Jayhawk CorporationConfidential LBO ProposalDecember 2014

Michael PengJon FarchminRob Rawlings

Company Overview● Jayhawk - Specialty Valve Manufacturer

for automotive & oil & gas industries○ With our customers, we design and

manufacture customized valves○ Auto industry - lubrication and air

drying systems for manufacturing equip

○ Oil & gas industry - emergency shutoff, spray rinse, & sampling valves for extraction and processing

● Family business - started in 1989

● Quality management - average 10 yrs. w/Jayhawk, 25 yrs. industry

Company OverviewReasons for sale

● Current CEO is retiring - wants more time to travel to see grandchildren

● Potential family heirs pursuing other careers (teaching, law)

Company Overview

● Investment opportunity

○ Given the base case assumptions, Jayhawk is a strong investment opportunity that could provide an 18% annual return over a 5 year holding period.

○ Jayhawk is valued at a private company discounted 4.5x EBITDA multiple, or $21.2MM.

Company Overview

● Key profit drivers○ Automotive manufacturing plants in

North America

○ Oil & gas drilling & manufacturing in North America

● Key strengths○ Customer diversity

○ Strong, experienced management

○ Ability to design, not just manufacture

Company Overview● Stability of Revenue - Historically 5.5% for

the past 10 years

○ Historically 5.5% for the past 5 years (industry average is 2.38%)

○ Expanded oil & gas industry revenue during automotive downturn of early 2000’s

● EBITDA Margins = 15% of Gross Revenue (Delphi avg. is 18.24%)

Industry Dynamics● Five major players in the Auto and Truck Parts industry

o C4 (concentration of top 4 competitors) is 27% (IBISWorld website)o $16.5B Industry (CSI Markets website)

● Industry driverso Demand in auto manufacturingo World price of crude oilo Consumer confidence index

● Industry expecting to grow 5.7% for the coming year.o Q3 2014 saw a Y/Y growth of 5.7%

● Highly cyclical industry and highly competitive with foreign entrants.

Financials & AnalysisBasics

● 255,000 units in 2014 represents continued 5.5% annual growth

● Employee levels

● Currently renting facility in Lawrence, KS - $5.6/sq. ft. annual, 200,000 sq. ft.

Income Statement● 50 Days Sales Outstanding

○ Collections rate○ How financed

● Inventory turnover rate = 4.5

● Annual CAPEX of $97,500, or 2.5% annual equipment replacement rate

● Assumed 4.5% growth rate is below historical average of 5.5%

Income Statement

Balance Sheet

Statement of Cash Flows

Financials & Analysis

Proposed Valuation

Proposed Valuation

● (--) Small company - 200 employees

● (++) Strong management○ average 10 yrs. w/Jayhawk○ average 25 yrs. industry

● (++)Stable Revenue - Historically 5.5% for the past 10 years

● (++)EBITDA Margins = 15% of Gross Revenue

● (+-)Diversifying customer base○ auto makers○ oil & gas manufacturers○ growth opportunities internationally

Valuation Analysis

Proposed Capital Structure

Future Growth Opportunities● Large Oil & Gas company represents 15% of current sales.

○ Market niche opportunity○ North American oil production investments already underway○ Companies replacing existing equip. & adding new

● Canadian customers○ new in the past two years○ 5% of sales○ potential for growth

● Reaching new customers● Path to future growth

Customer diversification - auto manufacturing and oil & gas manufacturersStrong management

Value

Jayhawk is valued at a private company discounted 4.5x EBITDA multiple, or $21.2MM.

Given the base case assumptions, Jayhawk is a strong investment opportunity that could provide an 18% annual cash on cash return over a 5 year holding period.

Base assumptions:● 4.5% growth rate - this is lower than recent historical rates● $ 4MM equity investment