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Minuteman Ventures LLC REPORT FROM THE FRONT: Federal/Defense Technology M&A Whos Buying, Whos Selling, and Why Conference: Examining the Economic Impact of SBIR and STTR March 18, 2004 Paul Serotkin

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Minuteman Ventures LLC Today.. The Federal/Defense Technology Company Universe Current M&A Environment Seller/Buyer Profiles M&A Valuation/Deal Pricing in the Federal/Defense Technology Sector

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Minuteman Ventures LLC Investment Bank focused entirely on Federal/Defense Technology Sector Work with private firm owners approaching M&A as either 1) a first time strategic growth path, or 2) a liquidity event Founder involved with small business trade association in effecting passage of SBIR in 1982 Work with private and public companies in transacting corporate transactions

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Minuteman Ventures LLC The Federal/Defense Technology Company Universe Under $100m in revenue, often under $50m Closely held, few shareholders, with perhaps an ESOP holding a minority position and some option-holders; typically no outside capital Geographically strong in two, possibly three locations Having true market presence at two to three agencies Widely ranging services, systems and solutions across a spectrum demarcated by degree of commoditization, classified/intel work and technology differentiation - System engineering/integration, training, modeling/simulation, network services, technology R&D, legacy migration, database maintenance, logistics, software application development, program management/acquisition support, systems/platform systems, IT/communication technology Usually at least five years old, many times 15+ years duration Founder often involved, at least in ownership, if not operations Could have some SBSA/8a work remaining

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Minuteman Ventures LLC Government Technology Firms- Industry Stratification, By Revenue, FY02 Source: Eagle Eye Publishing/Government Services Insider

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Minuteman Ventures LLC Favorable M&A Environment for Federal/Defense Technology Firms Supportive Capital markets- $2bn in new issues last 18 mos.; aggregate 50% increase in03 enterprise values Inexpensive debt capital, with attractive lending ratios Government infusing more complex technology into processes and warfare More outsourced federal functions Public sector firms valued on basis of 15-20% annual growth Good visibility into future revenue, earnings and cash flow Modernization of legacy government IT systems Steady growth in government IT budget strongest in intel/defense and homeland security LEADING TO: Robust M&A pricing; market values at/near historic highs

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Minuteman Ventures LLC Reasons Behind the Robust Government M&A Market Record levels of Federal/Defense Technology M&A Transactions. Why? PART FEAR FACTOR, SECTOR MATURITY, CLASSIC MAKE V. BUY DECISION Sector Rotation Defense in vogue today - Will it be tomorrow? IPO Buyer Class of 02 will this potential buying class be smaller in a few years, i.e., Veridian, Titan already sold Active mid-tier buyers ($50m-$250m); strong private equity interest (success stories Anteon, SI, Veridian) Well-positioned firms (intel, security, C4ISR, network-centric warfare, law enforcement, public safety) yield M&A premium Attractive tech firms supporting homeland security and 3-letter agencies Large platform companies diversifying into services Uncertainty in market GWAC restructuring, small business recertification, performance-based contracts, base closure, War on Terrorism and deficits affecting civilian agency budgets

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Minuteman Ventures LLC Seller Transaction Profile Defense/Federal Technology (By Seller Size) Observations (70+ transactions since Q4 02) Mostly smaller companies 8 of 10 with revenue under $50m Ready willingness by large cos. to buy smaller ones