srz 2011 private equity buyer public target ma deal study

2011 Private Equity Buyer/Public Target M&A Deal StudySummer 2011

2011 Private Equity Buyer/Public Target M&A Deal StudySummer 2011Table of ContentsKeyObservations SurveyMethodology

Page i iii

Surveyed Transaction TermsDeal Structure One-StepMergervs.Two-StepTenderOffer/Back-EndMerger 1 1 3 3 4 5 5 7 8 9 11 12 12 13 15 16 18

Target Fiduciary Duty Issues Go-ShopProvisions

ChangeinTargetBoardRecommendation

Deal Protections for Buyer

MatchandLastLookRights ForcetheVoteProvision

Break-UpFeePayablebytheTarget ExpenseReimbursementbytheTarget

TargetsObligationtoPayaTerminationFeeDuringaTailPeriod

Deal Certainty Provisions for the Target

TargetsAbilitytoObtainSpecificPerformanceAgainsttheBuyer ReverseTerminationFees

SelectBuyerClosingConditions MarketingPeriods

Other Selected Deal Points

AppendicesAppendix A Surveyed Transactions 19 20 21

Appendix B Additional Charts and Graphs

Appendix C Break-Up Fees and Reverse Termination Fees

KeyObservationsWeconductedoursurvey,inpart,toobserveanynotabletrendsorthemesbasedonour reviewofthe25transactions.Pleasenote,however,thatinourexperience,particularly intermsofdeal-makingpost-2008creditcrisis,thesedealsareoftensui generisdueto anumberoffactors,includingthemarketability/prospectsofthetarget,theregulatory profileofthetransaction,whethertheagreementistheproductofdedicatedone-on-one negotiations,aformalauctionorsomewhereinbetween,thestateofcreditmarketsandthe recenthistoricaltrackrecordofthebuyer.Accordingly,undueweightshouldnotbeplaced onthisstudyitisintendedtohelpidentifymarketpracticeforindividualdealtermsand assistonnegotiations,butdoesnotpurporttoestablishwhatisappropriateforanygiven transaction. Ourkeyobservationsareasfollows: As expected, we observed a market practice based on the treatment/inclusion of a number of the key deal terms.Forexample: o o o Noneofthedealsincludedatraditionalforcethevoteprovisionorprovided thebuyerwithaclosingconditionregardingappraisalrights. Noneofthedealsstructuredassingle-stepmergersprovidedthebuyerwitha financingclosingcondition. Approximately90%ofthedeals: Permittedthetargetboardtomakeachangeinrecommendationother thanspecificallyinconnectionwithasuperiorproposal; Providedthebuyerwithmatchingrightsandlastlookmatchingrights; Includedatailprovisionthatappliedintheeventthemerger agreementwasterminatedundercertaincircumstances;and Hadmarketingperiodprovisions. o o 80%ofthedealswerestructuredasone-stepmergers. Approximately75%ofthedealsgavethetargetcompanyalimitedspecific performancerightthatwasonlyavailableif(i)thebuyersclosingconditions tothemergeragreementweresatisfiedand(ii)thebuyersdebtfinancingwas available.

The size of the break-up fee payable by the target company (as a percentage of targets equity value) did not decrease significantly as the size of the deal tripled or quadrupled. Wehadexpectedtofindthatasthesizeofthedealincreased,the break-upfee(asapercentageofequityvalue)payablebythetargetcompanywould decreasesignificantly. The range of the reverse termination fee (RTF) payable by a buyer (as a percentage of targets equity value) varied dramatically. Wehadexpectedtofindatighterrange intheRTFspayablebybuyersinsteadtherangevarieddramaticallyincertain instances(e.g.,5.51%to38%intheeventofawillfulbreach(thehighestwastheGTCR/ ProtectionOnedeal)). 2011 Schulte Roth & Zabel LLP. All rights reserved. | i

2011 Private Equity Buyer/Public Target M&A Deal Study | Summer

While go-shop provisions are not market practice, they are widely used and not exceptions to the rule. Ofthe25deals,approximately50%includedago-shop provision. While there have recently been innovations in deal terms in strategic acquisitions of U.S. public companies, these innovations have not spread to transactions involving private equity buyers. Ingeneral,thedealtermswereviewedwereeithercustomary orvariationsofcustomaryprovisions.Otherthanthedual-trackone-stepmerger/ two-steptender/offerback-endmergerapproachusedin3GCapital/BurgerKing andApax/Epicor(describedonpage1),wedidnotseeanytermsthat,inourview, representedasignificantdeparturefrommarketpractice.Forexample,ahybridofthe go-shopandno-shopprovisionswasusedinafewrecenttransactionsinvolving non-financialbuyers(e.g.,Nicor/AGLResourcesandAESCorp./DPLInc.),however, suchaprovisionwasnotincludedinanyofthe25dealswereviewed.Similarly,afallawayprovisiontothelastlookmatchingright(discussedonpage5)wasincluded inLeonardGreen&Partners/ProspectMedical,butnotinanyofthe25dealswe reviewed,excludingtheamendedmergeragreementintheTPG/J.Crewtransaction (whichisdisregardedforpurposesofoursurveybecauseofthepotentialimpactthe relateddeallitigationmayhavehadononeormoredealterms).


2011 Schulte Roth & Zabel LLP. All rights reserved. | ii

SurveyMethodologyThisstudyanalyzesthetermsoffinancialbuyeracquisitionsofpubliccompanytargets.We reviewedthe25cashmergeragreementsenteredintobetweenU.S.publiccompaniesand financialbuyersforconsiderationofatleast$500millioninenterprisevalue1duringtheperiod fromJan.1,2010toJune1,2011.Ourfindingsdescribedinthissurveyarenotintendedtobe anexhaustivereviewofalltransactiontermsinthesurveyedtransactions;instead,wereport onlyonthosemattersthatwefoundmostinteresting. Ourobservationsarebasedonareviewofpubliclyavailableinformationforthesurveyed transactions.ThesurveyedtransactionsaccountedforonlyaportionofM&Aactivityduring thesurveyperiodandmaynotberepresentativeofthebroaderM&Amarket. AsummaryofthesurveyedtransactionsisattachedasAppendixA.

1 Theequityvaluesofthe25transactionsrangedfrom$331millionto$3.8billion(calculatedbasedonoutstanding stock, excluding options, warrants and other securities convertible into or exercisable for common stock).


2011 Schulte Roth & Zabel LLP. All rights reserved. | iii

DealStructureWereviewedthe25transactionstodeterminewhethertheywerestructuredasone-step statutorymergersortwo-steptenderoffer/back-endmergers. 1. One-Step Merger vs. Two-Step Tender Offer/Back-End Merger Ofthe25transactions: 20ofthe25transactions(80%)wereone-stepmergers;theremaining5transactions (20%)weretwo-steptenderoffer/back-endmergers. 2ofthe5two-steptenderoffer/back-endmergers(8%overall)3GCapital/Burger KingandApax/Epicoremployedadual-trackstructureofpursuingamergerand tenderofferatthesametime,sothatwhichevermethodresultedinfasterapprovalof thetransactioncouldbeusedtocompletethetransaction.Inboth3GCapital/Burger KingandApax/Epicor,thetenderofferwasusedtocompletethetransaction. o Adual-trackstructurerequiresboththebuyertolaunchatenderoffer promptlyaftersigningandthetargettofileapreliminaryproxystatement promptlyaftersigning(whilethetenderofferispending),and,totheextent thetargetstockholdermeetingisnecessaryforthebuyertoconsummate aback-endmerger,forthetargettoholditsstockholdermeetingtoobtain stockholderapproval.Thedual-trackstructureisusefulwherethetargetdoes nothaveenoughauthorizedbutunissuedshares(plussharesheldintreasury) tograntthebuyeratop-upoptionsufficienttoobtainthesharesrequiredfor ashortformmergerbasedon50.01%ofthetargetstockholderstenderinginto theoffer.

Theother3two-stepmergeragreementsonlyrequiredthetargettofileaproxy statementandholdameetingtoobtainstockholderapprovalifrequiredbylaw,i.e.,if thetenderoffer,togetherwiththeexerciseofthetop-upoption,wasnotsufficientto obtainthe90%requiredtocompleteashortformmerger.

Ingeneral,thebenefitofatenderofferistheabilityindealsinvolvingnoregulatoryissuesto closeinaslittleas1to2monthsascomparedtoatraditionalone-stepmerger,whichusually takes2to3monthstoclose.2Historically,privateequitybuyershavebeenreluctanttouse thetwo-stepstructurebecauseof,amongotherthings,themarginruleslimitingborrowing to50%ofthevalueofthecollateralpledgedtosecuretheloanmadeitdifficulttoobtain acquisitionfinancingtofundthetenderoffer.Severaldevelopmentshavemadetenderoffers moreattractive: o In2006,theSECclarifiedthattheallholders/bestpriceruledoesnot applytoemploymentcompensation,severanceorotheremployeebenefit arrangementsthatmeetcertaincriteria,whichprovidedcomforttoprivate equitybuyersconcernedaboutthetreatmentoftargetmanagementpostclosingarrangements. Theuseofthetop-upoption,whichallowsthebuyertoensurethatitwill reachtheownershipthresholdneededtocompleteashortformmerger,allows privateequitybuyerstostructurefinancinginawaythatnavigatesthemargin rules.

o

2

Timing assumes the SEC staff does not issue any comments. 2011 Schulte Roth & Zabel LLP. All rights reserved. | 1


o o

RecentDelawaredecisions3haveprovidedguidanceonproperlystructuringa top-upoptiontowithstandstockholderlitigation. Tenderoffersalsoofferanadvantageindealingwithstockholderoppositionto atransaction.

Whiledelayofastockholdermeetingtosolicitadditionalvotesinthefaceofoppositionis possible,itismorevulnerableto courtchallenge.Incontrast,atenderoffercaneasilybe extendedrepeatedlyuntiltheminimumtenderofferconditionissatisfied. Goingforward,wewouldexpecttoseeprivateequitybuyersusethetwo-stepstructuremore atleastintransactionsthatdonotinvolvesignificantregulatoryorantitrustissuestotake advantageofthetenderofferstimingbenefit.

3

See Joanne Olson v. ev3, Inc.,C.A.No.5583(Del.Ch.Feb.21,2011)andIn re Cogent, Inc. Shareholder Litigation, Cons. C.A. No. 5780 (Del. Ch. Oct. 5, 2010). 2011 Schulte Roth & Zabel LLP. All rights reserved. | 2


TargetFiduciaryDutyIssuesWereviewedthe25transactionsforcertainprovisionsrelatedtothetargetboardssatisfaction ofitsfiduciaryduties. 2.Go-Shop Provisions Wereviewedthe25transactionstodeterminewhichofthemincludedago-shopprovision (i.e.,aprovisionthatgrantsthetargettheaffirmativerightduringaspecifiedperiodoftime tosolicitalternateacquisitionproposals).Asnotedinthefollowingchart: 14ofthe25transactions(56%)hadgo-shopprovisions. Thego-shopperiodsrangedfrom21to54days(median:40days;mean37.6days).4 Ofthe14transactionswithgo-shopprovisions,7ofthemhadlanguagethatpermitted thetargetboardtocontinuenegotiationswithanexcludedparty(generallydefined asanypartythatmadeawrittenacquisitionproposal duringthego-shopperiod) withouttheneedforthetargetboardtodeterminewhethertheexcludedpartysoffer constituted,orwasreasonablylikelytoconstitute,asuperiorproposal. o Ofthese7transactions,2limitedtheperiodduringwhichnegotiationswith excludedpartiesarepermittedto15daysaftertheno-shopstartdate,1 transactionlimitedtheperiodto20daysaftertheno-shopstartdate,and4 transactionshadnosuchrestrictions.

Recently,ahandfuloftransactionsinvolvingstrategicbuyersandpubliccompanytargetshave includedahybridgo-shop/no-shopprovisionthatdoesnotprovidethetargetwithagoshoprightbutspecifiesthatalowerterminationfeeappliesintheeventthetargetacceptsa superiorproposalduringalimitedperiodoftimeaftertheexecutionofthemergeragreement. Wehaveyettoseesuchaprovisioninpubliccompanytransactionsinvolvingprivateequity buyers,butthereisnoreasonwhyitcouldnotbeused.

Length of Go-Shop Periods60

Length of Go-Shop Period in Days

50

40

Mean = 37.6 days

30

20

10

0RC N info Gro up BW AY Dy nCo rp NB . e n e ing Lin pe TY ore rew ont Jo-An m. Sco er K lM mb J. C . Co De urg Gy mm B Am Co SR A Epi cor

4

orpurposesofcomputingtherange,medianandmean,weomittedtheextensionofthego-shopperiodfrom53to F 85 days in the amended J. Crew/TPG merger agreement. 2011 Schulte Roth & Zabel LLP. All rights reserved. | 3


3. Change in Target Board Recommendation Asexpected,allofthetransactionswesurveyedpermittedthetargetsboardofdirectorsto changeitsrecommendation(CIR)toitsstockholderstoapprovethemergerundercertain circumstancesinordertosatisfyfiduciarydutyrequirements.5However,buyerscontinuetobe abletolimitthescopeofthatrightinvariousways.Asnotedinthefollowingchart: In3ofthe25transactions(12%),thetargetboardwaspermittedtomakeaCIRonlyin connectionwithasuperiorproposal. Theremaining22transactions(88%)permittedthetargetboardtomakeaCIRother thanspecificallyinconnectionwithasuperiorproposal.Ofthese22transactions: o 12transactions(48%overall)permittedthetargetboardtomakeaCIRbased ontheBoardsdeterminationthatitsfiduciarydutiesrequiredaCIRwithout specificlanguageintheagreementastotheunderlyingreasonsforsuchCIR. 10transactions(40%overall)hadmorerestrictivelanguagepermittingthe targetboardtomakeaCIRonlyinconnectionwithaninterveningevent (generallydefinedasaneventorcircumstancethatthetargetboardbecomes awareofaftersigningthemergeragreementthatresultsinthetargetboard determiningthatitsfailuretomakeaCIRwouldbeinconsistentwithits fiduciaryduties)butnotgenerallytosatisfyitsfiduciaryduties.

o

Change in Recommendation (CIR) TriggersCIR Permitted Absent a Superior Proposal

88%CIR Only in Connection With a Superior Proposal

Intervening Event Required: 40% Overall

12%General Fiduciary Out: 48% Overall

OursurveyresultswereconsistentwithrecentviewsofDelawarelegalexpertsthatafiduciary outforgeneralpurposesoraninterveningeventisnecessary.

5

ealsoreviewedthe25transactionstoanalyzethevariousformulationsofthestandardthatapplieswhen W determining when a target board is permitted to make a CIR: 13ofthe25transactions(52%)usedwouldbeinconsistentwithorwouldlikelybeinconsistentwithits fiduciaryduties. 5ofthe25transactions(20%)usedwouldbereasonablylikelytobeinconsistentwithitsfiduciaryduties. 4ofthe25transactions(16%)usedcouldbeinconsistentwithitsfiduciaryduties. 3ofthe25transactions(12%)usedwouldbereasonablylikelytoviolateitsfiduciaryduties. 2011 Schulte Roth & Zabel LLP. All rights reserved. | 4


DealProtectionsforBuyerWereviewedthe25transactionsforprovisionsdesignedtoprotectthebuyersdealagainst toppingbidsandtargetstockholderopposition. 4. Match & Last Look Match Rights Wereviewedthe25transactionstodeterminewhetherthebuyerhadinitialmatchingand lastlookmatchingrightsunderthemergeragreement.Initialmatchingrightsprovidethe buyerwithanopportunitytonegotiatewiththetargetboardduringaspecificperiodoftime afterreceiptofnoticefromthetargetboardofanintendedCIRandproposemodifiedterms thataresufficientlyimprovedsoastoprecludethetargetfromeffectingaCIR.Lastlook matchingrightsprovidethebuyerwithafurtherrighttonegotiateintheeventthattheother bidderrevisesitsproposedterms. Allofthetransactionshadinitialmatchingrightsandalmostall(24of25;96%)had lastlookmatchingrights. Asnotedinthefollowingcharts: o o Therangeofinitialmatchingrightswas3to7days(mean:4.4days;median 4days);and Therangeoflastlookmatchingrightswas1to5.6days(mean:3.1days; median4days).

WenotethatinIn re Smurfit-Stone Container Corp. Shareholder Litigation,C.A.No.6164(Del. Ch.May20,2011),ViceChancellorParsonsoftheDelawareChanceryCourtdeterminedthat eachofthedealprotectionprovisionsagreedtobythetarget,whichincluded,amongother protections,athree-daymatchingrightprovision,were standard,whetherconsidered aloneorasagroup.6 Wealsoreviewedthe24transactionswithinitialmatchingandlastlookmatchingrightsto comparethedurationsfortheinitialmatchingandlastlookmatchingrights.Asnotedin ChartB-1inAppendixB: In9ofthe24transactions(38%),thedurationswereidentical. In4ofthe24transactions(17%),thedurationforthelastlookmatchingrightwas approximately50%oftheinitialmatchingrightduration.

ApartofthesettlementoftheshareholderslitigationovertheJ.Crew/TPGmerger,TPG agreedtoaneliminationofitsmatchingrightsintheeventacompetingbidderoutbidTPGby $2.00pershareormore(a4.5%premiumtotheTPGprice).Wealsonotethatinatleastone recenttransactionnotincludedinourstudy(LeonardGreen&Partners/ProspectMedical), thebuyerscontractualmatchingrightswereeliminatedifacompetingbidderoutbidthe buyerspricebymorethan10%.

6

T heotherdealprotectionprovisionsincludedano-shopclauseandabreak-upfeeofapproximately3.4%ofthe equity value. 2011 Schulte Roth & Zabel LLP. All rights reserved. | 5


Length of Match & Last Look Match Rights

30 25 20

50

40

% of Deals

30

% of Deals4 5 6

15

20

10

10

5

0 3 7

0 0 1

Calendar Days of Match Right

Calendar Days

30 25 20

% of Deals

15

10

5

0 7 0 1 2 3 4 5

ht

Calendar Days of Last Look Match Right

2011PrivateEquityBuyer/PublicTargetM&ADealStudy|Summer

2011SchulteRoth&ZabelLLP.Allrightsreserved.|6

5. Force the Vote Provision Noneofthe25transactionswereviewedincludedatraditionalunqualifiedforcethevote (FTV)provision(i.e.,aclausethatrequiresthetargetboardtosubmittheproposed transactiontoavoteoftargetstockholders,evenifthetargetsboardhasmadeaCIRpriorto terminationoftheagreement).Thisisapro-buyerprovisionbecauseitcandiscourageother biddersfrommakingatoppingbidgiventhatthetargetcannotterminatetheagreementto acceptfinalbids.Byrequiringastockholdervote,anFTVprovisionnecessitatesthedrawnoutprocessoffilingtheproxystatementandsecuringapplicableconsentsandregulatory approvalsbeforethetargetcanenteratransactionwithanotherbidder. Notethat11ofthe25transactions(44%)containedalimitedFTVprovisionthatrequiresthe targettoholdthestockholdervoteonthetransactiondespiteaCIRunlesstheagreement isterminated.AlimitedFTVprovisionofferslittleprotectionwhenthetargetisterminating theagreementtoenterintoanagreementforasuperiorproposal,butmayoffersome protectioninthecontextofaCIRforaninterveningeventthatdoesnototherwisegiveriseto aterminationright.


2011 Schulte Roth & Zabel LLP. All rights reserved. | 7

6. Break-Up Fee Payable by the Target Wereviewedthe25transactionstocalculatethesizeofthetargetsbreak-upfee(asa percentageofequityvalue)intheeventthetargetchosetoterminatethemergeragreement toacceptasuperiorproposal.Asnotedinthefollowingchart: Therangeofbreak-upfees(asapercentageofequityvalue)was0.72%to4.99% (mean:3.15%;median:3.12%).

Break-Up Fees6% 5%

% Equity Values

4%

Mean = 3.15%3%

2%

1%

0%

RC

N up AY orp Gro BW DynC info

ne tiv ta E all CK tect. O r. Da inVen icW Inte Son Pro

. w n e I ee id TY pe ing rse . Cre CP ont Jo-An . Lin nds bor -Pa NB ger K J Sco ynive lM mm Bra Gym Pre De S mm Bur Int. . Co Co Am

EM

SC

SR

A

Epic

or

CK

x

Aswithotherdealprotectiondevices,Delawarecourtshavenotprovidedanybright-line rulesregardingwhenabreak-upfeewillbedeemedunreasonableinamount.Nevertheless, practitionerscantakecomfortthatfeesintherangeof2.0%to4.0%ofequityvalueare generallypermissible. Delawarejurisprudence,mostrecentlyintheIn re Cogent Inc. Shareholder Litigation,suggests thatequityvaluemaybetheappropriatemetricforcalculatingabreak-upfeewhereatarget hasminimaldebt.Conversely,wherethebuyerisassumingasignificantamountofatargets debt,enterprisevaluemaybetheappropriatemetric. Givenawiderangeoffeesanddealsize,wegroupedthe25transactionsbydealsizeand notedtherangeofbreak-upfees(asapercentageofdealsize7).Somewhatsurprisingly,we observedthattheaveragesizeofthebreak-upfeeasapercentageofequityvaluedidnot decreaseappreciablyasthedealsizeincreased:

Deal Size (Equity Value) Upto$1Billion (13of25Transactions) $1Billionto$3Billion (7of25Transactions) $3Billionto$4Billion (5of25Transactions)

Range 2.02%to4.99% 0.72%to4.11% 2.82%to3.70%

Mean 3.40% 2.68% 3.19%

Median 3.30% 2.79% 3.14%

7

All break-up fees were structured so as to be paid net of any reimbursements for expenses. 2011 Schulte Roth & Zabel LLP. All rights reserved. | 8


7. Expense Reimbursement by the Target Wereviewedthe25transactionstodeterminewhichofthemrequiredthetargettoreimburse thebuyerfortransactionexpensesandthesizeofandtriggersforsuchreimbursement obligation. 17ofthe25transactions(68%)imposedanexpensereimbursementobligationon thetarget.8Asnotedinthefollowingchart,thetriggersforthisobligationwere terminationoftheagreementdueto: o Targetsshareholdersrejectingtheproposedmerger:17ofthe17transactions (100%),ofwhich: 14(82%ofthissubset)didnotrequiretheexistenceofacompeting acquisitionproposalpriortotermination(i.e.,anakedno-vote). 2(12%ofthissubset)requiredthatthetargetboardhadmadeaCIR priortotermination.9 1(6%ofthissubset)requiredthatanalternativeacquisitionproposal hadbeenmadeandnotbeenwithdrawnpriortotermination. o o o o o Targetsmaterialbreachofrepresentationsorcovenants:10ofthe17 transactions(59%). Targetsentryintoanalternativeacquisitionproposal:5ofthe17transactions (29%). Changeoftargetboardsrecommendation:5ofthe17transactions(29%). Materialadverseeffectontarget:1ofthe17transactions(6%). Failureofthepartiestoconsummatetheclosingbytheoutsidedate:1ofthe17 transactions(6%).

I naddition,theTPG/J.Crewmergeragreementwasamendedtoprovideexpensereimbursementifathird-party biddermadeasuperiorproposalandwassubsequentlyoutbid. 9 Twotransactions(CPIandinVentiv)allowforexpensereimbursementwherethereisanakedno-votebutonlyin thesituationwherethetargetboardhaschangeditsrecommendation.Bothtransactionsalsoprovidedforpayment of a termination fee if the board had changed its recommendation.8



Target Expense Obligation Triggers100%

% of Transactions

80%

60%

40%

20%

0%

Vote Down by Target Stockholders

Target Breach of Reps or Covenants

Entry Into Alternative Acquisition Agreement

Change of Recommendation by the Target Board

Material Adverse Effect on Target

Failure to Consummate the Transaction by Outside Date

Allexpensereimbursementprovisionswerecapped.Asapercentageofequityvalue, capsrangedfrom0.18%to1.25%(median:0.69%;mean:0.72%).SeeChartB-2in AppendixB. Groupingthe17transactionsbydealsize,theexpensereimbursementobligationsasa percentageofdealsizewereasfollows:


Range

Mean

Median

0.31%to1.25%

0.78%

0.77%

0.18%to1.20%

0.55%

0.42%

0.39%to0.45%

0.42%

0.42%



8. Targets Obligation to Pay a Termination Fee During a Tail Period Wereviewedthe25transactionstodeterminewhetherthetargetwasobligatedafterthe terminationofthemergeragreementtopayaterminationfeeifitsubsequentlyenteredinto adefinitiveagreementorconsummatedanalternativeacquisitionproposal(atailprovision). Innearlyallofthetransactionswereviewed,thetailprovisionsrequiredathirdpartytohave publiclymadeanalternativeacquisitionproposalthatwasnottimelywithdrawnpriortothe dateofterminationofthemergeragreement. 24ofthe25(96%)hadatailprovision.Ofthese24transactions: o 20transactions(83%ofthissubset)hada12-monthtailperiod;3transactions (13%ofthissubset)hada9-monthtailperiod;and1transaction(4%ofthis subset)hadan18-monthtailperiod. 23transactions(96%ofthissubset)requiredthatanalternativeacquisition proposalhasbeenmadeandnotwithdrawnpriortotheterminationofthe agreement.Ofthe23transactions: 17transactions(71%ofthissubset)requiredthesubsequent consummationofanalternativeacquisitionproposal(eitherduringor afterthetailperiod)totriggerthetailprovision. 6transactions(29%ofthissubset)requiredeithertheentryintoorthe consummationofanalternativeacquisitionproposaltotriggerthetail provision. o 23transactions(96%ofthissubset)areformulatedsuchthattheproposalthat triggerstheterminationdoesnothavetobethesameproposalthattriggers thetailprovision. 1transaction(4%ofthissubset)isformulatedsuchthattheproposalthat triggerstheterminationmustbethesameproposalthattriggersthetail provision.

o

o



DealCertaintyProvisionsfortheTargetWereviewedthe25transactionsforcertainprovisionsaffectingcertaintyofclosingthe transaction. 9. Targets Ability to Obtain Specific Performance Against the Buyer Wereviewedthe25transactionstodeterminewhetherthetargethad(i)aspecific performancerighttoforcethebuyertoconsummatetheclosingsubjectonlytothe satisfactionofbuyersclosingconditions(afullspecificperformanceright),(ii)alimited specificperformancerightthatalsorequiredthebuyersdebtfinancingtobeavailable(a limitedspecificperformanceright)or(iii)nospecificperformancerighttoforcethebuyer toclose(i.e.,thetargetsonlyremedywastoterminatetheagreementandreceivewhatever fees/damagesareprovidedintheagreement).Asnotedinthefollowingchart: 2ofthe25transactions(8%)grantedthetargetafullspecificperformanceright. 19ofthe25transactions(76%)grantedthetargetalimitedspecificperformanceright. 4ofthe25transactions(16%)didnotprovidethetargetwithaspecificperformance right,butinsteadprovidedthetargetwiththerighttoterminatethemerger agreementandreceiveareverseterminationfeefromthebuyer.Withrespecttosuch 4transactions: o o 1transaction(25%ofthissubset)hadasingle-tierreverseterminationfee provisionthatwastriggereduponafinancingfailure;and 3transactions(75%ofthissubset)hadatwo-tierreverseterminationfeewith thelowertierfeeapplicableintheeventofafinancingfailure,andthehigher tierfeeapplicableintheeventofwillfulbreachbythebuyer.

Target Specific Performance RightsFull Specific Performance Right No Specific Performance Right

8% 16%

76%Limited Specific Performance Right



10. Reverse Termination Fees Wereviewedthe25transactionstoanalyzethestructure(single-tiervs.two-tier)andsize ofthereverseterminationfees(RTFs)(expressedaspercentageoftargetequityvalue) requiredtobepaidbythebuyerinconnectionwiththeterminationofthemergeragreement. Asnotedinthefollowingchart: AllofthetransactionshadRTFs. 16ofthe25transactions(64%)hadsingle-tierRTFs. 8ofthe25transactions(32%)hadtwo-tierRTFswithtriggeringeventsforthehigher feetierdueto: o o Buyerswillfulbreach5ofthe8transactions(63%ofthesubset;20% overall).10 Buyersfailuretoconsummatethetransactionafterobtainingdebtfinancing 3ofthe8transactions(38%ofthesubset;12%overall).

1ofthe25transactions(4%)(MadisonDearborn/BWAY)hadatwo-tierRTFwitha highertiergeneralreverseterminationfeeandalowertiertriggeredbythetargets failuretomaintainaspecifiedratioofdebttoEBIDTAatclosing.

Reverse Termination Fees

36%

Two-Tiered Fees

Higher Fee for No Equity Financing: 12% Overall Single-Tiered Fees

64%

Lower Fee for Targets Failure to Meet Financing Metric: 4% Overall

Higher Fee for Willful Breach: 20% Overall

10

Wenotethat3ofthese5transactionsdefinedwillfulbreach.1ofthese3deals(Veritas/CPI)definedthetermso as to require an act knowingly undertaken with the intent of causing a breach of [the agreement]. The other 2 deals(Cerberus/DynCorpandGTCR/ProtectionOne)definedthetermdifferentlysoastorequireanacttaken withactualknowledgethattheactwouldcauseabreachofthemergeragreementbutwithoutanyrequirement thattheacthavebeentakenwiththeintenttocauseabreach.Theformulationusedinthelatter2dealsisgenerally consistentwithDelawareChanceryCourtViceChancellorLambsdefinitionofaknowingandintentionalbreach inHexion Specialty Chemicals v. Huntsman Corp.,C.A.No.3841(Del.Ch.Sept.29,2008),whereheheldthata knowingandintentionalbreachmeansthetakingofadeliberateact,whichactconstitutesinandofitselfa breachofthemergeragreement,evenifbreachingwasnottheconsciousobjectoftheact.Wenotethatthe knowingandintentionalformulationinHexionandinthelatter2deals(Cerberus/DynCorpandGTCR/Protection One)istarget-friendlyinthatitavoidsanyneedtoestablishthatabuyeractedwiththeintentofbreachingthe mergeragreement,whichmaybeverydifficulttoprove. 2011 Schulte Roth & Zabel LLP. All rights reserved. | 13


WithrespecttothesizeoftheRTFs: Fortransactionswithsingle-tierRTFstherangewas5.28%to9.43%oftargetequity value(mean:6.74%;median6.36%). Fortransactionswithtwo-tierRTFs: o o Therangeforthefirsttierwas2.23%to15.16%ofequityvalue(mean:5.73%; median3.23%). Therangeforthehighertierwas4.46%to37.89%(mean:12.40%;median 7.27%).Withrespecttotheseparatetriggereventsforthehigher-tierRTF,the rangeswereasfollows: Intheeventofwillfulbreach5.51%to37.89%(mean:17.83%;median 8.30%) Intheeventoffinancingfailure4.46%to7.27%(mean:5.44%;median 4.58%) o Asdiscussedabove,intheMadisonDearborn/BWAYtransactionthelower-tier RTF,whichappliedintheeventthebuyerterminatedduetotargetsfailureto maintainaspecifiedratioofdebttoEBIDTAatclosing,was1.12%whereasthe higher-tiergeneralRTFwas6.15%.



11. Select Buyer Closing Conditions Wereviewedthe25transactionstoseewhether,withrespecttothebuyersclosing conditions,theyincluded(i)astand-alonenomaterialadverseeffect(MAE)closing condition(ascomparedtojustrelyingonthenoMAErepresentationandtherelatedaccuracy ofrepresentationsclosingcondition(whichmaybelessbuyer-friendlybecauseittakes intoaccountdisclosuresmadeagainstthenoMAErepresentationinthetargetsdisclosure schedules)),(ii)afinancingclosingconditionand/or(iii)afinancialmetricclosingcondition. Asnotedinthefollowingchart: 17ofthe25transactions(68%)includedastand-alonenoMAEclosingcondition. o Ofthose17transactions,15ofthem(88%ofthissubset)providedcomfortasto theabsenceofanMAEsincetheapplicablesigningdate;theremaining2(12% ofthissubset)providedcomfortastotheabsenceofaMAEsincethetargets mostrecentauditdate.

3ofthe25transactions(12%)includedafinancingcondition;eachofthe3 transactionswasstructuredasatwo-steptenderoffer/back-endmerger. 2ofthe25transactions(8%)includedaclosingconditionrequiringthetargettohave aspecificratioofconsolidateddebttoEBITDA. Noneofthe25transactionsincludedaclosingcondition regardingtheexerciseof appraisalrightsbythetargetsstockholders.

No MAE Closing Conditions

Included a Stand-Alone No MAE Condition

68%Did Not Include a Stand-Alone No MAE Condition

32%

Since Most Recent Audit Date Formulation: 12%

Since Signing Date Formulation: 88%



12. Marketing Periods Wereviewedthe25transactionstodeterminewhichofthemhadamarketingperiod provision(i.e.,aprovisionnecessitatedbyprovisionsinthebuyersdebtcommitmentpapers thatprovidesthatthebuyerisnotrequiredtoconsummatetheclosingunlessithasreceived certainspecifiedfinancialinformationconcerningthetargetandaspecifiedtimeperiodhas expiredsincethereceiptofsuchinformation).Asnotedinthefollowingchart: 22ofthe25transactions(88%)hadmarketingperiodprovisions. Ofthe22transactions,17ofthem(77%)hadamarketingperiodofapproximatelyone month. Theaveragelengthofamarketingperiodwas30calendardays,withamedianof28 days.11

Marketing Periods

70% 60% 50%

% of Transactions

40%

30%

20%

10%

0% 0-20 21-30 31-40 41-50 51-60 61+

Length of Marketing Period in Calendar Days

11

herethemarketingperiodwasexpressedinbusinessdays,weconvertedtheperiodtocalendardaysfor W comparison purposes. See Chart B-3 in Appendix B for more information. 2011 Schulte Roth & Zabel LLP. All rights reserved. | 16


Becausethesizeofthetransactioncanimpactthetypeofdebtfinancinginvolved(e.g.,larger transactionsoftenincludeahigh-yielddebttranchethatcanrequiremoretimetocomplete), wecomparedthemarketingperiodprovisionsinthe22transactionsbasedonthedealsize:


Average Length

Median Length

33.6CalendarDays

29.5CalendarDays

26.1CalendarDays

28CalendarDays

27.6CalendarDays

28CalendarDays

Contrarytoexpectations,theaveragelengthofthemarketingperiodwasshorterforlarger transactions. Wealsoreviewedthe22transactionstodeterminewhenthemarketingperiodcouldbegin: 21ofthe22transactions(95%ofthissubset)conditionedthebeginningofthe marketingperiodonthebuyersreceiptoffinancialinformationpursuanttothe targetscooperationwiththefinancingcovenant. o 12ofthe21transactions(57%ofthissubset)conditionedthebeginningofthe marketingperiodonthesatisfactionofclosingconditions(otherthanthose conditionsthatbytheirnaturecanonlybesatisfiedatclosing).12 5ofthe21transactions(24%ofthissubset)providedthatthemarketingperiod couldbeginnoearlierthanthemailingoftheproxy. 2ofthe21transactions(10%ofthissubset)providedthatthemarketingperiod couldbeginasearlyassigning. 2ofthe21transactions(10%ofthissubset)werestructuredastwo-steptender offerswherethemarketingperiodbeganonadatecertainbutwassubjectto thesatisfactionoftheofferconditions.

o o o

1ofthe22transactions(5%ofthissubset)conditionedthebeginningofthemarketing periodonreceiptoftargetstockholderapproval.

12

neofthetransactionsincludedinthissubsetalsoprovidedthatthemarketingperiodcouldnotbeginuntilthe O endofthego-shopperiod. 2011 Schulte Roth & Zabel LLP. All rights reserved. | 17


OtherSelectedDealPoints13. Additional Points of Interest Inconnectionwithourreview,weidentifiedthefollowingadditionalpointsofinterest: 24ofthe25transactions(96%)requiredreasonablebestefforts,while1ofthe25 transactions(4%)requiredcommerciallyreasonableefforts. 9ofthe25transactions(36%)alsocontainedahellorhighwaterprovision obligatingthebuyertotakeanyactionsnecessarytoobtainantitrustapproval.In general,suchaprovisionrequiresabuyertodivestassetsofthetargetand/orofthe buyeranditsaffiliatestosatisfyantitrustconcerns. Theaveragelook-backperiodfortargetsrepresentationsandwarrantieswas approximately21.5months.Themedianwas24monthspriortothebeginningofthe targetsmostrecentfiscalyear.Therangewas1to3years. 19ofthe25transactions(76%)hadanoundisclosedliabilityrepresentationlimited toGAAPliabilities(i.e.,liabilitiesthatmeettheFAS5standardasperGAAP,which wouldnotincludeallcontingentliabilities). 20ofthe25transactions(80%)qualifiedthetargetsrepresentationsbydisclosurein theexhibitstothetargetsSECfilings.



AppendixASurveyedTransactionsTarget RCN Corporation infoGROUP, Inc. BWAY Holding Company DynCorp International Inc. CKE Restaurants, Inc. Protection One, Inc. Interactive Data Corporation inVentiv Health, Inc. SonicWALL, Inc. NBTY, Inc. Burger King Holdings, Inc. Internet Brands, Inc. The Gymboree Corporation American Commercial Lines Inc. CommScope, Inc. Syniverse Holdings, Inc. J. Crew Group, Inc. CPI International, Inc. Del Monte Foods Company Jo-Ann Stores, Inc. Pre-Paid Legal Services, Inc. Emergency Medical Services Corporation SRA International, Inc. Sponsor ABRYPartnersVI,L.P. CCMPCapitalAdvisors,LLC MadisonDearbornPartners,LLC CerberusSeriesFourHoldings,LLC ApolloManagementVII,L.P. GTCRFundIX/A,L.P. SilverLakePartnersIII,L.P.,Warburg PincusPrivateEquityX,L.P.and WarburgPincusXPartners,L.P. ThomasH.LeeEquityFundVI,L.P. ThomaBravoFundIX,L.P.and OntarioTeachersPensionPlan Board CarlylePartnersV,L.P. 3GSpecialSituationsFundIIL.P. Hellman&FriedmanCapital PartnersVI,L.P. BainCapitalFundX,L.P. PlatinumEquityCapitalPartnersII, L.P. CarlylePartnersV,L.P. CarlylePartnersV,L.P. TPGPartnersVI,L.P.,GreenEquity InvestorsV,L.P.andGreenEquity InvestorsSideV,L.P. TheVeritasCapitalFundIV,L.P. KKR2006FundL.P.,VestarCapital PartnersV,L.P.,CenterviewCapital, L.P.andCenterviewEmployees,L.P. GreenEquityInvestorsV,L.P.and GreenEquityInvestorsSideV,L.P. MidOceanPartnersIII,L.P., MidOceanPartnersIII-A,L.P.,and MidOceanPartnersIII-D,L.P. Clayton,Dubilier&RiceFundVIII, L.P. ProvidenceEquityPartnersVI,LP andProvidenceEquityPartnersVIA,LP ApaxUSVII,L.P.,ApaxEurope VII-A,L.P.,ApaxEuropeVII-B,L.P. andApaxEuropeVII-1,L.P. ApolloGlobalManagement Date March5,2010 March8,2010 March28,2010 April11,2010 April18,2010 April26,2010 May3,2010 May6,2010 June2,2010 July15,2010 Sept.2,2010 Sept.17,2010 Oct.11,2010 Oct.18,2010 Oct.26,2010 Oct.28,2010 Nov.23,2010 Nov.24,2010 Nov.24,2010 Dec.23,2010 Jan.30,2011 Feb.13,2011 March31,2011 Enterprise Value $1.2Billion $635Million $915Million $1.5Billion $1.0Billion $828Million $3.4Billion $1.1Billion $717Million $3.8Billion $4.0Billion $640Million $1.8Billion $777Million $3.9Billion $2.6Billion $3.0Billion $525Million $5.3Billion $1.6Billion $650Million $3.2Billion $1.88Billion Equity Value $561Million $463Million $447Million $1.0Billion $694Million $396Million $3.2Billion $911Million $637Million $3.5Billion $3.3Billion $625Million $1.8Billion $436Million $3.1Billion $2.2Billion $2.8Billion $331Million $3.8Billion $1.6Billion $649Million $2.8Billion $1.82Billion

Epicor Software Corporation CKx, Inc.

April4,2011 May10,2011

$976Million $560Million

$802Million $509Million



AppendixBAdditionalChartsandGraphsChart B-1 | Duration of Match and Last Look Right8

7 6

Match

Last Look

Calendar Days

5

4

3

2

1

0RC N info Gro up BW AY Dy nCo rp CK E Pro tec t. O ne Inte r. D all ata iv ent icW inV Son NB TY Bur ger Kin g Int. Bra . e pe Lin nds ore rse Sco m. ive mb mm . Co Gy Syn Co Am J. C rew CP I De lM ont e JoAn n Pre -Pa id EM SC SR A Epic or CK x

Chart B-2 | Parent Expense Caps1.40% 1.20%

% of Equity Value

1.00%

0.80%

Mean = 0.72%

0.60%

0.40%

0.20%

0.00%RC N info Gro up BW AY Dy nCo rp CK E inV ent iv Son icW w g e ds all Kin ore J. Cre ran mb ger tB Gy Ne Bur CP I De lM ont e l n An ega Joid L -Pa Pre Epic or CK x

Chart B-3 | Length of Marketing Period70

Length in Calendar Days

60

50

40

Mean = 30 Calendar Days30

20

10

0

RC

N

info

Gro

up

BW

AY

Dy

nCo

rp

CK

E

Inte

r. D

ata

inV

ent

iv Son

icW

all

NB

TY Bur

ger

Kin

g Gy

. e e rse rew . Lin ore cop ive J. C mb mm mmS Syn . Co Co Am

CP

I De

lM

ont

e

Jo-

An

n

Pre

-Pa

id

EM

SC

SR

A

Epic

or

2011PrivateEquityBuyer/PublicTargetM&ADealStudy|Summer

2011SchulteRoth&ZabelLLP.Allrightsreserved.|20

AppendixCBreak-UpFeesandReverseTermination Fees(RTF)13Deal RCN infoGROUP BWAY DynCorp CKE Protection One Interactive Data inVentiv SonicWall NBTY Burger King Net Brands Gymboree ACL CommScope Syniverse J. Crew CPI Del Monte Jo-Ann Pre-Paid Legal EMS SRA Epicor CKx13

Break-Up Fee $10.0 $17.5 $15.8 $5.0 $12.5 $30.0 $15.5 $8.0 $120.0 $27.5 $25.0 $53.6 $98.2 $50.0 $95.0 $23.0 $30.0 $50.0 $12.0 $14.0 $43.3 $103.9 $60.0 $20.0 $13.0 $15.0 $60.0 $120.0 $20.0 $44.9 $21.5 $116.5 $28.2 $47.0 $15.0 $40.0 $20.0

Break-Up Fee as % of Equity Value 1.78% 3.12% 3.42% 1.12% 2.79% 2.99% 2.23% 2.02% 3.70% 3.02% 3.93% 1.54% 2.82% 1.51% 2.87% 3.68% 1.68% 2.79% 2.75% 3.21% 1.42% 3.40% 2.76% 0.72% 3.92% 4.53% 1.57% 3.14% 1.25% 2.80% 3.31% 4.11% 1.55% 2.58% 1.87% 4.99% 3.93%

RTF $30.0 $25.4 $5.0 $27.5 $100.0 $300.0 $15.5 $30.9 $60.0 $150.0 $225.0 $55.0 $60.0 $214.2 $175.0 $38.0 $50.0 $130.0 $16.0 $20.0 $233.8 $60.0 $120.0 $200.0 $22.5 $27.5 $249.0 $90.0 $50.0 $203.9 $112.9 $20.0 $60.0 $40.0

RTF as % of Equity Value 5.34% 5.47% 1.12% 6.15% 9.98% 29.94% 2.23% 4.46% 15.16% 37.89% 6.93% 6.04% 9.43% 6.14% 5.28% 6.08% 2.79% 7.27% 3.67% 4.58% 7.66% 2.76% 5.51% 7.19% 6.79% 8.30% 6.52% 5.60% 7.70% 7.19% 6.20% 2.49% 7.48% 7.85%

Alldollaramountsinmillions.Fortwo-tieredfees,thefirstnumberisthelowertierandnumberbelowisthehigher tier. 2011 Schulte Roth & Zabel LLP. All rights reserved. | 21


SchulteRoth&ZabelM&AGroupSchulteRoth&ZabelsM&AGrouprepresentsprivateinvestmentfunds,portfolio companiesandpublicly-tradedcompaniesinpublicandprivateM&Atransactions, includingleveragedbuyouts,goingprivatetransactions,tenderoffersandproxy contests,cross-bordertransactionsandleveragedrecapitalizations. Thefirmwasrankedbymergermarketamongthetop20legaladviserstoU.S. buyoutsbyvolumein2010andforthefirsthalfof2011andwasalsorecognizedfor havingworkedononeof The DealsPrivateEquityDealsoftheYearin2010.SRZ representedthebuyerinoneof Investment Dealers Digests2010DealsoftheYear andactedascompanycounselto Marine Moneys2010DealoftheYear. Foundedin1969,SchulteRoth&Zabelisamultidisciplinaryfirmwithofficesin NewYork,Washington,D.C.,andLondon.Thefirmiswidelyregardedasoneofthe premierlegaladviserstoprivateinvestmentfunds. Acknowledgements AteamofSchulteRoth&Zabellawyerscontributedtothiseffort.Theprincipal authorswerepartnersJohnM.PollackandDavidE.Rosewater,specialcounsels ChristopherS.HarrisonandNeilC.RifkindandassociatesSeanP.D.Berry,C.Walker Brierre,AudraM.Dowless,EthanP.LutskeandKristenP.Poole.Invaluableassistance wasprovidedbysummerassociateArianaZikopoulos.

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