MEDICAL DEVICE OUTSOURCING Q BOSTON CHICAGO LONDON LOS ANGELES PHILADELPHIA SAN DIEGO SILICON VALLEY CONTACTS

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1 MEDICAL DEVICE OUTSOURCING CONTACTS Eric Williams (215) Mark Surowiak Director (215) Daniel Schultz Director of Business Development (617) M&A ACTIVITY Continuing a trend that we first noted last year, M&A activity in the medical device outsourcing industry appears to be accelerating. Thus far in 2014, several notable transactions have been completed or announced, and the volume of transactions is steadily rising. Capstone believes this activity is a reflection of the industry s growth prospects, improved operating performance of both acquirers and targets, as well as a number of favorable macro factors driving M&A activity including private equity groups with ample undeployed capital ($500 billion), improved terms and availability of acquisition financing and strategic acquirers with large cash reserves seeking investments to augment organic growth. Medical device OEMs appear to be increasing their use of outsourcing as they search for ways to lower costs while improving product design and development processes, production efficiencies and time to market. At the sametime,overtheyears,contractproviders have been fine tuning their businesses to offer the high quality, reliability and outstanding service that OEMs require. Many of these outsource providers have positioned themselves not just as traditional suppliers, but as true partners to their OEM customers. Along those lines, acquisitions in the industry are strategically motivated, as outsource providers seek to add capabilities that make them a highly valued business partner to their medical device clients. BOSTON CHICAGO LONDON LOS ANGELES PHILADELPHIA SAN DIEGO SILICON VALLEY Capstone recently polled a select group of corporations and private equity firms with holdings in the medical device outsourcing industry. These parties have been actively pursuing acquisitions in the space and we wanted their views on current market conditions. As a group, these buyers noted the newfound importance of acquisitions to their strategic plans. They suggested that, prior to 2013, many of their strategic initiatives were focused internally, but now that the industry is displaying healthier growth, they are again looking to make complementary acquisitions. Regarding specific areas of interest, the corporate acquirers are targeting companies that provide specific products or services which complement their current offerings. In contrast, private equity buyers looking for a platform holding in the segment are generally interested in the category as a whole and will consider targets within a wide range of service, manufacturing capabilities, product and therapeutic application subsectors. These buyers do, however, have specific financial criteria for their investments, looking for companies that meet specific size parameters, which vary depending on if the transaction represents a platform or add on acquisition. Several of the active buyers did note that the availability of quality companies for sale is a bit scarce, a trend we have seen across the M&A landscape. We attribute this to a lack of confidence among CEOs who, since the recession, have been repeatedly hit with negative economic and political developments that have kept them on the sidelines. We believe this waiting time is coming to an end, with excellent M&A market fundamentals, growing demand from buyers and (finally) more visibility into the future for business owners. As a result, we expect deal supply to improve in the coming year and agree with our survey respondents that M&A activity in the medical outsourcing industry will continue to accelerate in 2014 and 2015.

2 TRANSACTION PROFILES Several notable transactions in the medical device outsourcing industry have already been recorded in Two of these transactions are profiled below, followed by a more comprehensive list in the table that follows. Accellent Inc. acquires Lake Region Medical (March 2014) In a transaction valued at $315 million, Accellent, a leading provider of fully integrated outsourced manufacturing and engineering services to the medical device industry, acquired a majority stake in Lake Region Medical, a privately held manufacturer of minimally invasive devices and delivery systems to the cardiology and endovascular markets. Lake Region Medical has facilities in the US, Ireland and China and was founded and owned by the Fleischhacker family, which will continue as a significant shareholder. Accellent provides services primarily in the cardiology, vascular and advanced surgical markets. The company has broad capabilities in precision component fabrication, finished device assembly, complete supply chain management capabilities and engineering services. Lake Region Medical is expert in medical devices that meet unique clinical challenges for cardiovascular, stimulation therapy, neurovascular, and peripheral vascular applications, and has established development and distribution partnerships with industry leading medical device companies throughout the world. The acquisition combines Lake Region s strength in guide wires and wire based medical devices with Accellent s strength in catheters, creating a supplier that can offer a broader line of products to complement their customers core therapeutic devices. Commenting on the acquisition, Don Spence, Chairman and CEO of Accellent, said Combining our companies will create a leading interventional vascular business with more scale, a broader product offering and deeper customer relationships. Jeremy Friedman, President and COO for Accellent agrees this is an instrumental step in the company s overall market strategy. This makes for a perfect fit with our product strategy and will allow us to offer our customers a strong portfolio of both guide wire and catheter products, he said. For Lake Region Medical, Accellent brings different strengths to the table. CEO Joe Fleischhacker Jr. noted, This combination supports Lake Region s product strategy to enhance our competence in a wider range of products used for delivering therapy to patients. Mark Fleischhacker, COO of Lake Region Medical, added that the Accellent and Lake Region combination is the right strategic move. Combining Lake Region s strength in guide wires with Accellent s strength in catheters will create a supplier that can offer interventional delivery, access and retrieval systems to complement our customers core therapeutic devices. In parallel, Accellent s deep contract manufacturing expertise will provide an even stronger precision component offering to all of our medical device customers. The combined business will be called Lake Region Medical and the company will continue to use the Accellent brand in marketing. Accellent is owned by privateequity firms KKR & Co. and Bain Capital LLC, which acquired the company in 2005 for $1.3 billion. Capstone Partners LLC 2

3 TRANSACTION PROFILES (CONTINUED) Golden Gate Capital to acquire Phillips Medisize (announced May 2014 and ) Phillips Medisize is a leading global provider of design and manufacturing services to the pharmaceutical, medical device, diagnostic and specialty commercial markets. The Company has annual sales of approximately $600 million and employs over 3,100 people in 19 locations throughout the United States, Europe, Mexico and China. Phillips Medisize serves a broad range of blue chip medical device, pharmaceutical and commercial customers. The company partners with its customers to provide design and development services that are intended to accelerate the speed to market of innovative products. The company then works with its customers to deploy advanced automated assembly and quality control technologies that can help to reduce manufacturing costs while improving quality. The company has said that its core advantage is the knowledge of its people to integrate design, molding and automation in such a way that results in low cost and high quality manufacturing solutions. Phillips has a history of growth through mergers and acquisitions. The company is currently a holding of private equity firm Kohlberg&Company,whichacquired Phillips Plastics in Subsequently, in 2011, Phillips acquired Medisize from Ratos AB, paying $142 million for the European based outsource provider of design and manufacturing services to pharmaceutical, diagnostic and medical device companies. The transaction increased Phillips European footprint and broadened its manufacturing capabilities, making the combined entity one of the medical industry s largest and most complete global providers of outsourced medical design and manufacturing services. In July of 2013 Phillips Medisize acquired Omni Manufacturing Services SA de CV and Adval Tech Medical Co. Ltd. for an undisclosed sum. Both companies provide medical device outsourcing services. Adval Tech Medical is based in Suzhou, China and Omni Manufacturing Services is based in Queretaro, Mexico. In this most recent transaction, Golden Gate Capital intends to acquire 100% of Phillips Medisize from Kohlberg & Company. Commenting on the transaction, Rajeev Amara, at Golden Gate Capital said, Phillips Medisize represents a terrific opportunity to invest in a strong design and manufacturing service platform with global scale and a proven track record of delivering an exceptionally broad and deep set of capabilities to its customers. The Company is well positioned to grow and succeed in the rapidly expanding medical outsourcing market and Golden Gate Capital is committed to investing in the Company to support the next phase of its growth. Golden Gate Capital is a San Francisco based private equity investment firm with approximately $12 billion of capital under management. Matt Jennings, President & CEO of Phillips Medisize expects that Golden Gate Capital will be a strong partner, stating, Golden Gate s financial support, successful track record of backing manufacturing companies and deep industry relationships will help perpetuate the Company s strong momentum and further solidify our market leading position. We look forward to working with our new partners as we continue to successfully execute our strategy. Capstone Partners LLC 3

4 MEDICAL DEVICE OUTSOURCING: SELECT TRANSACTIONS Enterprise EV / LTM Value Date Target Acquirer Target Business Description ($mm) Revenue EBITDA May 14 Apr 14 Apr 14 Apr 14 Vaupell Inc. Phillips Medisize Solid Concepts Inc. AVID Technologies, Inc. Interplex Industries, Inc. Altronics Manufacturing Inc. Advance Tooling Concepts LLC Processing Equip. Solutions, Inc. Medical Modeling Inc. O.R.M., Inc. Aubrey Group, Inc. Laser Design, Inc. Lake Region Medical, Inc. Sumitomo Bakelite Co. Ltd. (TSE:4203) Golden Gate Capital Stratasys Ltd. (NasdaqGS:SSYS) Premier Farnell plc (LSE:PFL) Amtek Engineering (SGX:M1P) Varitron Technologies Inc. ARC Group (NasdaqCM:ARCW) Middleby Corp. (NasdaqGS:MIDD) 3D Systems Corp. (NYSE:DDD) Electri Cord Manufacturing Sparton Corp. (NYSE:SPA) CyberOptics Corp. (NasdaqGM:CYBE) Accellent, Inc. SYNARC Inc. BioClinica, Inc. Food Technology Service Inc. Integrity Plastics, Inc. Compliance Partners, LLC Reliance Laser, Inc. Northeast Mold & Plastics, Inc. Semblex Pro CNC Inc. IntriCon Tibbetts Tompkins Pharma. Rubber Corp. Directed Manufacturing, Inc. MTI Electronics, Inc. Sterigenics U.S., LLC Brentwood Industries, Inc. Raland Compliance Partners, LLC Okay Industries, Inc. Res Tech JINHAP Company Ltd. Trulife Group Limited Sierra Peaks Quality Synthetic Rubber, Inc. RTI International Metals (NYSE:RTI) VirTex Assembly Services, Inc. Provides injection molded plastic components & assemblies for medical product OEMs and other markets. Provides design, development and contract manufacturing services to medical device and other industries. Provides rapid prototyping, manufacturing, tooling and injection molding of medical components and other products. A full service product development firm offering electronic products for the medical and other markets. Designs and manufactures precision metal and plastic solutions for a variety of industries including medical devices. Provides electronic contract manufacturing services for the medical device and other industries. Manufactures high precision injection molded parts for medical device OEMs and other industries. Provides machined and fabricated parts and components for various markets including medical. Provides R&D, prototyping and production services to medical device OEMs. Provides contract manufacturing services to commercial, military, industrial and medical device manufacturing markets. A contract product development and manufacturing company, engages in designing and manufacturing medical devices. Provides ultra precise and 3D laser scanning systems and services to the medical device and other industries worldwide. Develops and manufactures medical devices and components to OEMs in the United States and internationally. Provides medical imaging, consultation and analysis services for pharma, biotech, and medical device clinical trials. Operates an irradiation facility to provide contract sterilization services to the medical device, packaging and food industries. Offers plastic injection molded components for medical device OEMs and other industries. Provides consulting solutions to companies in the FDA regulated life sciences industry, including medical devices. Provides laser welding, cutting and marking services and writes validation protocols for medical device manufacturing. Designs, develops and manufactures injection molded parts for the medical components and other industries. Manufactures and supplies cold formed fasteners for OEMs in the medical device and other industries. Provides machining and assembly services to OEMs and contract manufacturers in the medical device industry. Develops and contract manufactures magnetic telecoils and miniature transducers for medical devices and other products. Manufactures custom molded rubber pharmaceutical packaging and medical device components. Manufactures plastic and metal parts, components and assemblies for the aerospace and medical device industry. Provides contract electronic assembly and manufacturing services to OEMs in medical, industrial and military markets. $269.0 $ x $ x $210.0 $ x $ x $315.0 $ x 8.2x $0.9 $23.0 LTM = last twelve months; EV = enterprise value Sources: Capstone Partners LLC research; Capital IQ; public filings and press releases Capstone Partners LLC 4

5 CAPSTONE PARTNERS: COMPLETED HEALTH & MEDICAL TRANSACTIONS a portfolio company of AUDAX GROUP, INC. Capstone Partners won the 2013 M&A Deal of the Year award for its work on the sale of Invo HealthCare, a provider of outsourced clinical services. Capstone also recently advised T DOC Company, LLC on its acquisition by LABORIE. T DOC is a manufacturer of diagnostic products, specializing in air charged disposable urodynamic catheters. T DOC was LABORIE, a portfolio company of Audax Private Equity and a leading global developer, manufacturer and marketer of innovative medical technology. The transaction expands T DOC s product offering and allows it to develop the air charged catheter market internationally. Russell Lalli, COO of T DOC, said Hats off to the Capstone team in ensuring this complex deal reached the finish line as well as for the effort they extended over several years serving as a valued strategic advisor to the Company. Capstone Partners has successfully advised on a number of transactions related to the sale of medical device contract manufacturers and OEMs. These and other health & medical transactions are shown below. has divested assets to has acquired has divested assets to has secured financing from CERTIFIED IT & ITRICITY FREEDOM DATA acquisition advisory a portfolio company of has divested assets to Capstone Partners LLC 5

6 THE PHARMACEUTICAL OUTSOURCING TEAM Eric Williams, (215) Eric serves as and Head of the Atlantic Region for Capstone, based out of Philadelphia. Prior to Capstone, Eric was responsible for managing the Eastern region for Morgan Stanley Smith Barney s Capital Strategies Group and its predecessor, Citi Capital Strategies. Eric has more than 20 years of experience managing strategic sale assignments and leveraged recapitalizations for owners of privately held companies. He is head of Capstone s Health and Medical practice and has successfully completed over 100 transactions in a wide range of industries including medical device, contract manufacturing, pharmaceutical outsourcing, health care services and education and training. In 2013, he received the M&A Deal of the Year M&A Advisor award for his work on the acquisition and majority recapitalization of Invo HealthCare Associates, Inc. He has also executed complex cross border transactions with foreign buyers based in London, Germany, Sweden, and Switzerland and has structured deals with leading private equity groups and strategic corporate buyers. He graduated cum laude from the University of California and is a Series 7 and 63 Registered Securities Representative as well as a Series 24 Registered Securities Principal. Mark Surowiak, Director msurowiak@capstonellc.com (215) Mark is a Director in the Philadelphia office, supporting the management of the Atlantic Region. Previously, Mark served over 10 years as a senior investment banking professional in Morgan Stanley Smith Barney s Capital Strategies Group. Over his career, Mark has focused on developing deep credentials and expertise in the sale and recapitalization of privately held businesses. Mr. Surowiak's experience spans a broad range of industries, including the consumer products, post secondary education, government and defense contracting, manufacturing, and outsourced business services sectors. Prior to investment banking, Mark enjoyed a career in the social services field. Mark is a graduate of Illinois State University with a BS in Business Administration. He is a Series 7 and 63 Registered Securities Representative. Daniel Schultz, Director of Business Development dschultz@capstonellc.com (617) Dan oversees Capstone s national business development and industry coverage activities, working closely with current and prospective clients of the firm on matters related to corporate sales, recapitalizations, mergers & acquisitions andgrowthfinancings. Inhisrole,Danisableto deliver specific market intelligence to clients regarding M&A, financing, strategic, industry and competitive trends. Prior to spearheading the firm s business development and market initiatives, he was a Vice President in Capstone s M&A group, managing numerous successful transactions across a variety of industries. Dan also gained hands on transaction experience as an investment banker at Headwaters MB. He started his career with Ernst & Young s National Professional AABS practice in New York and later worked in Assurance and Advisory Business Services in the Denver office. Dan received a BE in Biomedical Engineering with a Business Minor from Vanderbilt University. He earned an MBA and a Master of Accountancy from the Daniels College of Business at the University of Denver. Capstone Partners LLC 6

7 CAPSTONE S LEADERSHIP TEAM NATIONAL John Ferrara Founder, President (617) jferrara@capstonellc.com CHICAGO Ted Polk (312) tpolk@capstonellc.com LOS ANGELES David Bench (949) dbench@capstonellc.com SAN DIEGO & SILICON VALLEY David Michaels (858) dmichaels@capstonellc.com BOSTON Jacob Voorhees (617) jvoorhees@capstonellc.com LONDON John Snead jsnead@capstonellc.com PHILADELPHIA Eric Williams (215) ewilliams@capstonellc.com CORPORATE RESTRUCTURING Brian Davies (617) bdavies@capstonellc.com ABOUT CAPSTONE PARTNERS Capstone Partners LLC is a premier investment banking firm dedicated to serving the corporate finance needs of middle market business owners, investors and creditors. The firm provides corporate sale & divestiture, merger & acquisition, private placement, corporate restructuring, valuation and financial advisory services. Capstone maintains various industry specialties including one in the Health & Medical sector. The firm also has a merchant banking capability to actively co invest in transactions. Headquartered in Boston, Capstone has offices in Chicago, London, Los Angeles, Philadelphia, San Diego and Silicon Valley. For more information about our expertise, please visit World Class Wall Street Expertise. Built for the Middle Market Capstone Partners LLC. All rights reserved.