Comparable Transaction Analysis - Association for Corporate Growth

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Investment Banking Services
John A. Lee, Senior Managing Director
[email protected]
610-205-6106
Michael J. Sobota, Vice President
m[email protected]
610-478-2294
CONFIDENTIAL
236198v3
Member FINRA/SIPC
FEBRUARY 2012
Table of Contents
I.
II.
Griffin Overview
Comparable Public Company and Comparable Transaction Analysis
III.
Preliminary Financial Analysis
IV.
Sell-Side Process
V.
Potential Purchasers
VI.
Summary
Appendix
I.
CONFIDENTIAL
Selected Griffin Team Members
2
I. Griffin Overview
CONFIDENTIAL
Griffin Overview

Established in 2001, Griffin is the largest middlemarket corporate investment banking firm in
Pennsylvania with over 40 Investment Banking
professionals

Griffin is a FINRA licensed merger and acquisition
advisory and institutional private placement
investment banking firm serving middle market
companies, family-owned businesses, financial
institutions and private equity sponsors

Principals include former CEOs, CFOs, CIOs and
several other executives who bring a wealth of
management experience and ability to assist Griffin in
looking at problems from the perspective of senior
management

Unlike most investment banks, we have strong
technical, financial and tax accountants with Big 4
backgrounds who provide efficient, timely and
complete investment banking and placement services
Experienced
Focused
Driven
CONFIDENTIAL
4
Investment Banking Services
M&A Advisory Services






Private Placement Services





Sale and merger transactions (sell side)
Acquisitions (buy side)
Recapitalizations
Management buyouts
Divestitures
Going private transactions
Senior debt
Subordinated debt
Equity capital
Bridge loans
Units of limited partnership interests on behalf of financial
sponsors
 Secondary investment and co-investment advisory
Financial Restructuring Services
Consulting Services
 Chapter 11 – Section 363 asset sales (going concern)
 UCC Article 9 – Simultaneous foreclosure and sale
 Balance sheet restructurings including conversion of debt
to equity conversions and new capital infusions
 Creative capital solutions, including bridge loans
 Disposition of under-performing divisions
CONFIDENTIAL






5
Strategic alternatives studies
Review of strategic and business plans
Outsourced corporate development
Capital planning alternatives
Capital study and analysis
Review of capital plans
II.
Comparable Public Company and Comparable Transaction Analyses
CONFIDENTIAL
ABC Financial Services Overview

The Company is a privately held financial services firm that has two primary lines of business,
the financial advisory business and the asset management business

Financial Advisory Business




The financial advisory business provides advice to corporations related to the issuance of their
publicly-traded debt
The financial advisory business charges a fixed fee based on the complexity of the issuance.
While some of these fees are retainer or hourly based, the vast majority are contingent on the
underlying debt actually being issued. Once the Company is hired, however, it is rare that the
debt issuance doesn’t close
Although the financial advisory business also has repeat clients, the majority of the revenue
cannot be deemed recurring because it does not occur in consecutive years (typically the
Company will do work for its repeat clients once every three-five years)
Asset Management Business

The asset management business manages corporate cash balances. The Company invests
these funds primarily in short and medium–term fixed income securities

The asset management business charges a quarterly fee based on the amount of its asset
under management (“AUM”). AUM is currently around $30 billion
The asset management business has a strong recurring revenue model because its client
retention rate of close to 100%

CONFIDENTIAL
7
ABC Financial Services Overview

The Company has a national platform with 30 offices in the U.S. staffed by approximately 400
professionals. It has grown from a small, local, 4-partner firm 35 years ago

In the early days, the Company relied on client contacts and relationships held by the
individual partners. Today, the ABC name carries the same weight among corporate finance
and treasury professionals that IBM carries with technology professionals. Indeed, “nobody
ever gets fired for hiring ABC”

The feeling amongst the Company’s shareholders, particularly the older ones, is that this
institutional value isn’t reflected upon shareholder retirement when the Company purchases
the shares at book value

The Company has proven to be strongly recession-resistant



Revenue reached a record $100 million in 2011. The Company’s revenue CAGR from 20072011 was 8% and is projected to grow 10% in 2012
In 2011, approximately 55% and 45% of its revenue came from the financial advisory business
and the asset management business, respectively
The Company has made several small financial advisory acquisitions in its past, but they have
all been below $5 million in value because equity funding is limited to shareholder contributions
and the Company’s lender doesn’t lend much to asset-light services companies. This shortage
of acquisition capital has been frustrating, because the Company has several larger Asset
Management acquisition opportunities in the $30-50 million range that have significant
operating expense synergies with the Company’s asset management business
CONFIDENTIAL
8
ABC Financial Services Overview

Like many professional services firms (i.e. law firms and accounting firms), the Company pays
virtually all of its profits to its owners each year in the form of compensation (not
distributions)

Reported EBITDA is used to fund income taxes and capital expenditures. Therefore, net
income and EBITDA in 2011 were $1.0 million and $5.0 million, respectively

Based on a research performed on other financial advisory and asset management firm, the
range of compensation expense/revenue ratio is 40-70%, with an average of 55%. The
Company’s compensation/revenue ratio is 65%
CONFIDENTIAL
9
ABC Financial Services Overview

The Board of Directors of ABC Financial Services Firm has the following objectives for any
proposed transaction:




A transaction that would transform the Company from being run for maximum employee
compensation to building long term shareholder value
Obtain partial liquidity for all of its 50 Managing Directors (“MD”) Owners, yet keep them
incented going forward
A transaction partner(s) must have sufficient capital that can be used for larger acquisitions in
the future
All 400 employees are to be retained post-closing
CONFIDENTIAL
10
Methodology Introduction

The only true way to know what the Company is worth is to approach the market in a
controlled, competitive process

However, prior to approaching the market, it is helpful to develop a preliminary range of
value(1) for the Company based on commonly used methodologies, some of which may also be
employed by prospective transaction partners

The methodologies Griffin will employ to develop its preliminary view of value include:




Comparable public company analysis
Comparable transaction analysis
Private Equity LBO IRR analysis
The type of partner will also influence value:

Strategic partners – Includes partners that are within ABC Financial Services (“ABC”) industry or
related industry and see the acquisition as a long-term strategic growth opportunity

Financial partners – Includes financial investor groups that invest in private companies, with
leverage buyout structures, with the intent to grow the business and then sell the company in
three to five years in order to realize a return on their investment
(1)
Procedures performed do not constitute a formal valuation but rather a range of possible values based on Griffin experience and recent market
data. A formal assessment of the valuation of ABC Financial Services is subject to the Fair Market Value and Fairness Opinion Committee of Griffin.
CONFIDENTIAL
11
Comparable Public Company Analysis

Based on Griffin’s understanding of ABC’s business, Griffin reviewed and selected public
companies in the following categories that perform the same or similar services of ABC,
including:


♦
Investment Banking
Asset Management
Certain similar businesses are private and, therefore, do not have available public
information
CONFIDENTIAL
12
Comparable Public Company Analysis – Investment Banking
x
Company
Ticker
Jefferies Group, Inc.
NYSE:JEF
Jefferies Group, Inc., together with its subsidiaries, operates as a securities
and investment banking company in the Americas, Europe, and Asia.
$ 15.89
Market
Cap
($mm)
$
3,426
Lazard Ltd.
NYSE:LAZ
Lazard Ltd, together with its subsidiaries, operates as a financial advisory
and asset management firm.
$ 26.28
$
3,160
$
3,549
$
1,970
$
507
25.7
7.0
Greenhill & Co., Inc.
NYSE:GHL
Greenhill & Co., Inc. operates as an independent investment bank.
$ 39.69
$
1,147
$
1,171
$
259
$
55
21.2
21.3
Evercore Partners Inc.
NYSE:EVR
Evercore Partners Inc. operates as an independent investment banking
advisory firm.
$ 26.18 $
719
$
924
$
517
$
81
15.7
11.4
KBW Inc.
NYSE:KBW
KBW, Inc., through its subsidiaries, operates as an investment bank
specializing in the financial services industry in the United States, Canada,
Europe, and Asia.
$ 16.56 $
547
$
367
$
306 $
(12)
NM
NM
Piper Jaffray Companies provides investment banking services, institutional
sales, trading and research services, and asset management services
worldwide.
Cowen Group, Inc. is a publicly owned asset management holding company.
$ 22.28 $
347
$
794
$
535
$
100
18.8
7.9
$ 2.69 $
310
$
237
$
286 $
(27)
NM
NM
Piper Jaffray Companies NYSE:PJC
Short Description
Stock
Price
TEV
($mm)
LTM Total
Rev ($mm)
$
13,184
$
2,545
LTM
EBITDA TEV/LTM
EBITDA
Margin EBITDA
($mm)
(%)
$
1,470
57.7
9.0
Cowen Group, Inc.
NasdaqGS:COWN
Oppenheimer Holdings
Inc.
NYSE:OPY
Oppenheimer Holdings Inc., through its subsidiaries, operates as a middlemarket investment bank and full service broker-dealer.
$ 17.80 $
243
$
671
$
990
$
100
10.1
6.7
Gleacher & Company,
Inc
NasdaqGS:GLCH
Gleacher & Company, Inc., an independent investment bank, provides
corporate and institutional clients with advice and execution in the areas of
advisory services, capital raising and research, sales, and trading.
$ 1.57 $
190
$
152
$
282 $
(6)
NM
NM
Median
8.4x
Size and Liquidity Discount
20%
6.8x
Source: CapitalIQ, data as of 01/16/12
CONFIDENTIAL
13
Comparable Public Company Analysis – Asset Management
x
Company
Ticker
Short Description
Stock
Price
Franklin Resources Inc.
NYSE:BEN
Franklin Resources Inc. is a publicly owned asset management holding
company.
$ 96.26 $
659,900
$
21,229
$
16,883
$
7,145
$
EBITDA TEV/LTM
Margin EBITDA
(%)
2,865
40.1
5.9
T. Rowe Price Group,
Inc.
NasdaqGS:TROW
T. Rowe Price Group, Inc. is a publicly owned asset management holding
company.
$ 59.00 $
520,900
$
14,906
$
13,900
$
2,726
$
1,305
47.9
10.7
Ameriprise Financial Inc. NYSE:AMP
Ameriprise Financial, Inc., through its subsidiaries, provides financial
planning, products, and services primarily in the United States.
$ 51.40 $
559,665
$
11,630
$
16,573
$
10,682
$
2,759
25.8
6.0
Legg Mason Inc.
NYSE:LM
Legg Mason, Inc., through its subsidiaries, operates as an asset
management company worldwide.
$ 26.36 $
611,800
$
3,684
$
3,809
$
2,822
$
553
19.6
6.9
Eaton Vance Corp.
NYSE:EV
Eaton Vance Corp., through its subsidiaries, engages in the creation,
marketing, and management of investment funds in the United States.
$ 24.82 $
188,204
$
2,870
$
3,427
$
1,260
$
463
36.7
7.4
Waddell & Reed Financial NYSE:WDR
Inc.
Waddell & Reed Financial, Inc., through its subsidiaries, provides
investment management, investment product underwriting and distribution,
and shareholder services administration to mutual funds, and institutional
and separately managed accounts in the United States.
$ 25.74 $
91,747
$
2,196
$
1,946
$
1,186
$
316
26.7
6.2
Federated Investors,
Inc.
NYSE:FII
Federated Investors, Inc. is a publicly owned asset management holding
company.
$ 17.26 $
349,413
$
1,791
$
1,859
$
924
$
301
32.6
6.2
Cohen & Steers Inc.
NYSE:CNS
$ 30.50 $
44,314
$
1,316
$
1,157
$
230
$
82
35.8
14.4
Janus Capital Group,
Inc.
NYSE:JNS
Cohen & Steers, Inc. provides investment management services to
individual and institutional investors through a range of investment
vehicles.
Janus
Capital Group, Inc. is a publicly owned asset management holding
169,800
$
1,280
$
1,402
$
1,042
$
360
34.5
3.9
Epoch Investment
Partners, Inc.
NasdaqGS:EPHC
Epoch Investment Partners, Inc. is a publicly owned investment manager.
$ 22.83 $
17,087 $
531
$
496
$
75
$
32
42.8
15.5
Calamos Asset
Management Inc.
NasdaqGS:CLMS
Calamos Asset Management Inc. is a publicly owned investment manager.
$ 12.18 $
37,352 $
245
$
150
$
356
$
151
42.6
NM
Diamond Hill Investment Group, Inc., through its subsidiaries, sponsors,
markets, and provides investment advisory and related services to
individual and institutional investors in the United States.
$ 74.04 $
9,186 $
222
$
199
$
64
$
23
36.3
8.5
$
Total AUM
($mm)
6.86 $
Market Cap TEV ($mm) LTM Total
($mm)
Rev ($mm)
LTM EBITDA
($mm)
company with approximately $167.
Diamond Hill Investment NasdaqGS:DHIL
Group Inc.
Median
6.9x
Size and Liquidity Discount
20%
5.2x
Source: CapitalIQ, data as of 01/16/12
CONFIDENTIAL
14
Comparable Transaction Summary

Griffin searched for comparable transactions announced or closed after January 1, 2009.
Transactions were selected based on a review of ABC’s industry classification and key
business description terms:



Investment Banking
Asset Management
The results yielded many transactions from which the most applicable ones were chosen
based on their similarity to ABC’s business
CONFIDENTIAL
15
Comparable Transaction Analysis – Select M&A Transactions
Investment Banking

Comparable transactions analysis yielded 22 transactions in this industry, only 1 of which
disclosed the deal multiple
Announced
Target/Issuer
Target Business Description
Buyer
Seller Name
12/19/11
Pagemill Partners, LLC
Pagemill Partners, LLC is a boutique investment bank that offers financial advisory services to
Duff & Phelps Corporation
middle market technology companies.
06/30/11
Growth Capital Partners, L.P.
Growth Capital Partners, L.P. (GCP) is a boutique investment bank that offers financial
advisory and merchant banking services to private and public middle market companies.
Duff & Phelps Corporation
06/07/11
The Lexicon Partnership Llp
As of August 19, 2011, The Lexicon Partnership Llp operates as a subsidiary of Evercore
Partners Inc.
Evercore Partners Inc.
04/06/11
Prudential Bache Commodities
and Prudential Bache and Bache Prudential Bache Commodities and Prudential Bache and Bache Commodities and Bache (Hong
Jefferies Group, Inc.
Commodities and Bache (Hong
Kong) Ltd. provides commodities broking services.
Kong) Ltd.
Prudential Financial, Inc.
02/16/11
LaBranche & Co. Inc.
LaBranche & Co Inc., through its subsidiaries, operates as a registered broker-dealer.
Summit Capital Management LLC
12/31/10
Adventum Group, Inc.
As of 2010, Adventum Group, Inc. was acquired by Consilium Partners, LLC. Adventum
Group, Inc. operates as a boutique investment bank that provides transactions and financial Consilium Partners, LLC
advisory services.
12/31/10
Esae Capital Partners, LLC
Esae Capital Partners is an investment bank.
10/13/10
Clearpoint Funding, Inc.
09/14/10
Implied
Enterprise
Value
($mm)
Enterprise Enterprise
Value /
Value /
Rev
EBIT
-
-
-
3
-
-
-
151
2.3x
-
-
420
1.9x
-
-
-
-
-
-
-
-
-
-
Tong Yang Securities Inc.
(nka:TONGYANG Securities Inc.)
-
-
-
-
Clearpoint Funding, Inc., a wholesale mortgage company, provides loans for customers in
the United States.
Gleacher & Company, Inc
-
-
-
-
G5 Advisors
G5 Advisors is a boutique investment banking firm that offers financial advisory services.
Evercore Partners Inc.
40
-
-
-
05/18/10
Hill Street Capital LLC
Hill Street Capital LLC (HSC) operates as a boutique investment bank that offers financial
advisory services.
BNP Paribas Corporate Finance
-
-
-
-
04/07/10
MJC Associates
As of July 8, 2010, MJC Associates was acquired by Evercore Partners Inc.
Evercore Partners Inc.
8
-
-
-
Source: CapitalIQ, data as of 1/16/12
CONFIDENTIAL
16
Cowen Group, Inc.
-
Enterprise
Value /
EBITDA
Comparable Transaction Analysis – Select M&A Transactions
Investment Banking
Target Business Description
Buyer
Implied
Enterprise
Value
($mm)
Enterprise
Value /
EBITDA
Target/Issuer
03/16/10
Caliburn Partnership Pty Ltd.
(nka:Greenhill Caliburn Pty Ltd.)
Greenhill Caliburn Pty Limited provides independent corporate advisory services in
Australasia.
Greenhill & Co., Inc.
152
2.3x
4.8x
4.8x
10/23/09
Sequence Advisors, LLC
Sequence Advisors, LLC is a boutique investment bank that provides financial advisory
services.
WebsterRogers LLP
-
-
-
-
07/29/09
Watch Hill Partners LLC
Watch Hill Partners LLC (WHP) is a boutique investment bank that provides senior level
merger and acquisition and corporate financial advisory services to financial sponsors and
business corporations.
FBR Capital Markets Corporation
(nka:FBR & Co.)
6 -
06/09/09
Iron Capital Securities, LLC
Iron Capital Securities, LLC is a boutique investment bank that offers financial consulting
services.
Iron Capital Partners
-
06/03/09
Cowen Group, Inc.
As on November 2, 2009, Cowen Group, Inc was acquired by Ramius, LLC in a reverse
merger transaction. Cowen Group provides investment banking, research and alternative
investment services.
Ramius LLC, Prior to acquiring
Cowen Group, Inc. (nka:Cowen
Group, Inc.)
Rodman & Renshaw Capital Group,
Inc.; SG Americas Securities Holdings, Inc.
04/29/09
I-Many, Inc.
I-many, Inc. develops and provides contract management software and services to
enterprises.
LLR Partners Inc.; LLR Equity
Partners III, L.P.
Clarion Capital Corporation
03/31/09
Keane Securities Co., Inc.
Keane Securities Co., Inc. is a small-capitalization, investment bank that offers trading, floor
Rafferty Holdings, LLC
execution, syndicate, corporate finance, and market research.
03/02/09
Gleacher & Co.
Gleacher & Co. is a private investment firm that provides asset management and investment
banking services.
Broadpoint Securities Group, Inc.
Bank Of Scotland plc
(nka:Gleacher & Company, Inc)
02/18/09
Corporate Capital Group, LLC
Corporate Capital Group, LLC (CCG) is a boutique investment bank that provides financial
advisory services.
WorldVest Equity, Inc.
02/12/09
DEPFA First Albany Securities
LLC
DEPFA First Albany Securities LLC was acquired by Jefferies & Company, Inc. The firm
underwrites and trades municipal securities in new issue and secondary markets.
Jefferies Group, Inc.
01/12/09
Pacific Growth Equities, LLC
As of January 31, 2009, Pacific Growth Equities, LLC was acquired by Wedbush Securities
Inc. Pacific Growth Equities, LLC is a boutique investment bank that offers financial advisory
services to emerging companies.
Wedbush Securities Inc.
Source: CapitalIQ, data as of 1/16/12
CONFIDENTIAL
17
Seller Name
Enterprise Enterprise
Value /
Value /
Rev
EBIT
Announced
-
-
41
-
NM
-
-
-
-
-
-
-
-
-
NM
-
-
-
-
-
-
-
-
1.1x
75
DEPFA Bank plc
-
-
-
-
-
-
-
Comparable Transaction Analysis – Select M&A Transactions
Asset Managers

Comparable transactions analysis yielded 27 transactions in this industry, 7 of which disclosed
deal multiples
Announced
Target/Issuer
Target Business Description
Buyer
Seller Name
Guggenheim Funds Services Group,
Inc.
01/11/12
Claymore Investments, Inc.
Claymore Investments, Inc is a privately owned investment manager.
BlackRock, Inc.
12/16/11
Stone Tower Capital, LLC
Stone Tower Capital, LLC (STC) is a privately owned hedge fund sponsor.
Apollo Credit Management LLC
11/14/11
Gresham Investment
Management LLC
As of December 31, 2011, Gresham Investment Management LLC operates as a subsidiary of
Nuveen Investments, Inc.
Nuveen Investments, Inc.
10/27/11
PCG Asset Management, LLC
PCG Asset Management, LLC is a privately owned investment manager.
Mitsubishi Corporation
Pacific Corporate Group
09/14/11
Goodwin Capital Advisers, Inc.
Goodwin Capital Advisers, Inc. is a privately owned investment manager.
Conning & Company
Phoenix Companies Inc.
04/26/11
Stadion Money Management
Stadion Money Management is an employee owned investment manager.
TA Associates, Inc.
02/24/11
Emerging Markets Management,
L.L.C. (nka:Ashmore EMM,
Ashmore EMM, L.L.C. is a privately owned investment manager.
L.L.C.)
Ashmore Group PLC
Amundi Asset Management
01/11/11
Lloyd George Management (BVI)
Lloyd George Management (BVI) Limited is a privately owned investment manager.
Ltd
Bank of Montreal
Eaton Vance Corp.
12/21/10
CIFC Investment Management
LLC (nka:CIFC Asset
Management LLC)
Deerfield Capital Corp.
(nka:CIFC Corp.)
Charlesbank Capital Partners, LLC;
Charlesbank Equity Fund V, L.P.
CIFC Asset Management LLC is a privately owned investment manager.
Source: CapitalIQ, data as of 1/16/12
CONFIDENTIAL
18
Target AUM
($mm)
Implied
Enterprise
Value
($mm)
Enterprise
Value / Rev
Enterprise
Value / EBIT
Enterprise
Value /
EBITDA
6,878
-
-
-
-
17,000
-
-
-
-
-
-
-
-
20,000
-
-
-
-
12,846
-
-
-
-
6,600
-
-
-
-
307
-
-
-
101
-
-
-
14.1x
34.9x
34.2x
NA
10,400 $
490
3,600
$
$
648
Comparable Transaction Analysis – Select M&A Transactions
Asset Managers
Announced
Buyer
Target Business Description
Target/Issuer
Seller Name
Citigroup, Inc.; Goldman Sachs Asset
Management International Ltd.;
Petershill Fund Offshore LP
12/06/10
Claren Road Asset Management,
Claren Road Asset Management, LLC is an employee owned hedge fund sponsor.
LLC
The Carlyle Group (nka:The
Carlyle Group LP)
11/17/10
Pelagos Capital Management,
LLC
Pelagos Capital Management, LLC is a privately owned investment manager.
Franklin Resources Inc.
09/27/10
Trilogy Global Advisors, LLC
Trilogy Global Advisors, LLC is an employee owned investment manager.
Affiliated Managers Group Inc.
09/01/10
Reams Asset Management
Company LLC
Reams Asset Management Company LLC is an employee owned investment.
Scout Investment Advisors, Inc.
08/03/10
Montag & Caldwell Inc.
Montag & Caldwell Inc. is a privately owned investment manager.
07/16/10
RidgeWorth Capital
Management, Inc., Money
Market Management Business
RidgeWorth Capital Management, Inc., Money Market Management Business manages
money market mutual fund assets.
06/18/10
QS Investors LLC
QS Investors LLC is an employee owned investment manager.
DB Advisors, LLC
Berggruen Holdings, Inc.; Sal.
Oppenheim jr. & Cie. S.C.A.; Jackson
Holding Services Inc.; Berggruen
Holdings North America Ltd; Sage
Summit LP; Istithmar World Capital
P.J.S.C.; Lavender Heights Capital
LP; Point Pleasant Ventures Ltd.
Federated Investors, Inc.
05/17/10
GLG Partners, Inc.
GLG Partners Inc. is a privately owned hedge fund sponsor.
Man Group plc
02/19/10
INTECH Investment
Management LLC
INTECH Investment Management LLC is a privately owned investment manager.
Janus Capital Group, Inc.
Source: CapitalIQ, data as of 1/16/12
CONFIDENTIAL
19
Target AUM
($mm)
Implied
Enterprise
Value
($mm)
Enterprise
Value / EBIT
Enterprise
Value / Rev
Enterprise
Value /
EBITDA
4,500
-
-
-
-
382
-
-
-
-
12,442
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
9,800
BNP Paribas Fortis
12,656
RidgeWorth Capital Management,
Inc.
23,099
$
43
-
$
34
-
NA
23,668
$
1,891
6.2x
NM
NM
43,969
$
1,047
-
-
-
Comparable Transaction Analysis – Select M&A Transactions
Asset Managers
Announced
Target/Issuer
Target Business Description
Buyer
Seller Name
Target AUM
($mm)
Implied
Enterprise
Value
($mm)
Enterprise
Value / Rev
Enterprise
Value / EBIT
Enterprise
Value /
EBITDA
02/16/10
Logan Circle Partners, L.P.
Logan Circle Partners, L.P. is a privately owned investment manager.
Fortress Investment Group LLC
Guggenheim Partners, LLC
12,100
$
47
-
-
-
02/10/10
Pantheon Ventures Ltd.
Pantheon Ventures Ltd. is an investment firm specializing in direct and fund of funds
investments.
Affiliated Managers Group Inc.
Frank Russell Company
22,000
$
1,000
-
-
-
12/20/09
Advisory Research Holdings, Inc. Advisory Research Holdings, Inc. is a privately owned investment manager.
Piper Jaffray Companies
TA Associates, Inc.
6,550
$
220
4.1x
8.4x
8.3x
12/20/09
Advisory Research Holdings, Inc. Advisory Research Holdings, Inc. is a privately owned investment manager.
Piper Jaffray Companies
TA Associates, Inc.
NA $
220
4.1x
8.4x
8.3x
12/12/09
Highbury Financial Inc.
Highbury Financial Inc., an investment management holding company, through its subsidiary,
Aston Asset Management LLC, provides permanent capital solutions to mid-sized investment Affiliated Managers Group Inc.
management firms in the United States.
NA $
85
2.5x
18.1x
17.4x
10/26/09
Allied Capital Corporation
As of April 1, 2010, Allied Capital Corporation, an investment management company, was
acquired by Ares Capital Corporation.
Ares Capital Corporation
NA $
2,154
6.1x
8.0x
8.0x
08/03/09
Patriot Capital Funding, Inc.
Patriot Capital Funding, Inc. is a private equity firm specializing in investments in small and
mid sized companies.
Prospect Capital Corporation
The Compass Group
NA $
194
5.6x
8.1x
7.9x
06/11/09
Barclays Global Investors,
National Association
(nka:BlackRock Institutional
Trust Company, N.A.)
Barclays Global Investors, National Association (BGI) is a privately owned investment
manager.
BlackRock, Inc.
Barclays Global Investors UK Holdings
Limited
NA $
13,344
-
-
7.3x
04/30/09
INTECH Investment
Management LLC
INTECH Investment Management LLC is a privately owned investment manager.
Janus Capital Group, Inc.
NA $
843
-
-
-
Mean
$
581
6.1x
13.2x
13.1x
Median
$
478
4.8x
8.4x
8.3x
Source: CapitalIQ, data as of 1/16/12
CONFIDENTIAL
20
Comp Analysis Summary

Comparable Public Company Analysis implies an EV/LTM EBITDA multiple of 6.8x and 5.2x
(after illiquidity and size discount) for Investment Banks and Asset Managers, respectively

Comparable Transaction Analysis implies an EV/LTM EBITDA multiple of 8.3x for Asset
Managers while Investment Banks did not yield a sufficient population of transactions with
disclosed multiples

Based on the comparable public company, comparable transaction analyses, and Griffin
experience, Griffin would expect the range of value for ABC to be around 6.5x to 7.5x
EV/EBITDA range
CONFIDENTIAL
21
III. Preliminary Financial Analysis
CONFIDENTIAL
Preliminary Financial Analysis
Overview

Griffin completed a detailed analysis of ABC to better understand the Company’s strengths
and weaknesses

Griffin analyzed the Company’s financial performance to explain trends and variances

Griffin examined ABC’s financial statements “from the perspective of a buyer”
CONFIDENTIAL
23
Preliminary Financial Analysis
Balance Sheet
For the Fiscal Year Ended
December 31,
(000s)
2009
2010
2011
Transaction
2011
Actual
Actual
Actual
Adjustments
Proforma
$
$
$
$
Current assets:
Cash and cash equivalents
Accounts receivable
369
450
500
10,000
11,000
12,000
Work-in-process
5,000
5,700
Prepaid expenses and other current assets
1,500
Total current assets
Property, plant and equipment
Goodwill
Total assets
(500)
$
12,000
6,000
--
1,500
2,000
-
2,000
16,869
18,650
20,500
9,500
9,750
10,000
-
10,000
10,000
10,000
10,000
-
10,000
$36,369
$38,400
$40,500
6,000
(500)
$
(500)
20,000
$
40,000
Current liabilities:
Line of credit
-
-
-
-
-
500
500
500
-
500
Accrued expenses
14,000
16,000
18,000
-
18,000
Total current liabilities
14,500
16,500
18,500
-
18,500
Long-term debt
12,000
11,000
10,000
1,800
1,900
2,000
28,300
29,400
30,500
8,069
9,000
10,000
$36,369
$38,400
$40,500
Accounts payable
Deferred rent
Total liabilities
Equity
Total liabilities and equity
Source: All information obtained from ABC audited financial statements.
CONFIDENTIAL
24
(10,000)
-
-
2,000
(10,000)
20,500
9,500
$
(500)
19,500
$
40,000
Preliminary Financial Analysis
Income Statement – Company Projections
(000s)
Revenues:
Professional Fees
For the Year Ended December 31,
2009
2010
2011
Actual
Actual
Actual
2012
Projected
$ 92,600
$ 100,000
85,750
92,600
100,000
110,000
121,000
133,100
146,410
161,051
8%
10%
10%
10%
10%
10%
% Growth
n/a
8%
110,000
$
121,000
$
133,100
$
146,410
2016
Projected
$ 85,750
Total revenue
$
For the Year Ending December 31,
2013
2014
2015
Projected
Projected
Projected
$
161,051
Expenses:
Salaries, incentive compensation and
employee benefits - Managing Directors
32,156
34,725
37,500
41,250
45,375
49,913
54,904
60,394
Salaries, incentive compensation and
employee benefits - Non-Managing Directors
23,581
25,465
27,500
30,250
33,275
36,603
40,263
44,289
General and administrative
25,725
27,780
30,000
33,000
36,300
39,930
43,923
48,315
2,573
2,778
3,000
3,300
3,630
3,993
4,392
4,832
429
463
500
550
605
666
732
805
84,464
91,211
98,500
108,350
119,185
131,104
144,214
158,635
1,286
1,389
1,500
1,650
1,815
1,997
2,196
2,416
424
458
500
545
599
659
725
797
Depreciation and amortization expense
Interest expense
Total expenses
Income before income taxes
Income tax expense
Net income
EBITDA Calculation
Income before income taxes
Interest expense
Depreciation and amortization
EBITDA
EBITDA Margin %

$
862
$
931
$
1,000
$
1,106
$
1,216
$
1,338
$
1,471
$
1,619
$
1,286
429
2,573
4,288
$
1,389
463
2,778
4,630
$
1,500
500
3,000
5,000
$
1,650
550
3,300
5,500
$
1,815
605
3,630
6,050
$
1,997
666
3,993
6,655
$
2,196
732
4,392
7,321
$
2,416
805
4,832
8,053
$
5.0%
$
5.0%
$
5.0%
$
5.0%
$
5.0%
$
5.0%
$
5.0%
$
5.0%
Griffin feels that potential transaction partners will discount the future growth rate to 5% from
10% to more conservatively underwrite the transaction
CONFIDENTIAL
25
Preliminary Financial Analysis
Income Statement – Griffin Conservative Projections
(000s)
Revenues:
Professional Fees
For the Year Ended December 31,
2009
2010
2011
Actual
Actual
Actual
$
Total revenue
85,750
$
85,750
% Growth
n/a
2012
Projected
105,000
$
110,250
$
115,763
$
121,551
2016
Projected
92,600
$ 100,000
92,600
100,000
105,000
110,250
115,763
121,551
127,628
8%
5%
5%
5%
5%
5%
8%
$
For the Year Ending December 31,
2013
2014
2015
Projected
Projected
Projected
$
127,628
Expenses:
Salaries, incentive compensation and
employee benefits - Managing Directors
32,156
34,725
37,500
39,375
41,344
43,411
45,581
47,861
Salaries, incentive compensation and
employee benefits - Non-Managing Directors
23,581
25,465
27,500
28,875
30,319
31,835
33,426
35,098
General and administrative
25,725
27,780
30,000
31,500
33,075
34,729
36,465
38,288
2,573
2,778
3,000
3,150
3,308
3,473
3,647
3,829
Depreciation and amortization expense
Interest expense
Total expenses
Income before income taxes
Income tax expense
Net income
EBITDA Calculation
Income before income taxes
Interest expense
Depreciation and amortization
EBITDA
EBITDA Margin %
CONFIDENTIAL
429
463
500
525
551
579
608
638
84,464
91,211
98,500
103,425
108,596
114,026
119,727
125,714
1,286
1,389
1,500
1,575
1,654
1,736
1,823
1,914
424
458
500
520
546
573
602
632
$
862
$
931
$
1,000
$
1,055
$
1,108
$
1,163
$
1,222
$
1,283
$
1,286
429
2,573
4,288
$
1,389
463
2,778
4,630
$
1,500
500
3,000
5,000
$
1,575
525
3,150
5,250
$
1,654
551
3,308
5,513
$
1,736
579
3,473
5,788
$
1,823
608
3,647
6,078
$
1,914
638
3,829
6,381
$
5.0%
$
5.0%
$
5.0%
26
$
5.0%
$
5.0%
$
5.0%
$
5.0%
$
5.0%
Preliminary Financial Analysis
Valuation Analysis – No Compensation Cap
(000s)
Forecasted 2011 EBITDA
EBITDA
$5,000
Addbacks
-
Adjusted
EBITDA
$5,000
Implied Cash Enterprise Value
6.50x
Implied Enterprise Value
6.75x
7.00x
7.25x
$32,500
$33,750
$35,000
$36,250
$37,500
32,500
33,750
35,000
36,250
37,500
10,000
10,000
10,000
10,000
10,000
10,000
10,000
10,000
10,000
10,000
500
500
500
500
500
500
500
500
500
500
7.50x
Less Balances
12/31/11
as of
Funded debt
Total
Add Balances as of 12/31/2011
Cash and cash equivalents
Total
Excess Cash / (Net Debt)
(9,500)
(9,500)
Per MD
CONFIDENTIAL
27
(9,500)
(9,500)
Implied Equity Value to Seller
6.75x
7.00x
7.25x
6.50x
Total Cash Equity Value
(9,500)
7.50x
$23,000
$24,250
$25,500
$26,750
$ 28,000
$
$
$
$
$
460
485
510
535
560
Preliminary Financial Analysis
Compensation Policies of Publicly Traded Investment Banks
Company
Investment
Investment
Investment
Investment
Investment
Investment
Investment
Investment
Investment
Investment
Investment
Investment
Investment
Investment
Investment
Investment
Average
CONFIDENTIAL
Bank
Bank
Bank
Bank
Bank
Bank
Bank
Bank
Bank
Bank
Bank
Bank
Bank
Bank
Bank
Bank
Total
Compansation
/ Revenue
Ticker
(%)
A A
49.0%
B B
41.7%
C C
49.1%
D D
49.3%
E E
47.1%
F F
57.5%
G G
73.0%
H H
56.3%
I
I
55.0%
J
J
58.0%
K K
59.0%
L
L
56.5%
M M
50.0%
N N
50.0%
O O
80.0%
P P
55.0%
Source
Policy
Policy
Policy
Policy
Policy
Covenant
Policy
Policy
Target
Target
Target
Target
Target
Policy
Policy
Target
55.4%
28

Average compensation expense as a
percentage of revenue for investment
banks is approximately 55%

ABC Financial Services compensation
as a percentage of revenue is 65%
Preliminary Financial Analysis
2011 Income Statement – Actual vs. Proforma for 55% Compensation Cap
(000s)
Revenues:
Professional Fees
For the Year Ended
December 31,
2011
2011
Actual Proforma
65%
- 55%
Comp Cap
Comp
Cap
$100,000
$100,000
100,000
100,000
n/a
0%
Total revenue
% Growth

If ABC Financial Services were to cap
compensation at 55% of revenue,
EBITDA would increase by $10 million
and create significant equity value

Capital gains on the sale of stock are
taxed at 15% (federal) vs.
compensation taxed at 35% (highest
marginal federal rate)

Average compensation per MD would
decrease by $200,000 from $750,000
to $550,000. Based on compensation
studies, $550,000 is in line with
industry standards
Expenses:
Salaries, incentive compensation and
employee benefits - Managing Directors
37,500 37.5%
27,500 27.5%
Salaries, incentive compensation and
employee benefits - Non-Managing Directors
Total Salaries, incentive compensation and
employee benefits - Non-Managing Directors
27,500 27.5%
27,500 27.5%
65,000 65.0%
55,000 55.0%
General and administrative
30,000
30,000
3,000
3,000
Depreciation and amortization expense
Interest expense
500
500
98,500
88,500
1,500
11,500
500
3,795
$
1,000
$ 7,705
$
1,500
500
3,000
5,000
$ 11,500
500
3,000
$ 15,000
5.0%
15.0%
Total expenses
Income before income taxes
Income tax expense
Net income
EBITDA Calculation
Income before income taxes
Interest expense
Depreciation and amortization
EBITDA
$
EBITDA Margin %
Compensation per Managing Director
CONFIDENTIAL
$
750
$
550
29
Preliminary Financial Analysis
Valuation Analysis – 55% Compensation Cap
Forecasted 2011 EBITDA
EBITDA
Addbacks
Adjusted
EBITDA
6.50x
Implied Enterprise Value
6.75x
7.00x
7.25x
$5,000
10,000
$15,000
$97,500
$101,250
$105,000
$108,750
$112,500
97,500
101,250
105,000
108,750
112,500
10,000
10,000
10,000
10,000
10,000
10,000
10,000
10,000
10,000
10,000
500
500
500
500
500
500
500
500
500
500
Implied Cash Enterprise Value
7.50x
Less Balances
12/31/11
as of
Funded debt
Total
Add Balances as of 12/31/2011
Cash and cash equivalents
Total
Excess Cash / (Net Debt)
(9,500)
6.50x
(9,500)
(9,500)
(9,500)
(9,500)
Implied Equity Value to Seller
6.75x
7.00x
7.25x
7.50x
Total Cash Equity Value
$ 88,000
$ 91,750
$ 95,500
$ 99,250
$
103,000
Per MD
$ 1,760
$ 1,835
$ 1,910
$ 1,985
$
2,060
Increase in Equity Value Due to Comp Cap per MD
$ 1,300
$ 1,350
$ 1,400
$ 1,450
$
1,500
CONFIDENTIAL
30
Preliminary Financial Analysis
Private Equity LBO Model – Assumptions

Middle of valuation range is 7.0x EBITDA = $105 million

Private Equity investor wants MDs to have “skin in the game” via retained or “rolled” equity
investment

Griffin estimates approximately 28% Rolled Equity stake would be required ($26.5 million)

Aligns economic interest between Private Equity and MDs via “second bite of the apple” for
MDs


Prudent levels of leverage used: 2.5x Senior Debt, 1.0x Subordinated Debt



Reflects “asset-light” balance sheet
Assumes the Company is sold in 5 years for same exit multiple (7.0x)

Model #1: 10% growth Company projections used

Model #2: Conservative 5% growth model is used
Cash liquidity to MDs is substantial, but not so much per MD ($1.2 million average after-tax)
to enable them to quit and retire post-closing


Through the effect of leverage, the MDs still own 47% of the common equity post-closing
MDs will also have to sign a 5-year Non-Compete and Non-Solicit Agreement
Private Equity common ownership on a fully-converted basis of 53% provides a 20-24% IRR
depending on the growth scenario utilized
CONFIDENTIAL
31
Preliminary Financial Analysis
Private Equity LBO Model – Summary – 10% Revenue Growth
ABC Financial Services
Griffin Financial Group, LLC
LBO Model Summary & Assumptions ($000s)
Buyer's Sources of Funds
Operating Summary
$
Existing Cash
Revolver
Senior Term A
Senior Term B
Senior Term C
Other Sr. Debt
Senior Sub Debt
Junior Sub Debt
Seller Note
Convertible Preferred Equity
Mgmt Co-investment
Management Rolled Equity
Sponsor Common Equity
Total
$
$
37,500
15,000
30,168
26,500
109,168
%
0.0%
0.0%
34.4%
0.0%
0.0%
0.0%
13.7%
0.0%
0.0%
27.6%
0.0%
24.3%
0.0%
100.0%
Buyer's Uses of Funds
$
Purchase Price
Other
Other
Other
Other
Transaction Fees & Expenses
Excess Cash
Total
2-Feb-12
$
105,000
$
4,168
109,168
Actual
FY
Dec-11
100,000
45,000
15,000
12,000
7,475
2,500
Net Revenues
Gross Profit
Adjusted EBITDA
Adjusted EBIT
Net Income to Common
Capital expenditures
Proforma
FY
Dec-11
$100,000
45,000
15,000
12,000
2,113
$2,500
Projected - Fiscal Year Ending,
Dec-13
Dec-14
Dec-15
$121,000
$133,100
$146,410
54,450
59,895
65,885
18,150
19,965
21,962
14,520
15,972
17,570
593
753
1,833
$2,800
$2,900
$3,000
Dec-12
$110,000
49,500
16,500
13,200
466
$2,700
Dec-16
$161,051
72,473
24,158
19,326
1,011
$3,100
Leverage & Coverage Ratios
Proforma
FY
Dec-11
$
37,500
15,000
52,500
%
Total Senior Debt
Total Sub Debt
Net Debt (Cash)
96.2%
0.0%
0.0%
0.0%
0.0%
3.8%
0.0%
100.0%
Senior Funded Debt / EBITDA
Subordinated Debt / EBITDA
Total Funded Debt / EBITDA
EBITDA-Non-Fin Capex / Sr Debt Svc
EBITDA-Non-Fin Capex / Total Debt Svc
EBITDA-Non-Fin Capex / Fixed Charges
2.50
1.00
3.50
2.00
1.32
1.32
$
Dec-12
36,000
15,457
46,583
x
x
x
x
x
x
2.18
0.94
3.12
2.88
1.91
1.91
x
x
x
x
x
x
$
Projected - Fiscal Year Ending,
Dec-13
Dec-14
Dec-15
32,000
$
28,000
$
23,000
15,928
16,413
16,905
39,530
31,148
20,335
1.76
0.88
2.64
1.89
1.44
1.44
x
x
x
x
x
x
1.40
0.82
2.22
2.15
1.61
1.61
x
x
x
x
x
x
1.05
0.77
1.82
2.08
1.60
1.60
$
x
x
x
x
x
x
Dec-16
18,000
0
8,779
0.75
0.00
0.75
2.44
0.58
0.58
x
x
x
x
x
x
IRR and Ownership Summary
Seller's Sources of Funds
Purchase price
Cash
Total
$
$
105,000
500
$
105,500
%
99.5%
0.5%
0.0%
100.0%
Seller's Uses of Funds
Existing Debt
$
Transaction Fees & Expenses
Roll-over Equity
Pre-tax Shareholder Proceeds
Other
Total
$
$
10,000
3,000
26,500
66,000
105,500
%
9.5%
2.8%
25.1%
62.6%
0.0%
100.0%
Enterprise Value
EBITDA Multiple LTM Ended 12/31/11
EBITDA Multiple Fcst Year Ending 12/31/09
EBITDA Multiple Proj Year Ending 12/31/12
$ 105,000
7.0x
7.0x
6.4x
Enterprise Value
Less: Existing Debt
Add: Cash
Seller's Equity Proceeds Before Fees
$ 105,000
(10,000)
500
$ 95,500
CONFIDENTIAL
Exit EBITDA
12/31/16
Multiple
Senior Sub Debt
Junior Sub Debt
Convertible Preferred Equity
Mgmt Incentive Options
Mgmt Co-investment
Management Rolled Equity
Sponsor Total Return
Total
Debt Amort. & Interest Rates
Max
Amount
Buyout Valuation
% Equity Sold
% Equity Retained
Exit
53.2%
46.8%
Revolver
Senior Term A
Senior Term B
Senior Term C
Other Sr. Debt
Seller Note
$ Value Equity
Contribution
IRR
6.50x
7.00x
7.50x
15.2%
nm
22.7%
nm
nm
13.0%
nm
15.2%
nm
24.3%
nm
nm
15.2%
nm
15.2%
nm
25.8%
nm
nm
17.2%
nm
$
Drawn At
Closing
$7,000
37,500
-
37,500
-
Senior Sub Debt
15,000
Junior Sub Debt
Convertible Preferred Equity
30,168
15,000
30,168
LIBOR Floor
Spread
n/a
n/a
30,168
n/a
26,500
56,668
Rate
1.00%
1.00%
0.00%
0.00%
0.00%
4.00%
4.00%
0.00%
0.00%
0.00%
5.00%
5.00%
0.00%
0.00%
0.00%
0.00%
Cash
12.00%
0.00%
0.00%
PIK
3.00%
0.00%
15.00%
Rate
15.00%
0.00%
15.00%
32
% Equity
Contribution
53.2%
0.0%
0.0%
46.8%
0.0%
100.0%
Unused
0.50%
n/a
n/a
n/a
n/a
n/a
Warrants
0.00%
0.00%
0.00%
Close
Ownership
53.2%
0.0%
0.0%
46.8%
0.0%
100.0%
Amort
Period
7
5
5
5
5
Exit
Ownership
0.00%
0.00%
50.44%
5.25%
0.00%
44.31%
0.00%
100.0%
Amort
Start
Exercise
Price
$
$
$
$
-
Maturity
n/a
years
years
years
years
years
n/a
12/30/11
12/30/11
12/30/11
12/30/11
12/30/11
n/a
12/31/18
12/31/16
12/31/16
12/31/16
12/31/16
1
n/a
n/a
12/31/2016
n/a
n/a
12/31/2016
n/a
n/a
Preliminary Financial Analysis
Private Equity LBO Model – Summary – 5% Revenue Growth
ABC Financial Services
Griffin Financial Group, LLC
LBO Model Summary & Assumptions ($000s)
Buyer's Sources of Funds
$
Existing Cash
Revolver
Senior Term A
Senior Term B
Senior Term C
Other Sr. Debt
Senior Sub Debt
Junior Sub Debt
Seller Note
Convertible Preferred Equity
Mgmt Co-investment
Management Rolled Equity
Sponsor Common Equity
Total
$
$
37,500
15,000
30,168
26,500
109,168
%
0.0%
0.0%
34.4%
0.0%
0.0%
0.0%
13.7%
0.0%
0.0%
27.6%
0.0%
24.3%
0.0%
100.0%
Buyer's Uses of Funds
$
Purchase Price
Other
Other
Other
Other
Transaction Fees & Expenses
Excess Cash
Total
2-Feb-12
Operating Summary
$
105,000
$
4,168
109,168
Actual
FY
Dec-11
100,000
45,000
15,000
12,000
7,475
2,500
Net Revenues
Gross Profit
Adjusted EBITDA
Adjusted EBIT
Net Income to Common
Capital expenditures
Proforma
FY
Dec-11
$100,000
45,000
15,000
12,000
2,113
$2,500
Dec-12
$105,000
47,250
15,900
12,600
73
$2,700
Projected - Fiscal Year Ending,
Dec-13
Dec-14
Dec-15
$110,250
$115,763
$121,551
49,613
52,093
54,698
16,860
17,885
18,978
13,230
13,892
14,586
(246)
(603)
(92)
$2,800
$2,900
$3,000
Proforma
FY
Dec-11
$
37,500
15,000
52,500
Dec-12
36,000
15,457
46,901
Projected - Fiscal Year Ending,
Dec-13
Dec-14
Dec-15
32,000
$
28,000
$
23,000
15,928
16,413
16,905
40,600
33,476
24,475
Dec-16
$127,628
57,433
20,147
15,315
(1,592)
$3,100
Leverage & Coverage Ratios
%
Total Senior Debt
Total Sub Debt
Net Debt (Cash)
96.2%
0.0%
0.0%
0.0%
0.0%
3.8%
0.0%
100.0%
Senior Funded Debt / EBITDA
Subordinated Debt / EBITDA
Total Funded Debt / EBITDA
EBITDA-Non-Fin Capex / Sr Debt Svc
EBITDA-Non-Fin Capex / Total Debt Svc
EBITDA-Non-Fin Capex / Fixed Charges
2.50
1.00
3.50
2.00
1.32
1.32
$
x
x
x
x
x
x
2.26
0.97
3.24
2.77
1.84
1.84
x
x
x
x
x
x
$
1.90
0.94
2.84
1.76
1.34
1.34
x
x
x
x
x
x
1.57
0.92
2.48
1.92
1.44
1.44
x
x
x
x
x
x
1.21
0.89
2.10
1.80
1.38
1.38
$
x
x
x
x
x
x
Dec-16
18,000
0
15,392
0.89
0.00
0.89
2.03
0.49
0.49
x
x
x
x
x
x
IRR and Ownership Summary
Seller's Sources of Funds
Purchase price
Cash
Total
$
$
105,000
500
$
105,500
%
99.5%
0.5%
0.0%
100.0%
Seller's Uses of Funds
Existing Debt
$
Transaction Fees & Expenses
Roll-over Equity
Pre-tax Shareholder Proceeds
Other
Total
$
$
10,000
3,000
26,500
66,000
105,500
%
9.5%
2.8%
25.1%
62.6%
0.0%
100.0%
Enterprise Value
EBITDA Multiple LTM Ended 12/31/11
EBITDA Multiple Fcst Year Ending 12/31/09
EBITDA Multiple Proj Year Ending 12/31/12
$ 105,000
7.0x
7.0x
6.6x
Enterprise Value
Less: Existing Debt
Add: Cash
Seller's Equity Proceeds Before Fees
$ 105,000
(10,000)
500
$ 95,500
CONFIDENTIAL
Exit EBITDA
12/31/16
Multiple
Senior Sub Debt
Junior Sub Debt
Convertible Preferred Equity
Mgmt Incentive Options
Mgmt Co-investment
Management Rolled Equity
Sponsor Total Return
Total
Debt Amort. & Interest Rates
Max
Amount
Buyout Valuation
% Equity Sold
% Equity Retained
Exit
53.2%
46.8%
Revolver
Senior Term A
Senior Term B
Senior Term C
Other Sr. Debt
Seller Note
$ Value Equity
Contribution
IRR
6.50x
7.00x
7.50x
15.2%
nm
18.5%
nm
nm
7.0%
nm
15.2%
nm
20.1%
nm
nm
9.3%
nm
15.2%
nm
21.6%
nm
nm
11.4%
nm
$
Drawn At
Closing
$7,000
37,500
-
37,500
-
Senior Sub Debt
15,000
Junior Sub Debt
Convertible Preferred Equity
30,168
15,000
30,168
LIBOR Floor
Spread
n/a
n/a
30,168
n/a
26,500
56,668
Rate
1.00%
1.00%
0.00%
0.00%
0.00%
4.00%
4.00%
0.00%
0.00%
0.00%
5.00%
5.00%
0.00%
0.00%
0.00%
0.00%
Cash
12.00%
0.00%
0.00%
PIK
3.00%
0.00%
15.00%
Rate
15.00%
0.00%
15.00%
33
% Equity
Contribution
53.2%
0.0%
0.0%
46.8%
0.0%
100.0%
Unused
0.50%
n/a
n/a
n/a
n/a
n/a
Warrants
0.00%
0.00%
0.00%
Close
Ownership
53.2%
0.0%
0.0%
46.8%
0.0%
100.0%
Amort
Period
5
5
5
5
5
Exit
Ownership
0.00%
0.00%
50.44%
5.25%
0.00%
44.31%
0.00%
100.0%
Amort
Start
Exercise
Price
$
$
$
$
-
Maturity
n/a
years
years
years
years
years
n/a
12/30/11
12/30/11
12/30/11
12/30/11
12/30/11
n/a
12/31/16
12/31/16
12/31/16
12/31/16
12/31/16
1
n/a
n/a
12/31/2016
n/a
n/a
12/31/2016
n/a
n/a
IV.
Sell-Side Process
CONFIDENTIAL
Typical Engagement Phases Overview
Evaluation
 Determine shareholder
objectives and priorities

Economic

Family

Management

Continued
involvement

Company name
and culture
 Perform preliminary
analysis of Company
and industry
 Research market
environment
 Negotiate and sign
engagement agreement
with Shareholders /
Company
Preparation
Solicitation
Negotiation
 Perform Griffin’s
 Contact potential buyers
 Provide data room files
 Prepare potential
 Sign confidentiality
 Distribute draft
Company and industry
due diligence
documents to “go to
market”

“No-name”
company summary

Confidentiality
agreement

Memorandum
 Research and identify
potential buyers /
investors
 Determine potential
buyers / investors to
contact
 Prepare buyer / investor
data room files
/ investors on a “noname” basis
agreements with
potential buyers /
investors
to remaining potential
buyers / investors
purchase agreement to
remaining potential
buyers
 Distribute memorandum
 Address due diligence
 Solicit and negotiate 1st
 Solicit and negotiate
to potential buyers
round bids
 Select potential buyers /
investors to meet with
management and
participate in facility
tours
 Hold management
presentations / tours
 Solicit and negotiate 2nd
round bids
questions and requests
3rd* round bids / letters
of intent and, in some
cases, “mark-up” to the
transaction agreement
 Choose a potential
buyer / investor to move
to the final phase
* additional bid rounds may be
required or desired depending
on the process
Finalization
 Lead negotiation of the
“business” and
“economic” issues in the
transaction documents

Maximize of after
tax net proceeds

Minimize escrows
and indemnity
exposure
 Interface with clients
other advisors

Legal

Accounting / Tax
 Coordinate and manage
final buyer/ investor due
diligence
 Maintain transaction
momentum and sense
of urgency until close
In each phase, the client has the opportunity to control the direction of the process
CONFIDENTIAL
35
Typical Engagement Timeline
PHASES
I. EVALUATION
II. PREPARATION
III. SOLICITATION
Tailor Process
Confidential Competitive Atmosphere
2 weeks
2 – 3 weeks
4 - 6 weeks
IV. NEGOTIATION
4 weeks
V. FINALIZATION
8 - 10 weeks
Approximately 5-6 Months
CONFIDENTIAL
36
Griffin’s Role and Responsibilities
CREATE COMPETITIVE ATMOSPHERE AND TRANSACTION MOMENTUM

Interview and advise the Seller on goals and objectives of the process

Tailor transaction process to achieve the Seller’s goals and objectives

Determine and collect information from the Seller that is necessary to market the business

Compose comprehensive written materials describing the operational, strategic, managerial, and financial
elements of the business

Anticipate and advise the Seller on potential “business” and “valuation” issues that may be raised during
the transaction process

Research and develop a list of prospective strategic and financial buyers / investors, and work with the
Seller to determine which parties to approach

Contact and qualify prospective buyers or investors and secure confidentiality agreements

Distribute written materials describing the business and address questions about the business

Solicit and negotiate multiple rounds of offers and prioritize relative to Seller’s goals and objectives

Arrange and prepare management for meetings with prospective buyers / investors

Manage buyer / investor due diligence process including the organization of comprehensive data room
files to be shared with interested parties in the later stages of the process

Advise Seller on offers received and selection of a buyer / investor

In conjunction with the Seller’s attorney, assist with negotiation of transaction documents
CONFIDENTIAL
37
Company’s Role and Responsibilities
STAY FOCUSED ON THE BUSINESS AND ACHIEVE BUDGET / FORECAST

With Griffin’s assistance and advice, determine and prioritize the goals and objectives of the
transaction process

Provide financial and operational information to Griffin for preparation of written materials
describing the business

Review and approve written materials prepared by Griffin

Provide answers and / or information to Griffin in response to follow-up questions from
prospective buyers / investors

Participate in presentations and facility tours with prospective buyers / investors

Provide Griffin with information for data room files, which will be shared with prospective
buyers in the later stages of the process

Review offers and select buyer / investor based on consultation with Griffin

Respond to selected buyer’s / investor’s final due diligence requests

Review and execute transaction documents
CONFIDENTIAL
38
V.
Potential Purchasers
CONFIDENTIAL
Potential Purchasers
Private Equity Buyers

2006-2008 were record-breaking private equity fund raising years. There continues to be a
tremendous amount of liquidity in the U.S. private equity markets waiting to be deployed
(estimated $500 billion)

U.S. Fundraising and the number of funds continues to slow drastically from Q4 2007 through
Q4 2011. When 2007-2008 fund capital commitments expire in 2012-2013,
private equity liquidity could dry up dramatically unless fund raising picks up
US Yearly Fundraising Activity
$350
Dollars in Billions
517
505
437
428
469
467
$323
$250
300
$233
$150
$100
$184
$154
$120
$113
$125
200
100
$50
$0
2005
2006
2007
Aggregate Value ($ billions)
2008
2009
2010
180
160
$60
140
$50
120
$40
100
80
$30
60
$20
40
$10
20
$0
0
2004
200
$70
500
400
$261
$200
$80
600
551
494
Number of Funds
$300
US Quarterly Fundraising Activity
0
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
2008 2008 2008 2008 2009 2009 2009 2009 2010 2010 2010 2010 2011 2011 2011 2011
2011
Number of Funds
Aggregat e Value ($ billions)
Number of Funds

Griffin believes ABC has the characteristics of a private equity platform company

Based on Griffin’s recent experience with professional/financial services companies, Griffin
believes ABC fits the criteria for at least 200 private equity firms
CONFIDENTIAL
40
Potential Purchasers
Strategic Buyers

Griffin anticipates ABC will also have significant interest from strategic buyers



Griffin anticipates strategic buyers to include:



Buoyed by record levels of corporate cash and poor organic revenue growth, strategic M&A
buyer activity is strong
Foreign buyers are able to use the weak U.S. dollar to make favorable purchases
Investment Banks
Asset Managers


Commercial Banks
Consulting Firms
The major issue with large strategic buyers is they will most likely not want the MDs to retain
ownership. They will substitute the Rolled Equity for an Earn-out – an inferior solution

There will also be operational and strategic risk inherent in any strategic combination that is
lessened considerably with a Private Equity partner
CONFIDENTIAL
41
VI.
Summary
CONFIDENTIAL
Summary
Questions and Answers
 What is the value of ABC Financial Services Firm?

Griffin believes the range of purchase price multiples for ABC Financial Services is 6.5x-7.5x

The equity value of ABC Financial Services depending on ABC Financial Services compensation cap.
Below is a summary of equity value ranges:
Purchase Price
Multiple
6.50x
6.75x
7.00x
7.25x
7.50x

65%
55%
Compensation Compensation
Cap
Cap
Difference
$
23,000 $
88,000 $
65,000
24,250
91,750
67,500
25,500
95,500
70,000
26,750
99,250
72,500
28,000
103,000
75,000
We expect you to market the Company to strategic and financial buyers. What are the pros and
cons of partnering with each type of buyer/investor?


Strategic:

Pros: 1) Likely to pay a higher price, 2)knowledge of the industry

Cons: 1) Likely will not allow ABC Financial Services to roll equity, and participation in future
upside is limited to an earn-out, 2) Likely will not keep all 400 employees (i.e. will look for
synergies), 3) Change in Company culture and integration risks
Financial:

Pros: 1) Will allow partial liquidity and rolled equity so MDs can take some chips off the table, yet still
participate in future upside, 2) capital and incentive to make acquisitions, 3) Company culture and
400 employees remain as is

Cons: 1) Likely will not be able to pay as much as a strategic buyers, 2) Company will have to
operate with more leverage
43
CONFIDENTIAL
Summary
Questions and Answers



What form of consideration to do you expect ABC Financial Services Firm to receive at closing?
Post-closing?

Strategic: Likely cash and earn-out (earn-out percentage from 20-50%)

Financial: Part cash, part rolled equity (20% – 40% rolled equity)
What type of transaction capital structure should ABC Financial Services Firm expect if it is
purchased by a financial buyer (i.e. senior debt, subordinated debt, equity)?

ABC Financial Services should expect a financial buyer to use senior debt, subordinated debt and
equity to finance the transaction

ABC Financial Services should expect approximately 60% of the purchase price to be funded
using debt and the remaining 40% to be equity from a financial buyer’s committed fund
Please explain your sell-side process and how long it will take?

5-6 months (please refer to Section IV for a detailed timeline)
CONFIDENTIAL
44
Appendix I. Selected Griffin Team Members
CONFIDENTIAL
Selected Griffin Team Members
EXPERIENCE

Mr. Lee has over 18 years of investment banking and private equity
investing experience with middle market commercial and industrial
companies

Personally initiated or managed over 50 transactions as an
investment banker, and 3 as a private equity principal

50% of transaction experience is in sell-side mergers and
acquisitions, 25% in private placements of debt and equity capital,
and 25% in management buyouts and other buy-side merger and
acquisition assignments

Experience includes Principal of Horizon Partners, Ltd (private equity
investment firm), Director at Berwind Financial, L.P., and Investment
Banking Officer at Crestar Securities Corp. Current President for the
Philadelphia Chapter of the Association for Corporate Growth and
past Board Director for Realpoint, LLC, Lantor, Inc., and AirWave
Services Corp.
John A. Lee
Senior Managing Director
Griffin Financial Group LLC
Contact Information:
Phone: (610) 205-6106
Email: [email protected]
Office Address:
620 Freedom Business Center
Suite 210
P.O. Box 61926
King of Prussia, PA 19406
CONFIDENTIAL
46
Selected Griffin Team Members
EXPERIENCE

Mr. Sobota provides investment banking services to middle market
commercial, industrial and services companies

Experience includes merger and acquisition advisory, capital raise and
strategic planning services. Also advises clients on financial accounting
matters

Public accounting experience with Deloitte & Touche LLP
 As an Audit Manager led client engagements for Fortune 150 and
other clients within the commercial, industrial and services sectors
 Involved in the accounting aspects of mergers and acquisitions and
private and public placements of debt and equity

Certified Public Accountant and member of the Pennsylvania Institute
of Certified Public Accountants and the American Institute od Certified
Public Accountants

Received a B.S. in Accounting and a B.S. in Finance from DeSales
University
Michael J. Sobota
Vice President
Griffin Financial Group, LLC
Contact Information:
Phone: (610) 478-2294
Email: [email protected]
Office Address:
607 Washington St.
P.O. Box 1497
Reading, PA 19603
CONFIDENTIAL
47
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