Cardinal Growth II, L.P. Investor Presentation

Transcription

1 Cardinal Growth II, L.P. Investor Presentation

2 Overview Fund: Cardinal Growth II, LP (the Fund ) Purpose: To invest in lower middle market privately held growth companies in basic manufacturing, distribution and service industries Fund is targeting $75 million to $100 million in private capital Anticipate creating a drop down fund which will be licensed by the U.S. Small Business Administration as a Small Business Investment Company Will allocate up to 75% of private capital to the SBIC Entitled to 2:1 matching funds from the SBA Low cost SBA funds increase the return to Private Capital Leverage off Principals successful private equity experience and ability to add value 2

3 Investment Thesis Lower middle market is inefficient Companies can be acquired at attractive valuation multiples (4-7 times EBITDA) and through value added investing can be grown and then exited at higher multiples (7-10 times EBITDA) to strategic buyers and larger funds 3

4 Investment Thesis Annual Growth 10% Cardinal Model Company Opening Year 1 Year 2 Year 3 Year 4 Year 5 EBITDA $ 4,500,000 $ 4,950,000 $ 5,445,000 $ 5,989,500 $ 6,588,450 $ 7,247,295 Valuation Multiple 6.00 x 8.00 x Enterprise Value 27,000,000 57,978,360 Debt Multiple 3.50 x Debt 15,750,000 4,500,000 Equity - Total $ 11,250, $ 53,478,360 IRR - Total 36.6% Multiple 4.75 x 4

5 Investment Thesis Merger & Acquisition Statistics Target Reported Median Median Revenues Deals EV/Revenue EV/EBITDA $10 - $50 M x 5.9x $50 - $250 M x 8.7x Transaction Criteria: (1) Reported U.S. Closed Deals between 9/21/2002-9/21/2007 (2) Greater than 80% Acquired (3) Excludes Banks, Insurance Companies and REITs Source: Dealogic Analytics 5

6 Investment Approach Proven management Stable profitable businesses Understandable model with strong market position Valuation discipline Begin with the end Opportunities for improvement Discernible investment risks Prudent transaction structure Downside risk protection Significant growth potential 6

7 Key Factor Realize superior returns by adding value to portfolio companies: Work closely with management teams to develop strategic plan Jointly establish operating and financial goals Enhanced reporting to monitor progress / improve performance Build or enhance management teams Networking contacts and relationships Acquisition and financing expertise Contract negotiation Financial accounting and MIS improvements 7

8 Criteria Large, established industry with multiple participants MBOs/LBOs, recaps, growth transactions and industry consolidations Scalable business models with high margins and operating leverage Recurring revenue in excess of $10 million Free cash flow of at least $2 million Avoid big risk (e.g. key customer or supplier) Low capital expenditures and working capital needs Proven management teams with a meaningful, vested interest Ability to achieve at least 3X on equity investments over 5 years 8

9 Principals Robert Bobb and Joseph McInerney founded Cardinal These individuals are successful investors with a proven track record across a broad range of industries. Both have significant Owner/Operator experience and a combined 50+ years of lower middle market private equity experience. Business partners 15+ years Part of a cohesive and experienced investment management team that has significant experience sourcing deals, completing transactions, developing companies, and exiting at superior returns. 9

10 Management Team Cohesive and experienced management team Managing Director Kevin O Shea Managing Director Ed Finnegan Managing Director Jim Hofmockel Managing Director Mark Carr Vice-President Matt Phelan Associate Mike MacRitchie Network of Portfolio Partners 10

11 Unique Capital Relationships Family offices & high net worth investors form the core of the capital base Access to $100+ Billion in Private Equity Capital Developed trusted relationships with capital sources and intermediaries through 20+ years of transactions SBA Hedge Funds Large Private Equity (+$500M) Banks Finance Companies Lower Middle Market Funds Family Offices 11

12 Deal Flow Vibrant, proprietary deal network Family office/high net worth investors Investment banks SBICs Fundless sponsors Professionals Industry experts Larger funds Financing sources Add-on opportunities Active cultivation through networking, communication, incentives 12

13 Experienced Investors We have consistently demonstrated our ability to add value to our portfolio companies: Value Add Capability Raised over $200M of capital: Bridge financing, equity and mezzanine capital, senior debt Portfolio Company Strategic Planning, Acquisitions, Growth Capital Acquisitions, Capital Expansion, Operating Expertise Contract Negotiations 13

14 Case Study - TWG Company: TWG Owner: Private individual, sourced through William Blair & Co. Business: Specialty finance company, insurance commission receivables Investment Thesis: Downside risk protection, good margins, recurring revenues, ability to add significant value, dominate current market with growth opportunities in related markets Industry: Large untapped industry Value Add: Raised over $200 million of capital, provided bridge financing facility, systems/infrastructure development, recruited management, strategic planning, acquisitions Expect to exit upon deployment of current $100 million facility Projected IRR 40-50% + Projected Exit Multiple 7-10X 14

15 Case Study DMS Company: Diamond Marketing Solutions Owner: Start-up with management team Business: Direct marketing and services Investment Thesis: Build full service, integrated direct marketing services company serving middle market Industry: Large, fragmented industry with few integrated service providers Value Add: Developed strategy, recruited management, completed acquisitions, raised growth capital Exit: Sold to quasi strategic/financial buyer IRR 26.9% Exit Multiple 3.04X 15

16 Case Study Unico Company: Unico Owner: Private individual, sourced through William Blair & Co. Business: Private label personal care products Investment Thesis: Good margins, recurring revenues, multiple exit opportunities, dominate market share in core market with growth opportunities in new markets Industry: Growing private label industry Value Add: Acquisition of major competitor, build out of new facility, recruitment of management, financing facility, operating expertise Expect to exit once integration is complete Projected IRR 30% + Projected Exit Multiple 5X+ 16

17 Case Study Concourse Communications Company: tego Communications (dba Concourse Communications) Owner: Start-up, acquired Concourse Communication Business: In-Building wireless systems in public venues, with a focus on airports Investment Thesis: Long term contracts in growing market, dominant market position with huge growth opportunities Industry: Explosive growth with multiple participants Exit: Sold to strategic buyer Value Add: Acquisition, RFPs, financing, management recruitment, key contract negotiations, and legal matters IRR 33.1% Exit Multiple 3.66X 17

18 Track Record Realized Proven track record over 50 years of private equity experience Multiple industries and investment types Composite Returns IRR 44.9% Multiple of Invested Capital 2.32x Principal Investments IRR 150.5% Multiple of Invested Capital 6.16x Fund I IRR 20.4% Multiple of Invested Capital 2.03x Co-Investors IRR 27.7% Multiple of Invested Capital 1.41x 18

19 Track Record Fund I Vintage 2000 First time Fund 20 Financings 11 realizations (2 currently pending) IRR on realized investments 20.4% Multiple on realized investments 2.03 X Projected IRR of 20%+ for overall fund performance One write-off Expect to be fully liquidated by

20 Summary of Key Terms Size: Targeting limited partner commitments of $75 million to $100 million SBIC: 75% of private commitments allocated to a drop down SBIC fund that will receive 2:1 matching funds from the SBA Commitment: Six years from Effective Date Management Fee: 2% of committed capital during Commitment Period; 2% of Cost basis of all unrealized investments thereafter Carry: 20% to the GP after Investors have received their invested capital plus an 8% preferred return Term: 10 years subject to a maximum of three one year extensions 20

21 Fund Structure Cardinal Growth Corp. (Fund Manager) Cardinal Growth II, LLC (General Partner) Cardinal Growth II, L.P. (Fund) Limited Partners SBA Debentures 2:1 Cardinal Growth II SBIC, L.P. (SBIC) 21

22 Offering Security: Limited Partnership Units Size: $500,000 per unit Suitability: Qualified Investors Closing: Currently accepting subscription agreements. Initial close of $50 million occurred June 30, Final close to occur no later than December 31, Contact Info: Cardinal Growth Corp 311 S. Wacker Drive, Suite 5500 Chicago, IL Mr. Joseph McInerney

23 Investment Highlights Outstanding Investment Track Record Proprietary Co-Investment Opportunities Experienced and Established Management Team Focused Strategy Lower Middle Market Arbitrage Substantial Flow of Quality Transactions Ability to Add Value Post Acquisition Diversified Private Equity Portfolio Commitment Timing Government Enhanced Leverage 23