1. Independent Investment Banking for Media, Information, Marketing, Technology & Healthcare Client Briefing July 2013 since 1987 JEGI asked a select group of PE executives in- vesting in the media, information, marketing and technology sectors to provide their in- sights on their fundsinvestment activities and their outlook on the market: 1. What are the macro factors that will impact M&A in the sectors mentioned above? What are the major secular trends impacting your portfolio strategy? 2.With regard to your funds M&A strategy over the next 12-18 months: what types of companies are you looking to acquire? In which sectors? In which geographies? What size range will you consider? 3.What is your view of the debt market and where it is headed over the next six to nine months? How is it affecting transactions and multiples? For your deals, what is your optimal mix of equity, senior and mezzanine debt? What senior and mezzanine debt mul- tiples are you seeing in the market? 4.Other than concerns about the economy, what keeps you awake at night? peggy koenig, managing partner & co-ceo, and john hunt, partner, abry, pkoenig@abry.com and jhunt@abry.com The overheated credit markets are the most important factor impacting M&A in our sec- tors. Although it is easier to finance acquisi- tions, and at levels that can drive good equity returns, this has also translated into higher prices for assets. In an environment of higher prices, it is even more important to stay fo- cused on the areas we know well and where we are confident we can add substantial value to our portfolio companies. Another factor that impacts our strategy is the continued strong global demand for band- width. For several years now, our focus in com- munications has been on sectors that we think help satisfy this demand, and therefore, we are benefitting from it. The most obvious ben- eficiary, and an area of substantial activity for ABRY, has been data centers and other broad- band services companies. We continue to focus on information, software and business services, telecom services, educa- tion and media and entertainment companies. In the past several years,ABRY has increased its investing outside the U.S. (primarily inWestern Europe) in data centers and software, two ar- eas in which we have deep domain expertise. Importantly, whenever we invest outside the U.S., the investment must meet several crite- ria: the company must be in a sector where we have substantial, specific prior experience; there must be a minimal difference in opera- tions between a European and a domestic U.S. business; and there must be very little regula- tory or political risk. Our typical equity invest- ment size for an acquisition is between $75-150 million. For a growth investment out of our senior equity fund, the typical investment is $25-75 million. The debt markets are very robust and have arguably peaked. Larger middle market comp- anies are attracting leverage of between 6-7x EBITDA, at very attractive pricing and with minimal financial covenants. We are cautious in this debt environment, but also opportunis- tic. Over the past 12 months, we have recapi- talized many of our portfolio companies and expect to execute several recaps in 2013. Both our buyout fund and senior equity fund portfolios are performing very well. However, having lived through a number of downturns throughout our private equity careers, we are very mindful of the importance of staying close to our portfolio companies, even when things are going very well, to ensure we are prepared to withstand, and also take advan- tage of, a downturn. doug schreiber, partner, lee equity partners, dschreiber@thlcapital.com We focus on trying to develop theses about where industries are going and then invest in companies that are likely to benefit from those trends. We also try to find business models that are both attractive and defensible, and where we can provide capital to support and potentially accelerate growth. In both consumer and B2B media sectors, audi- ence behavior continues to shift tremendously. It is amazing to think that the iPad was an- nounced only a few years ago and now repre- (continued on page 6) Senior PE Investors Discuss M&A Outlook (from left) Scott Howe, CEO, Acxiom; Paul Chachko, CEO, V12 Group; Charles Stryker, Founder & CEO, Venture Development Center; Wilma Jordan, Founder & CEO, JEGI; Matthew Egol, Partner, Booz & Co.; Tom Stewart, Chief Knowledge and Marketing Officer, Booz & Co.; and David Kieselstein, CEO, Penton Media 1 > for more information visit www.jegi.com In This Issue 01 To subscribe to JEGIs Client Briefing Newsletter: http://bit.ly/YzEqQK Follow JEGI on Twitter: http://twitter.com/JordanEdmiston Media, Marketing, Tech M&A Steady Year-Over-Year02 03 Senior PE Investors Discuss M&A Outlook 2013 SIIA Strategic & Financial Investment Conference The Future of Healthcare IT M&A Exceptional Transaction Experience 04 08

2. 2 The media, information, marketing, health- care and technology sectors saw a healthy 708 transactions in the first half of 2013, roughly even in both volume and value with the first half of 2012, excluding Alibaba Groups buy- back of 20% of its shares from Yahoo for $7.1 billion in 2012. As expected, the year got off to a slow start following the rush of year-end deal closings ahead of impending tax law changes. The second quarter saw a pickup in both num- ber and size of announced M&A deals. active quarter for jegi M&A activity picked up for JEGI in the sec- ond quarter of 2013, with five deal closings, although only four have been officially an- nounced, including (JEGI client listed first): Onex Corporations $950 million acquisition of Nielsen Expositions, a leading operator of business-to-business tradeshows; MyWebGrocer, a leading provider of shop- ping and shopper marketing software and services, receiving a signifi- cant investment from private equity firm HGGC; The sale of Group SJR, a leading digital consultancy specializing in insights, con- tent creation, curation, and audience development, to Hill+Knowlton Strategies, a subsidiary of WPP; and The sale of Digital Broadcast- ing Group (DBG), a leading creator, producer, and distrib- utor of premium video con- tent across digital media, to Alloy Digital. m&a highlights for 1h 2013 M&A activity for the b2b online media and technology sector was slow in the first half of 2013, with a 26% decline in the num- ber of deals announced compared to 1H 2012 and deal value sharply down, primarily due to the $7.1 billion Alibaba Group/Yahoo transac- tion in 2012. Notable Q2 2013 deals included: Answers Corporations acquisition of Webcol- lage, a web-based application used to publish product information for manufacturer retail channels, for $37 million; TheStreets acquisi- tion of DealFlow Medias DealFlow Report, Life Settlements Report and PrivateRaise Database newsletters; and IntraLinks acquisitions of PE-Nexus, an Internet deal flow exchange and private social network for M&A, and MergerID, an online match- ing tool for buyers and sell- ers of mid-market compa- nies around the world. B2c online media and tech- nology was an active sector for M&A in 1H 2013, with 119 transactions at a total value of $4.0 billion. Compared to 1H 2012, the number of deals dropped slightly,by 10%,and transaction value remained flat. Notable deals in Q2 2013 included:Yahoos $1.1 billion acquisition of Tumblr, an online platform that enables users to share text, photos, links, videos, etc. across any channel; Alibaba Groups acquisition of an 18% stake in Weibo, an online microblogging service, for $586 million; Baidus acquisition of PPStream, a provider of online video services, for $370 million; DreamWorks Animations ac- quisition of AwesomenessTV, a YouTube chan- nel for teens, for $150 million; and Demand Medias acquisition of Society6,an e-commerce marketplace for artists, for $94 million. Transaction volume for the business-to-busi- ness media sector remained flat, with 15 trans- actions in 2013, compared to 14 in 2012. In the first quarter of the year, Catalyst Investment Managers acquired Reed Business Information Australia for $42 million and Euromoney Insti- tutional Investor acquired financial publisher Insider Publishing for $25 million. Notable deals in Q2 included: Edmond de Rothschild Investment Partners and BNP Paribas acquisi- tion of Reed Business Information France; Lex- isNexis acquisition of Sheshunoff Information Services, publisher for finance professionals; and Times Media Groups acquisition of BDFM Publishers from Pearson. The consumer magazines sector also saw sig- nificant growth in the first half of 2013, with 24 transactions at a total value of $281 mil- lion, due to a few larger deals in Q1 2013. The most prominent deal was NC2 Medias $75 million acquisition of Lonely Planet Publica- tions, a publisher of travel guidebooks, digital books, city guides, and maps. Notable deals for the second quarter included the TeamRock and Harwood Private Equity $15.4 million ac- quisition of Classic Rock and Metal Hammer magazines from Future, and Arthur Frommers repurchase of Frommers Travel Guides, which were sold to Google in August of 2012. M&A activity for the database and informa- tion services sector saw a total value of $3.2 billion in 1H 2013, down 26% from the first half of 2012, which saw the $3.3 billion take-private of Transunion by Advent International and GS Media, Marketing, Tech M&A Steady Year-Over-Year 3. 3 2013 SIIA Strategic & Financial Investment Conference The 2013 Conference had 18 high-caliber firms from across the education technol- ogy, media and digital content, informa- tion services and software sectors. The audience consisted of nearly 200 strategic M&A-focused executives and financial sponsors from a strong mix of global com- panies and private equity firms. The con- ference, co-founded by sponsors JEGI and VSS,was held June 13 at the Princeton Club in NYC. For further details on the event, visit: www.siia.net/investment/2013. Presenting companies included: Alert Solutions: SAAS Messaging Provider Blue Cava: Mobile Targeting Provider EduTone Corporation: Marketplace as a Service (MaaS) Education Platform Free Pint: Information Services Publisher Green Mountain Digital: Producer of Digital Field Guides InsideView: Provider of Sales & Marketing Intelligence iProduction: Cloud Publishing Platform IRON Solutions: Provider of Equipment & Agronomic Lifecycle Information McMurry/TMG: Content Marketing Agency MIR3: Provider of Intelligent Notification & Response Software PetroSkills: Provider of Training & Competency Assurance Services Reportlinker: Business Search Engine Return Path: Email Intelligence Solutions SkillSurvey: Social Platform for Reference- Checking STEMscopes: Online Science Curriculum Tax Credit Co: Provider of Tax Incentive Consulting V12 Group: Provider of Data & Cross- Channel Digital M arketing www.Iseeyou.MD: Healthcare Software Services Platform If you are interested in presenting at next years Conference, please contact Christie Adams at christiea@jegi.com. n Partners. The sector only had one deal above the $1 billion mark this year, IHSs $1.4 billion acquisition of R.L. Polk & Co., a provider of au- tomotive intelligence and marketing solutions. Other prominent deals in Q2 2013 included: the Temasek Holdings acquisition of a 10% stake in Markit Group, a financial information services company that provides credit derivative pric- ing services to financial institutions, for $500 million; McGraw Hill Financials acquisition of a 22% stake in CRISIL, a provider of ratings, re- search,and risk and policy advisory services,for $335 million; and Electra Partners acquisition of UBMs data services business, Delta, for ap- proximately $214 million. The education information, technology and training sector saw strong growth in the num- ber of deals announced in 1H 2013,up 52% vs.1H 2012. Additionally, deal value increased signifi- cantly, due to BC Partners $4.4 billion acquisi- tion of a majority stake in academic publisher Springer Science & Business Media. Other no- table deals in the second quarter of this year included Elseviers acquisition of Mendeley, a social platform for academics and organiza- tions to collaborate on research, for $69 million, and Pearsons acquisition of IndiaCan Educa- tion, provider of training for educating and em- ploying the youth in India, for $22 million. The number of deals in the exhibitions and conferences sector remained flat, with 30 transactions in 1H 2013 vs. 28 transactions in 1H 2012, while deal value spiked with Onexs $950 million acquisition of Nielsen Expositions (a JEGI transaction). Additional notable deals for the quarter included: Reed Expositions ac- quisition of Expo Nacional Ferretera, a Mexican event serving the hardware, construction and electrical markets, for $25 million, and Global Sources acquisition of a 70% stake in Shen- zhen International Machinery Manufacturing Industry Exhibition (SIMM) for $16 million. The healthcare information and technology sector was the third most active sector in the first half of 2013, with 104 transactions at a to- tal value of $4.2 billion.The number of deals in- creased by 16%, but deal value dropped by 25%, as 2012 saw more large transactions, includ- ing nine over $200 million. Notable deals for Q2 2013 included: Roper Industries $1.0 billion acquisition of Managed Healthcare Associates, provider of pharmacy solutions and data ana- lytics for long-term care and other healthcare providers; Qiagens acquisition of Ingenuity Systems, a provider of information solutions and services for life science researchers, for $109.4 million; JLL Partners acquisition of Bio- Clinica, a provider of clinical research technol- ogy to pharmaceutical, biotechnology, medi- cal device companies, for $105 million; and Jawbones acquisition of BodyMedia, maker of wearable health tracking devices, for approxi- mately $100 million. Although the number of deals and value declined in the marketing and interactive services sector in 1H 2013 vs. 1H 2012, by 11% and 17%, respectively, the sector continues to be a major driver of M&A activity, with 224 deals accounting for $6.8 billion of value in the first half of 2013. Notable transactions included: Salesforce.coms acquisition of ExactTarget, cross-channel digital marketing SaaS solu- tions, for $2.25 billion; Trulias acquisition of Market Leader, online technology and marketing for real estate professionals, for $314 million; Accentures acquisition of Acquity Group, brand e-commerce and digital marketing services, for $285 million; Significant investment in MyWebGrocer by HGGC (a JEGI transaction), for which terms were not disclosed; Intels acquisition of Mashery, API management services, for approximately $180 million; Alloy Digitals acquisition of DBG (a JEGI transaction), for which terms were not dis- closed; and Hill+Knowlton Strategies acquisition of Group SJR (a JEGI transaction), for which terms were not disclosed. The mobile media and technology sector increased by 14% in number of deals, up to 82 transactions, and rose in overall deal value by 6%, reaching $2.7 billion, in the first half of 2013, compared to the first half of 2012. Notable deals in the second quarter included: Googles $1.3 billion acquisition of Waze, a social mobile application that enables drivers to build and use real-time road intelligence on smartphones; LinkedIns acquisition of Pulse, a mobile news aggregation startup, for $90 million; and Facebooks acquisition of Parse, a provider of software developer kits for mobile devices, for a reported $85 million. n Another deal of note is Adobes acquisition of Neolane, a provider of enterprise marketing software, for $600 million, which was announced after JEGI released its M&A report for the first half of the year. 4. 4 later this month, jegi will publish its first report focused on the healthcare it market. the following article is a summary of this report. for more information, please go to www.jegi.com. The U.S. healthcare system is undergoing unprecedented change as a result of the Patient Protection & Affordable Care Act (ACA) signed in March 2010, and these changes have created opportunities for com- panies across the entire healthcare landscape. Healthcare information technology (HCIT) is a critical piece to many of the governments chang- es, and the Health information Technology for Economic and Clinical Health (HITECH) Act has created large incentives for the adoption of information technology solutions, spurring even greater tailwinds for the industry. the u.s. healthcare market Healthcare expenditures in the U.S. are expected to increase from $2.8 trillion to $3.3 trillion, or 18% of GDP, by 2015. The U.S. government cur- rently accounts for 37% of total payments. On March 23, 2010, President Obama signed the ACA, one of the most sweeping changes to healthcare in the United States since the creation of Medicare. As a result of the problems facing the industry and the beginnings of healthcare reform, JEGI has identified five major take- aways that we expect to impact the market: Continued growth in healthcare expenditures that outpaces income and GDP growth; Lower reimbursement rates, due to the desire to lower costs and the expansion of Medicaid; Increasing demand for medical professionals; Increase in consumerism and social media in healthcare; Transformation of the healthcare insurance industry; and Universal risk sharing and the need for patient engagement. overview of u.s. healthcare it market The global healthcare IT market, approximately $170 billion in 2012 and expected to grow 4% annually through 2016, includes software, hard- ware, connectivity/telecom, IT services and internal or outsourced ser- vices. The U.S. healthcare IT market, an estimated $65.6 billion in 2012, has grown steadily over the past decade. Solutions, such as EMRs, clini- cal physician order entry, point of care systems, and specialty care sys- tems, have been growing at even higher annual rates. Healthcare informatics represents the intersection of information sci- ence, computer science and healthcare and provides the next high growth opportunity in HCIT. The wide variety of information and data sources (e.g., hospitals, insurance companies and retail pharmacies) and the disparity of data make the healthcare informatics opportunity even more compelling and valuable than in most other sectors.Doctors,phar- maceutical and device manufacturers and other healthcare providers can build a deeper and more accurate profile of the consumer patient through EHRs, pre- scriptions, claims data and other reg- istries, spurring con- tinued expansion of the informatics and consumer health in- formation market. While the informat- ics ecosystem has created a vast re- source of information and intelligence, the data is still not being used to improve the delivery of care and the value delivered to the patient. The HITECH Act was signed into law on February 19, 2009 as part of the American Recovery and Reinvestment Act of 2009. It provides financial incentives for hospitals and eligible professionals totaling over $22 bil- lion of incentive payments plus $2 billion for the funding of the Office of the National Coordinator for Health Information Technology. According to CMS (Centers for Medicare & Medicaid Services), over 85% of eligible hospitals have registered for the program, and approximately 75% of EPs have registered. Several other regulatory programs are also driving additional HCIT spending. Although these programs will not have the impact that Federal EHR incentives are having, it will continue to add growth to the overall healthcare IT market in the U.S. impact on healthcare it and the dawn of the information age JEGI expects healthcare IT and especially informatics to play a pivotal role in addressing decades-long problems plaguing the U.S. healthcare system and enabling healthcare companies to adapt the new, post-re- form competitive environment. The HITECH Act and other Federal pro- grams have created a tipping point for the use of data in healthcare, ushering in the dawn of the industrys information age. With the large scale adoption of electronic health records (EHR), massive amounts of data are being collected, stored and utilized for better decision making, increasing the demand for technology that can put this information to use. While we believe the entire HCIT market will continue to thrive, JEGI has identified four major Market Catalysts that will have an even greater impact on healthcare information and technology. We also see these catalysts driving M&A activity in certain segments, as a broad range of information technology vendors seek to expand their solution set and obtain greater market share. marketcatalyst#1:higherpatientvolumesatlowerreimbursementrates Patient volumes are expected to increase dramatically over the next decade, as 20 to 40 million patients join the insurance roles and the aging of the population continues. These demographics, coupled with the eventual elimination of fee-for-service and expansion of Medicaid, will force healthcare companies, especially hospital systems, to become more efficient. Innovative operational and work flow solution software tools have emerged that eliminate waste and streamline operations. For example, there are tools that provide key operating information, such as peak volumes and pa- tient throughput; improved business intelligence and staffing software; and financial opti- mization budget- ing/capital planning, n ex t- g e n e rat i o n revenue cycle man- agement and spend The Future of Healthcare IT M&A The HITECH Act and other Federal programs have created a tipping point for the use of data in healthcare, ushering in the dawn of the industrys information age. 5. 5 management. Other key IT solutions, spurred by the need to manage higher patient volumes and improve operational efficiencies include telemedicine, human capital management and referral management. JEGI believes that companies providing these next-generation solutions will be in high demand by software vendors seeking to expand their presence in the market. HCIT vendors and other large enterprise soft- ware vendors will continue to acquire businesses that broaden their range of solutions for operational needs and challenges. We expect acquirors to include traditional players, such as Emdeon, Allscripts and MedAssets, as well as relatively new market entrants. market catalyst #2: informatics and data-driven decision making Healthcare informatics is already impacting the healthcare market, as healthcare companies seek to develop clinical and business decision support tools. Collecting, aggregating, analyzing and distributing information requires a substantial commitment from healthcare participants, however. The graph to the right shows the progression from the empirical medicine stage to value-based medicine, the highest level of the informatics life cycle, that healthcare companies are seeking to accomplish. Moving to value-based medicine re- quires additional investments in a variety of technical components in order to create an end-to-end plat- form that enable enhanced use of a systems data, including: Data Collection: collecting and syn- thesizing information from across the enterprise in a variety of forms continues to be a major challenge. Data Aggregation: data warehousing is an important element and has become an area of innovation. Decision Support: involves extracting data in multiple forms to assist in business and clinical decisions. Communication: distributing the information to physicians, nurses, pa- tients and administrators requires the use of a variety of communication channels including mobile devices,patient portals and social media. M&A activity will be driven by the large size of the market, the desire of large vendors to fill out their product portfolio and innovation from smaller participants. market catalyst #3: the emergence of the consumer patient With more individuals realizing that they cannot be passive participants in their own health treatment, patients have become better consumers and are applying greater scrutiny to the care they receive. In response, innovative companies are leveling the information imbalance in health- care and enabling the consumer patient to better determine price, qual- ity and ultimately value. Pricing and quality transparency tools, social media platforms and patient engagement solutions have emerged re- cently to address this trend. At the same time, employers are taking a greater interest in the health of employees, implementing programs to encourage wellness and lower healthcare costs. JEGI expects dramatic growth in this market, as consumers and employ- ers attempt to rein in costs. Patient engagement has become a critical must-have capability of healthcare companies, as hospitals are forced to be more accountable for outcomes and pharmaceutical and device companies seek clinical validation of their products. Social media is emerging as a powerful tool in healthcare and will be an important fac- tor in healthcare in the future. Nevertheless, most healthcare companies are still under-invested in patient communication and engagement tools. marketcatalyst#4:transformationofthehealthcareinsurancemarket The healthcare insurance market is also undergoing dramatic change as a result of the ACA, as corporations struggle to meet its requirements and look for ways to alleviate the financial burden imposed by health- care insurance premiums. Meanwhile,states are already setting up their own insurance exchanges. As a result, JEGI believes that the healthcare insurance market will begin to function like other retail-oriented in- surance markets, such automobile and casualty insurance. As a result, healthcare insurance companies will need to develop several new capabilities, including insurance ex- change technology and marketing services capabilities. Information technology will play a key role in this transformation by creating public and private insur- ance exchanges and helping to cre- ate a B2C marketplace for health- care insurance, which means that healthcare insurance providers will need to utilize marketing technol- ogy to better understand their au- dience and adapt to the changes in the market. Some insurance provid- ers may develop their technology internally, but numerous others will look to acquire the technology and capability set needed to accelerate the process. M&A activity in this area has begun, and JEGI expects many other transactions to occur in the near-term. conclusion Through the ACA, healthcare reform is having a profound impact on the current healthcare market. While the healthcare industry has traditionally been slow to adopt innovative technology solutions, companiesnowrealizetheneedtoquicklyadapt tothenewenvironment or face a struggle for survival. Adding to this, the federal government has put financial incentives in place to accelerate the adoption of new HCIT solutions, such as EHRs and healthcare information exchanges. Evidence-based medicine and value-based purchasing will require companies across the industry spectrum to not only collect data, but use it in their decision making process. The technology required to accomplish this is substantial, and the vendors that provide the best solutions will create enormous value for their stakeholders, due to the tens of billions of dollars involved and the overall growth of the market. M&A will continue to be a key strategy in the healthcare IT and informatics market, and the pace of activity will accelerate, particularly in selected markets. Healthcare customers are seeking innovation, and this is more likely to come from emerging companies than the incumbent vendors. These are exciting times for nimble healthcare IT companies that can meet the needs of the changing market, as the status quo has been replaced by a desire to improve the way healthcare is delivered and reimbursed. n Source: Oracle Corp,Enterprise Healthcare Analytics: Healthcare Data Warehouse Foundation, Healthcare Information Management System Society, 2009 6. sents the platform of choice for a substantial and growing portion of the audience. At the same time, advertisers are taking the lessons they have learned in the digital space and asking for more analytics and accountability across all media, forcing both marketers and media outlets to adjust. Finally, the B2B media world is just beginning to show signs of recov- ery, but the landscape is much changed; the need to be a dominant number one player ap- pears to be more critical than ever before. Our investment criteria focus more on certain characteristics than the sector or type of com- pany. We are looking to back proven managers in businesses that are leaders in their field.We look to become partners with management and highly value a manager/owners significant continued economic interest in the business alongside us. Typically, we invest $50-200 mil- lion of equity in any given investment, and the professional staff at Lee Equity also makes sub- stantial personal investments in transactions. The debt markets have been very accommo- dating for the past 6-12 months, and we have continued to see leverage availability and rates at very attractive levels. This appears to be driven largely by an imbalance in supply/ demand in the market. Availability of leverage and low rates tend to drive up overall transac- tion prices; however, just because leverage is available, does not mean that it is prudent to use it. Leverage magnifies movements in both directions, and we all saw the painful impact of deleveraging in the downturn. I do not believe there is a stock answer to the question of how much leverage to use. Certain businesses, typically those that are less vola- tile, can generally support higher leverage. On the other hand, businesses that need flexibil- ity for growth or where results are less predict- able should be financed more conservatively. The goal is to match the leverage to the spe- cific business situation. Prior to Lee Equity, I spent a significant por- tion of my career in venture capital, backing start-up companies. In this environment, you learn very quickly that businesses are fragile. So, I worry about everything. I believe the key to success is to back great managers and give them both the support and the space they need to anticipate changes and react before their competitors. Mr. Schreibers remarks represent his own views and not necessarily the views of Lee Equity Partners, LLC or any of the partners or staff of Lee Equity Partners. jeffrey stevenson, managing partner, vero- nis suhler stevenson, stevensonj@vss.com The key driver of the recent increase in activ- ity and valuation for middle market M&A has been the improving availability of credit in the U.S. Other background factors include the gradually improving economy and stock mar- ket, the return of risk, and the absence of glob- al setbacks and surprises. In the case of private equity, the expiration of investment periods is playing a role in pricing. Secular trends that impact our strategy include the continuing shift toward digital and business models that depend more on recurring subscription rev- enue than advertising. We are primarily focused on information and business services, education, media and mar- keting services companies in North America and Northern Europe, with EBITDA between $5-25 million, and particularly those that are tech and/or data enabled. The debt capital markets in the U.S. are very strong with looser covenants and higher le- verage ratios (5-6x) especially for credits with EBITDA over $50 million. For smaller credits (under $25 million in EBITDA), we are seeing a full turn lower in leverage (4-5x). If anything, the expected reduction of quantitative easing by the Federal Reserve (Fed) may help the U.S. banking sector and credit markets (although equity markets may suffer in the short term) and, as such, leverage multiples will remain high for the next six to nine months, as inves- tors continue to chase yield. The more aggressive approach by credit pro- viders has forced transaction multiples higher and incentivized companies to seek a sale. We aim to keep a relatively conservative capital structure with approximately 2-3x senior le- verage, 2x mezzanine and 40-50% equity to enable companies to have the flexibility to pursue growth strategies, including add-on acquisitions. We also are providing structured capital for non-control transactions to facili- tate acquisitions, shareholder buy backs and dividend recapitalizations. dan hosler, principal, sterling partners, dhosler@sterlingpartners.com Right now, we are undergoing a transition of budget allocation from the IT departments to the sales and marketing departments of large organizations, providing the CMO with a larger technology budget than the IT department. This trend will accelerate the growth of soft- ware and services companies that meet the needs of the CMO. This shifting trend will likely mean more acqui- sitions of these fast growing companies, such as Oracles acquisition of Eloqua, and Sales- force announcing the acquisition of ExactTar- get. The large enterprise software companies need to fill holes in their product suites and will look to acquisitions of middle-market and emerging marketing services and software companies. At Sterling, we are working to- wards making sure our companies use these cutting edge sales and marketing tools to ac- celerate growth. Sterling focuses on control growth equity investments in small and mid-market busi- nesses (enterprise values between $30-300 million) in North America. Across all invest- ments, we look for opportunities to apply our Operations methodology and drive operation- al improvement across human capital, strategy, governance, sales/marketing, etc. Sterlings sector focus in healthcare, education and business services is driven primarily by the firms targeted business model characteristics (e.g., high growth market or niche, proprietary product or service, sticky customers, low cus- tomer concentration, etc.), rather than a focus on particular industries. The firm has strong roots and over 25 years of experience in the education sector. The similarity of attributes in healthcare and business services to educa- tion fostered the sector expansion early in the history of the firm. The team has also pursued opportunities in other sectors that share simi- lar attributes, such as financial services, global supply chain and logistics, energy and industri- als, SaaS and big data. We continue to witness a strong senior debt market. In 2012, middle market loan volume was up about 25% from 2011. The trend in re- cap volume was even more pronounced, with increases in mid-market activity of more than 50% versus 2011. We remain optimistic and continue to see encouraging trends around lender process and an ability to move quickly and decisively. The market could face setbacks from international developments or from a 6 Senior PE Investors (continued from page 1) The debt markets have been very accomodating... June 2013 JEGI Emerging Company Dinner in NYC (from left) Mark Petroff, President, Marketing Associates;Wilma Jordan,Founder & CEO,JEGI; Keith Cooper, CEO, Connotate Technologies; and Scott Peters, Co-President, JEGI 7. 7 delay in addressing the long-term federal debt crisis, but the underlying fundamentals indi- cate that 2013 will be another good year for the senior debt market. As the Fed begins to taper off quantitative eas- ing, we expect the economy, the stock market, the debt markets, overall employment and GDP to experience volatility. But, volatility can also create opportunities, so we have to focus on long-term trends that can create great re- turns for our investors and partners. marc byron, chief executive officer, triver- gance, marc.byron@trivergance.com In marketing services, the key macro factor is specialized verticalization. Marketing com- panies will look to acquire capabilities that broaden their solution set, while remaining very focused on their particular vertical. In data and analytics, M&A activity will contin- ue to flourish, as acquirers seek ways to gather and interpret real-time data (Big Data), es- pecially into useable, actionable and relevant outputs. A new class of analytics will emerge under the banner Recommendation Engines, in which vast amounts of data are gathered, formatted and interpreted, and then in real- time optimal suggestions are made as to what to do. This can be in the form of communica- tions, engagements, offers, etc. We operate differently and uniquely as a fund- less sponsor. We have deployed over $3 billion in the past five years, but we dont have the pressure of other funds to deploy capital or re- coup investments. Our model depends much more on doing the right deal with our capital partner, so that if we add significant and de- monstrable value, we share disproportionately to traditional market comps. Therefore, we are very picky and search for the right opportuni- ties,identifying those that are truly proprietary. We are in hyper acquisition mode and are completing the monetization of our most recent platform company one of the most successful, fundless sponsor ROI deals we have seen to date. Our team helped deliver approximately $1 billion of value creation in about six years, investing none of our own financial capital but contributing much human and intellectual capital. We are searching today for our next platform, which will: a) be consumer facing; b) lever- age our direct marketing knowledge; c) have become stagnated for one or more reasons; d) benefit from our many CEO-level Fortune 500 relationships; and e) be between $25-150 million in EBITDA. The only thing that keeps me up at night is thinking that if the U.S. were a company, it probably would have to go through bankrupt- cy, and that until we deal with the reality of this countrys finances, we are playing finan- cial Russian Roulette. scott feldman, managing director, susquehanna growth equity, scott.feldman@sgep.com A major trend we see is the convergence of software, information and payments solutions all in one; examples include Uber for car service, SeamlessWeb for food delivery, Open- Table for restaurant reservations, and LinkedIn for CRM solutions. A secular trend we see is in the payments field specifically. All existing point-of-sale solutions are about to be disintermediated. Cash regis- ters will be tablet computers within the next 24 months, and that will drive incredible op- portunities in point-of-sale (POS) loyalty solu- tions and the ability to track what customers are buying on and offline by retailer. We see the payments solutions and software solu- tions companies extending themselves into marketing solutions, so we expect to see more deals like Salesforce acquiring ExactTarget. Another massive secular trend we see is in healthcare. We expect to see deductibles double or triple over the next five years and would not be surprised if the average patient deductible for a health insurance plan is north of $15,000 in 2018. This will drive increasing focus on cost containment and transparency and will pave the way for good information and payments solutions, such as MMIT (SGE portfolio company), Castlight, Simplee, etc. Our portfolio strategy continues to be to in- vest in software, information and payments, but we are becoming increasingly conscious of this triple threat and the risk taken by provid- ing only one or two parts of the solution. That is certainly affecting which companies we are willing to fund. We are looking for companies with $5-50 mil- lion in revenues, with multiples of 2-3x senior debt and 1x mezzanine debt. However, we do not lever most of our deals and continue to ex- pect the vast majority of our returns to come from growth, multiple expansion and/or op- erational improvements. The fierceness of competition keeps us up at night. Capital efficiency is here to stay in tech- nology and information solutions companies. That means you always have to innovate and have the best product. Switching costs are lower today than they were five years ago across the board, mainly due to improvements in general infrastructure and the ability to port large amounts of data seamlessly from system to system. robert nolan, managing partner, halyard capital, rnolan@halyard.com The macro factors we see impacting M&A include: market liquidity at attractive inter- est rates and a robust public equity market, continued IT spending by both corporate and government entities; continued investing of PE capital overhang (the demand factor); and a strong inventory, as PE funds continue to sell their long in the tooth portfolio companies, which have on average ownership length of nearly five years (the supply factor). Halyard is most interested in entrepreneur- ial-based organizations with the need to in- stitutionalize their operating structure, and growth-oriented scenarios where our operat- ing experience can improve the companys outcome. The sectors we consider are: Mar- keting Services; IT Services (Healthcare and Education); Information Services; Government Services; and Human Capital Management Services. We would consider a transaction size up to $150-200 million in enterprise value for a company earning up to $20 million in EBITDA. The current debt market remains attractive with low interest rates and commercially rea- sonable terms. The Fed has triggered a bullish effect on market multiples and levels of lever- age, both of which have grown over the past year.We believe that market interest rates will increase slightly in the next six to nine months, as the Fed still needs to prove that the unem- ployment situation is under control before it completely ends its easing strategy. Our optimal mix for a transaction is 50-60% equity, 30-40% senior debt, and in cases where appropriate 10-15% mezzanine debt. The mul- tiples we are seeing for senior debt range from 2.5-4x EBITDA and for mezzanine debt range from 1-2x EBITDA. Our concerns remain the capable and reason- able behavior by our portfolio company man- agement teams; and the constant search for meaningful growth in an economic environ- ment that has experienced tepid/low growth during the past four to five years. Said differ- ently, professional performance and growth opportunity are two key indicators. n The Fed has triggered a bullish effect on market multiples... In marketing services, the key macro factor is specialized verticalization. 8. 150 East 52nd Street, 18th Floor New York, NY 10022 212-754-0710 www.jegi.com Wilma Jordan Founder & CEO wilmaj@jegi.com Tom Pecht Managing Director tomp@jegi.com Scott Peters Co-President scottp@jegi.com David Clark Managing Director davidc@jegi.com Tolman Geffs Co-President tolmang@jegi.com Daniel Avrutsky Managing Director daniel@jegi.com Bill Hitzig Chief Operating Officer billh@jegi.com Richard Mead Managing Director richardm@jegi.com Adam Gross Chief Marketing Officer adamg@jegi.com Chris Calton Managing Director chrisc@jegi.com Amir Akhavan Director amira@jegi.com Tom Creaser Executive Vice President tomc@jegi.com December 2012 a leading digital strategy and experience design firm focused on delivering e-commerce and broadband video solutions has been sold to and a portfolio company of December 2012 a marketing research firm to has sold a portfolio company of December 2012 the leading event for the streetwear and action sports industries has joined December 2012 a leading full service content marketing firm has been sold to December 2012 a leading provider of news and information for the European entertainment and technology markets has been sold to a portfolio company of April 2013 a leading creator, producer, and distributor of premium video content across digital media has been sold to May 2013 a leading provider of shopping and shopper marketing software and services has received a significant investment from June 2013 a leading operator of large, business-to-business tradeshows has acquired for $950,000,000 which was renamed June 2013 a leading digital consultancy specializing in insights, content creation, curation, and audience development has been sold to a subsidiary of December 2012 a leading full service content marketing firm has been sold to For the 7th ConsecutiveYear,JEGI Ranked #1 by Bloomberg for U.S. Media,Internet and Marketing M&A Transactions jegis client is mentioned first in each of the above transactions.