Q PreK-12 EDUCATION BOSTON CHICAGO LONDON LOS ANGELES NEW YORK ORANGE COUNTY PHILADELPHIA SAN DIEGO SILICON VALLEY TAMPA CONTACTS

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1 Total AP Participation in millions PreK-12 EDUCATION CONTACTS Eric Williams Managing Director (215) Mark Surowiak Director (215) Daniel Schultz Director of Business Development (617) MERGER & ACQUISITION TRENDS The PreK-12 Education sector continues to be targeted by private equity and strategic suitors with 41 transactions occurring through August 15, 2016 compared to 46 transactions for the same period in Although acquisitions in the industry are quite diverse, ranging from companies providing outsourced/supplemental services, technology and software, child care, tutoring, intervention/special education and talent management, the fundamental thesis or value proposition behind many of these companies is centered on improving student outcomes. Educational institutions are seeking to bolster student achievement through innovative personalized learning technology, diagnostic/assessment software tools and information systems to better manage talent, improve efficiency and enhance development of educators. Notable transactions such as K12 s acquisition of LTS Education, EDTRAININGCENTER s deal with Frontline and the acquisition of WorldStrides by Metalmark Capital and Silverhawk Capital Partners highlight the favorable industry dynamics and the willingness of various buyer types to make acquisitions. The PreK-12 Education market is also being impacted by mounting concern from both students and parents over the hyper-competitive college admission process. The following chart depicts the continuing decline in college acceptance rates and a corresponding increase in student participation in advanced placement programs. Student Participation in AP Programs vs. College Acceptance Rates BOSTON CHICAGO LONDON LOS ANGELES NEW YORK ORANGE COUNTY PHILADELPHIA SAN DIEGO SILICON VALLEY TAMPA Total Students Participating in AP Programs Average Acceptance Rates - US Universities Supplemental educational services, tutoring and experiential learning opportunities are increasingly sought after as ways to both educate and differentiate students in an increasingly crowded field of domestic and highly qualified foreign applicants. Additionally, next generation learners are demanding more engaging content and hence the emerging trend of gamification, applying game based dynamics to educational software. Lastly, macroeconomic factors, such as the proportion of dual-wage earner families and per capita disposable income, play a role in demand for supplemental educational services. 62% 60% 58% 56% 54% Acceptance Rate Percentage Sources: National Center for Educational Statistics, The College Board

2 PreK-12 Education SPECIAL EDUCATION: KEY TRENDS AND DRIVERS There are a number of drivers and trends that have had a significant impact on growth and M&A activity within the PreK-12 Education industry. Capstone has identified a few of these factors and has outlined them below. 2.5% Increased prevalence of autism spectrum disorders Studies have shown a consistent increase in the number of annual autism cases over the years. According to The Centers for Disease Control and Prevention and detailed in the chart below, the rate of autism in children aged 3 to 17 has doubled since Prevalence of Autism: Children Ages 3-17 Years 2.0% 1.5% 1.0% 0.5% 0.0% Source: CDC/NCHS, National Health Interview Survey, Critical importance of early diagnosis Experts agree that early diagnosis and treatment are vital to outcomes, and are essential to reducing the long-term costs of autism. The most powerful tool we have right now to make a difference in the lives of children with ASD is early identification, commented Stuart K. Shapira, MD, PhD, Chief Medical Officer for the CDC's National Center on Birth Defects and Developmental Disabilities. The growing importance of diagnostic services and technology has sparked M&A activity and has heightened interest from buyers. The acquisition of Acumen, a smartphoneenabled evaluation solution for the detection and treatment of autism, by Optimus Outcome, as well as Card Capital s investment in Autism Behavioral, a provider of behavior analytic and social thinking instructional services to children, exemplify this trend. Mandated insurance coverage for autism Currently, a total of 43 states and the District of Columbia have enacted some level of autism insurance coverage mandates, while 29 states have enacted regulations that require autism coverage to be included on all plans sold through the exchange. Under the Affordable Care Act, autism screening is now covered under preventive care with zero cost share for children between 18 and 24 months. Capstone Partners LLC 2

3 NOTABLE PreK-12 TRANSACTIONS Several notable transactions have already been completed or announced in the PreK-12 industry in Select transactions are outlined below, followed by a more comprehensive list on the following table. WorldStrides acquired Explorica, then Metalmark and Silverhawk acquired WorldStrides (January and February 2016) Metalmark Capital (Metalmark) and Silverhawk Capital (Silverhawk), both middle market private equity firms, recently acquired WorldStrides from The Carlyle Group (Carlyle) for an undisclosed amount. Founded in 1967, WorldStrides has grown into the largest educational travel company in the US and one of the premier experiential education providers worldwide. The Company serves around 400,000 students every year and offers educational travel programs in more than 100 countries. Over the past year and a half, WorldStrides has acquired five companies and made an additional ten acquisitions from 2008 to In January 2016, WorldStrides acquired Boston-based Explorica, a provider of international travel programs for middle and high school students in North America, expanding WorldStrides presence to 45 offices in six continents. The acquisitions of both Worldstrides and Explorica reflect the healthy M&A market in the educational travel sector. Jim Cook, Co-Founder and Managing Partner of Silverhawk, commented, Not only are we pleased with the company s strong global presence and long-standing position as an industry leader, but we are also excited by the robust future growth prospects, both organically and through acquisition. LRR Partners acquired Learn It Systems (May 2016) LRR Partners (LRR), a middle market private equity firm, recently acquired Learn It Systems (Learn It). Terms of the deal were not disclosed. Headquartered in Maryland, Learn It is a leading national behavioral health services company that serves children with autism and other special needs. Learn It s services are offered in K-12 schools and homes, and include speech, behavioral and instructional support. Learn It is LRR s second education acquisition in the past twelve months. The private equity firm also recently acquired Longleaf Solutions in September 2015, a data analysis and strategic action planning suite for education. In total, LRR maintains an active portfolio of 11 companies in the education industry. Source4Teachers acquired by Nautic (April 2015) Source4Teachers (S4T), a provider of outsourced substitute teacher services to K-12 schools, was recently acquired by middle market private equity firm Nautic Partners (Nautic). S4T offers substitute teachers, educational support staff and paraprofessionals to over 150 K-12 districts in the US. In Nautic we have found the right partner for this next phase of growth at Source4Teachers, said Kevin Bush, President of S4T. Nautic shares our team s vision of being the partner of choice for school districts to cost-effectively increase the quality of their substitute teacher and paraprofessional programs. We are optimistic about S4T s opportunities to grow and deepen its school district partnerships, and we look forward to working with Nautic. Capstone Partners LLC 3

4 PreK-12 EDUCATION: SELECT M&A TRANSACTIONS Enterprise EV / LTM Ann. Date Target Acquirer Target Business Description Value (mm) Revenue EBITDA 07/26/16 The Lawrence Park School BrightPath Offers early childhood educational programs in Canada. 06/28/16 Gymboree Play Programs Zeavion Provides early childhood development play programs. $ /28/16 20 Early Learning Centers BrightPath Operates child care and early learning centers in Canada. $ /17/16 Autism Behavioral CARD Capital Provides behavior analytic and social thinking instruction services to children. 05/26/16 Smart Technologies Foxconn Singapore Develops large-format displays and software that enable learning and collaboration. $ x 16.5x 05/17/16 Kwaze Nobel Learning Communities Operates childcare, preschool and after-school centers. 05/13/16 Learn-It LLR Partners Provides academic and special education programs for public, private and charter schools. 04/27/16 LTS Education K12 Develops digital game-based learning platforms and software. $ x - 04/04/16 Three Prep- Schools W. P. Carey Comprises the Windermere, North Broward and The Village preparatory schools. $ /24/16 Progressus Therapy Invo HealthCare Provides school-based therapy and early intervention services. CF CF CF 03/15/16 Acumen Optimus Outcome Provides a smartphone-enabled evaluation solution for detection and treatment of autism. 02/26/16 Cricket Media ZG Ventures Provides content on a learning network for children, families and teachers. $ x - 02/11/16 WorldStrides Metalmark and Silverhawk Offers educational travel services for students. 02/05/16 LeapFrog Enterprises Vtech Develops technology-based learning products and related proprietary content for children. $ x - 01/12/16 Explorica Lakeland Tours Provides educational student tours worldwide. 01/11/16 Big Brainz Imagine Learning Offers multiplication games for meeting core educational needs. 01/08/16 The Boyd School LePort Schools Provides Montessori education to children in Northern Virginia. 01/06/16 Little Sprouts The Wicks Group Operates a network of early education centers in New England. 12/22/15 Beach Cities Learning Learn-It Provides special education and alternative education solutions for school districts in California. 10/30/15 Mediscan Cross Country Healthcare Provides healthcare and school-based professional staffing services. $ x 10.1x 10/12/15 Double Line Cross Street Designs educational dashboards, scorecards and portals. 10/01/15 NY State Military Academy Center on Natural Conservation Operates as a college preparatory school for day and boarding students in grades 8 through 12. $ /20/15 Source4 Teachers Nautic Provides substitute staffing services for school districts. Capstone Partners LLC 4

5 CAPSTONE PARTNERS: COMPLETED EDUCATION & TRAINING TRANSACTIONS Capstone Partners recently advised Progressus Therapy (Progressus) on its acquisition by Invo Healthcare Associates (Invo). As a portfolio company of Sterling Partners, Progressus is one of the nation s leaders in school-based and early intervention programs and services. Progressus partners with over 200 school districts and employs about 600 licensed professionals, providing a multitude of services to children with special needs. Invo, a leading national provider of outsourced special education and related services, acquired Progressus from Sterling Partners, a private equity firm with approximately $5 billion in assets under management. With more than one in ten children receiving special education services in the US, demand for service providers has increased in recent years. Rising therapy requirements and a shortage of special education professionals has also contributed to increased demand. Eric Williams, Managing Director of Capstone, commented, This is an excellent union of two of the best brands in the outsourced special education services sector; both of which have cultivated first-rate reputations by consistently providing quality therapists dedicated to improving student outcomes. A Premier Provider of Early Education & Childcare Services a portfolio company of THE CARLYLE GROUP has secured financing from has secured financing from CMS SMALL-CAP PRIVATE EQUITY FUND valuation advisory ANAPHORA, LLC WEST TENNESSEE BUSINESS COLLEGE Capstone Partners LLC 5

6 THE PREK-12 EDUCATION TEAM Eric Williams, Managing Director (215) Eric serves as Managing Director and Head of the Eastern Region for Capstone, based out of Philadelphia. Prior to Capstone, Eric was responsible for managing the Eastern region for Morgan Stanley Smith Barney s Capital Strategies Group and its predecessor, Citi Capital Strategies. Eric has 20 years of experience managing strategic sale assignments and leveraged recapitalizations for owners of privately held companies. Eric has successfully completed over 100 transactions in industries including education and training and health care services. In 2013, he received the M&A Deal of the Year M&A Advisor award for his work on the acquisition and majority recapitalization of Invo HealthCare Associates, Inc., a provider of outsourced special education services to schools, school districts and early intervention agencies throughout the US. He has also executed complex cross-border transactions with foreign buyers based in London, Germany, Sweden and Switzerland and has structured deals with leading private equity groups and strategic corporate buyers. He graduated cum laude from the University of California and is a Series 7 and 63 Registered Securities Representative as well as a Series 24 Registered Securities Principal. Mark Surowiak, Director msurowiak@capstonellc.com (215) Mark is a Director in the Philadelphia office, supporting the management of the Eastern Region. Previously, Mark served over 10 years as a senior investment banking professional in Morgan Stanley Smith Barney s Capital Strategies Group. Over his career, Mark has focused on developing deep credentials and expertise in the sale and recapitalization of privately held businesses. Mr. Surowiak's experience spans a broad range of industries, including the education, government and defense contracting, manufacturing and outsourced business services sectors. Prior to investment banking, Mark enjoyed a career in the social services field. Mark is a graduate of Illinois State University with a BS in Business Administration. He is a Series 7 and 63 Registered Securities Representative. Daniel Schultz, Director of Business Development dschultz@capstonellc.com (617) Dan oversees Capstone s national business development and industry coverage activities, working closely with current and prospective clients of the firm on matters related to corporate sales, recapitalizations, mergers & acquisitions and growth financings. In his role, Dan is able to deliver specific market intelligence to clients regarding M&A, financing, strategic, industry and competitive trends. Prior to spearheading the firm s business development and market initiatives, he was a Vice President in Capstone s M&A group, managing numerous successful transactions across a variety of industries. Dan also gained hands-on transaction experience as an investment banker at Headwaters MB. He started his career with Ernst & Young s National Professional AABS practice and later worked in Assurance and Advisory Business Services in the Denver office. Dan received a BE in Biomedical Engineering with a Business Minor from Vanderbilt University. He earned an MBA and a Master of Accountancy from the Daniels College of Business at the University of Denver. Capstone Partners LLC 6

7 CAPSTONE S OFFICE LOCATIONS BOSTON 176 Federal Street 3rd Floor Boston, MA (617) CHICAGO 200 South Wacker Drive Suite 3100 Chicago, IL (312) LONDON 42 Brook Street London W1K 5DB United Kingdom +44 (0) LOS ANGELES 401 Wilshire Suite 1200 Santa Monica, CA (858) NEW YORK 41 Madison Avenue 31 st Floor New York, NY (212) ORANGE COUNTY Avenida de la Carlota Suite 600 Laguna Hills, CA (949) PHILADELPHIA 1515 Market Street 12th Floor Philadelphia, PA (215) SAN DIEGO High Bluff Drive Suite 200 San Diego, CA (858) SILICON VALLEY 228 Hamilton Avenue 3rd Floor Palo Alto, CA (650) TAMPA 1550 W Cleveland Street Suite 10 Tampa, FL (813) ABOUT CAPSTONE PARTNERS Capstone Partners LLC is a premier investment banking firm dedicated to serving the corporate finance needs of middle market business owners, investors and creditors. The firm provides M&A, corporate restructuring, private placement and financial advisory services. Headquartered in Boston, Capstone has offices in Chicago, London, Los Angeles, New York, Orange County, Philadelphia, San Diego, Silicon Valley and Tampa with an international presence that spans 450+ professionals in 70 offices across 31 countries. For more information about our expertise, please visit World Class Wall Street Expertise. Built for the Middle Market Capstone Partners LLC. All rights reserved.