1. © Grant Thornton LLP. A Canadian Member of Grant Thornton International. All rights reserved. Generating liquidity- Transaction options for mid-market companies faced with succession challenges Greg Williamson, CA, CBV Partner, Corporate Finance Grant Thornton LLP T +1 604 443 2103 E Greg.Williamson@ca.gt.com Greg Wright, MAppFin Director, Mergers & Acquisitions Grant Thornton Corporate Finance Inc. T +1 604 443 2166 E Greg.Wright@ca.gt.com

2. © Grant Thornton LLP. A Canadian Member of Grant Thornton International. All rights reserved. Introduction Our topic – generating liquidity When business owners conclude that succession within the family is not their best course, what are their options and how do they go about examining them? Is the goal generating maximum value, retaining control, implementing a growth strategy, protecting their employees or preserving the corporate legacy? Generating shareholder liquidity can be about the sale of the business, but there are other options available. Shareholders, and the management teams that support them, should understand how these options can converge with both shareholder and corporate objectives. Greg Williamson CA, CBV and Greg Wright, MAppFin discuss the transaction options available, their pros and cons, and some of the valuation and capital structure considerations that accompany them. 2

3. © Grant Thornton LLP. A Canadian Member of Grant Thornton International. All rights reserved. Introduction Our perspective Grant Thornton Corporate Finance National practice Grant Thornton's international network Focus –Mid-market –Private company –Manufacturing & Distribution Full corporate finance capability (i.e. M&A, valuations, due diligence) in Vancouver 3

4. © Grant Thornton LLP. A Canadian Member of Grant Thornton International. All rights reserved. Agenda What are your transaction options? Planning – corporate and shareholder goals Understanding the corporate sale process Local perspective Questions and discussion 4

5. © Grant Thornton LLP. A Canadian Member of Grant Thornton International. All rights reserved. Exit - your options explained What are our options? Pass to the next generation Sale to employees Management buy in/out 5 Issues: Succession planning Agreeing a fair value Funding the transfer Optimizing value Finding the right partner / purchaser Loss of control Costs and risks Timing Outcomes vs. objectives IPO Leveraged recapitalization Private equity Trade sale including merger

6. © Grant Thornton LLP. A Canadian Member of Grant Thornton International. All rights reserved. Exit – your options explained MBO and its variations There are different variations including: leveraged buy-out (LBO), buyer/vendor initiated management buy-out (BIMBO/VIMBO), or the management buy-in (MBI) 6 ProsCons Limited due diligence usually necessary Management has less access to capital (effect on price/terms) Rewards management for their historical support of the business Vendor take back likely Protects legacy and business independence Failed attempt can affect business morale and performance The sale of shares to the existing management team. This sale is usually financed via a combination of vendor take-back, private equity, and/or debt.

7. © Grant Thornton LLP. A Canadian Member of Grant Thornton International. All rights reserved. Exit – your options explained Initial public offering (IPO) The first sale and issuance of shares in a private company on a public stock exchange 7 ProsCons Raise corporate profileFull and continuous disclosure Liquidity and ability to use scrip for acquisitions Significant compliance, investor relations, transfer agent and exchange costs Access to capital marketsAffected by public market volatility IPO is not a viable option for most mid-market private businesses unless they are high growth (e.g. tech, pharma, resources) and need equity capital to execute

8. © Grant Thornton LLP. A Canadian Member of Grant Thornton International. All rights reserved. Exit – your options explained Leveraged recapitalization (aka the equity strip) A change of the capital structure of a company, to substitute debt for equity 8 ProsCons Retain controlAdditional reporting Can be tax efficientEncumbering assets with security Generates liquidity with prospect of full exit or business retention Debt service effect on cash flow The leverage recap is generally accomplished by borrowing a combination of senior and sub or mezzanine debt and declaring a dividend for shareholders

9. © Grant Thornton LLP. A Canadian Member of Grant Thornton International. All rights reserved. Exit – your options explained Private equity 9 The sale and/or issuance of shares to a financial investor, usually a company managing an institutional pool of capital ProsCons Retain operational control and in some cases, board and voting Loss of control Access to additional capital for organic expansion and/or acquisition Future misalignment of interests when the investor needs to exit Benefit of experience (corporate development, banking, past executives, and portfolio synergy) Reporting to outside stakeholders Private equity route is ideal for a business initiating a growth period as it gives shareholders the ability to generate liquidity and participate in future upside

10. © Grant Thornton LLP. A Canadian Member of Grant Thornton International. All rights reserved. Exit – your options explained Trade sale (aka strategic sale) including merger The sale and/or issuance of shares to a strategic investor, usually a company already operating in the target company's sector 10 ProsCons Buyer has synergy value that can improve pricing and terms Loss of control Full exit opportunityPotential employee rationalization Can solve management succession issues Disclosure in due diligence to competitor carries higher risk The strategic sale is ideal for shareholders looking to generate a clean exit and the highest possible value

11. © Grant Thornton LLP. A Canadian Member of Grant Thornton International. All rights reserved. Planning What makes a company attractive to investors? Profitability Management Growth story Product/service differentiation Industry position (defensible barriers to entry) Comprehensive business plan and a track record of implementation Strategic/synergistic benefits 11

12. © Grant Thornton LLP. A Canadian Member of Grant Thornton International. All rights reserved. Planning Company perspective What are the corporate objectives? –Is the succession of ownership affecting commercial negotiations with customers or suppliers? –Where are we in the business' growth cycle (i.e. growing or sustaining?) –Is there a need for expansion or sustaining capital along with the need to generate liquidity for exiting shareholders? –Where are the succession gaps in our management team? 12

13. © Grant Thornton LLP. A Canadian Member of Grant Thornton International. All rights reserved. Planning Shareholder perspective What are the shareholder's personal objectives? –Are the interests of all shareholders aligned? –Is the goal continued ownership or a planned exit? –Is looking after employees a priority? –Is the goal to take some money off the table or fully fund retirement? –Is the diversification of risk away from the business important? –Are there shareholders playing a role in management? Who's going to take on that role post-transaction? –Is the capital needed personally? Along what timeline? –How will the capital be invested outside of the business? –What are the personal tax implications and how could a transaction be best structured to be tax efficient? 13

14. © Grant Thornton LLP. A Canadian Member of Grant Thornton International. All rights reserved. Planning CAPEX – this is important for M&D businesses How do we time major expenditures with our corporate and shareholder objectives? –Is it growth or sustaining CAPEX? –What is the payback timeline? –How does this fit in with our exit timeline? –Will lit improve revenue or profitability in time for the exit? –How does the related financing affect equity value for our shareholders? 14

15. © Grant Thornton LLP. A Canadian Member of Grant Thornton International. All rights reserved. The corporate sales process Brief overview 15

16. © Grant Thornton LLP. A Canadian Member of Grant Thornton International. All rights reserved. The corporate sales process Brief overview – a legible version Phase I – Preparation –Information gathering –Preparing the confidential information memorandum (CIM) –Preparing the information summary (teaser) –Establishing the tax strategies Phase II – Identification of purchasers and initial approach –Establish long list of prospective purchasers/investors –Select short list of target purchasers –Preliminary contact with short list (teaser) 16

17. © Grant Thornton LLP. A Canadian Member of Grant Thornton International. All rights reserved. The corporate sales process Brief overview – a legible version (cont'd) Phase III – Solicitation of non-binding indicative offers –Prepare confidentiality agreements (CAs) with selected parties –Issue CIM to selected parties –Prepare electronic data room –Issue instructions and guidance on non-binding indicative offer –Review offers received Phase IV – Short list –Agree on short list –Issue instructions and guidance on binding letter of intent –Exploratory due diligence (Q&A and data room) –Management presentation 17

18. © Grant Thornton LLP. A Canadian Member of Grant Thornton International. All rights reserved. The corporate sales process Brief overview – a legible version (cont'd) Phase V– Solicitation of binding LOIs and selection of buyer –Receive binding LOI –Assess and negotiate binding LOI –Select and confirm exclusivity Phase V – Closing the transaction –Prepare and negotiate draft purchase agreement and other transaction documentation –Confirmatory due diligence –Regulatory and other third party approvals –Finalize purchase agreement and supporting documentation –Close transaction 18

19. © Grant Thornton LLP. A Canadian Member of Grant Thornton International. All rights reserved. Local perspective Business cases Recent closed transactions –Five sell-side transactions close in Vancouver last year –Distressed sale of resort business completed recently (close pending) Five active divestitures presently at different stages Active due diligence practice conducting independent assessments for acquisitive buyers The slant towards divestiture work in M&A is driven by the aging population Both private equity and strategic buyers are active and paying premiums for good businesses with scale 19

20. © Grant Thornton LLP. A Canadian Member of Grant Thornton International. All rights reserved. Questions and discussion 20 Thank-you!