ARC INDUSTRIES, INC. HOME CRITERIA Q&A APPROACH ANNOUNCEMENTS SEARCHES CONTACT HERE ARE SOME OF THE QUESTIONS COMMONLY ASKED BY SELLERS: 1. WHY OLD GUYS? Regardless of what fancy MBA-types tell us......there are two valuations for a business…..(1) what it is worth to the current owner, and (2) what it is worth to a rational buyer. Clearly, a business is worth more to a younger owner that can enjoy the cash flow for years to come and then eventually sell the business (this is our approach - to own and operate for the next 20 years). So, to buy a company from a younger seller, we’d have to pay more than his “status quo” scenario, and thereby probably end up over-paying. This places undo stress on the Company as it is then necessary to force changes as the Company needs to have its best years ever (raising prices, reducing overtime, etc). And that’s entirely contrary to our approach (which is to make NO changes to the business). Every deal is unique...and we are flexible. We just need to talk about it. 2. WHAT IS ARC’S PLAN FOR THE COMPANY Initially….to not screw it up (not joking). We do this by making no changes to the business. That’s why a stable employee base is very important to us. “We keep the same people doing the same things for the same customers”. After a couple of years, we will begin to layer on low-risk opportunities. Frequently, the former owner has incredibly valuable suggestions as to how we can grow the business, but they didn't want to invest the time or money, or (more commonly) didn’t have the personnel. Every business we acquire stands on its own. Our portfolio companies are not part of a fund, and they are not cross-collateralized. The only common trait is that ARC is a significant shareholder in every Company. The way we intend to maximize our return is to own the business for as long as possible (20-25 years). Every deal is unique...and we are flexible. We just need to talk about it. 3. HOW LONG DO I NEED TO STAY AROUND? Not very long (maybe 90 days or less). I know this is contrary to what most people think. Remember...our approach is to keep "the same employees doing the same things for the same customers". Therefore, given a stable employee base....the folks know how to do their job. Upon closing, we will either insert a new President or promote an existing employee into that role. Either way, having the old owner around undermines the new guy's authority. We do rely on the old owner for several years for guidance when it comes to "non-daily" activities, such as making a new acquisition, changing suppliers. employee issues, etc. One parting thought.....years ago, we bought a company (still own it) where the owner completed his 90-day transition period and asked to keep working because, once he was free from the daily hassles of employees and customers, he actually enjoyed working again. Every deal is unique...and we are flexible. We just need to talk about it. 4) HOW DO YOU STRUCTURE THE DEAL? Typically, we buy 100% of the Company in a stock transaction. We like stock transactions (even though lawyers and accountants don’t) because it starts off the transition very smoothly. In an asset deal, at a minimum, employees need to be “re-hired” by the new entity and fill out a bunch of paperwork for the new entity. Our approach is seamless transition…so we do NOT broadcast that a transaction has occurred. This is made easier by a stock deal. Regarding structure…. There is no one way. In general, we want to keep the operations the same, so we don't count on growth. We don't want to over-pay and then force unnecessary changes as the employees try to produce the record profits necessary to support the new capital structure. In general, we look to pay 4 to 5 times "Adjusted Cash Flow" with 75% cash at closing. There have been times when we have paid more.....and times we have paid less. Every deal is unique. Regarding our capital….we are very flexible. Most business owners that ask about our capital sources (which is a very smart question) have typically had a bad experience with a "pledge fund" or someone else that couldn’t close for whatever reason. For the most part, ARC Industries can underwrite a deal using it's in-house capital. That being said, we still have a strong network of high-net worth individuals and for larger deals, we have partnered with several SBIC mezz funds that have co-invested in many of our deals. Every deal is unique...and we are flexible. We just need to talk about it. 5) HOW INVOLVED IS ARC POST-CLOSING? This is a two-part answer. ARC typically acquires 100% of the stock of a company and then either: (a) brings in a new President; or (b) promotes the "heir-apparent" to President. Either way, the new President will own a significant piece of the Company and will be responsible for running the daily operations of the business. ARC's main principal, Ernie Cutter, is very active until the point of closing, but then turns over the work to the new President. Post-closing, Mr. Cutter works with the President very closely for the first year to minimize mistakes and ensure the Company is headed in the right direction. During this time, Mr. Cutter and the former owner are frequently talking on the phone when developments arise. Every deal is unique...and we are flexible. We just need to talk about it. 6) WHAT ABOUT THE REAL ESTATE? Our preference is to buy the real estate (like you...we'd rather pay a mortgage payment than a rental payment). However, some owners like the passive income and want to keep it that way. Every deal is unique...and we are flexible. We just need to talk about it. COPYRIGHT © 2018 ARC INDUSTRIES, INC. - ALL RIGHTS RESERVED. POWERED BY GODADDY