An Inside Look at M&A in F&I The Evolution of National Auto Care.

An Inside Look at M&A in F&I

The Evolution of National Auto Care

Agenda

• Introduction to Trivest• M&A in F&I• The NAC / FFDS Merger• Lessons Learned from M&A in F&I• Questions & Answers

Introduction to Trivest

Introduction

Jorge A. Gross, Jr.Principal• 10 years at Trivest• Responsible for originating, executing and monitoring investments• Involved in over 20 transactions totaling more than $600 million in value• Current Board member of National Auto Care, GetixHealth and Northfield• Previously with Credit Suisse First Boston• B.A., Columbia University• M.B.A, The Wharton School of the University of Pennsylvania

Est. 1981

FL

Unparalleled Flexibility

Est. 1981

Oldest PE Firm in the Southeast U.S.

Founder / Family-Owned Focus

Lower Middle Market Specialists

200 Transactions / $5.0 Billion in Value

Experienced Deal Team

Key InvestorsKey InvestorsKey Investors

$415,000,000

The following appears as a matter of record only

A partnership formed to invest infounder/family owned businesses

April 2013

Trivest Fund V, L.P.

1

10 Trivest Founders

Invested in Fund V

Relationship Oriented

NotableNotable

Trivest’s Committed Capital

Investment Criteria

Investment Type

Target (Platforms)

Geography

Company Size

Sector Focus

Founder/Family Owned

Control Investments

United States & Canada

Revenues: $20 million and upEBITDA: $4 million and up

¨ Business Services¨ Consumer ¨ Manufacturing / Distribution

Electric FireplacesDelray Beach, FL

Window TreatmentsNew York, NY

Outsourced RCM SolutionsHouston, TX

Quick Service Oil ChangesNew Orleans, LA

F&I Products AdministratorJacksonville, FL

Systems IntegratorAtlanta, GA

Car Wash Service / EquipmentDes Moines, IA

Industrial Component ManufacturerSchaumburg, IL

Freeze Dried FoodSalt Lake City, UT

Auto Air FreshenersSalt Lake City, UT

Water Purification ProductsDeLand, FL

OEM Part SupplierWaukesha, WI

Seafood DistributionPompano Beach, FL

Scrap Recycler IntermediaryColumbus, MS

Litigation Support ServicesIrvine, CA

Automated Retail KiosksNew York, NY

16 Portfolio Companies

2,500+ Employees

$1.2 Billion in Sales

ALL Founder/Family Owned at Investment

M&A in F&I

The M&A Process

“Today” “Second Sale”

Signed LOI

“Pre-LOI Phase”

15 – 30 Days

“Confirmatory Due Diligence”

60-75 Days

Transaction Closing

3 - 5 Years

“Investment Period”

Company

TTM Net Income $25 Million

Market Cap

$600 Million LOSS

$2 Billion $18 Billion

Today’s Value Driven By Future Outlook

TTM Revenue $1.6 billion $1.8 Billion

A Tale of Two Media Companies

Public vs. Private

Driven By Future Growth + Past/Present State

Driven Only By Future Growth

Private Company Values

Public Company Values

Past/Present Strong Projections

Maximum Value

Valuation Principles

Valuation Principles

ArtScience vs.• Precedent transactions• Public comps• Discounted Cash Flow• LBO Model

• Growth opportunities• Management team• Differentiation• Brand/Reputation

Determine the Range

Math

Where in the Range

Intangibles

Valuation ConsiderationsPurchase Price Considerations

Past Performance

Customer Concentration Cyclicality

Growth Prospects

Industry Dynamics

Competitive Landscape

Depth of Management

Needed Investments in Company

Cash Generation

The M&A Process

“Today” “Second Sale”

Signed LOI

“Pre-LOI Phase”

15 – 30 Days

“Confirmatory Due Diligence”

60-75 Days

Transaction Closing

3 - 5 Years

“Investment Period”

Due Diligence ProcessKey InvestorsKey Diligence AreasKey Diligence Areas

• Quality of Earnings and tax reviewAccounting

• Analysis of reserves and loss experienceActuarial

• Review of legal documents, licenses, records, etc.Legal

• Understand market dynamics, opportunities and threatsIndustry

• Owners and key managersBackground Checks

• Review status of insurance in place at the CompanyInsurance / Benefits

• Survey/customer calls to ensure the Company is in good standing with key customersCustomers

Diligence Timeline

S M T W T F S S M T W T F S S M T W T F S

1 2 3 4 5 1 2 3 1 2 3 4 5 6 7

6 7 8 9 10 11 12 4 5 6 7 8 9 10 8 9 10 11 12 13 14

13 14 15 16 17 18 19 11 12 13 14 15 16 17 15 16 17 18 19 20 21

20 21 22 23 24 25 26 18 19 20 21 22 23 24 22 23 24 25 26 27 28

27 28 29 30 25 26 27 28 29 30 31 29 30

Start Date

End Date

Holiday

September October NovemberTasks To Be Completed 14 21 28 5 12 19 26 2 9 16 23 30

Sign Letter of Intent

Diligence Kick-Off Meetings

Compilation of Due Diligence Request Items

Business Due Diligence (Including On-Site Visits)

Background Checks

Quality of Earnings & Tax Analysis (Including 2-3 Days On-Site)

Third Party Market Study

Actuarial Study

Insurance & Benefits Review

Operations Review

Legal Due Diligence Review

Distribute Draft Purchase Agreement

Finalize Purchase Agreement

Closing & Funding

Trivest ChecklistNo "Single Event" Risk……………………………………………………………………………………..

Management: Customers:

Management team filled with A-players…………………………………………………………………..Diverse customer base (no significant concentration)…………………………History of taking market share…………………………………………………………………………….Strong/longstanding customer relationships……………..……………………………….No concentration of institutional knowledge/customer relationships…………………… Strong customer retention / "sticky customers"……………………………………..Track record of managing through challenges……………………………………………………No Founder transition issues………………………………………………………………………….Supply chain:

Diverse supplier/partner base (no significant concentration)………………………………..Business: Strong partner relationships / "buying power" w/vendors……………………Differentiated products/services…………………………………………………………………………Diverse offering of products/services…………………………………………………………………….Sales:

Defensible market niche…………...……………………………………………………………………………………………………Robust sales/marketing capabilities………………………………………………………..Significant market share…………...……………………………………………………………………………………………………Compelling value proposition…………...……………………………………………………………………………………………………Other:

Attractive cash flow characteristics……………………………………………………………………No outstanding litigation…………………………………………………………………………..High barriers to entry……………………………………………………………………………………….Stable competitive environment……………………………………………………………Identifiable areas for continued growth……………………………………………………………..Clean from an environmental standpoint………………………………………………………..Scalability………………………………………………………………………………………………………………Reputation in the industry…………………………………………………………………………….

Strong claims process………………………………………………………………………………………….Financial: Solid Loss Experience………………………………………………………………………………………….Historical sales growth…………………………………………………………………………………….Historical EBITDA growth…………………………………………………………………………………..Consistent margins (increasing not declining)………………………………………………………Strong financial reporting…………………………………………………………………………………….Robust/accurate budgeting/forecasting capabilities………………………………………High free cash flow (ability to pay down debt)…………………………………………………….

F&I: A Lot to Like

Strong Cash Flow Sticky Customers Diverse Customer Base

Profit Center Scalable Fragmented Market Buyer Interest

F&I: Buyer Beware

Regulatory Environment Underwriting Risk Projection-based Business

Cyclicality Low Barriers to Entry High Competition Severities

Value Drivers in F&I

Diversity

Customers

Products

Geographies

Consistency

Sales

Losses

Customers

Experience

Loss Ratios

Cancellations

Severities

Contracts

Underwriters

Dealers

Agents

Programs

Unique

Differentiated

Valuable

Leadership

Knowledgeable

Trustworthy

Credible

The NAC / FFDS Merger

Opposites Attract

• Long-standing• Stable• Conservative• Exclusively VSC• Westerville, OH• Buckeye Fans

• Newly Established• Innovative• Young & Energetic• Multiple products• Ponte Vedra, FL• Gators & Canes Fans

Strategic Rationale

• Scale • Pricing model• Diversity

• Technology• Claims

• Full product suite• Cross-selling• New customers

• Talent• Expertise• Complementary

Team Sales

OperatingLeverage

Redundancy

Key ConsiderationsPeople & Culture

Carriers

Systems

Sales Channels

Customers

Products

Admin Services

Project Plan Ownership Goals Timeline Measure

Integration Plan

Leadership

Communication

Lessons Learned from M&A in F&I

Lessons Learned

• Information is power• Not all TPAs are created equal• Mix matters• Compliance above all else• Growth is hard• Earnings curves don’t tell the whole story

Q&AThank you!