The document provides an overview of mergers and acquisitions (M&A) market trends and the M&A process. It notes that global M&A volume increased 25% to $2 trillion in 2010, with US M&A volume growing 17% and middle market deals up 59%. The top drivers of M&A activity in 2010 and 2011 included equity market gains, favorable credit markets, and cash reserves driving corporate and financial sponsorship deals. The document outlines the typical M&A process, from initial preparation and marketing to negotiations, due diligence, and closing. It emphasizes maximizing deal value through differentiation, stable financial performance, strategic relationships, and market realities for entrepreneurs.

1. Hank NelsonMonadnock Advisors LLC.Mergers & Acquisitions OverviewMarket Overview – M & A ProcessMaximizing Value

2. M & A Market Overview 2010Global M&A volume increased 25% $2 TrillionU.S. M&A volume grew 17%Aggregate number of transactions increased 34%Record number of transactionsMiddle market deals up 59%, volume 72%Number of deals under $100M jumped 58%Enterprise Value/EBITDA 8.6 compared to 7.6Acceleration 2H FY10

3. M & A Market Overview 2010Drivers:Equity market gainsFavorable credit markets Cash/capital stockpiles driving corporations and financial sponsorship activityModerate economic recovery – Global GDP 4%Returned focus on growth vs operational efficiencies

4. U.S. M & A ActivitySource: Software Equity Group 2010

5. U.S. Middle Market M & A Activity Source: Baird M&A Analysis 2011

6. M & A Definitions EV – Enterprise ValueEBITDA – Earnings Before Interest Taxes Depreciation & AmortizationM & A MeasurementsEV/Revenues – Multiple of Revenues 1.0xEV/EBITDA – Multiple of EBITDA 9.0xComparables Multiples for public companies similar sector – size Announced transactionsDiscounted for size, lack of liquidity, concentration

7. U.S. Technology Sector M&A ActivitySource: Baird M&A Analysis 2011

8. M & A Overview 2011General outlook - continued growth from 2H FY10R. Blair & Co. “Dollar volumes would be consistent with levels achieved in 2005 record year of the previous M&A recovery.”Pepperdine Survey IB’s – Private Sale Increase 51%Significant Increase 21%Drivers:Strategic buyers flush with cash $2T in U.S. Co.Modest economic growth projectedM & A perceived as best way for growthFinancial sponsors (PE) opportunitySmaller companies- Make vs. BuyCredit markets in playTiming….

9. M & A ProcessRole of the M & A AdvisorQuarterback of Advisory TeamLegal, Tax, Accounting, Wealth MgmtOperations ConsultantStrategy AdvisorPreparation for SaleMarketer of BusinessDeal TechnicianFinancial Advisor

10. M & A ProcessM & A Advisor:Cultivate relationship(s) as part of your company development processFree advice – market knowledge, timing, business model Forces outward discussion and viewpointExcellent preparation for first time sellerAbility to respond immediately to any inquiries

11. M & A Process MarketingMarketingDocument PrepBusiness ReviewNegotiationsScreening and Planning TransactionsBusiness Model Historical FinancialsRecastFinancials ProjectionsOffering MemorandumExecutive SummaryManagement PresentationMarketing PlanIndustry ResearchSelection TargetsDetermine Goals and ObjectivesCompany Review : Strategic, Operational, Financial, CompetitiveBiddingSelect FinalistStructure of TransactionAsset vs StockIndemnification Reps & WarrantiesPurchase Agreement Identify Weaknesses Improve OperationsDevelop a Buyers ViewData Room ConfidentialityAgreementEstate PlanningExecute AgreementFunds TransferLetter ofIntentFinal Due DiligenceTerm Sheet TaxesContact and CAMeetingsDue DiligenceEstablish Marketability Realistic Valuation Review ProcessEngagement6 -12 Month Process

12. M & A ProcessProcess Control Change Point 2Competitive Bidding Offering Memorandum Seller3Executive Summary1Closing47Letter of Intent Preparation -NO SurprisesBuyer65Due Diligence P&S Agreement Time is the Enemy6 -12 Months Process

13. M & A ProcessDegradation of Value:Lack of a business plan or projectionsDue diligence preparation – surprisesIntellectual property - protection or documentationMissing projections - timelinesLose focus on businessCustomer referencesEmployees

14. Maximize Value - Range of ValuesSynergy ValueSale to an Outside Buyer - company Recapitalization –Angel, VC, PEInvestment ValueManagement BuyoutInvestment Value (structured)Employee Stock Ownership PlansFair market ValueGiftingFair market Value

15. M & A Maximizing ValuePrimary types of buyers:Strategic: Competition – Vendors Desire specific aspect – technology –customer baseNew market entrant, leverage internal resource (marketing sales/distribution)Financial: Angel, VC, Private Equity, Individuals Focus on cash flow from businessBusiness base from which to grow – platformTheoretically paying for the present value of the future cash flows – usually applied by applying multiple price periodsHybrid: Add-ons, Consolidations, Rollups, ProductMarket share but with cash flow that can be enhanced through improved relationships/distribution

16. Risk vs. Return by Investor Class Risk Angel Investor VC InvestorPE InvestorStrategic BuyerMultiple

17. Risk Assessment = EBITDA Multiple Private Business – Growing -Mature 10012%10017%= 5.9x= 8.3xHigher Risk Assessment by buyer will generate a lower EBITDA Multiple Private Business – Mid Stage/SMB 10035% 10025%= 2.9x= 4.0x

18. Maximizing Value - Valuation Drivers Investment RiskInvestment ConsiderationCyclicalCapital IntensiveCommodityMarket Share DrivenNew Competition ThreatManagement Selling outIP, Owners, CompetitionStable and Predictable High Return on CapitalBrand NameGrowing IndustryRecurring RevenueAlignment of InterestTechnology

19. M & A - Maximizing ValueDifferentiators:Company visionTechnology – productCustomer baseEmployeesBusiness modelFinancial performanceStability – (ability to sell future)Strategic relationships (gateway)

20. M & A Maximizing ValueMarket Reality for the Entrepreneur:Companies no longer look at one opportunity to satisfy needs, but evaluate, compare, assigning weighted value and riskLarge companies are presented hundreds or more opportunities a month for 5- 15 deals a yearNeed to differentiateMarket is usually the determinant of time to sell

21. M & A M & A is a process not an event Hank Nelson Monadnock Advisors LLC.hnelson@monadnockadvisors.netwww.monadnockadvisors.net