Technology industry review Q1-2008; RSM EquiCo Capital Markets

Internet Software

M&A Activity in Gaming Software Industry Heats Up

• Premiere Entertainment Productions Inc. acquires online gaming capabilities by purchasing Digiwave Solutions Inc.
• Electronic Arts Inc. announces acquisition of Take-Two Interactive Software Inc. for its interactive gaming capabilities
• 360 Holding AB announces acquisition of Pokerstaker Ltd. for its online poker offerings
• SoundBite Communications Inc. acquires Mobile Collect Inc. for its e-gaming software offerings
• PEIC Acquisition Corp. announces acquisition of Parlay Entertainment Inc. for its Internet-based gaming and entertainment software

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Rubber & Plastics industry review Q1-2008; RSM EquiCo Capital Markets

Outlook for Commodity Resins

Commodity resin prices are off to a tumultuous start in 2008, with prices for polyethylene (PE), polypropylene (PP) and PET seeing recent drops and PVC stubbornly holding on to gains. Softer-than-expected demand and slow export business led to declines in PE prices, causing manufacturer margins to increase, which in turn led PE buyers to seek lower prices from their suppliers. The decline in exports has left North American manufacturers pleasantly surprised at how well domestic demand has held up in early 2008. PP and PE (especially HDPE) continue to benefit from the soft value of the U.S. dollar, which has effectively made the U.S. a low-cost supplier of those resins. After some difficult production and consolidation decisions made in 2007, the remaining resin producers are intent on rebuilding margins. By reducing overall capacity, forecasting resin production to better track fluctuating demand should become easier and eventually place pricing power solidly back in the hands of producers. Current expectations are that resin prices will average 5-10 percent higher in 2008 than in 2007. Read complete report.

Recreation & Leisure industry review Q1-2008; RSM EquiCo Capital Markets

Key Trends

The recent economic slowdown has negatively impacted many industries, including recreation and leisure. U.S. economic growth was nearly flat during the last three months of 2007, according to the U.S. Commerce Dept. Also, consumer confidence sank to a five-year low in March as tight credit markets, rising prices and worsening job prospects deepened worries that the economy has fallen into recession. Several sectors of the $115 billion sports and recreational products industry have been affected by the slowdown in demand, particularly higher priced products like pleasure boats and RVs - not surprising in light of the squeezing of discretionary income. However, several sectors have been bright spots, including those tied to outdoor activities such as golfing and bicycling, as well as health and fitness. The following describes recent news and outlook in these three sectors. Read complete report.

Healthcare industry review Q1-2008; RSM EquiCo Capital Markets

Healthcare Consumerism on the Rise

Educated healthcare consumers are beginning to realize differences in the performance of healthcare plans and providers. Concurrently, there are a number of useful consumer tools, mostly Internet-based information sources, that are enabling these consumers to become more engaged in their healthcare decisions and purchases. In 2008, this consumerism movement will challenge health plans to develop innovative and affordable insurance products that encourage personal accountability. Consumer directed health plans (CDHPs) have been the standard bearers of this movement. These plans, which typically feature high deductibles and consumer-controlled savings accounts, are designed to increase consumer awareness about healthcare costs and provide incentives for consumers to consider costs when making healthcare decisions. Recent studies by PricewaterhouseCoopers show a lower medical cost trend in these plans, which is expected to result in increased adoption by employers and employees. Additionally, certain tax advantages received by CDHPs have led to an increase in their popularity. Though only 4 percent of the commercially insured population is currently enrolled in CDHPs, the market share of these plans is expected to triple by the end of 2008. Read complete report.

Government Services industry review Q1-2008; RSM EquiCo Capital Markets

Key Topic: The Defense Department's Reset Program

Since the onset of major military operations in Afghanistan and Iraq, in-theater systems and equipment have been deteriorating at rates far exceeding normal peacetime levels. The Army maintains that increased operating tempos and harsh conditions in the theater are causing its equipment to wear out prematurely. In general, the Army's major systems and equipment are operating at rates that exceed sometimes by factors of five or six their average operating rates in peacetime.

In response, the Defense Department has instituted and funded programs specifically to combat the deterioration and loss of these systems and equipment. From 2003 through April 2008, the Army alone will have spent over $55 billion to compensate for deterioration and loss of in-theater systems and equipment as shown above. Furthermore, department-wide spendingmay be as high as $92 billion over the same time period based on Congressional Budget Office estimates. Read complete report.

Global Financial Services industry review Q1-2008; RSM EquiCo Capital Markets

Data Processing Services
Follow the Money, All the Way to the Bank

Operating under the stress of a highly “transaction-oriented” environment, the global financial services industry (banking, financial and insurance companies) continues to have a significant impact on business process industry growth. Not only are financial services companies aggressive and demanding users of business services; they also are major stakeholders through their ownership positions in seven of the top 10 business service providers, asserting their powerful influence on new products and services, e-commerce settlements and the lucrative financial relationships needed by every business client. Read complete report.

Food & Beverage industry review Q1-2008; RSM EquiCo Capital Markets

Flavors Influencing Demand

Taste, convenience and health continue to be the primary drivers of food choices. In 2008, growing popularity of ethnic food is expected to drive demand for food flavors. Greek, Lasian (Latin and Asian fusion), Korean, Cuban and Japanese food are expected to become more mainstream. In 2008, “sensory irritants” like peppercorns that stimulate aging Baby Boomers' palates are expected to become increasing popular. Flavors crossing categories will be popular as well, with coffee, pomegranate and wasabi leading the way. Drinkable and bite-sized desserts, and cheese as a dessert are among those predicted to be the next fads. (Source: Packaged Facts, 2008) Read complete report.

Energy Services industry review Q1-2008; RSM EquiCo Capital Markets

M&A Q1 Review and Outlook - Oilfield Services

Overall M&A deal volume in the oilfield services sector declined in the first quarter of 2008 as the global credit markets tightened up and leverage became sparse. A closer look at the data reveals a bifurcated market, with the so-called “mega-deals” (over $1 billion in transaction value) experiencing a substantial slowdown, while the middle market and especially the emerging middle market (deals under $100 million) are continuing a strong deal pace. In Q1 2008, 54 deals were closed in the sector, compared with 88 during the same period a year ago, a 39 percent decline. Total deal value declined to $6.2 billion in Q1 2008, compared to $12.8 billion in Q1 2007, as smaller deals captured a larger share of deal volume. Average valuation multiples also declined, from 16.1x EV/EBITDA in Q1 2007 to 11.6x EV/EBITDA in Q1 2008, as a result of credit market conditions and smaller average deal sizes. Read complete report.

Engineering, Construction & Building Materials industry review Q1-2008; RSM EquiCo Capital Markets

2008 Industry Outlook

We are cautiously optimistic about companies that serve the commercial market, which we expect to grow, albeit at a decelerating pace. Meanwhile, we expect infrastructure construction to grow in 2008 due to increased highway funding, with a continuing favorable pricing outlook. E&C companies with improved cash flows will accelerate M&A activity in 2008, particularly within the infrastructure upgrade and build-out, upstream oil and gas, and nuclear decommissioning sectors. The green building movement will continue to be driven by rising energy costs, strained water supplies, and environmental awareness. We expect green-building M&A activity to accelerate in 2008, which will likely lead to higher valuations in this niche segment of the building materials industry. Furthermore, aggregates will continue to be sought after and command aggressive pricing. In conclusion, we believe opportunities exist for international strategic and private equity groups to acquire overleveraged companies at attractive valuations. Read complete report.

Chemicals industry review Q1-2008; RSM EquiCo Capital Markets

Overview

M&A activity in the chemical industry peaked in 2007, finishing the year with an estimated $82 billion in total transaction value, a 14 percent increase over 2006. This result was expected, as deal volume in the industry has increased dramatically over the past three years. Cross-border transactions are also driving significant deal activity as cash- and resource-rich buyers begin to diversify globally. For example, the two largest deals in 2007, Basell's acquisition of Lyondell and SABIC's acquisition of GE Plastics (which collectively represented over $31 billion in transaction value), were both cross-border transactions. RSM EquiCo is also experiencing this global diversification first hand, as we are receiving more inquiries from strategic buyers in India looking to invest in and increase exposure to North American and European markets. Read complete report.

Basic Industries industry review Q1-2008; RSM EquiCo Capital Markets

Spotlight on Raw Materials

Fueled primarily by growing demand from China, India and other developing countries, commodities of all types, particularly those used in manufacturing processes, have exhibited dramatic price increases over the past year. The CRB Metals Index, which tracks a basket of raw materials and includes copper, zinc, steel scrap, tin and lead scrap, increased 46 percent in the 13 months ended February 29, 2008, outpacing the aggregate CRB Commodities Index's near 30 percent rise over the same period. The current pricing environment is somewhat disjointed from the underlying fundamental economic supply/demand function. The long-term outlook for raw materials used in basic infrastructure and manufacturing continues to be positive. However, speculative investment capital has poured into commodities, from oil and gold to copper, aluminum and zinc, as noted in the aforementioned CRB Metals Index.

In general, the most likely scenario we see unfolding is for most commodities to moderate in price as sentiment shifts from safe-haven investing and inflation hedging to a global slowdown mentality. While the rest of the world is not likely to follow the road of sluggish growth to the same degree as the United States, reduced U.S. consumption will negatively affect growth in some regions, notably Japan, China and Europe. These tempered short-term expectations are likely to take some of the speculative excess out of the current pricing environment, without changing the long-term secular trend. Read complete report.

Aerospace & Defense industry review Q1-2008; RSM EquiCo Capital Markets

Key Trends: Boeing Loss to Northrop Creates Stir

The $1.5 billion initial U.S. Air Force ASC award to Northrop Grumman for the new KC-45 refueling tanker has created ripple effects on the U.S. supplier base that are being intensely debated. The award, which has the potential to grow to $35 billion, not only puts Northrop in a favorable position on future transport aircraft, but it also has given Airbus an important foothold in the U.S. market, since the winning proposal featured the European designed A330.

Following the decision, both Boeing and politicians on Capitol Hill protested that the award will sacrifice American jobs and opportunities. The validity of that point is debatable, since the new KC-45 will be assembled at manufacturing facilities in Mobile, Ala. by 25,000 American workers. This issue highlights the ongoing trend towards globalization of aerospace and its associated pains.

On one hand, this award, based on a stringent set of technical specifications, will provide U.S. troops with the best possible equipment at the lowest cost to the American taxpayer. On the other, Department of Defense dollars will directly benefit a non-U.S. company. While the overall net effect is uncertain, it is clear the issue of globalization will continue to dominate headlines and directly affect future contract awards. Read complete report.