Introduction to Private Equity and Value

Creation in Lower Middle Market Buyouts

September 2023

PROPRIETARY AND CONFIDENTIAL INFORMATION

 OUR DISCLAIMER
Past performance is not indicative of future results, which may vary. The value of investments and the income derived from investments can go down
as well as up. Future returns are not guaranteed, and a loss of principal may occur. Except as otherwise indicated herein, the information, opinions
and estimates provided in this report are based on matters and information as they exist as of the date these materials have been prepared and not
as of any future date and will not be updated or otherwise revised to reflect information that is subsequently discovered or available, or for changes in
circumstances occurring after the date hereof. The views and projections described in this brochure are subject to change without notice in the sole
discretion of CID. This presentation includes extracted portfolio company multiplies. Upon request, CID will provide total portfolio company multiples
for all portfolio companies.

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PROPRIETARY AND CONFIDENTIAL INFORMATION | 2

 INTRODUCTION TO MIDDLE-MARKET BUYOUTS
EXECUTIVE SUMMARY

Steve serves as CID Capital’s Managing Partner, and is responsible for overall firm
management, internal CID human resources, and portfolio company board oversight. In addition
to his firm leadership responsibilities, Steve represents CID on the boards of Giftcraft, Fit &
Fresh, and LumiSource + Grandview Gallery.

He focuses on building strong consumer, service-oriented, and industrial brands. He particularly

enjoys working with the CEOs of lower-middle market businesses in setting and executing
strategies for growth.

Steve Cobb Previously, Steve was a member of the Home Care finance team at Procter & Gamble, where he
Managing Partner, CID Capital helped lead the growth of the U.S. laundry and cleaning products business.

Steve holds an MBA from Harvard Business School and a BA from DePauw University.

PROPRIETARY AND CONFIDENTIAL INFORMATION | 3

 INTRODUCTION TO LOWER MIDDLE-MARKET BUYOUTS
EXECUTIVE SUMMARY

Introduction • Capital Formation – Sources of capital used to make investments

to Private • Fund Lifecyle - Lifecycle of a Private Equity Fund
Equity • Value Creation – How do PE firms create value for investors

CID Capital • Organization – CID’s structure, roles and responsibilities

Overview • Strategy – CID’s investment model

Value • Sourcing – Where do private investment opportunities come from

Creation / • Sector Experience– Overview on industry focus
Strategy • Investment Playbook – CID’s approach to value creation

PROPRIETARY AND CONFIDENTIAL INFORMATION | 4

INTRODUCTION TO PRIVATE EQUITY

CID CAPITAL OVERVIEW

VALUE CREATION / STRATEGY

QUESTIONS

PROPRIETARY AND CONFIDENTIAL INFORMATION | 5

 INTRODUCTION TO LOWER MIDDLE-MARKET BUYOUTS
HISTORY OF CID CAPITAL

• Founded in 1981, CID Capital is an

Indianapolis-based Private Equity Fund
• Currently investing out of the firm’s 11th
fund, a $186M committed equity fund
focused on lower-middle market buyout
transactions

• Industry focus is predominately on the

industrial manufacturing, distribution, and
service sectors

• CID Capital is currently the majority

owner of ten companies located
throughout North America

PROPRIETARY AND CONFIDENTIAL INFORMATION | 6

 INTRODUCTION TO LOWER MIDDLE-MARKET BUYOUTS
CAPITAL FORMATION
• Private Equity Investors or “Limited
Partners” come from an array of
Pension University Insurance Wealth
backgrounds
Funds Endowments Companies Managers
• SEC regulates the industry, including
defining individual participation in private
equity funds

• These are highly illiquid investments with

other inherent risks from leverage and
Private Equity Fund small companies, among others
• “Portfolio Companies” each generally
make up 7-15% of the total fund
commitment

• Investor access and allocation to Private

Equity and Alternatives has increased
Portfolio Portfolio Portfolio Portfolio
over CID’s existence
Company Company Company Company

PROPRIETARY AND CONFIDENTIAL INFORMATION | 7

INTRODUCTION TO LOWER MIDDLE-MARKET BUYOUTS
FUND LIFECYCLE

• Capital is “called” from the limited partner

Capital Calls to Return of Capital base to make new investments in
Make Investments After Investment Exits portfolio companies

• Generally, it takes a firm 3-5 years to

invest committed capital

• An investor can expect several “capital

calls” per year when the Fund Manager
asks for the committed capital to make an
investment

• The remainder of the 10-year fund life

cycle is focused on value-creation
initiatives to increase shareholder returns
Draw Down / Invest Exit Investment / Return
• During the second half of the fund
lifecycle when investments are “exited”
and returns are realized
10 years

PROPRIETARY AND CONFIDENTIAL INFORMATION | 8

 INTRODUCTION TO LOWER MIDDLE-MARKET BUYOUTS
VALUE CREATION
- $14 EBITDA X 6 Multiple =
$85 Company Value
$14 EBITDA X 5
Company Value = Multiple = $70
EBITDA X Multiple Company Value

$10 EBITDA X 5 Multiple = $10 EBITDA X 5 Multiple =

$50 Company Value $50 Company Value

$70 Equity $20 of Equity at

start becomes $70
$20 Equity
Equity $55 Equity of Equity at the
$35 Equity end of five years
(3.5x Return)

Debt $30 Debt

$15 Debt $15 Debt $15 Debt

Start 1. Add Debt 2. Add 3. Add Multiple

Reduction EBITDA Expansion
Illustrative example does not include advisory fees Growth

PROPRIETARY AND CONFIDENTIAL INFORMATION | 9

INTRODUCTION TO PRIVATE EQUITY

CID CAPITAL OVERVIEW

VALUE CREATION / STRATEGY

QUESTIONS

PROPRIETARY AND CONFIDENTIAL INFORMATION | 10

 CID CAPITAL OVERVIEW
ORGANIZATION
ERIC J. BRUUN STEVE A. COBB ERIC DERHEIMER CORY HECK
PARTNER MANAGING PARTNER PARTNER PARTNER
317.708.4857 | eric@[Link] 317.708.4853 | steve@[Link] 317.708.4860 | ericd@[Link] 317.708.4866 | cory@[Link]

MBA, Purdue University MBA, Harvard Business School MBA, Stanford University MBA, The University of Chicago
BA, Purdue University BA, DePauw University BS, Indiana University BA, DePauw University
Joined CID in 2000 with 23 Joined CID in 2000 with 23 Joined CID in 2014 with 18 years Joined CID in 2014 with 16 years of investing
years of investing experience years of investing experience of investing experience experience

Responsible for investment opportunity Responsible for overall firm management, Responsible for portfolio company leadership Responsible for portfolio company leadership
origination, portfolio company level human internal CID human resources and portfolio and management along with new opportunity and management along with new opportunity
resources and portfolio company oversite company board oversite evaluation; Leads broader CID buyside M&A evaluation; Leads broader CID debt financing
programs efforts
Previous experience: Manager of Conseco Previous experience: Manager at
Companies acquisition integration group, Procter & Gamble in field-level Previous experience: Vice President at Previous experience: Member of the Corporate
focused on integration and management operations and finance. Greenhill’s M&A team; Associate with The Banking Group at BMO Capital Markets where
assessment. Carlyle Group. he partnered with financial sponsors on new
investments

TOM SHAW CHASE WILLIAMS RYAN CUTTER CLINT LEER DEBBIE MORGAN
MANAGING DIRECTOR VICE PRESIDENT SENIOR ASSOCIATE SENIOR ASSOCIATE CFO / CCO
317.533.6073 | tom@[Link] 317.854.3595 | chase@[Link] 317.708.4867 | ryan@[Link] 317.553.5506 | clint@[Link] 317.708.4862 | debbie@[Link]

MBA, The University of Chicago BS, University of Pennsylvania MBA, Indiana University BS, Indiana University MBA, Butler University
BS, Indiana University Joined CID in 2022 BS, Indiana University Joined CID in 2022 BS, Coastal Carolina University
Joined CID in 2023 Joined CID in 2018 Joined CID in 1998
Responsible for new opportunity Responsible for new opportunity
Responsible for portfolio company leadership Leads all efforts in compliance, accounting,
evaluation and portfolio company Responsible for new opportunity evaluation and portfolio company
and new opportunity evaluation tax, and LP reporting
support evaluation and portfolio company support support
Previous experience: Partner at Monument Previous Experience: Member of the Previous experience: Sourcing Previous experience: Corporate Previous experience: Multiple accounting
MicroCap Partners. Principal with HKW and Strategy and M&A team at the Heritage and procurement at Rolls Royce development for Lighthouse leadership roles
Associate with Wynnchurch Capital group. Associate at Berkshire Partners. Autism Center, Stanley Black &
Began career as a member of the Decker, and assurance services
Private Equity Group at Goldman Sachs at RSM

PROPRIETARY AND CONFIDENTIAL INFORMATION | 11

 CID CAPITAL OVERVIEW
STRATEGY

EXPERIENCED SMALL-BUYOUT PROFESSIONALS WITH A TRACK

RECORD OF STRONG RETURNS
SOURCING ENGINE
CID's business model is focused on
enhancing founder-owner companies to
Decades-long Business Development engine for
create enduring value as institutionally- sourcing under-the-radar opportunities
backed businesses
PARTNERSHIP
We leverage decades of experience to Selected by owners needing a succession plan
navigate these transactions and strategic partner
The lower middle market presents an
opportunity for us to run our playbook, with TRANSFORMATION
a best-in-class team and leading third-party Professionalizing businesses to realize value
resources targeting professionalization
opportunities across North America RETURNS
We strive to deliver value creation on each
investment from a combination of debt reduction,
earnings growth, and multiple expansion
PROPRIETARY AND CONFIDENTIAL INFORMATION | 12
INTRODUCTION TO PRIVATE EQUITY

CID CAPITAL OVERVIEW

VALUE CREATION / STRATEGY

QUESTIONS

PROPRIETARY AND CONFIDENTIAL INFORMATION | 13

 VALUE CREATION STRATEGY
SOURCING

FOCUSED ON FINDING ATTRACTIVE INVESTMENTS AT FAIR VALUATIONS

DEAL
SOURCING ENGINE SOURCING BY
Decades-long Business Development engine for sourcing under-the-radar THE NUMBERS

opportunities 975
Deals reviewed
in 2022 – 2023 YTD

NATIONAL COVERAGE
CID finds new investment opportunities throughout North America; we are not 5
restricted to Indiana or the Midwest Platform Investments
in 2022-2023 YTD

10
Add-on Investments in
EXECUTIVE NETWORK 2022 – 2023 YTD

We work closely with industry experts in our network to source and vet new
opportunities and quickly create value

PROPRIETARY AND CONFIDENTIAL INFORMATION | 14

 VALUE CREATION STRATEGY
SECTOR EXPERIENCE

INDUSTRIAL SERVICES DISTRIBUTION

• Niche manufacturers of engineered • Recurring revenue businesses with • Value-added distributors providing products
products in large, global end markets potential for ancillary value-added services to large, highly-fragmented end markets
• Focus on mission-critical, high-margin • Focus on “need to have it services” which • Focus on integrated customer and supplier
products creates stability gives pricing power or the ability to pass relationships creates reliable, sticky
along commodity fluctuations to the revenue streams
• Extension of manufacturing expertise into customer • Effective balance sheet management
additional customers and related products allows for strong free cash flow generation
• Asset-light nature results in strong
• Path to exit via larger PE funds and margins and free cash flow for • Products distributed are a “technical sale”
strategic platforms with a high likelihood of deleveraging and adding service lines to customers which generates higher
multiple expansion margins due to the value provided to the
• Path to exit via a network of large strategic customer
buyers and “buy-and-build” PE platforms

PROPRIETARY AND CONFIDENTIAL INFORMATION | 15

 VALUE CREATION STRATEGY
INVESTMENT PLAYBOOK
CID HAS A CONSISTENT RECORD OF IDENTIFYING, CREATING, AND REALIZING VALUE THROUGH
THE TRANSFORMATION OF NON-INSTITUTIONAL COMPANIES . . .

NON-INSTITUTIONAL COMPANY CID-OWNED COMPANY

• Lifestyle business • Strategic plan focused on 3 levers
• Home-grown senior of value creation
• Top-tier senior management
managers No outside board
Leverage board of directors /
or expertise CID’s network of advisors
• “Gut feel” decision-making with no formal
CID ACTIVELY
• Disciplined, analytical decision-
KPI tracking TRANSFORMS making supplemented by formal
COMPANIES reporting and KPI tracking
• Unaudited financials with no formal financial
reporting or budgeting • Improved financial integrity through
• Business is focused on a narrow base of budget and audit
legacy customers and product • Diversified strategy, customers, and
products. Actively managed M&A pipelines
• Underinvested in systems and infrastructure
upgraded systems and infrastructure

. . . OUR HISTORY SHOWS OUR WORK DRIVES EBITDA GROWTH, DEBT REDUCTION AND EXIT MULTIPLE EXPANSION

PROPRIETARY AND CONFIDENTIAL INFORMATION | 16

 CID CAPITAL OVERVIEW
INVESTMENT PLAYBOOK

Frequency Commentary

• Thoughtful transition of company leadership

CEO
Succession
58% • Recruit experienced “A-Players” as successor CEO to accelerate value creation
• Sourced from CID’s executive network and national searches

• Ensure there is a full management team in place with no gaps in leadership

Management
Additions 100% • Mitigates “key-man-risk” by having a full management team in place
• Clear roles and responsibilities for all Executive Team members

• Appropriate systems in place to scale the company in the future

Improved ERP
/ IT Systems 50% • Provides employees with a new level of data to proactively manage day-to-day business
operations

• Improve production throughput and overall efficiency

Facility • Adequate available space for future headcount and/or equipment for the business to scale
Upgrades 67%
• Showcases professionalism of the enterprise during the eventual sale process

Often upgrades are not required, or appropriate controls/reporting are already in place at the time of investment
Slide captures COF I and COF II companies that were exited off a multiple of EBITDA

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 CID CAPITAL OVERVIEW
VALUE CREATION PLAYBOOK

Frequency Commentary
• Implement clear targets and expectations for management teams to strive for
• Value creation milestones set to gauge progress and insights that help managers ensure the
Board-level
KPIs
100% achievement of targets
• Progress reported to the Board

• Diversify customers, end markets, and channels to demonstrate scalability

New Channels
/ Customers
100% • Clear customer acquisition and/or wallet share expansion strategy
• Can be performed organically or inorganically via acquisition

• Ensure proper governance through yearly audits

Financial
Audits 75% • Provides investors, directors, and managers with assurance in reported financials

Execution of the above leads to consistent multiple expansion at exit

Often upgrades are not required, or appropriate controls/reporting are already in place at the time of investment
Slide captures COF I and COF II companies that were exited off a multiple of EBITDA

PROPRIETARY AND CONFIDENTIAL INFORMATION | 18

INTRODUCTION TO PRIVATE EQUITY

CID CAPITAL OVERVIEW

VALUE CREATION / STRATEGY

QUESTIONS

PROPRIETARY AND CONFIDENTIAL INFORMATION | 19