2012 Year-End Review

02/11/2013

Highlights include:

• Three new platform investments (all highlighted below)
• 22 add-on acquisitions at seven portfolio companies
• Sale of AmWINS after 16 add-on acquisitions
• IPO of Performant Financial Corporation (NASDAQ: PFMT)
• Secondary public stock offerings of KAR Auction Services, Inc. (NYSE: KAR) and Performant
• Final close on Parthenon Investors IV at its $700 million hard cap

The basic tenets of Parthenon Capital Partners’ (“Parthenon”) investment strategy have remained constant over the last decade – we look to partner with strong management teams to build and grow service-based businesses with recurring revenues, defensible niches and technology- and/or IP-based competitive advantages. This strategy has persevered and thrived in the challenging macro-economic and political environments that have become the new normal. Our portfolio has performed well and we’ve taken advantage of opportunities to make numerous add-on acquisitions (90 add-ons over the last four years), effect transformative mergers, acquire new platform companies and return capital to our LPs.

Highlights include:

• The recapitalization and growth investment in Merchant Warehouse (“Merchant Warehouse”; www.merchantwarehouse.com), a recognized leader in integrated payment solutions and merchant services. The company enables merchants, POS developers and VARs to achieve advantages through the delivery of current and emerging payment, offer and program solutions and merchant services that dramatically enhance the merchant-customer experience. Merchant Warehouse delivers a unified payment solutions portfolio coupled with full transparency and unparalleled customer service to SMBs. Parthenon’s investment in Merchant Warehouse serves to build upon their commitment to technological innovation. Less than six months into our investment, the company has already made three strategic acquisitions; two of niche processing business and the third a POS software business that expands the Company’s reach.
  We are excited to partner with Henry Helgeson, CEO and co-founder, to grow the business and build partnerships with the industry’s leading ISVs and resellers.
• Control recapitalization of Envysion (“Envysion”; www.envysion.com). Envysion develops and distributes networked digital video management systems for the recording, surveillance, security and operational intelligence application for commercial customers. Its cloud-based platform connects easy-to-use video with critical business data to provide actionable insights for improving businesses. By providing video-driven business intelligence™ into the hands of its customers, Envysion’s Managed Video as a Service (MVaaS) solutions transform traditional video surveillance into a strategic management tool. After a multi-year effort in this dynamic industry, we are partnering with CEO Matt Steinfort to build the “best-of-class” market leader in providing Saas-based security solutions for large and mid-size retail chains.
• Signed a definitive merger agreement to acquire White River Capital, Inc (NYCE: RVR) and its operating subsidiary Coastal Credit, LLC (“Coastal Credit”;www.coastalcreditllc.com). Coastal Credit is one of the leading sub-prime auto finance companies. This transaction is the culmination of a 10-year effort in the industry and intense three-year search for the right partnership. Bill McKnight, CEO, and his management team have a 25-year track record of excellence and growth in diverse market conditions and we look forward to working with the team to continue to build a national franchise.
• Sold AmWINS Group, Inc. (“AmWINS”; www.amwins.com) in June, after a seven year investment period during which the company more than tripled in most of its financial and operating metrics. AmWINS completed 16 acquisitions, built an international division and became the largest wholesale insurance distributor globally during our ownership. We appreciated the opportunity to work with Steve DeCarlo and his extremely talented management team and wish the company and its new owners well.
• Completed the initial public offering of Performant Financial Corporation (“Performant”; www.performantfinancial.com) on the NASDAQ in August and executed a secondary stock offering in January 2013. Performant provides technology-enabled recovery and related analytic services and solutions for government entities and private clients by identifying and recovering delinquent or defaulted assets and improper payments. We made our initial investment in 2004 and worked closely with the company over the last nine years to expand and adapt its core technology from the student loan industry into other verticals, including Medicare audit and recovery capabilities and state tax collection. Parthenon continues to be a significant shareholder and active on the Board of Directors. It’s impressive what the management team led by Lisa Im has accomplished over the last decade.
• Parthenon Investors IV, which we are actively investing, held its final close in February 2012 at its hard cap of $700 million, exceeding the fund target of $600 million. We appreciate the support from existing and new LPs.

We are pleased to announce that Zach Sadek was promoted to Principal at the end of 2012. Zach joined Parthenon in 2004 and focuses on business and financial services, including education and financial technology. Kurt Brumme joined in 2012 as Vice President in Boston from Harvard Business School and General Atlantic; Eli Berlin joined as Vice President in San Francisco via Stanford Business School and Irving Place Capital. New associates are Soren Sudhof from Oliver Wyman and Stephen Foster from Greenhill & Co.

Our criteria and focus remains the same:

• Control recapitalizations
• Equity investment of $20 million – $125 million per transaction and total enterprise value of $50 million – $500 million.
• Industry focusCommon criteria: recurring revenue streams, high intellectual property content, information or technology-intensive operations, route-based businesses
  • Financial and insurance services
  • Healthcare services
  • Business and technology services
• Buy-and-build situations
  • 2/3’s of our portfolio is highly acquisitive, averaging eight add-ons per company

There is plenty to keep investors and managers up at night – anemic economic growth, capital markets’ volatility, political and regulatory uncertainty, intense competition in most sectors. However, economic pockets of strength exist and we believe this type of environment creates opportunities for forward-thinking, disciplined and nimble investors. We continue to use our significant experience in targeted sectors, resources to understand complex situations, partnership focus and our long-term investment horizon to find, make and grow new investments.

Thank you for all your help and support. Our partnerships with you are essential to our business and we look forward to working with you in 2013. Don’t hesitate to reach out to any member of the Parthenon Capital Partners team. And if in Boston (new office address at One Federal Street) or San Francisco, please stop by to see us.