LBO of Alarm ServicesBalancing Risk and Reward

Nicolas LindstromSamuel NadeauFranco Perugini

Mandate

North Village Capital purchase of AlarmServce Inc.

Debt Structure Strategic Fit Return

Recommendation

Complete LBO of AlarmServe, utilizing 2.5x Debt/EBITDA at entry to realize a 25% IRR

Mandate

Industry is a good fit for an LBO

How NVC can add ValueExpand to new geographic

areas

Focus on higher-margin accounts

Reduce operating cost

Eliminate cost of being public

$2 Million Dollars by year 4

NVC can add value to the company through their involvement

Decision of debt Level

Decision of debt LevelNo leverage Medium

Leverage High Leverage

Return 1 4 5Default 5 4 1

Probability to Receive

Financing 5 4 2

Total 11 12 8

Default risk is the deal-breaker

Decision of debt LevelNo leverage Medium

Leverage High Leverage

Return 1 4 5Default 5 4 1

Probability to Receive

Financing 5 4 2

Total 11 12 8

Medium leverage is the best option

How NVC can add Value

Stable industry for LBO

AlermServe is a good strategic investment investment for NVC

NVC can add $2 Value

Medium leverage is the best leverage level

Valuation

Valuation Introduction

Assumptions

Income Statement

Margin expansion provided by synergies and operating leverage

Income Statement2007 2008 2009 2010 2011 2012 2013 2014 CAGR

Revenues 23,766 28,310 32,273 33,900 35,600 38,100 40,700 44,000 6%Growth 19% 14% 5% 5% 7% 7% 8%

COGS 4,851 6,237 7,594 7,500 7,800 8,400 8,900 9,700 5%Gross Profit 18,915 22,073 24,678 26,400 27,800 29,700 31,800 34,300 7%

Margin 80% 78% 76% 78% 78% 78% 78% 78%Management Fees 0 0 0 678 712 762 814 880Selling Expenses 10,353 9,988 10,364 10,571 10,783 10,998 11,218 11,443 2%G&A 4,073 5,081 5,809 6,102 6,408 6,858 7,326 7,920 6%EBITDA (Pre-Synergies) 4,489 7,004 8,506 9,049 9,898 11,082 12,442 14,058 11%Synergies 0 0 0 500 1,000 1,500 2,000 2,000EBITDA (Post Synergies) 4,489 7,004 8,506 9,549 10,898 12,582 14,442 16,058 14%

D&A 2,605 3,066 3,134 3,600 3,700 4,000 4,300 4,600 8%Interest (Income) 97 85 66 1,429 1,318 1,184 1,024 828 66%EBT 1,788 3,853 5,306 4,020 4,880 5,898 7,118 8,630 10%Income Tax 626 1,349 1,857 1,407 1,708 2,064 2,491 3,020 10%Net Income 1,162 2,504 3,449 2,613 3,172 3,834 4,627 5,609 10%

Working Capital

Working Capital will require cash from the business

Working Capital2007 2008 2009 2010 2011 2012 2013 2014

Accounts Receivable 2,300 2,416 2,537 2,715 2,901 3,136% Sales 7% 7% 7% 7% 7% 7%DSO 26 26 26 26 26 26

Inventory 3,300 3,466 3,640 3,896 4,162 4,499% Sales 10% 10% 10% 10% 10% 10%

Accounts Payable 1,300 1,322 1,367 1,436 1,501 1,590% Expenses 5% 5% 5% 5% 5% 5%

WC 4,300 4,560 4,810 5,175 5,561 6,045Change 260 250 365 386 484

Deal Structure

Moderate debt levels to minimize risk

Debt ScheduleDebt Schedule

2010 2011 2012 2013 2014Revolver

Revolver Balance Beg 0 1,856 3,265 4,151 4,304% of AR 3,839 4,032 4,315 4,609 4,983 % of Inventory

Repaid (Drawn) (1,856) (1,409) (886) (153) 603Revolver Ending (Cash) 1,856 3,265 4,151 4,304 3,701

Interest 0 93 163 208 215Prime Rate 2% 2% 2% 2% 2%

SeniorSenior Debt 17,011 13,609 10,207 6,804 3,402 Repayment 3,402 3,402 3,402 3,402 3,402 Senior Debt Ending 13,609 10,207 6,804 3,402 -

Interest 919 714 510 306 102

SubordinatedSub Debt 4,253 4,253 4,253 4,253 4,253 Repayment - - - - - Sub Debt Ending 4,253 4,253 4,253 4,253 4,253

Interest 510 510 510 510 510

Cash Flow

Debt repayment will be the major cash drain

Cash Flow Statement2007 2008 2009 2010 2011 2012 2013 2014

Net Income 2,613 3,172 3,834 4,627 5,609Plus: D&A 3,600 3,700 4,000 4,300 4,600Less: Change in WC 260 250 365 386 484Operating Cash Flow 5,953 6,622 7,469 8,540 9,725

Capital Expenditures (4,407) (4,628) (4,953) (5,291) (5,720)Investing Cash Flow (4,407) (4,628) (4,953) (5,291) (5,720)

Debt Repaid (3,402) (3,402) (3,402) (3,402) (3,402)Dividends Paid 0 0 0 0 0Financing Cash Flow (3,402) (3,402) (3,402) (3,402) (3,402)

Change in Cash Flow (1,856) (1,409) (886) (153) 603

Return Profile

25% IRR with a 3x multiple on money

Returns Analysis2007 2008 2009 2010 2011 2012 2013 2014

EBITDA 9,549 10,898 12,582 14,442 16,058Exit Multiple 6.0x 6.0x 6.0x 6.0x 6.0xExit Enterprise Value 57,294 65,385 75,491 86,652 96,345

Less: Net Debt 19,718 17,725 15,208 11,959 7,954Implied Equity Value 37,575 47,661 60,283 74,693 88,392

Payment (30,790) - - - - Management Fees - 678 712 762 814 880 Proceeds From Sale - - - - - 88,392Total Return (30,790) 678 712 762 814 89,272

IRR 25%Multiple on Money 3.0x

Weak 2010 Return Check

-5% Revenue growth in ‘10 leads to 19% IRR

Returns Analysis2007 2008 2009 2010 2011 2012 2013 2014

EBITDA 7,702 8,879 10,470 12,148 13,419Exit Multiple 6.0x 6.0x 6.0x 6.0x 6.0xExit Enterprise Value 46,212 53,275 62,819 72,886 80,514

Less: Net Debt 20,008 18,863 17,247 15,023 12,134Implied Equity Value 26,204 34,412 45,572 57,863 68,380

Payment (30,790) - - - - Management Fees - 613 644 689 737 789 Proceeds From Sale - - - - - 68,380Total Return (30,790) 613 644 689 737 69,169

IRR 19%Multiple on Money 2.3x

Return Sensitivity

Multiple contraction will still provide sufficient returns

Exit Multiple0 4.5x 5.0x 5.5x 6.0x 6.5x 7.0x 7.5x

14,492 15% 18% 20% 22% 25% 27% 28%15,255 16% 19% 22% 24% 26% 28% 30%16,058 18% 20% 23% 25% 27% 29% 31%16,860 19% 22% 24% 26% 29% 31% 32%17,703 20% 23% 25% 28% 30% 32% 34%

Exit EBITDA and Exit Multiple IRR Sensitivity

Implementation

Acquisition Timeline

2009Q4 Q1 Q2 Q3 Q4

LOIAccess data roomDue DiligenceLegal docsSign SPAClose deal

2010

Focus of due diligence will be on empolyee retention

Debt

2.5x Total Leverage

Sources and UsesSources UsesRevolver 0 Purchase Price 51,034Senior Debt 17,011 Transaction Fees 1,021Sub Debt 4,253Equity 30,790Total 52,054 Total 52,054

Unlevered Scenario Debt/EBITDA $ ValueSenior Debt 2.0x 17,011Subordinated 0.5x 4,253Revolver 0.0x 0Total debt 2.5x 21,264

Leverage and Covenants

All covenants are very comfortably respected

Leverage Analysis2007 2008 2009 2010 2011 2012 2013 2014

EBITDA Coverage 128.3x 6.7x 8.3x 10.6x 14.1x 19.4xEBITDA-Capex Coverage 3.6x 4.8x 6.4x 8.9x 12.5xDebt/EBITDA 2.5x 2.1x 1.6x 1.2x 0.8x 0.5x

CovenantsEBITDA Coverage 2.0x 2.0x 2.0x 2.0x 2.0xEBITDA-Capex Coverage 2.0x 2.0x 2.0x 2.0x 2.0xDebt/EBITDA 3.0x 3.0x 3.0x 3.0x 3.0x

Management Strategies

New strategies will increase CF to pay down debt

Management fees

Management fees will add to returns

Exit strategies decision matrix

Returns will be the deal maker

IPO Sale Dividend recap

Return Low (19%) High (25%) Medium (23%)

Time Medium Medium Low

Risk Medium High Low

Sale Timeline

Q3 Q4 Q1 Q2 Q3 Q4Invite banks to pitchReview pitchesSelect advisorsPrepare CIMSign NDALOIAccess data roomDue DiligenceLegal docsSign SPAClose deal

2013 2014

A strong CIM will be crucial to strong exit valuation