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Leonidas Capital
January 2012
Special Presentation to ITStaffing, Inc.
Leonidas Capital
2
Proposed Agenda
I. Introductions: Overview of Leonidas
II. Situational Analysis
III. Offer Analysis
 Staffco Offer
 HG...
3
Leonidas Capital Overview
Firm Overview
Leonidas Capital is a leading boutique, middle-market investment banking firm pr...
4
Industry Overview
 Size
 IT staffing is the largest segment in the professional staffing space, accounting for approxi...
5
Company Overview
 With 16 offices in major metro areas throughout the
United States, ITStaffing, Inc. (“ITS” or the
“Co...
6
Key Investment Merits
Leonidas Capital believes ITS is a highly attractive target for both strategic and financial buyer...
7
Situational Analysis
Other Considerations
 Maximizing shareholder value, while understanding shareholder motivations.
...
8
Offer Analysis: Staffco
Staffco Valuation
Lower Upper
Discount 35% Discount 15%
Cash Plus Stock* Cash Plus Stock*
Offer ...
9
HGE Offer Considerations: Sources & Uses
 Below are the sources and uses of funds related to the HGE offer:
$ in millio...
10
HGE Offer Considerations
Advantages of the Transaction
 Liquidity Event: The financial sponsors’ 40% purchase
will pro...
$240 $260 $280 $300 $320 $340 $360 $380 $400 $420
11
Valuation Summary
Enterprise Value
$(millions)
$255.4
8.7x – 9.8x EBI...
12
Valuation: Public Company Comparables Analysis
 The publicly traded comparable companies presented above employ simila...
13
Valuation: Public Company Comparables Analysis
Public Comparable Method
 Mean EBITDA Multiple: 8.8x
 Multiple Step Up...
14
Valuation: Precedent Transaction Analysis
$ in millions
Comparable Transactions
Target EBITDA EV /
Transaction Enterpri...
15
Valuation: Precedent Transaction Analysis
Precedent Transaction Method
 Mean EBITDA Multiple: 9.4x
 Multiple Step Up ...
16
Weighted Average Cost of Capital
$ in millions
Weighted Average Cost of Capital Analysis for IT Staffing Inc.
Cost of S...
17
Valuation: Discounted Cash Flow Analysis
DCF Assumptions
Projected FYE December 31,
2012 2013 2014 2015 2016
EBITDA 40....
18
Leonidas Capital: Overall Valuation
• Leonidas Capital performed a valuation that incorporated i) publicly traded compa...
19
Recommendation
Current Offers
 Leonidas believes the current offers fall below the true value of the enterprise. Howev...
Appendix
Supplemental Information
Leonidas Capital
21
Appendix
$ in millions
LBO Transaction Summary for IT Staffing Inc.
Sources and Uses of Funds
x 2011 Cash
Sources: Amou...
22
Appendix
$ in millions
Balance Sheet Adjustments for IT Staffing Inc.
Actual FYE December 31, Adjustments At Close
2009...
23
Appendix
$ in millions
Projected Balance Sheet for IT Staffing Inc.
Hide this section Proforma
Actual FYE December 31, ...
24
Appendix
$ in millions
Cash Flow Statement for IT Staffing Inc.
At Close Projected FYE December 31,
2011 2012 2013 2014...
25
Appendix
$ in millions
Working Capital Schedule for IT Staffing Inc.
Actual FYE December 31, At Close Projected FYE Dec...
26
Appendix
$ in millions
Depreciation Schedule for IT Staffing Inc.
Actual FYE December 31, At Close Projected FYE Decemb...
27
Appendix
$ in millions
Amortization Schedule for IT Staffing Inc.
At Close Projected FYE December 31,
2011 2012 2013 20...
28
Appendix
$ in millions
Debt and Interest Schedule for IT Staffing Inc.
At Close Projected FYE December 31,
2011 2012 20...
29
Appendix
$ in millions
Equity Schedule for IT Staffing Inc.
At Close Projected FYE December 31,
2011 2012 2013 2014 201...
30
Appendix
$ in millions
Leveage Ratios for IT Staffing Inc.
At Close Projected FYE December 31,
2011 2012 2013 2014 2015...
31
Appendix
$ in millions
Returns Analysis for IT Staffing Inc.
At Close Projected FYE December 31,
2011 2012 2013 2014 20...
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It staffing, inc.- LBO Analysis

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IT Staffing, Inc. - LBO Analysis

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It staffing, inc.- LBO Analysis

  1. 1. Leonidas Capital January 2012 Special Presentation to ITStaffing, Inc. Leonidas Capital
  2. 2. 2 Proposed Agenda I. Introductions: Overview of Leonidas II. Situational Analysis III. Offer Analysis  Staffco Offer  HGE Offer IV. Valuation  Publicly Company Comparable Analysis  Precedent Transactions Analysis  Discounted Cash Flow Analysis  Overall Valuation V. Recommendation VI. Appendix  LBO Model
  3. 3. 3 Leonidas Capital Overview Firm Overview Leonidas Capital is a leading boutique, middle-market investment banking firm providing investment banking advisory including M&A, private placement and strategic advisory services with significant transaction experience in the Employment Services/Staffing space. “Boutique-Level Attention, Bulge-Bracket Firm Capabilities” M&A Advisory Services Private Placement Services Strategic Advisory Services Leonidas Capital is dynamically positioned as a lean and highly flexible investment banking group. We provide a boutique- level focus, with bulge-bracket firm capabilities. We differentiate ourselves with:  Seasoned professionals who have a proven ability execute.  The skill to adapt to market conditions, transaction types & industries.  Global relationships and reach (Strategics, PEGS, Hedge Funds, Mezzanine, Lenders, Pension Funds, Family Offices). Travis Nauman Patrick Sullivan Robert Hink Principals • Managing Director • Managing Director • Managing Director
  4. 4. 4 Industry Overview  Size  IT staffing is the largest segment in the professional staffing space, accounting for approximately 43% of all professional staffing revenue  Growth  U.S. staffing industry is expanding rapidly, generating revenues of over $97 billion in 2010  IT staffing revenue increased by 13% in 2011 and is expected to increase by 10.4% in 2012  Expected to add more jobs over the next decade than most industries in the U.S.  Trend  Industry is moving towards higher skilled and higher paid positions  Forecasts indicate a significant shortage of qualified workers in the IT, nursing, and physician fields  Key External Drivers  Changes in the nature of work and production processes influence the demand for temporary workers to fill short-term and seasonal-demand peaks  Increase in corporate profit has a positive effect on industry performance as clients will be more likely to invest in temporary employees  National unemployment rate - industry is sensitive to changes in unemployment levels as temporary staff are the first to be laid off in a recession and first to be hired in economic upturn Source: www.IBISWorld.com
  5. 5. 5 Company Overview  With 16 offices in major metro areas throughout the United States, ITStaffing, Inc. (“ITS” or the “Company”) is one of the leading IT staffing firms in the nation.  The Company has developed an enviable reputation for being able to provide clients with a range of highly skilled IT professionals on a full-time or temporary basis.  As such, the Company has developed long-term, recurring customer relationships that generates significant profit margins. Clients continue to seek out ITS’ services in order to raise productivity, lower overhead costs and increase labor flexibility.  Management’s strategic focus on building a scalable platform has allowed it to enter attractive new markets, with little capital investment. Company Overview Financial Overview  The Company is a strong cash flow generator. In 2011, ITS generated $37.9 million in adjusted EBITDA on sales of $203.3 million, a 18.7% margin. These margins are considered “best in class” in the industry, more than double EBITDA margins of larger publicly traded competitors. - 50.00 100.00 150.00 200.00 250.00 300.00 2009 2010 2011 2012 2013 2014 2015 2016 Sales Adj.EBITDA Actual FYE December 31, Projected FYE December 31, 2009 2010 2011 2012 2013 2014 2015 2016 Sales 131.8$ 161.2$ 203.3$ 224.4$ 239.0$ 251.5$ 264.0$ 273.5$ Cost of Direct Services 91.4 105.1 129.0 143.0 152.3 160.2 168.2 174.2 Gross Profit 40.4 56.1 74.3 81.5 86.8 91.3 95.8 99.3 Operating Expense 22.5 27.4 35.7 40.0 42.5 44.8 47.0 48.7 Compensation Adjustments 0.0 0.0 (0.7) (0.7) (0.7) (0.7) (0.7) (0.7) Adjusted EBITDA 18.0 28.7 37.9 40.8 43.5 45.8 48.1 49.9 Growth Analysis Sales Growth % N/A 22.3% 26.1% 10.4% 6.5% 5.2% 5.0% 3.6% Adjusted EBITDA Growth % N/A 59.5% 32.4% 7.6% 6.6% 5.3% 5.1% 3.7% Margin Analysis Gross Margin 30.7% 34.8% 36.6% 36.3% 36.3% 36.3% 36.3% 36.3% Adjusted EBITDA as a % of Sales 13.6% 17.8% 18.7% 18.2% 18.2% 18.2% 18.2% 18.2%
  6. 6. 6 Key Investment Merits Leonidas Capital believes ITS is a highly attractive target for both strategic and financial buyers. Niche Leadership Position: High Margin/High Skill IT Professionals Debt Free Balance Sheet Allows for Financial Flexibility Strong Financial Performance: Revenue Growth & Cash Flow Generation Scalable Business Model Highly Experienced Management Team/Excellent Operators Solid, Recurring Customer Base Industry Trends favor the “High Skill” segment
  7. 7. 7 Situational Analysis Other Considerations  Maximizing shareholder value, while understanding shareholder motivations.  Should a formal sell-side process ensue, maintain maximum confidentiality to reduce potential competitive issues.  Leonidas Capital is pleased to assist ITS in determining the market value of the firm relative to the non-binding offers in hand and potentially provide value-added alternatives for consideration. In assessing the situation at ITS, Leonidas Capital understands the following items: Strategic: Staffco Non-Binding Offers, Subject to Due Diligence Financial: HGE  Equity Ownership: 50%  Motivation to Sell: Low. Committed to business with an optimistic outlook.  Key Concern: Competitive issues with running a full Sell- side process. David - CEO Ownership Dynamics Andy - CFO  Equity Ownership: 25%  Motivation to Sell: High. Motivated seller seeking to pursue outside opportunities due to margin contraction he foresees.  Deal Terms:  Staffco: Purchase of 100% of ITS common equity. Sellers receive cash consideration of $220 million and $140 million of Staffco’s common equity. Eduardo - COO  Equity Ownership: 25%  Motivation to Sell: Low. Committed to the business.  Deal Terms:  HGE: Purchase of 40% of ITS common equity for $95 million. Cash consideration of $175 million at close with an earn-out of up to $15 million.
  8. 8. 8 Offer Analysis: Staffco Staffco Valuation Lower Upper Discount 35% Discount 15% Cash Plus Stock* Cash Plus Stock* Offer Price Equity Value with Stock Discount $311.0 $339.0 Less: Opportunity Cost ** (41.3) (41.3) Net Equity Value 269.7 297.7 Plus: Net Debt (14.4) (14.4) Enterprise Value $255.4 $283.4 EBITDA 37.9 37.9 Implied EBITDA Multiple 6.7x 7.5x * Illiquidity discount of 15% and 35% taken on value of Staffco stock. ** Opportunity cost assumes PV of loss of dividend. Staffco’s offer implies a 6.7x-7.5x EBITDA Range Advantages of the Transaction  Liquidity at Close: Staffco’s $220 in cash consideration provides immediate liquidity to shareholders .  Diversification of Risk: This scenario allows the shareholders to “cash out” and diversify some of their business and industry risk.  Some of the Consideration is Tied Up in Illiquid Stock: The shareholder’s risk is not totally diversified since they have still have “skin in the game.”  Loss of Dividend: The owners will not receive future dividends. Key Considerations
  9. 9. 9 HGE Offer Considerations: Sources & Uses  Below are the sources and uses of funds related to the HGE offer: $ in millions LBO Transaction Summary for IT Staffing Inc. Sources and Uses of Funds x 2011 Cash Sources: Amount % Sources EBITDA Rate PIK Warrant Revolver $0.0 0.0% 0.0x 5.5% Bank term loan 60.0 18.9% 1.6x 8.5% Senior debt 60.0 18.9% 1.6x Mezzanine 20.0 6.3% 0.5x 12.0% 2.0% 0.0% Total debt 80.0 25.2% 2.5x Rollover Equity 142.5 44.9% 3.8x 0.0% 0.0% HGE Equity 95.0 29.9% 2.5x 0.0% 0.0% Total equity 237.5 74.8% 6.3x Total Sources: $317.5 100.0% 8.4x Uses: Cash to seller $159.9 50.4% Rollover Equity 142.5 44.9% Transaction expenses 15.1 4.8% Total Uses: $317.5 100.0% Ownership Structure At Close Fully Diluted Rollover Equity 60.0% 60.0% HGE Equity 40.0% 40.0% Total Ownership 100.0% 100.0%
  10. 10. 10 HGE Offer Considerations Advantages of the Transaction  Liquidity Event: The financial sponsors’ 40% purchase will provide immediate liquidity to the firm’s shareholders.  Capital Appreciation Potential at Exit: Remaining shareholders can get a “second bite of the apple” by realizing continued upside growth in equity value of their remaining 60% interest.  Strong Financial Backing: HGE is a “deep pocketed” partner for future growth (management insights, connections and potential portfolio synergies).  Financial Partner Requirements: In addition to a new board of directors (3 out of 7 whom will be elected by HGE), ITS may be subject to other requirements from the financial partner including management fees, reporting requirements, financial covenants and other negative covenants (dividends, Capex, etc.)  Dilution of remaining shareholders: The Company’s existing shareholders will see their ownership value diluted under this structure.  Loss of Dividend: The owners will not receive future dividends. Key Considerations HGE Valuation Lower Upper Implied Equity Value $237.5 $237.5 Plus: Net Debt 65.4 80.0 Enterprise Value 302.9 317.5 EBITDA 37.9 37.9 EBITDA Multiple 8.0x 8.4x Cash Considerations Cash at Close $175.0 Plus: NPV Potential Cash* 135.0 PV of Total Cash Considerations $310.0 * Includes loss of dividend, earnout, salary HGE’s offer indicates a 8.0x-8.4x EBITDA Range
  11. 11. $240 $260 $280 $300 $320 $340 $360 $380 $400 $420 11 Valuation Summary Enterprise Value $(millions) $255.4 8.7x – 9.8x EBITDA 8.9x – 9.9x EBITDA 8.3x – 9.2x EBITDA 10% - 12% WACC 3.0% - 4.0% Perpetuity Growth Rate 8.0x – 8.4x EBITDA 6.8x – 7.5x EBITDAStaffco Offer Valuation Range Precedent Transactions Public Company Comparables DCF HGE Offer $283.4 $302.9 $317.5 $338.7 $376.7 $313.3 $351.2 $326.0 $384.3 $326.0 $368.0 Valuation Range
  12. 12. 12 Valuation: Public Company Comparables Analysis  The publicly traded comparable companies presented above employ similar business models including high skill professionals with an IT component.  It is important to note that in general larger, public companies trade at a premium to smaller regional competitors due to their relative market share, size and scale. However, for comparison purposes these public valuations provide a basis for which to gauge ITS’ implied enterprise value. Publicly Traded Comparable Companies are Trading in the 8.8x EBITDA Range $ in millions, except share price Comparable Company Operating Metrics Shares Enterprise LTM LTM EV / EV / LTM Total Company Stock Price Outstanding Debt Cash Equity Value Value Revenue EBITDA EBITDA Revenue EBITDA Margin Debt / EBITDA CDI Corp. 13.15 19.2 21.8 18.2 252.5 256.1 1,039.9 30.7 8.3x 0.2x 3.0% 0.7x Kforce Inc. 12.46 37.9 61.1 1.0 472.2 532.3 1,083.9 61.4 8.7x 0.5x 5.7% 1.0x On Assignment Inc. 10.99 36.9 88.4 13.2 405.5 480.6 556.6 45.5 10.6x 0.9x 8.2% 1.9x Robert Walters plc 2.90 77.0 18.8 35.9 223.3 206.2 766.1 27.6 7.5x 0.3x 3.6% 0.7x IT Staffing Inc. (Staffco Offer) 0.3 14.6 301.4 287.0 203.3 37.9 7.6x 1.4x 18.2% 0.0x IT Staffing Inc. (HGE Offer) 80.0 14.6 237.5 302.9 203.3 37.9 8.0x 1.5x 18.2% 2.1x High 10.6x 0.9x 8.2% 1.9x Mean 8.8x 0.5x 5.1% 1.1x Median 8.5x 0.4x 4.6% 0.9x Low 7.5x 0.2x 3.0% 0.7x
  13. 13. 13 Valuation: Public Company Comparables Analysis Public Comparable Method  Mean EBITDA Multiple: 8.8x  Multiple Step Up for Valuation: +0.5x  Multiple Step Down: - 0.5x Public Comparable Valuation Lower Range Upper Range ITS EBITDA $37.9 $37.9 Multiple Selected 8.3x 9.26x TEV $313.3 $351.2 Less: Debt 0.3 0.3 Plus: Cash 14.6 14.6 Value of Equity $327.7 $365.6  Enterprise Value: $313.3 - $351.2 million  Equity Value: $327.7 - $365.6 million  EBITDA Multiple Selected: 8.3x – 9.3x
  14. 14. 14 Valuation: Precedent Transaction Analysis $ in millions Comparable Transactions Target EBITDA EV / Transaction Enterprise Value Revenues EBITDA EV/EBITDA Margin Revenue Transaction 1 732.2$ 2,089.0$ 72.0$ 10.2x 3.4% 0.4x Transaction 2 153.7 623.3 17.2 9.0x 2.8% 0.2x Transaction 5 162.4 1,163.4 27.1 6.0x 2.3% 0.1x Transaction 7 128.6 603.3 20.7 6.2x 3.4% 0.2x Transaction 11 840.8 373.0 53.2 15.8x 14.3% 2.3x High 840.8$ 2,089.0$ 72.0$ 15.8x 14.3% 2.3x Mean 403.5 970.4 38.0 9.4x 5.2% 0.6x Median 162.4 623.3 27.1 9.0x 3.4% 0.2x Low 128.6 373.0 17.2 6.0x 2.3% 0.1x  The global staffing sector has seen a pickup in takeover activity in recent months as companies look to speed up growth by expanding into new geographies and niche businesses.  Given the fragmented market, major players continue to seek opportunities to ramp up firms that focus on high skill professionals in order to boost margins. Precedent Transactions indicate an average 9.4x EBITDA Multiple
  15. 15. 15 Valuation: Precedent Transaction Analysis Precedent Transaction Method  Mean EBITDA Multiple: 9.4x  Multiple Step Up for Valuation: +0.5x  Multiple Step Down: - 0.5x Precedent Transactions Valuation Lower Range Upper Range ITS EBITDA $37.9 $37.9 Multiple Selected 8.9x 9.9x TEV $338.7 $376.7 Less: Debt 0.3 0.3 Plus: Cash 14.6 14.6 Value of Equity $353.1 $391.0  Enterprise Value: $338.7 - $376.7 million  Equity Value: $353.1 - $391.0 million  EBITDA Multiple Selected: 8.9x – 9.9x
  16. 16. 16 Weighted Average Cost of Capital $ in millions Weighted Average Cost of Capital Analysis for IT Staffing Inc. Cost of Senior Debt 8.5% Marginal Tax Rate 40.0% After Tax Cost of Debt 5.1% Cost of Mezzanine 14.0% Marginal Tax Rate 40.0% After Tax Cost of Mezzanine 8.4% Cost of Equity Risk Free Rate 4.5% Beta 1.38 Equity Premium 5.75% Size Premium 2.85% Cost of Equity 15.3% Percentage of Capital Amount % Senior Debt 60.0$ 34.3% Mezzanine 20.0$ 11.4% Equity 95.0$ 54.3% Total 175.0$ 100.0% WACC 11.0%  The weighted average cost of capital was calculated as follows:
  17. 17. 17 Valuation: Discounted Cash Flow Analysis DCF Assumptions Projected FYE December 31, 2012 2013 2014 2015 2016 EBITDA 40.8 43.5 45.8 48.1 49.9 Less: depreciation (0.6) (1.0) (1.4) (1.2) (1.3) Less: amortization (3.0) (3.0) (3.0) (3.0) (3.0) EBIT 37.2 39.5 41.4 43.9 45.6 Less: taxes (11.0) (8.4) (13.4) (14.8) (15.9) Tax-effected EBIT 26.2 31.1 28.0 29.1 29.7 Plus: depreciation 0.6 1.0 1.4 1.2 1.3 Plus: amortization 3.0 3.0 3.0 3.0 3.0 Less: capital expenditures (1.0) (1.1) (1.2) (1.3) (1.3) +/- Changes in working capital (0.9) (2.0) (1.7) (1.7) (1.3) Unlevered free cash flow $27.9 $32.0 $29.5 $30.3 $31.4 WACC 367.4 10.0% 11.0% 12.0% 3.0% 399.8 350.2 311.6 3.5% 423.2 367.4 324.6 4.0% 450.6 386.9 339.2 DCF Sensitivity GrowthRate Weighted average cost of capital 11.0% Net present value of free cash flow $111.15 Growth rate of FCF after 5 years 3.5% Terminal value $432.0 Present value of the terminal value 256.2 Enterprise Value 367.4 Less: Net Debt 14.4 Equity Value $381.7 Perpetuity Growth Method  Perpetuity Growth Rate: 3% - 4%  WACC: 10 – 12%  5 year period based on a blended forecast of industry and management projections. DCF Valuation  Enterprise Value: $339.2 - $399.8  Implied EBITDA Multiple: 8.9x – 10.5x
  18. 18. 18 Leonidas Capital: Overall Valuation • Leonidas Capital performed a valuation that incorporated i) publicly traded company valuation multiples, ii) implied M&A transaction multiples and iii) DCF valuation. Each of these approaches were weighted (20% DCF, 40% Public Comparables, 40% precedent transactions). • Leonidas Capital believes that ITS’ total enterprise value is within the $328.6 to $371.1 million range. • After subtracting debt and adding cash, our estimate of ITS’ equity value is within $343.0 and $385.5 million. • Leonidas Capital Commentary: Based on the estimated LTM EBITDA of $37.9 million, Leonidas believes that ITS would present an attractive investment opportunity to a wide group of financial partners (i.e. global private equity groups, hedge funds, mezzanine lenders, etc.) and strategics alike. • In addition, ITS’ proven business model, “best in class” EBITDA margins, experienced management team and exceptional growth potential position the Company with substantial leverage when negotiating deal terms with prospective investors. Lower Range Valuation TEV Weighting Weighted Avg TEV DCF $339.2 20% 67.8 Public Comparables 313.3 40% 125.3 Precedent Transactions 338.7 40% 135.5 Enterprise Value 328.6 EBITDA 37.9 Implied TEV/EBITDA Multiple 8.7x Net Debt 14.4 Equity Value 343.0 Upper Range Valuation TEV Weighting Weighted Avg TEV DCF 399.8$ 20% 80.0 Public Comparables 351.2 40% 140.5 Precedent Transactions 376.7 40% 150.7 Enterprise Value 371.1 EBITDA 37.9 Implied TEV/EBITDA Multiple 9.8x Net Debt 14.4 Equity Value 385.5
  19. 19. 19 Recommendation Current Offers  Leonidas believes the current offers fall below the true value of the enterprise. However, there is potential upside on both deals:  Staffco: Staffco undervalues the firm and we feel this is a less desirable transaction for ITS. In order to consider this offer the Company should negotiate a higher cash component at close or options on stock to lock in value in order to mitigate the illiquidity of the stock consideration.  HGE: From an enterprise value perspective, HGE’s 40% offer falls below the valuation range. However, the existing shareholders retain 60% of the equity in the Company. Therefore, assuming an exit in 5 years at a multiple of 8.4x, the growth in the equity value is projected to increase by $125 million based on the projections of EBITDA. Therefore the shareholders must weigh their risk tolerance on this un-guaranteed , yet potential upside from the “second bite of the apple.” Alternative Recommendation  Based on our understanding of the existing shareholder’s motivation levels to sell, we believe Leonidas Capital has a creative solution that is worth considering, which could be a “win-win” for all parties.  The Company’s cash flow can support the levels debt levels contemplated in the HGE offer. In theory, the Company could raise capital on their own and while retaining 100% ownership. This could lead to creative structures such as a dividend recapitalization or potentially shareholder buyouts.  This option would:  Eliminate any potential concerns with running a “broad” process (capital raise vs. sell-side).  Lower the companies overall cost of capital vs. an LBO transaction (replaces high cost mezzanine and equity capital with low-cost senior debt).  Possible downside: increased leverage and increased scrutiny (enhanced reporting, covenants, etc.) from the senior lender.
  20. 20. Appendix Supplemental Information Leonidas Capital
  21. 21. 21 Appendix $ in millions LBO Transaction Summary for IT Staffing Inc. Sources and Uses of Funds x 2011 Cash Sources: Amount % Sources EBITDA Rate PIK Warrant Revolver $0.0 0.0% 0.0x 5.5% Bank term loan 60.0 18.9% 1.6x 8.5% Senior debt 60.0 18.9% 1.6x Mezzanine 20.0 6.3% 0.5x 12.0% 2.0% 0.0% Total debt 80.0 25.2% 2.5x Rollover Equity 142.5 44.9% 3.8x 0.0% 0.0% HGE Equity 95.0 29.9% 2.5x 0.0% 0.0% Total equity 237.5 74.8% 6.3x Total Sources: $317.5 100.0% 8.4x Uses: Cash to seller $159.9 50.4% Rollover Equity 142.5 44.9% Transaction expenses 15.1 4.8% Total Uses: $317.5 100.0% Ownership Structure At Close Fully Diluted Rollover Equity 60.0% 60.0% HGE Equity 40.0% 40.0% Total Ownership 100.0% 100.0% Transaction Terms Purchase Price $302 2011 EBITDA $38 Multiple of EBITDA 8.0x
  22. 22. 22 Appendix $ in millions Balance Sheet Adjustments for IT Staffing Inc. Actual FYE December 31, Adjustments At Close 2009 2010 2011 Debits (+) Credits (-) 2012 Cash $8.7 $9.2 $14.6 $14.6 Accounts Receivable, Net 23.1 25.6 34.2 34.2 Inventories 0.0 0.0 Other Current Assets 0.4 4.5 3.7 3.7 Total Current Assets 32.2 39.3 52.5 0.0 52.5 PP&E, Net 1.6 1.9 2.3 2.3 Goodwill 283.5 283.5 Transaction Expense 0.0 15.1 15.1 Earnout Other Long-Term Assets 0.5 0.6 0.6 0.6 Total Assets $34.3 $41.8 $55.4 $298.7 $0.0 $354.1 Accounts Payable 3.3 2.3 3.0 3.0 Accured Liabilities 3.2 4.1 5.1 5.1 Total Current Liabilities 6.5 6.3 8.1 0.0 0.0 8.1 Revolver 0.0 0.0 0.0 0.0 Bank Term 0.0 0.0 60.0 60.0 Mezzanine 0.0 20.0 20.0 Other Long-Term Liabilities 0.2 0.2 0.3 0.3 Total Liabilities 6.7 6.6 8.4 0.0 80.0 88.4 Rollover Equity 142.5 142.5 HGE Equity 95.0 95.0 Retained Earnings 27.5 35.2 47.1 (18.8) 28.2 Total Equity 27.5 35.2 47.1 (18.8) 237.5 265.7 Total Liabilities and Equity $34.3 $41.8 $55.4 ($18.8) $317.5 $354.1 Check (A=L+E) 0.0 0.0 0.0 0.0
  23. 23. 23 Appendix $ in millions Projected Balance Sheet for IT Staffing Inc. Hide this section Proforma Actual FYE December 31, At Close Projected FYE December 31, 2008 2009 2010 2011 2012 2013 2014 2015 2016 Cash $8.7 $9.2 $14.6 $21.2 $13.6 $23.6 $35.5 $27.4 Accounts Receivable, Net $23.1 $25.6 34.2 36.9 39.3 41.3 43.4 45.0 Inventories $0.0 $0.0 - - - - - - Other Current Assets $0.4 $4.5 3.7 4.1 4.4 4.6 4.9 5.0 Total Current Assets 0.0 32.2 39.3 52.5 62.2 57.3 69.6 83.8 77.4 PP&E, Net 1.6 1.9 2.3 2.7 2.8 2.6 2.7 2.8 Goodwill 0.0 0.0 283.5 283.5 283.5 283.5 283.5 283.5 Transaction Expense 0.0 0.0 15.1 12.1 9.1 6.0 3.0 0.0 Earnout 0.0 0.0 0.0 0.0 9.6 9.6 9.6 9.6 Other Long-Term Assets 0.5 0.6 0.6 0.6 0.6 0.6 0.6 0.6 Total Assets 0.0 34.3 41.8 354.1 361.2 362.9 372.1 383.3 373.9 Accounts Payable 3.3 2.3 3.0 4.7 5.0 5.3 5.5 5.7 Accured Liabilities 3.2 4.1 5.1 5.6 6.0 6.3 6.6 6.8 Total Current Liabilities - 6.5 6.3 8.1 10.3 11.0 11.5 12.1 12.6 Revolver 0.0 0.0 - - - - - - Bank Term 0.0 0.0 60.0 48.0 36.0 24.0 12.0 0.0 Mezzanine 0.0 0.0 20.0 20.4 20.8 21.2 21.7 0.0 Other Long-Term Liabilities 0.2 0.2 0.3 0.3 0.3 0.3 0.3 0.3 Total Liabilities - 6.7 6.6 88.4 79.0 68.0 57.0 46.0 12.8 Sponsor Common 0.0 0.0 142.5 142.5 142.5 142.5 142.5 142.5 HGE Equity 0.0 0.0 95.0 95.0 95.0 95.0 95.0 95.0 Retained Earnings 27.5 35.2 28.2 28.2 44.7 57.4 77.5 99.8 Net Income #REF! #REF! 16.5 12.7 20.2 22.3 23.8 Total Equity 0.0 #REF! #REF! 265.7 282.2 294.9 315.0 337.3 361.1 Total Liabilities and Equity 0.0 #REF! #REF! $354.1 $361.2 $362.9 $372.1 $383.3 $373.9 Check (A=L+E) 0.0 #REF! #REF! 0.0 0.0 0.0 (0.0) (0.0) 0.0
  24. 24. 24 Appendix $ in millions Cash Flow Statement for IT Staffing Inc. At Close Projected FYE December 31, 2011 2012 2013 2014 2015 2016 Operating Activities Net Income $16.5 $12.7 $20.2 $22.3 $23.8 Depreciation 0.5 0.6 1.0 1.4 1.2 1.3 Amortization 3.0 3.0 3.0 3.0 3.0 Mezzanine PIK 0.4 0.4 0.4 0.4 0.4 (Increase) / Decrease in Working Capital (6.0) (0.9) (2.0) (1.7) (1.7) (1.3) Change in Other Long-Term Assets and Liabilities 0.0 0.0 0.0 0.0 0.0 Cash Flow from Operating Activities 19.6 15.1 23.3 25.2 27.3 Investing Activities Capital Expenditures (0.8) (1.0) (1.1) (1.2) (1.3) (1.3) Earnout 0.0 (9.6) 0.0 0.0 0.0 Cash Flow from Investing Activities (1.0) (10.7) (1.2) (1.3) (1.3) Cash Flow Available for Financing Activities 18.6 4.4 22.1 23.9 25.9 Financing Activities Issuance / (Repayment) of Revoler 0.0 0.0 0.0 0.0 0.0 (Repayment) of Long-Term Debt (12.0) (12.0) (12.0) (12.0) (12.0) (Repayment) of Mezzanine 0.0 0.0 0.0 0.0 (22.1) Cash Flow from Financing Activties (12.0) (12.0) (12.0) (12.0) (34.1) Net Change in Cash 6.6 (7.6) 10.1 11.9 (8.2) Beginning Cash Balance 14.6 14.6 21.2 13.6 23.6 35.5 Ending Cash Balance 14.6 21.2 13.6 23.6 35.5 27.4
  25. 25. 25 Appendix $ in millions Working Capital Schedule for IT Staffing Inc. Actual FYE December 31, At Close Projected FYE December 31, 2008 2009 2010 2011 2012 2013 2014 2015 2016 Sales $0.0 $131.8 $161.2 $203.3 $224.4 $239.0 $251.5 $264.0 $273.5 Cost of Goods Sold, Excluding Depreciation 0.0 91.4 105.1 129.0 143.0 152.3 160.2 168.2 174.2 Operating Expense 0.0 22.5 27.4 35.7 40.0 42.5 44.8 47.0 48.7 Working capital balances Accounts Receivable, Net 0.0 23.1 25.6 34.2 36.9 39.3 41.3 43.4 45.0 Inventories - 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Other Current Assets - 0.4 4.5 3.7 4.1 4.4 4.6 4.9 5.0 Total Non-Cash Current Assets 0.0 23.5 30.1 37.9 41.0 43.7 46.0 48.3 50.0 Accounts Payable 0.0 3.3 2.3 3.0 4.7 5.0 5.3 5.5 5.7 Accured Liabilities 0.0 3.2 4.1 5.1 5.6 6.0 6.3 6.6 6.8 Total Non-Debt Current Liabilities 0.0 6.5 6.3 8.1 10.3 11.0 11.5 12.1 12.6 Net Working Capital 0.0 17.1 23.8 29.8 30.7 32.7 34.4 36.2 37.5 (Increase) / Decrease in Working Capital NA NA ($6.7) ($6.0) ($0.9) ($2.0) ($1.7) ($1.7) ($1.3) Ratios & Assumptions Numbers of Days in the Period 365 Accounts Receivable, Net (Days Sales) 64.1 57.9 61.3 60.0 60.0 60.0 60.0 60.0 Inventories (Days COGS) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Other Current Assets (% of Sales) 0.3% 2.8% 1.8% 1.8% 1.8% 1.8% 1.8% 1.8% Accounts Payable (Days COGS) 13.3 7.9 8.6 12.0 12.0 12.0 12.0 12.0 Accured Liabilities (% of COGS) 3.5% 3.9% 3.9% 3.9% 3.9% 3.9% 3.9% 3.9%
  26. 26. 26 Appendix $ in millions Depreciation Schedule for IT Staffing Inc. Actual FYE December 31, At Close Projected FYE December 31, 2008 2009 2010 2011 2012 2013 2014 2015 2016 Sales $0.0 $131.8 $161.2 $203.3 $224.4 $239.0 $251.5 $264.0 $273.5 Capital Expenditures Growth 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Maintenance 0.8 0.7 0.8 1.0 1.1 1.2 1.3 1.3 Total Capital Expenditures 0.0 0.8 0.7 0.8 1.0 1.1 1.2 1.3 1.3 Capex as a % of Sales 0.6% 0.5% 0.4% 0.5% 0.5% 0.5% 0.5% 0.5% Depreciation Expense 0.3 0.4 0.5 0.6 1.0 1.4 1.2 1.3 Existing Term 3 years New Capex Term 3 years Beginning PP&E, Net 1.6 1.9 2.3 2.7 2.8 2.6 2.7 Capital expenditures 0.7 0.8 1.0 1.1 1.2 1.3 1.3 (Depreciation Expense) (0.4) (0.5) (0.6) (1.0) (1.4) (1.2) (1.3) Ending PP&E, Net $1.6 $1.9 $2.3 $2.7 $2.8 $2.6 $2.7 $2.8
  27. 27. 27 Appendix $ in millions Amortization Schedule for IT Staffing Inc. At Close Projected FYE December 31, 2011 2012 2013 2014 2015 2016 Beginning Balance $15.1 $15.1 $12.1 $9.1 $6.0 $3.0 Amortization 0.0 (3.0) (3.0) (3.0) (3.0) (3.0) Ending Balance 15.1 12.1 9.1 6.0 3.0 (0.0) Transaction Expense $15.1 Amortization Period 5 years Goodwill $283.5 Amortize Goodwill? No Amortization Period 15 years Goodwill per Balance Sheet $283.5 $283.5 $283.5 $283.5 $283.5 $283.5 Amortization (For Tax Purposes Only) 0.0 0.0 0.0 0.0 0.0 0.0
  28. 28. 28 Appendix $ in millions Debt and Interest Schedule for IT Staffing Inc. At Close Projected FYE December 31, 2011 2012 2013 2014 2015 2016 Cash Flow Available for Financing Activities $18.6 $4.4 $22.1 $23.9 $25.9 Plus: Beginning Cash Balance 14.6 21.2 13.6 23.6 35.5 Less: Minimum Cash Balance 0.0 0.0 0.0 0.0 0.0 Cash Available for Debt Repayment 33.2 25.6 35.6 47.5 61.5 Bank Term (Repayment) (12.0) (12.0) (12.0) (12.0) (12.0) Mezzanine (Repayment) 0.0 0.0 0.0 0.0 (22.1) Excess Cash Available for Revolver 21.2 13.6 23.6 35.5 27.4 Cash Rate PIK Yrs to Maturity Bank Term Loan 8.5% 5 years Beginning Balance 0.0 60.0 48.0 36.0 24.0 12.0 Issuance 60.0 0.0 0.0 0.0 0.0 0.0 (Principle Payment) 0.0 (12.0) (12.0) (12.0) (12.0) (12.0) Ending Balance 60.0 48.0 36.0 24.0 12.0 0.0 Annual Interest Payment 5.1 4.1 3.1 2.0 1.0 Cash Rate PIK Yrs to Maturity Mezzanine 12.0% 2.0% 5 years Beginning Balance 0.0 20.0 20.4 20.8 21.2 21.7 PIK Coupon 0.4 0.4 0.4 0.4 0.4 Issuance 20.0 0.0 0.0 0.0 0.0 0.0 (Principle Payment) 0.0 0.0 0.0 0.0 0.0 (22.1) Ending balance 20.0 20.4 20.8 21.2 21.7 0.0 Annual Interest Payment 2.4 2.4 2.5 2.5 2.6
  29. 29. 29 Appendix $ in millions Equity Schedule for IT Staffing Inc. At Close Projected FYE December 31, 2011 2012 2013 2014 2015 2016 HGE equity Beginning Balance $95.0 $95.0 $95.0 $95.0 $95.0 $95.0 PIK Dividends (Compounded quarterly) 0.0 0.0 0.0 0.0 0.0 Mandatory Amortization 0.0 0.0 0.0 0.0 0.0 Ending Balance 95.0 95.0 95.0 95.0 95.0 Cash Dividends 0.0 0.0 0.0 0.0 0.0 Earnout Schedule EBITDA Upper Hurdle $0.0 $46.0 $0.0 $0.0 $0.0 EBITDA Baseline Hurdle 0.0 39.1 0.0 0.0 0.0 Difference 0.0 6.9 0.0 0.0 0.0 Actual Earnout Period EBITDA 0.0 43.5 0.0 0.0 0.0 Difference Between Actual and Baseline 0.0 4.4 0.0 0.0 0.0 Percent of Earnout to be Paid 0.0% 64.1% 0.0% 0.0% 0.0% Total Amount of Potential Earnout 15.0 15.0 0.0 0.0 0.0 Earnout Payment 0.0 (9.6) 0.0 0.0 0.0
  30. 30. 30 Appendix $ in millions Leveage Ratios for IT Staffing Inc. At Close Projected FYE December 31, 2011 2012 2013 2014 2015 2016 Projected EBITDA $37.9 $40.8 $43.5 $45.8 $48.1 $49.9 Cash Taxes (11.0) (8.4) (13.4) (14.8) (15.9) Non-Financed Maintenance Capex (1.0) (1.1) (1.2) (1.3) (1.3) Change in Working Capital (0.9) (2.0) (1.7) (1.7) (1.3) Management Fee (1.9) (1.9) (1.9) (1.9) (1.9) Free Cash Flow 26.0 30.1 27.6 28.4 29.5 Debt Service / Preferred Stock Obligations Senior Debt Required Principal Payments (12.0) (12.0) (12.0) (12.0) (12.0) Mezzanine Required Principal Payments 0.0 0.0 0.0 0.0 (22.1) Total Interest (7.5) (6.5) (5.6) (4.6) (3.6) Total Service (19.5) (18.5) (17.6) (16.6) (37.7) Funded Senior Debt 60.0 48.0 36.0 24.0 12.0 0.0 Funded Subordinated Debt 20.0 20.4 20.8 21.2 21.7 0.0 Total Debt Outstanding 80.0 68.4 56.8 45.2 33.7 0.0 Total Equity 265.7 282.2 294.9 315.0 337.3 361.1 Total Funded Debt / EBITDA 2.1x 1.7x 1.3x 1.0x 0.7x 0.0x EBITDA / Interest 5.4x 6.7x 8.2x 10.5x 13.8x EBITDA / Senior Prinicipal + Total Interest 2.1x 2.3x 2.6x 2.9x 3.2x EBITDA / Total Debt Service 2.1x 2.3x 2.6x 2.9x 1.3x Free Cash Flow / Interest 3.5x 4.6x 5.0x 6.2x 8.1x Free Cash Flow / (Senior Principal + Total Interest) 1.3x 1.6x 1.6x 1.7x 1.9x Free Cash Flow / Total Debt Service 1.3x 1.6x 1.6x 1.7x 0.8x Fixed Coverage Ratio 1.4x 1.7x 1.7x 1.8x 0.8x Debt / Equity 0.3x 0.2x 0.2x 0.1x 0.1x 0.0x
  31. 31. 31 Appendix $ in millions Returns Analysis for IT Staffing Inc. At Close Projected FYE December 31, 2011 2012 2013 2014 2015 2016 EBITDA $37.9 $40.8 $43.5 $45.8 $48.1 $49.9 Assumed Exit Multiple 8.4x 8.4x 8.4x 8.4x 8.4x 8.4x Enterprise value $326.1 $342.9 $365.6 $384.9 $404.4 $419.2 Less: Net Debt (65.4) (47.2) (43.3) (21.6) 1.9 27.4 Equity Value 260.8 295.7 322.3 363.3 406.3 446.6 Mezzanine Return - Year 5 Initial Investment (20.0) Closing Fee 0.5 Interest Payments 2.400 2.448 2.498 2.548 2.6 Principal Payments 0.0 0.0 0.0 0.0 22.1 Equity Value of Warrants 0.0 Total Cash Flow (19.5) 2.4 2.4 2.5 2.5 24.7 Internal Rate of Return 14.7% Cash on Cash Return 1.8x HGE Equity Return - Year 5 Initial Investment (95.0) Closing Fee 1.9 Preferred Cash Dividends 0.0 0.0 0.0 0.0 0.0 Redeemable or Participating Preferred + Accrued Dividends 0.0 Common Stock 178.6 Total Cash Flow (93.1) 0.0 0.0 0.0 0.0 178.6 Internal Rate of Return 13.9% Existing Shareholder Return - Year 5 Initial Investment, net (47.5) Loss of Dividend (8.7) (6.7) (10.7) (11.8) (12.6) Earnout 0.0 9.6 0.0 0.0 0.0 Salary 0.7 0.7 0.7 0.7 0.7 Common Stock 267.9 Total Cash Flow (48) (8.0) 3.6 (10.0) (11.1) 256.0 Internal Rate of Return 34.0%

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