Grabbing Your Share of the Private Equity Bonanza © 2008 LG Management Corporation

Grabbing Your Share of the Private Equity Bonanza

© 2008 LG Management Corporation

April 24, 20082008 CEBI Executive Summit

2

Harry D. Loyle, CFE7086 Corporate WayDayton, OH 45459-4294Phone: 937-291-1900 ext. 255Email: [email protected]

“Empowering the American Dream”

Current Portfolio Includes . . .

Venture Capital Investment in a new or developing company

Buy-out Acquisition usually with control

Special Situation Unique opportunity . . . distressed, macro

change Merchant Banking


3

. . . a broad term that encompasses a range of strategies for investing in companies whose stock is not traded on public stock exchanges.

Deal Flow Approaching $200B per QT Appearance of Higher Transaction Values Limited Transparency and Public Information Tax Treatment: Debt – Capital Gains – Public Concern with Wealth Distribution Disparity


4

Exit Strategies Partial Sale, Complete Sale, Recapitalization

Carried Interest Percentage of transaction profits (80/20

split) Management Fees Charged to . . .

Minority Investors (typically 1.5% to 2.0%) Portfolio Company (shared with Minority

Investors) Transaction Fees


5

VALUATION - QUANTITATIVE EVALUATION - QUALITATIVE

Book Value Liquidation or Net Asset

Value Comparable

Companies Earnings Multiple

Discounted Cash Flow Precedent

Transactions or Replacement Value

People VALUES “Warren Buffet” Business

Model Understanding Professional Management Clean, Straightforward

Structure and Governance Other Investors VISION and Business

Opportunities


6

Net Profit (NOI) EBITDA: Earnings

Before Interest Taxes Depreciation and Amortization

Post-Debt Cash Flow

W-2 Income Standard of Living

(SOL) Owner Distributions

or Withdrawals ∆ Equity: Change in

Equity Over Time


7

CASH for Equity Sale (±80%) Opportunity for “Second Bite of the

Apple” (±20%) Potential for Continued Employment Potential Equity for Management Team


8

Decision on Consulting Representation Prepare Confidential Investment Memorandum Research, Select and Submit to PE Firm Options Receive Preliminary Indication of Interest Meet and Review Detailed Information Receive Letter of Intent (LOI: price, structure, etc.) Due Diligence: Legal, Accounting, IT, Customers,

etc. Review and Negotiate Definitive Acquisition

Agreement (APA) PE to Arrange Debt Financing (Your Obligations?) Completion of Due Diligence and Credit

Agreement(s) Negotiate Any Management Employment

Agreements Exercise Definitive Agreements Settlement . . . Back to Operations!


9

Clear Exit Goal: Buy – Fix – Grow – Sell With a 3 to 5 Year Horizon Driving Change is

Paramount EVERYONE Knows You’re On a Sprint Compensation is Clearly Tied to the Goal Often Managers have “Skin in the Game” Back a Superb Management Team and Liberate

Them The Board is “On Board” and Focused and Involved Private versus Public Reduces QT Whipsaws and

the Reporting and Stock Market Attention Required The Objective is Clear . . . CASH


10

POTENTIAL ADVANTAGES POTENTIAL DISADVANTAGES

CASH Marketplace Valuations “Professional” Buyers Potential for Continued

Management Involvement Management Team Equity Additional Resources:

Money, People, Knowledge, etc.

Additional Opportunity to Sell

It’s NOT your company anymore . . . “Yes Boss”

“Professional” Buyers Extensive Due Diligence Financing Contingency Management

Accountability Relatively Short Term

Focus Transactional Focus


11

People VALUES Industry Experience Situational Experience Typical Size of Portfolio Companies Management Style: Active versus

Passive Planned or Discussed Exit Strategy Capital Structure: Debt versus Equity % Willingness for Additional Cash

Injection


12

1. Lending / Financial Investments Creative Non-bank Lending with Security Interest Coupled with Participation and/or Equity

Kicker 2. Operating Partnerships (OP)

Marriage of Strengths . . . Management & Operations

50% Financial and 50% Equity Investment 3. Acquisitions / Active Management

Active OR Competent in Daily Management 100% Financial and Minimum of 80% Equity

Plus . . . Company Consulting and Personal Coaching


13

Portfolio Company Transaction Options:

Make the PEOPLE Decisions First Portfolio Composition and Balancing

ROI: Internal Rate of Return Objective of 25% to 35% Transaction Exposure of 5% to 10% of Portfolio Bias Toward Operating Partnerships

Company and Concept Search Criteria Existing Management and Structure Considerations Understandable Product and Business Model Our Ability to Add Value through the Transaction Management or Operations Upside (with Discount)

Financial Turnaround Relationship Challenges: Vendors, Franchisees, Associates,

etc. Organizational Improvements: HR, etc.

Synergy with Existing Companies or Brands Overhead Reduction Real Estate Complementary Business: Consumer or Company / Brand


14


15

In 2001 Moto Photo was Hit by “The Perfect Storm” . . .1. Photography Industry Revolution2. Macro Economics3. Cumulative Poor Company Financials

General Vendors Critical Vendors

Kodak Agfa & Trebla

Board of Directors Senior Management Company Associates Franchisees Area Developers Master Licensee

(CAN) Building Partnership

FUJI Photo Film USA Bank(s) Retail Consumers Trade Competition Retail Landlords Personal

Family Business Partners

Post-Transaction City and County Business Community


16

Equity (LG Management Corporation at 75%) Area Developer Participation Equity (6 entities

at 25%) Personal Loan to Facilitate an AD Participant

Critical A/P Vendor into Debt Assumption KODAK – Discounted for Non-secured Creditors Agfa & Trebla – Face Value

Mezzanine Financing (LG Management Corporation)

Fifth Third Bank Financing Working Capital – 2 Different Term(s) Loans Building Mortgage Financing

Montgomery County ED/GE Grant Vendor Trade Payables


17


18

The good news is that you do not have to wait for a PE firm to swoop into your organization. By using private-equity strategies you can improve your results and become more successful, starting right now!

Show Me The

Money!

Documents

Grabbing Your Share of the Private Equity Bonanza © 2008 LG Management Corporation