1. The Sale of Great Lakes Strategies, LLC A Case Study Gary Gabel April 24, 2009

2. Overview of presentation  Positioning Your Firm with an Exit Strategy in Mind  What are Buyers Willing to Pay For?  Two Types of Buyers  What Will Buyers Pay?  Why Hire an Investment Bank?  The Selling Process

3. Overview of Presentation  Overview of Great Lakes Strategies, LLC  Investment Company Proposals  The Presentation Made to Potential Partners  The Final Offers Financial Buyer Strategic Buyer  The Transaction  The Aftermath  Conclusion

4. Positioning Your Firm With an Exit Strategy in Mind  Revenues Maximize annuity revenue Extend client contracts as long as possible  Expenses Eliminate extraneous expenses:  Excessive compensation  Company cars  Club memberships  Season tickets  Planes, boats

5. Positioning Your Firm With an Exit Strategy in Mind  People Develop deep bench strength  Results/Relationships Make sure quality of your service or product is exceptional Develop close relationships with customers—make sure they’re not just yours

6. What Are Buyers Willing to Pay More For?  Eliminate competition  Entry into a complementary market  A book of attractive business  Annuity/recurring revenue  Companies with high earnings/sales  Strong talent

7. Two Types of Buyers  Strategic—They see you as a way to eliminate competition, enter a new market, buy a book of business, buy a talent base, gain new technology  Financial—They see a vehicle that can generate revenue and increase wealth—because they will buy it at the lowest price possible

8. What Will Buyers Pay? Most firms are sold for a multiple of EBITDA (Earnings before interest and taxes, depreciation and amortization)

9. Why Hire an Investment Bank or Business Broker?  They know the business of M&A  They know how to package what you have  You are too emotionally involved  They are experienced negotiators

10. Deal with your Emotional Expectations  In a strategic sale: Don’t expect to stick around  Tenure of most entrepreneurs who sell their companies is less than 1 year Don’t expect your people will be treated well  In a financial sale: Expect to be hounded regularly to increase earnings

11. Due Diligence Analysis of Shareholder Objectives Analysis of Shareholder Objectives Buyer Contact Buyer Contact Bids (Letters of Intent) Bids (Letters of Intent) Presentations to Prospective Buyers Presentations to Prospective Buyers Pricing Analysis Pricing Analysis Selling Memorandum Selling Memorandum Buyer Log The Selling Process Negotiations Definitive Agreement/ Closing Definitive Agreement/ Closing

12. Great Lakes Strategies  Provided outsourcing of benefits to clients ranging in size from 100 employees to 20,000 employees  At time of sale, sales exceeded $11 Million  115 Employees

13. The Sale of Great Lakes Strategies Process Began: January 2002 Sale Consummated: December 2002

14. EBITDA for 2002 (in thousands)  Revenue$11,977  Expenses$10,444  Operating Income $1,533 (13%)  Dep and Amort 720  EBITDA $2,253 (19%)

15. Investment Bank Proposals Investment Bank AInvestment Bank BInvestment Bank C Retainer$50,000$25,000$8,000 Contingent Success Fee Minimum $250,000$200,000$150,000 Formula for Contingent Fee $250,000 to $12 MM 2% between $12 & $15 3% above $15 TBD5% of first $1MM 4% of second Million 3% of third Million 2% of Remainder Engagement Tail 2 Years1 Year

16. The Presentation to Prospects

17. Offers Financial Buyer  Cash = $10 Million  Seller Note = $2 Million  Total = $12 Million  We retain 30% ownership for a “second payday” Strategic Buyer  $16.2 Million Cash  Earnout of $1.40 for each $1.00 of qualified revenue above $12.5 MM in 2003

18. Analysis of Financial Buyer Proposal  $10 MM Cash would come from: $1 MM from Buyer $5 MM Senior Debt (bank loan) to be paid back by GLS $4 MM Preferred Stock (7%)  $2MM Seller Note—a note to be paid to us over 7 years at 7% interest

19. Cost of Financial Buyer Proposal Arrangement  $5 Million Senior Debt, financed over 10 years at 7%  $2 Million Management Note for 7 years at 7%  $4 Million Preferred Stock with 7% Coupon Cost to GLS  $697,000/year  $362,000/year  $280,000/year  Total = $1,339,000 per year vs. Operating Income of $1,533,000

20. The Final Transaction  Received $15.7 Million Cash  $500,000 deposited in escrow, redeemed 6 months later  $1.4 Million Cash paid in 2003 based on earnout  Total = $17.6 Million

21. Payment as Multiple of EBITDA for 2002 (in thousands)  Revenue$11,977  Expenses$10,444  Operating Income $1,533 (13%)  Dep and Amort 720  EBITDA $2,253 (19%)  Final Payment Before Earnout7.19 X EBITDA Including Earnout ($1.4 MM)7.82 X EBITDA

22. The Aftermath  My tenure in new company lasted 3 months  Employee headcount was reduced from 115 to 65 within one year of acquisition  Had to separate myself emotionally from events at company  Clients became disenchanted with new level of service  Client attrition increased  Site was closed July 2008  Less than 10 employees remain with new company

23. Conclusion