GrowthStep M&A Corporate Development Services Methodology

GrowthStep™ IntroductionGrowthStep™ IntroductionThe Playbook for Revenue Growth in 2013 and Beyond

© 2011 Ephor Group | 1 (800) 379-9330 | www.ephorgroup.com | 5353 W Alabama Suite 300 | Houston, TX 77056FlightPlan | GrowthSTEP™ | Management Science | BoardWalk™

GrowthStep™ OverviewEphor Group’s Corporate Development Process.GrowthStep℠ was developed in the mid-90’s toprovide “asset light” technology, software, and BPO

Congratulations! Your company is doing great and you are growing Sales are moving incrementally up the scale and provide asset light technology, software, and BPO

service businesses a specific expertise andmethodology exclusively focused on growth throughmultiples routes to market.

growing. Sales are moving incrementally up the scale and outperforming your sales projections. But now you face a new set of challenges.

•Do you need to diversify and grow your revenue sources?•Are your revenue systems scalable? •What is the best plan for expansion? Portfolio/Geographic? GrowthStep℠ methodology combines a precise and

highly focused approach, delivered with deepdomain experience by results proven “C” levelexecutives, resulting in the achievement of thegrowth and corporate development objectives of ourclient company.GrowthStep’s approach ensures growth is accretive

What is the best plan for expansion? Portfolio/Geographic?

Our goal is to ensure you achieve both immediate and sustainable results. Our approach puts capabilities in place that allow you to naturally and effectively handle the changes that occur in the evolution of your business.

to valuations and realizes the necessary timelines.GrowthSTEP takes a holistic inventory of yourcompany’s margins and growth opportunitiesagainst your market and competitive landscape todetermine the best revenue strategies for growth..Fundamental to our success is our structuredapproach to creating business models that fulfill

l ti d d O haccelerating demand curves. Our approachincludes:

1) Routes to Market Portfolio Approach2) M&A Corporate Development3) Expansion: Geographic &/or

Product/Solutions4) A market analysis an investment plan and 4) A market analysis, an investment plan, and

the management playbook including all the strategy, execution actions, and detailed business model tactics to creates wealth.

© 2013 Ephor Group | www.ephorgroup.com | 24 E. Greenway Plaza Suite 440 | Houston, TX 77046

$4,000

Q: What Are Your Growth Options? A: The Three Wedges of Growth.

$3,000

$ ,

New Capabilities via new brands, alliances,

Double in five years Cost of $1.00 of Revenues Varies by Channel:

$2,000

$ ,

Better Portfolio:

, ,geographies, M&A

4% 10%

10% - 29%

30%+%

Revenue Waterfall Management = Greater Profits:

$1,000

$ ,

Better Execution: Same solutions to same clients and

additional products, new clients, or both:

growth through increased venues

4% - 10%

$0

$ , same clients and growth through

volume and price increases > Lower cost of client acquisition and

greater profitability by client coupled with predictable sales forecasting. $

2010 2011 2012 2013 2014 2015

Status Quo Expansion Acquisition

> How does your cost of client acquisition compare to competitors?

Email [email protected] for a complimentary report for your industry sector.

Ephor GrowthStep Philosophy

Cost of Client Acquisition Direct

• Resource constraints• Market noise and competition

Efficient Growth is

Distribution

Online

Direct• Cultural momentum• Unforeseen complexitiesHard

Targets

The Intersection of St ateg

• Validated revenue strategies (capital efficient sales tactics)• Alternative distribution partners are required

E p n ion i p tne nd ing mig tion theo

Referrals

of Strategy & Execution is Key

• Expansion via partners and using migration theory• Process and metrics driven with incentives• Talented team with a proven track-record

The right advisory team

Deal Team

Diligence MAPPING PerformAlignment

Deal Origination• Assist with due diligence based on expertise to craft the story and manage the process

• Begin M&A or key alliance partner

Beyond useful capital, Ephor Group provides services such as M&A corporate development, key account business development, management and board advisory services.

creates value Functional

Leads

Integration Execution

Closeintegration early

GrowthStep™ ResultsSector Sponsor & Client Transactions $ Capital Timeframe

1. BPO Great Hill Partners PayChoice

6 $ 51m 2003-2006

Clients by Sector:• Business Process Outsourcing (BPO)

Latin American Card Services (2003-Current) Bradshaw Group (2011-Current) US DataWorks (2012 – Current) Perquest (2007-2010)

l b d (2009 20 0)2. HRO Baird Capital Partners

SmartTime2 $ 19m 2005-2006

3. HBS Capstreet GroupADPI/InterMedix

3 $ 34m 2004-2007

4. HRO Family Office: SAP Founder PerQuest

2 $ 31m 2008-2010

6. BPO Austin Ventures 3 $ 25m 2009-2011

Alsbridge (2009-2010)

Human Resource Outsourcing (HRO) Hireology (2012-Current) Sentric (2011-Current) Achilles Group (2007-Current) Workstream Inc (2007-2011) HR Advance (2008-2010)

6. BPO Austin VenturesProject Twinning

3 $ 25m 2009 2011

7. BPO Prospect PartnersAxios

1 pending(Close

12.2011)

$ 11m 2011-Current

Total 19 $171m

TalentTree (2005-2008) SmartTime (2003-2008)

Institutional Funds Glencoe Capital (2011-Current) Austin Ventures (2008-2010) CCGVP (2008-2010) Baird Capital Partners (2005-2009) Great Hill Partners (2008-2009) CapStreet Group (2002-2008)

Healthcare Business Services (HBS) GeBBS (2012 – Current) HRAdvance (2008-2010) Healthcare Coding Resources (2007-2008) ADPI (2003-2008) Certus (2002-2007)

Marketing Services (MSO) Canidium (2011-Current) JDM Marketing (2007-Current) HRMarketer (2007-Current) JPG (2006-2010) SalesNet (2005-2008)

Revenue StrategyFlightPlan

Routes to MarketGrowthSTEP

Management Science Wealth Creation

IT Outsourcing (ITO) Extreme Tech (2009-Current) Serenity (2008-2011) BluWare (2010-2011) Broadleaf (2010)

Gro thStep™ Case St dGrowthStep™ Case Study HR Staffing & Payroll Services

© 2011 Ephor Group | 1 (800) 379-9330 | www.ephorgroup.com | 5353 W Alabama Suite 300 | Houston, TX 77056FlightPlan | GrowthSTEP™ | Management Science | BoardWalk™

A Consolidation Platform in the Outsourced Workforce Management Market

Revenue Multiple 2.5 x 3.0 x 3 .5 x 4 .0 x 4.5 x 5.0 xRevenue 2016 $63,842,663 $63,842,663 $63,842,663 $63,842,663 $63,842,663 $63,842,663

Enterprise Value $161,717,581 $193,789,114 $225,860,648 $257,932,181 $290,003,714 $322,075,247

Investment ReturnsMarket Landscape

Net Debt ($4,171,353) ($4,171,353) ($4,171,353) ($4,171,353) ($4,171,353) ($4,171,353)Total Value $165,888,934 $197,960,467 $230,032,001 $262,103,534 $294,175,067 $326,246,600

Sponsor Ownership 76.4% 76.4% 76.4% 76.4% 76.4% 76.4%

Preferred Return $39,176,138 $39,176,138 $39,176,138 $39,176,138 $39,176,138 $39,176,138Total Payout $130,629,431 $155,119,478 $179,609,524 $204,099,571 $228,589,617 $253,079,664

IRR 36.1% 40.8% 45.0% 48.8% 52.2% 55.3%

Multiple of Money 4.7 x 5.5 x 6 .4 x 7 .3 x 8.2 x 9.0 x

Holder Cost Basis $ Invested Ownership % Sources UsesMgmt/Common 1.0 x – 10.1% Sponsor $20,557,956 Seller Liquidity $18,677,268Ephor/Founders 1.0 x $1,962,801 13.5% Mgmt $1,962,801 Mgmt Rollover $1,962,801Financial Sponsor 1.0 x $20,557,956 76.4% Debt – Working Capital $750,000

Fees $1,130,688Total $22,520,757 100% Total $22,520,757 Total $22,520,757

Capitalization Table Sources / Uses

Notes:* 2012 acquisition funded with additional sponsor equity of $7.4M raising total new investor equity to ~$27.8M.* Additional acquisitions funded with cash flow + access to revolver with max cap of $5.0M @ 5.5%.

$

Acquisition Pipeline

Location $LTM Status/Merits of Purchase

Long Island, NY 5.8m Near LOI Stage: Transformational Asset: ↑ WFM Capabilities

Solon, OH 2.6m Near LOI Stage: Focus on Franchise & Hospitality

Walnut CA 1.9m Solid Relationship: High Potential after Funding

Trenton, NJ 3.2m Solid Relationship: Transformational Asset: ↑ WFM Capabilities

Orange County, CA 2.0m Potential Succession Seller in 2012-2013 Winston-Salem, NC 3.4m Potential Succession Seller in 2012-2013Louisville, KY 3.5m Potential Retirement Seller in 2013-2014Salt Lake City, UT 4.6m Divestiture of Software Company Orphan

$27.0m Total in Millions

Geographic ExpansionCreating a geographic footprint through the acquisition of a “select group” of regional payroll services. Rigorous evaluation process for identifying attractive and “transactable” acquisitions. Based on identified, essential Weighted criteria (0-100%) adjusts for the most important factors

PCS

New Location / Acquisition Checklist and Criteria Weighting

1) Licensee 20%

2) Customers fully converted 10%

3) Attractiveness of MSA 15%

Pittsburgh, PA Long Island, NY

T t NJ

4) Quality of revenue / fit with SME strategy 20%

5) Willing Seller / realistic price expectations 20%

6) Day to day operator remains with Scienta 5%

7) High quality customer service / low attrition rates 10%

CPS

SPS

Sandy, UT

Louisville, KY

Wi t S l NC

Trenton, NJSolon, OH

Walnut Creek, CA

Map Key

Winston-Salem, NC

Orange County. CA

Map Key

Existing Regional Offices

$2 - $6 M Rev. Opportunities

Sub $2M Rev. Opportunities

Gro thStep™ Case St d Soft areGrowthStep™ Case Study Software

© 2011 Ephor Group | 1 (800) 379-9330 | www.ephorgroup.com | 5353 W Alabama Suite 300 | Houston, TX 77056FlightPlan | GrowthSTEP™ | Management Science | BoardWalk™

GrowthStep℠ SaaS Case StudySituation Audit: Perquest’s mission was to provide the first and exclusive software-as-a-service (SaaS) HRO services to small and large q p ( ) gbusinesses via a single technology platform.

Ephor Process, Approach, and Sequence of Events:I. Opportunity & Outcomes >> The attractive investment returns in the payroll business are generated by acquiring

annuity streams of recurring revenue at a low cost, and reselling the revenue at exit at higher multiples.

II. Creating a Seller >> Ephor identified an opportunity in the market: the legacy payroll providers have been unsuccessful in providing clients with a combination of state-of-the-art technology, coupled with business centric services, premier end-user friendliness and superior customer service and support.

III. The “Yellow Brick Road” >> Ephor conducted the research, presentation, and negotiations and signed up numerous qualified acquisition targets And then facilitated the integration efforts and ensured integration numerous qualified acquisition targets. And then facilitated the integration efforts and ensured integration milestones were on-track and effectively managed.

Results: I. Within 30 days a short-list of targets was researched and handicapped, and the corresponding Playbooks,

Financial Acquisition Model, and Integration Plan was created. II Six (6) acquisition targets were identified and signed Letter of Intent within 180 days II. Six (6) acquisition targets were identified and signed Letter-of-Intent within 180 days.

GrowthStep Summary

The “Yellow Brick Road”: Sequential Set of Activities

Assessment of Financials &

Create Financial Reporting reflecting

Create Operating Plans tied to the

Fi i l Pl KPI Financials & Administration

Practices

Reporting reflecting the Business Model

And KPI’sFinancial Plan KPIs

(Management Science)

Document Growth Stage Milestones &

Targets

Create Financial Returns & Outcomes:

Size Long Term & Near-term Capital

Prepare Due Diligence & Data

Roomg Near term Capital need

GoToMarket to Profiled & Targeted

Investors

Day 30 Day 60 Day 90 Day 120 Day 150 Day 180

Company Presentations

Investor Due Diligence Successful Funding of

Capital Requirement

Continuous month over month improving performance of the business.

GrowthStep Valuation MethodologyIndustry Comparables: Cost of $1.00 of Revenues

Acquisition Modeling

GrowthStep Process

Perquest Yellow Brick Road it’s as Simple as 1 2 3: Segment

Segment B

Segment A

Perquest Yellow Brick Road, it s as Simple as 1, 2, 3:

1. Step One: Step Project MAPPING

2. Step Two: Creating a Seller Process

> Develop Targeted Acquisition Pipeline (Size and Scope Each Potential)

a. Handicap All Potential M&A Potentials & Compare Potentials to Strategy

> Implement Acquisition Outreach Program

Segment C

Segment B

Segment A

3. Step Three: Due Diligence and Integration:

Mapping the Highest Probability Targets:

Outreach Programa. Create Sellers b. Confirmatory Due Diligencec. “Yellow Brick Road” Intro Presentation d. “Happy Ending” & Constituency

Alignment Discussion

> “Yellow Brick Road Playbook”a. Precise Valuation Modelb Integration Plans

Segment C

COMPANY CLUSTER Revenues AVERAGE WSE

NBR OF CUSTOMERS

ANNUAL W-2S

NO CAL TOTAL $ 10,450,000 55 655 61000SO CAL TOTAL $ 10,300,000 52 662 233333FLORIDA TOTAL $ 1,100,000 51 295 naMIDWEST TOTAL $ 32,040,000 89 1686 93200MINNESOTA TOTAL $ 5,000,000 73 467 51667

Acquisition Integration Timeline:

b. Integration Plansc. Due Diligence d. Closing Documents

> TransactionsSegment

C

AB

N DAKOTA TOTAL $ 1,000,000 30 640 984000NJ NY TOTAL $ 12,100,000 187 540 55833PENN TOTAL $ 28,200,000 73 1104 1209500TX OK TOTAL $ 31,600,000 47 1317 201250DESERT TOTAL $ 9,280,000 53 588 65500VAC TOTAL $ 9,400,000 38 1135 128750

QualifiedInvestment

Ephor Group Team SnapshotThe 2013 MarketEven in a slow growth economy, new emerging enterprises and market leaders will grow and prosper. And the

Revenue M&Aleaders will grow and prosper. And the market will continue to bifurcate into market leaders and laggards with none left in the middle.

Ephor Focus & Expertise:

Online Brand Strategy M&A Research Intelligence

Market Intelligence

Go-To-Market

M&A Sourcing

M&A Integration Ch A tGo To Market

Routes to Market

Change Agent

M&A Corporate Development

Email us for case studies for your industry sector @ Ephor[at]EphorGroup.com

Phased Approach: Follow your “Yellow Brick Road”1 STRATEGY

PHASE 2 Go-To-Market 3 GrowthSTEPSM

(Growth Venues & Alternative Distribution)4 THE YELLOW

BRICK ROADSM

Initiates with a detailed Revenue Growth Plan. Financial, Strategic Product/Service Positioning, Operational Measurement and Metric Benchmarks are Prescribed.

Brand & Solutions Strategy

Brand Penetration

Routes to Market & Portfolio Client Lifecycle Management Solutions approach.

New Markets / New Products

Geographic Expansion

Channel Strategies

Branded leader known for productized recurring solutions.

Engaged community & community leader.Brand & Solutions Strategy

Productization of Services into solutions and corresponding messaging.

Asset DevelopmentA “Community” of Targets is Created, Profiled, and Prioritized and all growth assets developed.

Client Acquisition Process connected to Client Lifecycle Management & Raving Fan Client Satisfaction Process.

Revenue Campaigns

Alternative Distribution

Corporate Development M&ARevenue processes on autopilot.

assets de e oped

Revenue Waterfall Portfolio Effects to support

Phase I Outcomes include:1. Revenue Strategy.

2 R P d Revenue Waterfall Portfolio Effects to support your GrowthSTEP

Wealth strategy alignment with budget and all constituencies.

2. Revenue Processes and Programs including Opportunity generation, eMarketing, Demand Generation, Sales Support, PR, Communication, & Promotions.

Getting StartedGetting Started

E h @E h [email protected]

© 2011 Ephor Group | 1 (800) 379-9330 | www.ephorgroup.com | 5353 W Alabama Suite 300 | Houston, TX 77056FlightPlan | GrowthSTEP™ | Management Science | BoardWalk™