Global Healthcare Markets Group

CONFIDENTIAL

Table of Contents
I. II. Madison Street Capital Overview Transaction Process Overview

III. Madison Street Capital Deal Team

Confidential Global Healthcare Markets Group

Madison Street Capital Overview

Madison Street Capital, LLC, (MSC) is an international investment banking firm that provides corporate financial advisory services, merger and acquisition expertise, financial opinions, and valuation services to publicly and privately held businesses. Investment banking services in North America are provided through MSC-BD, LLC, a FINRA registered broker dealer (www.finra.org) and which is also a member of the Securities Investor Protection Corporation (SIPC: www.sipc.org).

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
MSCs 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 and 30% M&A)

Confidential Global Healthcare Markets Group

Madison Street Capital Expertise

MSC 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
Seasoned Professionals Unparalleled Leadership Decades of Experience National Footprint Highest level of Professional Standards Investment Banking Mergers & Acquisitions Capital Raising Private Placements Corporate Finance Advisory Financial Restructuring ESOP Advisory Independent Valuation Services Fairness and Solvency Opinions Financial Reporting Compliance Tax Compliance Portfolio Valuation Litigation Support Dedicated Healthcare Practice Highly Experience Professionals Expertise in a Broad Arrays of the Healthcare Industry Comprehensive Resources Extensive Exposure to Capital Market
Confidential Global Healthcare Markets Group

Unique Appreciation for the Middle Market

Management is a more crucial variable
More room for creativity with growth opportunities (storytelling) More granular due diligence requirements Wider range of potential valuation outcomes Larger number of potential participants in process Business is often not a must have for any single investor Transaction agreements are highly customized Process can be taxing on limited management resources Must make room in the process for investors to get to know management, sometimes even before submission of first round bids More time invested in pre-launch phase of process Requires anticipation of potential issues to avoid slippage in timetable and unwinding of competitive tension Process matters Requires experience to narrow the field and to interpret first round bids Need to walk a fine line between drawing investors into the process and conveying strength at the same time Contract negotiations cannot be divorced from the rest of the process Advisor must be prepared to carry a significant load

GREATER SCOPE FOR ADVISOR TO ADD VALUE. NEED FOR SPECIALIZED SKILLS.

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Sound Strategic Advice

MSC differentiates itself by leveraging our experience to provide sound strategic advice at each of the critical junctures in the Transaction process
Dedication to Middle Market M&A / Cap Raise Superior Senior Level Attention at Each Stage of the Process Unparalleled Attention to Detail Critical Junctures in the Front-End Marketing Process Identifying timing to initiate a process Crafting the appropriate sale process Identifying potential strategic and financial partners Conveying the story and opportunities Deciphering initial indications Assembling a competitive group of investors Showcasing the Company and management to investors Critical Junctures in the Back-End Process Outstanding Negotiation Skills Institutional Knowledge of Strategic and Financial Buyers Fully understanding all final proposals to develop a true comparison between bids Establishing the right next steps Determining the most advantageous time to negotiate with potential investors Developing counter proposal(s) and the best script with which to deliver them Craft a process to maintain leverage through closing

Confidential Global Healthcare Markets Group

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 The firm has extensive relationships with Healthcare venture capital firms focusing on the specialized needs of medical device and healthcare services companies The firm has infinite knowledge relative to mezzanine debt including deal 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 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 The team has participated in technology lease financing arrangements greater than $100 MM relative to the implementation and utilization of ancillary and surgical medical devices for hospitals and outpatient surgery centers 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 6
Confidential Global Healthcare Markets Group

VENTURE CAPITAL: MEZZANINE DEBT:

HEALTHCARE REITS:

TECHNOLOGY LEASING/PARTNERSHIPS:

PHYSICIAN/HOSPITAL JOINT VENTURES:

Representative Healthcare and Pharmaceutical Clients

Confidential Global Healthcare Markets Group

Representative Healthcare and Pharmaceutical Clients

Confidential Global Healthcare Markets Group

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 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

Confidential Global Healthcare Markets Group

Comprehensive Resources
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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Confidential Global Healthcare Markets Group

Table of Contents
I. II. Madison Street Capital Overview Transaction Process Overview

III. Madison Street Capital Deal Team

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Confidential Global Healthcare Markets Group

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 12
Confidential Global Healthcare Markets Group

Common Reasons Deals Fail

Critical Issues: MSC Solutions:

Unrealistic pricing expectations

Historical results or projections do not support valuation

Comprehensive analysis of financials to

Negative surprises uncovered during due diligence

Issues uncovered regarding sales, profits, customers, employees, environmental

Inability of parties to agree on representations and warranties/indemnification language in purchase contract Inability of buyer to finance the purchase
Seller often has to be willing to offer some type of financing or earn-out arrangement

Deterioration of financial performance during the marketing process

determine potential synergistic benefits for strategic buyers & financial buyers Thoroughly discuss expectations with management as it relates to market standard deal terms, and gain an in-depth understanding of shareholder objectives Perform in-depth seller due diligence to identify problematic trends/issues, and present rationale or strategy for favorable resolution of issue Require potential buyers to document proposed sources and uses well in advance of the purchase agreement, and compare to current availability in the credit markets

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Confidential Global Healthcare Markets Group

Valuation Methodologies
In order to provide a more accurate estimate of the enterprise value for a company, multiple valuation methodologies are employed
Comparable Companies (Public Comps) Comparable Transactions (M&A Comps) Discounted Cash Flow (DCF) Leveraged Buyout Analysis (LBO)
Description: Identify the key publicly-traded comparable companies for the company and calculate and apply multiples of Revenues, EBITDA, and EBIT. Comment: A widely accepted valuation technique that provides current, market-based valuation 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 apply multiples of Revenues, EBITDA and EBIT. Comment: A popular valuation technique for measuring market valuations on a control basis. Precedent multiples are dependent on market conditions at the time of the transaction. Description: Model the free cash flows resulting from the companys financial projections and discount using an appropriate cost of capital. Comment: Arguably the most sophisticated valuation technique, providing real insight into divisional valuation drivers. Highly sensitive to numerous key assumptions. 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. Comment: A useful alternative perspective since it implies a valuation level at which a private equity investor would typically be prepared to bid for the company.

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Confidential Global Healthcare Markets Group

Comparison of Buyer Types

The two primary types of acquirers are strategic and financial 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 complementary business line Places a greater emphasis on identifying and realizing potential revenue and cost synergies Rationale for acquisition more strategic in nature (i.e. reducing competition, enter new geographic markets, etc.) Typically concerned with generating long-term value from acquisition and effectively integrating the target into the buyers existing operations Higher valuation could be supported by the realization of synergies

ADD-ON Has a similar or complementary business in existing portfolio of investments

PLATFORM Does not have a similar business in existing investment portfolio

Acquisition drivers are typically similar to those of strategic buyers, but additionally driven by the need to put raised capital to work and grow investments before fund life expires
Often an ideal buyer as they have financial resources of private equity backing and strategic rationale to support a favorable purchase price

Seeks entry into an attractive market with potential for growth and definable exit strategy
Acquisition can serve to diversify investment portfolio and create a platform for future acquisitions in the same space

Identification of opportunities to create value through a strategic partnership

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Confidential Global Healthcare Markets Group

Characteristics of a Successful Partner/Investor

Successful transactions are the result of pairing the right partner with the client; MSCs experience lends to the following characteristics of the right partner:

SUCCESSFUL TRANSACTIONS

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Confidential Global Healthcare Markets Group

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 Geographic reach; low cost sourcing opportunity Capacity needs Capable of identifying and implementing process improvements Capable of bringing engineering and design improvements Focused purchasing effort could generate material cost reduction Customer diversification

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Confidential Global Healthcare Markets Group

Table of Contents
I. II. Madison Street Capital Overview Transaction Process Overview

III. Madison Street Capital Deal Team

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Confidential Global Healthcare Markets Group

Madison Street Capital Transaction Team

Barry Petersen Senior Managing Director Mr. Petersen is Senior Managing Director at Madison Street Capital where he heads the Capital Markets Group. His investment banking experience is diverse, covering M&A advisory, corporate finance, institutional debt and equity placements including all hybrids, and significant out-of-court and in-court restructuring transactions. His significant depth of experience includes oil and gas sectors, alternative energy, manufacturing, financial services, and business services. Previously, Mr. Petersen served as Managing Director at Madison Street Capital, and as Vice President with Dresner Partners. He began work completing acquisitions for the Loews Corporation in the financial services sector for CNA Insurance. Mr. Petersen also has significant capital markets trading experience including managing an institutional derivatives desk, and as principal of a debt futures arbitrage desk. He has international trade experience as well, having worked in management for the U.S. subsidiary of the oldest Japanese trading company, Okaya, where he was involved directly in their investment in U.S. based manufacturing assets as well as cross-border trade and investment. Mr. Petersen received a B.A. in history from Knox College and an M.B.A. from Northwestern University's J.L. Kellogg Graduate School of Management. He holds Series 7, 66, 79 and Series 24 Principal securities licenses.
Confidential Global Healthcare Markets Group

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Madison Street Capital Transaction Team

Karl D'Cunha Senior Managing Director Mr. D'Cunha is a Senior Managing Director at Madison Street Capital, where he oversees the firms services geared toward public companies, large private companies, and asset management firms. The range of services include M&A advisory, capital raising, fairness and solvency opinions, portfolio valuation, financial reporting valuation, and structured finance advisory services. Mr. DCunha has broad professional experience with more than 13 years in the financial services industry. He was previously an audit manager at Ernst & Young, LLP and PricewaterhouseCoopers, LLP with eight years of experience in the Investment Management Industry Group. Mr. D'Cunha holds a B.A. in Finance and Economics from The University of Western Ontario and a Graduate Diploma in Accounting from McGill University in Toronto. He is a Chartered Accountant, a Level III candidate in the Chartered Financial Analyst program, and is registered with FINRA as a General Securities Representative (Series 7) and an Investment Banking Representative (Series 79). Mr. DCunha is a member of New York Hedge Fund Roundtable, Hedge Fund Association, Canadian Institute of Chartered Accountants, CFA Society of Chicago, CFA Institute, Association of Chartered Accountants in the U.S., Appraisal Issues Task Force, and American MENSA, Ltd.

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Confidential Global Healthcare Markets Group

Madison Street Capital Transaction Team

Dipesh Patel
Senior Vice President Dipesh Patel a Senior Vice President at Madison Street Capital. Mr. Patel helps to manage numerous sell and buy-side M&A mandates, private debt and equity placements, as well as financial restructuring transactions. In addition, he oversees the training of analysts and associates. Mr. Patel concentrates his time on assignments covering oil and gas, alternative energy, financial services, lodging and gaming, and transportation and logistics. Previously, Mr. Patel served as a Vice President at Madison Street Capital. Mr. Patel began his career at Zurich Financial Services, a global insurance company. At Zurich, Mr. Patels last role was to determine credit counterparty risk, which included analyzing both publicly traded and privately held clients involved in M&A and special situations. Mr. Patel was also responsible for updating senior management on fundamental changes to industries of major exposure and interest, primarily oil and gas, and construction. His previous engagements at Zurich included private equity coinvestments, corporate/ product development, and mentoring new analysts. Mr. Patel holds a B.A. honors degree from the University of London and an M.S. from Cass Business School in London from which he graduated with Distinction and concentrated in capital and financial management. He holds Series 7, 63, and 79 licenses.
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Confidential Global Healthcare Markets Group

Madison Street Capital Transaction Team

Brian Gorski
Vice President Mr. Gorski is a Vice President with Madison Street Capital focusing on 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 strategic alternatives. Prior to joining Madison Street Capital, 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 Bachelors Degree in Finance and a minor in Latin America Studies and holds Series 7 and Series 63 Registered Representative licenses.

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Confidential Global Healthcare Markets Group

Madison Street Capital Transaction Team

Brian Gorski
Vice President Mr. Gorski is a Vice President with Madison Street Capital focusing on 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 strategic alternatives. Prior to joining Madison Street Capital, 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 Bachelors Degree in Finance and a minor in Latin America Studies and holds Series 7 and Series 63 Registered Representative licenses.

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Confidential Global Healthcare Markets Group

Madison Street Capital Transaction Team

Darcy Bonner
Analyst Prior to joining the firm, Mr. Bonner worked with a sector of the U.S. Small 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 of money management and directed a small business workshop. Mr. Bonner graduated from Union College in upstate New York with a Bachelors Degree in Economics. During his time at Union, he also conducted a 25-week analysis on India and China's economy.

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Confidential Global Healthcare Markets Group

Madison Street Capital Transaction Team

Maria Ika Erwina
Analyst Prior to joining Madison Street Capital, Ms. Erwina was an Analyst for 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 companys response to Request for Proposals from potential corporate and public institutional investors. Ms. Erwina began her career as a Senior Market Research Analyst for a large management consulting firm.

Ms. Erwina holds a Bachelors Degree in Mathematics from Beloit College.

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Confidential Global Healthcare Markets Group