Riverside Exits Respiratory Company in Third Sale of 2004

Generates 63.6% Gross IRR, 5.6 Times Gross Cash-On-Cash Return for 2000 Fund Investors*

July 1, 2004 | New York, NY; Cleveland, OH; Dallas, TX; San Francisco, CA - If you combine respiration with a little bit of perspiration, what do you get? A healthy 63.6% gross IRR and 5.6 times gross cash-on-cash return, if you're The Riverside Company and have just sold DHD Healthcare, a developer, manufacturer and marketer of disposable devices for respiratory therapy. Under Riverside's ownership, DHD's earnings doubled through impressive organic growth and two add-on acquisitions: STI Medical Products in July 2001 and Pegasus Research Corp. in August 2003. Riverside sold DHD to Smiths Group, a strategic acquirer, for $55 million - 9.0 times LTM EBITDA.

Riverside, the leading private equity firm specializing in investments at the smaller end of the middle market, acquired DHD in February 2001 through the Riverside Capital Appreciation Fund 2000 (RCAF 2000). At the time, DHD generated 49% of its revenues through branded, proprietary products, and was securing its market position as a significant branded manufacturer. Today, with revenues of $20 million, the Company is a leading manufacturer of positive airway pressure devices and incentive spirometers and derives 78% of its revenues from its branded, proprietary products. DHD is recognized as a "best-in-class" manufacturer by respiratory care practitioners around the world and has won numerous awards from the American Association for Respiratory Care. During Riverside's three and a half years of ownership, management invested $5.3 million to develop or acquire new branded products, all of which are manufactured at its facility in upstate New York.

"DHD has been a strong performer led by an outstanding management team since the day we acquired it," explained Andrew Strauss, a Partner in Riverside's New York office and the senior transactor working with DHD. "As with many portfolio companies, we hit some bumps, including the loss of two of our most significant customers. But management stuck to its strategic plan, continuing to develop and acquire products that patients need and find easy to use, and successfully transitioned the contract volume to more profitable branded volume. Together with management, we propelled a fine little company to a new corporate class. It's been a very productive three and a half years for all of its stakeholders."

"From the first moment, we had a very collaborative relationship with Andrew and the rest of the team at Riverside," said Rex Niles, DHD's CEO. "They didn't swoop in and take over after the acquisition in 2001; instead, we were able to work closely together on strategies and ideas to make this company bigger and better, and to position it for an excellent future."

The sale of DHD is Riverside's third from its RCAF 2000 fund, and is the firm's third realization of 2004. This exit marks Riverside's 13th overall out of 39 platform company acquisitions. Including the sale of DHD, Riverside has generated realized gross returns of 66.3% and gross cash-on-cash returns of 4.1 times on capital called for investment.

Harris Williams & Co. acted as the exclusive advisor to DHD and Riverside on the transaction.

The Riverside Company
The Riverside Company, with offices in New York, Cleveland, Dallas and San Francisco, is the leading private equity firm investing in premier companies at the smaller end of the middle market. The firm has nearly $1.3 billion of capital under management. In addition to four pre-1995 acquisitions, Riverside has brought to market The Riverside Capital Appreciation Funds of 1995, 1998, 2000 and 2003, attracting investors from pension funds, endowments, funds-of-funds, insurance companies and banks. Since its inception in 1988, Riverside has invested in 85 acquisitions -- 39 platform companies and 46 add-ons -- across a variety of industries through its four funds and other investment vehicles. The firm is known as one of the industry's most active acquirers, having bought seven companies so far in 2004 and 13 in 2003. Riverside's current portfolio numbers 26 companies.

* Assumes the release of all monies currently held in escrow and anticipated tax benefits.

For more information, contact:

Christine Croissant
The Riverside Company
216-344-1180