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Confidential Overview for: June 27, 2012. Corporate Finance S ervices for the Middle M arket Company. Financial Advice we provide to you. Corporate Finance and Mergers and Acquisitions Positioning your company to raise capital or explore a liquidity option

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corporate finance s ervices for the middle m arket company
Corporate Finance Services for the Middle Market Company

Financial Advice we provide to you

  • Corporate Finance and Mergers and Acquisitions
  • Positioning your company to raise capital or explore a liquidity option
  • Raising growth capital or working capital
  • Restructuring of current capital structures
  • Equity partnering - both minority or majority
  • Enterprise valuation and comparison

The New world in the financing markets

41 North, What does it represent

  • What business and financing conditions are you currently facing? What capital will your business need on the horizon? 41 North Advisors was born out of the fact that our world’s financial conditions and seascape are constantly changing. In many cases, traditional sources of capital are no longer available, and growing businesses still have significant needs. Whether it is to grow your business to the next level, fund production and marketing or quietly explore an exit or a financial partner, 41 North Advisors has the experience, network and the expertise to guide you.
  • Latitude 41 degrees North refers to the navigable waters from Montauk, at the northern tip of Long Island, New York, to the upper arm of Cape Cod, Massachusetts. These waters provide yachtsmen with some of the best sailing and boating in the world. While on most days, they yield calm waters and gentle breezes, these waters can quickly turn to often dangerous and challenging conditions with shifting shoals, hidden obstructions, and thick fog with white, caped seas. Few individuals are suited to navigate through such conditions.
experience and global network
Experience and Global Network

41 North Advisors, LLC.

Transaction knowledge and expertise

  • Experienced team providing private client, investment banking and corporate finance advice since 1982.
  • Deep experience working with owners and founders of small to middle market companies primarily in the western United States.
  • Over 100 years of combined Wall Street and operational experience.
  • Significant experience in working with private companies exploring fresh capital needs and partial or complete company buyouts.
  • Strong relationships with over 200 financial institutions including private equity, mezzanine, family offices and private investors seeking to deploy capital in the middle market.
  • A thorough understanding of the process and thinking of financial sponsors and investors.
  • Team and open architecture approach to putting together the best team, solution and structure.
  • We are focused on the middle market, bringing bulge bracket experience and relationships to successfully raise capital, realize a liquidity event or advise on a buy-side assignment.

Working with you, the client & confidentiality

  • Becoming a trusted advisor to you and your company and its owners is not a right, but a cared after privilege.
  • Carefully exploring all financing options is paramount to coming up with the optimal capital structure and overall lower cost to your company. Whether it is a line of credit your company needs or growth capital, 41 North will work tirelessly to come up with the optimal solution and timeline for you and your company.
  • We treat all conversations and communication with the utmost confidence. All our communication between individuals and companies are separate and private.
charting the course and guidelines
Charting the Course and Guidelines
  • Serving the smaller middle market when:
  • Client needs capital for growth or acquisition.
  • Client is looking for liquidity in either partial or outright sale (non-control or control).
  • Client business is in need of fresh working and growth capital.
  • Client is looking to expand through acquisition and is in need of assistance to navigate the process.

Industries of Experience

  • Apparel /Footwear
  • Automotive
  • Building Materials
  • Business Services
  • Consumer Products
  • Distribution
    • Food & Beverage
    • Data imaging
  • General Manufacturing
  • Healthcare
  • Industrial Products
  • Media and Entertainment
  • Medical Device
  • Retail
  • Software and Technology
  • Outsource data storage
  • Client Criteria:
  • Good revenue stream and interesting company
  • Barriers to entry
  • Strong intellectual property and trademarks / service marks
  • Strong management and experienced track record
  • Clear business focus
  • Desirable market for product and/or services
strategic vs financial investors
Strategic vs. Financial Investors

Financial Buyers

Strategic Buyers

  • Potentially more complex structure.
  • Purchase of less than 100% of the Company.
  • Competitive pricing.
  • Retention and potential expansion of management team.

Considerations

  • Simple structure.
  • Normally purchase majority of the Company but are open to grow with young companies.
  • Add distribution & Distribution usually quickly.

Deal Structure

  • Higher probability of all cash.
  • Potential to use stock as currency depending on size.
  • Non-compete period for management and employees.
  • Employment period for key management.
  • Growth capital and first right of refusal on future
  • raises.
  • Strategic and tactical input heavily weighted
  • Cash and rolled equity.
  • Ability to invest along side financial partner in new acquisitions
  • Recap structure:
    • Equity stake remains.
    • Leveraged corporation when appropriate.
  • Employment period for management – critical.
  • Management is critical.

Valuations

  • Potential higher value at time of close.
    • Deal synergies increase value.
    • Cost rationalization -management/employee termination.
  • Few “Quality” deals in the marketplace has resulted in heightened competition and willingness to pay higher multiples for “good” companies.
  • Potentially significantly higher value over the long-term.
    • “second bite of the apple.”
potential pitfalls in capital raises or change of control
Potential Pitfalls in Capital Raises or Change of Control

Loss of Control

  • Allowing the acquirer to drive the process and time schedule
  • Granting exclusivity early on in the process
  • Having too many lines of communication

Bad Timing

  • Not assigning drop dead dates to various steps of the process
  • Signing letter of intent with too many contingencies
  • Not committing to the process — creating deal fatigue and “shop-worn” company

Weak Documentation

  • Informational memorandum that has “all inclusive” proprietary materials on the target
  • Not considering circulating draft purchase agreements to help pick appropriate buyer
  • Letters of interest with a wide range of values
  • A letter of intent that does not speak to and address key representations and warranties
  • Allowing unrealistic lock up provisions

Unlimited Access

  • Allowing management meetings to be un rehearsed or unscripted
  • Allowing for multiple management meetings and site visits — prior to LOI
  • Allowing buyers to speak with management without the presence of a financial advisor

Not Maximizing Pricing/Value

  • Creating too many economic and noneconomic conditions to a transaction
  • Not obtaining value for non-compete agreements, employment contracts, board seats, etc.
  • Unrealistic projections that allow buyers to structure the transaction as an earn-out
  • Not assessing each asset category to define its impact on transaction value
  • Eliminating platform or financial buyers as a potential group of acquirers
approaches to the m a transaction process
Approaches to the M&A Transaction Process

One-on-One Negotiations

Cons:

  • Uncertainty that transaction value will be maximized, as only one buyer is pursued.
  • While highly focused, still cannot guarantee that confidentiality will be maintained.
  • Negotiations can be protracted and time-consuming.

Pros:

  • Very limited, controlled disclosure.
  • Minimizes uncertainty in seller’s company.
  • Can complete a transaction quickly.
  • Maximum flexibility to stop or change process.
  • Minimizes “damaged goods” issue if sale not closed.

Multiple Targets Approached Sequentially

Pros:

  • Limited, controlled information disclosure.
  • Somewhat limits uncertainty within company.
  • Can possibly complete a transaction quickly.

Cons:

  • Uncertainty that value will be maximized.
  • Modest potential for breaches of confidentiality.
  • May be difficult to treat all potential buyers equally and give all parties the same information.
  • More commitment of management time.

Controlled Auction

Pros:

  • Should maximize value, as the greatest number of potential buyers is involved.
  • Enhanced confidence in the adequacy of value.
  • Process is fairly expeditious, as all bidders face the same deadlines.

Cons:

  • Potentially broad dissemination of information.
  • Can create uncertainty within the company.
  • Substantial commitment of management time.
  • Ability to realize full value can be compromised in future if process is unsuccessful.
  • Maintaining confidentiality can been an issue.
timeline and process
Timeline and Process

Phase 1 Weeks 1-3

Information gathering

Price validation

Preparation of information memorandum

Finalize list of targets

Phase 2 Weeks 3-8

Present the Company to potential investors & distribute overview

and memorandum. High touch calling, mailing and Meetings

Follow up and stress the selling points and how this fits into their existing investments

Create the urgency of the process and move buyers thru process to make offers

Phase 3 Weeks 8-11

Receive written indications of interest and review and advise the owner on offers

Select “short list”

Schedule management meetings

Manage and organize the Initial due diligence / information requests

Phase 4 Weeks 11-12

Request Letters of Intent

Distribution of draft agreements (if appropriate)

Negotiation of Letters of Intent and agreements

Phase 5 Week 16-20

Review and evaluate final offers

Negotiate with final bidders

Coordinate all parties IE: Attorneys / CPAs for due diligence

Work closely with counsel on the purchase agreement and the deal points including reps and warranties

Closing of the transaction – Signatures, Stock and asset tranfers, wires coordination

Preparing the Information

Market the Company

Submission of Interim Proposals

Due Diligence and Final Proposals

Final Negotiations and Closing

slide9
Team
  • Keith Yonkers is Managing Director of 41 North Advisors. His 25-plus years of financial experience includes investment banking and private banking as well as leadership roles with Citigroup and Deutsche Bank. Keith has worked extensively with investors, private equity firms, venture capitalists, entrepreneurs and business owners. His background also includes several years at IBM in Los Angeles as a major accounts manager, where he worked closely with middle market companies.
  • Keith is a graduate of the University of Southern California’s Marshall School of Business, where he earned a Bachelor of Science in Business Administration with an advanced emphasis on Finance. At Citigroup, he continued his education and certificate work in capital markets, investment banking and organizational management.
  • Current and past board and civic activities include:
  • Hoag Hospital 552 Foundation
  • Hoag Hospital two-term board member
  • Orange County Venture Group
  • Former board of advisors to the University of California - Irvine Tech and Medical
  • Device Incubators Association for Corporate Growth
  • USC Commerce Associates
  • Cardinal and Gold, USC’s Marshall School of Business mentor program
  • Newport Harbor Yacht Club Director and Treasurer
  • Keith has been married for over 20 years, has 3 children and resides in Newport Beach, California. Other passions include boating and running. Keith is a competitive triathlete, completing over 60 triathlon races. He is also the voice of Mater Dei High School Water Polo, FINAInternational Matches, NCAA men’s and women's water polo action & Junior Olympics as their poolside game announcer.
  • .

J. Keith Yonkers

Managing Director

O: 949.642.1141

C: 949.413.8814

keith.yonkers@41-north.com

slide10
Team

Joe Dowling is a Managing Director at 41 North and has over 20 years of investment banking experience. He has held positions at Citigroup and CS First Boston and has extensive management and operations experience, most recently as President of MediVas, a San Diego-based biotechnology company, where he successfully oversaw the sale of the Company. Mr. Dowling’s banking experience includes completion of more than 30 transactions valued at greater than $2 billion across numerous industries, including information technology, biotechnology, healthcare, manufacturing and food products.

Mr. Dowling resides in San Diego with his wife Cynthia and has two grown sons. In his spare time he is an avid runner, cyclist and enjoys hiking and golf. Mr. Dowling is a graduate from University of California, Los Angeles.

Joe Dowling

Managing Director

858..213.9522

joe.dowling@41-north.com

slide11
Team

Peter Lowry

Managing Director

415.250.0672

email: peter@41-north.com

Peter Lowry works closely with middle market companies on the west coast in their corporate finance needs. Mr. Lowry’s Background includes work as a Director in Deutsche Bank’s Integrated Strategies Group. He worked with CEOs, CFOs, founders and other executives with their investment banking, wealth planning, IPOs, M&A and other transactions services. Prior to this role, he was a Private Banker in Deutsche Bank Private Wealth Management's San Francisco office where he served ultra-high-net-worth individuals and families.

Before joining Deutsche Bank in 2006, Mr. Lowry worked at Bank of America Private Bank as a Private Client Advisor and Team Leader. Prior to that, he was a Director and Investment Banker with UBS Warburg, a Vice President at Lehman Brothers and a CPA with Price Waterhouse.

Mr. Lowry earned a Bachelor of Arts in economics with honors from Hamilton College, a Master of Science in public accounting from the University of Hartford and a Master of Business Administration in finance with Beta Gamma Sigma Honors from Columbia Business School. He serves on the board of directors as treasurer of Family Service Agency of Marin, California.

slide12
Team

Mr. Ainsworth’s background includes work as the President and Chief Executive Officer of the investment bank Trenwith Group. Over the course of his career, Mr. Ainsworth has worked on transactions across a wide array of industry sectors including apparel, healthcare, food service, manufacturing and technology. In his over twenty-year history with Trenwith, he oversaw more than 400 transactions totaling over $10 billion.

Mr. Ainsworth leveraged his experience, as well as a solid background in credit, bankruptcy and equity, to capitalize on the difficult financial times of the early 1980s by purchasing and restructuring five struggling companies. Mr. Ainsworth's first acquisition and turnaround was for American Campground, Inc., where he assembled a team of investors to purchase control of the company.

In 1989, Mr. Ainsworth led the purchase of a financially distressed women's apparel company based in New York City with factories in Korea, China and Japan. He relocated to London, England, to serve as President and Chairman of the company, and to expand the company's worldwide sales. After his two year tenure, Mr. Ainsworth sold the once failing company after reestablishing profitability.

Mr. Ainsworth embarked on his professional and financial career with Prudential Corporate Finance in New York, primarily in project finance. Mr. Ainsworth holds his series 7, 24 and 63 licenses. Mr. Ainsworth is a regular speaker at the UCLA Mergers and Acquisitions executive education program and lectures twice a year to professionals from around the world.

Ronald Ainsworth

Board of Advisor

C: 949.642.1141

.

recent selected advisory engagements
Recent Selected Advisory Engagements

41 North, LLC. provided advisory services for Lucini

Italia

41 North, LLC. provided advisory services for Tina’s Gourmet Pastries

41 North, LLC. provided advisory services for TD Service Financial

41 North, LLC. provided advisory services for Front Runners Inc.

41 North Advisors LLC. is a fully licensed investment bank with expertise in the lower middle market. We maintain regulated licenses which include series 79, 63, 7 and 8. All securities transactions are cleared through our broker dealer firm BCC Advisors LLC. Member of FINRA and SIPC.