13D Filing: Great Point Partners and Connecture Inc (CNXR)

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Exchange revenue of $29.5M13,
this portion of the business has the potential to generate standalone, fully burdened EBITDA of $6M to $9M and has much better
growth prospects. Given its scale, the inherent value of that business is depressed by the burdens of funding the other operations.
We do not discount the complexity of separating the business operations, but with creative management and planning it can be done
and would, we think, unlock enormous value. We have performed various sum-of-the-parts analyses with a range of allocation assumptions
between the two businesses and each scenario results in an equity value and price per share greater than two times (2x+) the current
equity value and price per share today.

2. Partner the Commercial Enterprise Business. There is a diverse set of companies which
either compete with, or have adjacencies to, the Commercial Enterprise business, such as Accenture, Aon, CGI, Cognizant, Deloitte,
IBM, Infosys, Mercer, Towers Watson, Xerox/ACS, among others. Since management seems unable to execute a profitable strategy in
this arena, we believe the Company should look to either sell or sub-contract out these clients to other parties who can better
manage such business lines. This would allow management to focus on other more profitable operations that it can handle. Additionally,
the Company should be able to negotiate an economic relationship with such a partner that would be an enormous cash flow pick up
for the Company.
3. Aggressively Cut Costs and Focus
on Profitability, Even at the Expense of Growth.
Although management envisioned
a rapidly growing business when it went public, the Company does not appear to be in
a position to stay on that strategy in the near term. The most pressing opportunity is
to engineer a Company that can be self-sustaining and profitable. Based on evaluating
the cost structure of comparable companies and the Company’s continued reporting
of needing contract labor, we believe that Connecture overspends on R&D and General
& Administrative expenses by approximately 15% of revenue. If applied to the Company’s
LTM revenue, this represents approximately $13M in potential cost savings. Adding this
back to the Company’s LTM EBITDA loss of $2M14, it is our view that
with aggressive cost cuts the business could generate $11M of EBITDA. Connecture would
trade at a much better multiple and value than it does today if the necessary actions
are taken.
4. Sell the Company in its Entirety. As mentioned above there are likely numerous potential
buyers, even for the less attractive segment of the Company. When one factors in the more attractive pieces of the business, especially
DRX, the list of potentially interested parties could expand even further to include strategic entities such as United Health /
OPTUM, Cigna, WellPoint, Change Healthcare, eHealth, and HMS; many of which are serial acquirers of businesses. Given the potential
time frame to restructure the operations of the Company to drive better financial performance and create shareholder value, it
may be more expedient to enhance value by exploring and pursuing a sale of the business overall.

13 As per the Company’s September 30, 2016 reported results.

14 Based on 9/30/16 publicly reported financials.

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