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NN, Inc.: Initiation of Research Coverage

Thursday, September 3, 2015

William Blair & Company initiated research coverage of NN, Inc. (NNBR $22.57). NN, Inc. is a leading manufacturer of metal bearings, automotive precision, and plastic and rubber components used by the global automotive, industrial, and medical end-markets.

Analyst Nick Heymann estimated the company would generate diluted earnings per share of $1.70 and revenue of $703 million in 2015, followed by earnings per share of $2.05 and revenue of $967 million in 2016.

"Over the past two years, NN has undergone a significant transformation," Heymann said. "Through the completion of six acquisitions, the company has gone from a cyclical, primarily light-automotive-dependent supplier to a more diversified industrial component manufacturer. One of the company's two largest acquisitions, Autocam in 2014, moved NN into a top-three global supplier for five of the eight critical technologies auto manufacturers will use to meet the steep increase in global Corporate Average Fuel Economy, or CAFE, standards by 2025. In addition, Autocam meaningfully enhanced the company's counter-cyclical growth potential in the auto sector. Precision Engineered Products, or PEP, NN's most recent and largest-ever acquisition, sharply accelerated NN's long-term plans to become a more diversified industrial. This should allow NN to focus on building out its verticals rather than being a serial acquirer."

Heymann continued, "While NN's business portfolio will be more diversified following its pending acquisition of PEP, in the near term the company will have to significantly increase new product development expenses to achieve sales synergies from its legacy businesses to leverage PEP's new distribution channels. In addition, the acquisition also substantially increased NN's leverage. NN recently completed a secondary offering to reduce its leverage to 2.9 times from over 5 times following its August 2014 acquisition of Autocam. However, NN expects to increase its debt by $619 million for its PEP acquisition, lifting its leverage back to 4.7 times net-debt-to-EBITDA."

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William Blair or an affiliate received compensation for investment banking services from NN, Inc. within the last 12 months. NN, Inc. is or was, within the last 12 months, an investment banking client of William Blair & Company and/or one or more of its affiliates.

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