Recapitalization and Liquidity: Growth Options for Privately Held Companies

November 15, 2016

Recapitalization and Liquidity: Growth Options for Privately Held CompaniesHosted By: Delaware Trust

Presented By:Eric Mattson, principal, Excellere PartnersDavid Straub, director of business development, Delaware Trust

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Meet the Presenters

Eric Mattson Dave StraubPrincipal

Excellere [email protected]

303-765-2371

Director Business Development Delaware Trust Company

[email protected] 302-636-5866 484-904-5750

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Recapitalization Overview

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The Business Owner Challenge

Company Contemplati

ons

Owner Contemplati

ons

Many entrepreneurs reach a stage in the lifecycle of their business where the company has achieved consistently strong growth and still has opportunities to grow through organic initiatives and acquisitions, however they are concerned about the potential conflict between the concentration of their wealth and on-going investment in the business.

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The Business Owner Challenge

Owner Contemplat

ions

Company Contemplat

ions

Protecting and caring for employees

Planning for leadership succession

Rewarding management for growth

Re-investing in the business

Wealth diversification

Realizing an ultimate exit

Distributions / dividends

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Business Owner Liquidity Options

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Traditional Entrepreneur Liquidity Options

100% Sale

Public Offering

ESOPMinority Investm

ent

Pros: Yields the highest amount of cash at closing; potential to “walk away”

Cons: Complete loss of control; does not offer participation in future value of the business

Pros: Maintain a majority stake

Cons: High cost of capital (low valuation); investors may demand control that doesn’t align with ownership

Pros: Liquidity with tax benefits

Cons: Debt; potential guarantees; administrative costs; doesn’t solve management transition and funding for growth

Pros: Could provide an attractive valuation

Cons: Lack of liquidity (extended period before realization and low trading volume); public reporting requirements;

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Recapitalization Introduction

Partnership: The business owner(s) gain a strategic and financial partner that can provide the capital and resources to accelerate the company’s growth and value creation

Up Front Consideration: The owner(s) receive a substantial amount of immediate liquidity in the form of cash at closing

Ownership: The owner(s) continue to own a significant / meaningful stake in their company

Operations: Management / owner(s) maintain responsibility to operate and manage the company, build its legacy and care for its employees

Second Bite of the Apple: The owner(s) and management participate in the growth and value created through equity ownership

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Entrepreneur Lifecycle and Recapitalizations

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Entrepreneur Lifecycle and Recapitalizations

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When A Recapitalization (“Recap”) Makes Sense

Characteristics of a Recap

Successful business with a proven track

record Owners that are

not ready to retire

Strong market

position in a scalable

sector

Established

customer relationshi

ps

Proven manageme

nt team

Financial and

strategic partner

Strategic organic & acquisition

growth

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Summary of Liquidity Options

Liquidity ? Continued Ownership / Upside Operating Control Funding for Growth Initiatives ? ? ? ? Administrative Ease ? Retain Culture ? ?

RecapHold Total Sale IPO ESOP MinorityOwner’s Objectives

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Recapitalization Overview

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Recapitalization Illustrative Example The recapitalization is funded through cash equity from a private equity sponsor, rollover of a portion of Seller’s existing equity into the recapitalized company (“Rollover Stock”) and debt.

The cash proceeds at the time of the recapitalization represent the “first bite of the apple” while the appreciation of the Rollover Stock realized through the liquidity event following the partnership with Excellere, represents the “second bite of the apple,” which often exceeds the cash received initially.

Below is an example of a structure in which the owner reinvests 20% of the proceeds to retain a 40% equity stake.Pre Close Post Close Comment

Enterprise Value $100 $100 Driven by: EBITDA, growth and capital requirements

Debt $0 $50 Moderate leverage (50% of capital structure)

Excellere Cash Equity 0 $30 60% ownership (non-diluted)Cash Proceeds to Seller $0 $80 80% of value realized by Sellers at close

Seller Equity / Rollover Stock

$100 $20 With moderate leverage, 20% of value results in 40% ownership in NewCo.

Total Consideration to Seller at Close

$100 $80 Excludes value potential of Rollover Stock

Potential Future Value of Rollover

$0 $110 The “second bite of the apple”

Total Potential Value $100 $190 Value from cash upfront and rollover stock

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Excellere Buy and Build Strategy

• Macro economic trends

• Demographics• Regulatory

environment

• Differentiatedproduct/service

• Unique growth culture

• Niche Focus

• Agile market presence

• New geographies

• New delivery approaches

• New products, services & capabilities

• Cross selling

• Efficiency opportunities

• Accelerate organic growth objectives

• Economies of scale and scope

• Organizational synergies

• Regional or national leadership

Excellere designed its Value Creation Process to accelerate organic growth

and pursue strategic acquisitions – target 3-5x

growth in 3 years.

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Recapitalization Summary

Cash Consideration

Rollover Stock

Incremental Capital Allocation

Incentive Stock

Operating Control / Governance

Portion of upfront purchase price Sellers receive in cash

Portion of upfront purchase price in the form of stock in NewCo

Additional capital allocated to support organic and acquisition growth strategyAdditional equity in NewCo awarded to incent Sellers and employees Management operates the business and is represented on the board with rollover investors

Rewards Sellers for historical value createdProvides ~80% of enterprise value in cash to sellers at close

Allays Seller concerns regarding risk / reward of growth investmentsSignificant participation in future value creation

Aligns Seller and Sponsor’s interests in success of the business

Seller continues to be and ownerCertainty that capital will not constrain growthAllows for ambitious growth goals to be established and achieved

Ensures appropriate capital structure throughout the investment lifecycleAdditional value creation opportunity for Sellers

Wealth creation opportunity for management and employees

Aligns interests of sponsor, management and employees as ownersProvides leadership continuity for business

Ensures management voice is heard at the board levelReinforces existing culture and principles that have led to past success

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Keys to a Successful Recapitalization

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Case Study: MedExpress Urgent Care

The foregoing presentation is provided solely to assist the owner(s) of the company in understanding the purposes and characteristics of a recapitalization and the Incentive Stock Plan. Excellere expressly disclaims any and all express or implied warranties contained in the foregoing presentation with regard to the company’s future performance or the potential return on the Rollover Stock and Incentive Stock. Any statements and calculations of future value of the Rollover and Incentive Stock were provided for example purposes only. Nothing in this presentation should be relied upon as a promise or representation, whether as to the past or the future value of the Rollover Stock and Incentive Stock or any other security of the company. Without limiting the generality of the foregoing disclaimer, all estimates, examples, projections and other “forward looking” materials contained herein, or otherwise made available to the Investor, involve significant elements of subjective judgment and analysis, that may or may not be correct.

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MedExpress Situation Overview

A pioneering provider of urgent care services founded in 2001

Founded by four physicians in Morgantown, WV

Attractive business model and strong value proposition – providing access and affordability

Profitable unit-level economics with proven de-novo (new location) model

Seven locations and 200 employees at the time of introduction to Excellere

Compelling vision to expand nationally but lacked strategic and financial resources to execute and accelerate their growth plan“As entrepreneurs, we were successful in “bootstrapping” growth during the early years. However…

we realized that we did not have the tools necessary to fulfill the potential we knew existed for the business. MedExpress had hit an inflection point and required greater infrastructure, scalability and

access to capital to meet the growing demand for its services. In addition, having supported the business for six years, we wanted to limit our individual risk and diversify our net worth.”

- Dr. Frank Alderman, Co-Founder and CEO MedExpress Urgent Care

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Excellere Value Creation Process

Case Study – MedExpress Urgent Care

Corporate Overview

Financial Profile Seven clinics operating in two states (WV, PA)

~200 employees $14 mm of TTM

revenue 160,000 annual

patient visits

Corporate Overview 48 clinics operating

in four states (WV, PA, CO, FL)

~1,400 employees $140 mm of TTM

revenue 1.2 mm annual

patient visits

Foundation Organic Growth

Acquisitions

Completed and integrated five acquisitions

Added 19 centers in two new states

Combined best practices across both the platform and add-ons

Developed an integration team / core competency

Created a standardized De Novo process

Opened 22 new centers within 3 years of closing

Organic revenue growth of >30% annually

Invested > $7 mm in corporate infrastructure

Enhanced payor contracting, IT, marketing, and operations

Proven Value-Creation

Model

CASE STUDY SUMMARY The company had developed a truly unique

model, which delivered a strong value proposition to patients and payors

With Excellere’s assistance, MedExpress built a strong foundation (leadership, process and systems) to more rapidly scale their “secret sauce,” as well as transport this unique model successfully to build de novo clinics and enter new markets through acquisition 10x Revenue and

7x Ebitda Growth

Expanded Footprint to Four States

Built a Leverageable

Model for National

ExpansionIndustry

Leadership

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Finding the Right Partner

“Private equity, like anything else, has people who do things the right way and the wrong way. The burden of

selecting the right partner ultimately falls on the shoulders of the entrepreneur . . . Our partnership was

one of great success, and looking back, it wasn’t the end of the Company we had built – it was really the

beginning.”

- Dr. Frank Alderman, Co-Founder and CEO MedExpress Urgent Care

November 15, 2016

Thank You!Q&A

Eric Mattson Dave StraubPrincipal

Excellere [email protected]

303-765-2371

Director Business Development Delaware Trust Company

[email protected] 302-636-5866 484-904-5750