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Welcome to the SIA Investment Trends Committee Webinar July 31, 2014 Information. Insight. Influence. securityindustry.org.

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Presentation on theme: "Welcome to the SIA Investment Trends Committee Webinar July 31, 2014 Information. Insight. Influence. securityindustry.org."— Presentation transcript:

1 Welcome to the SIA Investment Trends Committee Webinar July 31, 2014 Information. Insight. Influence. securityindustry.org

2 SIA Investment Trends Committee Webinar Introduction John E. Mack III Executive Vice President Imperial Capital Information. Insight. Influence. securityindustry.org

3 Mission: To increase availability of security industry related Capital Markets, M&A and Investment Information to participants in the industry. Elements:  Periodic Webinars on investor related topics  Periodic Reports on investor related topics  Registry of Investors interested in the industry  Advocacy for an annual SIA report on the industry growth and key metrics in partnership with a world-class research organization  Event(s) for CEOs and/or Investors at SIA conferences - ISC and SNG  Promotion of the industry to the financial media  Recognition:  Examples – Annual awards for best - M&A Deal, Financing Transaction, CEO, CFO, & Corp Dev Exec Committee Members Targets: Executives including: CFO's, Corporate Development (M&A), Investor Relations, Investors (private or public), Investment Banking Research Analysts, Investment Banking Corporate Finance, Senior Lenders Founding Committee Members: SIA Investment Trends Committee Overview Franklin McClelland – Allegion John Orr – Ascent Capital (Monitronics) Stephan Segouin - The ADT Corporation Will Schmidt - Capital Source John E. Mack III - Chairperson - Imperial Capital Alper Cetingok - Raymond James Andrew Dodson - Parthenon Capital Partners Jeff Kessler - Imperial Capital Information. Insight. Influence. securityindustry.org

4 Speaker Biographies  Mr. Segouin joined ADT in 2012 as head of M&A. In that capacity Mr. Segouin sourced and executed the Devcon and Protectron acquisitions. Prior to ADT, Mr. Segouin was the head of Corporate Development at NextEra Inc., the second largest U.S. power company from 2005 to reporting to Jim Robo, then President. In that capacity Mr. Segouin led all the M&A and strategic planning for NextEra and founded Clearsky, NextEra's venture fund. Before that Mr. Segouin was an investment banker with Lehman Brothers and Goldman Sachs. Stephan Segouin, The ADT Corp. Vice President, M&A and Group CFO, ADT Canada John E. Mack III, Imperial Capital, LLC Executive Vice President, Co-Head Investment Banking, Head Security Group  John E. Mack III is Executive Vice President, Co-Head of Investment Banking and Head of Security Group at Imperial Capital, LLC. Mr. Mack joined Imperial Capital in 2008 as part of the firm’s acquisition of certain assets of USBX Inc., an investment banking firm focused on mergers and acquisitions. Mr. Mack was founder and CEO of USBX. Prior to USBX, Mr. Mack served as the CEO and a member of the Board of Directors of Protection One, Inc., then the nation's second largest provider of life safety and property monitoring services. Prior to assuming the role of CEO, Mr. Mack held the positions of CFO, Chief Strategy Officer and Executive Vice President of Business Development, where he was involved in over 200 acquisitions and oversaw the company’s growth from approximately 30,000 subscribers and $17 million in revenue to more than 1.6 million subscribers, $600 million in revenue and an enterprise value of over $2 billion. Before joining Protection One, Mr. Mack was a Senior Executive Officer with Westec Security, Inc. Jeff Kessler, Imperial Capital, LLC Managing Director Equity Reserach  Jeffrey Kessler is currently a Managing Director of Institutional Research at Imperial Capital, LLC in the New York City office. Mr. Kessler has been the leading security industry analyst on Wall Street for 30 years. including twenty-one years as the senior security industry & business services analyst with Lehman Brothers. In 2006 Mr. Kessler was named in the first “Security Magazine” poll as one of the industry “25 Most Influential Leaders”, and was a co-founder of the “Securing New Ground,” conference. At Lehman Brothers, Mr. Kessler published an annual “Security Industry Annual” for 15 years and at Imperial Capital, Mr. Kessler covers 15 leading publicly traded security companies, publishes the quarterly “Security Monitor,” selected White Papers on the industry, and is involved in one of the industry’s largest security conference, the Security Investor Conference. Alper Cetingok, Raymond James Managing Director Co-Head, Security, Defense & Govt. Service Group  Mr. Cetingok joined Raymond James in 2012 as Co-Head of the Security, Defense & Government Services (SDGS) Group in connection with Raymond James’ acquisition of Morgan Keegan. Raymond James’ SDGS Group has completed more than 120 M&A and financing transactions valued at approximately $17 billion and, in 2012, was recognized by Global Security Finance as the leading M&A advisor to the security and defense industries. Mr. Cetingok is also a member of the Investment Banking department’s Executive Committee. Prior to joining Raymond James, Mr. Cetingok spent approximately 15 years at Morgan Keegan, where he founded and led the firm’s Security & Defense Group and held the distinction of being the youngest Managing Director in the firm’s history. Will Schmidt, Capital Source Managing Director, Security Lending Group  Will Schmidt currently holds the position of Managing Director within CapitalSource’s Security Lending group. His primary responsibilities include developing new client relationships and structuring, underwriting, and funding transactions within the security and government services markets. Prior to joining CapitalSource in 2004, Mr. Schmidt had broad financial and operational experience in the security alarm industry with positions at SLP Capital and Dealers Monitoring Acceptance Corp (DMAC). At SLP Capital, Mr. Schmidt held the position of Vice President of Dealer Relations, Senior Vice President of Embrasure and Senior Vice President of the Special Asset group. Prior to SLP Capital, Mr. Schmidt worked at DMAC, initially as a Regional Sales Manager and later as Director of Dealer Relations. In the latter position, his responsibilities included managing DMAC’s field service operation as well as managing all aspects of the acquisition of accounts from the DMAC dealer network. Information. Insight. Influence. securityindustry.org

5 M&A Alper Cetingok Managing Director Co-Head, Security, Defense & Govt. Service Group Raymond James

6 M&A Market Drivers Improvements in macroeconomic conditions have created a favorable backdrop for M&A U.S. Market Performance (Jan. 1, 2004 – Mar. 31, 2014)U.S. Market Performance (Apr. 1, 2013 – Mar. 31, 2014) Strong equity markets Leveraged Loan Volume Since 2004Middle Market Debt Multiples of Leveraged Loans Robust Credit markets Substantial Capital availability Private Equity Fundraising ($B)Private Equity “Dry Powder” ($B) Information. Insight. Influence. securityindustry.org

7 M&A Market Statistics M&A activity has rebounded from post-recession lows and is likely to continue on a positive trajectory in the near- and intermediate terms U.S. Historical Annual M&A Activity ($B)U.S. Historical Quarterly M&A Activity ($B) Increasing deal volumes U.S. Private Equity Deal Flow ($B)Private Equity Deal Flow by Size (# of Deals) Substantial private equity activity Strong valuations Median Quarterly EBITDA MultiplesMedian EBITDA Multiples by Buyer Type Information. Insight. Influence. securityindustry.org

8 Security Market Trends The pace and magnitude of change in the security industry is at historically high levels, resulting in meaningful implications for security market M&A TrendCommentary Security as a platform for managed services  Use of traditional security channels to sell and manage portfolio of services (e.g., video surveillance, access control, intrusion alarm, energy management, IP telephony, etc.)  Conversion of business models from low-margin, installation and systems integration sales to high-margin, recurring revenue maintenance and monitoring contracts  Emphasis on benefits other than security, such as business intelligence, in order to shift purchasers’ frame of reference from “security = cost” to “security = ROI” Emergence of disruptive, “next-generation” RMR business models  Most segments of security industry experiencing market disruption as result of new market entrants emphasizing technology, new offerings, new delivery methods, etc. –Residential: connected home, DIY, solar –Commercial: managed services, DRaaS –Video: video monitoring for enterprise (VSaaS, MVaaS) –PERS: mHealth, telemedicine Rapidly changing competitive landscape  Substantial investment by cable and telecommunications companies to expand offering into both residential and commercial security (e.g., Xfinity Home, AT&T Digital Life, etc.)  Large, well-capitalized technology companies aggressively expanding into security to capitalize on growing connected home opportunity (e.g, Google/Nest/Dropcam)  Increasing investments by existing market participants to diversify offerings, access new end markets, etc. (e.g, Securitas, Canon, etc.) Growth of institutional investment in industry across multiple asset classes  Historically high levels of private equity investment during last five years by private equity investors  Increasing frequency of new, early-stage investors entering market seeking to capitalize on new trends (e.g., Sequoia Capital, Khosla Ventures, etc.)  Unprecedented levels of debt investment in support of M&A and organic growth initiatives Information. Insight. Influence. securityindustry.org

9 Transaction Case Study – TransAlarm The combination of iVerify and TransAlarm with support from Securitas creates a formidable new participant in the managed services market May 2014 Has been acquired by Background  TransAlarm, Inc. (“TransAlarm” or the “Company”) is a leading provider of security systems integration and alarm monitoring solutions to the commercial market in the United States and Canada –TransAlarm provides systems design, installation and integration services for a comprehensive range of security hardware devices and technologies including intrusion, fire alarm systems, CCTV, alarm and video monitoring, access control and business intelligence solutions –The Company maintains core operations in the Minneapolis/St. Paul region with a rapidly growing national accounts program serviced through third-party technicians  iVerify is a leading provider of real-time, remote security monitoring solutions using video and audio technologies Transaction Highlights  Raymond James’ Security, Defense & Government Services Group (“SDGS”) served as exclusive financial advisor to TransAlarm in connection with the Company’s assessment of strategic alternatives  Process culminated with the sale of TransAlarm to iVerify, Inc. with equity financing for the transaction provided by Driehaus Private Equity, iVerify’s existing financial sponsor, and Securitas AB, one of the world’s largest security companies Significance of Transaction  The combination of TransAlarm and iVerify creates one of the most comprehensive solution portfolios in the security industry and positons the combined company as a leader in the rapidly evolving managed services segment of the market  As a result of Securitas’ investment in iVerify, Securitas diversifies its service offering and deepens its footprint in the North American market, while iVerify gains access to Securitas’ substantial base of guarding customers, which generates annual revenue in excess of $10 billion with equity investment to support the transaction provided by Information. Insight. Influence. securityindustry.org

10 Transaction Case Study – SimpliSafe The financing of SimpliSafe by a highly regarded new investor to the industry exemplifies the investment community’s growing interest in security January 2014 Background  SimpliSafe, Inc. (“SimpliSafe” or the “Company”) is a leading provider of do-it-yourself (“DIY”) security systems to primarily residential customers in North America  The Company offers a highly integrated solution consisting of proprietary hardware and software supported by ongoing monthly monitoring services to consumers seeking alternatives to traditional, professionally installed security systems  SimpliSafe’s business model is unique in many respects, including no long-term contractual commitments and value-oriented pricing Transaction Highlights  Raymond James’ Security, Defense & Government Services Group (“SDGS”) served as exclusive financial advisor to SimpliSafe in connection with the Company’s assessment of capital formation and strategic alternatives  Process culminated with a minority investment by Sequoia Capital with proceeds from the transaction used to provide liquidity to existing shareholders and growth capital for the Company Significance of Transaction  Sequoia Capital’s investment in SimpliSafe validates the perception that certain segments of the security industry are ripe for disruption on the basis of, among other things, superior technologies/products, more attractive customer value propositions and differentiated sales and marketing strategies  Investment also serves to increase the profile of the industry through the entry of a venerable and highly successful investor such as Sequoia Capital and evidences the investment community’s interest in building exposure to companies well positioned to capitalize on the rapidly growing market for connected home products and services Has completed a minority investment led by Information. Insight. Influence. securityindustry.org

11 Security M&A Overview John E. Mack III Executive Vice President Imperial Capital Information. Insight. Influence. securityindustry.org

12 Security M&A Overview Security M&A activity has rebounded since the second half of 2013, largely due to lower interest rates, a recovering economy and a bull market Security Transactions Information. Insight. Influence. securityindustry.org

13 Security M&A Overview Physical Security M&A has experienced year over year rebounds in each of the last four quarters Physical Security Transactions Information. Insight. Influence. securityindustry.org

14 Security M&A Overview Identity Solutions M&A volume has experienced significant improvement since the temporary lull at the beginning of 2013 Identity Solutions Transactions Information. Insight. Influence. securityindustry.org

15 Security M&A Overview IT Security (Cyber Security) Transactions M&A levels in the Information Security sector has increased and remained relatively stable over the past six quarters versus 2012 Information. Insight. Influence. securityindustry.org

16 Cyber Security  The proliferation of mobile devices and increased use of cloud computing has created greater security vulnerabilities and heightened awareness by enterprises and consumers  High demand from private and government sectors for cloud-based security services such as encryption, application and messaging security, identity and access management (“IAM”), security analytics and event management o The cloud security market is expected to grow from $4.20 billion in 2014 to $8.71 billion in 2019 with a CAGR of 15.7% during the forecast period (1) o The global spread of cybercrime, which includes computer viruses, malicious software, and identity theft, presents a significant opportunity for the security software market. The direct global cost of cybercrime is more than $110 billion (2) o One of the fastest growing segments in cloud-based security is expected to originate from IAM, which currently stands at $500 million and is projected to grow to $1.24 billion in 2017 at a 28.3% CAGR (3)  Within IAM, one of the fastest growing sectors is Identity as a Service (“IDaaS”) as Gartner predicts that by year-end 2015, IDaaS will account for 25% of all new IAM sales, compared with less than 5% in IDaaS is the combination of administration and account provisioning, authentication and authorization and reporting functions used to manage SaaS applications and internal applications Key M&A Catalysts Advancements in technology are driving product and service innovation of security solutions, creating a strong M&A environment for the Security Industry Information. Insight. Influence. securityindustry.org

17 Availability of Disruptive Technology at Affordable Price Points  Technologies are dramatically improving and being provided at consumer-friendly price-points, thus broadening the market  The Video Surveillance market has seen a decrease in pricing in recent years while driving volume and maintaining margins; overall a net positive to industry growth  According to IHS Research, the market is expected to expand by more than 12% in 2014 to $15.9 billion and heading to $23.1 billion in 2017  New disruptive technologies present an opportunity within wireless, video surveillance as a service (“VSaaS”) and managed video as a service (“MVaaS”), and situational awareness technology such as analytics  According to IHS, the world market for VSaaS and managed video will grow in excess of a 25% CAGR from 2010 to 2020  The emergence of VSaaS and MVaaS will be a major contributor to the increase of cloud-based services Key M&A Catalysts Demand for Broader Product Suite  The market is increasingly demanding converged solutions that combine physical security, identity management and information security and then moving the delivery of these services to cloud-based business models  Firms are improving and making their existing product and service offerings more sophisticated to cater to the specific needs of each client in specific vertical industry segments, and many firms are accomplishing this through M&A Information. Insight. Influence. securityindustry.org

18 Strong M&A Appetite from Strategic and Financial Buyers  Strategic buyers have been motivated by a desire to expand breadth and depth of service offerings, add new product lines, or expand geographic footprint  The scope of strategic buyers has increased beyond the security industry: IT Services companies – seeking to build platforms that will facilitate the integration of security within the business enterprise and then moving to cloud based service delivery models Security Technology companies – expanding current offerings for integrated solutions Building Control companies – integrating security and monitoring component to existing building management products and services Industrial Conglomerates – looking for new long term growth industries Key M&A Catalysts Strategic  Private equity investors are attracted to the high growth potential available from the security industry and recent deal flow has demonstrated the availability of future exit opportunities  Venture capitalists have been active, investing in disruptive and specialized security technologies  There has been a recent surge in capital markets activity for alarm companies with Interface, Vivint, Monitronics and Securitas Direct all closing large financing deals recently  Private equity investors have been prevalent across a range of traditional security businesses, and in particular the alarm sector where 9 of the top 20 companies are PE-owned  Low loan default rates in security investments resulting in more aggressive leverage Financial Information. Insight. Influence. securityindustry.org

19 ADT’s Acquisition of Protectron TRANSACTION HIGHLIGHTS: The ADT Corporation acquired Reliance Protectron Inc., a subsidiary of Reliance Comfort Limited Partnership, a portfolio company of investment funds managed by Alinda Capital Partners, for total cash consideration of CAD $555 million (approximately USD $500 million) Acquisition strengthens ADT’s Canadian operations and creates a combined security industry leader in Canada, differentiated by its ability to reach consumers and provide them with better service and more choice across a variety of traditional security and automation technologies Protectron’s efforts to sell home automation products and services will be accelerated by ADT's considerable strengths in this area. The deal also creates opportunities for operational and administrative synergies COMPANY DESCRIPTION: Incorporated in 1988 and headquartered in Montreal, Quebec, Protectron is one of Canada's largest security monitoring and installation companies. It employs over 900 qualified professionals who specialize in the selling, installing, servicing and monitoring of electronic security systems for more than 400,000 residential, commercial, industrial and wholesale subscribers nationwide. Subscribers are offered a full suite of security and related monitoring products and services, including intrusion, smoke detection, personal and medical emergency, and environmental monitoring as well as other specialized services. Best-in- class interactive and home automation services adapt to today’s connected lifestyle. The ADT Corp. (NYSE: ADT) is a leading provider of electronic security, interactive home and business automation and monitoring services for residences and small businesses in the United States and Canada. Headquartered in Boca Raton, Florida, ADT helps provide peace of mind to more than six million customers, and it employs approximately 17,000 people at 200 locations. Financial Advisor to The ADT Corporation July 2014 HAS ACQUIRED: A subsidiary of: Information. Insight. Influence. securityindustry.org

20 HID’s Acquisition of Lumidigm TRANSACTION HIGHLIGHTS: Acquisition extends HID’s authentication portfolio while positioning the company to deliver a variety of new secure identity solutions into more applications Lumidigm’s patented multispectral imaging technology overcomes problems with traditional biometrics, particularly in harsh environments As part of HID, Lumidigm extends its proven technology beyond finger- and hand-based applications into iris, facial and other smart imaging systems COMPANY DESCRIPTION: Lumidigm, a global leader in authentication solutions is dedicated to enabling convenient, secure, and reliable identification of people, products and credentials. Developed with “real world” performance as a priority, Lumidigm’s multispectral imaging technology, innovative software and biometric fingerprint sensors allow customers to know “who” or “what” to a high degree of certainty. Lumidigm and its strategic partners have met challenging authentication requirements in markets such as banking, healthcare, entertainment, and government services. The Lumidigm Advantage is also suitable for industrial, commercial, and transportation applications. Lumidigm is headquartered in Albuquerque, New Mexico. HID Global is the trusted source for innovative products, services, solutions, and know-how related to the creation, management, and use of secure identities for millions of customers around the world. The company’s served markets include physical and logical access control, including strong authentication and credential management; card printing and personalization; visitor management systems; highly secure government and citizen ID; and identification RFID technologies used in animal ID and industry and logistics applications. The company’s primary brands include ActivID®, EasyLobby®, FARGO®, IdenTrust®, LaserCard® and HID®. Headquartered in Austin, Texas, HID Global has over 2,100 employees worldwide and operates international offices that support more than 100 countries. HID Global® is an ASSA ABLOY Group brand. February 2014 Exclusive Financial Advisor to Lumidigm, Inc. WAS ACQUIRED BY: A subsidiary of: Information. Insight. Influence. securityindustry.org

21 The ADT Corporation Stephan Segouin Senior Vice President, M&A and Group CFO ADT Canada

22 Information. Insight. Influence. securityindustry.org ADT has a multi-pronged growth strategy with 4 main levers ADT Growth Strategy  Core organic growth o Interactive take rates o Customer upgrades o Price increases  Dealers o New dealers o Increased interactive penetration  Acquisitions o Redeploying strong cash flow from existing customer base o Adding accounts and capabilities o Increased regional penetration  New products

23 Information. Insight. Influence. securityindustry.org ADT has demonstrated its commitment to M&A by executing a number of transactions since its IPO  Historically ADT has been an active buyer/consolidator o Broadview acquisition nearly doubled ADT’s size and paved the way for the Tyco separation  ADT’s large North American presence and operations make us a logical acquirer o Strong cash flow to execute deals to grow core business o Given our significant footprint, we typically have the most synergies o Allows ADT to be very competitive on price o Ability to provide management of acquired companies careers at ADT  Since going Public in October 2012, ADT as added ~525,000 customers through corporate acquisitions (excludes bulks) o Meaningful source of account growth for ADT The Rationale For Acquisitions

24 Information. Insight. Influence. securityindustry.org We acquired Devcon Security in August 2013 for $148.5M  We acquired Devcon in August 2013 for $148.5M o 118,000 customers with $3.6M of RMR o Transaction executed at a 41x RMR multiple  Transaction rationale o Quality account base and management team o Business line of interest to ADT (meaningful HOA portfolio) o Competent sales force that relied on self generated leads to get accounts o Attractive opportunity given the shift in “advertising voice” with the larger telcos and cable companies entering the market o Some element of distress following Devcon’s failed expansion effort that allowed ADT to get a “good deal” o Highlighted ADT’s ability to due diligence complicated transactions Devcon Acquisition – August 2013

25 Information. Insight. Influence. securityindustry.org The Devcon acquisition has been successfully integrated into ADT  Update o Cooperative integration with ADT Hollywood call center still open o Key management members offered senior positions within ADT o No dip in sales during year 1 and no disruption in business model HOA business remains strong o Replicated Devcon’s self generated sales model and implemented it within ADT’s larger sales force o Successfully divested Devcon’s commercial subsidiaries (Mutual & Stat-Land) at a higher multiple within 4 months of closing the deal Sold at 43x RMR Devcon Acquisition – August 2013

26 Information. Insight. Influence. securityindustry.org Protectron is the second largest security company in Canada and is based in Montreal, QC  Acquired Protectron in July 2014 for CDN$555M o 400,000 customers with CDN$12M of RMR o Negotiated transaction (no auction) and executed at a 46x RMR multiple  Transaction rationale o Combining number 1 and number 2 players to create a critical mass in Canada with over 800,000 customers o Opportunity for ADT to have a stand alone management team in Canada Prior to the acquisition, ADT Canada largely ran out of the US Not an optimal structure for either side o Opportunity to adopt best practices of both businesses and to rationalize the operations where there is overlap Protectron Acquisition – July 2014

27 Information. Insight. Influence. securityindustry.org The Protectron acquisition is off to a good start  Update ─Deal announced in April and closed in early July ─Ahead of expectations ─Company performing well and currently drafting integration plan ─Protectron’s management team enthusiastic about their future roles in the larger Canadian platform Protectron Acquisition – July 2014

28 Information. Insight. Influence. securityindustry.org ADT remains committed to M&A and believes it to be one of its key levers of growth Conclusion  Acquisitions are a key part of ADT’s growth strategy o Added ~525,000 customers through corporate transactions since October 2012 o Roughly 7% of ADT’s customer base  ADT is best positioned to be the acquirer of choice o More synergies then any of our competitors o Cooperative approach with management of acquired companies  Since its IPO, ADT has been aggressive in the market place and has done large deals at attractive multiples with strong returns o All transactions executed at attractive multiples 41x RMR for Devcon 46x RMR for Protectron

29 Information. Insight. Influence. securityindustry.org Debt Capital Markets Overview Will Schmidt Managing Director, Security Lending Group Company Capital Source

30  Strong appetite for assets across size and risk continuums o Traditional Banks o Institutional Investors / CLOs o High Yield Bonds o Second Lien / Mezzanine / Subordinated Debt  Leverage levels are conducive to M & A activity  Favorable structural elements (liberal covenants, generous acquisition baskets, etc.)  Spreads appear to have reached an equilibrium and remain issuer friendly  M & A activity will be a key driver for issuance volume as refinance activity slows Robust Macro Debt Capital Environment Information. Insight. Influence. securityindustry.org

31 U.S. Leverage Loan Issuance Information. Insight. Influence. securityindustry.org

32 Middle Market LBO Leverage Information. Insight. Influence. securityindustry.org

33 Middle Market Term Loan Yields Information. Insight. Influence. securityindustry.org

34  The broader security industry continues to be perceived as having stable fundamental demand drivers with solid macro trends  Recurring security services segment (RMR) o RMR-related accounting nuances are understood by a subset of industry lenders, but largely avoided by mainstream banks o Favorable leverage levels traditionally reserved for digital security monitoring are now be selectively applied to the video monitoring, managed access control and other managed services business segments o Battle-tested structures have proven the durability of RMR assets o Despite specialized nature of these loans, ample capacity exists with strong leverage and lower pricing evident at all levels in this market o Competition largely driven by deal size Implications for the Security Industry Information. Insight. Influence. securityindustry.org

35  Non RMR-centric security businesses also benefit from strong demand drivers o Strength in general leverage lending markets are sustaining favorable structures for these issuers o Many of these businesses also benefit from material non- contracted recurring revenue  Government services security providers o Differentiation is key given budgetary pressure. Are there LPTA (Low Price Technically Acceptable) alternatives? o Underwriting environment remains challenging, driving more conservative leverage levels. Must demonstrate continued performance in downside case. o For differentiated businesses with strong contract diversity, favorable pricing and structures persist. Implications for the Security Industry Information. Insight. Influence. securityindustry.org

36  Acquired by Parthenon Capital in Management team lead by Joe Nuccio, CEO and Ralph Masino, CFO.  CapitalSource anchored and arranged a senior credit facility to facilitate Parthenon’s acquisition and provide capital for continued growth.  The company’s senior credit facility provides a flexible interest- only structure with availability that grows as the company’s recurring service base grows, allowing the capital structure to scale with the business.  ASG has continued to grow significantly since 2007 through both internal sales and selective acquisitions of quality account bases.  Over the past 6+ years, the loan facility has been increased several times and additional participants have been added, most recently increasing total capacity to $300 million. Case Study 1: Alarm Security Group Information. Insight. Influence. securityindustry.org

37  The principal of a regional alarm company expressed concerns about their local bank’s understanding of their business and its reliance upon the principals’ personal guarantees.  The principal had experienced difficulty in getting financing for a recent in-market acquisition, despite relatively modest levels of senior leverage.  CapitalSource structured a facility that allowed the company to make future acquisitions, while at the same time repaying the existing senior lender and allowing the partial repayment of some shareholder loans to provide liquidity to a non-active shareholder.  Through its parent, Pacific Western Bank, CapitalSource was also able to provide depository services for the client at a lower cost than their previous lender. Case Study 2: Independent Alarm Company Information. Insight. Influence. securityindustry.org

38 High Yield Market Overview John E. Mack III Executive Vice President Imperial Capital Information. Insight. Influence. securityindustry.org

39 Source: Thomson Reuters LPC High Yield Market Highlights  2014 YTD issuance of $306.3 billion remains well ahead of YTD 2013 issuance ($196.1 billion), and is on pace to break the $441.6 billion record set in 2013  In the last four weeks, 97 tranches of debt (representing 81 issuers) have been priced for total proceeds of $50.2 billion  M&A volume remains the leading use of proceeds, after several years of refinancings leading market issuance  High yield mutual funds have recorded an inflow of $5.0 billion 2014 YTD  As of the week ended July 18, the secondary market had a YTD return of 4.98%  Secondary yields and spreads as of the week ended July 18 were 5.34% YTW and 3.78% STW  Spreads have widened 43 bps since reaching the YTD low on June 23 rd (3.35%)  YTW has risen 49 bps since June 23 rd and is currently at its highest level since March High Yield Weekly Fund Flows Information. Insight. Influence. securityindustry.org

40 Source: Thomson Reuters LPC Alarm & Monitoring High Yield Issuers Information. Insight. Influence. securityindustry.org

41 Security Industry Outlook Jeff Kessler Managing Director, Equity Research Imperial Capital Information. Insight. Influence. securityindustry.org

42 Investing in Security Companies Beats the Market. Why? Key Drivers that Make Security Investing Attractive  Heightened global awareness following 9/11 has created the need for larger, disciplined companies that provide superior platforms and closer “touch” with Government, commercial, institutional, and residential users.  Major technology “step ups” have helped successful public companies to distinguished themselves in using “big data” from video, identification, access control, intrusion devices, biometrics, and a multitude of other sensors to help the premises owner make better decisions and improve ROI.  On the Residential side, service providers are focused on home automation, using wireless interactive applications, with highly visible, branded partners, may create a doubling in the current 25mn homes using security or interactive home systems within 7 years.  The stock market has identified those security companies that lead these trends and have awarded them with superior performance over the last five- and ten-year periods.

43 Performance of Select Physical and ID Security Stocks Information. Insight. Influence. securityindustry.org

44 July Physical and ID Security Constituents Security Coverage - Constituents Acxiom Corporation (NasdaqGS:ACXM) AlarmForce Industries Inc. (TSX:AF) Allegion Plc (NYSE:ALLE) Analogic Corporation (NasdaqGS:ALOG) Ascent Capital Group, Inc. (NasdaqGS:ASCM.A) Assa Abloy AB (OM:ASSA B) Checkpoint Systems Inc. (NYSE:CKP) Command Security Corp. (AMEX:MOC) Constellation Software Inc. (TSX:CSU) Control4 Corporation (NasdaqGS:CTRL) Corrections Corporation of America (NYSE:CXW) CTS Corporation (NYSE:CTS) Danaher Corp. (NYSE:DHR) Diebold, Incorporated (NYSE:DBD) Digimarc Corporation (NasdaqGS:DMRC) Federal Signal Corp. (NYSE:FSS) FLIR Systems, Inc. (NasdaqGS:FLIR) Gunnebo AB (OM:GUNN) Identiv, Inc. (NasdaqCM:INVE) Image Sensing Systems, Inc. (NasdaqCM:ISNS) ImageWare Systems Inc. (OTCPK:IWSY) IndigoVision Group plc (AIM:IND) INSIDE Secure (ENXTPA:INSD) ISC8 Inc. (OTCPK:ISCI) Johnson Controls Inc. (NYSE:JCI) Kratos Defense & Security Solutions, Inc. (NasdaqGS:KTOS) L-3 Communications Holdings Inc. (NYSE:LLL) Loomis AB (OM:LOOM B) MSA Safety Incorporated (NYSE:MSA) Napco Security Technologies, Inc. (NasdaqGS:NSSC) NIC Inc. (NasdaqGS:EGOV) NICE Systems Ltd. (TASE:NICE) OmniVision Technologies, Inc. (NasdaqGS:OVTI) Oracle Corporation (NYSE:ORCL) Prosegur Compañía de Seguridad, S.A. (CATS:PSG) RELM Wireless Corp. (AMEX:RWC) Securitas AB (OM:SECU B) Stanley Black & Decker, Inc. (NYSE:SWK) The ADT Corporation (NYSE:ADT) The Brink's Company (NYSE:BCO) Trimble Navigation Limited (NasdaqGS:TRMB) Tyco International Ltd. (NYSE:TYC) United Technologies Corp. (NYSE:UTX) VASCO Data Security International Inc. (NasdaqCM:VDSI) Verint Systems Inc. (NasdaqGS:VRNT) Versar Inc. (AMEX:VSR) Zicom Electronic Security Systems Limited (BSE:531404) Information. Insight. Influence. securityindustry.org

45 Security Industry Overview and Long-Term Trends a Breakout Year:  Focus on margin and longer customer lives for leading installers.  Uptick in human behavior learning systems which provide automated responses when things are as they should be, and warns the user when incidents develop (Internet of Things [IOT] concept).  Increased use of radio frequency identification (RFID) and digital watermarking in retail for asset tracking and inventory management.  “New-age” fingerprint technologies that have the ability to overcome the read problems of older “ridge” technologies.  DNA anti-counterfeiting technology in the retail, commercial, and government sectors.  Continued development of wireless, remotely interrogated locks and access control systems. Information. Insight. Influence. securityindustry.org

46 Examples of Public Stock Leaders Information. Insight. Influence. securityindustry.org

47 Assa Abloy AB (ASSA’B-SK) – The Acquirer  Based in Stockholm, Sweden, Assa Abloy is the largest provider of door opening, access control, and identification solutions. Growth has come from both strategic acquisitions with a good history of ROCE and organically.  Assa Abloy’s portfolio spans the entire range from physical (fire doors, door opener/closers, fences, and gates), to hybrid (electro-mechanical to wireless migration), to Government card identification solutions, to new leading edge technologies in NFC, Bluetooth, biometrics, digital authentication. Information. Insight. Influence. securityindustry.org

48 Assa Abloy AB (ASSA’B-SK) Organic vs. Acquired Growth (%) Information. Insight. Influence. securityindustry.org

49 Assa Abloy AB (ASSA’B-SK) Segment Analyses (Sales in SEKbn) Information. Insight. Influence. securityindustry.org

50 Verint Systems (VRNT) – Actionable Intelligence  Based in Melville, New York, Verint is a leading provider of security intelligence and enterprise intelligence solutions focused on three areas of business: actionable security intelligence, customer relationship optimization, and security intelligence (e.g., fraud, risk, and compliance and network). The company has developed these leadership positions around its ability to take large amounts of “big data” and make them more easily usable for its constituencies, improving their business or security efficiencies, and the ROI.  For example, Verint was recently awarded a three-year $100mn contract for network security intelligence, which will ramp up in 2014, with full margin benefits expected in Information. Insight. Influence. securityindustry.org

51 Verint Systems (VRNT) – Segment Revenues ($mn) Information. Insight. Influence. securityindustry.org

52 Important Imperial Capital Disclosures, Certifications and Other Information Ratings Distribution and Definitions COMPANYDISCLOSURE Assa Abloy ABNone Verint Systems, Inc.5, 6, 7, 9 (IB Servs.) Please refer to our previously published research reports for the risks associated with the subject issuers. Analyst Certification: Each research analyst whose name appears in bold on the front page certifies that: (1) the views expressed in this report reflect the analyst’s personal views about the subject securities or issuers; and (2) none of the analyst’s compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed herein. The analyst(s) responsible for the preparation of this report receive(s) compensation primarily based upon individual performance (e.g., productivity and quality of work) and the overall financial performance of Imperial Capital, LLC, including overall revenues from investment banking activities. Equity Ratings Definitions (as of 7/1/09) Outperform61.73%Outperform: TRR expected to exceed basket by at least 10% In-Line35.20%In-Line: TRR expected to be in-line with basket Underperform3.06%Underperform: TRR expected to underperform basket by at least 10% This Equity Ratings Distribution reflects the percentage distribution for rated equity securities for the twelve month period 7/1/13 through 6/30/14. Rating definitions are expressed as the total rate of return (TRR) relative to the expected performance of a basket of like securities over a 12-month period. Within the twelve month period ended 6/30/14, IC has provided investment banking services to 7.44% of companies with equity rated an Outperform, 0.00% of companies with equity rated an Underperform, and 0.00% of companies with equity rated an In-Line. As of 6/30/14. Fixed Income Ratings Definitions and Equity Ratings Definitions (prior to 7/1/09) Buy: TRR expected to exceed basket by at least 10% Hold: TRR expected to be in-line with basket Sell: TRR expected to underperform basket by at least 10% Rating definitions are expressed as the total rate of return (TRR) relative to the expected performance of a basket of like securities over a 12-month period. Please refer to our publication dated 7/1/09 for details associated with the transition of our Equity Ratings to the current definitions. Information. Insight. Influence. securityindustry.org

53 Compendium Disclosure: Securities of issuers in this report, in addition to the subject issuer, may be rated by IC or its affiliate. Please see disclosures, price charts, and ratings histories for those issuers in our previously-published research reports, available by contacting your account executive at , or on IC’s Web site at *Disclosure items appropriate to each entity, if any, are indicated. The table above discloses IC’s or its affiliate’s ownership, if any, of securities mentioned herein. While this report is in circulation, IC or its affiliates may, from time to time, make purchases or sales for their own accounts of securities of any entity. The table above also discloses, as of the date hereof, whether or not IC makes a market in any of the securities mentioned herein. IC’s market making may constitute, in the case of equity securities and certain debt securities, standing ready to make purchases or sales of securities on a regular or continuous basis or quoting markets in debt securities. Notwithstanding IC’s market making activities as of the date hereof, while this report is in circulation IC may begin or discontinue such market making activity for any entity. This report was jointly prepared pursuant to an intercompany agreement with IC’s affiliate, Imperial Capital Asset Management, LLC (ICAM), a SEC registered investment advisor. The analyst who prepared this report is an associated person of ICAM. From time to time, ICAM may accept payments from customers for generic investment advice contained in this report. None of the analyst’s compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed herein. This report is for information purposes only. Under no circumstances is it to be used or considered as an offer to sell, or a solicitation of an offer to buy any security. While the information contained in this report has been obtained from sources believed to be reliable, we do not represent or guarantee that the report is accurate or complete, and it should not be relied upon as such. Any references or citations to, or excerpts from, third-party information or data sources (including, but not limited to, Bloomberg, Capital IQ and IBISWorld) do not and are not intended to provide financial or investment advice and are not to be relied upon by anyone as providing financial or investment advice. Based on public information available to us, prices and opinions expressed in this report reflect judgments as of the date hereof and are subject to change without notice. The securities covered by or mentioned in this report involve substantial risk and should generally be purchased only by investors able to accept such risk. 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If you would like to know whether IC’s and ICAM’s views have changed, please call us at (310) Imperial Capital, LLC is a member of FINRA (www.finra.org) and SIPC (www.sipc.org)www.sipc.org © Copyright 2014 Imperial Capital, LLC and Imperial Capital Asset Management, LLC Important Imperial Capital Disclosures, Certifications and Other Information 1 As of the date hereof, the analyst or other Imperial Capital, LLC (IC) or Imperial Capital Asset Management, LLC (ICAM) employee who assisted in the drafting of this report (or a member of his/her household) has a financial interest in the securities of this entity. 2 IC makes a market in the debt securities of this entity. 3 IC makes a market in the equity securities of this entity. 4 As of 6/30/14, IC or its affiliates beneficially own 1% or more of any class of common equity securities of this entity. 5 IC has managed or co-managed a public offering or Rule 144A offering of securities for this entity during the past 12 months. 6 IC has received compensation for investment banking services from this entity during the past 12 months. 7 IC expects to receive or intends to seek compensation for investment banking services from this entity within the next three months. 8 IC or its affiliates has received compensation for products or services other than investment banking services from this entity during the past 12 months. 9 IC had a [investment banking services] [non-investment banking securities-related services] [non-securities services] client relationship with this entity during the past 12 months. 10 As of the date hereof, the analyst or other IC or ICAM employee who assisted in the drafting of this report (or a member of his/her household) serves as an officer, director or advisory board member of this entity. 11 IC had (and/or currently has) a financial advisory relationship with certain creditors or equity holders with respect to the entity during the past 12 months. Information. Insight. Influence. securityindustry.org

54 SIA Investment Trends Webinar Conclusion John E. Mack III Executive Vice President Imperial Capital Information. Insight. Influence. securityindustry.org

55 Mission: To increase availability of security industry related Capital Markets, M&A and Investment Information to participants in the industry. Our organizing principal for future Webinars and Reports will follow a similar pattern: M&A Overview Debt Markets Overview (Public and Private) Equity Markets Overview (Public and Private) Case Studies Please provide us with feedback on how we can improve these presentations and/or provide input more broadly on ideas for the Investment Trends Committee charter We appreciate your participation and support! Thank you! SIA Investment Trends Webinar Summary Comments Information. Insight. Influence. securityindustry.org


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