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Introduction

Introduction. The Industry Now and What Our Buyers Like Tom Flaherty, Kuhn Capital/The Roundstone Group Trends in Business Services Amy LaBan , Lake Capital Trends in Software Howard Smith, First Analysis Trends in Transaction Processing Franco Turrinelli , William Blair. M&A Today.

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Introduction

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  1. Introduction • The Industry Now and What Our Buyers Like Tom Flaherty,Kuhn Capital/The Roundstone Group • Trends in Business Services Amy LaBan, Lake Capital • Trends in Software Howard Smith,First Analysis • Trends in Transaction Processing Franco Turrinelli, William Blair Kuhn Capital + The Roundstone Group

  2. M&A Today The Tech, Information and Business Services Terrain Now and Next Panel February 12, 2004 Kuhn Capital + The Roundstone Group

  3. Overview • Who Are Our Buyers? • What Do Our Buyers Like? • The Dilemma • What To Do? • The Market Now • What Industries Do Our Buyers Like? Kuhn Capital + The Roundstone Group

  4. Who Are Our Buyers? • Private equity firms seeking platform companies • Portfolio companies seeking add-on acquisitions Kuhn Capital + The Roundstone Group

  5. What Do Our Buyers Like? • Recurring revenue streams • $50 million or more in revenue (platform) • Leveragable technology or low cost resources • Moderate to high growth • Strong management • Good cash flow/EBITDA margins • Ability to use financial leverage • Valuation (5x or 6x EBIDTA) • for the right platform will consider up to 10x EBIDTA Kuhn Capital + The Roundstone Group

  6. The Dilemma • In today’s market, these companies are few and far between at reasonable prices Kuhn Capital + The Roundstone Group

  7. The Market Now • Public valuations in certain sectors are currently high (Transaction Processing, Post Secondary Education, Offshore - India) • Vast amount of available private equity • Large private equity firms with substantial capital need to do larger deals • Private equity firms have difficulty competing with strategic buyers on valuations • Relatively better opportunity for financial returns in small to medium sized companies Kuhn Capital + The Roundstone Group

  8. What To Do? • Be disciplined • Look to small to medium sized companies where valuations are more reasonable • Consider turnaround situations • Assume greater operational risk Kuhn Capital + The Roundstone Group

  9. What Industries Do Our Buyers Like? • Transaction Processing • Insurance BPO Outsourcing • Offshore (IT and BPO Outsourcing) • Post Secondary Education Kuhn Capital + The Roundstone Group

  10. Why Post Secondary Education Market? • Large, fragmented market • Good demographics • Barriers to entry - accreditation, Title IV regulations • Solid economics - pricing, margins, and government student loans • Valuation high for large public companies but still reasonable for smaller private companies • Opportunities to create shareholder value Kuhn Capital + The Roundstone Group

  11. Total Expenditure • Post Secondary education market is greater than $260 billion, accounted for 2.8% of GDP in 2000. Source: US Department of Education; LEGG MASON: Industry Analysis Summer 2003 Kuhn Capital + The Roundstone Group

  12. Enrollment • Fall enrollment increased from 12.1 million students in 1980 to 15.3 million in 2000, and is projected to reach 18.2 million through 2012 Kuhn Capital + The Roundstone Group Source: National Center for Education Statistics: Digest of Education Statistics, 2002.

  13. Market Players • During the 2001–02 academic year, there were 6,458 Title IV participating institutions in the US, of which 37% (2,418) were for-profit private institutions Source: National Center For Education Statistics, Post Secondary Institutions in the United States: Fall 2001 and Degrees and Other Awards Conferred: 2000–01. Kuhn Capital + The Roundstone Group

  14. Tuition Pricing • College tuition and fees have increased over the last 23 years at a CAGR of 7.1% for private four-year institutions, and a CAGR of 6.4% for public four-year institutions Source: Education Commission of the States, Trends in College Pricing 2003 Kuhn Capital + The Roundstone Group

  15. Major Players Kuhn Capital + The Roundstone Group Source: Corporate reports

  16. Corporate Valuation Kuhn Capital + The Roundstone Group Source: Corporate reports and The Roundstone Group estimations

  17. Private Equity Groups Kuhn Capital + The Roundstone Group Source: Corporate Reports

  18. Private Equity Groups Kuhn Capital + The Roundstone Group Source: Corporate Reports

  19. M&A Activities Kuhn Capital + The Roundstone Group Source: Corporate reports

  20. Selected Transactions Kuhn Capital + The Roundstone Group Source: Corporate reports and The Roundstone Group estimations

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