2009 conference presentations

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2009 conference presentations

  1. 1.
  2. 2. Welcome to the 2009 Northwest Growth Financing Conference™<br />Conference Chairman Franz von Bradsky<br />President, Green Tree Capital<br />
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  4. 4. Tales From The Trenches – Financing Rapidly Growing Companies<br />Publisher Emory Thomas interviews three CEO's from the Puget Sound Business Journal's 2008 list of the 100 Fastest Growing Private Companies to reveal the secrets of financing rapidly growing companies.<br />Emory Thomas, Jr. – Publisher, Puget Sound Business Journal<br />Douglas Brown – CEO, All Star Directories<br />Carla Corkern – CEO, Talyst<br />Peter Norman – CEO, Bellevue Healthcare<br />
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  6. 6. Cash Is King – The Frozen Credit Markets<br />The meltdown of the nation's credit markets during the past twelve months has left many "middle market" companies searching for answers on how to finance their growth as well as day to day operations. Panelist will discuss the latest trends and developments in the senior debt market and their impact on the availability of credit.<br />Stephen Lozano – Senior Vice President, Union Bank<br />Glenn Burroughs – Senior Vice President, PNC Business Credit<br />Thomas E. Cleveland – Managing Partner, Access Business Finance<br />Curt B. Fraser – President of Middle Market Banking, WA, JPMorgan Chase<br />
  7. 7. Bad Loans Are Mounting at Banks<br />As of the first quarter of 2009. Source: Board of Governors of the Federal Reserve System.<br />
  8. 8. Bank Loan Growth Has Slowed<br />As of June 2009. Twelve-month percentage changes. Seasonally-adjusted data. Source: Board of Governors of the Federal Reserve System.<br />P Please consider the impact on the environment before printing this document.<br />
  9. 9. MIDDLE MARKET SLIDES<br />Total Volume For Issuers with $50M or less in EBITDAJan-96 – MTD 7/16/09<br />
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  21. 21. Things Heard at an ACG Conference <br />
  22. 22. Things Heard at an ACG Conference Prior to the “Crash”<br />“They’ve done studies, you know. Sixty percent of the time, it works every time.” <br /> - Anchorman<br />
  23. 23. Things Heard at an ACG Conference Prior to the “Crash”<br />“Don’t you think that idea is a little half-baked?” “Oh no, Dad, it’s completely baked.” <br /> - The Graduate<br />
  24. 24. Things Heard at an ACG Conference Prior to the “Crash”<br />“That’s the cool thing, if you can’t afford it, freakin’ finance it!”<br /> - Ruthless People<br />
  25. 25. …After the “Crash”<br />“You seem somewhat familiar; have I threatened you before?”<br /> - Captain Jack Sparrow Pirates of the Caribbean<br />
  26. 26. …After the “Crash”<br />“I’ll be taking these Huggies…and whatever cash ya got!”<br /> - Raising Arizona<br />
  27. 27. …After the “Crash”<br />“There’s only two men I trust. One of ‘em’s me, the other’s not you.”<br /> - Con Air<br />
  28. 28. …After the “Crash”<br />“I’ve got no where else to go”<br /> - Officer and a Gentleman<br />
  29. 29. …After the “Crash”<br />“I’m going to give them an offer they can’t refuse.” <br /> - Private Equity Fund<br />
  30. 30. % of Total U.S. Loans Provided by Banks Prior to Credit Crisis?<br /> A) 75%<br /> B) 50%<br /> C) 33%<br />
  31. 31. Answer: C) 33%<br />$24 Trillion Loans (U.S.) – June 2007<br /> $10 Trillion in Marketable Securitizations<br /> $5.5 Trillion in Bond Markets<br /> $8.5 Trillion in Bank Loans<br />Federal Reserve – Flow of Funds Accounts of the United States; Securities Industry and Financial Markets Association; Standard & Poors<br />
  32. 32. Future State of the Debt Markets…<br /> Where will the markets go from here ?<br />More of the same until uncertainty subsides and liquidity returns….<br />Economy- implication of higher government involvement<br />Default Rates<br />Bankruptcies / Bailouts<br />Housing Market <br />Consumer Sentiment and spending – unemployment and taxes<br />Bank regulatory environment<br />Credit market liquidity<br />Political environment- the new American capitalist market<br />
  33. 33. “Stick to Basics”<br /><ul><li>No magic pills
  34. 34. Results, results, results!
  35. 35. Maintain acceptable liquidity
  36. 36. Have a backup and exit financial institution.
  37. 37. Expect the unexpected
  38. 38. COMMUNICATION
  39. 39. Commitment to the business </li></li></ul><li>
  40. 40. Mezzanine/Subordinated Debt – Perhaps the Only Game In Town<br />The unprecedented collapse of the nation's credit markets and the crisis of confidence gripping financial markets has made mezzanine/subordinated debt financing one of the few viable options available to finance the growth of "middle market" companies. Panelist will discuss the latest deal structures, pricing and other pertinent terms.<br />Jeffrey J. Holland – Managing Director, Seacoast Capital<br />Stephen W. Etter – Partner, Greyrock Capital Group<br />Michael Kane – Managing Director, Caltius Mezzanine<br />Steve R. Wilkins – Managing Director, Endeavour SEAM<br />
  41. 41. Mezzanine/Subordinated Debt Panel<br />“Perhaps the Only Game In Town”<br />Northwest Growth Financing Conference<br />
  42. 42. Mezzanine/Subordinated Debt Panel<br />Moderator<br />Jeffrey Holland, Seacoast Capital<br />Panelists<br />Michael Kane, Caltius Mezzanine <br /> Steven Wilkins, Endeavour Seam<br /> Stephen Etter, Greyrock Capital<br />
  43. 43. Caltius Mezzanine Fund History<br />Fund IV<br />August 2008<br />$513 MM Capital Committed<br />Fund III<br />August 2004<br />$303 MM Capital Committed<br />Fund II<br />January 2000<br />$172 MM Capital Committed<br />Fund I<br />June 1997<br />$43 MM Capital Committed<br />$1.0 billion of aggregate committed capital<br />
  44. 44. Overview of Caltius Mezzanine<br /><ul><li>Founded in 1997 and based in Los Angeles; 7 investment professionals
  45. 45. Invested over $600 million in 40 companies since inception
  46. 46. Fourth fund commenced in August 2008 with $513 million in commitments from a broad group of institutions and individuals
  47. 47. Provides subordinated debt (mezzanine) in amounts of $10 to $75 million for well established companies in a broad range of industries
  48. 48. Also provide senior debt and minority equity as part of a mezzanine deal
  49. 49. Experienced in supporting owner/operators in a broad range of transactions:
  50. 50. Invest in a broad range of industries, primarily non-capital intensive businesses with particular experience in business service companies:</li></li></ul><li>Caltius Investment Strategy<br /><ul><li>Moderate total leverage
  51. 51. Minimal senior debt ahead of Caltius
  52. 52. Non-sponsor focus; select sponsor transactions
  53. 53. One-stop financing solutions (control the capital structure)
  54. 54. Non-capital intensive businesses
  55. 55. Lead investor / active portfolio company involvement
  56. 56. Non-change of control transactions
  57. 57. Equity position in all transactions</li></li></ul><li>OVERVIEW OF ENDEAVOUR SEAM FUND<br />Endeavour Structured Equity And Mezzanine Fund (“Endeavour SEAM”) formed in 2009, as a sister fund to Endeavour Capital’s private equity funds. Endeavour SEAM’s focus is on middle market junior debt opportunities within the Western U.S.<br /><ul><li>Share same guiding principles of Endeavour Capital:
  58. 58. Dedication to the region where we live and work
  59. 59. Long-term focus and true partnerships with owners and managers
  60. 60. Committed, long term capital from leading institutional investors
  61. 61. Uses of capital include: acquisition financing, management and leveraged buyouts, recapitalizations, re-financings, liquidity to existing shareholders, and employee stock ownership programs
  62. 62. Sponsored and Non-Sponsored Transactions
  63. 63. Highly experienced fund managers underwrite and directly oversee all investments
  64. 64. Founders are long-time and senior level professionals from leading finance companies, both responsible for relationships throughout the Western US.
  65. 65. Fund Managers place own capital in each investment</li></li></ul><li>OVERVIEW OF ENDEAVOUR SEAM FUND<br />CURRENT FUND:<br /><ul><li>Endeavour SEAM Fund I: $100 million (initial close); $15-$25 million 2nd Close
  66. 66. Companies headquartered in the Western US with EBITDA of $5 to $25 million and larger
  67. 67. $5 to $20 million in capital per transaction, and more with co-investments from our LPs
  68. 68. Fixed current and accrued return; warrants
  69. 69. Acquisition financing, recapitalizations, management and leveraged buyouts, refinancings, liquidity to shareholders, ESOPs
  70. 70. Flexible; typically 3-7 year time horizon
  71. 71. Broad industry preference
  72. 72. Avoid emerging technology, real estate and gaming</li></ul>Endeavour SEAM Offices<br />TARGET COMPANIES:<br />INVESTMENT CRITERIA<br />INVESTMENT SIZE:<br />CHARACTERISTICS:<br />USES OF CAPITAL:<br />MATURITY:<br />TARGET INDUSTRIES:<br />
  73. 73. WHY PARTNER WITH ENDEAVOUR SEAM?<br />In a time when many financial institutions are pulling back on their financing commitments, Endeavour Capital is expanding its capital solutions…<br />MULTIPLE CAPITAL SOLUTIONS<br /><ul><li>The Endeavour family of funds can provide growth capital both for today and tomorrow
  74. 74. Non dilutive, flexible debt capital solutions based on clients current financing needs
  75. 75. Equity capital for long term growth or liquidity to existing shareholders</li></ul>EXPERIENCE<br /><ul><li>Nearly two decades and six funds dedicated to the Western US middle market
  76. 76. SEAM Fund managers have nearly 50 years of debt capital expertise through many market cycles
  77. 77. Deep and broad industry experience</li></ul>SPEED AND CERTAINTY OF EXECUTION<br /><ul><li>SEAM Fund Managers sit on both management and investment committees
  78. 78. Investments directly underwritten and managed by SEAM Fund Managers
  79. 79. Stable, regional LP base</li></ul>REGIONAL AND LOCAL FOCUS<br /><ul><li>Most all the Endeavour managers have made careers in the markets they serve and have deep ties to their communities</li></li></ul><li>PHILOSOPHY-ENDEAVOUR SEAM<br />REPUTATION<br /><ul><li>Our reputation is our greatest asset. It is built and preserved by treating people fairly, being good partners, and delivering on the promises we make.</li></ul>TRUE PARTNERSHIP<br /><ul><li>True partnerships are defined by mutual respect, a common commitment, and an open sharing of ideas. We believe that through an open sharing of ideas the best financing solution will consistently emerge.</li></ul>LONG-TERM COMMITMENT<br /><ul><li>SEAM has long term, committed capital from stable LP’s to support our responsive and relationship-oriented approach to investing.</li></ul>BUSINESS ETHICS<br /><ul><li>Sound business ethics and equitable financing solutions are consistent with the creation of long-term capital solution and business partnership.</li></ul>RELATIONSHIP CAPITAL<br /><ul><li>SEAM Fund Managers invest meaningful capital into each deal and directly manage investments providing clients close access to decision makers.</li></li></ul><li>Overview<br /><ul><li>Manage $350MM; 2nd Fund
  80. 80. Junior Capital (80% Debt / 20% Equity)
  81. 81. Offices in San Francisco, Chicago & Westport, CT
  82. 82. Experienced Team
  83. 83. Industry Agnostic
  84. 84. Size – EBITDA $5MM-$15MM</li></ul>Recurring Cash Flows<br /><ul><li>Strong Competitive Advantage
  85. 85. Proven Management Team
  86. 86. Excellent Transaction Dynamics</li></li></ul><li>Mezzanine/Subordinated Debt Panel<br />“Perhaps the Only Game In Town”<br />Northwest Growth Financing Conference<br />
  87. 87. Dividend Recapitalization with Mezzanine <br /><ul><li>An attractive alternative to a sale transaction for business owners seeking personal liquidity and wealth diversification
  88. 88. Provides for higher amounts of debt than banks are willing to lend
  89. 89. No personal guarantees
  90. 90. Can utilize “paid-in-kind” interest features to further reduce fixed charges
  91. 91. Institutional involvement can lead to increased enterprise at ultimate sale</li></li></ul><li>Dividend Recap Case Study <br /><ul><li>Specialty staffing company primarily providing outsourced physical therapy to Medicare patients in skilled nursing facilities
  92. 92. Dedicated focus on therapy services results in a low-cost, value added solution, offering clients more efficient and higher margin therapy services
  93. 93. The company had grown rapidly over the prior three years
  94. 94. Revenue had increased from $26 million to over $70 million
  95. 95. EBITDA had increased from $3 million to over $10 million
  96. 96. The three senior managers owned 100% of the business and wanted to cash out some of their equity value without giving up control and further upside</li></li></ul><li>Pro Forma Capitalization at Close <br />X Pro Forma<br />X Pro Forma<br />(1)<br />$MM<br />LTM EBITDA<br />LTM OCF <br />Revolving Credit<br />$9,000<br />0.77x<br />0.78x<br />Subordinated Notes <br />3.56x<br />3.59x<br />$32,500<br />$41,500<br />3.56x<br />3.59x<br />(1) OCF represents EBITDA minus pro forma maintenance capex of approximately $100K.<br />Dividend Recap Case Study continued<br /><ul><li>Caltius provided $34.5 million to finance a shareholder dividend and finance a small acquisition
  97. 97. The sources and uses and pro forma capitalization are show below:</li></li></ul><li>Dividend Recap Case Study continued<br /><ul><li>A summary of terms of Caltius’ investment is shown below:</li></li></ul><li>Dividend Recap Case Study continued <br /><ul><li>Key investment considerations included:
  98. 98. Strong financial performance evidenced value proposition and service quality
  99. 99. Attractive capital structure with minimal senior debt ahead of Caltius
  100. 100. Strong fixed charge coverage of 1.9x resulting from low capital expenditure requirements (approximately $50,000 per year) and no debt amortization
  101. 101. Diversified customer base of 62 customers across over 200 discrete facilities
  102. 102. Experienced and motivated management team with over 90% ownership
  103. 103. Key risks included:
  104. 104. Potential changes to Medicare/Medicaid reimbursement for therapy services
  105. 105. A/R collection and historical trends of increasing A/R days outstanding
  106. 106. Large distribution into pockets of key management</li></li></ul><li>Case Study – Executive Summary<br />Company Overview<br />Transaction Overview<br />Leading developer, manufacturer and marketer of branded and private label consumer products<br />#1 market share (>50%) in niche segment<br />Strong historical growth - Adj. EBITDA ‘06-’08 CAGR: 16%<br />Attractive free cash flow characteristics – >20% EBITDA margins with limited maintenance capex <br /><ul><li>Leveraged Recapitalization – Closed [7/31/09]
  107. 107. Company to repurchase ~40% minority stake
  108. 108. Consideration to include a combination of cash and a seller note (subordinated to Mezzanine Note)
  109. 109. Owners to contribute additional equity at close
  110. 110. $9m Revolver ($5m funded at close)
  111. 111. $30m Term Loan (1.7x senior leverage)
  112. 112. $15m Mezzanine Note (2.4x leverage thru Mezzanine Note) funded by Endeavour Structured Equity and Mezzanine Fund</li></ul>Investment Highlights<br /><ul><li>Strong track record of profitability and growth
  113. 113. Industry leading market share and brands
  114. 114. Unique, state-of-the-art manufacturing facility (completed in 2007)
  115. 115. Recession resistant industry that continues to grow through the economic downturn
  116. 116. Significant free cash flow generation
  117. 117. Low pro forma leverage and rapid deleveraging
  118. 118. Strong management team
  119. 119. Founding owners with significant capital and personal net worth invested in the company</li></li></ul><li>Case Study - Transaction Structure<br />
  120. 120. Case Study – Structuring Topics<br />Outlined below are a few of the unique structuring issues from the deal<br />Call option on Warrants<br />Owner wanted the ability to call Warrants in order to gain 100% control of the company at their option<br />Callable after year 3 given repayment of the Note<br />Minimum valuation of Warrants if called from month 36 through 66<br />Cash/PIK payment option on Seller Paper<br />Company wanted the ability to pay interest in cash to avoid compounding effect of PIK interest<br />Pricing of Seller Paper is 13%; 100% PIK with up to 100% cash-pay based on the following:<br />Minimum fixed charge coverage<br />Minimum EBITDA<br />Minimum liquidity (Revolver capacity plus Cash)<br />Subject to availability of cash after the effect of the excess cash flow sweep on Senior Debt<br />Required performance thresholds are tested annually upon receipt of audited financials<br />
  121. 121. Co-Sponsor Investment Example<br /><ul><li>2/3rds of revenue from replacement part sales
  122. 122. Low-cost, mission-critical parts
  123. 123. Management team staying in place and motivated by first time equity ownership
  124. 124. Unique recessionary dynamics</li></ul>ABC Company manufactures fuel pumps for industrial applications and has close to 100% market share for new U.S.-manufactured locomotives<br />
  125. 125. Senior Bank<br />Debt<br />2.0 x<br />Capital Structure for ABC Company<br />$6.5MM<br />Mezzanine Debt<br />3.0x<br />$3.5MM<br />Greyrock Capital<br />Seller Note<br />4.0x<br />$3.0MM<br />Equity<br />5.0x<br />$3.0MM<br />
  126. 126. Co-Sponsor Relationship<br />Leverage Capital<br />Earn Carry<br />PEG Duties<br />Control<br />Build Track Record<br />Provide Capital<br />Knowledge Base and CEO Relationships<br />Experience with Senior Providers<br />Springing Control<br />Capital Return before Carry<br />
  127. 127. Mezzanine/Subordinated Debt Panel<br />?? Questions ??<br />Northwest Growth Financing Conference<br />
  128. 128.
  129. 129. The Private Equity Landscape has Shifted<br />Market conditions have changed significantly at every level of the private equity marketplace. But with change comes opportunity, and this is particularly true for private equity investors. Our panelists represent some of the most active private equity investors in the Pacific Northwest marketplace. They will share their perspective on market activity, as well as the deal terms, structure, and valuations they are encountering in today's market.<br />Ed Drosdick – Business Assurance Partner, Moss Adams<br />Chris Britt – Managing Partner, Marwit Capital<br />Mark E. Morris – Partner, Blue Point Capital Partners<br />Bradaigh O. F. Wagner – Principal, Endeavour Capital<br />Robert A. Zielinski – General Partner, Riordan, Lewis & Haden<br />

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