Assisting in your Journey to a Successful Exit

1. Asset Based Approach (Assets – Liabilities)

2. Market Approach (Comparables)

3. Income Approach (Earnings & Cash Flow)

1. Asset Based Approach• Book Value • Net Asset Value (FMV of assets plus, sometimes, goodwill)

2. Market Based Approach• Market comparable (Similar company in type, size, etc.)• Public Company comparable

3. Income Based Approach• Discounted Free Cash Flow• Multiple of EBITDA

1. Asset Based Approach• Book Value

• Net Asset Value (FMV of assets plus, sometimes, goodwill)

2. Market Based Approach• Market comparable (Similar company in type, size, etc.)

• Public Company comparable

Closed Target/Issuer Buyers/Investors Country [Buyers]Transaction

Value ($mm)

Implied

EV/Reven

ue (x)

Implied

Enterprise

Value/EBITDA

(x)

06/17/2015 Corporate Healthcare Strategies, LLC AssuredPartners, Inc. United States - - -

05/18/2015 Executive Financial, Inc. Edgewood Partners Insurance Center, Inc. United States - - -

04/28/2015 McManus Reilly Benefits Group Benefits LLC United States - - -

03/03/2015 Model Consulting, Inc. CBIZ, Inc. United States - - -

11/04/2014 Laurus Strategies Inc. Hub International of Illinois Limited United States - - -

09/09/2014 Everett James Inc. Arthur J Gallagher & Co. United States - - -

08/06/2014 Denman Consulting Services, Inc. Arthur J Gallagher & Co. United States - - -

09/11/2013 Capital Benefits Group Higginbotham & Associates LLC United States - - -

08/13/2013 Advanced Benefit Planning Inc. Horan Associates, Inc. United States - - -

08/07/2013 Howden Employee Benefits UK Limited Howden Insurance Brokers Limited United Kingdom - - -

07/05/2013 D & E Benefits, Solutions LLC Arthur J Gallagher & Co. United States - - -

05/28/2013 T.E. Burke & Associates Inc. Willis of Maryland, Inc. United States - - -

04/16/2013 Northwestern Benefits of Alabama S.S. Nesbitt & Company, Inc. United States - - -

04/04/2013 Advanced Benefit Advisors, Inc. Arthur J Gallagher & Co. United States

18.0

- -

12/04/2012 Brendis & Brendis Inc. Arthur J Gallagher & Co. United States

6.1

- -

09/18/2012 Strategic Benefit Solutions LLC Digital Benefit Advisors Inc. United States - - -

09/04/2012 Johnson Schock Lowden Inc. People Corporation Canada

0.304

- -

03/04/2013 Meridian Medical Management The Gores Group LLC United States - - -

02/11/2013 Unity Management Group Inc.Petrotech Oil and Gas, Inc.

(OTCPK:PTOG)United States - - -

02/07/2013 SeaBright Holdings, Inc.Enstar Group Limited

(NasdaqGS:ESGR)Bermuda 264.10 0.8x 9.0x

12/20/2012 CompPartners, Inc. MCMC LLC United States - - -

12/14/2012 ASC Billing Specialist, LLC MediGain, Inc. United States - - -

12/04/2012 Med Legal Consulting Source, Inc. Elevate Services, Inc. United States - - -

11/19/2012 Amazing Charts, Inc. Pri-Med USA United States - - -

10/31/2012 Medical Practice Solutions, Inc. Aardvarks Answering Service, Inc. United States - - -

10/25/2012 Open EC Technologies Inc. QHR Corporation (TSXV:QHR) Canada 4.21 1.6x -

10/24/2012 Medrium, Inc.Advantedge Healthcare Solutions,

Inc.United States - - -

10/23/2012 Logica Healthcare Group Inc.Information Architects Corporation

(OTCPK:IACH)United States - - -

09/19/2012 Intivia, Inc. MD On-Line, Inc. United States - - -

09/08/2012 TransCap Insurance Agency, LLC The Capacity Group, Inc. United States - - -

08/20/2012 Babcock & Helliwell Inc. Rose & Kiernan, Inc. United States - - -

08/17/2012 XAM | MAX U.S. Collections, Inc. United States - - -

07/31/2012 HealthCare Solutions, Inc. Medical Transcription Billing, Corp. United States - - -

Acropetal Technologies Limited

3. Income Based Approach• Discounted Free Cash Flow

• Multiple of EBITDA

$25

$100 in year 5

Year 1 Year 2 Year 3 Year 4 Year 5 Term val

$X Million

1. It is theoretically the best valuation model1. Future cash in the pocket is what matters

BUT…….

1. When’s the last time you made a serious five year forecast?• Taking into account industry and market research• If you made one, how did that work out for you?

2. Determining discount rate & risk is, well, difficult• Customer concentration is what, 2 percentage points?• What does 2 percentage points mean?

1. Asset Based Approach• Book Value • Net Asset Value (FMV of assets plus, sometimes, goodwill)

2. Market Based Approach• Market comparable (Similar company in type, size, etc.)• Public Company comparable

3. Income Based Approach• Discounted Free Cash Flow• Multiple of EBITDA

0

1

2

3

4

5

6

7

8

$1mn-$5mn $5mn-$10mn $10mn-$25mn $25mn-$50mn $50mn+

5

66.5

7

8M

ULT

IPLE

OF

EBIT

DA

ADJUSTED EBITDA

Source: Pepperdine 2016 Capital Markets Study.

+/- 1X

AVG

+2-3x

SOLID PERFORMERAverage to -1: Financial buyers, private equity groups, opportunistic buyers. And/or slight risk.

Growth, and buyers that can clearly expand market and leverage growth opportunities.

-(2-4x)WEAKNESSES& RISKS

Customer concentration, contract risk, uneven performance, messy financials, etc.

Average to +1: Attractive growth rate, recurring revenue, etc. And/or synergistic competitors & complementary buyers.

PREMIUM PRICING

• Customer Concentration and Owner Dependency

• Messy anything• P&L, balance sheet, facilities, etc.

• Industry / Market Risk (Competition, ease of entering market)

• Supplier concentration or any “Stroke of the pen” risk

• Reliance on key employee (Talent concentration)

• Low value industries• New construction related companies

• Basic materials

• Recurring Revenue

• Solid contracts / service contracts

• Long standing customers

• Steady revenue, gross margins and earnings

• Large sustainable market share in niche market

• High Value Industries• Manufacturing (+0.5x)

• IT (not staffing) (+1x)

• Healthcare and biotech (+2x)

4-6X

6-9x

SOLID PERFORMERAverage to -1: Financial buyers, private equity groups, opportunistic buyers. And/or slight risk.

Growth, and buyers that can clearly expand market and leverage growth opportunities.

2-4xWEAKNESSES& RISKS

Customer concentration, contract risk, uneven performance, messy financials, etc.

Average to +1: Attractive growth rate, recurring revenue, etc. And/or synergistic competitors & complementary buyers.

PREMIUM PRICING

1. Averages assume slight growth, around 10%

2. Growth above 15% deserves a premium• Documented historical growth, likely to continue

3. What premium?

4. Who gets benefit of that growth, you or the buyer?• Who is responsible for it?

• Perhaps you have built a “growth engine” with a solid foundation to support growth. A premium is well deserved.

• Perhaps a buyer will need to invest in salespeople, IT, new products, etc. to make the growth happen. Perhaps he doesn’t want to pay you for that growth.

1. Deal structure and use of debt can be important

2. Buyers generally use debt

3. PE buyers almost always use debt• Why? Leverage. Use other people’s money. Boost return on cash

invested.

4. Purely financially, debt allows a buyer to pay more• Senior debt, lines of credit, mezzanine debt

• That includes a seller note as well

Valuation is an important topic. If you have questions please let me know!

Email: ney@journeypartners.com