Schulte Roth & Zabel Private Equity Buyer/Public Target M&A Deal Study 2013-14 Review and Comparative Analysis Private Equity Buyer/Public Target M&A Deal Study 2013–14 Review and Comparative Analysis In this edition of the Schulte Roth & Zabel Private Equity Buyer/Public Target M&A Deal Study, we survey private equity buyer acquisitions of U.S. public companies from 2013 to 2014. Focusing on key terms in middle and large market acquisitions valued at over $100 million, we also compare our findings with our previous analysis of transactions from 2010 to 2012. The Deal Study identifies key market practices and deal trends, and its appendices present additional data that will be helpful to participants in today’s M&A markets. Table of Contents Survey Methodology 2 Key Takeaways 3 Market Activity — Number and Value of Transactions 5 Deal Structure — One-Step Merger vs. Two-Step Tender Offer/Back-End Merger 6 Target Fiduciary Duty Issues — “Go-Shop” Provisions 7 Deal Protections for Buyer 8 Deal Certainty Provisions for the Target 13 Appendix A — Surveyed Transactions 17 Appendix B — Marketing Periods 23 Appendix C — Break-Up Fees and Reverse Termination Fees 24 Authors and About SRZ’s Mergers & Acquisitions Group 29 2 | Schulte Roth & Zabel Survey Methodology This survey was conducted as follows: • We reviewed the treatment of certain key deal terms in all private equity buyer/public target cash merger transactions entered into during 2013 and 2014 involving consideration of at least $100 million, totaling 42 transactions, which we refer to as “2013–14 Transactions,” divided for purposes of our analysis of certain deal points into the following two groups: - Transactions involving consideration of at least $100 million but less than $500 million in enterprise value1 (totaling 18 transactions, which we refer to as “2013–14 Middle Market Transactions”); and - Transactions involving consideration of at least $500 million in enterprise value (totaling 24 transactions, which we refer to as “2013–14 Large Market Transactions”). • We then compared the treatment of such deal terms with the deal terms in similarly sized private equity buyer/ public company-target cash merger transactions entered into between 2010 and 2012 (which we refer to as “2010–12 Transactions,” divided similarly into “2010–12 Middle Market Transactions” and “2010–12 Large Market Transactions”) and, where applicable, set forth detailed analysis of any notable changes in the deal terms. Please note that (i) the findings of our survey are not intended to be an exhaustive review of all terms in the transactions — instead, we report only on those matters that we believe would be most interesting to the deal community; (ii) our observations are based on a review of publicly available information for the transactions; (iii) the transactions accounted for only a portion of M&A activity during the periods and may not be representative of the broader M&A market; and (iv) our comparative analysis is affected by the data sets not being of the same sample size. A list of the surveyed transactions can be found in Appendix A. 1 The enterprise values of the 2013–14 Large Market Transactions ranged from $512 million to $28 billion, and the enterprise values of the 2013–14 Middle Market Transactions ranged from $109 million to $395 million. Private Equity Buyer/Public Target M&A Deal Study: 2013–14 Review and Comparative Analysis | 3 As expected, we continue to observe a “market practice” regarding a number of the key deal terms. • Deal Structure - Approximately 71% of the 2013–14 Transactions were structured as one-step mergers. - However, tender offers are becoming significantly more prevalent — the two-step tender offer/back-end merger structure was used in 29% of the 2013–14 Transactions as compared to only 7% of the 2010–12 Transactions. - More targets are engaging in pre-signing market checks2 — leading to fewer “goshop” provisions. “Go-shop” provisions were included in 29% of the 2013–14 Large Market Transactions and 22% of the 2013–14 Middle Market Transactions as compared to 47% of the 2010–12 Large Market Transactions and 31% of the 2010–12 Middle Market Transactions. o The “go-shop” periods have shortened. In the 2013–14 Transactions, the “goshop” period was on average 33 days (median: 30 days) as compared to 39 days (median: 40 days) for the 2010–12 Transactions. • Buyer Financing - None of the 2013–14 Transactions provided the buyer with a financing closing condition. - However, approximately 83% of the 2013–14 Large Market Transactions contained “marketing period” provisions.3 • Buyer Deal Protections - None of the 2013–14 Transactions included a traditional “force the vote” provision. - None of the 2013–14 Transactions provided the buyer with a closing condition regarding appraisal rights. 2 3 - All of the 2013–14 Transactions provided the buyer with match rights and “last look” match rights. - All of the 2013–14 Transactions included a “tail provision” that applied in the event the merger agreement was terminated under certain circumstances. - The target’s break-up fees have grown (on a mean/median basis): o For the 2013–14 Large Market Transactions the mean break-up fee was 3.3% of target equity value (median: 3.2%) as compared to 3.1% (median: 3.0%) for 2010–12 Large Market Transactions.4 o For the 2013–14 Middle Market Transactions the mean break-up fee was 3.5% of target equity value (median: 3.6%) as compared to 3.3% (median: 3.1%) for 2010–12 Middle Market Transactions. • Target Deal Protections - Approximately 81% of the 2013–14 Transactions (83% of the 2013–14 Large Market Transactions and 78% of the 2013-14 Middle Market Transactions) gave the target company a limited specific performance right that was available only if (i) the buyer’s closing conditions to the merger agreement were satisfied; and (ii) the buyer’s debt financing was available. - The buyer’s reverse termination fees (“RTFs”) have remained consistent — at approximately 6.5% of the target’s equity value — for the deals with single-tier RTFs. (Note that most surveyed transactions used a single-tier RTF structure as compared to a two-tier structure.) 4 Key Takeaways 2 For purposes of this Deal Study, we characterized a deal as involving a “pre-signing market check” if the “background of the merger” discussion in the applicable proxy statement or Schedule 14D-9 disclosed that (i) the target solicited interest from at least 25 possible bidders pursuant to an active process prior to execution of the applicable merger agreement; (ii) the target was in discussion with five or more possible bidders without engaging in a broader solicitation of interest; or (iii) the target issued a public announcement to the effect that it was exploring “strategic alternatives.” 3 In the middle market deals, such provisions are considerably more scarce: Only 44% of the 2013–14 Middle Market Transactions contained “marketing period” provisions as compared to 23% of the 2010–12 Middle Market Transactions. 4 We note that the transactions with the high (WCA Waste Corporation/Macquarie Infrastructure Partners) and low (Quest Software, Inc./Insight Venture Partners) data points for 2010–12 break-up fees are statistical outliers (10.7% and 0.3%, respectively) and have not been included in the calculations above. 4 | Schulte Roth & Zabel - Interestingly, for those deals with a twotier RTF structure, the higher-tier RTF has decreased in size (as a percentage of the target’s equity value) — from 12.0% mean/7.2% median for the 2010–12 Large Market Transactions to 9.2% mean/4.7% median for the 2013–14 Large Market Transactions, and from 7.9% mean/9% median for the 2010–12 Middle Market Transactions to 6.4% mean/6.0% median for the 2013–14 Middle Market Transactions — perhaps converging on the 6.5% single-tier RTF norm. - Uncapped damages for buyers’ “willful breach” are becoming exceedingly rare — only 5% of the 2013–14 Large Market Transactions and 17% of the 2013–14 Middle Market Transactions provided for uncapped damages in the case of a buyer’s willful breach as compared to 20% of 2010–12 Large Market Transactions and 42% of 2010–12 Middle Market Transactions. 2013–14 “What’s Market” Summary Guide Deal Term Large Market Middle Market One-Step Merger Structure “Window Shop” Provision “Marketing Period” Provision No Financing Condition Target Only Has a “Limited Specific Performance” Right No Appraisal Rights Closing Condition Match/“Last Look” Match Rights Mean Target Break-Up Fee 3.3% 3.5% Use of a “Single-Tier” Buyer RTF Mechanism 5 Mean Buyer RTF (Single-Tier Structure) 6.4% 6.7% Damages for Buyer Breach Capped at RTF Note: Check marks indicate consistency in 75% or more of the relevant deals.5 5 Note that of the surveyed 2013–14 Middle Market Transactions and 2010–12 Middle Market Transactions, 73% and 80%, respectively, used a single-tier RTF structure. Private Equity Buyer/Public Target M&A Deal Study: 2013–14 Review and Comparative Analysis | 5 As noted in the chart below: • Overall, the number of announced transactions within our parameters in 2013–14 decreased (on a yearly basis) as compared to 2010–2012 — by 28% for the Large Market Transactions and by 32% for the Middle Market Transactions. • The deal value, however, increased — from $1.5 billion mean/$956.0 million median for the 2010–12 Large Market Transactions to $4.0 billion mean/$1.0 billion median for the 2013–14 Large Market Transactions, and from $231.3 million mean/$216.9 million median for the 2010–12 Middle Market Transactions to $285.8 million mean/$308.4 million median for the 2013–14 Middle Market Transactions.6 6 We note that the two high data points (Dell Inc./Silver Lake Partners and H. J. Heinz Company/Berkshire Hathaway Inc.) contribute significantly to the difference between the mean and median for 2013–2014 Large Market Transactions. Market Activity — Number and Value of Transactions .5 1.0 1.5 2.0 2.5 2010 2011 2012 2013 2014 Mean Equity Value ($ in billions) Number of Transactions 5 10 15 20 25 30 35 3.0 40 0 2013-14 Mean Equity Value Number of Transactions 2010-12 Mean Equity Value 27 36 32 22 15 Quarterly Deal Volume and Mean Equity Value 6 | Schulte Roth & Zabel Deal Structure — One-Step Merger vs. Two-Step Tender Offer/Back-End Merger We reviewed the 2013–14 Transactions to determine whether they were structured as one-step statutory mergers or two-step tender offer/back-end mergers. Overall, the two-step tender offer/back-end merger structure was used more frequently in the 2013–14 Transactions than in the 2010–12 Transactions (21% vs. 7%). In particular, 21% of the 2013–14 Large Market Transactions and 22% of the 2013–14 Middle Market Transactions used this structure as compared to 8% of 2010–12 Large Market Transactions and 5% of the 2010–12 Middle Market Transactions. Large Market Deals Seventy-five percent (75%) of the 2013–14 Large Market Transactions were structured as reverse triangular mergers, and 25% were structured as tender offers. In comparison, 82% of the 2010–12 Large Market Transactions were structured as reverse triangular mergers, and 18% were structured as tender offers. Middle Market Deals Sixty-seven percent (67%) of the 2013–14 Middle Market Transactions were structured as reverse triangular mergers, and 33% were structured as tender offers. In comparison, 77% of the 2010–12 Middle Market Transactions were structured as reverse triangular mergers, and 23% were structured as tender offers. Historically, private equity buyers have been reluctant to use the two-step structure because, among other things, the margin rules limiting borrowing to 50% of the value of the collateral pledged to secure the loan made it difficult to obtain acquisition financing to fund the tender offer. Several developments have made tender offers more attractive: • In 2006, the SEC clarified that the “all holders/ best price rule” (Rule 14d-10 under the Securities Exchange Act of 1934) does not apply to employment compensation, severance or other employee benefit arrangements that meet certain criteria, which provided comfort to private equity buyers concerned about the treatment of target management post-closing arrangements. • The use of the top-up option, which allowed the buyer to ensure that it will reach the ownership threshold needed to complete a short-form merger, allowed private equity buyers to structure financing in a way that navigates the margin rules. Delaware decisions7 have provided guidance on properly structuring a top-up option to withstand stockholder litigation. • Section 251(h) to the Delaware General Corporation Law became effective in August 2013 (and was amended in August 2014, clarifying a number of issues in a pro-buyer fashion),8 effectively removing the need for a top-up option by allowing for a back-end merger to be consummated after a tender offer if, among other requirements, the acquirer owns the amount of target’s stock necessary to adopt the merger agreement (which is typically 50% plus one share, unless the target’s charter or the merger agreement sets a higher threshold), rather than 90% of the target’s stock required prior to adoption of Section 251(h). • Tender offers can provide an advantage in dealing with stockholder opposition to a transaction. While delay of a stockholder meeting to solicit additional votes in the face of opposition is possible, it is more vulnerable to court challenge. In contrast, a tender offer can easily be extended repeatedly until the minimum tender offer condition is satisfied. 7 8 7 See Joanne Olson v. ev3, Inc., C.A. No. 5583 (Del. Ch. Feb. 21, 2011) and In re Cogent, Inc. Shareholder Litigation, Cons. C.A. No. 5780 (Del. Ch. Oct. 5, 2010). 8 The August 2014 amendments eliminated the “interested stockholder” exclusion, clarified that shares tendered into a tender offer do not count toward the buyer’s ownership unless they are physically delivered, and confirmed that a merger agreement may permit or require the merger to be effected under Section 251(h). Private Equity Buyer/Public Target M&A Deal Study: 2013–14 Review and Comparative Analysis | 7 Target Fiduciary Duty Issues — “Go-Shop” Provisions We reviewed the 2013–14 Transactions to determine which of them included a “go-shop” provision. A “go-shop” provision grants the target the affirmative right — during a specified period of time — to solicit alternative acquisition proposals. “Go-shop” provisions were used significantly less often in 2013–14 Transactions as compared to the 2010–12 Transactions (29% for 2013–14 Large Market Transactions vs. 47% for 2010–12 Large Market Transactions, and 22% for 2013–14 Middle Market Transactions vs. 31% for 2010–12 Middle Market Transactions) as increasingly more targets are engaging in presigning market checks. As noted in the “Length of ‘Go-Shop’ Periods” chart: • The “go-shop” periods have shortened. In 2013–14 Transactions, the “go-shop” period was on average 33 days (median: 30 days) as compared to 39 days (median: 40 days) for 2010–12 Transactions.9 • All 11 of the 2013–14 Transactions with “go-shop” provisions had language that permitted the target board to continue negotiations with an “excluded party” (generally defined as any party that made a written acquisition proposal during the “go-shop” period) without the need for the target board to determine whether the excluded party’s offer constituted, or was reasonably likely to constitute, a superior proposal. In comparison, 78% of 2010–12 Transactions with “go-shop” provisions (29 of 37) contained this language.10 9 For the 2013–14 Middle Market Transactions, the mean and median were 35 days and 30 days, respectively (range: 30 days to 50 days), while for the 2013–14 Large Market Transactions both the mean and median were 32 days (range: 14 days to 45 days). For the 2010–12 Middle Market Transactions both the mean and median were 40 days (range: 30 days to 55 days), and for the 2010–12 Large Market Transactions the mean and median were 38 days and 40 days, respectively (range: 21 days to 60 days). 10 In the 2013–14 Transactions, 4 of the 11 “go-shop” provisions with language permitting continued negotiations with an “excluded party” were found in middle market deals (36%), and 7 were in large market deals (64%). In the 2010–12 Transactions, 12 of the 29 “excluded party” provisions were found in middle market deals (41%), while 17 were in large market deals (59%). Length of “Go-Shop” Periods 0 10 20 30 40 50 60 0 10 20 30 40 50 60 rue21 BMC Softwa Te Dell re lular Safe Pik way e CEC Entertainment ChyronHego R.G. Barry Digital River EnergySolutions Epicor PPD Immucor Kinetic Concepts SRA Jo-Ann Del Monte J. Crew CommScope Am. Com. Lin. Gymboree Burger King NBTY DynCorp BWAY InfoGroup RCN Duff & Phelps Corporation Young Innovations Edelman Financial Group Benihana TNS Par Pharmaceutical Companies Interline Brands P.F. Chang’s China Bistro Quest Software The Pep Boys – Manny, Moe & Jack Mean = 33 days 2013 Deals 2014 Deals Mean = 39 days 2010 Deals 2011 Deals 2012 Deals 8 | Schulte Roth & Zabel We reviewed the 2013–14 Transactions for provisions designed to protect the buyer against topping bids and target stockholder opposition. Match Rights and “Last Look” Rights We reviewed the 2013–14 Transactions to determine whether the buyer had initial match rights and “last look” match rights under the merger agreement. Initial match rights provide the buyer with an opportunity to negotiate with the target board during a specific period of time after receipt of notice from the target board of an intended change in recommendation (“CIR”) and to propose modified terms that are sufficiently improved so as to preclude the target from effecting a CIR. We note that in In re Smurfit-Stone Container Corp. Shareholder Litigation, C.A. No. 6164 (Del. Ch. May 20, 2011), Vice Chancellor Parsons of the Delaware Chancery Court determined that the deal protections agreed to by the target, which included a 3-day initial match right, were “standard” whether considered alone or as a group.11 “Last look” match rights provide the buyer with a further right to negotiate in the event that the other bidder revises its proposed terms. The terms of the initial match rights were generally consistent across 2013–14 Transactions and 2010–12 Transactions. Of the 2013–14 Transactions: • All had initial match rights (similar to 99% of the 2010–12 Transactions).12 • The mean and median of initial match rights were 3.5 business days and 3 business days, respectively,13 which is generally consistent with the initial match rights parameters in the 2010–12 Transactions. 11 The other deal protection provisions included a “no-shop” clause and a break-up fee of approximately 3.4% of the target equity value. 12 All 2010–12 Large Market Transactions had initial match rights as compared to 98% of the 2010–12 Middle Market Transactions. 13 For the 2013–14 Large Market Transactions, the mean and median were 3.5 business days and 3 business days, respectively. For the 2013–14 Middle Market Transactions, the mean and median were 3.8 business days and 4 business days, respectively. The terms of “last look” match rights were also generally consistent across 2013–14 Transactions and 2010–12 Transactions. All 2013–14 Transactions had “last look” match rights. The range of “last look” match rights was 1 to 5 business days (mean: 2.4 business days; median: 2 business days), which is exactly the same as in the 2010– 12 Transactions. “Force the Vote” Provision Similar to the 2010–12 Transactions, none of the 2013–14 Transactions included a traditional, unqualified “force the vote” (“FTV”) provision. However, use of the limited FTV provision increased slightly for 2013–14 Large Market Transactions (50% of which had a limited FTV provision as compared to 44% in 2010–12 Large Market Transactions) but decreased considerably in 2013–14 Middle Market Transactions (33% of which had a limited FTV provision as compared to 59% of 2010–12 Middle Market Transactions). An FTV provision requires the target board to submit the proposed transaction to a vote of its stockholders even if the target’s board has made a CIR. A traditional FTV requires the target board to do so unconditionally (even if it receives a superior proposal) and does not permit the target to terminate the merger agreement to accept such superior proposal. A traditional FTV is a pro-buyer provision because it can discourage other bidders from making a topping bid, given that the target cannot promptly terminate the agreement to accept a superior proposal but must prepare and file with the SEC a proxy statement and hold its stockholder meeting. This creates delay and potential uncertainty, which can lead bidders to determine that it is not worth investing the time and resources to make a topping bid. By contrast, a limited FTV provision does not prevent the target from terminating the merger agreement to accept a superior proposal and requires the target to hold the stockholder vote on the transaction (despite a CIR) only if the agreement is not so terminated. A limited FTV provision offers little protection to a buyer when the target is terminating the agreement to enter into an agreement for a superior proposal, but may offer some protection to a buyer in the context of a CIR for an intervening event that does not otherwise give rise to a termination right. Deal Protections for Buyer Private Equity Buyer/Public Target M&A Deal Study: 2013–14 Review and Comparative Analysis | 9 Break-Up Fee Payable by the Target We reviewed the 2013–14 Transactions to calculate the size of the target’s break-up fee (as a percentage of equity value) in the event the target chose to terminate the merger agreement in order to accept a superior proposal. As with other deal protection devices, Delaware courts have not provided any bright-line rules regarding when a break-up fee will be deemed unreasonable in amount. Nevertheless, practitioners can take comfort that fees in the range of 2.0% to 4.0% of equity value are generally permissible. Delaware jurisprudence, most recently in the In re Cogent Inc. Shareholder Litigation, suggests that equity value may be the appropriate metric for calculating a break-up fee where a target has minimal debt. Conversely, where the buyer is assuming a significant amount of a target’s debt, enterprise value may be the appropriate metric. This difference is illustrated by the 2011 Macquarie/WCA Waste Corporation transaction, which had an enterprise value of $526 million but an equity value of only $154 million because of the target’s significant debt. The Macquarie/WCA transaction had a two-tier breakup fee: $11 million (2.1% of enterprise value and 7% of equity value) payable in the event of termination for entering into an alternative transaction, and $16.5 million (3.2% of enterprise value and 10.7% of equity value) for other specified terminations. As noted in the “Break-Up Fees” charts: • For the 2013–14 Large Market Transactions the mean and median for break-up fees were 3.3% and 3.2% of equity value, respectively, which was slightly higher than 3.1% and 3.0%, respectively, for the 2010–12 Large Market Transactions. • For the 2013–14 Middle Market Transactions the mean and median for break-up fees were 3.5% and 3.6% of equity value, respectively, which was slightly higher than 3.3% and 3.1%, respectively, for the 2010–12 Middle Market Transactions. 10 | Schulte Roth & Zabel Break-Up Fees % Equity Values 0% 1% 2% 3% 4% 5% 6% % Equity Values 2% 3% 4% 5% 6% 0% 1%% Equity Values 0% 1% 2% 3% 4% 5% 6% % Equity Values 0% 1% 2% 3% 4% 5% 6% 7% 8% % Equity Values 0% 1% 2% 3% 4% 5% 6% 7% General Break-Up Fee “Go -Shop” Break-Up Fee General Break-Up Fee “Go -Shop” Break-Up Fee General Mean = 3.3% “Go-Shop” Mean = 1.8% General Mean = 3.5% “Go-Shop” Mean = 1.5% General Mean = 3.2% “Go-Shop” Mean = 1.5% General Mean = 3.1% “Go-Shop” Mean = 1.8% General Mean = 3.1% “Go-Shop” Mean = 2.6% CPI Jo-Ann RCN BWAY CKE Inter. Data SonicWALL Burger King Gymboree CommScope J. Crew Del Monte infoGroup DynCorp Protect. One inVentiv NBTY Int. Brands Am. Comm. Lin. Syniverse Pre-Paid Epicor Rural/Metro PRIMEDIA Blackboard Kinetic Concepts PPD Tekelec EMSC SRA CKx BJ’s Wholesale Immucor Emdeon 99 Cents Only Blue Coat BioClinica Assisted Living Concepts Telular Keynote Systems National Technical Systems Globecomm Systems Flow International Anaren Innotrac Arden Group Energy Solutions Dell H. J. Heinz Hot Topic Gardner Denver National Financial Partners BMC Software True Religion Apparel AsiaInfoLinkage Websense rue21 Steinway Musical Instruments TMS International Greenway Medical Technologies The Active Network Tellabs The Jones Group Vocus American Pacific RG Barry Chindex International MicroFinancial ChyronHego Pike CEC Entertainment DFC Global Safeway PetSmart Riverbed Technology Digital River Tibco Software Compuware The Pep Boys – Manny, Moe & Jack Great Wolf Resorts Quest Software P.F. Chang's China Bistro Interline Brands MModal Par Pharmaceutical Companies TPC Group Deltek Ancestry.com TNS Duff & Phelps Corporation eResearch Technology Edelman Financial Group Benihana Talbots IntegraMed America Mediware Information Systems Young Innovations FirstCity Financial Corporation Westway Group Collective Brands % Equity Values 0% 1% 2% 3% 4% 5% 6% % Equity Values 2% 3% 4% 5% 6% 0% 1%% Equity Values 0% 1% 2% 3% 4% 5% 6% % Equity Values 0% 1% 2% 3% 4% 5% 6% 7% 8% % Equity Values 0% 1% 2% 3% 4% 5% 6% 7% General Break-Up Fee “Go -Shop” Break-Up Fee General Break-Up Fee “Go -Shop” Break-Up Fee General Mean = 3.3% “Go-Shop” Mean = 1.8% General Mean = 3.5% “Go-Shop” Mean = 1.5% General Mean = 3.2% “Go-Shop” Mean = 1.5% General Mean = 3.1% “Go-Shop” Mean = 1.8% General Mean = 3.1% “Go-Shop” Mean = 2.6% CPI Jo-Ann RCN BWAY CKE Inter. Data SonicWALL Burger King Gymboree CommScope J. Crew Del Monte infoGroup DynCorp Protect. One inVentiv NBTY Int. Brands Am. Comm. Lin. Syniverse Pre-Paid Epicor Rural/Metro PRIMEDIA Blackboard Kinetic Concepts PPD Tekelec EMSC SRA CKx BJ’s Wholesale Immucor Emdeon 99 Cents Only Blue Coat BioClinica Assisted Living Concepts Telular Keynote Systems National Technical Systems Globecomm Systems Flow International Anaren Innotrac Arden Group Energy Solutions Dell H. J. Heinz Hot Topic Gardner Denver National Financial Partners BMC Software True Religion Apparel AsiaInfoLinkage Websense rue21 Steinway Musical Instruments TMS International Greenway Medical Technologies The Active Network Tellabs The Jones Group Vocus American Pacific RG Barry Chindex International MicroFinancial ChyronHego Pike CEC Entertainment DFC Global Safeway PetSmart Riverbed Technology Digital River Tibco Software Compuware The Pep Boys – Manny, Moe & Jack Great Wolf Resorts Quest Software P.F. Chang's China Bistro Interline Brands MModal Par Pharmaceutical Companies TPC Group Deltek Ancestry.com TNS Duff & Phelps Corporation eResearch Technology Edelman Financial Group Benihana Talbots IntegraMed America Mediware Information Systems Young Innovations FirstCity Financial Corporation Westway Group Collective Brands 2010 Deals 2011 Deals (other than WCA) 2012 Deals Private Equity Buyer/Public Target M&A Deal Study: 2013–14 Review and Comparative Analysis | 11 % Equity Values 0% 1% 2% 3% 4% 5% 6% % Equity Values 2% 3% 4% 5% 6% 0% 1%% Equity Values 0% 1% 2% 3% 4% 5% 6% % Equity Values 0% 1% 2% 3% 4% 5% 6% 7% 8% % Equity Values 0% 1% 2% 3% 4% 5% 6% 7% General Break-Up Fee “Go -Shop” Break-Up Fee General Break-Up Fee “Go -Shop” Break-Up Fee General Mean = 3.3% “Go-Shop” Mean = 1.8% General Mean = 3.5% “Go-Shop” Mean = 1.5% General Mean = 3.2% “Go-Shop” Mean = 1.5% General Mean = 3.1% “Go-Shop” Mean = 1.8% General Mean = 3.1% “Go-Shop” Mean = 2.6% CPI Jo-Ann RCN BWAY CKE Inter. Data SonicWALL Burger King Gymboree CommScope J. Crew Del Monte infoGroup DynCorp Protect. One inVentiv NBTY Int. Brands Am. Comm. Lin. Syniverse Pre-Paid Epicor Rural/Metro PRIMEDIA Blackboard Kinetic Concepts PPD Tekelec EMSC SRA CKx BJ’s Wholesale Immucor Emdeon 99 Cents Only Blue Coat BioClinica Assisted Living Concepts Telular Keynote Systems National Technical Systems Globecomm Systems Flow International Anaren Innotrac Arden Group Energy Solutions Dell H. J. Heinz Hot Topic Gardner Denver National Financial Partners BMC Software True Religion Apparel AsiaInfoLinkage Websense rue21 Steinway Musical Instruments TMS International Greenway Medical Technologies The Active Network Tellabs The Jones Group Vocus American Pacific RG Barry Chindex International MicroFinancial ChyronHego Pike CEC Entertainment DFC Global Safeway PetSmart Riverbed Technology Digital River Tibco Software Compuware The Pep Boys – Manny, Moe & Jack Great Wolf Resorts Quest Software P.F. Chang's China Bistro Interline Brands MModal Par Pharmaceutical Companies TPC Group Deltek Ancestry.com TNS Duff & Phelps Corporation eResearch Technology Edelman Financial Group Benihana Talbots IntegraMed America Mediware Information Systems Young Innovations FirstCity Financial Corporation Westway Group Collective Brands % Equity Values 0% 1% 2% 3% 4% 5% 6% % Equity Values 2% 3% 4% 5% 6% 0% 1%% Equity Values 0% 1% 2% 3% 4% 5% 6% % Equity Values 0% 1% 2% 3% 4% 5% 6% 7% 8% % Equity Values 0% 1% 2% 3% 4% 5% 6% 7% General Break-Up Fee “Go -Shop” Break-Up Fee General Break-Up Fee “Go -Shop” Break-Up Fee General Mean = 3.3% “Go-Shop” Mean = 1.8% General Mean = 3.5% “Go-Shop” Mean = 1.5% General Mean = 3.2% “Go-Shop” Mean = 1.5% General Mean = 3.1% “Go-Shop” Mean = 1.8% General Mean = 3.1% “Go-Shop” Mean = 2.6% CPI Jo-Ann RCN BWAY CKE Inter. Data SonicWALL Burger King Gymboree CommScope J. Crew Del Monte infoGroup DynCorp Protect. One inVentiv NBTY Int. Brands Am. Comm. Lin. Syniverse Pre-Paid Epicor Rural/Metro PRIMEDIA Blackboard Kinetic Concepts PPD Tekelec EMSC SRA CKx BJ’s Wholesale Immucor Emdeon 99 Cents Only Blue Coat BioClinica Assisted Living Concepts Telular Keynote Systems National Technical Systems Globecomm Systems Flow International Anaren Innotrac Arden Group Energy Solutions Dell H. J. Heinz Hot Topic Gardner Denver National Financial Partners BMC Software True Religion Apparel AsiaInfoLinkage Websense rue21 Steinway Musical Instruments TMS International Greenway Medical Technologies The Active Network Tellabs The Jones Group Vocus American Pacific RG Barry Chindex International MicroFinancial ChyronHego Pike CEC Entertainment DFC Global Safeway PetSmart Riverbed Technology Digital River Tibco Software Compuware The Pep Boys – Manny, Moe & Jack Great Wolf Resorts Quest Software P.F. Chang's China Bistro Interline Brands MModal Par Pharmaceutical Companies TPC Group Deltek Ancestry.com TNS Duff & Phelps Corporation eResearch Technology Edelman Financial Group Benihana Talbots IntegraMed America Mediware Information Systems Young Innovations FirstCity Financial Corporation Westway Group Collective Brands 2013 Deals 2014 Deals 12 | Schulte Roth & Zabel Given a wide range of fees and deal sizes, we grouped the 2013–14 Transactions by deal size and noted the range of break-up fees (as a percentage of deal size). We note that the break-up fees as a percentage of equity value on a mean/ median basis did not decrease as deal size increased. In fact, the highest break-up fees on a mean basis were in the $1-billion to $3-billion range.14 Deal Size (Equity Value) Break-Up Fees14 Range Mean Median 2013–14 Middle Market Transactions $100 Million – $250 Million 2.3% – 4.4% 3.6% 3.7% $250 Million – $500 Million 1.0% – 5.5% 3.4% 3.2% 2013–14 Large Market Transactions $500 Million – $1 Billion 2.1% – 4.0% 3.3% 3.5% $1 Billion – $3 Billion 3.0% – 5.5% 3.9% 3.5% $3 Billion and Above 1.9% – 4.0% 2.9% 3.0% 14 Figures are based on a percentage of equity value. Private Equity Buyer/Public Target M&A Deal Study: 2013–14 Review and Comparative Analysis | 13 We reviewed the 2013–14 Transactions for certain provisions that are intended to provide the target with additional certainty of closing. Target’s Ability to Obtain Specific Performance Against the Buyer We reviewed the 2013–14 Transactions to determine the specific performance rights afforded to the target. Each had at least a limited specific performance remedy (i.e., no deal allowed the buyer to walk away by simply paying a reverse termination fee). The limited specific performance remedy is a provision which conditions the target’s ability to force the buyer to close on the buyer’s debt financing being available at closing. Large Market Deals Eighty-three percent (83%) of the 2013–14 Large Market Transactions provided the target with a limited specific performance right against the buyer, and 17% provided the target with a full specific performance right. These findings are consistent with recent trends, with limited specific performance rights becoming overwhelmingly more popular: 88% of the 2010–12 Large Market Transactions provided the target with specific performance rights (with a limited specific performance provision used in 82% and full specific performance used in 6% of the deals).15 Middle Market Deals Similarly, the vast majority (94%) of the 2013–14 Middle Market Transactions gave the target specific performance rights, with a limited specific performance provision used in 78% of the deals, and a full-specific performance provision used in 17% of the deals.16 This is consistent with the data from the 2010–12 period: 83% of the 2010–12 Middle Market Transactions gave the target specific performance rights, with limited specific performance provisions used in 38% of the deals, and full specific performance provisions used in 45% of the deals.17 Set forth below is a chart showing the type of specific performance remedy available to the target in the 2013-14 surveyed transactions. 16 17 Deal Certainty Provisions for the Target 15 The remaining 12% of the 2010–12 Large Market Transactions had no specific performance provision. 16 The figures for limited specific performance and full specific performance do not total 94% due to rounding. The remaining 6% of the 2013–14 Middle Market Transactions had no specific performance provision. 17 The remaining 17% of the 2010–12 Middle Market Transactions had no specific performance provision. Target Specific Performance Rights — Cumulative 2013 Transactions and 2014 Transactions 14 | Schulte Roth & Zabel Reverse Termination Fees We reviewed the 2013–14 Transactions to analyze the structure (single-tier vs. two-tier) and the size of the RTFs (expressed as a percentage of the target’s equity value) required to be paid by the buyer in connection with the termination of the merger agreement. A two-tiered RTF structure is typically used to afford additional deal certainty to the target by requiring the buyer to pay a higher RTF if the buyer willfully breaches the merger agreement or if antitrust approval for the deal is not obtained. In general, the buyer’s RTFs have remained consistent — at approximately 6.5% of the target’s equity value — for the deals with single-tier RTFs. (Note that most surveyed transactions used a single-tier RTF structure as compared to a two-tier structure.) Interestingly, for those deals with a two-tier RTF structure, the higher-tier RTF has decreased in size (as a percentage of the target’s equity value) — from 12.0% mean/7.2% median for the 2010–12 Large Market Transactions to 9.2% mean/4.7% median for the 2013–14 Large Market Transactions, and from 7.9% mean/9% median for the 2010–12 Middle Market Transactions to 6.4% mean/6.0% median for the 2013–14 Middle Market Transactions — perhaps converging on the 6.5% single-tier RTF norm. Below is a summary of our findings. Large Market Deals • Ninety-two percent (92%) of the 2013–14 Large Market Transactions (22 of 24) had an RTF (as compared to 100% for the 2010–12 Large Market Transactions), of which: - Eighty-six percent (86%) (19 of 22) had a single-tier RTF (as compared to 80% (40 of 50) for the 2010–12 Large Market Transactions). - Fourteen percent (14%) (3 of 22) had a two-tier RTF (in each case, triggered by the buyer’s willful breach) (as compared to 20% (10 of 50) for the 2010–12 Large Market Transactions, in each case, also triggered by the buyer’s willful breach). With respect to the size of the RTFs: • For transactions with a single-tier RTF, the mean and median were 6.4% and 6.3% of target equity value, respectively (range: 4.3% to 8.0%), as compared to 6.4% and 6.2% (range: 0.5% to 10.7%) for the 2010–12 Large Market Transactions. • For transactions with a two-tier RTF: - The mean and median for the lower-tier RTF were 3.4% and 2.1% of equity value, respectively (range: 1.0% to 7.2%), as compared to 5.4% and 3.7% (range: 1.1% to 15.2%) for the 2010–12 Large Market Transactions. - The mean and median for the higher-tier RTF (which in all but one of these transactions was triggered by the buyer’s willful breach)18 were 9.2% and 4.7%, respectively (range: 3.1% to 19.8%), as compared to 12.0% and 7.2% (range: 4.5% to 37.9%) for the 2010–12 Large Market Transactions (in each case, also triggered by the buyer’s willful breach). Middle Market Deals • Eighty-three percent (83%) of the 2013–14 Middle Market Transactions (15 of 18) had RTFs (as compared to 63% for the 2010–12 Middle Market Transactions), of which: - Seventy-three percent (73%) (11 of 15) had single-tier RTFs, as compared to 80% for the 2010–12 Middle Market Transactions. - Twenty-seven percent (27%) (4 of 15) had two-tier RTFs (as compared to 20% for the 2010–12 Middle Market Transactions), with triggering events for the higher-fee tier due to: o Buyer’s willful breach — 2 of the 4 transactions (50% of the subset). o Buyer’s failure to consummate the transaction after receiving clearance under the Hart-Scott-Rodino Act (“HSR”) — 2 of the 4 transactions (50% of the subset). 18 18 The higher-tier RTF in the Dell transaction was triggered by a flat buyer breach (the provision does not specify that it has to be willful). Private Equity Buyer/Public Target M&A Deal Study: 2013–14 Review and Comparative Analysis | 15 With respect to the size of the RTFs: • For transactions with single-tier RTFs, the mean and median were 6.7% and 6.2% of target equity value, respectively (range: 2.3% to 14.4%), as compared to 5.9% and 5.4%, respectively (range: 3.0% to 11.9%), for the 2010–12 Middle Market Transactions. • For transactions with two-tier RTFs: - The mean and median for the lower-tier RTF were 3.6% and 3.8% of equity value, respectively (range: 1.8% to 5.0%), as compared to 4.9% and 4.5% (range: 3.4% to 6.9%) for the 2010–12 Middle Market Transactions. - The mean and median for the higher-tier RTF were 6.4% and 6.0% of equity value, respectively (range: 5.2% to 8.0%), as compared to 7.9% and 9.0% (range: 4.3% to 11.5%) for the 2010–12 Middle Market Transactions. With respect to the separate trigger events for the higher-tier RTF, the ranges were as follows: o In the event of willful breach — 5.2% to 8.0% (mean: 6.6%; median: 6.0%); and o In the event of buyer’s failure to consummate after receiving HSR clearance — 6.0%. Reverse Termination Fees Reverse Termination Fee Triggers19 We reviewed the 2013–14 Transactions with RTFs to analyze the types of RTF triggers. Below is a summary of our findings. 2013–14 Large Market Transactions with RTFs • In all transactions with an RTF, the RTF was triggered by buyer’s failure to close when required to do so for any reason, including a financing failure. • In 86% of the transactions (19 of 22), an RTF was triggered by the buyer’s material breach of a representation, warranty or a covenant in the merger agreement. • In 9% of the transactions (2 of 22), an RTF was triggered by the failure to obtain antitrust approval. 2013–14 Middle Market Transactions with RTFs • In 87% of the transactions (13 of 15), an RTF was triggered by the buyer’s failure to close when required to do so for any reason, including a financing failure. • In 73% of the transactions (11 of 15), an RTF was triggered by the buyer’s material breach of a representation, warranty or covenant in the merger agreement. • None of the transactions had an RTF trigger for failure to obtain antitrust approval. Treatment of Buyer’s Willful Breach We reviewed the 2013–14 Transactions to see whether the target’s damages for the buyer’s willful breach were capped and, in the applicable deals with RTFs, whether “willful breach” was defined. We observed a decrease in both the large and middle markets in the number of deals that contained uncapped damages for a buyer’s willful breach: • Ninety-six percent (96%) of the 2013–14 Large Market Transactions (23 of 24) contained a cap on damages as compared to 80% of the 2010–12 Large Market Transactions; and • Eighty-three percent (83%) of the 2013–14 Middle Market Transactions (15 of 18) contained a cap on damages as compared to 58% of the 2010–12 Middle Market Transactions. 19 19 RTF triggers were not tracked in our previous studies; however, due to strong interest from our reader base, we have included data on RTF triggers in this Deal Study and intend to continue tracking such data going forward. 16 | Schulte Roth & Zabel 2013–14 Large Market Transactions with RTFs • In all 22 deals with RTFs (92% of all 2013–14 Large Market Transactions), damages for the buyer’s willful breach were limited to the amount of the RTF. Of these transactions, 13% (3 of 22) had a two-tier RTF, with damages for the buyer’s willful breach limited to the higher RTF. • In 5% of the transactions (1 of 22), damages for the buyer’s willful breach were uncapped. • “Willful breach” was defined in 27% of the transactions (6 of 22), and the definitions can be categorized as follows: - Two of the 6 transactions (EnergySolutions, Inc./Energy Capital Partners II-A, LP and AsiaInfo-Linkage/CITIC Capital Partners) defined “willful breach” to require an act knowingly undertaken with the intent of causing a breach of the agreement. - Four of the 6 transactions (PetSmart, Inc./ BC Partners; CEC Entertainment, Inc./Apollo Global Management; TMS International Corp./Pritzker Group; and National Financial Partners Corp./Madison Dearborn Capital Partners) defined “willful breach” as an act taken with actual knowledge that it would cause a breach of the merger agreement, but without any requirement that the act have been taken with the intent to cause a breach. The definition of “willful breach” used in these deals is generally consistent with Delaware Chancery Court Vice Chancellor Lamb’s definition of a “knowing and intentional breach” in Hexion Specialty Chemicals v. Huntsman Corp., C.A. No. 3841 (Del. Ch. Sept. 29, 2008), holding that a “knowing and intentional” breach means “the taking of a deliberate act, which act constitutes in and of itself a breach of the merger agreement, even if breaching was not the conscious object of the act.” We note that the “knowing and intentional” formulation in Hexion and in these transactions is target-friendly in that it avoids any need to establish that a buyer acted with the intent of breaching the merger agreement, which may be very difficult to prove. 2013–14 Middle Market Transactions with RTFs • In 87% of the transactions (13 of 15), damages for the buyer’s willful breach were limited to the amount of the RTF. • In 13% of the transactions (2 of 15), damages for the buyer’s willful breach were uncapped. • “Willful breach” was defined in 3 transactions (Globecomm Systems Inc./Wasserstein Partners III, LP; DFC Global Corp./Lone Star Fund VIII (U.S.), L.P.; and Vocus, Inc./GTCR Valor Companies, Inc.). All 3 transactions defined “willful breach” as an act taken with actual knowledge that it would cause a breach of the merger agreement, but without any requirement that the act have been taken with the intent to cause a breach. Private Equity Buyer/Public Target M&A Deal Study: 2013–14 Review and Comparative Analysis | 17 Large Market Transactions Target Acquirer Signing Date Enterprise Value Equity Value PetSmart, Inc. BC Partners, Inc. Dec. 14, 2014 $8,700,000,000 $8,251,138,896 Riverbed Technology, Inc. Thoma Bravo, LLC and Teachers’ Private Capital Dec. 14, 2014 $3,600,000,000 $3,257,311,428 Digital River, Inc. Siris Capital Group, LLC Oct. 23, 2014 $840,000,000 $829,088,546 Tibco Software Inc. Vista Equity Partners Sept. 27, 2014 $4,300,000,000 $3,929,726,184 Compuware Corporation Thoma Bravo, LLC Sept. 2, 2014 $2,500,000,000 $2,303,499,741 Safeway Inc. Albertson’s Holdings LLC and a consortium led by Cerberus Capital Management, L.P. March 6, 2014 $9,400,000,000 $7,557,350,000 CEC Entertainment, Inc. Queso Holdings Inc. Jan. 15, 2014 $1,300,000,000 $946,670,000 The Jones Group Inc. Sycamore Partners, L.P. and Sycamore Partners A, L.P. Dec. 19, 2013 $2,200,000,000 $1,195,490,000 Tellabs, Inc. Marlin Equity III, L.P. and Marlin Equity IV, L.P. Oct. 18, 2013 $891,000,000 $891,110,000 The Active Network, Inc. Vista Equity Partners Fund III, L.P. and Vista Equity Partners Fund IV, L.P. Sept. 28, 2013 $1,050,000,000 $991,980,000 Greenway Medical Technologies, Inc. Vista Equity Partners Fund IV, L.P. Sept. 23, 2013 $644,000,000 $644,000,000 TMS International Corp. F.L.P. Trust #14, P.G. Gigi Trust M, F.L.P. Trust #11, P.G. Tom Trust M and P.G. Tom Trust, business interests of Tom Pritzker and Gigi Pritzker Aug. 23, 2013 $1,000,000,000 $687,640,000 Steinway Musical Instruments, Inc. Paulson & Co. Inc. Aug. 14, 2013 $512,000,000 $501,940,000 rue21, Inc. Apax VIII-A L.P., Apax VIII-B L.P., Apax VIII-1 L.P. and Apax VIII-2 L.P. May 23, 2013 $1,100,000,000 $1,020,830,000 Websense, Inc. Vista Equity Partners Fund IV, L.P. May 19, 2013 $1,000,000,000 $955,750,000 AsiaInfo-Linkage, Inc. CITIC Capital Partners May 12, 2013 $890,000,000 $873,533,148 True Religion Apparel, Inc. TowerBrook Investors III, L.P., TowerBrook Investors III (Parallel), L.P. and TowerBrook Investors III Executive Fund, L.P. May 10, 2013 $835,000,000 $834,840,000 BMC Software, Inc. Bain Capital Fund X, L.P., Golden Gate Capital Opportunity Fund, L.P., Westhorpe Investment Pte Ltd, Insight Venture Partners VII, L.P., Insight Venture Partners (Cayman) VII, L.P., Insight Venture Partners VII (Co-Investors), L.P., Insight Venture Partners (Delaware) VII, L.P. and Insight Venture Partners Coinvestment Fund II, L.P. May 6, 2013 $6,900,000,000 $6,983,740,000 Appendix A — Surveyed Transactions 18 | Schulte Roth & Zabel Target Acquirer Signing Date Enterprise Value Equity Value National Financial Partners Corp. Madison Dearborn Capital Partners VI-A, L.P., Madison Dearborn Capital Partners VIC, L.P. and Madison Dearborn Capital Partners VI Executive-A, L.P. April 14, 2013 $1,300,000,000 $1,036,440,000 Gardner Denver, Inc. KKR North America Fund XI L.P. March 7, 2013 $3,900,000,000 $3,735,030,000 Hot Topic, Inc. Sycamore Partners, L.P. and Sycamore Partners A, L.P. March 6, 2013 $600,000,000 $563,870,000 H. J. Heinz Company Berkshire Hathaway Inc. and 3G Special Situations Fund III, L.P. Feb. 13, 2013 $28,000,000,000 $23,407,310,000 Dell Inc. Silver Lake Partners III, L.P. and Silver Lake Partners IV, L.P. (the Equity Investors) and Michael S. Dell Feb. 5, 2013 $24,400,000,000 $24,302,600,000 EnergySolutions, Inc. Energy Capital Partners II-A, LP Jan. 7, 2013 $1,220,000,000 $377,990,000 Duff & Phelps Corporation The Carlyle Group, Stone Point Capital, LLC, Pictet & Cie, Edmond de Rothschild Group Dec. 30, 2012 $665,500,000 $669,120,000 TNS, Inc. Siris Partners II, L.P. Dec. 11, 2012 $862,000,000 $528,240,000 Ancestry.com Inc. Permira Funds Oct. 21, 2012 $1,600,000,000 $1,444,980,000 Deltek, Inc. Thoma Bravo, LLC Aug. 26, 2012 $1,100,000,000 $892,050,000 TPC Group Inc. First Reserve Corporation, SK Capital Partners Aug. 24, 2012 $930,000,000 $732,070,000 Par Pharmaceutical Companies, Inc. TPG Partners VI, L.P. July 14, 2012 $1,900,000,000 $1,855,300,000 MModal Inc. One Equity Partners V, L.P. July 2, 2012 $1,100,000,000 $797,240,000 Interline Brands, Inc. GS Capital Partners VI Fund, L.P. and P2 Capital Master Fund I, L.P. May 29, 2012 $1,100,000,000 $832,550,000 P.F. Chang’s China Bistro, Inc. Centerbridge Capital Partners II, L.P. May 1, 2012 $1,100,000,000 $1,093,570,000 Collective Brands, Inc. Blum Strategic Partners IV, L.P. and Golden Gate Capital Opportunity Fund, L.P. May 1, 2012 $2,000,000,000 $1,324,380,000 Quest Software, Inc. Insight Venture Partners VII, L.P., Insight Venture Partners (Cayman) VII, L.P., Insight Venture Partners (Co-Investors) VII, L.P., Insight Venture Partners (Delaware) VII, L.P. and Insight Venture Partners Coinvestment Fund II, L.P. March 8, 2012 $2,000,000,000 $1,927,010,000 Great Wolf Resorts, Inc. Apollo Investment Fund VII, L.P., Apollo Overseas Partners VII, L.P., Apollo Overseas Partners (Delaware) VII, L.P., Apollo Overseas Partners (Delaware 892) VII, L.P. and Apollo Investment Fund (PB) VII, L.P. March 8, 2012 $740,000,000 $262,420,000 The Pep Boys – Manny, Moe & Jack The Gores Group, LLC Jan. 29, 2012 $1,000,000,000 $802,760,000 WCA Waste Corporation Macquarie Infrastructure Partners II, U.S. L.P. and Macquarie Infrastructure Partners II International, L.P. Dec. 21, 2011 $526,000,000 $154,000,000 Private Equity Buyer/Public Target M&A Deal Study: 2013–14 Review and Comparative Analysis | 19 Target Acquirer Signing Date Enterprise Value Equity Value Blue Coat Systems, Inc. Thoma Bravo, LLC and Ontario Teachers’ Private Pension Plan Dec. 8, 2011 $1,300,000,000 $1,145,000,000 Tekelec Siris Capital Group, LLC Nov. 6, 2011 $780,000,000 $777,000,000 99 Cents Only Stores Ares Corporate Opportunities Fund III, L.P. and Canada Pension Plan Investment Board Oct. 11, 2011 $1,600,000,000 $1,561,620,000 Pharmaceutical Product Development, Inc. The Carlyle Group and Hellman & Friedman Advisors, LLC Oct. 3, 2011 $3,900,000,000 $3,796,760,000 Emdeon Inc. Blackstone Capital Partners VI L.P. Aug. 4, 2011 $3,400,000,000 $2,202,000,000 Kinetic Concepts, Inc. Apax Europe VII-A, L.P., Apax Europe VII-B, L.P., Apax Europe VII-1, L.P., Apax US VII, L.P., Portaux-Choix Private Investments Inc. and CPP Investment Board (USRE V) Inc. July 12, 2011 $6,300,000,000 $5,009,000,000 Immucor, Inc. TPG Partners VI, L.P. July 2, 2011 $2,000,000,000 $1,919,000,000 Blackboard Inc. Providence Equity Partners VI L.P. and Providence Equity Partners VI-A L.P. June 30, 2011 $1,600,000,000 $1,585,000,000 BJ’s Wholesale Club, Inc. Leonard Green & Partners, L.P. and CVC Capital Partners Advisory (U.S.), Inc. June 28, 2011 $2,700,000,000 $2,815,000,000 PRIMEDIA Inc. TPG Partners VI, L.P. May 15, 2011 $525,000,000 $322,330,000 CKx, Inc. Apollo Global Management May 10, 2011 $560,000,000 $509,370,000 Epicor Software Corporation Apax US VII, L.P., Apax Europe VII-A, L.P., Apax Europe VII-B, L.P. and Apax Europe VII-1, L.P. April 4, 2011 $976,000,000 $802,080,000 SRA International, Inc. Providence Equity Partners VI L.P. and Providence Equity Partners VI-A L.P. March 31, 2011 $1,880,000,000 $1,820,670,000 Rural/Metro Corporation Warburg Pincus Private Equity X, L.P. March 28, 2011 $701,000,000 $443,260,000 Emergency Medical Services Corporation Clayton, Dubilier & Rice Fund VIII, L.P. Feb. 13, 2011 $3,200,000,000 $2,834,450,000 Pre-Paid Legal Services, Inc. MidOcean Partners III, L.P., MidOcean Partners III-A, L.P. and MidOcean Partners III-D, L.P. Jan. 30, 2011 $650,000,000 $649,320,000 Jo-Ann Stores, Inc. Green Equity Investors V, L.P. and Green Equity Investors Side V, L.P. Dec. 23, 2010 $1,600,000,000 $1,606,280,000 CPI International, Inc. The Veritas Capital Fund IV, L.P. Nov. 24, 2010 $525,000,000 $331,440,000 Del Monte Foods Company KKR 2006 Fund L.P., Vestar Capital Partners V, L.P., Centerview Capital, L.P. and Centerview Employees, L.P. Nov. 24, 2010 $5,300,000,000 $3,820,010,000 J. Crew Group, Inc. TPG Partners VI, L.P., Green Equity Investors V, L.P. and Green Equity Investors Side V, L.P. Nov. 23, 2010 $3,000,000,000 $2,781,170,000 Syniverse Holdings, Inc. Carlyle Partners V, L.P. Oct. 28, 2010 $2,600,000,000 $2,176,610,000 CommScope, Inc. Carlyle Partners V, L.P. Oct. 26, 2010 $3,900,000,000 $3,053,120,000 20 | Schulte Roth & Zabel Target Acquirer Signing Date Enterprise Value Equity Value American Commercial Lines Inc. Platinum Equity Capital Partners II, L.P. Oct. 18, 2010 $777,000,000 $436,360,000 The Gymboree Corporation Bain Capital Fund X, L.P. Oct. 11, 2010 $1,800,000,000 $1,788,990,000 Internet Brands, Inc. Hellman & Friedman Capital Partners VI, L.P. Sept. 17, 2010 $640,000,000 $624,870,000 Burger King Holdings, Inc. 3G Special Situations Fund II L.P. Sept. 2, 2010 $4,000,000,000 $3,311,660,000 NBTY, Inc. Carlyle Partners V, L.P. July 15, 2010 $3,800,000,000 $3,487,580,000 SonicWALL, Inc. Thoma Bravo Fund IX, L.P. and Ontario Teachers’ Pension Plan Board June 2, 2010 $717,000,000 $636,550,000 inVentiv Health, Inc. Thomas H. Lee Equity Fund VI, L.P. May 6, 2010 $1,100,000,000 $910,630,000 Interactive Data Corporation Silver Lake Partners III, L.P., Warburg Pincus Private Equity X, L.P. and Warburg Pincus X Partners, L.P. May 3, 2010 $3,400,000,000 $3,245,320,000 Protection One, Inc. GTCR Fund IX/A, L.P. April 26, 2010 $828,000,000 $395,840,000 CKE Restaurants, Inc. Apollo Management VII, L.P. April 18, 2010 $1,000,000,000 $693,900,000 DynCorp International Inc. Cerberus Series Four Holdings, LLC April 11, 2010 $1,500,000,000 $1,002,000,000 BWAY Holding Company Madison Dearborn Partners, L.L.C. March 28, 2010 $915,000,000 $447,430,000 infoGroup Inc. CCMP Capital Advisors, LLC March 8, 2010 $635,000,000 $463,230,000 RCN Corporation ABRY Partners VI, L.P. March 5, 2010 $1,200,000,000 $561,400,000 “Enterprise Value” is used primarily in circumstances requiring a business valuation (such as in the acquisition of a target company) and reflects the economic value of a company at a point in time, typically based on an analysis of a company’s earnings or EBITDA multiplied by an appropriate multiple (usually determined based on the company’s industry). The average enterprise value for the 2013–14 Large Market Transactions was approximately $4.8 billion as compared to $1.8 billion for the 2010–12 Large Market Transactions. “Equity Value,” on the other hand, is a measure of the value of a company’s common equity, typically on a fully diluted basis. Equity value can be expressed as the company’s enterprise value less its outstanding preferred stock and funded debt plus the company’s cash and cash equivalents. The average equity value for targets in the 2013–14 Large Market Transactions was $4.0 billion as compared to $1.5 billion for the 2010–12 Large Market Transactions. On average, for the 2013–14 Large Market Transactions, the target’s enterprise value was 1.09 times its equity value; with one significant outlier: EnergySolutions, Inc., the enterprise value of which was approximately $1.2 billion, which is more than 3 times greater than its equity of approximately $378 million. Private Equity Buyer/Public Target M&A Deal Study: 2013–14 Review and Comparative Analysis | 21 Middle Market Transactions Target Acquirer Signing Date Enterprise Value Equity Value MicroFinancial Incorporated Fortress Investment Group LLC Dec. 13, 2014 $147,220,000 $147,218,170 ChyronHego Corporation Vector Capital Management, L.P. Nov. 17, 2014 $114,000,000 $113,513,366 Pike Corporation Court Square Capital Partners and Mr. J. Eric Pike Aug. 4, 2014 $383,000,000 $385,043,832 R.G. Barry Corporation MRGB Hold Co. May 1, 2014 Not Available $238,350,000 Chindex International, Inc. Healthy Harmony Holdings, L.P., an affiliate of TPG Capital, L.P. April 18, 2014 $438,100,000 $434,290,000 Vocus, Inc. GTCR Valor Companies, Inc. April 6, 2014 $351,000,000 $389,500,000 DFC Global Corp. Lone Star Fund VIII (U.S.), L.P. April 1, 2014 $1,175,000,000 $376,620,000 American Pacific Corporation Flamingo Parent Corp. Jan. 9, 2014 Not Available $375,110,000 Arden Group, Inc. TPG Partners VI, L.P. Dec. 20, 2013 $394,000,000 $388,480,000 Innotrac Corporation Sterling Capital Partners IV, L.P. Nov. 14, 2013 $108,610,000 $108,610,000 Anaren, Inc. The Veritas Capital Fund IV, L.P. Nov. 4, 2013 $381,000,000 $273,350,000 Flow International Corporation American Industrial Partners Capital Fund IV, L.P. and American Industrial Partners Capital Fund V, L.P. Sept. 25, 2013 $200,000,000 $203,480,000 Globecomm Systems Inc. Wasserstein Partners III, LP Aug. 25, 2013 $340,000,000 $338,520,000 National Technical Systems, Inc. Aurora Pacific Equity Partners Inc. Aug. 15, 2013 $267,000,000 $269,440,000 Keynote Systems, Inc. Thoma Bravo Fund X, L.P. June 23, 2013 $395,000,000 $385,100,000 Telular Corporation Avista Capital Partners III, L.P. and Avista Capital Partners (Offshore) III, L.P. April 29, 2013 $253,000,000 $225,620,000 Assisted Living Concepts, Inc. TPG Partners VI, L.P. Feb. 25, 2013 $278,000,000 $278,250,000 BioClinica, Inc. JLL Partners Fund VI, L.P. Jan. 29, 2013 $123,000,000 $113,720,000 Westway Group, Inc. EQT Infrastructure II Limited Partnership Dec. 20, 2012 $419,300,000 $189,100,000 FirstCity Financial Corporation Vӓrde Partners, Inc. Dec. 20, 2012 $224,900,000 $108,190,000 Young Innovations, Inc. Linden Capital Partners II LP Dec. 3, 2012 $314,000,000 $319,170,000 Mediware Information Systems, Inc. Thoma Bravo Fund X, L.P. Sept. 11, 2012 $195,000,000 $186,930,000 IntegraMed America, Inc. Sagard Capital Partners, L.P. June 10, 2012 $169,500,000 $168,410,000 The Talbots, Inc. Sycamore Partners Management, L.L.C. May 30, 2012 $369,000,000 $199,080,000 Benihana Inc. Angelo, Gordon & Co., L.P. May 22, 2012 $296,000,000 $291,750,000 Edelman Financial Group Inc. Lee Equity Partners April 16, 2012 $258,000,000 $261,940,000 eResearch Technology, Inc. Genstar Capital, LLC April 9, 2012 $400,000,000 $395,120,000 American Dental Partners, Inc. JLL Partners, Inc. Nov. 4, 2011 $398,000,000 $295,030,000 Renaissance Learning, Inc. Permira Funds Aug. 15, 2011 $455,000,000 $485,120,000 Global Traffic Network, Inc. GTCR, LLC Aug. 2, 2011 $267,000,000 $266,844,900 APAC Customer Services, Inc. One Equity Partners July 6, 2011 $468,500,000 $457,589,700 Ness Technologies, Inc. Citi Venture Capital International June 10, 2011 $307,000,000 $295,654,700 Gerber Scientific, Inc. Vector Capital June 10, 2011 $281,800,000 $276,051,400 California Pizza Kitchen, Inc. Golden Gate Capital May 24, 2011 $470,000,000 $454,850,000 22 | Schulte Roth & Zabel Target Acquirer Signing Date Enterprise Value Equity Value China Fire & Security Group, Inc. Bain Capital Partners, LLC May 20, 2011 $265,500,000 $250,703,400 Nobel Learning Communities, Inc. Leeds Equity Partners May 17, 2011 $149,000,000 $124,720,000 Global Defense Technology & Systems, Inc. Ares Management LLC March 2, 2011 $315,000,000 $224,160,000 Tollgrade Communications, Inc. Golden Gate Capital Feb. 21, 2011 $137,000,000 $132,580,000 Conexant Systems, Inc. Golden Gate Capital Feb. 20, 2011 $300,000,000 $206,070,000 Answers Corporation Summit Partners Feb. 2, 2011 $127,000,000 $85,399,330 RAE Systems Inc. Vector Capital Jan. 18, 2011 $133,900,000 $133,900,000 Playboy Enterprises, Inc. Hugh M. Hefner Jan. 9, 2011 $207,000,000 $207,630,000 Cypress Bioscience, Inc. Ramius LLC and Royalty Pharma Dec. 14, 2010 $255,000,000 $251,470,000 Rewards Network Inc. Equity Group Investments Oct. 28, 2010 $126,000,000 $121,220,000 Thermadyne Holdings Corporation Irving Place Capital Oct. 5, 2010 $422,000,000 $209,730,000 Polymer Group, Inc. Blackstone Group LP and Blackstone Capital Partners V, L.P. Oct. 4, 2010 $326,200,000 $331,140,000 Dynamex Inc. Greenbriar Equity Group LLC Oct. 1, 2010 $237,800,000 $237,940,000 Res-Care, Inc. Onex Partners Sept. 6, 2010 $340,000,000 $389,820,000 Phoenix Technologies Ltd. Marlin Equity Partners Aug. 17, 2010 $152,000,000 $147,490,000 Prospect Medical Holdings, Inc. Leonard Green & Partners, L.P. Aug. 16, 2010 $363,000,000 $180,390,000 Health Grades, Inc. Vestar Capital Partners V, L.P. July 27, 2010 $294,000,000 $250,380,000 Alloy, Inc. ZM Capital, L.P. June 23, 2010 $126,500,000 $138,330,000 Omni Energy Services Corp. Wellspring Capital Management June 3, 2010 $122,000,000 $62,558,490 Virtual Radiologic Corporation Providence Equity Partners May 16, 2010 $294,000,000 $281,634,000 Plato Learning, Inc. Thoma Bravo March 25, 2010 $143,000,000 $136,707,500 Sport Supply Group, Inc. ONCAP March 15, 2010 $170,000,000 $169,690,000 SouthWest Water Company Water Asset Management, LLC March 2, 2010 $427,000,000 $272,736,400 Lodgian, Inc. Lone Star Funds Jan. 22, 2010 $270,000,000 $54,190,000 “Enterprise Value” is used primarily in circumstances requiring a business valuation (such as in the acquisition of a target company) and reflects the economic value of a company at a point in time, typically based on an analysis of a company’s earnings or EBITDA multiplied by an appropriate multiple (usually determined based on the company’s industry). The average enterprise value for the 2013–14 Middle Market Transactions was approximately $260 million, as compared to $275 million for the 2010–12 Middle Market Transactions. “Equity Value,” on the other hand, is a measure of the value of a company’s common equity, typically on a fully diluted basis. Equity value can be expressed as the company’s enterprise value less its outstanding preferred stock and funded debt, plus the company’s cash and cash equivalents. The average equity value for targets in the 2013–14 Middle Market Transactions was $285 million (or roughly the same as their average equity value), as compared to $231 million for the 2010–12 Middle Market Transactions. Private Equity Buyer/Public Target M&A Deal Study: 2013–14 Review and Comparative Analysis | 23 Telular Anaren EnergySolutions H. J. Heinz Gardner Denver BMC Software Websense TMS International The Active Network American Pacific Vocus Compuware CEC Entertainment Riverbed Technology Flow International Arden Group Dell Hot Topic National Financial Partners True Religion Apparel rue21 Greenway Medical Technologies The Jones Group Pike DFC Global Safeway Tibco Software PetSmart Length in Business Days Length in Business Days 0 5 10 15 20 25 30 0 5 10 15 20 25 30 Mean = 19 Business Days 2013 Deals 2014 Deals Appendix B — Marketing Periods 24 | Schulte Roth & Zabel Appendix C — Break-Up Fees and Reverse Termination Fees20 2010 Transactions Appendix C — Break-Up Fees and Reverse Termination Fees20 Target Sponsor Break-Up Fee Break-Up Fee as % of Equity RTF RTF as % of Equity Value RCN Corporation ABRY Partners VI, L.P. $10.0 $17.5 1.8% 3.2% $30.0 5.3% infoGroup Inc. CCMP Capital Advisors, LLC $15.8 3.4% $25.4 5.5% BWAY Holding Company Madison Dearborn Partners, L.L.C. $5.0 $12.5 1.1% 2.8% $5.0 $27.5 1.1% 6.2% DynCorp International Inc. Cerberus Series Four Holdings, LLC $30.0 3.0% $100.0 $300.0 10.0% 29.9% CKE Restaurants, Inc. Apollo Management VII, L.P. $15.5 2.2% $15.5 $30.9 2.2% 4.5% Protection One, Inc. GTCR Fund IX/A, L.P. $8.0 2.0% $60.0 $150.0 15.2% 37.9% Interactive Data Corporation Silver Lake Partners III, L.P., Warburg Pincus Private Equity X, L.P. and Warburg Pincus X Partners, L.P. $120.0 3.7% $225.0 6.9% inVentiv Health, Inc. Thomas H. Lee Equity Fund VI, L.P. $27.5 3.0% $55.0 6.0% SonicWALL, Inc. Thoma Bravo Fund IX, L.P. and Ontario Teachers’ Pension Plan Board $25.0 3.9% $60.0 9.4% NBTY, Inc. Carlyle Partners V, L.P. $53.6 $98.2 1.5% 2.8% $214.2 6.1% Burger King Holdings, Inc. 3G Special Situations Fund II L.P. $50.0 $95.0 1.5% 2.9% $175.0 5.3% Internet Brands, Inc. Hellman & Friedman Capital Partners VI, L.P. $23.0 3.7% $38.0 6.1% The Gymboree Corporation Bain Capital Fund X, L.P. $30.0 $50.0 1.7% 2.8% $50.0 2.8% American Commercial Lines Inc. Platinum Equity Capital Partners II, L.P. $12.0 $14.0 2.8% 3.2% $16.0 $20.0 3.7% 4.6% CommScope, Inc. Carlyle Partners V, L.P. $43.3 $103.9 1.4% 3.4% $233.8 7.7% Syniverse Holdings, Inc. Carlyle Partners V, L.P. $60.0 2.8% $60.0 $120.0 2.8% 5.5% J. Crew Group, Inc. TPG Partners VI, L.P., Green Equity Investors V, L.P. and Green Equity Investors Side V, L.P. $27.0 $54.0 1.9% 1.0% $200.0 7.2% CPI International, Inc. The Veritas Capital Fund IV, L.P. $13.0 $15.0 3.92% 4.53% $22.5 $27.5 6.8% 8.3% Del Monte Foods Company KKR 2006 Fund L.P., Vestar Capital Partners V, L.P., Centerview Capital, L.P. and Centerview Employees, L.P $60.0 $120.0 1.6% 3.1% $249.0 6.5% Jo-Ann Stores, Inc. Green Equity Investors V, L.P. and Green Equity Investors Side V, L.P. $20.0 $44.9 1.2% 2.8% $90.0 5.6% 20 All dollar amounts are in millions. For two-tiered fees, the first number is the lowest tier and the second number is the higher tier. Private Equity Buyer/Public Target M&A Deal Study: 2013–14 Review and Comparative Analysis | 25 2011 Transactions Target Sponsor Break-Up Fee Break-Up Fee as % of Equity RTF RTF as % of Equity Value Pre-Paid Legal Services, Inc. MidOcean Partners III, L.P., MidOcean Partners III-A, L.P. and MidOcean Partners III-D, L.P. $21.5 3.3% $50.0 7.7% Emergency Medical Services Corporation Clayton, Dubilier & Rice Fund VIII, L.P. $116.5 4.1% $203.9 7.2% Rural/Metro Corporation Warburg Pincus Private Equity X, L.P. $16.9 3.8% $33.8 7.6% SRA International, Inc. Providence Equity Partners VI L.P. and Providence Equity Partners VI-A L.P. $28.2 $47.0 1.6% 2.6% $112.9 6.2% Epicor Software Corporation Apax US VII, L.P., Apax Europe VII-A, L.P., Apax Europe VII-B, L.P. and Apax Europe VII-1, L.P. $15.0 $40.0 1.9% 5.0% $20.0 $60.0 2.5% 7.5% CKx, Inc. Apollo Global Management $20.0 3.9% $40.0 7.9% PRIMEDIA Inc. TPG Partners VI, L.P. $8.0 2.5% $30.0 9.3% BJ’s Wholesale Club, Inc. Leonard Green & Partners, L.P. and CVC Capital Partners Advisory (U.S.), Inc. $80.0 2.8% $175.0 6.2% Blackboard Inc. Providence Equity Partners VI L.P. and Providence Equity Partners VI-A L.P. $49.1 3.1% $106.4 6.7% Immucor, Inc. TPG Partners VI, L.P. $25.0 $45.0 1.3% 2.3% $90.0 4.7% Kinetic Concepts, Inc. Apax Europe VII-A, L.P., Apax Europe VII-B, L.P., Apax Europe VII-1, L.P., Apax US VII, L.P., Port-aux-Choix Private Investments Inc. and CPP Investment Board (USRE V) Inc. $51.8 $155.4 1.0% 3.1% $317.2 6.3% Emdeon Inc. Blackstone Capital Partners VI L.P. $65.0 3.0% $80.0 $153.0 3.6% 7.0% Pharmaceutical Product Development, Inc. The Carlyle Group and Hellman & Friedman Advisors, LLC $116.2 3.1% $251.8 6.6% 99 Cents Only Stores Ares Corporate Opportunities Fund III, L.P. and Canada Pension Plan Investment Board $47.3 3.0% $94.5 6.1% Tekelec Siris Capital Group, LLC $15.0 1.9% $40.0 5.2% Blue CoatSystems, Inc. Thoma Bravo, LLC and Ontario Teachers’ Private Pension Plan $39.0 3.4% $73.0 6.4% WCA Waste Corporation Macquarie Infrastructure Partners II, U.S. L.P. and Macquarie Infrastructure Partners II International, L.P. $16.5 10.7% $16.5 10.7% 26 | Schulte Roth & Zabel 2012 Transactions Target Sponsor Break-Up Fee Break-Up Fee as % of Equity RTF RTF as % of Equity Value The Pep Boys – Manny, Moe & Jack The Gores Group, LLC $25.0 3.1% $50.0 6.2% Great Wolf Resorts, Inc. Apollo Investment Fund VII, L.P., Apollo Overseas Partners VII, L.P., Apollo Overseas Partners (Delaware) VII, L.P., Apollo Overseas Partners (Delaware 892) VII, L.P. and Apollo Investment Fund (PB) VII, L.P. $5.3 2.0% $20.0 5.7% Quest Software, Inc. Insight Venture Partners VII, L.P., Insight Venture Partners (Cayman) VII, L.P., Insight Venture Partners (Co-Investors) VII, L.P., Insight Venture Partners (Delaware) VII, L.P. and Insight Venture Partners Coinvestment Fund II, L.P. $6.3 0.3% $9.0 0.5% P.F. Chang’s China Bistro, Inc. Centerbridge Capital Partners II, L.P. $37.0 3.3% $67.4 6.2% Collective Brands, Inc. Blum Strategic Partners IV, L.P. and Golden Gate Capital Opportunity Fund, L.P. $44.0 3.3% $84.0 6.3% Interline Brands, Inc. GS Capital Partners VI Fund, L.P. and P2 Capital Master Fund I, L.P. $29.9 3.6% $51.3 6.2% MModal Inc. One Equity Partners V, L.P. $28.7 3.6% $57.4 7.2% Par Pharmaceutical Companies, Inc. TPG Partners VI, L.P. $48.0 2.6% $119.0 6.4% TPC Group Inc. First Reserve Corporation, SK Capital Partners $19.0 2.6% $45.0 6.2% Deltek, Inc. Thoma Bravo, LLC $32.1 3.6% $59.6 6.7% Ancestry.com Inc. Permira Funds $37.8 2.6% $75.6 5.2% TNS, Inc. Siris Partners II, L.P. $18.7 3.5% $32.0 6.1% Duff & Phelps Corporation The Carlyle Group, Stone Point Capital, LLC, Pictet & Cie, Edmond de Rothschild Group $19.9 3.0% $39.9 6.0% Private Equity Buyer/Public Target M&A Deal Study: 2013–14 Review and Comparative Analysis | 27 2013 Transactions Target Sponsor Break-Up Fee Break-Up Fee as % of Equity RTF RTF as % of Equity Value EnergySolutions, Inc. Energy Capital Partners II-A, LP $13.6 3.6% $27.2 7.2% Dell Inc. Silver Lake Partners III, L.P. and Silver Lake Partners IV, L.P. (the Equity Investors) and Michael S. Dell $450.0 1.9% $250.0 1.0% H. J. Heinz Company Berkshire Hathaway Inc. and 3G Special Situations Fund III, L.P. $750.0 3.2% $1,400.0 6.0% Hot Topic, Inc. Sycamore Partners, L.P. and Sycamore Partners A, L.P. $21.0 3.7% $42.0 7.5% Gardner Denver, Inc. KKR North America Fund XI L.P. $103.4 2.8% $263.1 7.0% National Financial Partners Corp. Madison Dearborn Capital Partners VI-A, L.P., Madison Dearborn Capital Partners VI-C, L.P. and Madison Dearborn Capital Partners VI Executive-A, L.P. $41.6 4.0% $83.3 8.0% BMC Software, Inc. Bain Capital Fund X, L.P., Golden Gate Capital Opportunity Fund, L.P., Westhorpe Investment Pte Ltd, Insight Venture Partners VII, L.P., Insight Venture Partners (Cayman) VII, L.P., Insight Venture Partners VII (CoInvestors), L.P., Insight Venture Partners (Delaware) VII, L.P. and Insight Venture Partners Coinvestment Fund II, L.P. $210.0 3.0% $420.0 6.0% True Religion Apparel, Inc. TowerBrook Investors III, L.P., TowerBrook Investors III (Parallel), L.P. and TowerBrook Investors III Executive Fund, L.P. $29.2 3.5% $58.4 7.0% AsiaInfo-Linkage, Inc. CITIC Capital Partners $18.0 2.1% $18.0 2.1% Websense, Inc. Vista Equity Partners Fund IV, L.P. $34.5 3.6% $68.9 7.2% rue21, Inc. Apax VIII-A L.P., Apax VIII-B L.P., Apax VIII-1 L.P. and Apax VIII-2 L.P. $31.3 3.1% $62.7 6.1% Steinway Musical Instruments, Inc. Paulson & Co. Inc. $13.3 2.7% $31.1 6.2% TMS International Corp. F.L.P. Trust #14, P.G. Gigi Trust M, F.L.P. Trust #11, P.G. Tom Trust M and P.G. Tom Trust, business interests of Tom Pritzker and Gigi Pritzker $26.0 Early BreakUp Fee $6.9 3.8% $45.1 6.6% 28 | Schulte Roth & Zabel Target Sponsor Break-Up Fee Break-Up Fee as % of Equity RTF RTF as % of Equity Value Greenway Medical Technologies, Inc. Vista Equity Partners Fund IV, L.P. $24.1 4.0% $48.2 7.5% The Active Network, Inc. Vista Equity Partners Fund III, L.P. and Vista Equity Partners Fund IV, L.P. $32.0 3.2% $64.0 6.5% Tellabs, Inc. Marlin Equity III, L.P. and Marlin Equity IV, L.P. $26.7 3.0% N/A N/A The Jones Group Inc. Sycamore Partners, L.P. and Sycamore Partners A, L.P. $36.0 3.0% $60.0 5.0% 2014 Transactions Target Sponsor Break-Up Fee Break-Up Fee as % of Equity RTF RTF as % of Equity Value CEC Entertainment, Inc. Queso Holdings Inc. $45.5 3.5% $385.2 5% Safeway Inc. AB Acquisition LLC, Albertson’s Holdings LLC, Albertson’s LLC and Saturn Acquisition Merger Sub, Inc. $250.0 2.7% $400.0 4.3% Compuware Corporation Thoma Bravo, LLC $126.0 5.5% $153.0 6.1% Tibco Software Inc. Vista Equity Partners $116.7 3.0% N/A N/A Digital River, Inc. Siris Capital Group, LLC $27.2 3.3% $50.4 6.0% Riverbed Technology, Inc. Thoma Bravo, LLC and Teachers’ Private Capital $126.0 3.9% $252.0 7.0% PetSmart, Inc. BC Partners, Inc. $255.0 3.1% $510.0 5.9% Private Equity Buyer/Public Target M&A Deal Study: 2013–14 Review and Comparative Analysis | 29 M&A Group Contacts Stuart D. Freedman +1 212.756.2407 [email protected] Robert Goldstein +1 212.756.2519 [email protected] Peter Jonathan Halasz +1 212.756.2238 [email protected] Christopher S. Harrison +1 212.756.2191 [email protected] Eleazer Klein +1 212.756.2376 [email protected] Michael R. Littenberg +1 212.756.2524 [email protected] Robert B. Loper +1 212.756.2138 [email protected] John M. Pollack +1 212.756.2372 [email protected] Richard A. Presutti +1 212.756.2063 [email protected] David E. Rosewater +1 212.756.2208 [email protected] Marc Weingarten +1 212.756.2280 [email protected] Authors and About SRZ’s Mergers & Acquisitions Group Principal Author John M. Pollack Partner +1 212.756.2372 | [email protected] Co-Authors Associates Pavel A. Shaitanoff, Todd B. Kornreich, Colin S. McKeon and Nicholas Scott co-authored the Deal Study. Other Contributors A team of other Schulte Roth & Zabel associates contributed to this deal study, including Edward Chu, Lowell K. Dyer, Mark L. Garibyan, Brandon S. Gold, Evelyn Liristis, Darren Sandler, Michael P. Stromquist, Sarah M. Sullivan and David White. 30 | Schulte Roth & Zabel Founded in 1969, Schulte Roth & Zabel LLP is a multidisciplinary firm with offices in New York, Washington, D.C. and London that is widely regarded as one of the premier legal advisers to private investment funds. Our M&A Group was recognized in January 2015 by FactSet on its list of “Top U.S. Advisers — Legal Advisers,” based on U.S. announced deals in 2014, citing 31 total deals with a transaction value of more than $22 billion. Our lawyers work seamlessly across practice groups to address all aspects of complex mergers and acquisitions, from employment and environmental to antitrust and tax issues. When it comes to the ins and outs of M&A activity, our practical solutions solve the full range of business-critical issues to move deals forward. SRZ’s Mergers & Acquisitions Group helps clients achieve their business objectives by structuring and executing complex deals across a range of industries. From public and private M&A transactions including leveraged buyouts, “going private” and cross-border transactions to tender offers, proxy contests and leveraged recapitalizations, we represent private investment funds, portfolio companies and publicly traded companies in award-winning deals, year after year. GETTING THE COMPLEX DEALS DONE Private Equity Buyer/Public Target M&A Deal Study: 2013–14 Review and Comparative Analysis | 31 We have successfully represented clients in some of the most challenging M&A deals. Our work ranges across a broad spectrum of industries and market sectors, and includes both domestic and international transactions. Where our clients pool efforts with other financial sponsors or strategic partners, we frequently represent the resulting consortiums. We regularly act as counsel to our clients’ portfolio companies, particularly for M&A transactions, bank financings and capital markets transactions, including high-yield offerings and initial and follow-on public offerings. We pride ourselves on being part of a client’s team, integrating business and legal objectives, and providing sensible and straightforward advice and solutions. Some of our most recent transactions include: Representative Deals The acquisition of Safeway Inc. $9 billion January 2015 The acquisition of A majority of Visteon Corporation’s global automotive interiors business November 2014 The sale of Capario July 2014 The sale of YBP Library Services February 2015 The sale of CRGT Inc. December 2014 The sale of AeroFlex Holding Corp. $1.4 billion September 2014 The sale of Pretium Packaging June 2014 The sale of Blue Bird Corp. $490 million February 2015 The acquisition of EMCORE’s Space Photovoltaics business $150 million December 2014 The acquisition of non-performing loan portfolio from Ireland’s National Asset Management Agency September 2014 The sale of Great Lakes Caring Home Health & Hospice May 2014 The acquisition of Origen Financial Inc. $47 million January 2015 The acquisition of and subsequent sale of its U.K. franchise $348 million (sale) July 2014 (acquisition) / December 2014 (sale) The acquisition of BeyondTrust Software Inc. $310 million September 2014 The sale of a majority stake in 47 U.S. hotels $958 million June 2014 The sale of Baker & Taylor Marketing Services U.S. and Baker & Taylor Publishing Group February 2015 32 | Schulte Roth & Zabel The acquisition of Gold Star Foods Inc. April 2014 The sale of Anchor Drilling Fluids USA $234 million March 2014 The acquisition of Nobles Worldwide Inc. March 2014 The acquisition of Shenick Network Systems February 2014 The sale of Kokusai Kogyo Co. $1.37 billion February 2014 The acquisition of United Supermarkets February 2014 The sale of Midstate Berkshire January 2014 The acquisition of Tellabs $891 million December 2013 The acquisition of Precise Machining & Manufacturing November 2013 The sale of Telanetix Inc. $55 million September 2013 The acquisition of Bookmasters Inc. July 2013 The sale of North American Bus Industries Inc. $80 million June 2013 The acquisition of Nokia Siemens Networks’ optical networks business May 2013 The acquisition of Applied Communications Sciences May 2013 The sale of LNR Property $1.05 billion April 2013 The acquisition of Albertsons Inc., SUPERVALU INC. – five retail chains $3.3 billion March 2013 The acquisition of a distressed property loan portfolio from Ireland’s National Asset Management Agency $7.5 billion April 2014 The acquisition of McCann Aerospace Machining April 2014 The acquisition of Simpler Consulting April 2014 The acquisition of QinetiQ Group’s U.S. Services division $165 million April 2014 Representative Deals ® is the registered trademark of Schulte Roth & Zabel LLP. All other company logos are the trademarks of their respective owners. The contents of these materials may constitute attorney advertising under the regulations of various jurisdictions. This information has been prepared by Schulte Roth & Zabel LLP (“SRZ”) for general informational purposes only. It does not constitute legal advice, and is presented without any representation or warranty as to its accuracy, completeness or timeliness. Transmission or receipt of this information does not create an attorney-client relationship with SRZ. Electronic mail or other communications with SRZ cannot be guaranteed to be confidential and will not (without SRZ agreement) create an attorney-client relationship with SRZ. Parties seeking advice should consult with legal counsel familiar with their particular circumstances. The contents of these materials may constitute attorney advertising under the regulations of various jurisdictions. In some jurisdictions, this document may be considered attorney advertising. Past representations are no guarantee of future outcomes. © 2015 Schulte Roth & Zabel LLP. All rights reserved.