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Grow + Sell Your Business Part Three: Practical Tips To Facilitate a Transaction

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Presented by Eric Duffee and Michael Shaw, Copper Run Capital, on 10/17 as part of a Four Part Series. This segment of the series offered 8 clear steps to follow in pursuit of facilitating a successful transaction. It covered areas such as securing your assets, awareness of current market trends, a visual analysis of our current market update, and surrounding yourself with the right team.

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Grow + Sell Your Business Part Three: Practical Tips To Facilitate a Transaction

  1. 1. Tips to Facilitate a Successful TRANSACTION
  2. 2. Efficient Tax Structure Avoid Giving Minority Veto Rights Flexible Contracts Operate The Business With An Eye Toward Ultimate Sale1 Build Sustainable, Portable and Profitable Revenues Clean and Robust Financials
  3. 3. Key Customer/Supplier Relationships Intellectual PropertyEmployees Lock Down Your Key Assets2
  4. 4. Selling in a Buyer’s Market vs. a Seller’s Market Know the Trends in Your Industry Keep Apprised of Market Trends3
  5. 5. STRICTLY CONFIDENTIAL - FOR DISCUSSION PURPOSES ONLY • Financial and strategic buyers, buoyed by strong cash positions and willing credit sources, are competing aggressively and paying premium valuations for the limited supply of well-performing companies • Business owners looking to take advantage of historically low interest rates while retaining control of their business are utilizing low- cost debt to fund dividends • Banks and Credit Funds are competing aggressively to deploy capital, resulting in compressed debt pricing and covenant terms, lowering acquirers’ cost of capital and increasing their valuation ceilings • Foreign buyers continue to express interest in accessing different United States industries to both gain a foothold and bolster capacity • Family Offices are increasingly employing direct investment programs, increasing the pool of potential buyers M&A Market Update Strategic M&A Drivers in 2019 Source Deloitte M&A Trends 2019 6 Introduction 20% Customer Base Expansion 19% Product/Services Expansion 15% Technology Acquisition 13% Digital Strategy 12% Talent Acquisition
  6. 6. STRICTLY CONFIDENTIAL - FOR DISCUSSION PURPOSES ONLY • During 2018, the total M&A deal value reached its second-highest value on record despite a sharp decrease in the number of transactions. The U.S. market conducted 9,945 deals totaling $2.06 trillion dollars – still $7B lower than the M&A peak in 2016. The annual number of M&A transactions has been decreasing since 2015. • U.S. firms will continue to reap the benefits of enhanced cash access due to tax reform and such benefits are likely to fuel continued momentum in M&A. These trends continue themes we observed in 2018 and will likely drive further deal volume. M&A by Market Size 1,525 664 136 440 533 898 144 B2B B2C Energy Financial Services Healthcare IT Materials & Resources U.S. M&A Activity Overview Source: Pitchbook 1H 2019 North American M&A Report 2019 M&A Activity by Sector 7 $623.4 $898.1 $1,010.4 $1,223.9 $1,087.0 $1,587.9 $1,920.4 $2,024.2 $1,868.1 $2,072.0 $734.86,021 7,664 8,759 9,809 9,183 11,502 12,364 11,213 11,020 10,950 3,934 $0.0 $500.0 $1,000.0 $1,500.0 $2,000.0 $2,500.0 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019* 0 2,000 4,000 6,000 8,000 10,000 12,000 14,000 Deal value ($B) Deal count 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 2013 2014 2015 2016 2017 2018 2019* Under $100M $100M-$250M $250M-$500M $500M-$1B $1B-$5B $5B+ M&A Market Update
  7. 7. STRICTLY CONFIDENTIAL - FOR DISCUSSION PURPOSES ONLY $31 $34 $30 $38 $33 $42 $50 $57 $93 $251 $290 $275 $339 $400 $527 $474 $564 $703 $0 $100 $200 $300 $400 $500 $600 $700 $800 2011 2012 2013 2014 2015 2016 2017 2018 2019* Median Average • Institutional investors continue increasing allocation targets to PE as the industry continues to mature and escalate its prominence. PE firms have been raising increasingly larger funds and are seeking larger companies to allocate such capital. • Median buyout sizes and the respective purchase premiums are becoming higher. Corporations, flush with cash from a near decade- long recovery and a penchant for acquisitions are pursuing larger targets as well. Median M&A Deal Size by Type ($M) Overview Median & Average M&A Deal Size ($M) 8 M&A Market Update $43.0 $67.0 $88.0 $110.0 $233.5 $300.0 $0.0 $50.0 $100.0 $150.0 $200.0 $250.0 $300.0 $350.0 2011 2012 2013 2014 2015 2016 2017 2018 2019* Acquisition Add-On Buyout Platform Buyout Source: Pitchbook 1H 2019 North American M&A Report
  8. 8. STRICTLY CONFIDENTIAL - FOR DISCUSSION PURPOSES ONLY U.S. PE Deals By Size Overview 2019 U.S. PE Activity 9 M&A Market Update Source: Pitchbook Annual 1H 2019 U.S. PE Breakdown $337 $379 $439 $521 $562 $605 $618 $727 $261 3123 3494 3407 4204 4365 4350 4551 4828 1911 0 1000 2000 3000 4000 5000 6000 $- $100 $200 $300 $400 $500 $600 $700 $800 2011 2012 2013 2014 2015 2016 2017 2018 2019* Deal Value ($B) Deal Count • 2018 proved to be a hotbed for PE activity; 4,828 deals were completed totaling $713.0 billion in value. Activity continues to be driven by easy access to credit and sustained strength in fundraising causing a buildup of dry powder. • As the rate of PE deals has increased, deal sizes have also tended to be much larger. Higher purchase price multiples are one factor driving deal sizes above historic norms. 47 400 295 142 67 260 700 Materials & resources IT Healthcare Financial services Energy B2C B2B0 1,000 2,000 3,000 4,000 5,000 6,000 2011 2012 2013 2014 2015 2016 2017 2018 2019* Under $25M $25M-$100M $100M-$500M $500M-$1B $1B-$2.5B $2.5B+ 2019 U.S. PE Deals by Sector
  9. 9. STRICTLY CONFIDENTIAL - FOR DISCUSSION PURPOSES ONLY 2019 U.S. PE MM Deals by SectorU.S. PE MM Activity Overview U.S. PE MM Median Deal Size ($M) 10 M&A Market Update Source: Pitchbook Annual 1H 2019 U.S. PE Middle Market Report • As the PE industry continues to grow and attract more capital, the number of PE-backed middle market companies has continued to swell. However, middle market deals only accounted for 53.3% of overall P.E. deal value in 2018. Many broader PE industry trends are happening in the middle market as well – higher average deal size, larger funds, etc. • Larger companies have turned to inorganic growth - buying smaller companies that can move the needle but fly under a competitor’s radar. Investors continue to be moving down market. $204.3 $246.2 $240.8 $349.7 $319.7 $309.8 $378.4 $435.2 $187.2 1,451 1,883 1,609 2,177 2,183 2,338 2,540 2,978 1,418 0 500 1,000 1,500 2,000 2,500 3,000 3,500 $0.0 $100.0 $200.0 $300.0 $400.0 $500.0 2011 2012 2013 2014 2015 2016 2017 2018 2019* Deal Value ($B) Estimated Deal Value ($B) # of Deals Closed 585 19934 98 207 261 35 B2B B2C Energy Financial Services Healthcare IT Materials & Resources $0.0 $50.0 $100.0 $150.0 $200.0 $250.0 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019*
  10. 10. STRICTLY CONFIDENTIAL - FOR DISCUSSION PURPOSES ONLY • The 5-year, 10-year, and 30-year treasury yields have declined sharply since the beginning of 2019. With the cost of debt being at a near two-year low, companies are looking to take advantage and grow through acquisitions • Over the past three years, senior leverage multiples have ranged from 4.0x – 5.2x and total leverage multiples have ranged from 4.9x – 6.9x. The heavy competition for assets and the flood of capital has led to these near all-time highs in multiples • Covenant-lite loans, which offer more favorable terms for borrowers, are increasing share in the leveraged markets Debt MultiplesCovenant-Lite Share of Leveraged Loans Overview Treasury Yields 11 M&A Market Update 0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% 4.0% 5 Yr 10 Yr 30 Yr 4.80x 4.20x 4.50x 4.90x 5.40x 4.70x 4.90x 5.20x 5.40x 5.80x 5.00x 5.30x 5.90x 6.10x 5.60x 5.60x 6.00x 5.80x 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18 4Q18 1Q19 2Q19 Senior Leverage Total Leverage Sources: LCD S&P Global Market Intelligence, U.S. Department of the Treasury, S&P Global Market Intelligence, Pitchbook
  11. 11. STRICTLY CONFIDENTIAL - FOR DISCUSSION PURPOSES ONLY • The amount of capital invested in private equity funds is at an all- time high. Private equity funds have a limited time to invest the funds, typically 5-7 years or they must send the capital back to the investors. Despite private equity firms working hard to deploy capital, there is a stockpile of dry powder or uncalled capital. As a result, private equity firms are under pressure to invest large amounts of money in the coming years • In addition, corporate cash available is at a near all-time high with many companies using these funds to grow through strategic acquisitions Corporate Cash Available ($B)Global PE Dry Powder ($T) Overview Private Equity Overhang ($B) 12 M&A Market Update Sources: Pitchbook, Bain Research $1.0 $1.0 $0.9 $1.2 $1.2 $1.4 $1.5 $1.8 $2.0 2010 2011 2012 2013 2014 2015 2016 2017 2018 2010 2011 2012 2013 2014 2015 2016 2017 2018 $336.5 $390.0 $327.6 $334.0 $398.1 $482.8 $566.1 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018* Cumulativ Overhang by vintage 2018 $147.3B 2017 $177.2B 2016 $112.7B 2005-2011 $128.7B
  12. 12. Legal Diligence: Contracts, Compliance, Etc. Other Diligence: Customer/Supplier, Real Estate, Environmental, Etc. Financial Diligence: Audits or Quality of Earnings Analysis Perform Due Diligence on Yourself4
  13. 13. Find and Mitigate Risks to the Business (Due Diligence Review) Think Like a Buyer and Present Yourself Accordingly Have Alternatives Know Your Leverage + Use it Strategically5
  14. 14. STRICTLY CONFIDENTIAL - FOR DISCUSSION PURPOSES ONLY Determining the succession of the Company will depend on many considerations, including: • Owner/Seller Goals – willingness to offer control, acceptance of new partner, family involvement, transition to new role • Wealth Transfer – liquidity needed for future endeavors • Leadership – retention of key management members post-acquisition, acceptance to change in job responsibilities • Family Cohesion and Dynamics – family capabilities, preserving family relationships, ability to keep Company within family • Due Diligence – evaluate and document key relationships with key stakeholders such as employees, vendors, customers • Time Frame for Sale Transaction – ranges from 4-12 months depending on diligence preparedness and target buyer pool Full Sale of Company Partial Sale of Company Family Transfer Summary • 100% sale of the Company to a strategic or financial buyer • Partial sale of Company to strategic or financial buyer • ESOP • IPO • Family Limited Partnerships • Estate Freeze Recapitalization • Gifting Advantages • Complete exit of ownership • Provides liquidity to seller • Diversification of wealth • Liquidity and diversification • Retain some ownership • Capital for growth • Upside potential • Family retains ownership • Maintain income stream • Put growth in hands of heirs • Transfer equity, retain control Disadvantages • Sellers remorse for lifelong owner • Tax issues • No involvement in management • Potential to receive note or stock • Retained interest/limited exit • Accountability to a partner • Expensive process • Regulatory compliance • Complex securities • Retained ownership • Potential liquidity problems • Family cohesion 15 Strategic Objectives & Considerations Succession & Transition
  15. 15. STRICTLY CONFIDENTIAL - FOR DISCUSSION PURPOSES ONLY Below is an example of how we help Sellers evaluate the Equity Value of a deal at close after taking into consideration typical deal terms and Seller requirements such as paying off debt, providing buyer escrows, working capital adjustments, etc. • Net Debt: Short-term borrowings, term loans, pensions, etc. • Deal Expenses: Typically broker, legal and accounting fees • Deal Triggered Payments: Stay bonuses, severance payments, stock option or similar plans to be cancelled, etc. • Buyer Requested Items: Seller financing, earn-outs, escrows and balance sheet adjustments Valuation Enterprise Value to Equity Value Valuing a business is a discretionary process. Buyers are willing to pay a certain amount for a business’ future cash flows, also known as EBITDA. In order to provide the Seller with a fair price, the Buyer will provide an EBITDA Multiple to arrive at an “Enterprise Value”; that is, the value a buyer pays for the cash-free and interest-bearing debt- free business EBITDA Adjustments are adjustments or “add-backs” to consider if a new owner were to operate the business free of excess expenses. A few examples include: • Discretionary Expenses: Owner’s Compensation and perks above and beyond the market rate • Non-Recurring Expenses: such as one-time fees • Post-Transaction Operational Changes: such as the elimination or retirement of certain employees EBITDA Multiple calculates the fair Enterprise Value of the business. EBITDA Multiple determinants include but are not limited to: • Buyer Demand • Revenue/EBITDA Size • Cash Flow Predictability • Pricing Power • Proprietary Products or Services $50.0 $39.3 $6.0 $1.5 $0.2 $3.0 $0 $10 $20 $30 $40 $50 $60 Enterprise Value Net Debt Deal Expenses Deal Triggered Payments Buyer Requested Items Equity Value 1616 Strategic Objectives & Considerations Succession & Transition
  16. 16. STRICTLY CONFIDENTIAL - FOR DISCUSSION PURPOSES ONLY • Below is an example of valuation methodologies we utilize to help sellers determine a range of potential values for their business 17 $45 - $65 $40 - $55 $25 - $36 $36 - $48 $0.00 $10.00 $20.00 $30.00 $40.00 $50.00 $60.00 $70.00 5-10% Revenue Synergies, 5-10% Expense Synergies 40-50% Debt, 8x Exit Multiple 16-18% Discount Rate, 5-7x Terminal Multiple 6-8x LTM EBITDA Transaction Comps Discounted Cash Flow Analysis Strategic Buyout Analysis LBO Analysis $ in millions Strategic Objectives & Considerations Preliminary Range of Enterprise Value
  17. 17. STRICTLY CONFIDENTIAL - FOR DISCUSSION PURPOSES ONLY Copper Run will formulate a Buyer’s list from a variety of resources including events and associations, third party databases, personal contacts and our own proprietary database. The typical Buyer general falls under the following categories: Strategic Buyer Financial Buyer: Private Equity Financial Buyer: Family Office Description Strategic Buyers are typically from a similar industry to the Company and are interested in a company’s integration into their long- term business plan Private Equity firms invest in and acquire equity ownership in platform and add-on companies. Common Private Equity acquisition strategies include LBO, growth capital, venture capital, distressed investments, and mezzanine capital Family Offices are private companies that manage financial and investment activity for one or several ultra-high net worth investors Advantages • Typically purchase 100% of the Company • May be able to provide higher valuation due to synergies being incorporated in purchase price • Large amount of capital backing to grow Company organically and through acquisitions • Management expertise • Strategic connections • Long-term investment horizon typically over 10 years • Small, flexible investment teams for quick investment execution • All-cash transactions Disadvantages • Ownership and management not as essential to Buyer • May not provide current owner and management team future employment • Funds made of many Limited Partners (LP) • Investment usually only 5-7 years • More hands-on approach to management than family office • Generally want owner and management to remain • Less variety in financing options than private equity • Generally want owner and management to remain with company 18 Strategic Objectives & Considerations Potential Acquirers
  18. 18. STRICTLY CONFIDENTIAL - FOR DISCUSSION PURPOSES ONLY Broadly speaking, this is one of the most important questions to answer for a company’s shareholders and Board of Directors. While a healthy and growing company may not “have to sell”, the opportunity for an increased valuation at certain points in a company’s development nonetheless represent a trade‐off against other investment opportunities, career objectives, and yes, even the desire to enjoy a higher quality of life. Market Specific Factors • Macro and industry-specific market data indicates an attractive sale price • Competitors have been acquired indicating increased appetite among buyers • Strong, increasing competition may lead business owners to sell while the company is competitive and on an “up-tick” leading to higher sales price Company Specific Factors • Historical performance and future growth prospects result in positive market response • Company has reached a plateau and needs outside capital or management expertise to grow • Opportunity to partner with a strategic buyer in order to recognize synergistic growth Shareholder Specific Factors • Opportunity for the shareholders to capitalize on years of financial and personal investment • Personal timeline - business owners may have a long-term goal to sell the business in 5, 10, or 20 years and have approached or are approaching this landmark • Personal reasons; retirement, physical illness, family problems, stress, burned out 19 Strategic Objectives & Considerations Reason to Sell
  19. 19. What Employees Should Know About the Deal Outside Advisors (And What Do They Do)? Surround Yourself with the Right Deal Team – Internally + Externally6
  20. 20. STRICTLY CONFIDENTIAL - FOR DISCUSSION PURPOSES ONLY An M&A transaction can be disruptive to your business from a variety of standpoints; requests for information, probing questions from potential Buyers, different terminology, etc. An often-heard phrase on M&A transactions rings loud and true: Deals don’t age like fine wine Copper Run’s transactional experience will ensure that the momentum of the deal is maintained and that a delay in timing is not detrimental to the business. When negotiating terms with Buyers, Copper Run’s goal is not only to achieve the optimal price and structure for the Seller, but to also reduce anxiety and fear by eliminating potential threats. When negotiating overall value and structure, we focus on the following: • Negotiating price and EBITDA against multiple bidders in an organized format if necessary • Negotiating between an asset offer vs. stock offer to ensure our client is able to receive the most value for their company • Closing date, exclusivity and due diligence periods that can be critical periods to negotiate • Asset vs. Stock Deal • Cash vs. Stock vs. Sellers Note • Upfront Payment vs. Contingent Payment • Escrows and Indemnifications • Other Assets considered within the deal • Life Insurance, Non-Operating Assets, Real Estates • Working Capital Adjustments • Other Liabilities (ex. Underfunded Pensions) • Future Employment Agreements • Transition Requirements 21 Sell-Side Transaction Process Sell-Side Advisor Role Purchase Price & Timing Structure
  21. 21. STRICTLY CONFIDENTIAL - FOR DISCUSSION PURPOSES ONLY Final Buyer • Strategic and Financial Buyers available for the Client • After adjusting the list with the Client, an initial one-page “teaser” is sent to market the Seller • Some of the Buyers will request more information on the Client’s business • Phone/Email exchanges • NDA will be signed and then the CIM can be delivered to these potential buyers • Meetings between select Buyers and the Seller • Determine terms of potential transaction • Data Room Access • Due Diligence • Legal Work • Finalize Deal Terms • Closing Business Universe of Buyers 150 Teasers Delivered 70 Contacts Made 50 CIMs Distributed 20 IOIs Received 8 LOIs Received Sell-Side Transaction: Deal Funnel 22 Sell-Side Transaction Process
  22. 22. STRICTLY CONFIDENTIAL - FOR DISCUSSION PURPOSES ONLY Below is the typical timeline for a sell-side process. Variables to consider when building a timeline including preparation of due diligence, urgency to sell, market conditions, and acquirer considerations. Generally the entire process takes four to six months from beginning to end. The following slides will demonstrate step-by-step the Sell-Side Process Timeline. Preparation 4 - 6 Weeks 1. Information Gathering 2. Preliminary Analysis 3. Finalize Preparation Marketing 8 - 12 Weeks 4. Marketing Closing 8 - 10 Weeks 5. Proposal Evaluation 6. Final Negotiation 23 Sell-Side Transaction Process Sell-Side Transaction Process: Overview Sell-Side Transaction Process: Timeline
  23. 23. STRICTLY CONFIDENTIAL - FOR DISCUSSION PURPOSES ONLY • Copper Run will meet and discuss with the Company. This will help Copper Run get an understanding on the following: • Transaction goals • Understanding of the Company’s operations, industry and competitive position • Execute engagement documents, achieve consensus on process with Shareholders and Board Members • Copper Run will send a data request for financial and operational documents to begin gathering and analyzing information • Analyze: Financial and operational documents provided by the Company and discuss with the Company for further explanation. This will allow Copper Run to determine the scope of the process and identify any potential weaknesses prior to taking the Company to market • Prepare: A Confidential Information Memorandum (CIM) to distribute to interested acquirers who have executed an NDA. The CIM is a marketing presentation that presents all of the financial and operational documents that Copper Run has been provided • Assemble: Based on the information provided and discussions with the Company, Copper Run will begin assembling a Buyer’s list based on the transactional goals of the Company and will include this list within the Activity Tracker (shown on next page) 24 Sell-Side Transaction Process: Preparation 1. Information Gathering 2. Preliminary Analysis
  24. 24. STRICTLY CONFIDENTIAL - FOR DISCUSSION PURPOSES ONLY • Data Room: Copper Run utilizes an online data room to organize the Company information. The data room helps streamline data and allows Copper Run to track what information potential acquirers have viewed. It provides Copper Run and the Company control over who has access and the information these individuals have access to • Activity Tracker: This document will be continually updated and includes all strategic and financial buyers Copper Run believes could be a potential fit for the Company. Through the tracker, Copper Run presents buyers to the Company in which they will decided to approve, delay or eliminate. The documents tracks all communication and status updates between Copper Run and the approved buyers. As the Company approves, delays and eliminates potential buyers, it provides Copper Run a better idea of what buyers to focus on in searching for additional buyers Data Room Example 25 Sell-Side Transaction Process: Preparation 3. Finalize Preparation Activity Tracker Example
  25. 25. STRICTLY CONFIDENTIAL - FOR DISCUSSION PURPOSES ONLY • Once all preparation is complete and approved, Copper Run will take the Company to market using the following steps: 1. Copper Run will mail letters and one-pagers, email and call approved Buyers 2. Potential Buyers that have a further interest in the Company will execute confidentiality agreements to access detailed information regarding the Company 3. Copper Run will distribute the CIM and provide online data room access to all potential acquirers who execute confidentiality agreements 4. Copper Run will manage all calls and requests for further diligence items that aren’t provided through the CIM or in the data room to minimize business disruption for the Company 5. Copper Run will coordinate conference calls and site visits between potential buyers and the Company Sell-Side Advisor Marketing Benefits Marketing Expertise Copper Run’s sell-side experience allows them to create industry-specific marketing material and outreach that provides best results Minimize Business Disruptions Copper Run will handle all calls and requests to allow the Company to continue their day-to-day operations free of business disruptions and requests Industry Contact Success Copper Run will tap into their internal and third-party resources to approach the appropriate individual(s) from potential Buyers Coordinate Informational Documents Copper Run will provide an interactive data room to store financial and operational documents, so all potential buyers have access to the same information 26 Sell-Side Transaction Process: Marketing 4. Marketing
  26. 26. STRICTLY CONFIDENTIAL - FOR DISCUSSION PURPOSES ONLY Teaser ExampleLetter Example 27 Sell-Side Transaction Process: Preparation 4. Marketing Materials Examples
  27. 27. STRICTLY CONFIDENTIAL - FOR DISCUSSION PURPOSES ONLY • Marketing Material: Copper Run will reach out to potential Buyers using several communication methods. The following marketing documents will be presented to and approved by the Company: • Teaser: Copper Run will distribute a one-page overview of the Company that keeps sensitive company information (name, location, etc.) vague and at a “high level” • Letter: Copper Run will distribute a letter introducing ourselves and the Company • CIM: Copper Run will finalize and present the drafted CIM to the Company and edit with any recommended changes prior to presenting to potential Buyers 28 Sell-Side Transaction Process: Preparation 4. Finalize Marketing Materials
  28. 28. STRICTLY CONFIDENTIAL - FOR DISCUSSION PURPOSES ONLY After potential Buyer’s have reviewed and analyzed the provided documents and diligence items the following will occur: 1. Copper Run will communicate with Buyers the Seller’s objectives and expectations. Copper Run will then set a date in which Letter of Intents (LOI) will be due 2. Copper Run will review all Buyer LOI’s with the Company. Proposals could differ based on structure, financing, future employment, cash at closing, etc. 3. Copper Run will reach out to Buyers and provide feedback on their initial proposals. They will then set a date in which final proposals are due a) The Company may allow Buyers to meet in person and/or visit the Company’s facilities prior to requesting final proposals 4. Copper Run will review all final proposals with the Company. Copper Run and the Company will conduct reverse due diligence on potential Buyers and analyze risks of transaction contingencies 5. The Company will select proposals for final negotiations 5. Proposal Evaluation 6. Final Negotiation • Copper Run and the Company will negotiate definitive agreements with the buyer • Copper Run will work with the Buyer to satisfy their confirmatory due diligence requirements on the Company • All parties involved will obtain necessary approvals and execute legal documentation • Copper Run and the Company will receive consideration and close the transaction 29 Sell-Side Transaction Process: Closing
  29. 29. STRICTLY CONFIDENTIAL - FOR DISCUSSION PURPOSES ONLY Preemptive Sell-Side Process Targeted Solicitation Limited Auction Broad Auction Description Narrowed approach to only identify most likely acquirers Broader approach to screen and identify most likely acquirers Limited range of logical potential acquirers contacted Broad range of potential acquirers contacted Number of Acquirers 1 - 5 5 - 10 10 - 25 25 + Advantages • Outreach efforts focused on best acquirer • Maximum confidentiality • Speed of execution • Minimal business disruption • Speed of execution • Confidentially maintained • Limited business disruption • Avoids the perception of business being shopped • Reasonably accurate test of market price • Minimal business disruption relative to broad auction • Creates sense of competition amongst buyers • Accurate test of market price • Buyer competition results in greatest chance to achieve best price • More proposed acquisition structures to choose from Disadvantages • Unlikely to maximize value • Results tied to negotiations between 1-2 potential buyers • Possibility that transaction is not closed • Requires senior management time and commitment • May not maximize value • Not as broad a market test as a full auction • Highest risk of business disruption • Most difficult to maintain confidentiality even with the appropriate agreements Circumstances • Clear sense of most logical acquirer • Strong negotiating position • Limited group of logical acquirers • Objectives of confidentiality and to have limited business disruption • Seek balance between maximizing value, speed of execution and minimizing business disruption • Focus on maximizing the shareholder value Timing 4 - 5 months 5 - 6 months 6 - 7 months 7 - 8 months 30 Sell-Side Transaction Process: Alternatives
  30. 30. Limit Exclusivity and Include “Escapes” Seller’s Leverage Begins to Decline as Soon as the LOI is Signed Lay Out All of the Significant Terms in Writing Spend Time to Negotiate a Good Letter of Intent7
  31. 31. Keep the Business Going Move Quickly Disclose Issues Strategically Devote Significant Time to Integration Execution + Integration8
  32. 32. Eric D. Duffee Kegler Brown Hill + Ritter eduffee@keglerbrown.com keglerbrown.com/duffee 614-462-5433 Michael Shaw Copper Run Capital mshaw@copperruncap.com copperruncap.com/michael-shaw 614-888-1786

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