Electrical & Power Equipment Industry In Focus

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Phone: 216.589.0900www.wesrespartners.com

Year-End 2010

Highlights in the Electrical & Power Equipment Industry

The U.S. Electrical & Power Equipment industry declined 22% in 2009 as the economic recessionhampered industrial production and construction. However, industry revenue is expected to increaseby an annual average of 4.3% from 2010 through 2015, with restocking of electrical equipmentspearheading improved domestic demand as economic conditions moderately improve.

Notable Trends and 2Regulations

Data Centers & Uninterruptible Power Systems

Generator Sets

Power Distribution and Transformer Products

Notable Regulations

Key Indicators for the 3Electrical & Power Equipment Industry

Acquisition Activity and 4Valuation Trends

Mergers and Acquisitions

Public Company Performance

Recent Notable Industry Quotes 5

Transaction in Focus 6

Electrical & Power Equipment Industry Revenue

2010 Electrical & Power Equipment Industry

Segmentation (Total Shipments: $34.6 billion )

Western Reserve Partners deliverscustomized investment bankingsolutions for leading middle-market companies. The firm’sManaging Directors average morethan 15 years of experience andhave directly executed more than550 transactions. WesternReserve is a member of M&AInternational Inc., the world’sleading alliance of investmentbanking firms, with 45 membersand more than 500 professionalsacross 40 countries.

In the short term, a gradually but steadily rebounding manufacturing environment is anticipated toboost demand for energy management products across various industries. Additionally, the build-out ofenhanced telecommunication networks will continue to be a driver for power supply products,especially as demand for increased backup power regulation further enhances network upgrades.

According to the Energy InformationAdministration / Annual Energy Outlook 2009,demand for electricity in the U.S. is projected toincrease by 26% from 2007 to 2030, withdemand increasing by 38% in the commercialsector, 20% in the residential sector and 7% inthe industrial sector over this period. Globalincreases in the demand for energy will result inmore power stations with a focus on improvingefficiency and renewable energy. This shouldspur an expected rise in demand for electricalcontrol, power distribution, uninterruptiblepower supply systems and industrialautomation products and services. Energyefficiency has emerged as the most importantissue driving new product development in thisindustry.

$42

$38 $36 $37

$38 $40

$42 $41

$32 $33

$35 $36

$38 $40

$41

$0

$5

$10

$15

$20

$25

$30

$35

$40

$45

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010P 2011P 2012P 2013P 2014P 2015P

Source: IBISWorld Inc.

$ in billions

Mergers & Acquisitions l Capital Raising l Real Estate l Restructuring & Bankruptcy l Valuation Services

Motors and Generators

33%

Switchgear and Switchboard

Apparatus

26%

Relays, Industrial Controls and Switchboard

Apparatus25%

Power, Distribution and

Specialty

Transformers16%

Source: IBISWorld Inc.

Electrical & Power Equipment Industry In FocusNotable Trends and Regulations

2

Data Centers & Uninterruptible Power SystemsData centers, which consume approximately 1.5% of U.S. electricity ($4.5 billion annually), are expected to expand markedly, consumingnearly double this amount over the next five years. Demand should be strong for power products for the data center market due to longterm growth in technology expenditures for data centers, pent-up demand from delayed data center renovation and construction during therecession, technology changes in data centers (such as augmented server power and density), and enhanced requirements for customizedsolutions for energy use and power distribution. As energy costs have increased dramatically at data centers and the public continues tofocus on carbon emissions, the increasing drive towards lowering energy consumption, optimizing efficiency and improving reliability shoulddrive innovation and new product requirements in this industry.

One sector of the data center industry, the U.S. green data center market, exhibits especially strong fundamentals and is expected to growfrom $3.8 billion in 2010 to $13.8 billion in 2015, a compound annual growth rate (CAGR) of 29%. Green data centers will be bolstered by anincrease in the regulatory environment for efficiency monitoring and U.S. government expenditures on green data centers, which areforecasted to increase from $0.9 billion in 2010 to $2.1 billion in 2015.

The North American industrial uninterruptible power supply (UPS) market is anticipated to be driven by the desire to improve the reliabilityof electrical supplies in light of growing demand for power and process control across various manufacturing industries, as well as advancingoil and gas markets and the corresponding need to backup power supply to refineries and pumps. Increasing automation, expandingindustrial applications and end uses, and growth in medical and pharmaceutical manufacturing operations are also expected to supportindustry growth. However, competition among market participants is anticipated to lead to lower profit margins in the industry. Demandmay be shifted from North America to developing regions such as Asia and Eastern Europe as more industries move operations to locationswith lower labor and production costs.

Generator SetsDriven by awareness and increasing requirements for the need to provide backup power during power failures, set-based generators havebecome more prevalent over the past decade. Despite a significant reduction in generator set shipments during the recession in NorthAmerica, generator set producers are poised for significant growth in the near term. Drivers of this growth include the fragile state of the U.S.national power grid system (including increased projected strain and heavy reliance on computers) and the need to maintain governmentfacilities and business operations as well as safeguard public health institutions.

Global demand for generator sets in developing nations, especially in the Asia-Pacific region, will benefit North American and Europeanproducers as developing nations invest in construction and build out their infrastructures. Although energy demand declined by 6% indeveloped economies due to the recession’s impact on industrial production, a post recession resurgence in infrastructure and constructionprojects should improve energy demand and the need for installed capacity (and thus, backup power capacity). Additionally, many economicstimulus programs are skewed towards reviving energy intensive activities. The global market for turbines and turbine generator sets istherefore expected to recover and constitute 170,000 megawatts in new capacity additions from 2010 through 2015.

Power Distribution and Transformer ProductsAlthough investment in power transmission products was expected to remain weak through 2010, domestic demand for industry products isexpected to improve in 2011 through 2015 as the U.S. economy strengthens and significant growth in electric transmission investment occurs.In 2009, ABB Ltd stated that the average age of a substation transformer in the U.S. was 42 years, which is two more years than its expectedlife span. Deutsche Bank has reported that due to the ramp-up of new transformer investment during the 1970s, they are prime candidatesfor replacement, with transformer failures likely to increase sharply over the next five years. Various legislative initiatives and reliabilitystandards from regulatory bodies will continue to address the need to improve transmission grid infrastructure and the reliability of poweravailability. Furthermore, the U.S. stimulus package has allocated approximately $4 billion to the smart grid. Therefore, despite a weakeningof investments in the power grid in 2009 and much of 2010 (mainly due to uncertainty in stimulus allocation and postponement of utilitycapital expenditure plans), such investment is expected to accelerate in 2011 and beyond.

Notable Regulations The Environmental Protection Agency released an Energy Star label for data centers in June 2010, which is anticipated to spark a new

round of data center energy-efficiency improvements and investment in power products.

The American Recovery and Reinvestment Act of 2009 includes domestic stimulus spending in the energy sector, including more than $11billion in smart grid investments.

The U.S. Energy Independence and Security Act (2007) mandates energy equipment standards and encourages development andinvestment funds to invest in intelligent electric network technologies, as well as promotes sales of efficient motors.

The U.S. Energy Efficiency Act of 2005 incentivizes transmission investment, promotes energy efficiency and standards for devices utilizingstand-by power and authorizes the federal government to make grants to improve energy efficiency.

Mergers & Acquisitions l Capital Raising l Real Estate l Restructuring & Bankruptcy l Valuation Services

Year-End 2010

3

Market Indicators

The NEMA Electroindustry Business Index reflects how the current level of industry sentiment is drastically higher than in 2008 and 2009, andindustry participants have also indicated growing optimism regarding the future of the industry.

Other seasonally adjusted metrics indicate varying degrees of recovery:

New orders, a key leading indicator, have been steadily rebounding for electrical equipment manufacturers, while new orders forturbines, generators, and other power transmission equipment reached historical highs as recently as September 2010.

Inventories in both electrical equipment manufacturing and turbines, generators, and other power transmission equipment sectorsdeclined markedly during the recession and have been steadily rebounding over the past year.

The industrial production index for the electric power transmission, control and distribution and commercial energy products sectors hasrecently contracted; the business equipment sector indicates gradual recovery; and the recovery in the information processing andrelated equipment industrial production index has been more pronounced.

Electrical & Power Equipment Industry In FocusKey Indicators for the Electrical & Power Equipment Industry

ShipmentsElectroindustry Business Confidence Index

New OrdersInventories

Industrial Production IndexIndustrial Production Index

Mergers & Acquisitions l Capital Raising l Real Estate l Restructuring & Bankruptcy l Valuation Services

Year-End 2010

90

95

100

105

110

Jan

-05

Jul-

05

Jan

-06

Jul-

06

Jan

-07

Jul-

07

Jan

-08

Jul-

08

Jan

-09

Jul-

09

Jan

-10

Jul-

10

Electric Power Transmission, Control &

Distribution

Commercial Energy Products

Gov't Index (2007 Average = 100)

Source: Federal Reserve

0 10 20 30 40 50 60 70 80 90

Jan

-05

Jul-

05

Jan

-06

Jul-

06

Jan

-07

Jul-

07

Jan

-08

Jul-

08

Jan

-09

Jul-

09

Jan

-10

Jul-

10

Current Conditions

Conditions Six Months Ahead

Index (Above 50 = Improvement)

Source: NEMA

$2.0

$2.5

$3.0

$3.5

$4.0

$4.5

$5.0

Jan

-05

Jul-

05

Jan

-06

Jul-

06

Jan

-07

Jul-

07

Jan

-08

Jul-

08

Jan

-09

Jul-

09

Jan

-10

Jul-

10

Electrical Equipment Manufacturing

Turbines, Generators & Other Power

Transmission Equipment

$ in billions

Source: U.S. Census Bureau

$3.0

$4.0

$5.0

$6.0

$7.0

$8.0

Jan

-05

Jul-

05

Jan

-06

Jul-

06

Jan

-07

Jul-

07

Jan

-08

Jul-

08

Jan

-09

Jul-

09

Jan

-10

Jul-

10

Electrical Equipment Manufacturing

Turbines, Generators & Other Power

Transmission Equipment

$ in billions

Source: U.S. Census Bureau

$2.0

$2.5

$3.0

$3.5

$4.0

$4.5

$5.0

Jan

-05

Jul-

05

Jan

-06

Jul-

06

Jan

-07

Jul-

07

Jan

-08

Jul-

08

Jan

-09

Jul-

09

Jan

-10

Jul-

10

Electrical Equipment Manufacturing

Turbines, Generators & Other Power

Transmission Equipment

$ in billions

Source: U.S. Census Bureau

70

80

90

100

110

120

Jan

-05

Jul-

05

Jan

-06

Jul-

06

Jan

-07

Jul-

07

Jan

-08

Jul-

08

Jan

-09

Jul-

09

Jan

-10

Jul-

10

Business Equipment

Information Processing and Related

Equipment

Gov't Index (2007 Average = 100)

Source: Federal Reserve

4

Mergers and AcquisitionsM&A activity in the Electrical & Power Equipment industry declinedin 2008 and 2009 due to the economic recession and corporations’hesitancy to place large bets on major acquisitions. However, M&Aactivity in this sector has rebounded sharply, led by such notabletransactions as ABB Ltd’s acquisitions of Baldor Electric (anindustrial electric motor business) and Ventyx (an energymanagement software and smart grid technology company) andEmerson’s acquisition of Chloride Group PLC (a manufacturer ofUPS systems) after facing bidding competition from ABB Ltd.

Major players in the Electrical & Power Equipment industrycontinue their consolidation trend in an effort to provide completepower solutions to their customers. Dow Jones recently reportedthat large corporations such as Schneider, Emerson and Eaton Corp.have been “methodically scooping up companies in recent years toexpand their presence in uninterrupted power” with significantanticipated demand for battery-powered backup units, surgeprotectors and switching equipment for companies, hospitals,government agencies and other institutions that transmit data overlarge computer networks. Additionally, as customers seek to moreefficiently purchase a range of products and services from a singlesource, such actions may squeeze smaller industry participants,fueling their need to pursue strategic sales and further buoyingM&A activity.

Electrical & Power Equipment Industry In FocusAcquisition Activity and Valuation Trends

Public Company PerformanceCompany valuations in the Electrical & Power Equipment industry have been significantly improving in light of the recovering economy.Despite a precipitous decline in public equity valuations from Q3’08 through Q1’09, valuations have again reached pre-recession levels, morethan doubling from Q1’09 through Q4’10. Valuation multiples have also largely recovered, with EBITDA multiples of 5.0x – 6.0x at the heightof the recession now surging to levels of 9.0x – 10.0x.

Enterprise Value to EBITDA MultiplesStock Price Index

Electrical & Power Equipment Index M&A Activity

9.2x

5.1x

226

124

105

10.7x

Index Components:

Diversified Electronics Companies: ABB Ltd American Superconductor Corporation Cooper Industries plc Eaton Corporation Emerson Electric Co. Hubbell Inc. Schneider Electric S.A. Siemens AG Thomas & Betts Corp.

Control & Automation Companies: Curtiss-Wright Corp. Magnetek Inc. Powell Industries, Inc. PowerSecure International, Inc. Regal Beloit Corporation Rockwell Automation Inc. Woodward Governor Co.

Energy Storage Companies: EnerSys Maxwell Technologies Inc.

Motor & Generator Companies: Baldor Electric Co. Cummins Inc. Generac Holdings Inc. Global Power Equipment Group Inc.

Power Management Companies: Active Power Inc. Hammond Power Solutions Inc. Littelfuse Inc. Pioneer Power Solutions, Inc. Power-One Inc. SL Industries Inc. Vicor Corp.

Mergers & Acquisitions l Capital Raising l Real Estate l Restructuring & Bankruptcy l Valuation Services

Year-End 2010

30

35

40

45

50

55

60

65

70

75

80

85

90

$0.0

$1.0

$2.0

$3.0

$4.0

$5.0

$6.0

$7.0

$8.0

$9.0

$10.0

$11.0

$12.0

2003 2004 2005 2006 2007 2008 2009 2010

Transaction Value Number of Acquisitions

Transaction Value ($ in billions) Number of Acquisitions

Source: Capital IQ; includes announced and closed majority purchase acquisition activity by the 29 companies listed below

0.0x

2.0x

4.0x

6.0x

8.0x

10.0x

12.0x

Q1

'05

Q3

'05

Q1

'06

Q3

'06

Q1

'07

Q3

'07

Q1

'08

Q3

'08

Q1

'09

Q3

'09

Q1

'10

Q3

'10

Enterprise Value / EBITDA

Source: Capital IQ

0

50

100

150

200

250

Jan

-05

Jul-

05

Jan

-06

Jul-

06

Jan

-07

Jul-

07

Jan

-08

Jul-

08

Jan

-09

Jul-

09

Jan

-10

Jul-

10

Power & Electronics Index S&P 500 Index Nasdaq Composite Index

Index (2005 = 100)

Source: Capital IQ

5

“During 2009, the Company experienced a significant decrease in sales andincome due to the global economic downturn. Demand for the Company’sproducts has continued to increase in the second quarter of 2010…”

– SL Industries President and CEOWilliam Fejes; August 2, 2010

“Our backlog remains at record levels… I think there is some pent-updemand… you're seeing some things that are starting to open up… We'reseeing expansion taking place in telecom in the U.S. market by furtherdeployment. We're also seeing replacement business up because all of thebatteries that were put in place in 1999 and 2000 during the tech boom, thosebatteries are starting to age and people are starting to replace them.

I am encouraged by the progress we are making in the acquisition front andthe possibilities of completing one or two acquisitions over the next couple ofquarters... We remain very active in our pursuit of acquiring businesses thatwill add value to our shareholders in the lead-acid battery business, alternatetechnologies and geographic expansion in to markets that we currently arenot the leader… anything we're looking at right now, we could fund with thecash and credit lines that we have available… I'm not going to say thatbecause the economy's down that these companies have become a lotcheaper…Generally speaking, it's down slightly.”

– EnerSys Chairman, President and CEO John Craig; November 10, 2010

“We expect year-over-year growth to be driven by improved industrial andutility distribution demand while pockets of growth in certain constructionsegments will be offset by declines in other areas. As experienced in the thirdquarter, growth in the remaining months of 2010 should moderate fromlevels seen earlier in the year.”

– Thomas & Betts Chairman and CEO Dominic Pileggi; October 21, 2010

“Demand from our industrial customers grew significantly in the thirdquarter, especially in the emerging markets, as they increased capacity andinvested in solutions to increase energy efficiency and productivity…Utilityspending in power transmission equipment remains muted, a trend that weexpect to continue into next year. Still, we see plenty of opportunities forgrowth, especially in areas like renewable energy and industrial efficiency,and in the fast-growing emerging economies.”

– ABB CEO Joe Hogan; October 28, 2010

“We are encouraged by the improving conditions in our end markets…Ourdiverse portfolio and end-market exposure have us well positioned for solidgrowth in 2011 and beyond as our later cycle businesses gainmomentum…Our balance sheet provides us with continued flexibility to makestrategic acquisitions and return capital to shareholders.”

– Cooper Industries Chairman and CEO Kirk Hachigian; October 21, 2010

“This is another quarter of strong growth. The Industry and IT businessescontinue to lead our sales progression. The improvement of the later cyclePower and Buildings business is also confirmed, thanks in part to successes inenergy efficiency and renewable power projects. All our end-markets arenow past their trough, even though non-residential construction and energyand infrastructure remain at a low level in many mature countries.”

– Schneider Electric President and CEO Jean-Pascal Tricoire; October 20,2010

“Certainly everybody fights over share gains…But in the data center space,even if you lost a point of share, you’re going to see a gain in your businessbecause the overall opportunity is growing. The demand is just that robust.”

– Schneider Electric U.S. President Jeff Drees; October 13, 2010

“Our fourth quarter results reflect continued strengthening in the globaleconomy and improved demand for Emerson’s products…Businesses arespending again…In the midst of the harsh economic downturn of the pastcouple years…we repositioned the company to be stronger than ever beforeand to benefit from what we expect to be a slow but steady economicrecovery.”

– Emerson Chairman and CEO David Farr; November 2, 2010

“Ultracapacitor sales growth continues to be driven by several key targetmarkets, including wind energy, hybrid and electric transit vehicles, microhybrid automotive systems, backup power and wireless communications.”

– Maxwell President and CEO David Schramm; October 28, 2010

“After an extended period of soft market conditions, most of our key marketsappear to be stabilizing. We expect to see modest improvement in businessactivity over the coming year, primarily from capital projects outside of theUnited States.”

– Powell Industries President and CEO Patrick McDonald; August 4, 2010

“As our visibility started to improve our balance sheet was getting stronger;at this point we put the green light on really in terms of our deal flowagain…you have seen we have done a couple of deals this year that we arepleased with. So, we are very much back in the market on these singles anddoubles…larger deals become much less frequent.”

– Eaton Chairman and CEO Sandy Cutler; October 20, 2010

“Economic indicators remain somewhat mixed as to growth prospects goingforward. Recent data seem to support the idea that the modest growth ratein U.S. manufacturing activity over the past year may have paused. However,our strong quotation level increasingly materialized into orders during thequarter, particularly in the material handling space. As a result, we remaincautiously optimistic that conditions will continue to improve in ourbusiness…renewable energy products are expected to be a significantcontributor to our future sales growth.” (November 11, 2010)

“We intend to continue to pursue strategic acquisitions that can provide uswith more scale, enhanced technology, or new market opportunities.”(August 19, 2010)

– Magnetek President and CEO Peter McCormick

“U.S. non-residential construction was lower…The industrial maintenanceand repair markets remained robust…The residential market remained nearthe bottom…Spending for distribution products was higher than the thirdquarter of 2009 as utility companies resumed spending on maintenance thathad been deferred in the second half of 2009... During the quarter, weexperienced higher demand for industrial and power products as well asincreased shipments of high voltage test equipment… We expect to continueto realize the benefits of higher demand for our energy efficient products inthe relight, renovation and building controls areas…We also expect increasedspending on transmission projects as previously delayed projects begin in2011. The industrial markets are expected to expand in the coming year withcapacity utilization rates increasing and higher spending on oil and gasprojects. The residential market is forecasted to improve; however, therecovery could be slow…”

– Hubbell Chairman, President and CEO Timothy Powers; October 21,2010

Mergers & Acquisitions l Capital Raising l Real Estate l Restructuring & Bankruptcy l Valuation Services

Year-End 2010

Electrical & Power Equipment Industry In FocusRecent Notable Industry Quotes

In the Market Leaders’ Words… Acquisitions Key to Growth

Contacts

Main Phone:216.589.0900

Joseph G. CarsonManaging Director

jcarson@wesrespartners.com

Mark A. FilippellManaging Director

mfilippell@wesrespartners.com

Charles V. AquinoDirector

caquino@wesrespartners.com

Kevin J. MayerDirector

kmayer@wesrespartners.com

This newsletter is published solely for the general information of clients and friends of Western Reserve Partners LLC. Information contained in this publication is based on data obtainedfrom sources we deem to be reliable; however, we do not guarantee or represent that it is accurate or complete, and it should not be relied upon as such. Opinions expressed are ourcurrent opinions as of the date appearing on this material only. This material should not be read as advice or recommendations, and we are not soliciting any action based upon receipt ofthis information. Nothing in this publication is intended to be an offer to buy or sell or the solicitation of an offer to buy or sell any specific security or company.

Company Overview

PECO II, Inc. (NASDAQ: PIII), headquartered in Galion, Ohio, designs, manufactures, markets and provides engineering and on-site installationservices for communication power systems and power distribution equipment. As the largest independent, full-service provider oftelecommunications power systems, PECO II provides total power quality and reliability solutions, and supports the power infrastructure needsof communication service providers in the local exchange, long-distance, wireless, broadband and internet markets.

Transaction Overview

In February 2010, PECO II announced the signing of a definitive agreement with Lineage Power Holdings, Inc., a Gores Group portfolio companyand a provider of intelligent power conversion solutions. Under the terms of the agreement, as approved by the shareholders in April, Lineageacquired all of the outstanding shares of PECO II for $5.86 per share in cash, a 51% premium over the closing share price the day before theannouncement. The combination of PECO II and Lineage Power creates one of the largest and most capable professional services organizationsserving the North American telecom market.

The transaction also represents Western Reserve’s ability to work with the Company’s Board of Directors to maximize shareholder value. AsPECO II’s exclusive financial advisor, Western Reserve introduced the Company to numerous financial and strategic buyers, facilitated acompetitive bidding process, assisted in negotiating the transaction price and terms and rendered a fairness opinion to its Board of Directors.

6Transaction In Focus

Mergers & Acquisitions l Capital Raising l Real Estate l Restructuring & Bankruptcy l Valuation Services

PENT TECHNOLOGIES

and

DEKKO TECHNOLOGIES

INC.

Together compris ing

Have been acquired by affiliates of

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a portfolio company

of Marlin Equity Partners

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The David J. Joseph Company

a wholly owned subsidiary of

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Series C Redeemable

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Inc.

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and

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The undersigned acted as exclusive financial advisor to PECO II, Inc. and rendered a fairness opinion to the

Company’s Board of Directors in this transaction

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