1. Mergers & Acquisitions For Managed Service Providers Robert J. Scott Scott & Scott, LLP www.scottandscottllp.com

2. Business Drivers for Sellers Tight Credit Market Limited Venture Capital Strategic Exit More Resources New Services New Markets

3. Business Drivers for Buyers Geographic Expansion Access to Vertical Markets Additional Services Improved Operating Margins Security of Monthly Recurring Revenue Model

4. Deal Structure Equity Purchase – buyer acquires the stock, partnership, or membership interests from sellers including all assets and liabilities existing at the time of closing. Asset Purchase – buyer acquires certain assets and certain liabilities from seller equity in seller’s business is not transferred. Merger - buyer acquires the stock, partnership, or membership interests from sellers in exchange for an equity position in buyer’s company. Triangular Merger - a new entity is formed for the transaction and buyer and seller’s equity are exchanged for an equity stake in Newco.

5. Key Business Terms Valuation - Multiple of trailing recurring revenue under contract Payment Terms - Upfront consideration, contingency payments, and performance bonuses Employment Agreements - Job responsibilities, non-compete, and non-solicitation. Ownership of IP - Copyrights, trademarks, and trade secret ownership and licensing. Risk Sharing - Reps & warranties, indemnification, limitation of liability, insurance, and right to setoff. Effect of Breach - choice of law, venue selection, arbitration clauses, opportunity to cure, and injunctive remedies.

6. Contracting Process Confidentiality Agreement - mutual non-disclosure and non-use. Letter of Intent (LOI) - usually a non-binding summary of the business terms and timing of the transaction. Due Diligence - investigation of the details of both businesses to increase comfort level and uncover information necessary to prepare definitive agreement. Definitive Agreement - Incorporates terms in LOI and provides schedules of information collected during due diligence. Employment Contracts - Confidentiality, anti-reverse engineering, and other contract provisions to prevent loss of trade secrets Assignments - Leases, equipment, and contracts with third-parties.

7. Key Success Factors Choose your M&A advisors based on industry experience. Make sure your goals are reasonably attainable. Be very selective when buying or selling. Take your time negotiating, planning, documenting and implementing the transaction. Be diligent about due diligence. Use insurance to protect both buyers and sellers from third-party claims. Structure transaction so post closing incentives align with business goals.

8. QUESTIONS?