November 15, 2016
Recapitalization and Liquidity: Growth Options for Privately Held CompaniesHosted By: Delaware Trust
Presented By:Eric Mattson, principal, Excellere PartnersDavid Straub, director of business development, Delaware Trust
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Meet the Presenters
Eric Mattson Dave StraubPrincipal
Excellere [email protected]
303-765-2371
Director Business Development Delaware Trust Company
[email protected] 302-636-5866 484-904-5750
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Recapitalization Overview
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The Business Owner Challenge
Company Contemplati
ons
Owner Contemplati
ons
Many entrepreneurs reach a stage in the lifecycle of their business where the company has achieved consistently strong growth and still has opportunities to grow through organic initiatives and acquisitions, however they are concerned about the potential conflict between the concentration of their wealth and on-going investment in the business.
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The Business Owner Challenge
Owner Contemplat
ions
Company Contemplat
ions
Protecting and caring for employees
Planning for leadership succession
Rewarding management for growth
Re-investing in the business
Wealth diversification
Realizing an ultimate exit
Distributions / dividends
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Business Owner Liquidity Options
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Traditional Entrepreneur Liquidity Options
100% Sale
Public Offering
ESOPMinority Investm
ent
Pros: Yields the highest amount of cash at closing; potential to “walk away”
Cons: Complete loss of control; does not offer participation in future value of the business
Pros: Maintain a majority stake
Cons: High cost of capital (low valuation); investors may demand control that doesn’t align with ownership
Pros: Liquidity with tax benefits
Cons: Debt; potential guarantees; administrative costs; doesn’t solve management transition and funding for growth
Pros: Could provide an attractive valuation
Cons: Lack of liquidity (extended period before realization and low trading volume); public reporting requirements;
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Recapitalization Introduction
Partnership: The business owner(s) gain a strategic and financial partner that can provide the capital and resources to accelerate the company’s growth and value creation
Up Front Consideration: The owner(s) receive a substantial amount of immediate liquidity in the form of cash at closing
Ownership: The owner(s) continue to own a significant / meaningful stake in their company
Operations: Management / owner(s) maintain responsibility to operate and manage the company, build its legacy and care for its employees
Second Bite of the Apple: The owner(s) and management participate in the growth and value created through equity ownership
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Entrepreneur Lifecycle and Recapitalizations
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Entrepreneur Lifecycle and Recapitalizations
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When A Recapitalization (“Recap”) Makes Sense
Characteristics of a Recap
Successful business with a proven track
record Owners that are
not ready to retire
Strong market
position in a scalable
sector
Established
customer relationshi
ps
Proven manageme
nt team
Financial and
strategic partner
Strategic organic & acquisition
growth
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Summary of Liquidity Options
Liquidity ? Continued Ownership / Upside Operating Control Funding for Growth Initiatives ? ? ? ? Administrative Ease ? Retain Culture ? ?
RecapHold Total Sale IPO ESOP MinorityOwner’s Objectives
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Recapitalization Overview
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Recapitalization Illustrative Example The recapitalization is funded through cash equity from a private equity sponsor, rollover of a portion of Seller’s existing equity into the recapitalized company (“Rollover Stock”) and debt.
The cash proceeds at the time of the recapitalization represent the “first bite of the apple” while the appreciation of the Rollover Stock realized through the liquidity event following the partnership with Excellere, represents the “second bite of the apple,” which often exceeds the cash received initially.
Below is an example of a structure in which the owner reinvests 20% of the proceeds to retain a 40% equity stake.Pre Close Post Close Comment
Enterprise Value $100 $100 Driven by: EBITDA, growth and capital requirements
Debt $0 $50 Moderate leverage (50% of capital structure)
Excellere Cash Equity 0 $30 60% ownership (non-diluted)Cash Proceeds to Seller $0 $80 80% of value realized by Sellers at close
Seller Equity / Rollover Stock
$100 $20 With moderate leverage, 20% of value results in 40% ownership in NewCo.
Total Consideration to Seller at Close
$100 $80 Excludes value potential of Rollover Stock
Potential Future Value of Rollover
$0 $110 The “second bite of the apple”
Total Potential Value $100 $190 Value from cash upfront and rollover stock
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Excellere Buy and Build Strategy
• Macro economic trends
• Demographics• Regulatory
environment
• Differentiatedproduct/service
• Unique growth culture
• Niche Focus
• Agile market presence
• New geographies
• New delivery approaches
• New products, services & capabilities
• Cross selling
• Efficiency opportunities
• Accelerate organic growth objectives
• Economies of scale and scope
• Organizational synergies
• Regional or national leadership
Excellere designed its Value Creation Process to accelerate organic growth
and pursue strategic acquisitions – target 3-5x
growth in 3 years.
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Recapitalization Summary
Cash Consideration
Rollover Stock
Incremental Capital Allocation
Incentive Stock
Operating Control / Governance
Portion of upfront purchase price Sellers receive in cash
Portion of upfront purchase price in the form of stock in NewCo
Additional capital allocated to support organic and acquisition growth strategyAdditional equity in NewCo awarded to incent Sellers and employees Management operates the business and is represented on the board with rollover investors
Rewards Sellers for historical value createdProvides ~80% of enterprise value in cash to sellers at close
Allays Seller concerns regarding risk / reward of growth investmentsSignificant participation in future value creation
Aligns Seller and Sponsor’s interests in success of the business
Seller continues to be and ownerCertainty that capital will not constrain growthAllows for ambitious growth goals to be established and achieved
Ensures appropriate capital structure throughout the investment lifecycleAdditional value creation opportunity for Sellers
Wealth creation opportunity for management and employees
Aligns interests of sponsor, management and employees as ownersProvides leadership continuity for business
Ensures management voice is heard at the board levelReinforces existing culture and principles that have led to past success
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Keys to a Successful Recapitalization
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Case Study: MedExpress Urgent Care
The foregoing presentation is provided solely to assist the owner(s) of the company in understanding the purposes and characteristics of a recapitalization and the Incentive Stock Plan. Excellere expressly disclaims any and all express or implied warranties contained in the foregoing presentation with regard to the company’s future performance or the potential return on the Rollover Stock and Incentive Stock. Any statements and calculations of future value of the Rollover and Incentive Stock were provided for example purposes only. Nothing in this presentation should be relied upon as a promise or representation, whether as to the past or the future value of the Rollover Stock and Incentive Stock or any other security of the company. Without limiting the generality of the foregoing disclaimer, all estimates, examples, projections and other “forward looking” materials contained herein, or otherwise made available to the Investor, involve significant elements of subjective judgment and analysis, that may or may not be correct.
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MedExpress Situation Overview
A pioneering provider of urgent care services founded in 2001
Founded by four physicians in Morgantown, WV
Attractive business model and strong value proposition – providing access and affordability
Profitable unit-level economics with proven de-novo (new location) model
Seven locations and 200 employees at the time of introduction to Excellere
Compelling vision to expand nationally but lacked strategic and financial resources to execute and accelerate their growth plan“As entrepreneurs, we were successful in “bootstrapping” growth during the early years. However…
we realized that we did not have the tools necessary to fulfill the potential we knew existed for the business. MedExpress had hit an inflection point and required greater infrastructure, scalability and
access to capital to meet the growing demand for its services. In addition, having supported the business for six years, we wanted to limit our individual risk and diversify our net worth.”
- Dr. Frank Alderman, Co-Founder and CEO MedExpress Urgent Care
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Excellere Value Creation Process
Case Study – MedExpress Urgent Care
Corporate Overview
Financial Profile Seven clinics operating in two states (WV, PA)
~200 employees $14 mm of TTM
revenue 160,000 annual
patient visits
Corporate Overview 48 clinics operating
in four states (WV, PA, CO, FL)
~1,400 employees $140 mm of TTM
revenue 1.2 mm annual
patient visits
Foundation Organic Growth
Acquisitions
Completed and integrated five acquisitions
Added 19 centers in two new states
Combined best practices across both the platform and add-ons
Developed an integration team / core competency
Created a standardized De Novo process
Opened 22 new centers within 3 years of closing
Organic revenue growth of >30% annually
Invested > $7 mm in corporate infrastructure
Enhanced payor contracting, IT, marketing, and operations
Proven Value-Creation
Model
CASE STUDY SUMMARY The company had developed a truly unique
model, which delivered a strong value proposition to patients and payors
With Excellere’s assistance, MedExpress built a strong foundation (leadership, process and systems) to more rapidly scale their “secret sauce,” as well as transport this unique model successfully to build de novo clinics and enter new markets through acquisition 10x Revenue and
7x Ebitda Growth
Expanded Footprint to Four States
Built a Leverageable
Model for National
ExpansionIndustry
Leadership
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Finding the Right Partner
“Private equity, like anything else, has people who do things the right way and the wrong way. The burden of
selecting the right partner ultimately falls on the shoulders of the entrepreneur . . . Our partnership was
one of great success, and looking back, it wasn’t the end of the Company we had built – it was really the
beginning.”
- Dr. Frank Alderman, Co-Founder and CEO MedExpress Urgent Care
November 15, 2016
Thank You!Q&A
Eric Mattson Dave StraubPrincipal
Excellere [email protected]
303-765-2371
Director Business Development Delaware Trust Company
[email protected] 302-636-5866 484-904-5750