TripleTree Acuity2010

Acuity2010Annual Synopsis & Outlook

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COPYRIGHT © 2010 TRIPLE TREE, LLC. A MERCHANT & INVESTMENT BANK.

HEALTHCARE & TECHNOLOGY.

UNCOMMON CLARITY.

“I know it’ll [the economy] get better. We’ve been through all kinds of economic problems in this country for a couple hundred years. Our genius in the United States is not in avoiding problems, it’s in overcoming problems. We’ve overcome every problem we’ve ever faced...Three of four years from now everything will be fine.”

– Warren Buffet, Founder, Berkshire HathawayQuoted from a speech delivered at the Fortune Most Powerful Women Conference, September 2009

“IBM is a company that is notable for going the other direction…IBM’s footprint is more narrow today than it was when I started. I am not sure that has been to the long-term benefit of their shareholders.”

– Steve Ballmer, CEO, Microsoft NYTimes.com, September 2009

“…a $300 netbook is a commodity…institutions get trapped in the past…because of their cultural resistance to change”

– Sam Palmisano, CEO, IBM (response to Mr. Ballmer’s comment)http://bits.blogs.nytimes.com, October 2, 2009

“If changing a paradigm were easy, we’d already have universal healthcare and electric cars would’ve been a hit. But changing a paradigm is hard: You have to scrape one idea out of the minds of millions of people and replace it with your idea – and you have only the existing tools to do that with.”

– Dennis Pombriant, Founder, Beagle Research Groupwww.destinationCRM.com, November, 2009

“Making medicine smarter is more than a marketing message. It is delivering today on the commitment to clinical excellence, improved patient outcomes and lower healthcare costs that comes from our significant investments in innovation and execution across our entire organization.”

– Kenny Klepper, President & CEO, Medcohttp://www.medcohealth.com/medco/corporate/home, November 2009

“Today it’s so complicated that the average [healthcare] consumer—and this is what the academics say—you can’t put the average consumer in charge, it’s too complicated. Yeah it’s too complicated! So let’s make it not complicated.”

– Jonathan Bush, CEO, athenahealthWall Street Journal, December 2009

INDEX

VIEWPOINT 4

QUESTIONS 5

ADVICE 6

RESEARCH 7

PERSPECTIVES 8

ENGAGEMENTS 12

CAPITAL MARKETS 14

M&A MARKETS 16

PRIVATE EQUITY 18

VENTURE CAPITAL 19

ABOUT TRIPLE TREE 20

SeNTIMeNT

VIeWPOINT

Many companies and their investors have now rationalized what transpired in 2009.

A harbinger of economic vitality – the stock market – bottomed out in late 2008, recovered slightly, and fell even further in March of 2009. Since then it has seen a terrific rally, one we hope is sustainable.

Despite U.S unemployment remaining historically high, many pockets of the economy are recovering and TripleTree is optimistic about 2010. As such, we are advising and helping businesses with specialized solutions, disruptive delivery models, and predictable growth to recognize the best paths for liquidity.

In industries like healthcare, traditional players are facing stiff economic and regulatory pressures, consumers are becoming exceedingly influential, and long-standing problems are being addressed with meaningful innovations – an environment ripe for platform investment.

With an increasingly global reach, TripleTree continues to focus its attention on personal, weekly interactions with the best emerging firms, financial sponsors, and strategic buyers. Entering our 12th year, we are hiring talent, investigating new sectors, and enjoying the competitive advantage of being an independent advisor and principal investor.

The result is that we are now positioned among the most relevant healthcare advisors in the industry.

We hope our annual issue of Acuity2010 provides useful perspectives on the current market landscape and we look forward to reconnecting with you soon.

Sincerely,

Kevin Green, Founding Managing Director

David Henderson, Founding Managing Director

Peter Erickson, Managing Director

Chris Hoffmann, Director

Brian Klemenhagen, Director

Tad O’Donnell, Managing Director

Joe Schiesl, Managing Director

Ryan Stewart, Director

Scott Tudor, Managing Director

Rob McCray, CEO – Wireless-Life Sciences Alliance

4

QUeSTIONS

TripleTree’s ecosystem consists of three interrelated groups: Middle Market Firms, Financial Sponsors, and Global Buyers. Each is seeking either new pockets of growth, new capital sources, or new strategic partners while facing a range of questions:

• Is capital funding for growth or shareholder liquidity even available given current market conditions?

• As scrutiny grows around M&A and investment, what perspectives are critical in assessing timing and approach?

• How would an “IPO path” influence near-term decision making?

• What are the right strategies for addressing the opportunities arising as physicians and healthcare service providers take advantage of the American Recovery and Reinvestment Act (ARRA)?

• What impact will healthcare reform and an expansionist attitude in Washington have on the industry, specifically the areas of population health management, consumer directed healthcare, medical device innovation, and elder care?

• As alternative care emerges, where are telehealth, remote patient monitoring, and alternative care delivery models headed?

• Who are the players from outside the healthcare sector most poised to make an impact on the quality of care, compliance, and patient experience management?

• One research group1 estimates that 64% of physicians in the U.S. use smartphones…will these become a defacto mobile platform?

• How will cloud computing impact my company? My partners? My sector?

• How motivated are CFOs to move beyond reacting to business risk (financial, information, business) and becoming more proactive?

• How have the key factors that influence M&A valuations changed as a result of the current recession?

• If true, how will the rules for mobile media and content distribution be impacted?

51 Source: Manhattan Institute, 2009.

Preserving cash and hunkering down should not be a universal strategy for growth businesses. As the marketplace filters dozens of variables impacting sales, operations, and executive thinking, we are telling CEOs and investors to remain opportunistic. We also believe that in a number of sectors non-traditional leaders will come forward.

• Prepare for Overtures: Many of the better innovators are already being approached by potential acquirers. For firms with On Demand or Software as a Service (SaaS) delivery, this (recurring) revenue interest stems from a need for subscription-based and multi-tenant delivery models.

• Understand your Market Landscape: Visualizing new opportunities and building an innovative roadmap are critical. One example is the web and mobile convergence of media and content and scrutiny about how ad-driven revenue models can sustain long-term growth.

• Rationalize your Assets and IP: Having an appreciation for how your business will be viewed as a strategic asset given today’s market will impact timing and approach for M&A and capital formation. Some of the best business models we are seeing are “assemblers” and “hybrids”. Said differently, these are firms identifying specific marketplace pain points and addressing them with solutions comprised of disparate pieces rather than suites. These are firms that represent a new approach to brand building.

• Think Beyond Financial Synergies: Well articulated long-term thinking, a focus on new markets, identification of strategic partners, and an understanding of disruptive delivery models are critical components to strategic discussions.

• Build an Acquisition Roadmap: Any notion of “high growth” will be nearly impossible without a roadmap and embracing new delivery models like SaaS. Industry specialized solutions will be critical for accelerating revenues and remaining relevant.

• Consider New Business Models: Realize that the influence of consumerism will create growth opportunities for solutions ranging from healthcare and financial applications, to enterprise logistics and education.

• Stakeholders are not Aligned: Increasingly, our team is working with business builders and their shareholders to align expectations on relative “value”. A range of factors to support these expectations are critical and include both qualitative and quantitative metrics.

• Fixate on Performance Metrics: Emerging businesses should pick

five key performance metrics (TripleTree applies 40 when advising its clients) and manage them with a real-time dashboard. These may include Monthly Recurring Revenue (MRR), Cash Flow and Customer Churn...the best companies we see are maniacal about performance metrics.

• Watch for Cloud Formations: At global firms, the best thinking we are witnessing seems to coincide with the organization’s willingness to rewrite their rules on sales and distribution channels, improve their connections with online constituents, and leverage cloud computing to improve customer support.

• Know that Acquisitions will not be Limited to Global Firms. High flying mid-market players with strong fundamentals will become acquisitive, targeting businesses with disruptive delivery models, recurring revenue streams, or industry vertical specialization.

6

AdVICe

This report focuses on the

evolution of IT Governance

and the effects of

disruptive technologies,

regulatory trends, and

market consolidation.

This report marks

TripleTree’s first analysis

of the life sciences

industry, identifying

the sector’s unfolding

evolution in areas like

patient safety, compliance,

sales and marketing, and

collaboration.

This report explores how

Cloud computing will

modernize healthcare IT,

help bend the cost curve,

and improve patient

outcomes.

This report assesses how

the evolution of mobile

platforms and social tools

are legitimizing the growth

of mHealth.

This report examines the

rapid change of enterprise

collaboration and social

software solutions.

This report examines

alternative delivery models

and new approaches to

health management shifting

the paradigm for patient-

centric care.

IT GOVERNANCEExpanding the Role of IT Compliance

and Risk Management.

RESEARCH REPORT | 2009

IT GOVERNANCEExpanding the Role of IT Compliance

and Risk Management.

RESEARCH REPORT | 2009

7

ReSeARCh Theme-based assessments and opinions on sectors where market dynamics are impacting growing and profitable businesses.

heALThCARe PeRSPeCTIVeS – LOOKING BACK AT 2009

A year ago a deepening recession and many legislative unknowns forced a wait-and-see mentality. While the jury is still out on any real economic boost from the American Recovery and Reinvestment Act (ARRA) many companies looked to new markets and M&A for growth.

TripleTree’s decade of experience in Healthcare buoyed our brand and has us positioned for leadership in 2010.

• Dell acquires Perot• IMS Health taken private• WellPoint sells PBM NextRx to Express Scripts • WebMD and HLTH merge

L A R G E- C A P D E A L SSome significant deals bring new players

and keeps the industry on its toes

IPOsLofty public equity valuations led to

select IPO activity

• Verisk IPO – creation of Verisk Health• Emdeon• Accretive (filed)• HealthPort files; later delays due to market

conditions• Medidata Solutions

C L I N I C A L S Y S T E M SPatient safety, compliance, decision support

and interoperability rise

• Microsoft acquires Sentillion• Hospira acquires TheraDoc• Salesforce.com invests in Practice Fusion• AMICAS taken private• Quadramed taken private

P O P U L AT I O N H E A L T H M A N A G E M E N T /W I R E L E SS H E A L T H

Still more questions than answers

• Cerner acquires IMC Health Care• CVS Caremark invests in Generation Health• Inverness acquires Free & Clear• Proctor & Gamble acquires MDVIP• GE and Intel form $250M Healthcare Alliance• GE acquires remaining stake of Living

Independently Group

A N A LY T I C SA hot sector that is relevant in all areas

of the healthcare continuum

• Verisk acquires D2Hawkeye and TIERMED• athenahealth acquires Anodyne Health• IBM – announces enterprise wide health

analytics initiative and opened a Health Analytics Solutions Center

R E V E N U E C YC L E M A N A G E M E N TSignificant investments from the

payer community

• Ingenix acquires CareMedic• WellPoint invests in Availity• CareFirst invests in NASCO• JMI invests in Navicure

8

SPOTLIGHT REPORT

H E A L T H I N F O R M AT I O N E XC H A N G E – As providers, payers, employers, and pharma streamline workflows through enterprise applications, “information silos” are being removed through mandated information standards forcing the adoption of middleware and maturing degrees of interoperability across platforms and industry constituents.

D ATA A N A LY T I C S A N D I N T E L L I G E N C E – All constituents across healthcare are seeing increased focus on the adoption of data analytics and business intelligence to drive higher degrees of visibility across the cost, care, and quality continuum.

I T- D R I V E N C A R E M A N A G E M E N T – The marriage of health analytics, workflow-based care management systems, and interactive telecommunication solutions are enabling payers to think more aggressively about care coordination and care management.

H E A L T H I N S U R A N C E E XC H A N G E – As legislation seeks to make coverage more easily attainable through the creation of exchanges, payers will need to create more robust direct to consumer capabilities and enhance automation capabilities to create more efficient “click-to-card” processes.

W I R E L E SS A N D M O B I L E H E A L T H – The use of wireless technology across the entire healthcare system seeks to cut system costs, increase efficiency, and improve outcomes through the real-time seamless flow of mission-critical data to and from once disparate systems.

R E M O T E PAT I E N T M O N I TO R I N G ( R P M ) – While Medicare has yet to implement a broad-based reimbursement framework for remote patient monitoring, we view RPM as a key lever in chronic care management for seniors, in particular, and the broader chronic condition population.

H E A L T H C A R E C O M P L I A N C E – Compliance mandates in healthcare are wide-ranging and encompass regulatory medical necessity, payment integrity, consumer-driven medical /pharmaceutical care adherence, and patient privacy.

C L I N I C A L A U D I T I N G –Driven from NCQA’s HEDIS requirements and the MMA’s risk adjustment of Medicare Advantage premiums, a new sub-sector has emerged around the clinical auditing of medical chart-based data that is delivering deeper levels of patient insights across the cost, care and quality continuum; with highly relevant applications in the Phase IV post approval drug safety and efficacy efforts across the biopharma industry.

A L T E R N AT I V E C A R E D E L I V E RY M O D E L S – Models of care that leverage technology and take place outside of the walls of physicians’ offices and hospitals, e.g. telehealth, retail clinics, virtual visits, and email.

P H A R M A / L I F E S C I E N C E S - Big pharma companies will transition from a manufacturer/supplier role to a partner for payers and providers in an attempt to enhance care management and outcomes.

heALThCARe PeRSPeCTIVeS – AReAS TO WATCh

9

TeChNOLOGY PeRSPeCTIVeS – LOOKING BACK AT 2009

For Acuity2010, TripleTree considered broad market news and events impacting the sectors and industries where we provide investment banking support. For 2009, mega-trends driven by cloud computing, consumerism, collaboration, and mobile might be viewed as “transformative” and despite the running joke that “flat is the new up,” meaningful deals occurred across many sectors, providing continued buoyancy to consolidation trends.

• Oracle acquires Sun• Dell acquires Perot• Emerson acquires Avocent• HP acquires 3com• IBM acquires SPSS• Xerox acquires ACS• Adobe acquires Omniture

• Cisco acquires Tandberg• VMware acquires SpringSource• Sun acquires Q-Layer• RightNow acquires HiveLive• Oracle acquires Virtual Irons

B I G & G E T T I N G B I G G E RA new set of master brands are emerging

C LO U DLeveraging virtualization to create more

efficient and cost effective solutions

I P O sThe IPO market is beginning to thaw as

10+ technology IPOs were completed in 2009

• Silver Lake acquired by Skype• Google acquires AdMob• Cisco acquires Starent Networks• Visto acquires Good Technologies

M O B I L EPlatforms emerge to support

communication and collaboration

• Open Table• SolarWinds• LogMeIn• Rosetta Stone

10

D E L I V E RY M O D E L S

• SaaS – OnDemand continues to mature and SaaS 3.0 is now relevant, extending applications into platforms.

• Cloud – Focus will shift from “discussion to evaluation” and to demonstrable examples where IT resources are more effectively leveraged across projects and delivered in a more scalable and cost effective fashion.

• Mobile & Wireless – Enterprises will continue to advance their wireless strategies as consumerism influences wireless adoption; wireless retail, micropayments and high growth industries.

D O M A I N S

• Collaboration – People, processes, and data will become more interactive and supported by web architectures and standards.

• Compliance – Enterprises are taking a holistic view of increased regulation and are looking for automated, repeatable and auditable processes.

• Data Analytics and Business Intelligence – Data continues to be a competitive asset and real-time analytics and decision support systems will emerge as processing power increases.

V E R T I C A L S

• Education – A growing reliance on technology in the classroom and virtual/distance learning will drive strong market growth and investor interest.

• Public Sector – Government IT spending is increasing and large market opportunities exist in healthcare, pubic safety, and cyber security at federal and state levels.

• Financial Services – Rebounding markets, increased consolidation, and stronger regulatory compliance requirements will drive technology investment.

TeChNOLOGY PeRSPeCTIVeS – AReAS TO WATCh

11

IMC Health Care, an operator of on-site healthcare centers at employer sites was acquired by Cerner, a leader in

healthcare technology.

ABOUT IMC HEALTH CARE:

• An innovator in the field of on-site healthcare, IMC has differentiated itself through its ability to create

customized health centers to match each client’s unique culture and specific needs.

• More than 20 years of providing occupational health services to a wide range of employers.

CareMedic, a provider of enabling technologies and services that optimize revenue cycle efficiency and improve

cash flow, margins and productivity to hospitals, was acquired by Ingenix, a subsidiary of United Health Group

and a leading health information, technology and consulting company.

ABOUT CAREMEDIC:

• Enterprise platform of SaaS-based software and business process outsourcing services for the provider

revenue cycle.

• Only Company with a true end-to-end data and process integration engine built upon a patient centric

data model, the Company’s Electronic Financial Record (eFR®) platform.

Anodyne Health Partners, a provider of revenue cycle business intelligence (BI) solutions to mid-market and

enterprise medical group practices, was acquired by athenahealth (Nasdaq: ATHN), a leading provider of SaaS-

based business services to physician practices.

ABOUT ANODYNE HEALTH PARTNERS:

• Anodyne Health provides a proprietary web-based BI software platform that enhances an organization’s

ability to view and access all facets of its revenue cycle information.

• Anodyne fills a significant void in the provider RCM competitive landscape by unlocking the “self-service”

model for RCM analysis with a BI solution that is easy-to-use and designed specifically for the unique

“pain points” of the provider community.

• Anodyne services mid-market and enterprise medical group clients and has over 14,000 providers under

contract.

12

eNGAGeMeNTS Our deal flow entering 2010 is the strongest in the history of the firm.

Risk-driven compliance. On demand.™

LOGISTICS BUSINESS

Security & Compliance Division

Axentis, a global leader of governance, risk and compliance (GRC) management solutions was acquired by

Wolters Kluwer’s (AMS:WKL, WLSNc.AS) Tax and Accounting division, a leading provider of tax, accounting,

audit, risk, and compliance software solutions and services.

ABOUT AXENTIS:

• Pure-play SaaS GRC leader with 600,000 users in more than 100 countries.

• Blue chip customer base includes life sciences, healthcare, financial services, energy, utilities, and

manufacturing.

• Industry recognized leader by Forrester Research and Gartner for top-tier GRC solutions.

Infocrossing’s Secure Message Management Division, a provider of email message management, security

compliance, storage, archiving and eDiscovery was acquired by Marsys (Mariner Systems).

ABOUT INFOCROSSING’S SECURE MESSAGE MANAGEMENT DIVISION:

• Provides archiving, compliance, eDiscovery, secure messaging and filtering solutions including

visual policy management, intelligent content analysis and integrated search and long-term storage

management.

• 1,700+ SMB and enterprise customers worldwide.

HxTechnologies, a health information exchange (HIE) technology company enabling more effective care

through access to information, was acquired by MEDecision, a subsidiary of Health Care Service Corporation

(HCSC).

ABOUT HXTECHNOLOGIES:

• Provides healthcare providers and payers real-time, web-based access to a patient’s full set of diagnostic

images, reports, and other health information typically scattered out of reach across multiple healthcare

facilities.

• Proprietary technology allows providers to view and manipulate high-tech diagnostic images over the web.

• Fully IHE (Integrating the Healthcare Enterprise) compliant technology allows interoperability across

systems.

Oceanwide Logistics Business, a leading provider of web-based software solutions for international supply chain

logistics and import/export customs compliance, was acquired by Descartes DSGX (Nasdaq); DSG (TSX), a

provider of on-demand logistics technology solutions.

ABOUT OCEANWIDE LOGISTICS BUSINESS:

• Collaborative web-based platform for managing complex and time sensitive international freight logistics,

transportation management, and regulatory trade compliance.

• Over 1,000 clients worldwide, including Fortune 500 companies, carriers, freight forwarders, customs

brokers, and third-party logistics (3PLs) providers. 13

Our deal flow entering 2010 is the strongest in the history of the firm.

CAPITAL MARKeTS (FOCUS ON U.S.)

14

The second half of 2009 was marked by the uncertainty of healthcare reform, rising unemployment rates, and the possibility of another large government bailout. However, as the year came to a close the capital markets began to rebound and the healthcare reform picture became clearer. Market indicators continue to be mixed. The DJIA is up over 15% Y/Y but the unemployment rate is still above 10%. While housing prices in many markets across the country are beginning to recover, the threat of a commercial real estate crisis lingers as small businesses struggle and large enterprises continue to cut costs.

I P O M A R K E T:

In 2008 countless S-1 filings were pulled and only two venture-backed technology public offerings were completed. However, in 2009 over 60 IPOs were issued, most of them occurring in the second half of the year. IPOs again have become a viable liquidity option for “best-in-class” vendors with strong financial statements and an ability to differentiate themselves.

P R E M I U M S E PA R AT I O N :

During a downturn, high quality companies tend to quickly separate themselves from competitors. Vertical and delivery model differentiation is critical to supporting this separation.

In addition, SaaS, mobile and cloud delivery models can improve the scalability, accessibility, and overall cost effectiveness of most application, information, and content-rich solutions. Consequently, leading SaaS vendors such as Salesforce.com, athenahealth, and OpenTable have been rewarded in the public markets and as of January 15, 2010 are trading at over 7.5 enterprise value to revenue EV/R.

Looking back on the year, 2009 will be remembered as a turbulent period. The chart and table to the right highlights notable financial news and events from 2009.

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Jan-09 Feb-09 Mar-09 Apr-09 May-09 Jun-09 Jul-09 Aug-09 Sep-09 Oct-09 Nov-09 Dec-09

1 23

4

5 6 7 8

9 10 11 1213

14

Jan 09- Barack Obama is sworn in as the 44th President of the United States.

Feb 09- Financial Stability Plan announced by U.S. Treasury.

Feb 09- President Obama signs American Recovery and Reinvestment Act of 2009.

Mar 09- S&P 500 reaches a low of $676.53, the lowest closing price since September 12, 1996.

May 09- The Federal Reserve releases the results of the Supervisory Capital Assessment Program’s “stress test” finding 10 of the 19 largest banks have inadequate capital reserves.

Jun 09- General Motors files for bankruptcy protection.

Jun 09- Ten banks are allowed to exit the government’sTroubled Asset Relief Program (TARP).

Jun 09- IPO market begins to thaw; SolarWinds, LogMein, Open Table and Rosetta Stone complete IPOs in Q2.

Oct 09- The U.S. dollar reaches $1.50/EUR for the first time since August 8, 2008.

Oct 09- Dow Jones Industrial Index closes above 10,000.

Nov 09- CIT Group, Inc. files for bankruptcy protection.

Dec 09- Gold tops $1,200 per ounce after spending three months above $1,000 per ounce.

Dec 09- Bank of America, Citigroup, and Wells Fargo announce plans to repay TARP ahead of year-end bonus compensation payouts.

Dec 09- Patient Protection and Affordable Care Act was passed by the U.S. Senate and House.

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15

S&P 500 Index

Rel

ativ

e Pe

rcen

tage

M&A MARKeTS

0

1,000

2,000

3,000

4,000

5,000

6,000

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

16

In 2009, overall M&A spending and deal volume declined for the second consecutive year. Since the recession began in 2007, overall M&A spending and deal volume has fallen nearly 55% Y/Y and 20% Y/Y, respectively. This is not surprising, considering that many businesses are retrenching and shifting their focus back to core competencies. The chart below shows M&A deal volume over the past six (6) years.

# o

f D

eals

2004 2005 2006 2007 2008 2009

□ $250M-$750M □ $50M-$250M□ <$50M

As shown below, technology sector M&A spending and deal volume (including mega-merger deals) was down over 10% Y/Y and 20% Y/Y respectively. Healthcare sector M&A spending and deal volume was down over 60% Y/Y and 10% Y/Y respectively. The sharp decline in healthcare-related M&A spending was the result of fewer mega-mergers. However, mid-market healthcare M&A spending was down only ~15% Y/Y, outperforming the overall market.

General M&A: Global buyers and buyout investors will be “opportunistic” in 2010 with the majority of M&A activity likely consisting of tuck-under acquisitions of complementary solutions. Some more aggressive acquisitions of “platform” companies or sector leaders may also occur.

Shifting Market Consolidators: In 2009, the mid-market led much of the M&A activity as vendors moved to acquire weakened competitors and fill portfolio whitespace. In 2010, mid-market M&A activity will continue, but large vendors will also move to build out and fill their own gaps.

Deal Size: In 2009, a number of technology mega-mergers occurred (see page 10). The number of $1B+ technology deals increased by 50% Y/Y but the number of mega-mergers was still far below the historic highs of 2007, due largely to concerns about market conditions. Meanwhile the number of healthcare sector deals exceeding $1B in enterprise value dropped over 40% leading to a sharp decline in the aggregated value of healthcare M&A transactions.

Deal Structure: With the failure of New York-based financing behemoth CIT Group in November, and the lack of available debt financing, valuations will be more conservative. Private equity acquirers will closely consider profitability, cash flow visibility, and sector-specific parameters. Global acquirers with strong balance sheets and cash positions are expected to become more aggressive.

No Parallel Processes for Sellers: The IPO market is recovering but is still not the best path for liquidity for most companies. We see M&A discussions taking on a hardened focus for M&A without the distraction of public market liquidity.

Source: CapitalIQ.

*Includes North America transactions only. Healthcare metrics excludes Pharma. 17

Technology M&A (2005-2009)* Healthcare M&A (2005-2009)*

0

500

1,000

1,500

2,000

2,500

2005 2006 2007 2008 2009$0

$20

$40

$60

$80

$100

$120

$140

$160

$180

$200

0

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800

1,000

1,200

2005 2006 2007 2008 2009$0

$20

$40

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$100

$120

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# of Deals $ Billions# of DealsDeal Size

# of Deals $ Billions# of DealsDeal Size

PRIVATe eQUITY

The aggregated published deal value and number of private equity (PE) technology and healthcare investments recovered in 2009. TripleTree has identified a few trends that shape our 2010 private equity outlook.

Balance of Power Shifts from General Partners to Limited Partners: Investment terms will be less favorable to GPs as compared to past years. LPs will insist on greater accountability, better alignment of interests, and more stringent reporting requirements.

Fund Raising Dynamics Favor Long, Successful Track Records and Vertical Specialization: Overall, PE firms planning to raise funds in 2010 will likely face significant headwinds. However, firms with a focus on vertical specialization, or with a clear “platform” roadmap and strategy, will find high quality deal flow.

Over-Leveraged Portfolio Companies and Leverage-Intensive Strategies will be Problematic: PE portfolio companies may begin to strain under their existing covenants and pending debt maturities. Additionally, PE firms relying on high levels of leverage to fund deals and generate returns will find that lenders have decreased their tolerance for risk, at least for the foreseeable future.

IPO Exit Window is Open but will Remain Limited: Only companies with strong growth, sustainable profitability, modest leverage, and approaching $100M-$200M in revenue will successfully enter the public markets. The recovery of the U.S. financial markets, although strong since the March ’09 lows, remains shaky and additional market uncertainty could again close the IPO window.

18

Source: CapitalIQ.0

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2005 2006 2007 2008 2009$0.0

$0.5

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$0.5

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# of Deals $ Billions# of DealsDeal Size

# of Deals $ Billions# of DealsDeal Size

Technology PE Investments (2005-2009)* Healthcare PE Investments (2005-2009)*

*Includes North America transactions only. Healthcare metrics excludes Pharma.

VeNTURe CAPITAL

As funds and their limited partners reevaluated their portfolios and made investments based on more selective criteria, the aggregated value of venture capital investments decreased by nearly 40%. While many VC-backed firms were squeezed and had to retrench to survive, many SaaS, mobile, collaborative and cloud businesses showed more growth as CIOs sought cost-effective technology approaches to business needs.

Selective Investing and Portfolio Trimming Will Continue: Given limited liquidity options, TripleTree expects venture firms to guide the “winners” in their portfolios to successful exits through M&A, and to shed underperformers through asset sales. The old model where the success of one or two winning portfolio companies would offset

the capital lost in other investments has lost viability in the current marketplace.

Vertical Differentiation is Key: Companies that specialize in healthcare, education, the public sector and other verticals will continue to receive more venture capital than general IT solutions and services providers. Investors are looking for companies that address specific pain points within mission critical workflows.

Trend Investing: Early stage interest persists in green-tech / clean-tech, healthcare IT, education and areas enabling IT optimization and cost management, like cloud computing and mobile.

Source: CapitalIQ.

19

2009 saw a larger number of smaller venture capital investment rounds.

Technology VC Investments (2005-2009)* Healthcare VC Investments (2005-2009)*

0

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2005 2006 2007 2008 2009$0

$5

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$6

$9

# of Deals # of Deals$ Billions $ Billions# of DealsDeal Size

# of DealsDeal Size

*Includes North America transactions only. Healthcare metrics excludes Pharma.

20

7601 France Avenue South Suite 150

Minneapolis, MN 55435

952-253-5300

www.triple-tree.com

TripleTree’s merchant and investment banking practice is focused on opportunities where disruptive technologies and innovative business models have converged or where vertical industry specialization is a differentiator.

Today, our 200 years of aggregate expertise in healthcare has brought us to the forefront of the industry as a leading strategic advisor.

We remain dedicated to providing cross-border clients with independent, candid perspectives based on proprietary research.

Our principals are former business builders, advisors, entrepreneurs, and analysts who take pride in their extensive network of personal and professional relationships. Since 1997, we have closed over $5B in sell-side M&A and $1.5B in recapitalization transactions on three continents.

After you have considered the perspectives offered in Acuity2010, let us know if we can accelerate your success through our unique brand of advisory services.

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UNCOMMON CLARITY.

a - c u - i - ty (noun)ShARPNeSS; ACUTeNeSS; KeeNNeSS:

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