1. Private Equity Overview

2. Introduction Background – Josh Ciampa BU SMG and CAS 2005 General Electric ( 5 years) o Financial Management Program (2), Leveraged Finance (3) First Atlantic Capital – Associate o NY based middle market private equity firm (Packaging, Consumer, Business Services focus) o Total funds under management in excess of $700M Background – Boris Bystrov BU SMG and CAS 2006 Merrill Lynch / Bank of America o Risk / Underwriting (3), Corporate Banking (1), Investment Banking (1) LS Power Equity Advisors – Associate o NY based private equity fund focused on the energy and power industry o Part of a larger power company o Total funds under management in excess of $4Bn

3. Private Equity Overview What is Private Equity? Management of assets for investors seeking alpha via participating in the purchase of stock or assets in private or public companies through a leveraged buyout o Control investing (own > 50% of equity and control BOD) o Minority or Co-investing alongside a Control investor or injecting equity into a business directly o Secondaries / Fund of Funds investing (buying another investor’s equity interest at a discount) Investment fund is raised with Limited Partners committing capital to the fund o Money is not sent to the fund until “called” when an equity check is ready to be written for an investment 10 year fund lifecycle – 5 years to invest, 5 years to harvest o Illiquid investments with long time horizon Fund charges 2% management fee on assets under management (AUM) and keeps a carried interest “carry” of 20% of the returns above a certain threshold o Must hit a fund hurdle rate or subject to a “claw back” provision where investors are reimbursed

4. Flow of Funds PE Funds LPs (Limited Partners) * Endowments, Pension Funds, Fund of Funds PE Firms / GPs (General Partners) *Manage Multiple Funds Portfolio Companies Exits (IPO or M&A)

5. Types of Private Equity Firms “Mega funds”: Multi-billion dollar funds that invest across all industries Invests in mature companies with strong cash flows via leveraged buyouts Examples: Blackstone, KKR, Carlyle, TPG, etc. Middle-market: $500mm to $5bn funds that invest within specific sector or across all industries Typically invests in small to mid-cap companies via equity commitments ranging from $25mm to $100mm Examples: Advent International, Golden Gate, Avista Capital, HIG Capital, etc. Growth equity: funds that invest in earlier-stage companies Typically invests in smaller targets via platform or “build-and-buy” investing Examples: General Atlantic, TA Associates, Summit Partners, etc. Sector-specific: funds that invest in one or two industries Typically middle-market / growth equity or distressed Examples: Silver Lake (tech), Lone Star (financials / real estate), Cressey & Co. (Healthcare), Energy Capital Partners (Power) Financial Institutions: private equity subsidiaries that invest across all industries Typically invest in mid-stage to mature companies with commitments ranging from $25mm to $1bn with more of a net income focus than other shops Examples: GE Capital, Goldman Sachs, Barclays, etc.

6. Private Equity Landscape Stage of Company / Strategy “Equit y check ” size Mature / LBO Early-stage / Growth “Mega-funds” Middle-market Growth equity Financial institution-backed

7. Private Equity Market Overview 2007 was peak of PE related activity 1st half of 2011 activity impacted by volatile credit markets Lots of activity expected in 2nd half of 2011 and 2012

8. Private Equity is the asset class that purchases an equity stake in a company that is not publicly traded on a stock exchange The PE landscape can be broken down by the varying strategies based on the ownership/control, mix of debt & equity, stage of company, risk/reward, etc. Stages of Investment VentureCapital Mid-MarketPrivate Equity LeveragedBuyoutAngelInvestingGrowthCapitalDistressed Stage of Company / Control StartupMature Lines are blurring as VCs are investing in earlier and later-stage companies

9. Venture Capital is Early and Exciting

10. Venture Capital Investment $ Billio ns *Source: National Venture Capital Association Yearbook 2010. Includes statistics from the PricewaterhouseCoopers/National Venture Capital Association MoneyTree™ Report based on data from Thomson Reuters.

11. Early-Stage o Seed: Deployment of a relatively small amount of capital for the entrepreneur / company to prove out a concept before qualifying for Start-up financing  Product Development, Market Research, Build Management Team, Develop a Business Plan o Start-up: Complete development of product & initial marketing efforts. o Technology / product / market risk Growth-Stage o Capital for initial expansion – sales & marketing, continued technology development, hiring, and working capital o Risk migrates from technology / product risk to execution / market risk Later-Stage o After companies have proven their ability to execute at a limited scale they will look to raise a larger round of capital to scale the business while continuing to fund sales & marketing o Ultimately this stage of financing should enable the company to position themselves for an exit Stages of Companies

12. Value Creation The Big 4 Drivers Organic EBITDA growth Acquisitions Multiple Expansion Cost Cutting / Deleveraging Strategies Platform Investment o Acquiring a solid distributor of fire protection equipment and adding SKUs / moving into adjacent markets / products Industry Roll-up or consolidation strategy o Acquiring a security guard company for 6.0x EBITDA and acquiring mom and pop security firms for 3.0-4.0x EBITDA, consolidating a fragmented industry Regional to national expansion o CompUSA: private company with 2 locations, PE investors took it national with 100 locations and > $1BN revenue Capex harvesting o Satellite companies purchased post 5 yr capex investment cycle Capacity utilization expansion o Helicopter transportation company purchased for a low multiple when capacity utilization is at 40% Managing the Inflection Points (step functional growth) Upgrade management, sales Manufacturing – single plant to multiple locations o Moving US manufacturing to China Rethink distribution, warehousing strategy Brand expansion, marketing Single product to diverse offering Comments on Lifecycles Venture capital investing at Introduction phase Growth phase receives private equity investment (growth equity) o Revenue ramp, addition of customers, need for professional management, logistics, distribution o Mezzanine facility Maturity phase supports leveraged buyout well – o Low capex o High free cash flow / Stable

13. Private Equity Concepts EBITDA Earnings before interest, taxes, depreciation & amortization Allows for comparability across industries (asset heavy vs. light) Disregards financing decisions and tax benefits Excludes non-cash charges against income (D&A) Enterprise Value or Firm Value (EV) Value of Debt + Equity less Cash on balance sheet Represents Takeover Value of Company EV of a public company – see chart at right EV of a private company = EBITDA x Exit Multiple Valuation in Practice Enterprise Value / EBITDA multiple or EV/EBITDA Quote value of a company as a multiple of LTM or TTM EBITDA Capital Structure Comments Equity is the residual claim on Assets Liabilities have security interest on assets Seniority of Capital Structure Cost of Capital relates to relative risk of tranche Investors demand more return for more risk o Cost of Capital for tranches o Secured vs. Unsecured Valuation

14. Visual Summary Private Equity LBO Example Considerations Equity Value increased 2.4x while TEV increased 1.5x (beauty of leverage) EBITDA increased 50% but our return was > 100% Free Cash flow paid down debt to accelerate increase in equity value: TEV increased $120M while Equity Value increased $145M Returns would have been higher if exit multiple was higher than entry

15. Private Equity Time Allocation 30% 15% 25% 10% 15% Research / Prospecting / Sourcing Pre Term Sheet Diligence Post Term Sheet Diligence Portfolio Company Support Internal Projects / Reporting Researching industry trends & opportunities; building domain expertise Prospecting: Identifying companies of interest to proactively contact Sourcing o Reaching out to companies proactively or tapping the network to make first contact with CEOs/Companies o Networking with other investors, bankers, CEOs Process to determine if the firm should bid (and at what price) on a company/deal: o Relationship building, diligence, deal structuring & returns analysis, firm buy-in, term sheet construction, negotiations Summary Diligence: Management, Market, Company / Product, Technology, Barriers to Entry, Financials The company has selected our firm and we enter into a period of exclusivity where the firm spends a significant amount of time conducting diligence on every aspect of the business before completing the transaction o Full model; transaction memo; legal documents; continued negotiations Attend board meetings Support companies with strategy, hiring, future financing, and exits Ad hoc projects Fundraising Reporting on company, deal, and fund performance Ad hoc projects

16. Private Equity Deal Process and Responsibilities New Deal Evaluation Origination o Investment Bank auctions o Proprietary relationships with PE Funds, Companies 1st Round Deal Evaluation o Receive CIM (Confidential Info Memo) from a bank o Evaluate investment opportunity o LBO Model o Bid Management Meetings o Evaluate quality of management o Plant / facility tours o Data room access o 2nd Round Bids Portfolio Management Strategy sessions o Organic Growth o Acquisitions Help management build budget o Market sizing analysis o Market growth analysis o Customer analysis Attend Board of Director meetings o Set short term and long term goals for company o Discuss long term exit strategy for company 2nd Round / Formal Diligence o Data Room access o Investment thesis o Access to management for questions o Refine investment case – build full operating model o Quality of Earnings, Environmental, Legal, Insurance review, Third party industry study o Review of major contracts, financials, audits, other o Financing Sources o Negotiate purchase agreement o Negotiate lender credit agreements Weekly sales reviews with CFO or CEO Monthly analysis of financials Assist with C-level hiring o Interview candidates Acquisitions o Meet with CEO and management of potential targets o Research targets and make offers o Engage bankers for strategic alternatives o Build M&A models for tuck acquisitions

17. Career in private equity What do private equity firms look for? Most firms typically require background experience in investment banking and less frequently consulting for pre-MBAs Strong analytical / modeling skills (excel modeling test) Excellent communication skills PE associate program overview Typically two-year commitment for pre-MBAs Some firms (mostly middle market) offer ability to stay without MBA or return post-MBA Ability to co-invest available at certain firms Life after private equity Top-tier business school Lateral to other PE shops, hedge funds, etc.

18. Supply of money on sidelines driving purchase multiples Financing markets remain conservative Very difficult to be a value investor in this market Shrinking number of funds, consolidation Operational value vs financial engineering Market AC346, AC347 (Intermediate Accounting) AC414 Financial Statement Analysis Finance, economics Have a tangible skill set Differentiate yourself Take upper level 300 and 500 liberal arts classes Directed Study Excel modeling Recommended Classes at BU PE values transaction and business experience o 2-5 yrs experience is the sweet spot for entry o Larger funds - MBA, smaller funds more flexible o Highest recruits from banking; Also consulting, corporate training programs, and industry Life after PE o BD, Consulting, Start-up o Move funds (large cap, middle market, VC, value, public equities, fixed income, high yield, mezz) Career in PE FT, WSJ, Barron’s, Economist, IBD, Seeking Alpha, Wired One up on Wall Street, Beating the Street (Peter Lynch) The Shareholder Letters of Marty Whitman, Warren Buffet Barbarians at the Gate, Against the Gods Suggested Reading Closing Thoughts