Global Healthcare Markets Group Overview

Global Healthcare Markets Group

CONFIDENTIAL

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

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)

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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
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• 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

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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
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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.

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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

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.

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Representative Healthcare and Pharmaceutical Clients

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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

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– 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

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Table of Contents


II.
II Transaction Process Overview


Confidential

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

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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,
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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

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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.

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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

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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

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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

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Table of Contents


II. Transaction Process Overview


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Houlihan Smith Deal Team
Richard Houlihan
Founder and Chairman

Mr. Houlihan is a principal of Houlihan Valuation Advisors (since 1986), and
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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

Houlihan Smith Deal Team
Andrew Smith
Co-Founder and President

Mr. Smith was previously a Senior Vice President for EVEREN Securities, Inc.
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(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

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
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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

Reginald McGaugh
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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
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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
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Bank.

Confidential

Brian Gorski
Vice President

Mr. Gorski is a Vice President with Houlihan Smith & Company focusing on
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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

Darcy Bonner
Analyst

Prior to joining the firm, Mr. Bonner worked with a sector of the U.S. Small
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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

Maria Ika Erwina
Analyst

Prior to joining Houlihan Smith Advisors LLC, Ms. Erwina was an Analyst for
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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

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