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Exit Planning for Education Companies

Richard JackimMidCap Advisors, LLC

MidCap Advisors, LLC - The Education Specialists

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M&A activity in the educational segment is slowly rebounding after a lull in 2009 & 2010.

Over 140 transactions were closed in 2010 and 2011 with a total value of just over $4 billion.

The M&A Market

MidCap Advisors, LLC - The Education Specialists

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Strategic Buyers◦ Bought 68% of the schools sold in 2010 and 2011

Financial Buyers◦ Bought 32% of the schools sold in 2010 and 2011

Who’s Buying Whom?And the Pros and Cons of Each

MidCap Advisors, LLC - The Education Specialists

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Noteworthy Recent Transactions

Seller Buyer Purchase Price

Peer2Peer Tutors, Inc. Aristotle Circle, Inc. Undisclosed

Carrick Education Pearson Est. $60 million

TutorVista Pearson $127 million

Franklyn Scholar Kaplan Inc. Est. $18 million

SkillSoft Bain Capital $1.1 billion

Acron Care & Education Ontario Teachers Pension Plan $245 million

Ross Learning JLL Partners $232 million

Plato Learning Thoma Bravo $137 million

Melorio Pearson $108 million

Saf-T-Net Blackboard $34 million

Perform Tech GP Strategies $15 million

MidCap Advisors, LLC - The Education Specialists

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Education companies with revenues of less than$25 million accounted for 95% of total education deals

75% of education and training companies sold between 2001 and 2012 had revenues of $5 million or less

Small & Midsize Schools Dominate the Market

MidCap Advisors, LLC - The Education Specialists

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<$10M

M

$10-

20MM

$20-

40MM

$40-

80MM

$80-

160M

M

>$160

MM

0

0.2

0.4

0.6

0.8

1

1.2

1.4

1.6

1.8

2

1

1.2

1.6

1.4

1.61.8

Revenue Multiple

Revenue Multiple

Median Price to Revenue MultiplesBy Revenue Size (Source: CapitalIQ)

MidCap Advisors, LLC - The Education Specialists

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Exit Planning, The Key to Success

MidCap Advisors, LLC - The Education Specialists

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50% of privately held companies will experience a change of ownership over the next 15 years.

Source: Studies by MassMutual, Marquette University, Exit Planning Institute, ROCG Consulting, et. al.

8 out of 10 small businesses will either be undervalued or unsalable.Source: Source: Studies by U.S. SBA, IBBA, & Exit Planning Institute

75% of owners were unhappy 12 months after selling their companiesSource: Source: Study by PriceWaterhouseCoopers, Whose Business is it Anyway?

WHY???

Macro Conditions

MidCap Advisors, LLC - The Education Specialists

Exit Planning in a Nutshell

7 Steps in a Successful Exit Planning

1. Goals: Articulation & Alignment

2. Financial Needs

3. Business Valuation

4. Value Enhancement

5. Exit Options

6. Net Proceeds

7. Action Plans

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Exiting Planning Process: 0 to 5 years

Sales Process: 6 months to 1 year

Transition Period: 0 to 2 years

Seller Financing: 0 to 5 years

In Total: 6 months to 8 years

The less time you take, the fewer options you have.

Timing

MidCap Advisors, LLC - The Education Specialists

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EXECUTION PROCESS AND TIMING

PLANNING

MARKETING• Approach Potential Investors or Acquirers;

Identify Most Interested Parties; Receive Indications of Interest.

• Management Presentations; Conduct Investor Tours; Provide Additional Information; Pre-negotiate Key Contract Terms; Analyze Formal Offers; Conduct Final “Auction.”

• Sign Agreement; Close Transaction.

• Structure Transaction; Negotiate Agreement.

• Pre-sale valuation analysis. Define Strategy; Prepare Marketing Documentation; Valuation Parameters; Identify and Analyze Key Potential Investors or Acquirers.

MANAGEMENT PRESENTATIONS

STRUCTURING AND NEGOTIATING

DUE DILIGENCE/CLOSING

-------------------------Week-------------------------------------------------Week------------------------

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

For capital raises and sell side engagements

MidCap Advisors, LLC - The Education Specialists

Why Now May Be The Right Time to Get Started…

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Private equity groups have a record setting $458 BILLION to invest – the largest amount since 1998.

MidCap Advisors, LLC - The Education Specialists

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010*-$100,000

$0

$100,000

$200,000

$300,000

$400,000

$140,911$170,005

$205,038$206,989

$407,995$458

Overhang (Running Total) Equity Invested ($B) Capital Raised by Funds ($B)Source: PitchBook

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Questions….

Contact:

Richard JackimManaging DirectorEducation Group

MidCap Advisors, LLC

Phone  224-513-5142Cell       847-682-4997Fax        224-330-1828

rich.jackim@midcapadvisors.com

www.midcapadvisors.com

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