Seller OptionsSponsors vs. StrategicsOriginally presented October 10, 2012. Updated May 2, 2013.

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LLR Background

• Founded in 1999 by trusted advisors to middle market growth companies in the Mid-Atlantic region seeking to:

• Share in the risk/reward of high growth companies

• Provide local businesses access to known and trusted capital providers

• Bring a user-friendly, customer service orientation to private equity

• Grown into a national provider of late-stage growth capital with deep domain expertise

• Maintained core values:

• Invest in growth

• Align with management

• Treat companies like clients

LLR FranchiseInvestment Professionals 32

Current Check Size $20 – $100m

Investments 59

Exits 32

Minority / Majority 50% / 50%

Hold Period 2 – 11 years

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Business Services Consumer & Education Financial Services Healthcare Services Software & IT Services

• Business Process Outsourcing• Professional Services to Niche

Markets• Government Services• Fixed Asset Management• Marketing Services &

Technology• Data Analytics• Human Capital Management• HR Outsourcing• Transportation & Logistics• Information Services

• Multi-Unit Businesses• Internet & Catalog Retail• Multiline & Specialty Retail• Diversified Services• Durables & Beverages• Household Products• Childcare• K-12 Education• Post-Secondary Education• Education Technology• Training

• Financial Technology & Service Providers

• Specialty Finance• Software• Security• Alternative Payments• Broker / Dealers & Trading • Capital Markets Technology• Data & Analytics• Asset Managers• Insurance Brokerage• TPA & Service Providers

• Information Management• Revenue Cycle Management• Practice Management • Outpatient Services• Data Analytics & Informatics• Diagnostics & Monitoring• Distribution• Disease & Benefits

Management• Pharmacy Benefit

Management• Alternative Site Care

• Enterprise Software• Application Software• Systems Software• Infrastructure• Perpetual License and SaaS

Models• Managed / IT Services• Solutions Providers• Data Service Providers• Technology-Enabled Business

Services

Domain Expertise

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290 320 326 360284 295 341

218137 170 194 242 274 291

345432 394

448 404 428 400456

214 236 227

220

171 188 200

71

69 99

111

162 147 188

230

239 224

253 242 226

194

233 68

94 50

43

25 33

24

16

12 19

19

25 25 45

30

44 35

38 28 28

31

35

0

100

200

300

400

500

600

700

800

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2

(# of Deals) U.S. M&A Volume by Transaction Size: 2007 - Present

$20 - $100m $100 - $1,000m $1,000m+

2007 2008 2009 2010 2011 2012

290 320 326 360284 295

341

218137 170 194

242 274 291345

432 394448

404 428 400456 463

562

391

214 236 227

220

171 188

200

71

69 99

111

162 147

188

230

239 224

253 242 226

194

233 206

288

184

68

94 50 43

25 33

24

16

12

19 19

25 25

45

30

44

35

38

28 28

31

35 46

50

37

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1

$20-$100m $100m - $1000m $1000m+

2007 2008 2009 2010 2011 20132012

U.S. M&A Transaction Volume

Source: Capital IQ. Note: Excludes cancelled deals and deals with undisclosed information.

Transaction volumes have returned to pre-2009 levels, driven largely by strong growth in the lower middle market sector (TEV $20 to $100 million)

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U.S. M&A Valuation Multiples (TEV/EBITDA)

Source: Capital IQ. Note: Excludes cancelled deals and deals with undisclosed information. Excludes transaction multiples greater than 20.0x.

Larger businesses continue to attract a premium relative to lower middle market businesses as acquirers are looking to deploy capital

TEV: $20 to $100m TEV: $100 to $1,000m TEV: $1,000m+

9.5x 9.4x

8.0x

8.9x

10.1x

7.9x

2007 2008 2009 2010 2011 2012

11.3x

11.9x

8.3x

9.9x 10.3x

9.6x

2007 2008 2009 2010 2011 2012

12.1x

10.7x

9.5x

10.4x

11.4x

10.1x

2007 2008 2009 2010 2011 2012

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Sponsor vs. Strategic Transaction Volume

Source: Capital IQ. Note: Excludes cancelled deals and deals with undisclosed information.

2007 2008 2009 2010 2011 2012 Q1 2013

Sponsor 25% 23% 25% 31% 35% 36% 37%

Strategic 75% 77% 75% 69% 65% 64% 63%

290 320 326 360284 295

341

218137 170 194

242 274 291345

432 394448

404 428 400456

214 236 227

220

171 188

200

71

69 99

111

162 147

188

230

239 224

253

242 226 194

233 68

94

50 43

25 33

24

16

12

19 19

25 25

45

30

44

35

38

28 28

31

35

0

100

200

300

400

500

600

700

800

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2

$20 - $100m $100 - $1,000m $1,000m+

2007 2008 2009 2010 2011 2012

172 177 136 124 85 109 149 82 61 58

90 102 123 165 208 204 235 252 250 230 228 248 275 314 227

400 473 467 499 395 407 416 223 157 230

234 327 323 359 397 511 418 487 424 452 397 476 440 586 385

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1

Sponsor Strategic

2007 2008 2009 2010 2011 20132012

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–

$10.0B

$20.0B

$30.0B

$40.0B

$50.0B

$60.0B

$70.0B

$80.0B

$90.0B

2010 2011 2012 2013 2014 2015

Why Are Sponsor Premiums Widening?

Source: Capital IQ, Preqin Research. Note: Excludes cancelled deals and deals with undisclosed information. Excludes transaction multiples greater than 20.0x.

Valuations: Sponsors vs. Strategics Available Sponsor Capital

11.9x 11.8x

8.6x

9.8x

11.3x

10.3x

11.0x

10.6x

8.5x

9.7x

10.3x

9.1x

2007 2008 2009 2010 2011 2012

Sponsor Strategic

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What Differentiates Sponsors and Strategics?

Pros Cons

• Higher valuations due to potential synergies

• Typically buy 100% of the target, with shorter due diligence processes

• Less concern with issues common in entrepreneurial businesses (cyclicality, customer concentration, etc.)

• Selling management can typically exit the business after a transition period

• Flexible transaction structure to meet owner / management objectives

• Typically some money upfront and larger second bite at exit 3-7 years later

• Often structured to allow non-owner employees to earn ownership over time

• Typically don’t get involved operationally –instead take advisory board seats

• Lower upfront cash proceeds due to cash reinvestment requirements

• Often require management to stay / retain meaningful ensure to align interests

• Management fees and leverage can burden a growing business

• Detailed due diligence / prolonged time to close (60-90 days) can distract management

• In a 100% sale, sellers will be unable to monetize future growth opportunities

• Little opportunity for remaining management to have ownership in resulting entity

• Reduced job security for employees

• Potentially adverse culture change post-integration / loss of owner legacy

Sponsors

Strategics

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Different Types of Sponsors

Early Stage Venture Capital Growth Equity Large

Leveraged Buyouts

Company Size (Revenue) Under $10 Million $20 to $250 Million Above $500 Million

Investment Size Under $5 Million $10 to $100 Million Above $100 Million

Reliance on Leverage Never Sometimes Often

Control Rarely Sometimes Always

Risk SignificantModerate Execution Risk; Inherent and Structural

Downside ProtectionModerate Execution Risk; Significant Financial Risk

Return Potential High Returns, Low Probability

Attractive Risk-Adjusted Returns Modest Returns

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What Does LLR Look For In Businesses?

• Provider of mission-critical solutions

• Capable management team looking to partner

• Recurring revenue model and stable customer base

• Opportunity to consolidate fragmented sectors

• Committed team willing to maintain meaningful ownership

• Cross-selling opportunities

• Acquisition pipeline

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Deal Life Cycle

Proactive, Targeted Industry ResearchInvestment Bankers Existing Network &

Referral Sources

Process Deal Flow

Initial Deal Criteria Review / Screening by Deal Team

Advanced Evaluation / Initial Partner Review Submission of IOI

Negotiation of Term Sheet or LOIDetailed Due Diligence

Deal Close

200 deals

100 deals

25 deals

5 deals

1 investment

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How Can You Prepare For a Liquidity Event?

• Understand your objectives• Depending on answer, get business in order

• Prepare audited set of financials for two years prior to event

• Prepare growth plan supported by sales / acquisition pipelines

• Formalize business processes and systems

• Address gaps in management team

• Resolve customer issues, if any

• Separate personal assets from the business (real estate, leases)

• Carefully consider engaging a financial advisor

Scott PerricelliPartnersperricelli@llrpartners.com

Christian BullittPrincipal, Business Developmentcbullitt@llrpartners.com

Brian BerkinVice Presidentbberkin@llrpartners.com