ORLO SPIKE DIETRICH. Baxter Healthcare Corporation ( ) CoreSource ( ) Ansley Capital (2005+) Burgett & Dietrich ( )

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1 ORLO SPIKE DIETRICH Baxter Healthcare Corporation ( ) Developed and implemented a workers compensation management program, labor relations training programs, and a community-based managed care program CoreSource ( ) Merged B&D with a number of independent TPAs owned by a major private equity firm, and created CoreSource Served as COO Ansley Capital (2005+) Serves as Managing Director Burgett & Dietrich ( ) Developed and managed over 140 managed care networks in 33 states, representing over 40 of the Fortune 500 Served as CEO CNA Health Partners ( ) CoreSource spun out B&D and sold it to CNA HealthPartners Served as CEO 2 1

2 STRATEGIC ALTERNATIVES Status Quo Continue to bootstrap / self-fund your business Organic growth rate dependent on available resources Least risky to ownership, but with relatively limited upside potential Financial Partner Raise capital to fund strategic initiatives Senior debt, mezzanine and or equity Economically dilutive to ownership in return for higher potential upside Mergers and Acquisitions Sale of the company change of control, exit of the business Acquisition of similar companies to execute a roll-up strategy to dramatically accelerate growth resource dependent Financial Partner with M&A Strategy Sell a major stake (could be controlling) to fund an organic and inorganic (acquisition) strategies Provide resources to fund acquisitions Partial liquidity at initial close with second bite of the apple when financial partner exits 3 STATUS QUO Building a business from the ground up with no outside partners: Equity is maintained Vision is controlled Resource constraints may limit magnitude of upside potential No outside perspectives ( living in a bubble ) Owner personal assets not diversified or liquid Succession risks 4 2

3 FINANCIAL PARTNER Senior Debt Asset backed and cash flow loans Non-dilutive to equity Mezzanine Debt More lenient lending requirements compared to senior debt Less dilutive than equity Equity Fewest conditions on funding Provides financial capacity to take significant market, distribution and product risks that allow for high returns Borrowing base for asset backed lines Financial and protective covenants Lien on all firm assets Often require personal guarantee High current pay interest rates (10%-14% per annum) Refinancing risk at maturity Most dilutive form of capital Often include preference to owner equity and redemption rights 5 MERGERS & ACQUISITIONS Sale of Company Bulk of consideration, other than holdbacks and earnouts, paid at close Often define a transition path out of the business Elimination of future market risk Lose operational and financial control Forego future upside potential from the business may not maximize exit compared to alternative strategies Acquisitions Immediate access to strategic advantage of acquiree (e.g market placement, customer base, intellectual property) Economies of scale Either equity is diluted, cash-flow is squeezed, or debt payments increase (or all three) Identifying and implementing synergies 6 3

4 FINANCIAL PARTNER WITH M&A STRATEGY Partnering with a private equity group to get liquidity at the initial closing and then work with them to take the company to the next level for a second liquidity event: Diversification of personal assets at initial close Continued equity upside New financial partner will often bring market and distribution relationships, have experience taking companies through dramatic growth phases, and provide capital and expertise in support of acquisitions Lose ownership control of the company Equity risk in the size of the second liquidity event, if any 7 FINANCIAL PARTNER WITH M&A STRATEGY ILLUSTRATION SCENARIO 1: Financial partner for partial liquidity at close with full exit in 3-5 years Sell 70% of $5m EBITDA 6x Roll forward $9m in newco equity Assume capital raise of $10m to support acquisitions /accelerate EBITDA growth Sell roll-over equity of $15m EBITDA business five years later Due to high growth rate, more investor funds (increased demand) and strategic entities to facilitate exit, the exit multiple will increase significantly illustration assumes an increase to 9x EBITDA SCENARIO 2: Sell 100% and fully exit the business Sell 100% of $5m EBITDA 6x Up-Front 2nd Total Scenario ideration ideration ideration Scenario 1 $21.0 $30.4 $51.4 Scenario 2 $ $30.0 Note: values in millions 8 4

5 INVESTOR AND ACQUIRER PROFILES Traditional Investment Opportunity Understand and believe in the healthcare services market Require strong financial performance and strong management 4-7 year investment horizon Minimum of $10m in revenue, with 15% EBITDA Valuation: 5x to 8x EBITDA Investment with a Strategic Perspective Firmly held strategic vision on the healthcare services market Longer investment horizon of 4-10 years Minimum of $20m in revenue, with 15% EBITDA Valuation: 6x to 10x EBITDA Investment as a Bolt-On or Tuck-In Acquisition To acquire lives To support a geographic strategy To acquire a unique expertise or management talent Minimum size and profitability vary greatly Valuation: 4x to 6x EBITDA Significant complexity to deal structure 9 TRANSACTION CONSIDERATIONS Understand your personal priorities Total consideration requirements Future personal involvement Management team considerations Company s continuing legacy Shop for the right investor Financial investors or acquirers Larger consolidating strategic acquirers Health Plans Insurance Companies Familiarize yourself with deal structures Cash Stock Earn-outs Seller Notes Enter into a disciplined process Investment bankers Accountants Legal counsel Internal review and diligence preparation 10 5

6 TACTICAL ACTIVITIES General & Corporate Review your corporate structure Governance Generational transitions Employee equity participation Financial Audited financials Key performance indicators Detailed financial forecast (3-5 years) Operations & Partners Technology Strategic partnerships Strategic Planning Formalized annual business plan Transaction timing Succession plan 11 TRANSACTION TIMELINE Although each transaction moves at its own pace, below is a general guideline: Activity Month 1 Month 2 Month 3 Month 4 Month 5 Month 6 1 Kick-Off Meeting 2 Prepare Financial Model 3 Draft Teaser 4 Populate Data Room 5 Generate Target List 6 Draft CIM 7 Prepare Mgmt Presentation 8 Rehearse Mgmt Presentation 9 Distribute Teaser / NDA 10 Contract Virtual Data Room 11 Populate Virtual Data Room 12 Distribute CIM 13 Conduct Investor Meetings 14 Negotiate Term Sheet(s) 15 Facilitate Diligence & Definitive Docs 16 Sign & Close Target Date 12 6

7 Q&A ORLO SPIKE DIETRICH, MANAGING DIRECTOR RUSS BURKS, MANAGING DIRECTOR ELLIOT MEENA, VICE PRESIDENT 13 7