Successfully reported this slideshow.
Your SlideShare is downloading. ×

15th Annual William Blair Investment Banking Case Competition

Ad
Ad
Ad
Ad
Ad
Ad
Ad
Ad
Ad
Ad
Ad
Loading in …3
×

Check these out next

1 of 28 Ad
Advertisement

More Related Content

Recently uploaded (20)

Advertisement

15th Annual William Blair Investment Banking Case Competition

  1. 1. OscarArenas, B.S, Finance, Economics Class of 2025 MickeyFanella,B.S, Finance, Accountancy Class of 2025 RobertNahigian, B.S, Finance, Accountancy Class of 2025 November10, 2022 Talawanda Turbines Ian Thorstenson, B.S, Finance, Economics Class of 2025
  2. 2. 2 Team Oscar Arenas jacqueoi@miamioh.edu Securities Industry Essentials (SIE), FMC® Level II (Adventis) certified Mickey Fanella fanellm2@miamioh.edu Bloomberg Market Concepts, FMC® Level II (Adventis) certified Robert Nahigian nahigirc@miamioh.edu Bloomberg Market Concepts, FMC® Level II (Adventis) certified Ian Thorstenson thorstir@miamioh.edu Bloomberg Market Concepts, Bank Secrecy Act (BSA) certified
  3. 3. 3 Agenda SECTIONI Executive Summary SECTIONII CompanyOverview SECTIONIII Industry Overview SECTIONIV Valuation SECTION V Strategic Options SECTION VI Appendix
  4. 4. Executive Summary
  5. 5. 5 Strategic Alternatives for Talawanda Turbines Options Pros Cons Target Buyer Consideration OrganicGrowth Sale to StrategicAcquirer Sale to Financial Sponsor • Maintain100% control of all decisions • Nottakingadvantage of M&Amarket • Potential premium from synergies • Potential acquirerpool expansion • Better brand recognition • Risk disclosureto industry competitors • Reduceddecision- makingcapabilities • N/A • Industry experts can increase marketpresenceviastrategic synergies • Premiums andcostreductions from synergies • Possibleformanagementto stay incontrol • Potential new growth opportunities withfunding • Risk of losinglong-term employees • Probablesynergies infirms’ other investments • Lookingforstrongmanagement withcontinuedvision IPO • Raises capital • Keeps equity stakefor future upside • Less firm confidentiality • FallingIPO activity due to highmarketvolatility • N/A Talawanda Turbines IPO Sale to Strategic Acquirer Sale to Financial Sponsor Organic Growth Source: William Blair Note: Dotted lines denote alternatives William Blair suggests Talawanda pursue
  6. 6. 6 $450 $500 $550 $600 $650 $700 $750 $800 Leveraged Buyout (11.2x - 11.6x) Precedent Transactions (10.7x - 11.8x) Comparable Companies (10.4x - 11.5x) DCF - EBITDA Exit Multiple (10.7x - 11.1x) DCF - Perpetuity Growth Rate (2.5%) Recommendation Valuation Analysis • Talawanda Turbines isaleadingdesignerandmanufacturerof industrial fans,criticalexhaustsystems, andblowersforOEM applicationsacrossdiverseandresilientendmarkets • Operates ~200,000 sqftof manufacturingspaceandboasts unmatchedleadtimes withhighrecurring revenues • Attractivefinancialprofilewithrobustmarginsandhighgrowth • 2022ERevenue:$350MM • 2022EEBITDA: $53MM Compelling Story Executive Summary Sell-SideAdvisory Source: Company Filings, Team Projections Note: Figures in $MM USD Potential Financial Sponsors Potential Strategic Acquirers Potential Acquisitions • Recommendinganearterm saleto a strategicbuyerorfinancial sponsor • Range: ~$590MM-$670MM • Recommendedstrategicbuyers canleverageeconomies of scale and scope, andexpandmarketpresencewithpriorexperience integratingcompanies into theirHVACorcoolingplatforms • Recommendedfinancialsponsorshavedeepsectorexpertiseand canbolsterscalethroughinorganicgrowth
  7. 7. Company Overview
  8. 8. 8 $- $100 $200 $300 $400 $500 $600 2020 2021 2022 2023 2024 2025 2026 2027 Competitive Advantages Client Base Financial Snapshot Talawanda Turbines Overview FY22 1 Source: Company Filings (1) Figures in $MM USD $164 $161 $22 $53 $141 $351 LT Debt Net PP&E Cash EBITDA Gross Profit Revenue Increased demand for centrifugal fans used in production and processing of snacks and drinks Food & Beverage Demand for axial fans, and centrifugal fans/blowers led by increased interest in indoor air quality (IAQ) Filtration & Air Control Rise of ambulatory surgical and treatment centers generates high demand for positive air systems Healthcare Trends toward reshoring manufacturing capacity increase the need for industrial fans and blowers General Industrial Labs require clean airflow to maintain positive air pressure, driving the need for air purifiers Lab Research & Exhaust Increased use of vacuums in material handling applications drove demand for centrifugal & axial fans Material Handling Customer-drivenbusiness model resultinginhigh recurringrevenues and sticky relationships withits diverseclientbase • 20+ year averagetenure of its top10customers Superbsupply chain managementwithsomeof the bestleadtimes inthe industry • 10 – 15 days leadtime vs industry standardof 2-4 weeks In-housemanufacturing capabilitiesprovidefastand in-depthproduct customization Past Acquisitions 26% 16% 24% 17% 8% 7% Food & Beverage Filtration & Air Control Healthcare General Industrial Lab Research & Exhaust Material Handling Other FY27 Revenue Breakdown ProjectedRevenue Growth $508.4M
  9. 9. 9 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 2020 2021 2022 2023 2024 2025 2026 2027 Gross Profit Margin EBITDA Margin Company Growth Prospects & Risks Key Growth Initiatives Talawanda Turbines Margin Profile Increase Exposure toAftermarket New Product Innovation Margin Enhancement Initiatives Increase InternationalPresence Add-on or Transformational Acquisitions Acquisition Growth Segmented Industry Drivers • Despitethebleak macroeconomic backdrop,inorganic growththrough acquisitionscankeep Talawandadiversified, extendits productmix,and mitigatepoorperformancefrom certainoperatingsegments • Industry is ripeforconsolidationand Talawandacanacquiretargets to enhancescaleandfurtherits geographic reach Positioning Analysis • TalawandaTurbines’highexposure torecessionresistant end markets differentiates itfrom peers, whichhavehigherexposureto cyclicalend markets suchas aerospace& defense, automotives,andoil & gas sectors • Accountedfor~5%market share1 of thehighly fragmentedindustrial & commercialfan/blowermanufacturingindustryin2021 • Lags peers interms of brandrecognition Food & Beverage Air Filtration • Expected to grow at a 1.3% CAGR from 2021 - 2026. As a consumer staple, the industry is resistant to economic downturns. $43B $6.6B • Expected to grow at a 1.9% CAGR from 2021 - 2026. COVID-19 and increases in health consciousness spurred investment in smart air filtration systems. • Expected to grow at a 5.5% CAGR from 2022 to 2027. The risein health centers increased demand for positiveair pressuresystems. • The cannabis cultivation market in theUS is expected to grow at an 18.3% CAGR from 2021 – 2026. The legalization of cannabis in several states is a main driver of growth. • Expected to grow at a 1.9% CAGR from 2020 – 2025. The increase in pet ownership due to COVID drove demand for centrifugal fans associated with grain & pet food processing. Source: Company Filings, IBISWorld Note: Dotted lines denote industriesTalawanda can increase exposure to (1) Calculated from 2021 IBISWorld Industrial & Commercial Fan & Blower Manufacturing report Healthcare $43B Cultivation $11B Pet Food $27B
  10. 10. Industry Overview
  11. 11. 11 Industrial & Commercial Fans/Blowers Overview Key Revenue Drivers Industry Overview Industry Growth Map Market Share FY21 Source: Bloomberg,CapstonePartners, Company Filings, IBISWorld, Research andMarkets Note: Market share taken from FY21revenue for the most relevant reported operating segment MarketSize(US) Projected Growth(‘20 – ’27) Projected Business Growth(‘21 – ’26) Annual EmploymentGrowth(‘21 – ’26) • Industry demandis supportedby growthinthemanufacturing and constructionsectors whichall experiencedsignificant contractionduringCOVID-19,leadingto poorperformance • In 2021lowinterestrates andhighcorporateprofits droveindustry performancethrough growth in nonresidential construction • Pandemic andincreasingindustrialregulations spurredinterestin indoorairquality andtheneedfordustcollectors/airpurification products • Airpurificationfans/blowerscompose49.8%of industry revenue US CAGR: 2.9% China CAGR: 5.4% Japan CAGR: 0.8% Canada CAGR: 2.2% Key Trends SuccessFactors Industry Snapshot -15% -5% 5% 15% 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 Revenue Private Non-Residential consruction IPI 14% 2% 2% 5% 77% AMETEK Ampco-Pittsburgh CECO Environmental Talawanda Turbines Other $6,000M $6B 2.9% 0.7% 1.7% New factories and facilities require industry wide products & services, making the value of private non-residential constructiona good correlate forindustry revenue Influx of strategic acquirers building HVAC platforms Increased health consciousness Establishment of brand names – perception ofquality and reliability Vertical integration through M&A to leverage economies of scale and scope that increase barriers toentry Ability to accommodate environmental requests – ESG movement and push towards sustainability Strong pricing power can reduce the effects of rising costs and protect margins High growth in niche constructionmarkets (data, life sciences, and distribution centers) Utilizing M&A to become one-stop shops Diversification in end markets helps stave off macro slowdown
  12. 12. 12 Macroeconomic Overview Industrial Production Index & PMI1 Commentary Source: FRED, Institute for Supply Management, KPMG, Pitchbook, William Blair Proprietary Middle Market LBO Financing Database Note: PCE in $B USD (1) Taken from 8/1/2021 – 8/1/22 Dodge Momentum Index 96 98 100 102 104 106 45 50 55 60 65 2021 2022 IPI PMI Leverage Multiples 16,000 16,200 16,400 16,600 16,800 17,000 17,200 17,400 17,600 5.5x 5.5x 5.7x 5.4x 5.5x 5.4x 5.2x 5.9x 6.3x 6.2x 6.1x 6.0x 6.0x 6.0x 5.7x 6.0x 0.0x 1.0x 2.0x 3.0x 4.0x 5.0x 6.0x 7.0x 3Q20 4Q20 1Q21 2Q21 3Q21 4Q21 1Q22 2Q22 Middle Market LBO Leverage Multiples SeniorLeverage Total Leverage Personal Consumption Expenditures Troubled Waters Rates Witha stronglabormarket, strongconsumerdemand, and industrials companiesreportinggrowingbacklogs, a recession may bewhat theeconomyneeds to curtail inflation. TheFederal Reserveis alsoseeking to achieveits inflationtargetat any costpossiblewith itrecently approvingits fourth75bps rate hike. Federal Reserve’s preferred gauge of inflation 150 170 190 210 230 250 270 290 310 Measures nonresidential building projects in planning Outlook Financial strainforsponsorsand portcos isexpectedto increase, thoughtheirstrongcashpiles will still spur buyoutactivity withthecaveatof muchlessleverage and higherequity contributions. Onthestrategic buyer side, theneed for more transparentsupply chains and diversified productofferings remains. Models predictaterminal fedfunds rateof 5% buta debate arises as to howmuchhigherthe Fed canpush borrowingcosts withoutexhaustingtheeconomyand needing to pivot. Lendingmarket conditions are expected totightengivenfears from lenders regarding inflationstickiness,defaultrisks, andmarketvolatility. Appetite for M&A in 2Q22 Compared to 2021 10% 3% 8% 23% 25% 32% 48% 45% 30% 17% 17% 27% 7% 3% 2% 3% Industrial Manufacturing ConsumerRetail TMT >2x as many deals 1.5x as many deals Same as before Reducedby up to 25% Reducedby 26% to50% Reducedby more than 50%
  13. 13. 13 Inflation Commentary Favorable Company Dynamics Temper Economic Concerns Inflationary Pressures by Key End Markets Source: Bank of AmericaGlobal Research,BloombergIntelligence,Federal Acquisition Regulatory Council (FAR), FRED HVAC and Commercial Refrigeration Equipment PPI 150 160 170 180 190 200 210 220 Index Value Measures change in the prices paid to US producers of HVAC and commercial refrigeration equipment • TalawandaTurbines boastsstrongpricingpower andgrowing end-markets whichallowsitto maintainstrongmargins amidstpersistentinflationary costsand softeningdemand • TalawandaTurbines’highproductcustomizationenablesitto havehighrecurring revenueandsticky relationshipswithclients, furthercementingits pricingpower • Its effectivesupplychainmanagementandproprietary configurationtool allows itto standoutduringaperiodof disjointedsupplychains Food & Beverage Air Filtration Healthcare Lab Research Material Handling General Industrial Rising packaging, transportation, and ingredient costs curb effects of higher volume gains if companies don’t hedge their biggest commodities, pass costs to customers, charge retailers more, or reduce promotions. Labor costs are the highest cost line item andshould ease upon the expiration of extended travel nurse contracts that were signed to meet the omicron wave in January. Geopolitical instability in Asia may keep supply costs elevated given that 30%of medical supplies used in the US are manufactured in that region. Wage costs are having a greater impact on margins than energy costs. Hedging of contracts is a common way to mitigate energy costs. On the consumer side, grossprice increases for drugs can weigh on consumer demand and thus business valuations. J&J may delay the spin-off of its consumer division for this reason. The increase in the prices of industrial metals earlier in 2022, oil (in the form of petroleum-based products), urethane, and transportation have allbeen headwinds for air filtration companies. Labor costs are particularly high given that the industry fails to attract enough workersdue to the skilled labor shortage. Fuel and materialcosts also play a role in inflationary pressures. The falling prices of copper, steel, and aluminum have provided temporary relief in materialcosts but energy, freight, and labor costs remain the biggest headwinds for industrials. Sectors with pricing power like HVAC and distribution fare better while others face more price-cost pressures. Import Competition • TheFed’s actions relativeto othercentral banks andinflationary pressuresinthe Eurozonehavecausedthedollarto appreciaterelativeto othercurrencies • As goods andservicesbecomecheaperinothercountries,importcompetitionis expectedto increase With 84% ofNorth Americanmanufacturers noting that they are likely to re-shore and the higher domesticcontent requirementsin the Buy American Act, we suggest thatTalawanda scaledomestically
  14. 14. Valuation
  15. 15. 15 Share % of Market Enterprise EBITDA EBITDA Margin Company Name Ticker Price 52-Wk. High Cap Value LTM 2023E LTM 2023E LTM 2023E LTMEBITDA 2023 EBITDA LTMRevenue 2023 Revenue Carrier Corporation CARR 39.4 99.0% 32,924 39,653 4,761 3,229 20,449 20,437 23.3% 15.8% 8.3x 12.3x 1.9x 1.9x CECO Environmental CECE 11.4 97.9% 393 473 29 38 371 392 7.8% 9.6% 16.4x 12.6x 1.3x 1.2x Crane Holdings Co. CR 100.8 87.8% 5,661 6,467 636 702 3,251 3,370 19.6% 20.8% 10.2x 9.2x 2.0x 1.9x Donaldson Company DCI 57.3 99.4% 7,017 7,517 541 612 3,307 3,445 16.4% 17.8% 13.9x 12.3x 2.3x 2.2x IMI IMI 1261.0 99.3% 3,676 4,596 557 501 2,570 2,326 21.7% 21.5% 8.3x 9.2x 1.8x 2.0x Ingersol Rand Inc. IR 51.4 98.4% 20,801 22,355 1,241 1,395 5,711 5,749 21.7% 24.3% 18.0x 16.0x 3.9x 3.9x Systemair SYSR 58.5 99.7% 12,168 14,769 1,267 1,382 10,193 11,045 12.4% 12.5% 11.7x 10.7x 1.4x 1.3x Volution FAN 308.5 96.4% 610 703 74 73 308 313 24.0% 23.4% 9.5x 9.6x 2.3x 2.2x Talawanda Turbines 53.1 350.7 15.1% Minimum 8.3x 9.2x 1.3x 1.2x First Quartile 8.6x 9.3x 1.5x 1.5x Mean 12.0x 11.5x 2.1x 2.1x Median 10.9x 11.5x 2.0x 2.0x Third Quartile 15.7x 12.5x 2.3x 2.2x Maximum 18.0x 16.0x 3.9x 3.9x Revenue Enterprise Value Comparable Companies Analysis EV/EBITDA Commentary • Comparablecompany universewas selectedbasedonpresencein HVAC, airhandling, andairpurificationmarkets withlowresidential marketexposureand geographically locatedintheUSand Europe • TalawandaTurbines showsstronghistorical EBITDAmargin growth andthere is moreopportunity forgrowththroughpotential costsynergies afterTalawandagoes to market • Investors placegreatervalueonbusinesses withhighexposureto air filtration/purificationandstrongpricingpower, resultinginmost peers trading near their 52-week high 8.3x 16.4x 10.2x 13.9x 8.3x 18.0x 11.7x 9.5x 0.0x 2.0x 4.0x 6.0x 8.0x 10.0x 12.0x 14.0x 16.0x 18.0x 20.0x $CARR $CECE $CR $DCI $IMI $IR $SYSR $FAN Source: Bloomberg, Company Filings Note: Figures in $MM USD
  16. 16. 16 Transaction Date Aquired Target Company Buyer Type Value EBITDA Revenue TV/EBITDA TV/Revenue 6/14/2022 SagiCofim Systemair Strategic $36 $4 $39 9.5x 0.9x 12/15/2020 TRUaire CSW Indsutrials Strategic $360 $36 $108 10.0x 3.3x 4/10/2018 Nicotra Gebhardt Regal Rexnord Strategic $162 $13 $202 12.5x 0.8x 2/1/2018 Bimba Manufacturing IMI Strategic $198 $16 $120 12.4x 1.7x 10/13/2016 Flakt Woods Triton Sponsor/Buyout $285 $23 $162 12.7x 1.8x 8/15/2015 Nuaire Genuit Group Sponsor/Buyout $232 $22 $124 10.5x 1.9x Talawanda Turbines $53.1 Minimum 9.5x 0.8x 1st Quartile 9.9x 0.9x Mean 11.3x 1.7x Median 11.4x 1.7x 3rd Quartile 12.5x 2.2x Maximum 12.7x 3.3x LTMMetrics LTMMultiples Precedent Transactions Analysis TV/EBITDA Commentary • Precedent transactionuniversewas selectedbasedonrecent acquisitionsof airhandlingsystem manufacturersorOEM parts suppliers with similarmarkets andoperational capabilities • Theair handlingM&Amarkethas seenstrategic acquisitions usedto realizeoperational synergies, extendproductandservice portfolios,andto buildHVACorcoolingplatforms • Recessionresilience, highrecurringrevenue, andtrends towardair quality awareness andenergy efficiency attractfinancial sponsors to the space • Theair handlingmarketis highly fragmentedwhich allows sponsorsto employ abuy andbuildstrategy 9.5x 10.0x 12.5x 12.4x 12.7x 10.5x 0.0x 2.0x 4.0x 6.0x 8.0x 10.0x 12.0x 14.0x SagiCofim TRUaire Nicotra Bimba Flakt Nuaire Source: Bloomberg,CapstonePartners, Company Filings, PitchBook Note: Figures in $MM USD
  17. 17. 17 Source: Company Filings, Team Projections Note: Figures in $MM USD Discounted Cash Flow Analysis Unlevered Free Cash Flows Sensitivity Analysis Implied Valuation Commentary • Usingthe targeted capital structureuponexit, the WACCwas calculatedat8.9%, placingtheDCF as the highestvaluationmethodology (referto Appendix) • Strong EBITDAgrowth ledto highervaluationfor the EBITDAExitMultipleMethod • Calculateda10.9x EBITDAExitMultiplefrom the medianof the comparablecompaniesanalysis • Assumeda2.5% perpetuity growthrate basedon the rate of inflationandsteady maturenature of the manufacturingindustry Discounted Cash Flow Analysis 2023P 2024P 2025P 2026P 2027P Revenue $380.1 $412.9 $444.3 $476.2 $508.4 Gross Profit 157.3 175.0 184.5 196.7 209.0 EBIT 38.3 48.8 52.8 57.7 63.9 Taxes (8.0) (10.2) (11.1) (12.1) (13.4) NOPAT 30.2 38.5 41.7 45.6 50.5 Plus: Depreciation & Amortization 7.6 8.3 8.9 9.5 10.2 Less: CapEx (14.3) (15.5) (16.7) (17.9) (19.1) Less: Change in NWC (0.8) (0.7) 2.1 1.2 1.2 Unlevered Free Cash Flow 22.7 30.6 36.1 38.4 42.8 Years 1.0 2.0 3.0 4.0 5.0 PV of Unlevered Free Cash Flow 20.9 25.8 27.9 27.3 27.9 PV of Projection Period $129.8 $496.21 1.9% 2.2% 2.5% 2.8% 3.1% 7.9% 631 659 689 724 763 8.4% 580 603 629 657 688 8.9% 535 555 $576 599 625 9.4% 499 516 534 554 575 9.9% 499 516 534 554 575 Perpetuity Growth WACC $730.64 10.5x 10.7x 10.9x 11.1x 11.3x 7.9% 740 751 763 774 786 8.4% 724 735 746 758 769 8.9% 708 719 $731 741 753 9.4% 693 704 715 726 737 9.9% 679 689 700 711 721 WACC EBITDA Exit Multiple Growth Rate 2.5% 2027 Unlevered FCF 43 Terminal Value 684 PV of Terminal Value 446 Enterprise Value 576 $ Exit Multiple 10.9x 2027P EBITDA 84 Terminal Value 921 PV of Terminal Value 601 Enterprise Value 731 $ PerpetuityGrowthRate EBITDA Exit Multiple
  18. 18. 18 Leveraged Buyout Analysis Commentary Implied Valuation Sources Uses Sensitivity Analysis Capital Structure Source: Bloomberg,CME,Company Filings, Team Projections Note: Figures in $MM USD (1) Floating rate assumptions based offSOFR futures curve Term Loan – A Assumptions Key Assumptions • Strong recurring revenues, resilientmargins,andastrongmarketpositionmake Talawanda an attractivetarget forfinancial sponsors considering a platforminvestment in the rapidly consolidating air handling markets • WithbothLIBORandSOFRrates continuingto increase, thehighcostof debtfinancing disincentivizesleveragingup • An extra turn of debt wouldincreasetransactionvalueandslightlylowerbothreturn metrics (MoM & IRR) andequity value • Leverage of 4.0x2022EEBITDA • Interest Rate: SOFR+ 450bps1 • Fees:$2MM • Exit Multiple:11.4x • Target SponsorIRR:20.0% • InvestmentPeriod:5 years • $13MM inM&A, legal, & otherfees $649 11.0x 11.2x 11.4x 11.6x 11.8x 15.0% 743 751 760 768 776 17.5% 686 694 701 708 716 20.0% 636 643 $649 656 663 22.5% 592 598 604 610 616 25.0% 553 558 564 569 575 EBITDA Exit Multiple Sponsor IRR $649 3.0x 3.5x 4.0x 4.5x 5.0x 15.0% 712 736 760 783 807 17.5% 653 677 701 725 749 20.0% 601 625 $649 673 697 22.5% 556 580 604 628 652 25.0% 515 539 564 588 612 Leverage Sponsor IRR Purchase Price 507 Plus: Debt 164 Less: Cash 22 Transaction Value 649 $ Term Loan - A 212 Sponsors Equity 426 Management Roll-Over 47 Sources 686 $ Transaction Value 649 Beginning Cash Balance 22 Transaction Expenses 15 Total Uses 686 $ $0 $200 $400 $600 $800 $1,000 $1,200 $1,400 2022 2023 2024 2025 2026 Debt Equity
  19. 19. StrategicOptions
  20. 20. 20 Potential Strategic Acquirers – Tier A Company Overview Size & Position Rationale Brands Charlotte-basedsupplier of highly engineered equipmentand technologies Enterprise Value: $2.6B # of add-ons: 11 Cash on Hand: $189.8M Debt/EBITDA: 2.2x Has 3previous bolt-onacquisitions forits global HVACsegment. The industry’s attractivegrowthprofile and Talawanda’s potential cost synergies withSPX’s other subsidiariesmakes itastrongfit Medtechcompany whose FabricationTechnology segmentmakes ita leadingglobal supplierof products foruseinsteel and metal welding Enterprise Value: $2.7B # of add-ons: 36 Cash on Hand: $358M Debt/EBITDA: 3.7x With3 previous buy-side investments inindustrialfan companies, Enoviscanvertically integrate Talawandaand further buildoutits air& gas handling platform Source: Bloomberg,Company Websites, PitchBook Note: Dotted lines denote William Blairtransaction BasedinBeloit, WI, Regal operates 170 facilities throughoutthe globeand serves commercial and industrial OEMsacross differentindustries Enterprise Value: $11.4B # of add-ons: 37 Cash on Hand: $702M Debt/EBITDA: 2.18x With37priorbuy-sideinvestments Regal Rexnord has enough capital to supportanaggressiveplatform rolloutplanforTalawandaandcan increaseits exposureto the automotiveaftermarket Industrial conglomerate and manufacturerof electronic deviceswith over220sites globally Enterprise Value: $29.7B # of add-ons: 94 Cash on Hand: $348.7M Debt/EBITDA: 1.9x Ametek’s strategy emphasizes inorganic growththrough acquisitionandhas extensive experiencewithvertically integrating companies andtheir manufacturingcapabilities Minneapolis, MNbased filtrationcompany servingadiverserange of end markets including construction, mining, agriculture, andindustrial Enterprise Value: $6.9B # of add-ons: 26 Cash on Hand: $193.3M Debt/EBITDA: 1.1x With26buy-sideinvestments anda vertically integratedbusiness model, Donaldsoncanbenefitfrom Talawandastreamliningback-end supply chainoperationsand buildingpresenceintheMidwest
  21. 21. 21 Potential Strategic Acquirers – Tier B Company Overview Size & Position Rationale Brands Source: Bloomberg,Company Websites, PitchBook, ZoomInfo Watsco is thelargest distributorof HVAC equipment, parts, and supplies, operating569 locations intheUS, Canada, MX, andPR Enterprise Value: $10.2B # of add-ons: 3 Cash on Hand: $130M Debt/EBITDA: 0.5x Watsco’s strongbalancesheetgives itthe ability to investinany size opportunity andbuildscaleto give Talawandaaccess to new distributionchannels Americanmultinational HVACand security systems services corporationbasedin Palm BeachGardens, FL Enterprise Value: $35.9B # of add-ons: 46 Cash on Hand: $3B Debt/EBITDA: 2.3x With46previous buy-side investments, Carrierhas extensive experienceintegrating companies and cangiveTalawandamore exposureto recessionresistantend markets likesecurity systems Manufacturerof semi- custom HVACequipment forcommercial and residential usewithmore than 1.7M sqftin manufacturingspace Enterprise Value: $3.1B # of add-ons: 3 Cash on Hand: $17.6M Debt/EBITDA: 0.78x Its acquisitionof BASXSolution expanded AAON’s reachinto the Midwest, whichallows foragreater geographic footprintinthe region Ingersoll-Randis the manufacturerof flow control andcompression equipmentwith~40 manufacturingfacilities across theglobe Enterprise Value: $20.5B # of add-ons: 20 Cash on Hand: $1.3B Debt/EBITDA: 3.1x Witha focus oninorganic growth through bolt-onacquisitions, Talawandacanserveas onethat extends Ingersoll’s addressable marketto very closeadjacencies withits airflow companies Sponsor-backedcompany and manufacturerof air filters forhealthcare, industrial, chemical,and food& beverage end markets Revenue: ~$2B # of add-ons: 20 Investors: Sequoia Capital, Babson Capital Management, Madison Industries With28previous buy-side investments, FiltrationGroupcan vertically integrateTalawandainto its airfiltrationplatform
  22. 22. 22 Potential Financial Sponsors – Tier A Firm Overview Size & Criteria Rationale Portfolio Foundedin2018, Arcline has sinceraisedover $4.4B across 3funds that makeinvestments in commercial products and industrial technology Fund Size: $2.8B Relevant Sectors: Commercial Products, Industrial Technology Arclinehas afocus onengineered components business modelsand has madeseveral investments in OEMs acrossdifferentsectors, makingTalawandaagoodfitfor its portfolio Source: Firm Websites, PitchBook Note: Transparency indicatesa legacy investment Foundedin2001and basedinNewYork, Lindsay Goldberghas raisedover$17B in capital across 6funds Fund Size: $3.4B Relevant Sectors: Industrials Lindsay Goldberg’s previous experiencewithBAF can help Talawandarealizesome operational improvements, recruit new management, and supportthe next phaseof Talawanda’s growth BasedinNew York and havingraisedover$6.3B sinceits inception, Odysseyhas afocus on healthcare, industrials, and packagingcompanies Fund Size: $3.2B EBITDA: $20M - $100M Relevant Sectors: Industrial Services & Distribution Odysseyfocusesonleading platforms infragmentedmarkets and deploys abuy-and-build approachto increasegeographic reach, realizecostsynergies, and add complementary productlines Foundedin1966, Warburg Pincus has more than $80B inAUM andis an experiencedpartner to management lookingto builddurablecompanies Fund Size: $15B Dry Powder: $8.2B Relevant Sectors: Industrials Warburg Pincus seeks to take advantage of local andglobal trends withits thesis-driveninvestment approachand has enoughcapital to supportan aggressiveplatform rollout Foundedin1982and withmorethan $19.6B AUM, TJCseeks to build valueforcompanies in the industrials, utilities, and logisticssectors Fund Size: $5B Dry Powder: $3.3B Relevant Sectors: Industrials Withover371add-on acquisitions completedsince2002, TJCcanuse its expertiseto integrate Talawanda and growit to capture additional marketshare
  23. 23. 23 Potential Financial Sponsors – Tier B Foundedin1996and basedinZug, Switzerland, Partners Grouphas since raisedover$131B to investingrowth-stage companies Fund Size: $15B Relevant Sectors: Industrials, Advanced Manufacturing Partners Groupseeks to identify transformativetrends across industry verticalsandto make platform investments incompanies withthe strongestpotential to benefitfrom thosetrends Foundedin1989, AmericanIndustrial Partners focuses on buyingandimproving industrials businesses withoperations inNA Fund Size: $3.0B Revenue: >300M1 EBITDA: Up to $250M Relevant Sectors: Manufacturing, Industrials Witha preferencefor industrials companies thathaveB2B seller relationships andnicheproduct offerings, Talawandacanserveas a platform investmentforair handlingmarkets Source: Firm Websites, PitchBook Note: Dotted lines denote William Blairtransaction (1) American Industrial Partners’minimum revenue fora platform investment Sinceits foundingin1999 Audax Grouphas raised over$32B incapital and has investedover$9B in 150platforms andover 1,050add-oncompanies Fund Size: $1.7B EBITDA: $8M - $50M Relevant Sectors: Industrial Services & Technology Audax looks forcompanieswith marketleadingpositions and sustainablecompetitiveadvantages. Talawandacanbe a great add-on forits buy-and-buildstrategy NS Micro Motor Technology BasedinNewYork, New York and foundedin 1991, KPS has raisedover $13.6B to investin manufacturingand industrials companies Dry Powder: $4.4B Check Size: up to $1B Relevant Sectors: Manufacturing, General Industrials KPS Capital Partners has deep sectorexpertiseinmanufacturing and creates valueby working closely withmanagementteams Foundedin1974and basedinNewYork, Tinicum has raisedover $2.2B to investin engineered products and industrial services sectors Fund Size: $2.3B Relevant Sectors: Industrial Services & Distribution, Engineered Products Withdeep sectorexpertiseinOEM and engineered products, Tinicum closely partners withmanagement teams and seeks to improve operational inefficiencies Firm Overview Size & Criteria Rationale Portfolio
  24. 24. 24 Potential Acquisitions High Priority M&A Targets Segment Industrial Fans Company Description Overview OEM & Niche Manufacturing Manufacturerof custom engineered industrial fans Location: Zelienople, PA Revenue: ~$61M Providerof airand ventilationproducts forcommercial& industrial end markets inCanada Location: Montreal, QC Revenue: ~$26M Wholesale Trade Manufacturerof portableand stationary rotary air compressors Location: MichiganCity,IN Revenue: ~$256M Manufacturerof highly customized HVACRequipment Location: San Diego, CA Revenue:~$6M Manufacturerand distributorof industrial fans for horticultureand foodprocessingend markets Location: Blythewood,SC Revenue: ~$42M Manufacturerof ventilation equipmentfor agricultural and horticulture markets Location: Sauk Rapids, MN Revenue: ~$17M Expanded product offerings and access to fast growing end markets Technical & manufacturing capabilities that can be leveraged across Talawanda Increase exposure to aftermarket and gain new service mixes Cost synergies and increased Midwest reach after transformational acquisition Increased international presence Streamline supply chain through vertical integration Source: Company Websites, ZoomInfo Streamline supply chain with extensive distribution network Margin enhancement opportunities through economies of scope/scale
  25. 25. 25 M&A Market Outlook Air Handling M&A Activity Tailwinds & Headwinds Source: Greenwich Capital Group Proprietary Research, McKinsey, PitchBook, S&P Capital IQ 12.6x 12.1x 10.5x 10.3x 11.3x 10.1x 9.7x 9.8x 10.0x 9.2x 8.9x 8.7x 0.0x 2.0x 4.0x 6.0x 8.0x 10.0x 12.0x 14.0x Median TEV/Revenue Median TEV/EBITDA US Middle Market Index Trading Multiples Commentary • Deal volumeandvaluations havedecreasedfollowingrisinginterestrates, geopoliticalinstability,inflation,andhighcapitalmarkets volatility • Dropinvolumeisbalancedby morevalue creationgivenmore selectivity anddemandforhighqualityassetsfrom buyers • Recentdeal activity ledby strategicacquirers islessfocusedon transformational dealsandmoreonsmallerdealsto buildoutplatforms, fill instrategic marketgaps, anddivestfromnon-coreassetsordivisions • Giventhestrongdemandforresilientandhigh-qualityindustrials companies likeTalawandaWilliam Blairsuggests thatTalawandagoto market in the near term • Goingto marketas soonas possiblereducestimingrisks associatedwithtransactionexecution, changesintaxrates, and futuremultiplecontraction $1.2Tin drypowder asof Q3 2022 Corporate balance sheet strength Portfolio diversification tostave off macroheadwinds Tighteningmonetaryconditions High market volatility& fallingvaluations Geopolitical uncertainty 0 10 20 30 40 50 60 70 2018 2019 2020 2021 2022 # of Transactions Corporate/Strategic Financial Sponsor
  26. 26. 26 Illustrative Process Timeline & Next Steps November 2022 December 2022 January 2023 February 2023 March 2023 Next Steps Dec: Marketing and Initial Bids • Distribute Teaser, CIM, and relevant materials • Prepare management presentation • Host introductory calls • Receive initial bids Jan – Feb: Second Round Bids • Management presentations • Provide data room access • Receive final bids Mar: Negotiation • Evaluate final bids • Negotiate preferred buyer • Complete HSR form Nov: Transaction Planning • Perform sell-side due diligence • Finalize buyer universe and have interviews with select companies • Finalize marketing materials • Prepare data room William Blair Investment Banking Select Transactions NotDisclosed Has been acquired by October 2021 UndisclosedBuyer NotDisclosed Has been acquired by October 2020 UndisclosedBuyer NotDisclosed Has been acquired by October 2019 UndisclosedBuyer NotDisclosed Has been acquired by October 2018 UndisclosedBuyer NotDisclosed Has been acquired by October 2017 UndisclosedBuyer NotDisclosed Has been acquired by October 2016 UndisclosedBuyer Final Recommendation Apr – May: Closing • Receive merger approval from FTC • Financing and closing • Avoidfurther multiple contraction, tax rate changes, and rate increases • Targeted auctionfilters companies to alignwith Talawanda’s terms • Buyers findit imperativeto buy quality assetsthat will helpthem navigateuncertainty • Talawandashould considerstrategics that wouldallownew management to stay • Focus onbuyers with best strategicfits and access to capital • Potential forhigher valuations andafaster saleprocess Go to Market Near-Term Targeted Auction Process Management Transition
  27. 27. Appendix
  28. 28. 28 Financial Statements and WACC Calculation Pre-Tax Cost of Debt 5.00% Corporate Tax Rate 21.0% After-Tax Cost of Debt 4.0% Cost of Debt Calc. Cash Flow Statement 2023P 2024P 2025P 2026P 2027P Net Income 23.7 32.7 36.6 40.9 46.3 Depreciation 7.6 8.3 8.9 9.5 10.2 Less: Change in NWC (0.8) (0.7) 2.1 1.2 1.2 Cash Flow from Operations 30.5 $ 40.2 $ 47.6 $ 51.6 $ 57.7 $ Capital Expenditures (8.6) (9.3) (10.0) (10.7) (11.4) Maintenance Capital Expenditures (5.7) (6.2) (6.7) (7.1) (7.6) Cash Flow from Investing (14.3) $ (15.5) $ (16.7) $ (17.9) $ (19.1) $ Change in Debt (17.1) (16.5) (12.6) (11.4) (10.3) Cash Flow from Financing (17.1) (16.5) (12.6) (11.4) (10.3) Net Change in Cash (0.8) $ 8.3 $ 18.3 $ 22.4 $ 28.3 $ Beginning Cash 22.4 21.6 29.8 48.2 70.5 Ending Cash 21.6 $ 29.8 $ 48.2 $ 70.5 $ 98.9 $ Company Name Adjusted Beta Equity Debt Tax Rate Unlevered Beta Carrier Corporation 1.07 32,923.6 9,403.0 15.8% 0.86 CECO Environmental 1.00 393.3 109.0 38.3% 0.85 Crane Holdings Co. 1.08 5,660.5 1,247.7 31.4% 0.94 Donaldson Company 0.95 7,017.0 692.8 24.1% 0.88 IMI 1.17 3,675.6 1,088.0 15.0% 0.93 Ingersoll-Rand Inc. 1.10 20,800.8 2,796.0 9.2% 0.98 Systemair 1.48 12,168.0 2,849.7 24.5% 1.26 Volution 0.97 609.6 108.0 24.4% 0.86 Talawanda Turbines Unlevered Beta 0.95 Unlevered Beta Calc. Risk Free Rate 4.15% Equity Risk Premium 4.50% Levered Beta 10.15 Size Premium 2.00% Cost of Equity 70.1% Cost of Equity Calc. Risk Free Rate 4.15% Unlevered Beta 0.95 Equity Risk Premium 4.50% Size Premium 2.00% Corporate Tax Rate 21.0% Inputs Unlevered Beta 0.95 Equity 14.30 Debt 176.20 Tax Rate 21.0% Levered Beta 10.15 Capital Structure Income Statement 2020A 2021A 2022E 2023P 2024P 2025P 2026P 2027P Total Revenue 301.0 $ 324.2 $ 350.7 $ 380.1 $ 412.9 $ 444.3 $ 476.2 $ 508.4 $ Total Revenue Growth 7.7% 8.2% 8.4% 8.6% 7.6% 7.2% 6.8% Total Cost of Sales 189.8 $ 205.2 $ 209.7 $ 222.8 $ 237.9 $ 259.8 $ 279.6 $ 299.5 $ Gross Profit 111.3 $ 119.0 $ 141.0 $ 157.3 $ 175.0 $ 184.5 $ 196.7 $ 209.0 $ Total SG&A 77.0 $ 82.1 $ 87.9 $ 94.3 $ 101.4 $ 110.2 $ 118.1 $ 124.6 $ EBITDA 34.3 $ 36.9 $ 53.1 $ 63.0 $ 73.5 $ 74.3 $ 78.6 $ 84.4 $ EBITDA Margin 11.4% 11.4% 15.1% 16.6% 17.8% 16.7% 16.5% 16.6% Total Depreciation 6.0 $ 6.5 $ 7.0 $ 7.6 $ 8.3 $ 8.9 $ 9.5 $ 10.2 $ Amortization 18.1 17.8 17.5 17.1 16.5 12.6 11.4 10.3 Total D&A 24.1 $ 24.3 $ 24.6 $ 24.7 $ 24.8 $ 21.5 $ 20.9 $ 20.4 $ Total Capex 11.3 $ 12.2 $ 13.2 $ 14.3 $ 15.5 $ 16.7 $ 17.9 $ 19.1 $ EBIT - Operating Income $10.2 $12.6 $28.5 $38.3 $48.8 $52.8 $57.7 $63.9 EBIT Margin 3.4% 3.9% 8.1% 10.1% 11.8% 11.9% 12.1% 12.6% Interest Expense (Income) - - - 8.2 7.3 6.5 5.9 5.3 Pre-Tax Income $10.2 $12.6 $28.5 $30.1 $41.4 $46.3 $51.8 $58.6 Tax Expense 2.1 2.6 6.0 6.3 8.7 9.7 10.9 12.3 Net Income 8.1 $ 10.0 $ 22.5 $ 23.7 $ 32.7 $ 36.6 $ 40.9 $ 46.3 $ Financial Statements WACC Calculation Market Value of Debt % Total 92.49% Cost of Debt 3.95% Market Value of Equity % Total 7.5% Cost of Equity 70.1% WACC 8.92% WACC Calculation

×