Blackmore partners

BUY-SIDE PRIVATE ADVISORY

• A Introduction to and How to Succeed Agenda What Blackmore Provides 3 19 Determinants of Growth in 2012

Blackmore Programs 4 Debt Market Summary 22

What is an Actionable Deal 5 30 What is Private Equity?

Why Now? 8 Who are the Investors? 35

What are the Options 9 36 Private Equity Fund Structure

How Private Equity Creates Value 12 Current Trend in Private Equity 40

14 Deal Shopping Process 50 What is a P/E Intermediary?

Private Equity Acquisition Process 15 Types of Transaction by P/E 52

17 Sample Project Time-Line 53 Types of Deals Blackmore Looks for

Next Steps 18 Your Role 54 Blackmore Provides

We… You Gain

• are considered a respected •Experienced guidance through intermedary by the industry acquisition Process.

• are paid by PE to help, place • Payment from Private equity you in a company or share firm. closing fees with you • Option to Co-invest in company Maintain relationships with… • 1,500 PE firms in U.S. • Significantly lower sale price • 8,000 PE firms globally than sale = More initial wealth creation for you • We narrow focus to 50 – 200 specific PE groups. •Receive Finders/Consulting fee for “lining up” deals. • Provide “back-ups” in case deal falls through.

Blackmore Programs

Backed And/Or Connectors Executives Requirements If you do not meet the buyers • +10 years of industry experience requirements to run a company then you • Direct operational P/L can benefit from our Finder Program responsibilities of +$100 M (or, approximately double size of •Line up deals and get paid out of our acquired company) Fee • References that support you as CEO •From 5% -40% •Previous role as CEO, COO, GM, President, VP operations Compensation Fee Seller - 98% Executuve Fee- .08% Compensation • Placed executives receive a Blackmore Fee- 1.2% minimum of 5% equity in new company, without capital investment. • Generally increased salaries and bonus packages. What is an Actionable Deal?

• Companies whose owners are willing and ready to sell •Industry Agnostic •Middle Market Companies $35 - $200 M in revenue •EBITDA between $5 million and $15 million •Distressed Companies . Carve- Outs, LBOs, LBIs • Companies located in the U.S. Canada •Companies that are not represented by investments banks • What are the signs of a good target? • Unnatural ownership/neglected divisions • Estate plans/Family Transition • Broken Process/investment banks unable to sell . Potential growth of 2x - 3x within 3-5 years. . Operating margins of at least 10% . Growth through acquisition – Potential Add-on targets . Large fragmented markets . Generational transitions – Companies with Subcontractors looking for succession plans. . High barrier to entry from competitors – I.P. assets, sole source position. . Customer diversification (no customer concentration of greater than 30%)

WHY IS NOW A GREAT TIME TO BUY A BUSINESS?

Deterrents to Growth in 2012 are Similar to Those in 2011 • ISM – Purchasing Managers Index data continues to bounce around indicating no further momentum in the economy • Unemployement rate will continue to hoover around 10% • Significatant drag from the state and local sectors • Large overhand of unused industrial capacity and vacant homes • Limited credit availability remains a problem • Concerns of European sovereign debt will continue Why now?

Create true wealth by gaining equity in your company

Current seller’s market Deal timeline . Taxes are going up in 2013 . We can get deals funded in as little as 90 . In the next 15 years, eight million business days from now if there is a ready, willing owners will exit and able seller. . The number of buyers will remain stable . A sale will take from 12 to 24 months to . More supply and limited demand means a complete in our normal process. lower multiple paid for businesses . An owner considering retirement in the near future is advised to begin the selling . Post recession means many markets are process as early as possible at bottom of cycle and will reverse course

Ten-year transfer cycle

Source: Rob Slee – Midas Nation

WHAT ARE THE OPTIONS? What are the options?

Goals Options Pros & Cons Less capital needed for investment Start your own Pride of building own company business Time consuming to establish Initial cash flow issues Structure and organization in place Buy a company 100% of equity and ability to control without partners Potentially smaller business Ownership Limited resources and capabilities of a business Less capital needed Employ CEO for Reasonable transition time succession plan opportunity Ego of owner Inability to control timing, direction Able to buy bigger company Buy a company Capital and expertise provided with PE partner Private equity could be ruthless Short time frame for value creation What are the options?

Buying With Private Equity Buying with no Partner Partner

ON ACQUISITION ON EXIT ON ACQUISITION ON EXIT Revenue $ 25,000,000 $ 32,000,000 Revenue $ 2,083,333 $ 6,514,286 Revenue Growth 28% Revenue Growth 213%

EBITDA 5,000,000 20.0% 8,000,000 25.0% EBITDA 416,667 20.0% 1,628,571 25.0% EBITDA Growth 60% EBITDA Growth 291% EBITDA Multiple 4.0X 5.0X EBITDA Multiple 3.0X 3.5X 20,000,000 40,000,000 Enterprise Value 1,250,000 5,700,000

Typical Structure Typical Structure Debt 12,000,000 60.0% 12,000,000 30.0% Debt 750,000 60.0% 1,710,000 30.0% Equity 8,000,000 40.0% 28,000,000 70.0% Equity 500,000 40.0% 3,990,000 70.0% 20,000,000 100.0% 40,000,000 100.0% 1,250,000 100.0% 5,700,000 100.0%

Injected Equity Injected Equity Management Team 500,000 6.3% 3,990,000 14.3% Management Team 500,000 100.0% 3,990,000 100.0% PEG 7,500,000 93.8% 24,010,000 85.8% PEG - 0.0% - 0.0% $ 8,000,000 100.0% $ 28,000,000 100.0% $ 500,000 100.0% $ 3,990,000 100.0%

Increase in management ownership with options 8% How Private Equity Creates Value Strategy Tactics

• In the ‘80s it was Financial • Increase equity stake and incentives to Engineering: “If I have 10 cents, attract, retain and motivate top borrow ninety cents and buy your tie management team with the objective for a dollar, I make a 50% return on my of maximizing exit proceeds in 3-5 years. investment.”

• Drive a process of rapid change with • In the ‘90s it was Operational new management, new incentives and Enhancement: Making portfolio strong board-level leadership. companies more efficient. • Start exit planning early, positioning • The next winning move in private the business to make it attractive to equity is Organic Growth likely buyers, as well as developing Enhancement: Ability to systematically early relationships with those buyers. increase top line organically.

Source: Booz & Company – The Next Winning Move in Private Source: Ernst & Young - How Do Private Equity Investors Create Equity Value? THE PRIVATE EQUITY PROCESS Deal Shopping Process

Not For Everyone Benefits

- Requires patience and persistence Less competition for targets = - +10 hours per week Lower sale price - Takes 12- 24 months - 3x- 6x EBITDA multiples Vs. - 99.9% of targets say ‘No’ -8x- 15x EBITDA multiples at - PE firms are extremely selective, investment bank auction making the odds of closing a deal low. - Be your own boss 300 Teasers - Create value through equity

100 Books Average 7 PE deal LOI’s 2 Due flow Diligence

1 Close Private Equity Acquisition Process Private Equity Acquisition Process

Phase 1 Phase 2 Phase 3 Phase 4 Executive Value Develop Target Execution acquisition Strategy Search & Creation process Selection Goals and Create a vision and Establish Work toward Drive innovation to achieve outcomes focus to establish relationship with closing a the acquisition qualified target transaction with a competitive framework businesses and PE partner advantage and a PE partner streamlined organization

. Industry niche . Initial . Letter of intent . Align Key activities selection and identification . Due diligence management and research and screening . Investment and incentives deliverables . Acquisition . Target and PE information . Establish and criteria summary profiling and memo and execute . Buy-side teaser contacting financial model business plan . Executive’s . Target and PE . Finalize the deal . Operational resume selection improvements

Next Steps

Backed Executives

1. This is a formal process in which we meet every two weeks by phone. All meetings are 15-30 minutes. • Schedule a 1 to 1phone meeting by emailing • [email protected] 2. The process will take 10 hrs a week. I will email you the next steps, involving approximately of 2hrs due diligence on your part. 3. We will identify 100’s target by searching our database (NAICS) and by Blackmore paying brokers who will search for targets on your behalf. In addition, we will reach out to our 8000 execs on linkedin to help you.

Connectors

1. We can make this a formal process or ad-hoc 2. Send me a note at [email protected] to set up 1- to - 1 phone meeting to discuss opportunities. What is Private Equity? Private Equity Defined

• Equity capital that is not quoted on a public exchange. Private equity consists of investors and funds that make investments directly into private companies or conduct of public companies that result in a delisting of public equity.

• A private equity investor is an individual or entity that invests capital into a private company (i.e. firms not traded on a public exchange) in exchange for equity interest in that business. In the US, there are approximately 18,000 publicly traded companies, and more than 300,000 privately held companies.

• Capital for private equity is raised from retail and institutional investors, and can be used to fund new technologies, expand working capital within an owned company, make acquisitions, or to strengthen a balance sheet. Who Might Seek a Private Equity Investor?

•Companies looking to fund a capital need that is beyond traditional bank financing •Owners considering a partial or complete sale of their business •Managers looking to buy a business

A Brief History of Private Equity

• During the 25 years from 1980 to 2005, the top-quartile private equity firms generated annualized returns to investors of 39.1percent (net of all fees and expenses). By contrast, the S&P 500 returned 12.3 percent a year during the same period.

• Since 2006 the returns have declined and even become negative during the recession Companies Owned by Private Equity • J.D. Byrider • AMC Theaters • Linens ‘N Things • Hertz • Michael’s • J. Crew • Petco • Travelocity • Toys ‘R Us • LL Bean • Levi’s • Bausch & Lomb • Polaroid Who are the investors?

• Public pension funds, university endowments, and leading foundations; these funds represent the single largest group of investors in PE and collectively accounted for one-third of all capital allocated to private equity in 2006 • Individual Investors, Other institutional investors () PE Strategies and Firms

EXAMPLES OF PRIVATE EQUITY FIRMS: Private equity strategies. MOST PRIVATE EQUITY INVESTORS WILL LIMIT THEIR INVESTMENTS TO ONE OR TWO OF THE FOLLOWING STRATEGIES:

• Angel investing • • • Distressed • Leveraged buyouts investments (LBO) • Private Equity Fund Structure

PRIVATE EQUITY FIRM LIMITED PARTNERS (Investors)

(Public pension funds, corporate pension funds, insurance companies, high net worth Management Company General Partner individuals, family offices, endowments, banks, foundations, funds-of-funds, etc.)

Fund Ownership

Fund Investment Management PRIVATE EQUITY FUND ()

Fund’s Ownership of Portfolio Investments

Etc.

INVESTMENT 1 INVESTMENT 2 INVESTMENT 3 Sources of capital for PE funds

THERE ARE TWO TYPES OF PRIVATE EQUITY FIRMS:

• Firms with a dedicated fund, with the majority of the capital sourced from institutional investors (i.e. pension funds, banks, endowments, etc.) and accredited investors (i.e. high net worth individual investors) • Firms that raise capital from investors on a per-deal basis (pledge funds)

INVESTMENT DURATION AND RETURNS. • Typical investment period is 3−10 years, after which capital is distributed to investors • Rates of return are higher than public market returns, typically 15−30%, depending on the strategy What is a Private Equity Intermediary? • A PE intermediary sources (informs) deals to private equity firms for a fee. • Blackmore gets “target” companies from its network of CEOs, which is termed a “deal” • These deals are pitched to Private Equity firms as an investment package with 2 parts: 1. A CEO and management team 2. A specific company or companies Types of Transactions by PE

• LBO (Leveraged Buy-out): The acquisition of another company using a significant amount of borrowed money (bonds or loans) to meet the cost of acquisition. Often, the assets of the company being acquired are used as collateral for the loans in addition to the assets of the acquiring company. The purpose of leveraged buyouts is to allow companies to make large acquisitions without having to commit a lot of capital. • MBO (Management Buy-out): When the managers and/or executives of a company purchase controlling interest in a company from existing shareholders.

More Types of Transactions by PE

• Management Buy-In (MBI): Outside executive team is buying out the current management/owners • Corporate Carve-out/Spinoff: Corporation is selling off/divesting a division of its company-can be an MBO or MBI Sample Project Timeline

2011 2012 October November December January February March April

Week # 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31

Oct Oct Oct Apr Apr Apr

Jan Jan Jan

Mar Mar Mar Mar

Feb Feb Feb

Nov Nov Nov Dec Dec Dec Dec

Oct Oct Apr

Jan

------

- - - Mar

Feb

Nov Dec - - - -

- - -

------

- - -

-

-

-

- -

1 8 7

7

3

4

5 3

15 22 29 14 21 28

14 21 28

10 17 24 31

11 18 25

19 26 10 17 24 31 12

Project Status Updates - Bi weekly

Phase I - Strategy Development Determine Executive's Objectives x Develop Strategy and Determine Target Niche x x Market Research x x x x Establish Acquisition Criteria x x Complete Executive's Resume x x x Prepare Executive Buy-Side Teaser x x Phase II - Target Search & Selection Liaison with Intermediary and Distribute Buy-Side Teaser y y Distribute Teaser to Potential PE Partners/Gather Interest y y Identify Direct Candidates in Target Niche y y Execute Confidentiality and Non-Circumvention Agreements y y Evaluate Targets Against Acquisition Criteria y y y y Target Information Gathering, Review, and Selection y y y Initial Discussions with Financing Institutions y y y Meetings and Selection of PE Partners y y Y y Assemble Legal and Tax Advisors y Phase III - Transaction Execution Letter of Intent z z z Target receives/provides information z z On-site Due Diligence z z z Build Financial Model z z z z Prepare Investment Information Memorandum z z z z Formalize Relationship With PE z z z z Partner Negotiate and Obtain Financing z z z z Draft Purchase & Sale Agreement z z z Review and Negotiate P&S Agreement z z Registration and Closing z z

x Phase 1 A Completed Meetings y Phase 2 B Ongoing Milestone z Phase 3 Completed Deliverable

Next Steps

Backed Executives

1. This is a formal process in which we meet every two weeks by phone. All meetings are 15-30 minutes. Schedule a 1 on 1 phone meeting by emailing [email protected] 2. The process will take 10 hrs a week. I will email you the next steps, involving approximately of 2 hours of due diligence on your part. 3. We will identify 100’s target by searching our database (NAICS) and by Blackmore paying brokers who will search for targets on your behalf. In addition, we will reach out to our 8000 execs on linkedin to help you.

Acquisition Advisors

1. We can make this a formal process or ad-hoc 2. Send me a note at [email protected] to set up 1 on 1 phone meeting to discuss opportunities.

Private Equity Investment Strategies

Venture and Growth and Pre-Seed Seed and Early Stage Expansion

• Pre-revenue/start-up • $500K-5MM in revenue • Profitable, with TTM revenue • Revenue greater than of $3MM+ $10MM

• Building management team • Management team near • Mature management team • Mature management team complete

• Early stage product • Year-over-year revenue • Growth strategy − organic or development • Commercial acceptance growth acquisition

• Significant market • Significant market • Defensible market position • Defensible market position opportunity opportunity

Seed and Angel Venture Capital

Private Equity

Mezzanine Funding

Distressed Investments Mission of Private Equity Funds

• Ultimately, the mangers of private equity firms understand that they must improve the underlying value of the companies they own over time to generate the returns their investors demand and to attract the capital they will want to raise for future funds. Current Trends in PE

• Multiples are creeping up again, were down in last 2 years, now at 4-6x • 2011: Owners have been hanging on to their firms through the crisis, need to sell • Overleveraging in 2006-07 is resulting in distressed debt, IRR’s negative in 2008-9 • Funds-Use it or lose it • Fund timeline: typically 10 years. First 5 years is to invest, last 5 years is to exit U.S. PE on Pace for Similar Year to 2010 Number of Deals Closed (red line) and Total Capital Invested by Year (blue bars)

$600 3,025 3,500 $570 $500 3,000 2,519 2,500 $400 2,216 2,029 1,778 2,000 1,679 $300 $305 1,221 1,500 $200 1,363 1,244 840 $195 1,000 $174 $158 $100 $126 500 $100 $83 $40 $62 $0 0 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011* Capital Invested ($B) # of Deals Closed Source: PitchBook *Through 3Q 2011 U.S. PE Activity Experiences Summer Lull Number of Deals Closed and Total Capital Invested by Quarter

$250 900 793 752 735 800 $204 $200 646 650 745 719 700 583 600 613 540 $150 610 $144 $130 464 433 444 500 $119 520 395 405 $103 400 $100 394 400 $76 $71 $70 336 $66 336 300 $58 316 316 $43 200 $50 $41 $39 $36 $27 $30 $33 $31 $15 $15 $19 100 $8 $11 $0 0 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 2006 2007 2008 2009 2010 2011 Capital Invested ($B) # of Deals Closed Source: PitchBook *Through 3Q 2011 Midwest Takes Top Spot for PE Investment Percentage of Deal Volume (count) by Region

3Q 2011 Mid Atlantic West Coast 9% 18%

3Q 2010 14% 9% 1% Midwest Southwest 3% 19% 22% 18%

15% Southeast 6% 5% Mountain 18% 12%

15% 16% South Northeast

Source: PitchBook B2B and B2C Account for Majority of PE Deal Activity Percentage of Deal Volume (count) by Industry

Materials & Resources 3Q 2011 Information 2% Technology 12%

3Q 2010 Business Products 6% and Services (B2B) Healthcare 35% 12% 16% 31%

14% 9% 10% 18% 5% 8%

Energy 22% Consumer Products Source: PitchBook and Services (B2C) Deals Under $250M Account for 73% of Percentage of Deal Volume (count) by Deal Size Range

100%

90%

80%

70%

60%

50%

40%

30%

20%

10%

0% 2004 2005 2006 2007 2008 2009 2010 2011* *Through 3Q 2011 Under $50M $50M-$250M $250M-$500M $500M-$1B $1B-$2.5B $2.5B+ Add-ons % Climbs for the 6th Straight Year Add-on Deals as Percentage of Buyout Deals

2,500 55%

50% 2,000 50% 47% 1352 46% 1,500 45% 1187 933 981 1,000 692 40% 38% 855

626 516 459 500 1056 35% 414 322 821 743 636 608 467 463 333 438 198 208 0 30% 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011* Add-on Non Add-on Add-On % of Buyout *Through 3Q 2011 Source: PitchBook LBOs Over $1B Using the Most Debt Percentage of Debt Used in Buyouts

75%

70% 71% 67% 65% 63% 62% 60% 59% 58% 55% 56%

50% 51% 48% 48% 45% 45%

40% 40%

35% 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011*

Under $250M $250M - $1B Over $1B *Through 3Q 2011 Source: PitchBook PE Firms Holding onto Companies Longer Median Time from Buyout to Exit

6

5 4.71 4.83 4.27 4.23 3.97 3.92 4 3.85 3.85

3.68 3.60

3 Years Held Years

2

1

0 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011* *Through 3Q 2011 Median Time to Exit - Yr Source: PitchBook U.S. PE Fundraising Experiences Summer Lull Number of Funds Closed and Total Capital Raised by Quarter

$120 140 121 120 $100

100 $80

58 80 $60 58 60 49 46 43 $40 31 41 31 31 34 40 26 27 27 $20 12 20

$99 $94 $73 $41 $62 $35 $12 $30 $28 $22 $26 $10 $37 $25 $17 $0 0 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 2008 2009 2010 2011 Capital Raised ($B) # of Funds Closed Source: PitchBook *Through 3Q 2011 Recent PE Trend: Dry Powder

“Over the last few years, there has been a spectacular accumulation of PE dry powder. The U.S. PE capital overhang steadily increased each year from $197 billion in 2004 to $521 billion in 2009. However, it crested in 2009 before dropping to $477 billion as of September 30, 2010. About three-fourths of that dry powder is sitting in funds with vintage years from 2007 to 2009. While the large amount of dry powder is allowing PE firms to pursue bigger, more expensive companies, it has also contributed to a tough fundraising environment, as limited partners wait on distributions before committing capital to new funds.”

PITCHBOOK DATA PE Investors Sitting on $436B of Dry Powder Capital Overhang of US PE Investors by

$140

$600 $119.38 $120

$436 $500 $100 $84.53 $79.84 $400 $80 $64.79 $59.96 $300 $60

$200 $40 $27.08

$20 $100

$0 $0 2006 2007 2008 2009 2010 2011* $ in Billion *Through 3Q 2011 Cumulative Overhang Under $100M $100M-$250M $250M-$500M $500M-$1B $1B-$5B $5B+ Types of Deals Blackmore Looks for • Headquarters & Majority of Operations in the United States • Revenues of $30 million+ • EBITDA of $3 million+ • Distressed Opportunities • CEOs with Operating Experience and $100 million+ Profit/Loss Your Role

• Understanding a business plan including operations and financials • Writing a teaser for that plan • Pitching the deal to different private equity firms based on geographic location, industry, size($) • Talking to PE firms with the executive of the deal to close the PE buyout