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IMC BREAKFASTIMC BREAKFAST

M&AM&A(RHC Case Studies)(RHC Case Studies)

March 21, 2007March 21, 2007

J. David MorrisJ. David MorrisGeneral PartnerGeneral Partner

Red Hook CapitalRed Hook Capitaljdm@redhookcapital.comjdm@redhookcapital.com

Mobile: (703) 855-8433Mobile: (703) 855-8433

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AGENDAAGENDA

• Why buyoutWhy buyout

• What is your clients strategyWhat is your clients strategy

• Who is the teamWho is the team

• How do they get returnsHow do they get returns

• RHC case studiesRHC case studies

– Consolidation IT service (LMT)Consolidation IT service (LMT)

– Consolidation Telecom (MCI)Consolidation Telecom (MCI)

– Consolidation Healthcare (HBO)Consolidation Healthcare (HBO)

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• Industry trendsIndustry trends

– Buyouts surpass 1980s levelsBuyouts surpass 1980s levels

– Venture Capital firms are moving into low end buyoutsVenture Capital firms are moving into low end buyouts

• Wealth of capitalWealth of capital

• Wealth of managementWealth of management

• Buyout expertiseBuyout expertise

– Advisor/ConsultantsAdvisor/Consultants

– Private Equity firm sponsor Private Equity firm sponsor

Buyouts are a current and long term trend

WHY BUYOUT?WHY BUYOUT?

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• Target companyTarget company

– ConsolidationConsolidation

– TurnaroundTurnaround

• Financial backersFinancial backers

– Buyout firm Buyout firm (KKR, Texas Pacific Group, Gore Technologies)(KKR, Texas Pacific Group, Gore Technologies)

– Equity Equity (Private Equity/GTCR, Pension/CALPERS)(Private Equity/GTCR, Pension/CALPERS)

– Debt Debt (Equity Line/Citibank, Senior/Citibank, Mez./Allied Capital)(Equity Line/Citibank, Senior/Citibank, Mez./Allied Capital)

• Management teamManagement team

Financials are key, but strategy will be the deal closer

WHAT IS YOUR STRATEGY?WHAT IS YOUR STRATEGY?

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• What type of a team do you have?What type of a team do you have?

– Strategic Strategic (Consolidation)(Consolidation)

– Tactical Tactical (Turnaround)(Turnaround)

• How does your client’s team fit?How does your client’s team fit?

– Central casting / Track recordCentral casting / Track record

– Industry visionary / Customer relationshipsIndustry visionary / Customer relationships

– A / ZA / Z

Management Team Should Fit Your Strategy

WHO IS YOUR TEAM?WHO IS YOUR TEAM?

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• Exit strategyExit strategy

– Acquisition (cash, stock, warrants)Acquisition (cash, stock, warrants)

– IPO (stock, warrants)IPO (stock, warrants)

• Exit successExit success

– Strategic Acquisition (Miami, FL) telecom consolidation company resulted Strategic Acquisition (Miami, FL) telecom consolidation company resulted in return for investor and management of cash and liquid stock in return for investor and management of cash and liquid stock (management owned 51% under claw-back);(management owned 51% under claw-back);

– Consolidator Acquisition (Irvine, CA): telecom turnaround sold to a Consolidator Acquisition (Irvine, CA): telecom turnaround sold to a consolidator resulting in cash and restricted stock for investors and consolidator resulting in cash and restricted stock for investors and management.management.

– IPO/Reverse Merger (Fairfax, VA): management retained owning 49% IPO/Reverse Merger (Fairfax, VA): management retained owning 49% wholly owned subsidiary with need for broker to provide loan based on wholly owned subsidiary with need for broker to provide loan based on locked up stock and help sell stock (SEC rules);locked up stock and help sell stock (SEC rules);

Lots of Exit Options with Different Returns

HOW DO YOU GET RETURNS?HOW DO YOU GET RETURNS?

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CONSOLIDATIONCONSOLIDATION

RHC Case StudyRHC Case Study

J. David MorrisJ. David MorrisRed Hook CapitalRed Hook CapitalNEWCO ConsolidationNEWCO Consolidationjdm@RedHookCapital.comMobile: (703) 855-8433Mobile: (703) 855-8433

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• VisionVision

– Solutions Solutions

– TechnologyTechnology

• Experienced TeamExperienced Team

• M&A ExpertiseM&A Expertise

• Operation ExpertiseOperation Expertise

Highly Secure Communications Solutions

KEY FACTSKEY FACTS

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TechnologySolutions

• Turnkey solutions providerTurnkey solutions provider

• Highly secureHighly secure

• Customizable solutionsCustomizable solutions

• Platform integrationPlatform integration

Market Needs and DriversMarket Needs and Drivers

Source: Boston Consulting Group, CCV Website

ConclusionConclusion Emerging technologies drive highly secure global communications solution enterprise needs.

Emerging technologies drive highly secure global communications solution enterprise needs.

Enterprises Need Highly Secure Global Communication Solutions

WHY CREATE NEWCO?WHY CREATE NEWCO?

• Changing technology landscapeChanging technology landscape• Mission critical applications requirementsMission critical applications requirements• Multinational enterprisesMultinational enterprises

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• Highly Secure $1.5mHighly Secure $1.5m EBITDA 60%EBITDA 60%

• Secure $1.5mSecure $1.5m 30% 30%

• VAR $20mVAR $20m 10% 10%

• VAD $30mVAD $30m 5% 5%

VISION ON MARGINSVISION ON MARGINS

Move Business from Move Business from Value Added Dealer toValue Added Dealer to Highly Secure Solutions Highly Secure Solutions

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Management Team in Development

Interim CEO, JDMInterim CEO, JDMInterim CEO, JDMInterim CEO, JDM CFO, BSCFO, BSCFO, BSCFO, BS

• Visionary with M&A experience ;Visionary with M&A experience ;• Leadership roles ranging from MCI to Lockheed Leadership roles ranging from MCI to Lockheed

Martin.Martin.

• Track record CFO of multinational companies Track record CFO of multinational companies with diverse portfolio of companies;with diverse portfolio of companies;

• Leadership roles in IPO for MCI to other IPOs for Leadership roles in IPO for MCI to other IPOs for cutting edge technology companies.cutting edge technology companies.

President,/CAO TMPresident,/CAO TMPresident,/CAO TMPresident,/CAO TM Board, TSBoard, TSBoard, TSBoard, TS

• Former Sec. Air Force;Former Sec. Air Force;• More than 30 years government and contractor More than 30 years government and contractor

leadership roles.leadership roles.

• CFO with turnaround expert (Fairchild);CFO with turnaround expert (Fairchild);• More than 35 years investment banking More than 35 years investment banking

leadership.leadership.

President Solutions, MFPresident Solutions, MFPresident Solutions, MFPresident Solutions, MF President Technology, TBOPresident Technology, TBOPresident Technology, TBOPresident Technology, TBO

• TBATBA• Interim RHC turnaround advisorInterim RHC turnaround advisor

• TBATBA• Interim RHC track record sale technology Interim RHC track record sale technology

(strategic exit VC deal)(strategic exit VC deal)

MANAGEMENTMANAGEMENT

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2006 Revenue2006 Revenue(1)(1):: $125 million (Performa)$125 million (Performa)

Customers:Customers: Multinational corporations to the United States government. Multinational corporations to the United States government.

Two Operating Two Operating Divisions:Divisions:

Service (90% of revenue)Service (90% of revenue)Technology (10% of revenue)Technology (10% of revenue)

Acquisitions (10 targets)Acquisitions (10 targets)Organic (restructuring)Organic (restructuring)

(1) TBA1 2005 revenue casted by outside investment bank

(2) RHC, TBA1, TBA2

NEWCO at a Glance

2006 Earnings from 2006 Earnings from OperationsOperations(1)(1):: $15 Million (Performa)$15 Million (Performa)

Incorporated:Incorporated: TBATBA

EmployeesEmployees(2)(2):: 700 as of 2007 (from 1 in 2006)700 as of 2007 (from 1 in 2006)

Growth StrategyGrowth Strategy

OVERVIEWOVERVIEW

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• M&A 2q2005:M&A 2q2005: closingclosing $75 $75 million communications solution provider. million communications solution provider.

• M&A Pipeline:M&A Pipeline:

– Solutions: Solutions: cash flow positive (42+ targets)cash flow positive (42+ targets)

– Technology: Technology: market drivers (14+ targets)market drivers (14+ targets)

• M&A programM&A program

– Organic: Organic: synergistic growth & CCV Bus. Dev.synergistic growth & CCV Bus. Dev.

– Increased margins:Increased margins: Acquiring emerging technology companies that Acquiring emerging technology companies that can increase margins and provide competitive differentiators.can increase margins and provide competitive differentiators.

Multi-Strategy Approach

OUTLOOKOUTLOOK

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0

2

4

6

8

10

12

14

16

2004 2005 Year 1 Year 2 Year 3

0

100

200

300

400

500

600

Margin%

Organic Revenue: Technology 100% CAGRSolutions 20% CAGR

CCV Financial Performance(2004-2008)

SolutionsSolutions

TechnologyTechnology

FINANCIALSFINANCIALS

Technology Drives Solution’s Margins

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• VisionVision

– Solutions Solutions (Revenue)(Revenue)

– Technology Technology (Margins)(Margins)

• Experienced Team Experienced Team (Track Record)(Track Record)

• M&A Expertise M&A Expertise

• Operation ExpertiseOperation Expertise

Highly Secure Communications Solutions

KEY FACTSKEY FACTS