Macabacus Complex M&A Model

Ryan MacGregor
www.macabacus.com [email protected] 2014 Macabacus, LLC Built with Macabacus Macros

DISCLAIMER

LIMITATION OF WARRANTIES OF MACABACUS

LIMITATION OF LIABILITY OF MACABACUS

Built with Macabacus Macros.

Macabacus Complex M&A Model

Ryan MacGregor
www.macabacus.com [email protected] 2014 Macabacus, LLC Built with Macabacus Macros

DISCLAIMER
This model presents a hypothetical M&A transaction between two hypothetical companies. Any similarity between the financial metrics of these companies and actual companies is purely coincidental. Macabacus does not provide investment, accounting, or tax advice.

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EXCEPT AS OTHERWISE EXPRESSLY STATED, INCLUDING BUT NOT LIMITED TO IN A LICENSE OR OTHER AGREEMENT GOVERNING THE USE OF SPECIFIC CONTENT, ALL CONTENT IN THIS MODEL IS PROVIDED "AS IS," AND MACABACUS MAKES NO REPRESENTATIONS OR WARRANTIES, EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED TO WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, TITLE OR NON-INFRINGEMENT OF PROPRIETARY RIGHTS. WITHOUT LIMITING THE FOREGOING, MACABACUS MAKES NO REPRESENTATION OR WARRANTY THAT CONTENT IN THIS MODEL IS FREE FROM ERROR OR SUITABLE FOR ANY PURPOSE; NOR THAT THE USE OF SUCH CONTENT WILL NOT INFRINGE ANY THIRD PARTY COPYRIGHTS, TRADEMARKS OR OTHER INTELLECTUAL PROPERTY RIGHTS. YOU UNDERSTAND AND AGREE THAT YOU DOWNLOAD OR OTHERWISE OBTAIN CONTENT THROUGH MACABACUS' WEBSITES AT YOUR OWN DISCRETION AND RISK, AND THAT MACABACUS WILL HAVE NO LIABILITY OR RESPONSIBILITY FOR ANY DAMAGE TO YOUR COMPUTER SYSTEM OR DATA THAT RESULTS FROM THE DOWNLOAD OR USE OF SUCH CONTENT. SOME JURISDICTIONS MAY NOT ALLOW THE EXCLUSION OF IMPLIED WARRANTIES, SO SOME OF THE ABOVE LIMITATIONS MAY NOT APPLY TO

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Inputs

SCENARIO SELECTOR

9
Active Scenario Contemplated Scenarios 5 25.0% 50.0%

1 20.0% 50.0%

2 25.0% 50.0%

3 30.0% 50.0%

6 25.0% 100.0%

7 25.0% 50.0%

8 25.0% 50.0%

9 25.0% 50.0%

Purchase price & consideration Offer premium to market Cash consideration (%) Synergies Annual revenue syergies COGS savings SG&A savings Acquisition financing Senior credit facility 3 Subordinated note 3 Convertible bond 3 Preferred stock 3 Common stock issuance Optional revolver pay-down? Retire existing TargetCo debt close? Senior credit facility 2 Subordinated note 2 Convertible bond 2 Preferred stock 2 Convert convertible bonds at close if ITM? Convert convertible preferreds at close if ITM? Roll over TargetCo options (0=liquidate, 1=roll over)?

25.0% 50.0%

25.0%

$10.0 5.0% 20.0%

$10.0 5.0% 20.0%

$10.0 5.0% 20.0%

$10.0 5.0% 20.0%

$10.0 5.0% 20.0%

$10.0 5.0% 20.0%

$10.0 5.0% 20.0%

$10.0 5.0% 20.0%

$10.0 5.0% 20.0%

$10.0 5.0% 20.0%

$75.0 $125.0 $75.0 Yes

No

No

No

No

No

No

$75.0 Yes

$75.0 $125.0 Yes

$75.0 $125.0 $75.0 Yes

Yes Yes Yes Yes Yes Yes No

No No No No No No No

No No No No No No No

No No No No No No No

No No No No No No No

No No No No No No No

No No No No No No No

Yes Yes Yes Yes Yes Yes No

Yes Yes Yes Yes Yes Yes No

Yes Yes Yes Yes Yes Yes No

General Assumptions Acquirer name Target name Current BuyerCo stock price Current TargetCo stock price Transaction close date Model currency Currency symbol Deal Structure Stock purchase (0=asset, 1=stock)? Section 338 election? Carryover tax basis? Tax Assumptions BuyerCo tax rate IRS long-term tax-exempt rate Miscellaneous Transaction costs expensed at close Minimum pro forma cash balance Average interest? $30.0 $1,400.0 No 35.0% 2.83% Yes No Yes BuyerCo TargetCo $31.71 $9.16 6/30/13 USD $

Revenue Synergies & Cost Savings Realization Revenue synergies realization first 12 months after close Revenue synergies realization second 12 months after close COGS savings realization first 12 months after close COGS savings realization second 12 months after close SG&A savings realization first 12 months after close SG&A savings realization second 12 months after close Restructuring Charges Total restructuring charge (pre-tax) Restructuring costs realization at close Restructuring costs realization first 12 months after close Restructuring costs realization second 12 months after close Third Party Financing Debt issuance fee Preferred equity issuance fee Common equity issuance fee Common equity issuance discount Pro Forma Depreciation & Amortization Depreciation period for fixed asset write-ups (yrs) book Depreciation period for fixed asset write-ups (yrs) tax Amortization period for identifiable intangible write-ups (yrs) book Amortization period for identifiable intangible write-ups (yrs) tax Amortization period for goodwill created in deal (yrs) tax 7.0 9.0 5.0 15.0 15.0 3.00% 3.00% 3.00% 4.00% $200.0 25.0% 50.0% 25.0% 50.0% 100.0% 50.0% 100.0% 50.0% 100.0%

Page 3 of 8

Close

Transaction Closing Calculations

($ and shares in millions, except per share amounts)

Purchase Price Current TargetCo stock price Offer premium to market Offer price per share ( / ) Current BuyerCo stock price Exchange ratio Roll over TargetCo options? TargetCo basic shares outstanding (BSO) ( + ) In-the-money TargetCo options liquidated ( + ) TargetCo convertible shares converted TargetCo fully diluted shares outstanding (FDSO) ( x ) Offer price per TargetCo share Equity purchase price ( ) Proceeds from liquidation of TargetCo options ( + ) Fair value of TargetCo options rolled over Purchase price ( + ) Non-convertible debt & preferred stock ( + ) Convertible debt & preferred stock ( + ) Capital leases ( + ) Noncontrolling interests ( ) Equity investments ( ) Cash & cash equivalents Enterprise value Valuation Multiples 2013 Revenue multiple 2014 Revenue multiple 2013 EBITDA multiple 2014 EBITDA multiple 2013 EBIT multiple 2014 EBIT multiple 2013 P / E multiple 2014 P / E multiple Market 0.83x 0.82x 3.06x 3.07x 4.29x 4.32x 8.03x 8.06x

$9.16 25.0% $11.45 31.71 0.3611x No 35.340 0.522 35.862 $11.45 $410.6 (4.9) 405.8 45.5 194.5 (187.3) $458.5

Sources & Uses Sources Cash BuyerCo common stock Proceeds from liquidation of TargetCo options BuyerCo rollover options BuyerCo revolver draw-down Third party financing Total sources Uses Cash consideration Stock consideration Equity purchase price BuyerCo rollover options TargetCo revolver pay-off Senior credit facility 2 retired Subordinated note 2 retired Convertible bond 2 retired Preferred stock 2 retired Total TargetCo debt & preferred retired BuyerCo revolver pay-down Prepayment penalties Financing fees Transaction costs expensed at close Restructuring charge at close Total uses Cash Schedule Cash available BuyerCo existing cash TargetCo existing cash ( + ) New sources of cash ( ) Minimum pro forma cash balance Total cash available Cash needed Cash consideration TargetCo debt & preferred retired Restructuring charge at close Prepayment penalties Financing fees Advisory fees Cash needed before revolver pay-down Optional pay-down of BuyerCo revolver Total cash used

$21.7 205.3 4.9 236.8 275.0 $743.7

Section 382 Limitation Purchase price ( x ) IRS long-term tax-exempt rate Annual Section 382 NOL deduction limitation ( x ) Tax rate (A) Max. annual DTA utilization under Section 382 ( x ) Max. NOL carry-forward period (yrs) (B) Realizable tax benefit under Section 382 (C) Target's existing DTA attributable to NOLs (D) Total DTA subject to Section 382 (min. of C and B)

$405.8 2.83% $11.5 35.0% $4.0 14.5 $58.3 $12.2 12.2

$205.3 205.3 410.6 45.5 194.5 240.0 4.8 8.3 30.0 50.0 $743.7

Transaction DTA / DTL DTL from write-up/down of assets/liabilities Write off DTL related to purch. accnt. intangibles Transaction DTL DTA from write-down/up of assets/liabilities Write down DTA attributable to NOL (Section 382) Transaction DTA Purchase Price Allocation Purchase price ( + ) FV of noncontrolling interests ( ) Book value Excess purchase price to allocate Write off existing goodwill Write off purch. accounting-related intangibles Fair value adjustments Transaction DTL Transaction DTA ( ) Book value adjustments Excess purchase price after allocation ( + ) Bargain purchase gain Goodwill created Restructuring Charge at Close Total restructuring charge (pre-tax) ( x ) Restructuring charge realized at close Restructuring charge at close (pre-tax) Model Checks Sources equal uses of funds Cash used does not exceed cash available Transaction balance sheet balances Pro forma balance sheet balances BuyerCo standalone balance sheet balances TargetCo standalone balance sheet balances Pro forma revolver not overdrawn

$28.6 $28.6

Offer 0.98x 0.97x 3.62x 3.64x 5.08x 5.12x 10.07x 10.10x

$1,234.4 187.3 516.7 (1,400.0) $538.4

$405.8 (138.7) 267.1 (61.1) 81.8 (28.6) (7.9) 275.0 $275.0

Pro Forma FDSO at Close BuyerCo standalone FDSO ( + ) BuyerCo shares issued as consideration to seller ( + ) BuyerCo shares issued to third parties ( + ) TargetCo options rolled over (Treasury Method) ( + ) BuyerCo warrants issued (Treasury Method) Pro forma FDSO Existing BuyerCo shareholder pro forma ownership

219.330 6.475 2.460 228.264 96.1%

Yes

$205.3 240.0 50.0 4.8 8.3 30.0 538.4 $538.4

$200.0 25.0% $50.0

TargetCo Fair Value Adjustments Excess purch. price allocated to identifiable intangibles (%) Asset / Liability PP&E Identifiable intangibles [Asset 3] [Liability 1] [Liability 2] [Liability 3] Total TargetCo Stock Options TargetCo Options Outstanding Number of Options 0.402 0.120 0.466 0.300 0.520 0.422 0.375 Average Strike $9.13 9.93 11.60 12.64 19.48 27.03 45.78 Asset? Yes Yes Yes No No No

25.0% BV at Close $51.1 FV at Close $66.1 66.8 FV Mark $15.0 66.8 DTA Created DTL Created $5.3 23.4 $28.6

OK OK OK OK OK OK OK

Liquidation In-the-money Options 0.402 0.120 0.522 Proceeds in Liquidation $3.7 1.2 $4.9 Replacement BuyerCo Options 0.145 0.043 0.168 0.108 0.188 0.152 0.135

Rollover New Avg. Strike $25.28 27.50 32.13 35.01 53.95 74.86 126.78 Treasury Method 0.029 0.006 0.035 Intrinsic Value $0.9 0.2 $1.1

Tranche 1 Tranche 2 Tranche 3 Tranche 4 Tranche 5 Tranche 6 Tranche 7 Tranche 8 Tranche 9 Tranche 10 Total Third Party Financing

Senior credit facility 3 Subordinated note 3 Convertible bond 3 Preferred stock 3 Common stock Total third party financing

Debt Instrument? Yes Yes Yes No No

Gross Issuance $75.0 125.0 75.0 $275.0

Issuance Fee (%) 3.00% 3.00% 3.00% 3.00% 3.00%

Capitalized Fee Amortization (yrs) 5.0 7.0 7.0 NA NA

Capitalized Issuance Fees $2.3 $2.3

Issuance Fees Netted Against Proceeds 3.8 2.3 $6.0

Net Proceeds $75.0 121.3 72.8 $269.0

TargetCo Debt & Preferred Stock Conversion & Repayment Pre-Conversion Face Is Security Value Convertible? Senior credit facility 2 No Subordinated note 2 $45.5 No Convertible bond 2 $194.5 Yes Preferred stock 2 No Total

Conversion Price $26.77

Convertible Shares 7.266

Conversion In-the-Money Convert at at Offer Price? Close if ITM? No Yes No Yes No Yes No Yes

Is Security Converted? No No No No

Converted Shares

Additional Paid-in Capital

Post-Conversion Face Value $45.5 $194.5

Repay Debt? Yes Yes Yes Yes

Repayment Prepayment Penalty (%) 2.00% 2.00% 2.00% 2.00%

Prepayment Penalty ($mm) $0.9 $3.9 $4.8

Post-Repayment Face Value

Transaction balance sheet

($ in millions)

BuyerCo Standalone 6/30/13

TargetCo Standalone 6/30/13

Write Off Purch. Accnt. Intang.

Fair Value Adjustments Fair Value New Net DTL Marks (pre-tax) from FV Marks

Fair Value of Acquired Balance Sheet

Purchase Accounting Adjustments

Acquired Incremental Balance Sheet

Transaction & Restructuring Charges at Close

Balance Sheet Restructuring

Debt Issuance

Third Party Financing Preferred Issuance

Common Issuance

Pro Forma Incremental Balance Sheet

Pro Forma Consolidated Balance Sheet

Total Adjustments

Assets Cash and equivalents Accounts receivable Inventory Deferred tax asset, current Other current assets Total current assets PP&E, gross ( ) Accumulated depreciation PP&E, net Goodwill Purchase accounting-related intangibles Other intangible assets Equity investments Unearned compensation Capitalized debt financing costs Other assets Total assets Liabilities & Shareholders' Equity Accounts payable Accrued expenses Client deposits Income taxes payable Deferred revenue Other current liabilities Current portion of long-term debt Total current liabilities BuyerCo revolver Senior credit facility 1 Subordinated note 1 Convertible bond 1 Total BuyerCo debt TargetCo revolver Senior credit facility 2 Subordinated note 2 Convertible bond 2 Total TargetCo debt Senior credit facility 3 Subordinated note 3 Convertible bond 3 New debt issued Net deferred tax liability / (asset) Other liabilities Total liabilities Noncontrolling interest Preferred stock 1 Preferred stock 2 Preferred stock 3 Common stock, par value Additional paid-in capital (APIC) Treasury stock Accum. & other comp. income / (loss) Retained earnings Total liabilities & shareholders' equity Shares Outstanding Basic shares outstanding (mm) Fully diluted shares outstanding (mm) Check 216.443 219.330 35.340 35.343 35.340 35.343 (28.865) (28.868) 6.475 6.475 6.475 6.475 222.918 225.805 $217.0 460.9 41.8 247.9 2.2 969.7 471.4 471.4 503.0 1,944.1 3.9 2,239.6 (774.7) 6.6 1,427.6 $4,847.0 $22.0 16.4 3.1 21.2 38.6 101.3 45.5 194.5 240.0 (2.6) 17.9 356.6 0.6 371.4 (667.9) (0.4) 434.9 $495.3 $22.0 16.4 3.1 21.2 38.6 101.3 45.5 194.5 240.0 $22.0 16.4 3.1 21.2 38.6 101.3 45.5 194.5 240.0 $22.0 16.4 3.1 21.2 38.6 101.3 236.8 236.8 75.0 75.0 26.8 17.9 457.8 125.0 274.3 (55.1) $802.0 $239.0 477.3 45.0 269.1 38.6 2.2 1,071.1 236.8 471.4 708.2 75.0 75.0 26.8 520.9 2,401.9 125.0 3.9 2,513.9 (774.7) 6.6 1,372.5 $5,649.0 236.8 236.8 (45.5) (194.5) (240.0) 75.0 75.0 29.4 101.2 125.0 (0.6) (97.1) 667.9 0.4 (490.0) $306.7 $1,234.4 673.5 129.1 143.9 2,180.9 517.6 (56.8) 460.7 1,487.6 253.7 464.0 $4,847.0 $187.3 144.9 9.4 8.8 350.3 51.1 (13.1) 38.0 61.1 31.7 14.3 $495.3 $187.3 144.9 9.4 8.8 350.3 66.1 (13.1) 53.0 66.8 31.7 14.3 $516.0 ($200.4) ($13.1) 144.9 9.4 8.8 149.8 66.1 (13.1) 53.0 275.0 66.8 31.7 14.3 $590.6 ($52.0) ($6.3) $73.5 $121.3 $72.8 $196.1 144.9 9.4 8.8 359.1 66.1 (13.1) 53.0 275.0 66.8 31.7 2.3 14.3 $802.0 $1,430.5 818.3 138.4 152.7 2,539.9 583.6 (69.9) 513.7 1,762.6 66.8 285.4 2.3 478.3 $5,649.0 $8.8 8.8 15.0 15.0 213.9 66.8 2.3 $306.7

15.0 15.0 66.8

(200.4)

(52.0)

(6.3)

73.5

121.3

72.8

(61.1)

275.0

2.3 ($52.0) ($6.3) $75.8 $121.3 $72.8

($61.1)

$81.8

$74.6

236.8

236.8 (45.5) (194.5) (240.0)

28.6 28.6

$28.6

26.0 17.9 385.3 0.6 371.4 (667.9) (0.4) 434.9 $524.0

(0.6) (166.1) 667.9 0.4 (434.9) $66.6

26.0 17.9 385.3 205.3 $590.6

(3.2)

75.0 75.0 0.8 75.8

125.0 (3.8) 72.8

(52.0) ($52.0)

(3.1) ($6.3)

$75.8

$121.3

$72.8

Page 4 of 8

Pro Forma x x x x x x x x x x x x

Income Statement Balance Sheet Cash Flow Statement Working Capital Equity Investments Debt Schedule Depreciation Schedule Amortization Schedule Tax Schedule Revenue Synergies, Cost Savings, and Restructuring Costs Amortization of Capitalized Debt Financing Costs Summary Credit Metrics

Page 5 of 8

Acquirer x x x x x x x x x x

BuyerCo Income Statement BuyerCo Balance Sheet BuyerCo Cash Flow Statement BuyerCo Working Capital BuyerCo Equity Investments BuyerCo Debt Schedule BuyerCo Depreciation Schedule BuyerCo Tax Schedule BuyerCo Shares Outstanding BuyerCo Summary Credit Metrics

Page 6 of 8

Target x x x x x x x x x x x

TargetCo Income Statement TargetCo Balance Sheet TargetCo Cash Flow Statement TargetCo Working Capital TargetCo Equity Investments TargetCo Debt Schedule TargetCo Depreciation Schedule TargetCo Tax Schedule TargetCo Shares Outstanding TargetCo Summary Credit Metrics TargetCo Acquisition Multiple Matrix

Page 7 of 8

Modified Accelerated Cost Recovery System (MACRS)

Year 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 Total 3 33.33% 44.45% 14.81% 7.41% 5 20.00% 32.00% 19.20% 11.52% 11.52% 5.76% Property Class 7 10 14.29% 24.49% 17.49% 12.49% 8.93% 8.92% 8.93% 4.46% 10.00% 18.00% 14.40% 11.52% 9.22% 7.37% 6.55% 6.55% 6.56% 6.55% 3.28% 15 5.00% 9.50% 8.55% 7.70% 6.93% 6.23% 5.90% 5.90% 5.91% 5.90% 5.91% 5.90% 5.91% 5.90% 5.91% 2.95% 20 3.75% 7.22% 6.68% 6.18% 5.71% 5.29% 4.89% 4.52% 4.46% 4.46% 4.46% 4.46% 4.46% 4.46% 4.46% 4.46% 4.46% 4.46% 4.46% 4.46% 2.23% 100.00%

100.00%

100.00%

100.00%

100.00%

100.00%

Source: IRS Publication 946, Table A-1.