Government Contracting M&A Annual NCMA Workshop | March 14, 2012

1. Government Contracting M&AAnnual NCMA Workshop | March 14, 2012

2. Speakers • David Meyers • CEO and Founder of ERG, Inc., consulting firm offering multidisciplinary skills in 20-plus service areas, including environment, energy, worker safety, and homeland security. • Sold to U.K.-based AEA Technology in 2010 • Paul Serotkin • Senior Advisor, Venture Management, Investment Bank • Senior Executive and Shareholder in several Defense/Federal Contractors including Glevum Associates, UFA, Titan, AverStar, Pacer Systems and Pacer Infotec

3. Seller’s Perspective

4. From ‘Entrepreneur’ to ‘Shareholder’ As company matures, the goals & priorities of the founder(s) commonly shift from Entrepreneurial to Wealth Maximization & Realization Maximize Current or Long-Term Value for Shareholders Liquidity for Shareholder(s) Strategic Choices: Harvesting Legacy Contracts or Positioning for Accelerated Growth Maintain Shareholder Control Aggressiveness and ability to implement strategic plan tempered by: Tolerance for on-going and/or additional investment Tolerance for growth-driven debt

5. The Goal is to Grow, But How? • Owner seeks to accelerate the growth of the company by.... • Factors contributing to selection of strategic initiative include: • Company’s competitive position • Market Opportunities for Service Offerings • Associated Capital Requirements • Access to Required Capital • Shareholder(s) and Management’s • Desire, Willingness and Ability to: • perform various operations roles • incur near-term investment expenses • commit to a long term strategy

6. Access to Capital • Cash Flow from Operations • Owner Financing • Debt Financing • Partial Sale • Private Equity • Public Equity • Total Sale • Strategic Buyer • Private Equity

7. Determining Why and When to Sell Changing Market Risks Budget Realities Small Business Policy BRAC/Realignment Reality Checks Shareholder Burnout/Boredom/Other Interests Timing to Sell Succession planning prompted by retirement goals or health concerns When shareholder value is greater than the NPV of anticipated future values. Adverse changes in tax codes Procurement cycle of current and anticipated contracts Which begs the question: What is the Business Worth?

8. Buyer’s Perspective

9. Buyer’s Hypothetical Perspective Financial Strategic Contracts Operations

10. Financial Indicators Revenue Size The larger a company, the more impact it will have to an acquirer. Size also is a litmus test for maturity, state of business systems, quality of management, etc. Sustained Profitability The ability of a company to produce sustainable profits allows for reliable forecasts of cash flow. A company with regular cash flow can borrow more as this reduces default risk. Higher margins decrease chance of business failure, allow faster growth, permit payment of dividends, etc. Historical Growth A company with a sustained history of revenue and profit growth is worth more than either a new company or one with periods of flat or negative growth.

11. Customers Civilian Agencies are attractive, Intelligence Community and DoD Clients are more desirable as more discretionary funding is spent on Defense and Intel capabilities. Commercial and State & Local add complexities to business and typically dilute value. Mission Related Domain Knowledge The more intimate the knowledge, the more valuable the service offering. Support or Staffing Services are lower value, Daily Operations are middle, Mission Critical Subject Matter Experts add value, and Project or Task Leads are highest value. Security Clearances Secured Personnel and Facilities are barriers to entry, and are indicative of access to customers, trusted relationships. Personnel with Top Secret, TS/SCI and above are most valued. Facilities holding security clearances and SCIFs have a competitive advantage. Strategic Factors

12. Contract Expansion Expandable contracts for the company suggests revenue growth opportunities post-acquisition. The target continues to expand the original service offering, and the acquirer can leverage the acquired firm’s contracts and clients. Growth opportunities for Company is built into the Forecasted Cash Flow. Contract Performance History of successful recompetes, strong reputation, high CPARs are indicators of a contractor’s viability to maintain or grow within an agency. Strong history reduces risk perception of future awards. Set-Aside Contracts Due to recent changes in recertification requirements, contracts won under preferential treatment are severely discounted. A company with more than 20% 8(a) contracts will find few interested buyers. Strategic acquirers tend to stay away from buying any preferential contracts. Contracts

13. Buyer’s Hypothetical Perspective Financial Strategic Contracts Operations

14. 16.0x Federal M&A Value Drivers 12.0x EBITDA Multiple 8.0x • Influences: • Public Markets • Foreign Buyers • PEGs vs. Strategics 4.0x Financial: Revenue Size, Backlog, Margins, Bill Rates Customer: Civilian => Homeland Security =>DoD/IC Contracts: Prime/Sub, Set-Aside vs. Full & Open Employee Pool: SMEs, Education, Clearances, Access to talent Service Offering: Focused IT, Engineering, C4ISR, IA

15. Contact • Venture Management, Inc. • Paul Serotkin • paul@venturemanagement.com • 781-254-7267 • Jason Gayl • jason@venturemanagement.com • 202-329-2377 • Mark Shappee • mark@venturemanagement.com • 805-644-5335

17. Overview of ERG • Environmental, energy, and health consulting for government agencies • 92% Federal • 5% State • 3% Commercial • 53 significant contracts • 917 projects so far this FY

18. Overview of ERG  Locations 92 Lexington, MA Corporate Headquarters 6 Nashua, NH Survey & Data Center 1 9 3 Washington D.C. Arlington and Chantilly Chicago, Il Sacramento, CA Boston, MA Cincinnati, OH 46 92 6 3 Prairie Village, KS Research Triangle Park, NC Office and Laboratory 46 20 Atlanta, GA 1 11 1 Gainesville, FL Austin, TX 43 remote employees

19. Client Retention DOE BOEM GSA NOAA DOL DOL Customer Expansion DOI DOI HHS HHS DoD DoD 20+ States 20+ States 20+ States FDA FDA FDA FDA CDC CDC CDC CDC CDC OSHA OSHA OSHA OSHA OSHA OSHA EPA EPA EPA EPA EPA EPA Prime Contract Growth 1984 Today

20. National Leadership Areas • Water quality regulations • Air quality regulations • Worker health and safety regulations, standards, and guidance • Toxic air pollution monitoring • Climate programs • Life cycle assessment

21. National Leadership Areas • Water conservation • Environmental health assessments • Environmental compliance and enforcement of regulations • Cost benefit analysis • Transportation/environmental

22. Growth and Acquisitions • Founded in 1984 • 11 people • 1989 EPA Small Business Contractor of the Year • 1994 ERG acquires Meridian Research, Inc. • 1996 ERG acquires government consulting division of Radian Corporation • 2000 ERG acquires transport division of former Radian Corporation • 2003 ERG acquires Franklin Associates

23. Trends in Competition and Procurement • Major budget cuts in domestic programs • Key competitors surviving with difficulty • Major layoff of partners at competitors • Clients delay spending due to budget uncertainty • Wins of new awards at ERG has compensated for budget cuts