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TRANSCRIPT
DISCUSSION OF US M&A AND
FINANCING TRENDS
PRESENTED TO:
APRIL 19, 2016
TABLE OF CONTENTS
I. US M&A Activity and Trends
II. US M&A Financing Trends
III. Middle Market Lender Environment
LEADING MIDWEST BANKING FRANCHISE
1 – Period end as of September 30, 2015; Loan pie chart excludes $0.4 billion installment and credit card portfolio2 – Includes Missouri, Indiana, Ohio, Michigan and Iowa
18611999
2006
1987
2011 2011
2012
Deposits
> $2 billion
> $1 billion
> $300 million
Associated Bank has over 200 banking locations serving more than 100 communities throughout Wisconsin, Illinois and Minnesota with commercial financial services offices in Indiana, Michigan, Missouri, Ohio and Texas.
WI37%
IL24%
MN12%
In Footprint
11%
Other16%
Third Quarter 20151
WI66%
IL27%
MN7%
Deposits
$20.6 billion
Loans
$18.5 billion
2
2
ASSOCIATED PROFILE
As of December 31, 2015, Associated Banc-Corp (NYSE: ASB) is one of the TOP 50,
publicly traded, U.S. bank holding companies and the parent of Associated Bank,
National Association:
Associated is known for its STRONG RELATIONSHIPS with the customers and
communities it serves:
Assets
$27.7 Billion
Loans
$18.7 Billion
Deposits
$21 Billion
Market Capitalization
$2.8 Billion
Employees
4,400Customers
1 Million
3
CREDIT RATINGS OF LEADING BANKS
Associated Bank, National Association Enjoys a Strong Credit Rating
Leading Banks in the
Midwest
Moody’s
Long-Term Rating
U.S. Bank Aa1
Wells Fargo Bank Aa1
JPMorgan Chase Bank Aa2
PNC Bank Aa2
Comerica Bank Aa3
FirstMerit Bank Aa3
Fifth Third Bank Aa3
Bank of America A1
Citibank A1
Associated Bank A1
TCF Bank A2
First Midwest Bank A2
Johnson Bank Not Rated
MB Financial Bank Not Rated
PrivateBank Not Rated
Wintrust Not Rated
Anchor Bank (ABCW) Not Rated
Source: SNL Financial, October 2015
US Bank, Wells Fargo
JP Morgan, PNC
Comerica, FirstMerit, Fifth Third
Associated Bank, Bank of America, Citibank
TCF, First Midwest
Johnson, MB Financial, Private Bank, Wintrust, Anchor Bank
Aa1
Aa2
Aa3
A1
A2
N/R
4
Corporate and
Specialized
Lending
Consumer and
Business
Banking
Private Client
and Institutional
Services
Commercial
Real Estate
Lending
Private Banking
Personal Trust
Asset Management
Retirement Plan
Services
Associated
Financial Group
Associated
Investment
Services
Community
Markets
Branch Banking
Commercial
Banking
Residential
Lending
Payments and
Direct Channels
Corporate
Commercial and
Specialized
Lending
Commercial
Deposits and
Treasury
Management
Capital Markets
Community, Consumer, and Business Corporate and Commercial
Specialty
Rochester, MN
Eau Claire, WI
La Crosse, WI
Central Wisconsin
Rockford, IL
Peoria, IL
Southern Illinois
CRE Lending
Real Estate
Investment Trusts
CRE Syndications
CRE Tax Credits
FULL RANGE OF FINANCIAL PRODUCTS &
SERVICES
5
I. US M&A ACTIVITY AND TRENDS
I. US M&A ACTIVITY AND TRENDS
GLOBAL M&A VOLUMEGlobal M&A Deal Activity
Source: Thomson Reuters 8
$0
$500
$1,000
$1,500
$2,000
$2,500
$3,000
$3,500
$4,000
$4,500
$5,000
200
4
200
5
200
6
200
7
200
8
200
9
201
0
201
1
201
2
201
3
201
4
201
5
M&
A d
ea
l a
cti
vit
y
($B
ln)
US Americas (ex. US) Europe Asia Pacific Japan Africa/Middle East
• Global M&A deal activity surpassed $4.5 trillion in 2015, up 42% from 2014 levels.
• US M&A deal activity totaled more than $2.3 trillion, up 64% from 2014 levels.
US M&A PREMIUM TRENDS
9
Average Premium for US Transactions
• Historical takeover premiums in the US have ranged from 20-40%.
Source: Bloomberg
15.0%
20.0%
25.0%
30.0%
35.0%
40.0%
45.0%
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
14
20
15
Av
era
ge
Pre
miu
m
US M&A MULTIPLE TRENDS
10
Median Deal Multiples for US Transactions
• Recent transaction multiples in the US troughed in 2009 but have rebounded significantly in 2015.
• Data quality is imperfect but trend is directionally accurate.
Source: Bloomberg
7.5x
12.5x
17.5x
22.5x
27.5x
32.5x
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
14
20
15
Me
dia
n T
ran
sa
cti
on
Mu
ltip
les
(x
:1)
Net Income EBITDA
US M&A DEAL TRENDS AND DRIVERS
11
Trends
• Record high deal flow and volume in 2015.
• Increase in number of very large transactions in 2015.
• Companies have repaired balance sheets and optimized shareholder payout.
– Considering investment opportunities (both organic and M&A).
• Increasing transaction multiples.
• Increased stock market volatility.
Drivers
• High corporate cash balances.
• Historically-low interest rates.
• Low-growth environment with economic statistics mixed to benign.
• Shareholder activism.
• Tax efficiency strategies.
• High dollar, low oil may reflect diminishing global growth.
Source: Ramirez & Co.
II. US M&A FINANCING TRENDS
US M&A AND M&A RELATED LENDINGUS M&A and M&A Lending Activity
Source: Thomson Reuters 13
• Aggregate US M&A related lending totaled $546 billion in 2015, up ~20% from 2014.
$0
$400
$800
$1,200
$1,600
$2,000
$2,400
200
6
200
7
200
8
200
9
201
0
201
1
201
2
201
3
201
4
201
5
M&
A D
ea
l a
nd
Lo
an
Vo
lum
e($
bln
)
M&A-related loans M&A deal activity
Sr.
Unsecured
Bond
Sr. Secured Loan
GENERAL FINANCING STRUCTURE BY MARKET
14Source: Thomson Reuters LPC
Investment grade market
• Loans to companies rated >= BBB-/Baa3 AND
with a relatively low LIBOR spread
• Loan is usually unsecured and ranked pari
passu with bonds
Sr.
Unsecured
Loan
Equity
Capital
Structure
Leveraged market
• Loans to companies rated <= BB+/Ba1 or
unrated AND a relatively higher LIBOR spread
• Loan is usually secured and ranked senior to all
other debt in the capital structure Equity
Sub. Unsecured BondCapital
Structure
Sr. Secured Loan
Equity
Sub. Debt – Mezzanine,
2nd Lien, etc.
Capital
Structure
Middle market
• Generally defined by Reuters as loans to companies with revenue and bank facility <=$500MM
• Loan is usually secured and ranked senior to all other debt in the capital structure
US INVESTMENT GRADE BRIDGE LOAN VOLUMEUS Investment Grade Bridge Loan Issuance
Source: Thomson Reuters LPC 15
• US investment grade bridge loan issuance set a record in 2015 with $135 billion of volume.
• Aggregate investment grade M&A related issuance totaled $181 billion in 2015.
0
5
10
15
20
25
30
$0
$20
$40
$60
$80
$100
$120
$140
$160
200
6
200
7
200
8
200
9
201
0
201
1
201
2
201
3
201
4
201
5
# o
f d
ea
ls
US
IG
bri
dg
e lo
an
is
su
an
ce
($ b
ln)
Volume ($B.) No. of Deals
US LEVERAGED LOAN M&A ISSUANCEUS M&A Leveraged Loan Issuance
Source: Thomson Reuters LPC 16
• M&A leveraged loan volume continued to grow in 2015, posting its second highest year ever.
• Non-LBO issuance was up 49%, while LBO activity fell 22%.
• During 2015, private equity firms faced stiff competition from strategic buyers for assets.
$0
$50
$100
$150
$200
$250
$300
$350
$400
200
6
200
7
200
8
200
9
201
0
201
1
201
2
201
3
201
4
201
5
M&
A l
eve
rag
ed
lo
an
is
su
an
ce
($
bln
)
LBOs Non-LBO
MIDDLE MARKET NON-SPONSORED M&A
Source: Thomson Reuters LPC 17
• M&A activity totaled $9.2 billion in 2015, down 25% from 2014.
US Middle Market Non-Sponsored M&A Activity
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
20%
$0
$5
$10
$15
$20
$25
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
14
20
15
M&
A %
of
To
tal
No
n-S
po
ns
ore
d M
&A
Vo
l ($
bln
) M&A Vol M&A % of Total
MIDDLE MARKET SPONSORED M&A
Source: Thomson Reuters LPC 18
• 2015 LBO volume totaled $18.9 billion (38% of sponsored issuance), an 8% drop from 2014.
• Secondary buyouts represented 43% of the total LBO volume in 2015, up from 36% in 2014.
US Middle Market Sponsored LBO Activity
0%
10%
20%
30%
40%
50%
60%
$0
$5
$10
$15
$20
$25
$30
$35
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
14
20
15
LB
O %
of
To
tal
Sp
on
so
red
LB
O V
olu
me
($
bln
)
LBO Vol LBO % of Total
LBO TRENDS IN SPONSORED MIDDLE MARKET
Source: Thomson Reuters LPC 19
• Elevated regulatory pressure to more closely adhere to the leveraged lending guidance has impacted market activity,
especially in the large corporate space.
• Average leverage for large corporate LBOs dropped from 6.55x in 2014 to 5.96x in 2015.
• The middle market has been less affected but has been more conservative historically.
Debt/EBITDA: Middle Market vs. Broadly Syndicated
2.50
3.50
4.50
5.50
6.50
7.50
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
14
20
15
LB
O D
eb
t to
EB
ITD
A (
x:1
)
Institutional Middle Market Broadly Syndicated Market
LBO TRENDS IN SPONSORED MIDDLE MARKET
Source: Thomson Reuters LPC 20
• Average equity contributions for large corporate LBOs continued to climb into the high 30% area (38.6%) in 2015.
• Middle market LBO equity contributions ticked up to 45.9% in 2015.
Equity Portion: Middle Market vs. Broadly Syndicated
25.0%
30.0%
35.0%
40.0%
45.0%
50.0%
55.0%
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
14
20
15
LB
O E
qu
ity
Co
ntr
ibu
tio
n
Institutional Middle Market Broadly Syndicated Market
LBO TRENDS IN SPONSORED MIDDLE MARKET
Source: Thomson Reuters LPC 21
• The middle market has been more conservative historically when it comes to leverage.
• Leverage increased in 2015 to 4.5x first lien / 5.7x total from 4.3x/5.4x in 2014.
Middle Market LBO Debt and Equity Contribution
25%
30%
35%
40%
45%
50%
55%
0.0
1.0
2.0
3.0
4.0
5.0
6.0
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
14
20
15
US
MM
LB
O E
qu
ity
Co
ntr
ibu
tio
n
US
MM
LB
O D
eb
t to
EB
ITD
A (
x:1
) 1st-Lien Debt Total Debt Equity Contrib.
III. MIDDLE MARKET LENDER ENVIRONMENT
MIDDLE MARKET LENDER LANDSCAPEInvolved Parties Transaction Permutations
23
• All Bank Senior
• Stretch Senior or First Out / Last Out
• Bank / Mezzanine
• Bank / Institutional 1st Lien
• Bank / Institutional 1st Lien / Institutional 2nd Lien
• Unitranche
• Regulated Banks
• Non-Regulated FinCos
• CLOs (Collateralized Loan Obligations)
• Insurance Companies
• Retail Loan Funds
• BDCs (Business Development Companies)
• Private Equity Funds
• Mezzanine Funds
• Hedge Funds & Credit Opportunity Funds
Financing Considerations and Tradeoffs
• Relationship and historical experience
• Risk and leverage tolerance
• Certainty of execution
• Investor approach – buy and hold vs. desire for liquidity
• Flexibility (covenants, documentation, etc.)
• All-in cost
• Intercreditor matters
US CLO ASSETS UNDER MANAGEMENTUS CLO Assets Under Management
Source: Thomson Reuters LPC 24
• US CLO assets under management is now at $423 billion
500
550
600
650
700
750
800
850
900
950
1,000
1,050
1,100
$0.0
$50.0
$100.0
$150.0
$200.0
$250.0
$300.0
$350.0
$400.0
$450.0
Ja
n-1
3
Ma
r-13
Ma
y-1
3
Ju
l-1
3
Sep
-13
No
v-1
3
Ja
n-1
4
Ma
r-14
Ma
y-1
4
Ju
l-1
4
Sep
-14
No
v-1
4
Ja
n-1
5
Ma
r-15
Ma
y-1
5
Ju
l-1
5
Sep
-15
No
v-1
5
Ja
n-1
6
Nu
mb
er
of
CL
Os
CL
O A
gg
reg
ate
Pri
nc
ipa
l B
ala
nc
e
($ B
ln)
CLO APB Number of CLOs in sample
US LOAN FUNDS UNDER MANAGEMENTUS Mutual Funds and ETFs - Assets Under Management
25
• Loan mutual fund & ETF assets under management continue to decline as outflows continued and asset values fell.
• Total assets under management stand at $107 billion, the lowest level since February 2013.
$0.0
$20.0
$40.0
$60.0
$80.0
$100.0
$120.0
$140.0
$160.0
$180.0
$200.0
Ja
n-1
3
Ma
r-13
Ma
y-1
3
Ju
l-1
3
Sep
-13
Nov-1
3
Ja
n-1
4
Ma
r-14
Ma
y-1
4
Ju
l-1
4
Sep
-14
Nov-1
4
Ja
n-1
5
Ma
r-15
Ma
y-1
5
Ju
l-1
5
Sep
-15
Nov-1
5
Ja
n-1
6
Lo
an
Mu
tua
l F
un
d &
ET
F A
UM
($
Bln
)
Source: Thomson Reuters LPC, Lipper
CLO ISSUANCE AND LOAN FUND FLOWSMonthly CLO Issuance and Loan Fund Flows
Source: Thomson Reuters LPC, Wells Fargo, Lipper 26
• US CLO issuance is off to a slow start in 2016. Volume was $2.1 billion in February, up from $826 million in January.
• Meanwhile, loan funds saw another $2.5 billion of outflows in February, the seventh straight month of outflows.
-$8.0
-$6.0
-$4.0
-$2.0
$0.0
$2.0
$4.0
$6.0
$8.0
$10.0
$12.0
$14.0
$16.0
$18.0
$20.0Ja
n-1
3
Ma
r-13
Ma
y-1
3
Ju
l-1
3
Sep
-13
Nov-1
3
Ja
n-1
4
Ma
r-14
Ma
y-1
4
Ju
l-1
4
Sep
-14
Nov-1
4
Ja
n-1
5
Ma
r-15
Ma
y-1
5
Ju
l-1
5
Sep
-15
No
v-1
5
Ja
n-1
6
$ B
ln
CLO Issuance Loan fund flows
INVESTOR SHARE OF INSTITUTIONAL LOANSShare of Institutional Loan Balances by Investor Type
Source: Thomson Reuters LPC, Lipper 27
• The CLO share of institutional loan balances is roughly 50%.
• Loan mutual funds & ETF market share is down to 12% following consistent outflows.
10%
15%
20%
25%
30%
35%
40%
45%
50%
55%
Ja
n-1
3
Ma
r-13
Ma
y-1
3
Ju
l-1
3
Sep
-13
Nov-1
3
Ja
n-1
4
Ma
r-14
Ma
y-1
4
Ju
l-1
4
Sep
-14
Nov-1
4
Ja
n-1
5
Ma
r-15
Ma
y-1
5
Ju
l-1
5
Sep
-15
Nov-1
5
Ja
n-1
6
Inve
sto
r s
ha
re o
f in
sti
tuti
on
al lo
an
o
uts
tan
din
gs
(%
)
CLOs Loan Funds Other
US BDC PORTFOLIO BALANCESEstimated BDC Portfolio Balances
28
• Estimated BDC portfolio balances stand at $87 billion as of 4Q 2015.
Source: Wells Fargo Securities
$0.0
$10.0
$20.0
$30.0
$40.0
$50.0
$60.0
$70.0
$80.01
Q0
6
2Q
06
3Q
06
4Q
06
1Q
07
2Q
07
3Q
07
4Q
07
1Q
08
2Q
08
3Q
08
4Q
08
1Q
09
2Q
09
3Q
09
4Q
09
1Q
10
2Q
10
3Q
10
4Q
10
1Q
11
2Q
11
3Q
11
4Q
11
1Q
12
2Q
12
3Q
12
4Q
12
1Q
13
2Q
13
3Q
13
4Q
13
1Q
14
2Q
14
3Q
14
4Q
14
1Q
15
2Q
15
3Q
15
4Q
15
$ B
ln
PRODUCTS AND SERVICES. Associated Bank and affiliates offer a variety of products and services, some of which are in this
presentation. Such products and services are subject to applicable underlying agreements for such products and services. These
disclosures are intended to supplement underlying product and service agreements and such underlying product and service
agreements control in cases of conflicting provisions. Not all products and services are available in all geographic areas and the
terms and fees of such products and services may vary by geographic region. Product information is subject to change without
notice. Your eligibility for products and services is subject to review and acceptance by the Associated affiliate providing such
products or services.
Deposit and loan products are offered by Associated Bank, N.A. Associated Bank, N.A. is an affiliate of Associated Banc-Corp.
Associated Bank, N.A. is a Member FDIC, an Equal Housing Lender and an Equal Opportunity Lender. Loan products are subject
to credit approval and involve interest and other costs. Please ask about details on fees, conditions and terms of these products.
***Non-deposit investment products are NOT deposits or obligations of, insured or guaranteed by Associated Bank, N.A. or any
bank or affiliate, are NOT insured by the FDIC or any agency of the United States, and involve INVESTMENT RISK, including
POSSIBLE LOSS OF VALUE.
SECURITIES AND ADVISORY SERVICES (OTHER THAN THOSE PROVIDED BY REPRESENTATIVES OF ASSOCIATED
FINANCIAL GROUP, LLC) ARE OFFERED BY ASSOCIATED INVESTMENT SERVICES, INC (“AIS”) , member FINRA and
SIPC, d/b/a Associated Investment Services Group in Minnesota. • Insurance products are offered by licensed agents of
Associated Financial Group, LLC (“AFG”). • SECURITIES AND ADVISORY SERVICES PROVIDED BY REPRESENTATIVES
OF AFG ARE OFFERED BY LPL FINANCIAL , member FINRA and SIPC. • Investment management services are provided by
representatives of AFG through Financial Resource Management Group, Inc. d/b/a AFG Financial Services ("FRMG”). • Fiduciary,
administrative, and planning services are provided by Associated Trust Company, N.A. (“ATC”). Investment management
services are provided to ATC by Kellogg Asset Management, LLC ® (“KAM”), an SEC-registered investment adviser. • Securities
and insurance products are offered are NOT deposits or obligations of, insured or guaranteed by Associated Banc-Corp
(“AB-C”) or any bank or affiliate, are NOT insured by the FDIC or any agency of the United States, and involve
INVESTMENT RISK, including POSSIBLE LOSS OF VALUE . • Advisory services may not be available in all locations. • AIS,
AFG, FRMG, ATC and KAM are all affiliates of AB-C. • LPL is NOT an affiliate of AB-C.
Associated Private Client Services, Associated Institutional Trust Services, and HR Solutions are marketing names AB-C uses for
products and services offered by Associated Bank, ATC, KAM and AFG.
Associated Merchant Services is a contractual alliance between Associated Bank N.A. (AB) and First Data Merchant Service
Corporation.
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DISCLOSURES