madison street capital financial services industry group

Financial Services Industry

Investment Banking Services

PRIVATE AND CONFIDENTIAL


Madison Street Capital – FSI Investment Banking Services

Table of Contents

SECTION 1 Financial Services Industry Practice 3

SECTION 2 M&A Advisory 6

SECTION 3 Capital Raising 13

SECTION 4 Restructuring Advisory 19

SECTION 5 Valuation Services 22

SECTION 6 About Madison Street Capital 26

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SECTION 1

Financial Services Industry Practice


FSI Practice Overview

MADISON STREET CAPITAL acts as a leading advisor to financial services companies across key verticals such as Banks, Insurance, Exchanges, Real Estate, Specialty Finance and Asset Management. The Financial Services Industry (FSI) group delivers the full spectrum of products across different regions and provides impartial, expert advice to corporations, management, institutions and individuals. With a first-rate network spanning around the world, our reach, intellectual capital and local knowledge enables us to develop relationships and deliver effective solutions to our clients, wherever their business takes them. This is why we are leaders in financial advice, worldwide. The FSI group caters to the following types of clients:

- Hedge Funds - Mutual Funds - Private Equity Firms - Domestic and International Banks - Asset Management Arms of Financial Institutions - Pension Funds and Endowments - Trading and Investment Research Firms - Fund Administration Firms - Brokerage Firms (on-line and traditional) - Insurance Companies and Re-Insurers - Trading Technology Firms

-Fund of Funds - Real Estate Funds - Real Estate Development Companies - Exchanges - FX trading Firms - CTA and other commodities Firms - Financial Technology Firms - Family Offices - CLO Managers - Business Development Corporations (BDCs) - Specialty Finance

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Madison Street Capital’s FSI practice offers a broad range of services including merger

and acquisition advisory services, debt and equity capital formation, strategic

alternatives advisory, fairness opinions, and valuation services:

FSI Practice Overview (cont.)

M&A ADVISORY

CAPITAL RAISING

RESTRUCTURING

VALUATION

• Sell-side and Buy-side

Advisory

• Divestitures and

Strategic Alliances

• Capital Introductions

• Due Diligence and

Transactional Support

• Seeding Transactions

•Early Stage Capital

Raising

-Private Placements

-Debt Financings

-Structured Debt/Equity

•Secondary Market

Transactions

• Access to Private/Public

Company Portfolios and

Transactions

• Strategic Alternatives

Advisory

• Recapitalization (Loan

Workouts; Refinancing)

• Portfolio Restructuring

(Wind Downs; Side

Pockets; Fund

Transfers)

• Asset Disposal and

Liquidations

• Distressed Debt

•Financial Opinions

(Fairness, Solvency, and

Transaction)

•Portfolio Valuations

(complex, hard -to-value

securities)

•Monthly, Quarterly, and

Annual Pricing Reports

•Enterprise/Company

Valuations

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SECTION 2

M&A Advisory


M&A Advisory

MSC provides M&A advisory to financial services companies that are looking to strategically enhance the value of their firms. Understanding that the most important asset our clients have are their people, we focus on structuring deals that make both financial and “cultural” sense. Aligning leadership, investment strategy, and growth initiatives leads to a successful combination.

For sellside engagements, our deal team performs a comprehensive financial analysis that

captures the firm’s pre-transaction value. We analyze the management company from multiple

perspectives, incorporating sophisticated valuation techniques, current industry metrics, and other

key data points. For buyside engagements, we undertake a very focused and disciplined process

that identifies key targets and minimizes extraneous information overload so that our client can

focus on their day-to-day operations. It is an iterative process that with the right level of

communication leads to high efficiency and optimal acquisition structures.

Our seasoned investment bankers negotiate and structure deals to maximize our clients’ short- and long-term objectives. We understand that to obtain the highest value there needs to be a path that rewards achievement of goals and help management with structuring earnouts and other forward looking compensation triggers, such as cash versus stock consideration, and mechanisms to allow our client to participate in the future growth of the firm. In addition, our experience enables us to provide strategic tax advisory pertaining to the allocation of a transaction’s proceeds in order to minimize the associated tax liabilities.

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M&A Advisory (cont.)

Furthermore, the FSI group’s extensive network enables access to a specialized industry universe

which is currently filled with highly opportunistic strategic and financial players. We interact with

many clients across the world and across multiple disciplines and industry specializations. MSC

is resourceful and creative when it comes to identifying interested parties, strategic alliances and

partnerships.

If the traditional route of an M&A transaction is not the best choice, whether it be size or stage of

the firm, MSC has helped introduce firms to strategic partners and capital sources in the form of sub-advisory agreements, allocations, seed capital deals as well certain licensing arrangements.

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Proper deal structure can narrow the gap between expectations

M&A transactions can be complex at times. Given that there has to be agreement

between both the buyer & seller that is predicated with the highest degree of trust – it

can be difficult to protect against every scenario through a contract. It is important to

balance incentives across all constituents and create a structure that retains this

alignment as best as possible post-transaction. For a buyer, they will need to ensure

interest remains sufficiently aligned with any selling equity holders who remains key to

managing the business and/or crucial to investment function.

As with most successful deals, a true partnership exists at the senior-most level of each

business. Below are key deal elements that should be considered, and in some cases,

need to be carefully designed in order to achieve success:

Earn outs

Staged sales/ Delayed or contingent payment of purchase price

Employment contracts/ Multi-year commitments post-transaction

Retention payments

Compensation plans

Put &Call Options

Equity grants

Separate treatment of management and incentive fee streams

Amount of retained equity in business by seller

Reinvestment of after-tax proceeds in the business

Consideration about day-to-day management /control of business

* Given the complexity of these type of deals, it is wise to have proper representation

with regards to investment banker, attorneys, accountants and other professionals.

MSC

Client

Tax & Estate

Planning

Law Firm

Employees

Madison

Street

Capital

Acquirer


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• Typically public or private corporations

currently involved in similar or

complementary business line

• Places a greater emphasis on identifying

and realizing potential revenue and cost

synergies

• Rationale for acquisition more strategic in

nature (i.e. reducing competition, enter

new geographic markets, etc.)

• Typically concerned with generating long-

term value from acquisition and

effectively integrating the target into the

buyer’s existing operations

• Higher valuation could be supported by

the realization of synergies

• Does not have a similar business in

existing investment portfolio

• Seeks entry into an attractive market

with potential for growth and

definable exit strategy

• Acquisition can serve to diversify

investment portfolio and create a

platform for future acquisitions in the

same space

• Identification of opportunities to

create value through a strategic

• Has a similar or complementary

business in existing portfolio of

investments

• Acquisition drivers are typically

similar to those of strategic buyers,

but additionally driven by the need to

put raised capital to work and grow

investments before fund life expires

• Often an ideal buyer as they have

financial resources of private equity

backing and strategic rationale to

support a favorable purchase price

FINANCIAL BUYERS

Raises capital in funds from various sources to invest in businesses with the expectation of exiting within a relatively short time period (typically five to seven years) to achieve a targeted rate of return for investors (generally 20% to 25%)

ADD-ON PLATFORM

STRATEGIC BUYERS






synergies


















same space



partnership



investments















synergies










FINANCIAL BUYERS

Raises capital in funds from various sources to invest in businesses with the

expectation of exiting within a relatively short time period (typically five to seven

years) to achieve a targeted rate of return for investors (generally 20% to 25%)

ADD-ON PLATFORM

STRATEGIC BUYERS






synergies





term value from acquisition and effectively

integrating the target into the buyer’s

existing operations











same space



partnership



investments











Types of Buyers

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Number of transactions completed

Integration success of previous transactions

Integration planning effort

Marketing

Financing relationships

Credit approval process of financing source

Financing structure of current operations

Equity available

Returns to equity participants

Deal with the decision makers who can allocate capital

Strong strategic fit – core business:

Strategic logic: component, module, system

Geographic reach; low cost sourcing opportunity

Capacity needs

Capable of identifying and implementing process improvements

Capable of bringing engineering and design improvements

Focused purchasing effort could generate material cost reduction

Customer diversification


Assessing Deal Structure and Options

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Enterprise Company Valuation

Advisors who need enterprise values for their companies count on MSC to provide

comprehensive, detailed analytical reports that capture the firm’s fair value, whether it is for

strategic or financial reporting purposes.

MSC provides guidance to advisors regarding compensation and incentive structures that are

strategic and can be supported by the firm’s existing capital structure and comply with federal and

state laws and tax regulations.

MSC’s proprietary financial services company valuation model uses a fundamental approach to

forecast future growth rates across each product/strategy. Other items taken into consideration

include existing revenue streams, sales pipeline, current and projected asset/subscriber base,

operating expenses, etc.

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SECTION 3

Capital Raising


Capital Raising

Our FSI group acts in several capacities on capital raising projects such as financial advisor and

arranger of senior/mezzanine debt and equity for capital requirements. Our capital raising services

include:

On-going enterprises seeking growth capital

Revenues track record above $10 million (USD)

EBITDA profit levels above $1 million (USD)

Quantifiable track record of growth

Companies interested in capital raising towards M&A activities: buy or sell roles

Other Special Situation Projects across different stages of Development

Furthermore, MSC has a world-class network of financial sponsors that are mandated to lend to

middle market opportunities both domestic and internationally based. These include specialty

finance companies, hedge funds, certain US and global commercial banks and other alternative

lending sources.

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Distinctive Approach:

MSC negotiates ideal deal terms based on agreed upon strategic objectives. Key elements of MSC’s negotiation methodologies include valuation considerations and risk mitigation strategies

Selection of our capital partners in our engagement execution

strong relationships with lending groups interested in the financial services segment;

strong partnerships with government agencies (like SBA) supporting middle market initiatives; and

negotiations capabilities to reach the best terms to our clients

We conduct an in-depth pre-marketing phase leveraging MSC’s extensive network with institutional investors to:

understand the market’s appetite for the deal;

identify potential sources of funds (SOFs); and

validate and/or improve our clients business plan

Our deal execution team processes and negotiates our deals from start to finish including coordinating due-diligence and the communication process with prospective investors

Capital Raising (cont.)

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MSC serves as an intermediary in negotiations

Insulates the owners and management from the need to make immediate decisions

Ability to act as the ‘bad cop’ and not sour the buyer on the transaction or the owners and

management team

MSC professionals leverage industry and financing experience

Prepares a company for the transaction process and can provide suggestions on how to

enhance value in the eyes of lenders

Understands the implications of different deal terms and how to guard clients against

disadvantageous conditions

MSC process allows management to concentrate on the day-to-day issues of running the

business

Avoid neglecting customers, vendors, and employees

It is critical that the business continues to perform well during the transaction process

MSC raises the sophistication level of the transaction and maximizes potential value

Lenders assume they can lend to companies at the highest pricing level

Representation translates directly into more advantageous transaction terms


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Madison Street Capital provides investment banking services to corporations and institutions

throughout the United States and around the world. Our model provides clients with new sources

of demand by effectively penetrating 2nd and 3rd tier investors that are typically overlooked by

large firms as well as large tier 1 accounts with a goal of creating a diverse investor base

Our Competitive Advantage:

Distribution capabilities to place a significant volume of securities with institutional investors

Diverse investor base that includes: Financial Institutions, Corporations, Money Managers,

Mutual Funds, Pension Funds, State and Local Governments, Unions, Endowments and

Foundations

Access to deep pools of capital based on relationship with pension funds

Reputable team exceptionally qualified to lead-manage or co-manage significant transactions


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SECTION 4

Restructuring Advisory


Restructuring Advisory

Our FSI group provides a comprehensive suite of restructuring services for firms seeking to restructure in

the midst of current market conditions. Financial Services firms face continuing pressure to maintain

platforms that adhere to the ever-changing accounting and regulatory standards that impact the industry.

Also, continued consolidation within the financial services industry requires a unique set of services and

skill sets to serve the critical needs of firms looking to provide investors with a broad array of options.

Our experience in advising companies looking to provide investors with choices, whether it be exploring

strategic alternatives, having funds placed in a liquidating trust where investments will be sold and the

cash paid out over time, splitting a fund into a liquid and illiquid master fund represented by different share

classes is unparalleled. Our professionals have acted as an advisor on a number of fund restructuring

engagements as we have an extensive network of alternative investment managers making markets

across a wide variety of asset classes. The restructuring is designed to meet clients’ objectives to retain

assets under management, while also creating synergies among trading platforms.

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Restructuring Advisory (cont.)

Asset Level

• Structuring and Arranging the Sale of Securities

• Maximizing the Value of Assets

• Distressed Sales

• Bulk sales of assets

Portfolio/Fund Level

• Side Pocket Structuring and Valuation

• Advising and Valuation of Dissolutions

• Wind Downs for Both Onshore and Offshore

Complex Hedge Funds

• Evaluation of Alternative Restructuring and

Remediation Proposals

• Sales of performing and nonperforming loans

Corporate/Company Level

• Strategic Alternatives Advisory • Loan Workouts and Refinancing • Dividend Recapitalization • Corporate Reorganization • Advisory Related to Lock-Up Periods • NAV Calculation, High-Water Mark Resets and

External Valuation Opinions • Take-Private Transactions • Solvency Opinions • Fairness Opinions • Restructuring existing debt and equity • Business and securities valuation • Structuring, negotiation and confirmation of

plans of reorganization • Structuring and analysis of exchange offers • Procuring DIP financing • Prepackaged and prenegotiated plans of

reorganization

Restructuring Service Levels

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SECTION 5

Valuation Services


Valuation Services

MSC provides ongoing valuation services for a diverse set of financial services clients. Our team of valuation experts understand the severe risks caused by inadequate disclosure regarding complex and hard-to-value investments. Given the material impact that the measurement of certain riskier investments can have on the Net Asset Value, it is instrumental to have a well experienced professional firm like Madison Street Capital assist in providing the correct and accurate fair values.

Investment management firms are heavily dependent on the validity and integrity of security pricing and portfolio valuation. MSC has decades of valuation experience providing companies with objective, independent, and defensible opinions of value that meet accounting and regulatory requirements. We combine technical expertise with best practice modeling techniques to perform complex financial instrument and portfolio valuation.

Our experiences from both the audit and financial valuation world have established us as a

service provider renowned for dealing with the most complex and hard-to-value securities. MSC’s

senior leadership team has a clear understanding of the level of independent support that is

required for auditors to issue a positive opinion, which overall leads to an efficient and more cost-

effective period-end process.

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Portfolio Valuation – Complex and Hard-to-Value Assets

MSC provides extensive valuation services to hedge funds, fund advisors, fund

administrators, and related financial services firms. Our reports are highly transparent, which

ensures a deliverable that is well-accepted by clients and their auditors, such as:

Valuation Services (cont.)

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On-Going Experience / Client Communication

MSC provides ongoing valuation services to several of its clients, especially as it pertains to the periodic

updating of fair value estimates.

MSC works with its clients to keep abreast of current developments. Although our approach takes into

consideration changes to both internal and external factors, we understand the need for consistency and

our senior reviewers ensure that there are no significant swings in the value (unless there are

extraordinary causes that would warrant it).

Upon completion of initial due diligence and conducting its independent valuation analyses, a draft

summary of the valuation is provided to the client. This allows the client to provide initial feedback on the

assumptions and preliminary conclusions, prior to sending the full report. The nature of feedback is

typically potential factual inconsistencies versus subjective differences of opinion, which adheres to our

independence policy.

Our findings and analyses are well-documented in a written report with our assumptions and valuation

methodologies clearly explained and supported. Additionally, our detailed reports and documentation

increase management efficiencies throughout the audit and financial reporting processes.

Valuation Services (cont.)

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SECTION 6

About Madison Street Capital


About Madison Street Capital

MADISON STREET CAPITAL is a global investment banking firm

committed to the highest standards of integrity and service in

providing corporate financial advisory services, merger and

acquisition expertise, financial opinions, and valuation services to

publicly and privately held businesses. We have offices in North

America, Asia, and Africa.

We have specialized expertise in partnering with middle-market

firms in hundreds of industry verticals and niche markets to achieve

the best possible outcome through a variety of transactions. We

analyze each client’s unique needs to obtain the best match

between buyers and sellers, arrange appropriate financing, and

create capitalization structures that optimize the client’s potential.

Madison Street Capital is your trusted partner and leading provider

of financial advisory services, M&A assistance, and valuations.

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For more information please contact :

Karl D’Cunha

105 W. Madison Street, Suite 1200

Chicago, IL, 60602

(312) 529-7000

[email protected]

madison street capital financial services industry group

Presentations & Public Speaking

put raised capital

fund life expires

realizing potential revenue

diversify investment portfolio

ongoing valuation services

short time period

financial services companies

confidential capital raising