1. Readying Your Organization to Grow Through Acquisition Gail F. Lieberman Rudder Capital LLC CFO Summit/February 23, 2002 RUDDER CAPITAL www.ruddercapital.com

2. RUDDER CAPITAL, LLC - 2 - Copyright © 2002 Rudder Capital LLC. All rights Reserved. Outline Is Growth by Acquisition a Viable Strategy –Organic Growth vs Growth by Acquisition –Strategic, People, Financial Considerations If Yes, Getting Started –Planning Process, Process & Evaluation Tools, Setting Expectations, Education, Communication Establishing Relations with Advisors The Pre-Acquisition Process Sourcing Deals, –Deal Teams, Due Diligence Process, Integrity, Negotiating, Closing Day One Plans How Finance Can Add Value

3. RUDDER CAPITAL, LLC - 3 - Copyright © 2002 Rudder Capital LLC. All rights Reserved. Is Growth by Acquisition Viable for Your Company? Organic Growth vs Growth by Acquisition (a.k.a. Build vs. Buy) Strategic Considerations People Considerations Financial Considerations

4. RUDDER CAPITAL, LLC - 4 - Copyright © 2002 Rudder Capital LLC. All rights Reserved. Strategic Considerations BUYBUILD BenefitsImmediate addition to revenue/profits Immediate rounding out distribution and/or product lines Lower or more gradual investment CostsPremium Valuations Upfront Costs Slower revenue/profit ramp up Startup risk

5. RUDDER CAPITAL, LLC - 5 - Copyright © 2002 Rudder Capital LLC. All rights Reserved. People Considerations Cultural fit can’t be underestimated Assess management acquisition experience Be realistic about organization bandwidth Acquisitions are a diversion Small and large acquisitions take the same amount of time (and cost)

6. RUDDER CAPITAL, LLC - 6 - Copyright © 2002 Rudder Capital LLC. All rights Reserved. Financial Considerations Valuation, metrics, etc all matter Acquisitions can be financed in both bad and good economic times Several sources of acquisition funding are available

7. RUDDER CAPITAL, LLC - 7 - Copyright © 2002 Rudder Capital LLC. All rights Reserved. Getting Started Planning Process Process & Evaluation tools Expectations Education Communications Advisors

8. RUDDER CAPITAL, LLC - 8 - Copyright © 2002 Rudder Capital LLC. All rights Reserved. Integrate into the Planning Process Develop achievable acquisition strategies Prepare forecasts with and without acquisitions List potential targets Monitor competitive activity

9. RUDDER CAPITAL, LLC - 9 - Copyright © 2002 Rudder Capital LLC. All rights Reserved. Be Prepared with Process & Evaluation Tools Start the education process early with respect to –terminology –measurement –process Define hurdles and return metrics Analytic tools/management reports to evaluate impact on –Revenues –Profits –ROI Due diligence checklists Process checklists

10. RUDDER CAPITAL, LLC - 10 - Copyright © 2002 Rudder Capital LLC. All rights Reserved. Set Expectations by Defining Objectives & Parameters Payback by acquisition type –foldins:3-5 year returns –strategic:5-8 year returns –business partnering:1-2 year returns Size, revenue/profit/cash characteristics ROI

11. RUDDER CAPITAL, LLC - 11 - Copyright © 2002 Rudder Capital LLC. All rights Reserved. Educate Management & The Organization Terminology Expectations Communication Decision making

12. RUDDER CAPITAL, LLC - 12 - Copyright © 2002 Rudder Capital LLC. All rights Reserved. Communicate Often Investors Board Organization Press Advisors

13. RUDDER CAPITAL, LLC - 13 - Copyright © 2002 Rudder Capital LLC. All rights Reserved. Establish Relationship with Advisors Early Investment Bankers Lawyers Tax advisors PR Firms Real Estate Advisors

14. RUDDER CAPITAL, LLC - 14 - Copyright © 2002 Rudder Capital LLC. All rights Reserved. The Pre-Acquisition Process Sourcing Deals Deal Team Due Diligence Integrity Negotiation Closing

15. RUDDER CAPITAL, LLC - 15 - Copyright © 2002 Rudder Capital LLC. All rights Reserved. Broaden the Charter for Sourcing Deals Executive/Operating Management Vendors Board/Investors Advisors

16. RUDDER CAPITAL, LLC - 16 - Copyright © 2002 Rudder Capital LLC. All rights Reserved. Form a Deal Team Acquisition Team Leader Operating Management Lawyer Tax Analyst

17. RUDDER CAPITAL, LLC - 17 - Copyright © 2002 Rudder Capital LLC. All rights Reserved. Manage the Due Diligence Process It’s Not Just About The Numbers Culture Customers Product, Service Risks

18. RUDDER CAPITAL, LLC - 18 - Copyright © 2002 Rudder Capital LLC. All rights Reserved. Integrity Goes A Long Way The stage is set with the first communication IOI’s, LOI’s Managing expectations on both sides Need to know vs confidentiality

19. RUDDER CAPITAL, LLC - 19 - Copyright © 2002 Rudder Capital LLC. All rights Reserved. Know Your Negotiating Levers Work towards a term sheet before handing off to lawyers Structure solves a lot of problems The purchase agreement is prime negotiating space Consider light mark-up as a competitive edge

20. RUDDER CAPITAL, LLC - 20 - Copyright © 2002 Rudder Capital LLC. All rights Reserved. Work Towards Smooth Closing Process Work closely with lawyers Work out press releases well in advance Turn mountains into molehills Alert and check fund transfer instructions Acknowledge your deal team Create an environment of unity

21. RUDDER CAPITAL, LLC - 21 - Copyright © 2002 Rudder Capital LLC. All rights Reserved. Day One Plans Communications The Human Equation Integration The Paper Trail

22. RUDDER CAPITAL, LLC - 22 - Copyright © 2002 Rudder Capital LLC. All rights Reserved. How Finance Can Add Value Various opportunities for leadership depending on culture of organization, but leading the process and “bringing it all together” is a key value-add Communication Education Turning mountains into molehills Feedback Evaluation