2. Legal Disclaimer
This presentation may include forward-looking statements. These forward-looking
statements include comments with respect to our objectives and strategies, and the results
of our operations and our business.
However, by their nature, these forward-looking statements involve numerous assumptions,
uncertainties and opportunities, both general and specific. The risk exists that these
statements may not be fulfilled. We caution readers of this presentation not to place undue
reliance on these forward-looking statements as a number of factors could cause future
company results to differ materially from these statements.
Forward-looking statements may be influenced in particular by factors such as fluctuations
in interest rates and stock indices, the effects of competition in the areas in which we
operate, and changes in economic, political, regulatory and technological conditions. We
caution that the foregoing list is not exhaustive.
When relying on forward-looking statements to make decisions, investors should carefully
consider the aforementioned factors as well as other uncertainties and events.
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3. Overview
โข Gladstone Investment Corporation
โข Business Development Company (BDC) with publicly traded common and preferred stock
โข Common stock (NASDAQ: GAIN)
โข Preferred stock (NASDAQ: GAINP)
โข Managed by Gladstone Management Corporation, an investment adviser registered with the SEC
that manages more than a billion dollars of assets
โข One of a family of funds known as The Gladstone Companies (www.gladstone.com)
โข Focused on investing in subordinated debt, preferred stock, and common stock or warrants to
purchase common stock in buyouts of private U.S. businesses
โข Went public in 2005 and has never missed paying a monthly dividend
โข Current common stock dividend is $0.60 per share (per year), paid monthly at $0.05 per share
โข Paid $0.03 bonus dividend per common share in March 2012
โข First preferred stock dividend was paid in March 2012. The annual rate is 7.125% or $0.1484
per month per share
โข Current Portfolio
โข Over $230 million at fair value in total investments as of June 30, 2012
โข Invested in 18 companies, 13 states, 13 industries as of June 30, 2012
Disclaimer: Past performance is not an indication of future performance
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4. What is Gladstone Investment?
โข Gladstone Investment Corporation is a publicly traded business
development company (BDC) that invests in debt and equity
securities consisting primarily of subordinated loans, mezzanine debt,
preferred equity, and common stock or warrants to purchase common
stock in small and medium-sized U.S. businesses in connection with
buyouts and other recapitalizations.
โข The company seeks to:
โข Lend to and invest in companies with proven cash flows and
successful track records led by great managers
โข Generate current income to pay monthly dividends to stockholders
โข Achieve capital gains from the sale of appreciated equity
securities
โข Gladstone Investment is operated by an experienced management
team, as discussed in the following slides
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5. Experienced Management Team
David Gladstone, Chairman & CEO
โข Over 25 years of experience investing in mid-sized and small private
businesses
โข Current Chairman and CEO of all three Gladstone funds, these are
public companies numbers 7, 8, and 9 in his career
โข Past Chairman of Allied Capital and American Capital
โข MBA from Harvard Business School; MA from American University;
BA from University of Virginia
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6. Experienced Management Team
Terry Brubaker, COO Chip Stelljes, CIO David Dullum, President
โข More than 25 years experience in โข More than 25 years experience in โข More than 25 years experience in
managing businesses portfolio investing portfolio investing
โข Currently COO and head of all โข Currently CIO and head of all โข Currently head of Gladstone
portfolio management for all three investing for all Gladstone public Investment and seeking mezzanine
Gladstone public funds funds, reviewing hundreds of and buyout opportunities
โข Previously on the acquisition team opportunities and supervising the โข Experienced in investing, due
of James River Corp., as it grew due diligence process on each new diligence, reviewing hundreds of
from $200 million to $7 billion in investment new opportunities and reviewing
revenues โข Past EVP at Allied Capital, each new investment
โข Group VP of two operating making loans and investments in โข Past partner of New England
divisions at James River with middle market companies Partners, a small buyout fund
2,300 employees, $440 million in โข Past manager of Camden Partners located in Boston and Washington,
revenue and 14 locations and Columbia Capital funds, DC
โข After James River, was CEO of investing in communications, โข Past partner of Frontenac
two businesses with 800 healthcare and business services Company for over 14 years in
employees, $250 million in โข MBA from University of Virginia Chicago, investing in many mid-
revenue and 4 locations Business School; BA Degree in market businesses in the Midwest
โข Former consultant with McKinsey Economics from Vanderbilt โข MBA from Stanford; BS in
& Company University Engineering from Georgia Tech
โข MBA from Harvard Business
School; BSE in Aeronautical
Engineering from Princeton
University
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7. Experienced Management Team
David Gladstone Terry Brubaker Chip Stelljes David Dullum Bob Cutlip
Chairman & CEO Chief Operating Officer Chief Investment Officer President Sr. Managing Director
25+ Years Experience 25+ Years Experience 25+ Years Experience 25+ Years Experience 25+ Years Experience
Managing Directors and Directors*
Buzz Cooper Lud Kimbrough John Sateri Greg Bowie Blair Gertmenian
25+ Years Experience 25+ Years Experience 23 Years Experience 10 Years Experience 10 Years Experience
Chris Massey John Freal Jennifer Simpson M. Kipp Kranbuhl Erika Highland
19 Years Experience 25+ Years Experience 12 Years Experience 14 Years Experience 11 Years Experience
Bob Pierce David Meier Chris Daniel Chris Lee Kyle Largent
25+ Years Experience 25+ Years Experience 20 Years Experience 11 Years Experience 10 Years Experience
Laura Gladstone Matt Tucker Michael Beckett
12 Years Experience 13 Years Experience 17 Years Experience
Over 20 professionals concentrating on sourcing, due diligence and portfolio management and 15 professionals in reporting
*Directors noted here are not members of the fundsโ boards of directors, rather, these are junior Managing Director positions of the Adviser
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8. Target Market
Why we target companies in the lower middle market
Smaller companies typically offer a more compelling investment profile
than larger ones because of:
๏ง Lower purchase price multiples
๏ง Lower debt multiples
๏ง More protective covenants for lenders
๏ง Meaningful equity co-investment and likely multiple expansion upon exit
๏ง Small businesses are often less complicated
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9. Examples of Investments Made in Private Businesses
โข Small manufacturer of a product or a service business needs
money to grow
โข Banks will make short-term loans if the business has collateral
and solid cash flow
โข The business gets from us:
โ Management expertise,
โ A long-term loan, but at a higher interest rate, and
โ Additional capital in the form of an equity co-investment
โข We typically get:
โ An attractive long-term loan that pays monthly interest that we can
pass on as monthly dividends to our shareholders,
โ Board seats and an ownership stake in the company through our
equity investment, and
โ Potential for accrued dividend payouts on our preferred equity, as
well as capital appreciation of our common stock upon an exit
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10. Examples of Areas Where We Invest
โข Light manufacturing
โข Manufacturing of small products
โข Specialty manufacturing
โข Custom and precision manufacturing
โข Chemicals, plastics and rubber manufacturing
โข Packaging and specialty items
โข Business services
โข Service companies with logistic services
โข Consumer products
โข Specialty items
โข Leisure and entertainment
โข Equipment and products
โข Distribution and transportation
โข Storage and transportation of parts
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11. Industries We Avoid
โข Housing or Home Mortgage
โข Auto Manufacturing & Tier One Suppliers
โ However, we have one investment, Auto Safety House,
that is in the business of selling and servicing school
busses and school bus parts.
โข Banks & Financial Institutions
โข High-tech Companies or Early Stage Start-ups
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12. Typical Investment Structure
Senior & Junior Debt Preferred & Common Stock
(80%) (20%)
๏ง Senior-variable rates with current pay of 8- ๏ง Options to own Common Stock
10% ๏ง Preferred stock
๏ง Subordinated-variable with a floor and ๏ง Dividend paid or accrued at 6% to
fixed rates with current pay of 12-15% 8% per year
๏ง 5-year term with interest only paid ๏ง 5 year term
๏ง 1st and 2nd Lien: some collateral and ๏ง Common stock or warrants to purchase
reasonable cash flow coverage common stock
๏ง Strong inter-creditor agreement that avoid ๏ง Usually accompanied by options that
blockage of interest payments provide an exit from common stock
๏ง Reasonable leverage ratios and attractive ๏ง Expected gross return is 25% to 30%
terms
๏ง Options or success fees to enhance the
return
๏ง Expected gross return is 18% to 20%,
depending on risk profile
Disclaimer: Past performance is not an indication of future performance
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13. Track Record
โข Common Stock traded on NASDAQ (GAIN)
โ Paying $0.05 per share per month, or $0.60 per share per year
โ Paid bonus dividend of $0.03 per share in March 2012
โข Preferred Stock traded on NASDAQ (GAINP)
โ Paying $0.1484 per share per month, or $1.78 per share per year
โข Conservative balance sheet:
โ Debt to equity ratio of 0.4 to 1.0 as of June 30, 2012, net of short-term
borrowings
โ $31 million borrowed on $60 million line of credit
โข Invested in 18 companies as of June 30, 2012
โข At June 30, 2012, had two investments in default, representing
2.0% of our investment portfolio at fair value
Disclaimer: Past performance is not an indication of future performance
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14. Portfolio Diversification as of June 30, 2012
Gladstone Investment: By Industry at fair value
Chemicals, Plastics and Rubber - 20.5%
Machinery (Non-Agriculture, Non-Construction and Non-Electronic) - 14.2%
Leisure, Amusement, Motion Pictures, Entertainment - 13.3%
Diversified/Conglomerate Manufacturing - 11.1%
Containers, Packaging and Glass - 10.8%
Electronics - 9.6%
Beverage, Food and Tobacco - 4.1%
Buildings and Real Estate - 3.9%
Oil and Gas - 3.8%
Cargo Transport -3.8%
Automobile
Aerospace and Defense - 1.5%
Home and Office Furnishings - 1.4%
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15. Geographic Diversification as of June 30, 2012
We have outstanding investments to businesses in states highlighted in blue
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16. Historical Net Investment Income
Net Investment Income Total Amount Amount Per
FYE March 31: (in millions) Common Share
2006 $5.9 $0.36
2007 $11.1 $0.67
2008 $13.1 $0.79
2009 $13.4 $0.62
2010 $10.6 $0.48
2011 $16.2 $0.73
2012 $13.7 $0.62
2013* $13.0 $0.59
*Annualized based on 3 months operating results
Disclaimer: Past performance is not an indication of future performance
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17. Gladstone Statistics vs. Public Market BDCs
GAIN BDC Median
Price/NAV 0.82x 0.99x
Debt/Equity 35.3%(1) 53.6%
Dividend Yield 8.0% 9.7%
Market Cap $165 $305
(1) Excludes short-term borrowings.
Source: Raymond James BDC Industry Weekly Newsletter, August 3, 2012
Disclaimer: Past performance is not an indication of future performance
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18. We are a Shareholder Focused Company
โข Maintain the monthly distribution and grow that distribution
when earnings increase
โข Emphasis on stability of income first and growth in income
second
โข Maintain liquidity so shareholder may buy or sell the stock in
the market
โข Quarterly published reports and quarterly calls to shareholders
โข Robust informational website (www.gladstoneinvestment.com)
and notifications by e-mail to those who sign up
โข Shareholder dividend reinvestment plan for common stock
โข Audited by PricewaterhouseCoopers LLP
โข Investor Relations Hotline: (866) 366-5745
โข Adviser with strong reputation (www.gladstone.com)
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19. Highlights
โข Experienced Management Team: Operating team with a successful
track record underwriting private businesses
โข Successful CEO: Has a โbrand nameโ reputation demonstrated by the
success of nine public companies
โข Business Model: Emphasis on deal flow from a proprietary
originations network and strategic relationships with LBO funds
โข Market Opportunity: Right time in the business cycle to take
advantage of the lack of funding for businesses
โข Conservative Underwriting: Focused on the cash flow of the small
value-oriented businesses
โข Focused on Interest Income Plus Capital Gains: Interest payments
on our loans allow us to pay dividends to our shareholders and capital
gains are extra
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20. Why Own GAIN Stock
โข Common stock current yield of 8.0% at August 15, 2012
โข Preferred stock current yield of 7.0% at August 15, 2012
โข 85 straight monthly distributions since its IPO as of August 1, 2012
plus a bonus one-time dividend paid in March 2012
โข Potential for significant appreciation or capital gain distributions from
equity investments
โข Diversification of borrowers in various states and various industries to
protect the dividend
โข Investing in small- and mid-sized U.S. businesses with steady cash
flows and good growth prospects
โข Liquidity for investors โ common and preferred stocks are listed on
NASDAQ (GAIN & GAINP)
Disclaimer: Past performance is not an indication of future performance
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21. Other Information
โข Website for Gladstone Investment
โข www.gladstoneinvestment.com
โข Contains much more information about our company
and the companies in our portfolio
โข Website for our investment adviser
โข www.gladstonemanagement.com
โข Information on all funds managed by the companyโs
investment adviser
โข www.gladstone.com
โข Common stock traded on NASDAQ (GAIN)
โข Preferred stock traded on NASDAQ (GAINP)
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