2013 Year-End Review

01/28/2014

The last 12 months continued to be active:

• Four new platform investments
• 22 add-on acquisitions at seven portfolio companies
• Sale of Official Payments
• Secondary stock offerings of Performant Financial Corporation (NASDAQ: PFMT)
• Exit via public stock offerings of KAR Auction Services, Inc.  (NYSE: KAR)
• 12 debt financings and/or refinancings in the portfolio

Parthenon Capital Partners’ (“Parthenon”; www.parthenoncapital.com) investment strategy has 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. We believe this focus allows us to better assess risk and identify opportunities and ultimately be better partners for bankers, financing sources, management teams and entrepreneurs in the face of dynamic and competitive markets.  While the economy has technically recovered from the recession and we are optimistic about growth, we believe the financial markets have outpaced the underlying fundamentals potentially sowing the seeds for future dislocation.  We continue to take advantage of robust capital markets and remain vigilant in our investment decisions based on the fundamental characteristics of our target industries and the opportunities therein.

Highlights include:

• Control recapitalization of Envysion (“Envysion”; www.envysion.com).  Envysion is a Software-as-a-Service company that develops and distributes technology to retail, cinema and QSR customers.  Its cloud-based platform connects video with critical business data to provide actionable insights to drive operational improvement. We partnered with CEO Matt Steinfort to build the “best-of-class” market leader in providing SaaS-based operational solutions for large and mid-size retail chains.

• Acquisition of White River Capital, Inc (NYSE: RVR) and its operating subsidiary Coastal Credit, LLC (“Coastal Credit”; www.coastalcreditllc.com).  One of the leading sub-prime auto finance companies, Coastal Credit is the culmination of a 10-year effort in the industry and an intense three-year search for the right partnership.  The Company has a 25-year track record of underwriting excellence and growth in diverse market conditions, and we look forward to working with the team to continue to drive operational improvements, invest in technology and build a national franchise.

• Control recapitalization of eSecLending (“eSec”; www.eseclending.com), the leading independent global securities lending agent, provides customized securities lending, auction and collateral management solutions for institutional investors worldwide.  We partnered with industry veteran Craig Starble to build on its strong technology platform and track record of customer alignment to grow a world-class securities lending business.

• Sale of Official Payments (“OPC”; www.officialpayments.com) in November, after an eight-year hold during which the company successfully sold off legacy non-core payment businesses and reinvested in its core business of providing payment solutions for the IRS, state and local governments, municipal utilities, higher education institutions and charitable given organizations. OPC was acquired by ACI Worldwide (NASDAQ: ACIW), a diversified, global payments business.

• Exit via public stock offerings of KAR Auction Services, Inc. (“KAR”; www.karauctionservices.com) in a 13-month period based upon strong operating performance and public equity market sentiment.    Our initial investment occurred in 2005 in a predecessor company Insurance Auto Auctions (auto salvage market) which acquired ADESA (used-vehicle wholesaler and related finance company) in 2007 to create a comprehensive solution provider in the auto auction market.

• Following the initial public offering of Performant Financial Corporation (“Performant”; www.performantfinancial.com) in August 2012, two secondary stock offerings were executed in 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.  During our investment, the company expanded and adapted 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 on the Board of Directors.

Collin Lesser was promoted to Senior Associate in 2013 and new associates are Tom Hough from BlackArch Partners, Patrick Gordon from Bain & Company and Rob Monaco from Barclay’s.

Our criteria remain the same:

• Control recapitalizations
• Equity investment of $20 million – $125 million per transaction and total enterprise value of    $35 million – $500 million
• Industry focus
  • Financial and insurance services
  • Healthcare services
  • Business, information and technology services
• Common criteria: recurring revenue streams, high intellectual property content, information or technology-intensive operations, route-based businesses
• Buy-and-build situations
  • 2/3’s of our portfolio is highly acquisitive, averaging eight add-ons per company

Within our sectors and throughout the economy, a key theme is the ever-expanding scope of governmental and regulatory frameworks.  While creating more complexity and uncertainty, established participants often face substantial pressure to adjust, deal with legacy issues and/or change operating models.  This in turn creates opportunities for entrepreneur companies that can develop and deliver solutions whether for established players or end-users.  We have substantial experience and resources in regulated industries and working closely with operators to position and build businesses to succeed in evolving markets.  These trends are likely for the foreseeable future and we continue to work hard to stay nimble, alert and accurate so to maximize probability of successful outcomes.

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 2014.  Don’t hesitate to reach out to any member of the Parthenon Capital Partners team.  And if in Boston or San Francisco, please stop by to see us.