electronic control, automation, and motion products..

                                                                                                Source: Capital IQ, PtichBook, FactSet, and Capstone Research

                                                                                                                                                           8
Value-Added Distribution | February 2021

CAPSTONE DEAL HIGHLIGHT

                                           Premier Provider of In-Patient Substance Abuse Treatment Program
                                           Acquired by NewSpring Capital – April 2020
          A portfolio company of           Capstone Headwaters advised Powrmatic of Canada Ltd. (“Powrmatic”), a
                                           portfolio company of Stamm International Corporation (“Stamm”), on its sale to
                                           Deschenes Group Inc. (“DGI”). Terms of the deal are confidential.

        has been acquired by                  Powrmatic of Canada, founded in 1945 and owned by Stamm International
                                               Corp., is headquartered in Montreal, Quebec, Canada. It is a distributor of
                                               residential, commercial and industrial supplies to the HVACR, Electrical, and
                                               Hearth (Chimneys and Fireplaces) industries.

                                              It operates six branches in the Canadian provinces of Nova Scotia, Quebec
                                               and Ontario. Powrmatic is a member of the marketing / buying group AD
                                               Canada Electrical.

                                              “It is with great pride and enthusiasm that the people at Powrmatic are
                                               joining the DGI family, a leader in our industry. A page of history is turning
                                               after 75 years with the Stamm family. We believe that DGI, with all of its
                                               resources and expertise, will help us continue to grow and reach new
                                               heights.” commented Claude Lapierre, President of Powrmatic.

                                              François Deschênes, President and CEO of DGI, stated, “This acquisition fits
                                               well with our development and growth strategy across Canada. We are very
                                               happy to welcome the talented and experienced team of Powrmatic. With
                                               customer experience being a priority for our organization, the addition of
                                               this company with a customer-centric entrepreneurial culture will tie in well
                                               with our own culture. This will allow Powrmatic and DGI to develop and
                                               grow further. As the company is already successful, no changes are expected
                                               in the short term in its strategy, its operations or the way it does business.
                                               We therefore aim for a smooth transition, both internally for new members
                                               of our family and externally for its customers and suppliers.”

                                              David Bench, Capstone’s Managing Director, reports, “Powrmatic represents
                                               a very strategic add-on for DGI on many fronts - complementary product
                                               line, office locations, management, and company culture - and Capstone is
                                               excited for the future of this business combination.” Managing Director Ted
                                               Polk adds, “The synergistic potential for bringing two such well-run
                                               enterprises together is quite high.”

                                                                                                                           9
Value-Added Distribution | February 2021

PUBLIC COMPANY DATA: GENERAL INDUSTRIAL

                                         Price    % 52 Wk    Market      Enterprise                   LTM                         EV / LTM
Company                              02/02/21        High        Cap           Value      Revenue        EBITDA Margin        Revenue EBITDA
Air Liquide SA                         $164.43      94.2%   $77,633.5     $95,674.5       $23,903.7     $6,417.5    26.8%      4.0x       14.9x

Applied Industrial Technologies         $71.99      83.7%    $2,790.3       $3,348.1       $3,055.0       $274.8     9.0%      1.1x        12.2

DXP Enterprises, Inc.                   $24.61      67.6%     $437.8           $611.7      $1,068.0         $73.5    6.9%      0.6x        8.3x

Fastenal Company                        $46.42      89.5%   $26,652.5     $27,056.9        $5,647.3     $1,460.2    25.9%      4.8x       18.5x

Genuine Parts Company                   $94.69      87.2%   $13,660.4     $16,467.9       $18,435.8     $1,457.2     7.9%      0.9x       11.3x

MSC Industrial Direct Co., Inc.         $79.67      90.7%    $4,446.8       $4,946.8       $3,140.7       $455.1    14.5%      1.6x       10.9x

Park-Ohio Holdings Corp.                $29.25      85.0%     $349.1           $930.9      $1,314.3         $66.9    5.1%      0.7x       13.9x

W.W. Grainger, Inc.                    $370.32      86.5%   $19,874.4     $21,659.4       $11,703.0     $1,553.0    13.3%      1.9x       13.9x

                                                                        Mean                                        13.7%      1.9x       13.0x
EV = enterprise value; LTM = last twelve months                         Median                                      11.1%      1.3x       13.0x
$ in millions, except per share data
NM = Not Meaningful                                                     Harmonic Mean                               10.0%      1.2x       12.4x

PUBLIC COMPANY DATA: ELECTRICAL & ELECTRONICS

                                         Price    % 52 Wk    Market      Enterprise                   LTM                         EV / LTM
Company                             02/02/21         High        Cap           Value      Revenue        EBITDA Margin        Revenue EBITDA
Arrow Electronics, Inc.                $100.33      92.7%    $7,597.8       $9,691.8      $27,557.4       $954.0     3.5%      0.4x       10.2x

Avnet, Inc.                             $36.83      87.1%    $3,641.1       $4,790.2      $17,860.8       $451.0     2.5%      0.3x       10.6x

Houston Wire & Cable Company             $3.42      72.0%      $56.6           $133.6       $302.8          $10.0    3.3%      0.4x       13.3x

Rexel S.A.                              $15.63      91.0%    $4,739.5       $8,004.0      $14,616.7       $880.3     6.0%      0.5x        9.1x

WESCO International, Inc.               $80.92      92.1%    $4,049.5       $9,016.3     $10.,296.6       $650.1     6.3%      0.9x       13.9x

                                                                        Mean                                         4.3%      0.5x       11.4x
EV = enterprise value; LTM = last twelve months                         Median                                       3.5%      0.4x       10.6x
$ in millions, except per share data
NM = Not Meaningful                                                     Harmonic Mean                                3.8%      0.4x       11.1x

                                                                          Source: Capital IQ and Capstone Headwaters Research as of February 2, 2021

                                                                                                                                                  10
Value-Added Distribution | February 2021

 PUBLIC COMPANY DATA: CONSTRUCTION

                                                 Price   % 52 Wk       Market      Enterprise                      LTM                           EV / LTM
  Company                                 02/02/21          High          Cap           Value          Revenue        EBITDA Margin        Revenue EBITDA
  Beacon Roofing Supply, Inc.                   $40.67     91.7%      $2,822.2       $5,810.3           $6,943.9       $577.2      8.3%      0.8x       10.1x

  Builders FirstSource, Inc.                    $39.42     90.7%      $4,604.6       $6,151.5           $7,791.7       $620.9      8.0%      0.8x       9.9x

  Ferguson plc                                 $119.26     91.8%     $26,702.8      $29,192.1          $21,819.0     $1,836.0      8.4%      1.3x       15.9x

  NOW Inc.                                       $8.32     78.3%       $910.0           $652.0          $1,939.0         $15.8     0.8%      0.3x       NM

  Pool Corporation                             $359.82     89.7%     $14,449.9      $14,911.9           $3,679.6       $523.5     14.2%      4.1x       NM

  Universal Forest Products, Inc.               $56.80     88.5%      $3,475.4       $3,516.4           $4,758.3       $412.8      8.7%      0.7x        8.5

  Watsco, Inc.                                 $244.42     92.3%      $8,729.8       $9,182.0           $4,972.5       $495.5     10.0%      1.8x       18.5x

                                                                                 Mean                                              8.3%      1.4x       12.6x
  EV = enterprise value; LTM = last twelve months                                Median                                            8.4%      0.8x       10.1x
  $ in millions, except per share data
  NM = Not Meaningful                                                            Harmonic Mean                                     3.7%      0.8x       11.5x

                                                         Last Twelve Month Margin Performance
                                                               Gross Margin %     EBITDA Margin %
  80%

  60%
                        36.5%
  40%
                                                                                                                             24.0%
  20%                                   13.7%                            17.8%
                                                                                                                                                 8.3%
                                                                                          4.3%
    0%
                          General Industrial                            Electrical & Electronics                                  Construction

                                                         Historical EBITDA Multiple Performance

                                     Construction              General Industrial                  Electrical & Electronics
            20x
            18x
            16x                                                                                                                                             14.6x
            14x                                                                                                                                             14.4x
EV/EBITDA

            12x
                                                                                                                                                            10.8x
            10x
             8x
             6x
             4x

                                                                                                             Note: Index is aggregated through a weighted average
                                                                                                   Source: Capital IQ and Capstone Research as of February 2, 2021

                                                                                                                                                                11
Value-Added Distribution | February 2021

VALUE-ADDED DISTRIBUTION REPORT CONTRIBUTORS

                            Todd McMahon
                            Head of Investment Banking
                            tmcmahon@capstoneheadwaters.com | 617-619-3334

                            Todd possesses over 20 years of transaction, financial services and corporate executive experience.
                            Prior to Capstone, Todd was President of Array Financial Services, a Boston based boutique M&A
                            advisory firm he founded in 2002. He began his career at Putnam Investments, later moving to Bank
                            Boston’s investment banking group. Later, Todd served as Managing Director at Ross Crossland
                            Weston/RCW Mirus, where he was responsible for managing the firm’s technology investment banking
                            practice. Todd’s investment banking experience is complemented by his involvement as an
                            entrepreneur and investor where he was involved in various consolidation transactions, raised over
                            $30mm of debt and equity financing and was responsible for managing all aspects of operations.

                            He earned his MBA from Boston University and his BA from the University of Massachusetts.

                            Benjamin Kelly
                            Research Analyst
                            bkelly@capstoneheadwaters.com | 617-619-3390

                            Ben joined Capstone Headwaters in 2018 and serves as an Analyst on the Boston Research Team. He
                            works directly with senior investment bankers, utilizing data and market analysis to deliver key industry
                            insights to C-suite executives. Ben has a primary focus in the Industrial & Manufacturing and Business
                            Services sectors.

                            Prior to joining Capstone Headwaters, Ben worked as an intern at The Baupost Group within its
                            Portfolio Valuation department. Ben earned a BA in Economics from Providence College and is a
                            Series 79 Registered Investment Banking Representative.

        2020                           2020                      2019                      2019                       2019
                                     MIDDLE MARKET            US MIDDLE MARKET
  INVESTMENT BANKING FIRM                                                            INVESTMENT BANKING FIRM   INVESTMENT BANKING FIRM
                                    INVESTMENT BANK           INVESTMENT BANK
        OF THE YEAR                                                                        OF THE YEAR               OF THE YEAR
                                       OF THE YEAR               OF THE YEAR

                                                                                       INTERNATIONAL AWARDS      TURNAROUND AWARDS

                                                                                                                                         12
Value-Added Distribution | February 2021

FIRM TRACK RECORD

         A portfolio company of

                                       has been acquired by      has acquired certain       has recapitalized with
          has been acquired by
                                                                       assets of

                                             a subsidiary of

          has been acquired by         has been acquired by    has sold certain assets to   has been acquired by

          has been acquired by         has been acquired by     has been acquired by        has recapitalized with

          has been acquired by         has been acquired by     has been acquired by        has been acquired by

                                                                                                                     13
Value-Added Distribution | February 2021

CITATIONS

1.   ISM, “Manufacturing PMI at 57.7%,” https://www.ismworld.org/globalassets/pub/research-and-
     surveys/rob/pmi/rob202102pmi.pdf, accessed February 1, 2021.
2.   ISM, “Services PMI at 57.2%,” https://www.ismworld.org/globalassets/pub/research-and-
     surveys/rob/nmi/rob202012svcs.pdf, accessed February 1, 2021.
3.   Bureau of Economic Analysis, “Gross Domestic Product, 4th Quarter and Year 2020 (Advance Estimate),”
     https://www.bea.gov/news/2021/gross-domestic-product-4th-quarter-and-year-2020-advance-estimate, accessed
     February 1, 2021.
4.   WESCO, “WESCO 3Q 2020 Earnings Presentation,” http://wesco.investorroom.com/events-and-webcasts, accessed
     February 1, 2021.
5.   PitchBook, “Private Fund Strategies Report Q2 2021,”
     https://files.pitchbook.com/website/files/pdf/PitchBook_Q3_2020_Private_Fund_Strategies_
     Report.pdf, accessed February 1, 2021.
6.   Platinum Equity, “Platinum Equity to Acquire Ingram Micro for $7.2 Billion,”
     https://www.platinumequity.com/news/news-articles/2020/ingram-micro-announcement, accessed February 1, 2021.

Disclosure: This report is a periodic compilation of certain economic and corporate information, as well as completed and announced merger and acquisi-
tion activity. Information contained in this report should not be construed as a recommendation to sell or buy any security. Any reference to or omission of
any reference to any company in this report should not be construed as a recommendation to buy, sell or take any other action with respect to any security of
any such company. We are not soliciting any action with respect to any security or company based on this report. The report is published solely for the
general information of clients and friends of Capstone Headwaters. It does not take into account the particular investment objectives, financial situation or
needs of individual recipients. Certain transactions, including those involving early-stage companies, give rise to substantial risk and are not suitable for all
investors. This report is based upon information that we consider reliable, but we do not represent that it is accurate or complete, and it should not be relied
upon as such. Prediction of future events is inherently subject to both known and unknown risks and other factors that may cause actual results to vary
materially. We are under no obligation to update the information contained in this report. Opinions expressed are our present opinions only and are subject
to change without notice. Additional information is available upon request. The companies mentioned in this report may be clients of Capstone Headwaters.
The decisions to include any company in this report is unrelated in all respects to any service that Capstone Headwaters may provide to such company. This
report may not be copied or reproduced in any form, or redistributed without the prior written consent of Capstone Headwaters. The information contained
herein should not be construed as legal advice.

                                                                                                                                                             14
BUILT FOR THE MIDDLE MARKET
Capstone Headwaters is one of the largest and most active independent investment banking firms in the United States. The
firm has a rich, 20-year history of achieving extraordinary results for middle market entrepreneurs, business owners, investors,
and creditors. Capstone offers a fully integrated suite of corporate finance services, including M&A, debt and equity
placement, corporate restructuring, valuation and fairness opinions, financial advisory, and ESOP advisory services.

Headquartered in Boston, the firm has 175+ professionals across 16 offices in the U.S., and an international presence
including over 450 professionals in 40 countries. With 16 dedicated industry groups, the firm delivers sector-specific expertise
through large, cross-functional teams on a global basis.

UNITED STATES
170+ professionals
17 offices
                                                                                                     INTERNATIONAL
Boston  Burlington  Chicago  Dallas
Denver  Detroit  Houston  Los Angeles                                                                450+ professionals
New York  Orange County  Philadelphia                                                          60+ offices in 40 countries
Richmond  San Diego  San Francisco
St Louis  Tampa  Washington DC                                                                 Asia: China  India  Japan
                                                       Latin America: Argentina  Brazil  Chile  Colombia  Mexico  Peru
                              Africa: Congo  Egypt  Ghana  Ivory Coast  Mauritius  Morocco  Senegal  South Africa
                          Europe: Belgium  Bosnia  Croatia  Czech Republic  Finland  France  Germany  Herzegovina
                            Hungary  Ireland  Italy  London  Netherlands  Norway  Poland  Russia  Serbia  Slovenia
                                                                  Spain  Sweden  Switzerland  Turkey  United Kingdom

                                                         www.capstoneheadwaters.com

                                                                                                                               12
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