Parthenon Capital Mid-Year Update

07/27/2020

It is hard to believe the longest bull market in history only ended on March 10, 2020, just a few months ago. We are in a unique period for the entire world, with few precedents and significant economic, business, political and social uncertainty. While we are confident this is a moment in time, it seems increasingly likely that the Covid-19 pandemic and racial unrest will shape generations to come.

We continue to challenge ourselves to grow and rise to the occasion. Parthenon’s core values remain constant: we embrace change and harness new methods and technologies; we emphasize results achieved through sound strategic thinking and hard work; we foster entrepreneurial spirits and curiosities; we promote transparency and make fact-based decisions; we are partnership-oriented and constantly strive for a better future. Our decades-long focus on financial services, healthcare services and business services subsectors provide the ability to make decisions based on long-term trends, to not be distracted by near-term volatility, to make significant strategic and operational contributions and to execute in the moment.

These principles and our industry specialization stand steadfast in both good times and dark periods and are demonstrated by significant accomplishments over the last couple months in the teeth of the crisis:

• Investment in RxSense announced in May 2020, a leading HCIT company that utilizes a proprietary technology platform to provide innovative prescription savings offerings to consumers and pharmacy benefits administration and analytic solutions to enterprise clients, following a multi-year deep dive on opportunities to reduce prescription drug costs, improve access to medications and increase transparency in pharmacy benefits
• Investment in Nuvem announced in July 2020, a healthcare technology company offering pharmacy claims administration and related analytics solutions that delivers business efficiencies to safety net providers that serve vulnerable patient populations
• Investment in a Diversified West Coast Insurance Distribution Business in April 2020 and while not yet broadly unveiled, we are excited to be back in the insurance brokerage and MGA sector and believe that the hardening insurance market provides a compelling backdrop to build a diversified, super-regional leader
• Sale of Seaside National Bank & Trust to United Community Banks (UCBI: NASDAQ) in July 2020, after a successful 10-year investment originated in the depths of the last financial crisis
• Acquisitions of RAA, Houston Asset Management and Capstone Capital by portfolio company Allworth Financial, a leading provider of financial planning and investing services, with all three executed during the first half of 2020 and thereby increasing AUM by more than 50% and creating a super-regional presence

Additional transactional and organizational milestones over the last 12 months include:

• Sale of ScentAir, the pioneer and market leader in commercial scent marketing solutions, announced in February 2020 after five-year hold in which the business more than doubled
• Combination and recapitalization of NXGEN, PayScape and PayRoc in October 2019 to create a mid-market leader in integrated payments poised to take advantage of recent payment industry consolidation
• Investment in MRO, a leader in providing and managing technology and services for the secure, compliant and efficient exchange of protected health information, in October 2019
• Investment in DaySmart, provider to various SMB sub-markets of integrated business management software that enables their customers to simplify operations and automate critical functions, in October 2019
• Combination of Parthenon portfolio companies Zelis and RedCard in September 2019 with an investment from affiliates of Bain Capital, creating an end-to-end provider of technology and solutions to healthcare payers and providers to price, pay and explain claims
• New offices in Boston at 399 Boylston Street, 13th Floor and Austin at 1400 Lavaca Street, Suite 1300
• Raised and closed on Parthenon Investors VI with capital commitments of over $2 billion in December 2019
• Continued building of the team that includes the addition of Joe Taveira, Chief Financial Officer; Mara Edgar, Chief Human Resource Officer and Director of Portfolio HR and TM; and Jared Pomerance, Vice President

We are positioned and poised to play offense and continue to execute. Parthenon’s investment strategy remains the same → we partner with strong management teams to build, grow and transform businesses in our core sectors with recurring revenues, defensible niches and technology and/or IP-based competitive advantages.

Primary investment criteria include:

• Equity investments of $50 million – $250 million per transaction and total enterprise value of $75 million – $750 million
• Flexible ownership and structuring parameters but always partnership-oriented
• Sector and niche focus
  • Financial and insurance services
  • Healthcare technology and services
  • Business services, technology and software
• Transformational focus
  • Buy-and-build with 2/3s of our portfolio highly acquisitive, averaging eight add-ons per company
    • Willingness to start small and execute ambitious growth plans
  • Resources to develop and build infrastructure and repeatable process: sales and marketing, capital markets, M&A integration, IT, HR and talent management, finance and reporting
  • Ability to understand complicated and off-the-run situations

With an unclear economic outlook and ongoing limited travel and social distancing, we believe our deep knowledge, decades of experience and insights into our core sectors stand-out as we are able to evaluate opportunities and risks efficiently and effectively by leveraging our relevant experiences, networks and resources. We believe the result is higher quality interactions and better outcomes for management teams, owners and bankers.

Please don’t hesitate to reach out to us in the most convenient manner. We miss spending time with you in person but know this too shall pass. In the meantime, we move forward on our journey, stick to our core principles, find and make investments in our targeted sectors and strive to be outstanding stewards and partners.