Second Annual Conference September 16, 2015 to September 18, 2015 Chicago, IL

Second Annual Conference September 16, 2015 to September 18, 2015 Chicago, IL

Mergers and Acquisitions Primer for Service Contract Providers Brian T. Casey, Esq. Partner, Co-Chair Regulatory & Transactions Insurance Practice Group Christopher L. Gillock Managing Director and CEO, Colonnade Securities, LLC Dominic Hood Vice President, Flexpoint Ford September 18, 2015 2

Why Investors Like Service Contract Providers Strong cash flow Sticky customers Diverse customer base Fragmented, but large market - $40 billion p.a. Important product for customers Scalable Good exit options 3

Valuations of Service Contract Providers the Science and the Art Science Comparable transactions Value of comparable public companies Discounted cash flow analysis Leverage buyout model Art Growth opportunities Quality and depth of management Product/strategy differentiation Brand and reputation Math = valuation range Intangibles = location in the range 4

The Deal Process - Preparation 2 3 years prior to targeted sale date Accounting financial reporting, audits, pro forma financial adjustments Legal documentation of ownership, governance, records, resolution of disputes Operations documentation of all policies and procedures, budgets, business plans 5

The Deal Process - Execution Phase I 1 Due diligence by advisor 2 Data collection and review 3 Due diligence meeting with senior managers and owners 4 Develop sale strategy 5 Review and amend potential buyers list 6 Prepare offering materials 7 Create and finalize financial model 8 Prepare confidentiality / non-solicitation agreement Week 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 Phase II 1 Initiate calls with potential buyers (no name basis) 2 Obtain signed confidentiality / non-solicitation agreements 3 Distribute offering materials 4 Respond to initial questions 5 Prepare and rehearse management presentation 6 Populate electronic data room 7 Solicit preliminary indications of interest Phase III 1 Review indications and select participants 2 Arrange due diligence visits 3 Open data room to select participants 4 Prepare purchase agreement (or term sheet) 5 Conduct meetings with potential buyers 6 Distribute purchase agreement (or term sheet) with bid instructions 7 Answer follow on questions 8 Receive final offers with marked contract Phase IV 1 Negotiate terms with final participants and select winner 2 Final buyer due diligence ---> 3 Finalize and execute definitive agreement ---> 4 File with regulators (as necessary) and close ---> 6

Due Diligence Areas Accounting: Quality of earnings, tax analysis Actuarial: reserves and losses Legal: Documentation, records, lawsuits Industry: Competitive dynamics, opportunities, threats, 3 rd party market study Regulatory: Compliance, exposure to enforcement action by regulators Background checks: Owners and key executives Insurance/benefits: risk retention pools, reinsurance arrangements, captives Customers: Interviews and surveys of customers/clients 7

Alternative transactions Strategic buyer Clean exit for seller Integration and cost takeouts likely Focus on synergies No formal exit strategy Financial Buyer Seller expected to roll-over some equity Employment contracts required Focus on core market growth via organic means and acquisition Clear exit strategy in the 4 7 year time horizon 8

Earn-Outs and Holdbacks What is an earn-out? When is an earn-out used? What is a holdback? When is a holdback used? Key considerations from the seller s perspective Key considerations from the buyer s perspective Income tax considerations 9

Post-Deal Life of Service Contract Provider Integration and reorientation Governance Budgets and forecasts Add-on acquisitions Management of leverage/bank debt Preparing for the exit 10

QUESTIONS? ANSWERS! Contact Information: Brian T. Casey, Esq. Locke Lord LLP Terminus 200 3333 Piedmont Rd., NE Suite 1200 Atlanta, GA 30305 Direct: 404.870.4638 Fax: 404.806.5638 Email: bcasey@lockelord.com Christopher L. Gillock Colonnade Advisors, LLC 125 South Wacker Drive Suite 3020 Chicago, IL 60606 Direct: 312.870.6212 Email: cgillock@coladv.com Dominic Hood Flexpoint Ford 676 North Michigan Avenue 33 rd Floor Chicago, IL 60611 Direct: 312.327.4520 Fax: 312.327.4525 Email: dhood@flexpointford.com DISCLAIMER: Mr. Casey and Locke Lord LLP ( LL ) disclaim all liability whatsoever in relation to any materials or information provided at this event. In addition, any written materials or other information provided by Mr. Casey or LL, and any presentations made generally to the participants at this event, are solely for informational purposes; they do not, nor are they intended to, constitute legal advice or create an attorney-client relationship.