Houlihan Smith & Company Global Healthcare Markets Group
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  • 1. Global Healthcare Markets Group CONFIDENTIAL
  • 2. Table of Contents I. Houlihan Smith & Company, Inc. Overview II. II Transaction Process Overview III. Houlihan Smith Deal Team Confidential 1 Global Healthcare Markets Group
  • 3. Houlihan Smith & Company, Inc. Overview • Houlihan Smith & Company, Inc. (“Houlihan”) is a full-service investment banking firm providing financial opinions, valuation services, corporate advisory and portfolio valuation to public and private businesses. • Houlihan is a registered broker-dealer and a Financial Industry Regulatory Authority (“FINRA”) member committed to the highest levels of professional standards. • Th H lih name i synonymous with d l making expertise. Th Gl b l H l h The Houlihan is i h deal ki i The Global Healthcare Markets Group has worked with healthcare and pharmaceutical companies around the world on engagements ranging from: M&A transactions, Fairness Opinions, Private Placements, Valuation and ESOP Advisory. • Houlihan’s professionals have represented dozens of Boards, Special Committees, Public Companies and Private Business Owners on a broad range of financial matters. • Current in-house deal count of more than 100 deals under exclusive contract (70% financing, 30% M&A) Confidential 2 Global Healthcare Markets Group
  • 4. Houlihan Smith Expertise • The Houlihan Smith firm is a unique blend of independent valuation services, investment banking offerings and seasoned professionals that intersect to provide a comprehensive range of professional financial services to maximize value for businesses and their shareholders shareholders. Seasoned Professionals Independent Valuation Services • Unparalleled Leadership • Fairness and Solvency Opinions • Decades of Experience p • Financial Reporting Compliance p g p • National Footprint • Tax Compliance • Highest level of Professional • Portfolio Valuation Standards • Litigation Support Investment Banking Dedicated Healthcare Practice • Mergers & Acquisitions • Highly experience professionals • Capital Raising • Expertise in a broad arrays of the • Private Placements healthcare industry • Corporate Finance Advisory • Comprehensive resources • Financial Restructuring • Extensive exposure to capital • ESOP Advisory market Confidential 3 Global Healthcare Markets Group
  • 5. Unique Appreciation for the Middle Market Must make room in the process for investors to get to know management, Management is a more crucial variable sometimes even before submission of first round bids More room for creativity with growth More time invested in pre-launch phase of process opportunities (“storytelling”) Requires anticipation of potential issues to avoid slippage in timetable and More granular due diligence requirements unwinding of competitive tension Wider range of potential valuation outcomes Process Matters Larger number of potential participants in Requires experience to narrow the field and to interpret first round bids process Business is often not a “must have” for any Need to walk a fine line between drawing investors into the process and conveying single i i l investor strength at the same time h h i Transaction agreements are highly customized Contract negotiations cannot be divorced from the rest of the process Process can be taxing on limited management g g Advisor Ad i must be prepared to carry a significant l d b d i ifi load resources GREATER SCOPE FOR ADVISOR TO ADD VALUE. NEED FOR SPECIALIZED SKILLS. 4 Confidential
  • 6. Sound Strategic Advice • H lih S i h diff Houlihan Smith differentiates i lf b l i itself by leveraging our experience to provide sound i i id d strategic advice at each of the critical junctures in the Transaction process. Dedication to Critical Junctures in the “Front End” Marketing Process Front-End Middle Market M&A / Cap Raise • Identifying timing to initiate a process • Crafting the appropriate sale process Superior Senior – • Identifying potential strategic and financial partners Level Attention at • Conveying the “story” and opportunities Each Stage of the • Deciphering initial indications Process • Assembling a competitive group of investors • Showcasing the Company and management to investors Unparalleled Attention to Detail Critical Junctures in the “Back-End” Process • Fully understanding all final proposals to develop a Outstanding “true” comparison between bids Negotiation Skills • Establishing the right next steps • Determining the most advantageous time to Institutional negotiate with potential investors Knowledge of • Developing counter proposal(s) and the best script Strategic and with which to deliver them Financial Buyers • Craft a process to maintain leverage through closing 5 Confidential
  • 7. Specialized HEALTHCARE Investment Banking Advisory Services The team has exceptional knowledge of valuation implications based on extensive knowledge of healthcare financials including Medicare/Medicaid reimbursement for both In-Patient and Out-Patient procedures, managed care reimbursement issues, professional versus technical fee issues, and Stark I & II implications. • PRIVATE EQUITY: The team has extensive relationships and deal structure negotiation experience for both controlled and non-controlled private equity investments relative to healthcare entities • VENTURE CAPITAL: The firm has extensive relationships with Healthcare venture capital firms focusing on the specialized needs of medical device and healthcare services companies. • MEZZANINE DEBT Th firm has iinfinite knowledge relative to mezzanine debt including deall DEBT: The fi h fi i k l d l i i d b i l di d structure relative to providing flexible financing structures align with strategic and growth initiatives relative to healthcare medical device companies. Mezzanine debt can also be a critical financing component in the acquisition of other medical device and healthcare companies. • HEALTHCARE REITS: The team has extensive experience relative to sale/lease back transactions and construction financing and construction buy out structures for new and existing healthcare properties • TECHNOLOGY LEASING/PARTNERSHIPS: The team has participated in technology lease fi l financing arrangements greater than $100 MM relative to the i l i h l i h implementation and utilization of i d ili i f ancillary and surgical medical devices for hospitals and outpatient surgery centers. • PHYSICIAN/HOSPITAL JOINT VENTURES: The HS&C Global Healthcare Markets Group has extensive experience and knowledge regarding joint venture agreements with physicians and hospitals including the development of the Nebraska Orthopedic Hospital. Confidential
  • 8. Representative Healthcare and Pharmaceutical Clients Confidential 7 Global Healthcare Markets Group
  • 9. Representative Healthcare and Pharmaceutical Clients Confidential 8 Global Healthcare Markets Group
  • 10. Representative Healthcare and Pharmaceutical Clients Confidential 9 Global Healthcare Markets Group
  • 11. Comprehensive Resources – Provides real-time pricing, data, history, news, analytics and research for global financial markets • Markets covered include government and corporate bonds, mortgage, money-market, indices, currency, commodities and equities y, q – Private equity, hedge funds, venture capital and growth capital investor database • Heavily relied on by most bulge bracket banks; detailed information on companies and transactions – Exhaustive database complete with information about industries, companies, and key decision makers – Comprehensive source of business information including research, statistics, industry reports and forecasts – Leading provider of M&A deal information, including transaction value, deal terms and multiples – M&A intelligence service reporting forward-looking origination and deal flow opportunities integrated with a comprehensive deals Confidential 10 Global Healthcare Markets Group
  • 12. Comprehensive Resources – Healthcare M&A Monthly • The Dealmakers Form – Recent Healthcare M&A Deals • The Healthcare M&A Information Service – Healthcare M&A data by sector • Healthcare Corporate Finance News – Venture Capital Financing – Healthcare Advisory Board • The company has a team of more than 900 professionals dedicated to examining critical issues related to every sector of the healthcare market – SG2 The Edge • Provides expert-led resources, tools and education to maximize clinical effectiveness Confidential 11 Global Healthcare Markets Group
  • 13. Comprehensive Resources – Healthcare M&A Monthly • The Dealmakers Form – Recent Healthcare M&A Deals • The Healthcare M&A Information Service – Healthcare M&A data by sector • Healthcare Corporate Finance News – Venture Capital Financing – Healthcare Advisory Board • The company has a team of more than 900 professionals dedicated to examining critical issues related to every sector of the healthcare market – SG2 The Edge • Provides expert-led resources, tools and education to maximize clinical effectiveness Confidential 12 Global Healthcare Markets Group
  • 14. Table of Contents I. Houlihan Smith & Company, Inc. Overview II. II Transaction Process Overview III. Houlihan Smith Deal Team Confidential 13 Global Healthcare Markets Group
  • 15. Ways an Advisor Adds Value • Serves as an intermediary in negotiations – Insulates the owners and management from the need to make immediate decisions – Ability to act as the ‘bad cop’ and not sour the buyer on the transaction or the owners and management team – Provides the owner the ability to maintain an appropriate distance from the sales process • Leverages industry and financing experience – Prepares a company for the transaction process and can provide suggestions on how to enhance value in the eyes of bidders – Utilizes industry contacts and pre-existing relationships to target investors most likely to meet shareholder objectives – Understands the implications of different deal terms and how to guard clients against disadvantageous conditions • Allows the management team to concentrate on the day-to-day issues of running the business – Avoid neglecting customers, vendors, and employees – It is critical that the business continues to perform well during the transaction process • Heightens the sophistication level of the transaction and maximizes potential value – Investors assume they can acquire stakes in companies that lack representation at bargain prices – Representation translates directly into more advantageous transaction terms Confidential 14 Global Healthcare Markets Group
  • 16. Common Reasons Deals Fail Critical Issues: Houlihan Smith Solutions: • Unrealistic pricing expectations • Comprehensive analysis of financials to • Historical results or projections do not support determine potential synergistic benefits for valuation strategic buyers & financial buyers • Negative surprises uncovered during due • Thoroughly discuss expectations with diligence management as it relates to “market standard” • Issues uncovered regarding sales, profits, customers, g g p employees, environmental deal terms and gain an in depth terms, in-depth understanding of shareholder objectives • Inability of parties to agree on representations and warranties/indemnification language in • Perform in-depth seller due diligence to purchase contract identify problematic trends/issues, and present rationale or strategy f favorable resolution i l for f bl l i • Inability of buyer to finance the purchase of issue • Seller often has to be willing to offer some type of financing or earn-out arrangement • Require potential buyers to document • Deterioration of financial performance during proposed sources and uses well in advance of the marketing process the purchase agreement, and compare to current availability in the credit markets Confidential 15 Global Healthcare Markets Group
  • 17. Valuation Methodologies • In order to provide a more accurate estimate of the enterprise value for a company multiple company, valuation methodologies are employed Description: Identify the key publicly-traded comparable companies for the company and calculate and Comparable apply multiples of Revenues EBITDA, and EBIT. Revenues, EBITDA Companies Comment: A widely accepted valuation technique that provides current, market-based valuation (Public Comps) information. Multiples are adjusted to reflect a premium for control and discounted for liquidity and size. Description: Identify key comparable transactions for the company, and where possible, calculate and Comparable apply multiples of Revenues EBITDA and EBIT. Revenues, EBIT Transactions Comment: A popular valuation technique for measuring market valuations on a control basis. Precedent (M&A Comps) multiples are dependent on market conditions at the time of the transaction. Discounted Description: Model the free cash flows resulting from the company’s financial projections and discount using an appropriate cost of capital capital. Cash Flow Comment: Arguably the most sophisticated valuation technique, providing real insight into divisional (DCF) valuation drivers. Highly sensitive to numerous key assumptions. Leveraged Description: Using the same projections as the DCF, apply a suitable leveraged capital structure and solve the valuation using a 20 – 40% target equity rate of return. return Buyout Analysis Comment: A useful alternative perspective since it implies a valuation level at which a private equity (LBO) investor would typically be prepared to bid for the company. Confidential 16 Global Healthcare Markets Group
  • 18. Comparison of Buyer Types • The Th two primary types of acquirers are strategic and fi i f i i d financial b i l buyers – Each set of buyers typically evaluates an acquisition based on different criteria and goals FINANCIAL BUYERS (Private Equity Groups) STRATEGIC BUYERS Raises capital in funds from various sources to invest in businesses with the expectation of exiting within a relatively short time period (typically five to seven years) to achieve a targeted rate of return for investors (generally 20% to 25%) • Typically public or private corporations currently involved in similar or y complementary business line ADD-ON PLATFORM • Places a greater emphasis on identifying and realizing potential revenue and cost • Has a similar or complementary • Does not have a similar business in synergies business in existing portfolio of existing investment portfolio investments • Rationale for acquisition more strategic in • Seeks entry into an attractive market nature (i.e. reducing competition, enter • Acquisition drivers are typically with potential for growth and new geographic markets, etc.) similar to those of strategic buyers, definable exit strategy but additionally driven by the need to • Typically concerned with generating long- put raised capital to work and grow • Acquisition can serve to diversify term value from acquisition and investments before fund life expires investment portfolio and create a effectively integrating the target into the platform for future acquisitions in the buyer’s existing operations • Often an ideal buyer as they have same space financial resources of private equity • Higher valuation could be supported by backing and strategic rationale to • Identification of opportunities to the realization of synergies support a favorable purchase price create value through a strategic partnership Confidential 17 Global Healthcare Markets Group
  • 19. Characteristics of a Successful Partner/Investor • Successful transactions are the result of pairing the right partner with the client; Houlihan Smith’s experience lends to the following characteristics of the right partner: SUCCESSFUL TRANSACTIONS Confidential 18 Global Healthcare Markets Group
  • 20. Assessing Deal Structure and Options • Number of transactions completed • Integration success of previous transactions • Integration planning effort • Marketing • Financing relationships • Credit approval process of financing source • Financing structure of current operations – Equity available – Returns to equity participants • Deal with the decision makers who can allocate capital • Strong strategic fit – core business: – Strategic logic: component module system component, module, – Geographic reach; low cost sourcing opportunity – Capacity needs – Capable of identifying and implementing process improvements – Capable of bringing engineering and design improvements p g g g g g p – Focused purchasing effort could generate material cost reduction – Customer diversification Confidential 19 Global Healthcare Markets Group
  • 21. Table of Contents I. Houlihan Smith & Company, Inc. Overview II. Transaction Process Overview III. Houlihan Smith Deal Team Confidential 20 Global Healthcare Markets Group
  • 22. Houlihan Smith Deal Team Richard Houlihan Founder and Chairman Mr. Houlihan is a principal of Houlihan Valuation Advisors (since 1986), and p p ( ) founder, former President and former Chairman of Houlihan Lokey Howard & Zukin, Inc. (1970 to 1977). Mr. Houlihan was also, the Founder, Chairman, President and part Owner of Solitude Ski Resort from 1977 to 1987. Prior to forming Houlihan Lokey Howard & Zukin, Mr. Houlihan served as Financial Vice President for Carr-Sigoloff Industries Corporation (1969 to 1970) and as an Audit Staff nd Senior St ff and S ni r MAS Sp i list and MAS M n r f r Pri W t rh s & C Specialist nd Manager for Price Waterhouse Co. Management Advisory Services (1963 to 1969). Mr. Houlihan is a Certified Public Accountant (licensed in Nevada & California), a Senior Member of the American Society of Appraisers, Business Valuation and a Certified General R l E C ifi d G l Real Estate AAppraiser (CGREA - N d ) H also i a member i Nevada). He l is b of the American Institute of Certified Public Accountants, the California Society of Certified Public Accountants and the Nevada Society of Certified Public Accountants. He has served on the National Business Valuation Committee of the American Society of Appraisers from 1991 to 1995. Mr. Houlihan has served as an expert witness relative to business valuation matters in both federal and state courts courts. Mr. Houlihan authored “The Valuation of Minority Interests in a Closely Held Corporation” and was a contributing author to “The Handbook of Business Valuation” and “The Mergers and Acquisitions Handbook For Small and Midsize Companies.” Mr. Houlihan holds a Bacherlor’s Degree in Accounting from Brigham Young University and a Masters of Valuation Science from Lindenwood College. g y g Confidential 21 Global Healthcare Markets Group
  • 23. Houlihan Smith Deal Team Andrew Smith Co-Founder and President Mr. Smith was previously a Senior Vice President for EVEREN Securities, Inc. p y (formerly Kemper Securities, Inc., 1993 to 1996) where he was the Founder and Co- Head of the firm's Mergers & Acquisitions Group. For the past 25 years, Mr. Smith has been active on a full-time basis in mergers and acquisitions and financing middle-market, private and public businesses. During this period, he has completed more than 200 M&A and financing assignments. Mr. Smith was previously a Managing Director t Geneva C pit l M rk ts (1986 t 1993) Mr Smith was an M n in Dir t r at G n Capital Markets to 1993). Mr. s n auditor for Ernst & Whinney from 1981 to 1984, where he specialized in serving financial institutions. From 1984 to 1986, Mr. Smith worked as an independent business broker. He is currently the Chairman of Houlihan's Fairness Committee and is a frequent speaker on business valuation and corporate finance topics. He graduated with honors from Ohio Wesleyan University, earning a Bachelor’s Degree in Economics. Mr. Smith is a Certified Public Accountant, a Series 24 General Securities Principal, a Series 27 Financial Operations Principal, a Series 7 Registered Representative and is a member of the American Institute of Certified Public Accountants and the Illinois CPA Society He is credentialed through the Society. American Institute of Certified Public Accountants as "Accredited in Business Valuation." Confidential 22 Global Healthcare Markets Group
  • 24. Houlihan Smith Transaction Team Karl D'Cunha Senior Managing Director As a leader of the firm’s financial advisory practice, Mr. D’Cunha’s primary responsibilities include providing financial opinions such as valuations, fairness opinions, and structured finance advisory He is the head of the firm’s Hedge Fund Advisory group and a team advisory. firm s leader of the firm’s Technical Standards Committee. Mr. D’Cunha has more than 12 years of experience in the alternative investments industry, including working with some the largest hedge funds worldwide on valuation, accounting, and compliance issues. Additionally, he has been actively involved in investment company-related services since 1997 and has prepared, supervised, or consulted upon assignments covering most facets of p p , p , p g g valuation and accounting relating to U.S. and international private equity, venture capital and hedge funds, investment advisors, mutual funds, and other entities. Mr. D’Cunha is a member of the New York Hedge Fund Roundtable, the Hedge Fund Association, the Canadian Institute of Chartered Accountants, the CFA Society of Chicago, ssociation, nstitute ccountants, CF the CFA Institute, the Association of Chartered Accountants in the U.S., the Appraisal Issues Task Force, the Association of Latino Professionals in Finance and Accounting, the Arts and Business Counciland, and the American MENSA, Ltd. Bank. Confidential 23 Global Healthcare Markets Group
  • 25. Houlihan Smith Transaction Team Reginald McGaugh g g Managing Director Mr. McGaugh is the head of the Global Healthcare Markets Group for the firm and has responsibility for transportation, energy and Asia clients. Mr. McGaugh has extensive experience and relationships in the healthcare sector including biotechnology firms firms, pharmaceutical firms, Tele-medicine firms, diagnostic imaging firms, healthcare medical device firms, Healthcare REITs and direct professional experience with both healthcare providers and managed care companies. Prior to joining Houlihan Smith, Mr. McGaugh served as a senior executive with a Merchant Banking firm that was involved in an $83 Million acquisition of a specialty hospital where he served as interim Chief Operating q p y p p g Officer for the hospital and the associated ancillary facilities. His experience includes the development and project management of specialty hospitals and big box ambulatory care centers specializing on hospital/physician joint venture structures. Mr. McGaugh’s experience also includes the energy, telecommunications and transportation McGaugh s sectors. Mr. McGaugh has served as an analyst/consultant with Harley Davidson Financial Services, MidAmerican Energy Holdings (A Berkshire Hathaway Company), Peoples Energy, University of Nebraska Medical Center, Nebraska Orthopedic Hospital, Ryder Logistics and WestLB Mellon Private Equity. Along with his focus on healthcare, Mr. McGaugh will also focus his efforts on the advisory side of deals structured in compliance with I l i L (Sh i ) principles as the fi expands i Af i and the Middl E i h Islamic Law (Sharia) i i l h firm d in Africa d h Middle East. Mr. McGaugh holds a Bachelor of Science in Finance degree from the University of Nebraska – Lincoln and a MBA in Finance from the Florida A&M University School of Business & Industry. He completed a 2 year formal credit training program at Wells Fargo y p y gp g g Bank. Confidential 24 Global Healthcare Markets Group
  • 26. Houlihan Smith Transaction Team Brian Gorski Vice President Mr. Gorski is a Vice President with Houlihan Smith & Company focusing on p y g corporate finance and M&A advisory services. Mr. Gorski has extensive experience in capital raising assignments including private placements of debt and equity, venture financings and institutional debt and equity raisings. He has worked closely with executive management teams and boards of directors of both publicly traded and privately held companies, advising on transaction structure, capital structure, and str t i alternatives. Pri r t j inin H lih n Smith & C mp n Mr G rski nd strategic lt rn ti s Prior to joining Houlihan Company, Mr. Gorski worked for Donnelly Penman and Partners, a Detroit-based investment banking firm. At Donnelly Penman and Partners Mr. Gorski rendered sell-side, valuation and capital raising services for publicly traded and privately held clients in the automotive, manufacturing and financial services industries. Mr. Gorski graduated from Miami University, in Oxford, Ohio with a Bachelor’s Degree in Finance and a minor in Latin America Studies and holds Series 7 and Series 63 Registered Representative licenses. Confidential 25 Global Healthcare Markets Group
  • 27. Houlihan Smith Transaction Team Darcy Bonner Analyst Prior to joining the firm, Mr. Bonner worked with a sector of the U.S. Small j g Business Administration in which he helped consult aspiring entrepreneurs and small business owners. He also assisted in weekly workshops that discussed various topics such as business plans, marketing, selling, and financial fundamentals. Mr. Bonner also volunteered his time within the financial sector at Bethel New Life. In this role, he assisted in weekly classes that taught low-income families the importance f money management nd directed small business rksh p imp rt n of m n m n m nt and dir t d a sm ll b sin ss workshop. Mr. Bonner graduated from Union College in upstate New York with a Bachelor’s Degree in Economics. During his time at Union, he also conducted a 25-week analysis on India and China's economy. Confidential 26 Global Healthcare Markets Group
  • 28. Houlihan Smith Transaction Team Maria Ika Erwina Analyst Prior to joining Houlihan Smith Advisors LLC, Ms. Erwina was an Analyst for j g y Attucks Asset Management, LLC, an investment advisor that specializes in creating manager-of-managers portfolios. She was responsible for conducting manager research analytics, generating clients’ performance reporting, and constructing and evaluating investment structure design. Ms. Erwina also oversaw the company’s response to Request for Proposals from potential corporate and public institutional investors. Ms. Erwina began her r r s Senior Market Research Analyst for in st rs Ms Er in b n h r career as a S ni r M rk t R s r h An l st f r a large management consulting firm. Ms. Erwina holds a Bachelor’s Degree in Mathematics from Beloit College. She is a member of Women in Pension. Confidential 27 Global Healthcare Markets Group