2008 software/it m&a review

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www.corumgroup.com

2008 Mid2008 Mid--Year ReviewYear ReviewSoftware and IT M&A Outlook:WHAT LIES AHEAD?

Thursday, July 17, 2008



Middle Market Software M&A Specialists

M&A specialists since 1985

Software and IT experts – mostly former CEOs

Offices in Europe, Canada, Latin America and United States

Corum Group Presentation ■ 2

$6 billion in wealth created

58% cross-border transactions

Host of Selling Up Selling Out conferences

Host of multi-national Merge Briefings

Sponsor of World Financial Symposiums conferences

Publisher of industry-leading M&A research



Broad Exposure to Software M&A

Corum’s information is drawn from

Global M&A engagements Research facilities in the U.S. and Europe

Buyer / client / advisor feedback

Educational events and speaking activities


The last 90 days

Selling Up Selling Out conference series:Paris, San Diego, Bellevue, Austin, London, Denver

Merge Briefings:

Toronto, Ottawa, Montreal, Calgary, Vienna, Zurich, Frankfurt, Dusseldorf, Hamburg, Berlin, Helsinki,

Munich, Stuttgart, São Paulo, Mexico City, Brazilia and Florianopolis

World Financial Symposiums: Boston

Other industry events



Agenda

1Market Insights


3Sector Analysis

4Discussion



Headlines Tell the Story

“Can M&A’s Best Times Get Better?”Wall Street Journal, January 2007

“Money is Everywhere – But for How Long?”Wall Street Journal, January 2007

“Stock Surge + Bond Boom = M&A Magic”Wall Street Journal, April 2007

“Tech Cos Seen Going M&A Route, Not IPO in 2008”Reuters, December 2007

“IT Spending Growth Expected to Slow in ‘08”InformationWeek, December 2007

“Bear Stearns’ No. 1 Foe: Fear Itself”CNN Money, March 2008


“As Deal Barriers Fall, Takeover Bids Multiply”

Wall Street Journal, May 2007

“M&A – The Best Investment Game in Town”Moneyextra.com UK, May 2007

“Market Pressures Test Resilience of Buyout Boom”Wall Street Journal, June 2007

“Dry-Up in Debt Won’t Deter Tech Deals”Barron’s, September 2007

“Time to Celebrate; 2007 Breaks M&A Record”Wall Street Journal, October 2007

“M&A Seen on the Brink After Record 2007”Reuters, December 2007

“Deal Making: It Shall Return”Wall Street Journal, May 2008

“As Markets Plunge, So Does Deal Making”New York Times, June 2008

“Let’s Still Make a Deal”Business Week, June 2008

“M&A World Continues to Spin but at a Slower Pace”Wall Street Journal, July 2008



0

5

10

15

Impact on Equity Markets


-25

-20

-15

-10

-5

Nasdaq

NYSE

S&P 500

FTSE

TSX

P

r i c e o f O i l a t $ 7 5 / b

a r r e l

E m e r g e n c y I n t e r e s t

R a t e C u t

F e a r o f R e c e s s i o n T a

k e s H o l d

F r e d d y M a c / F a n n y M

a e B a i l o u t

P

r i c e o f O i l a t $ 1 4 5 / b a r r e l

F e a r o f R e c e s s i o n L o

o m s

H

a l f - p o i n t R a t e C u t

B

e a r S t e a r n s F a l l s



Economic Climate Weakens

Credit crunch won’t go away

Energy prices drag on economy – $150 or $200 oil?

Consumer spending slows – but supports U.S. economy

Broad indices headed downward – Bear Market

Cor orate earnin s down


Recession a reality

More Sellers while Buyers reset on valuations

Corum Software Peer Group valuations down

But… IT sector Buyers are still active

In spite of problems, M&A deals are getting done



Sellers’ Concerns

Duration of downturn

Sustaining the business during downturn

Rising tax rates in 2009? (U.S.)

Missing the market


Addressing new emerging markets alone

Pressure to readjust value expectations

Threat of sector consolidation

Regulatory / Anti-trust impact on markets

How to achieve Liquidity

All reasons to be in market now.



The Silver Lining

On the plus side:

Technology revenues remain strong

Earnings remain mostly positive

Forward analyst estimates look good

Lending requirements loosening


PE buyers see opportunity in the coming months PE and VC investors raising new funds

International markets remain strong – Euro up

No buyers saying “We’re pulling back”

Large cap stocks up

Strong cash reserves

Deals are getting done for quality companies



M&A is the Primary Source of Liquidity

In Dollar Volume – U.S. dollar volume all industries

$1,200

$1,300

$1,400

$1,500

$1,600$1,700


Source: Dealogic, IPO Central

$0

$100

$200$300

$400

$500

$600

$700

$800

$900$1,000

,

I n

B i l l i o n s

M&A Dollar Volume IPO Amount Raised



Current M&A Market

Broad Market

1H:08 Global Deal Volume$1.57 trillion, down 35%

2Q:08 Global Deal Volume

Technology Market

High tech deals for Q2 $36.5 billion

Strategic buyers remain active

Private equity getting back into the game


.

Private Equity down 82% globally•89% in U.S.•59% in Europe

Consolidation continues across mostsectors

Companies of all sizes continue to beaggressive buyers

Companies in emerging countries are

viewed as buyers, not just targets• Asia• Eastern Europe• Latin America



Public Valuation Multiples

Market Median EV / Revenue Multiples

Q1:08 Q2:08 %∆

Horizontal Applications 1.84x 1.81x -2%

Vertical Applications 1.93x 2.19x 13%


onsumer pp ca ons . x . x -

Infrastructure 2.08x 1.98x -5%

Internet 2.45x 2.71x 11%

IT Services 0.85x 0.89x 5%



Private Equity – Credit Impact

Deal volumes by PE down dramatically from 1H:07

Funding issues slow deal closings

Uncommitted funds still high – $200+ Billion

Pressure to invest strong


Many PE have broad technology portfolios to build on – leading to PE-backed

strategic acquisitions by portfolio companies

No venture backed IPOs in U.S. during past quarter (1st time in 30 years)

Some highly leveraged PE funds/buyers saved from correction by sub-prime

melt-down

Private Equity on sidelines, waiting for market to bottom?



Strategic Buyers Very Active

Fill any void left by private equity

Less impacted by credit crunch

Strong balance sheets

Equity values down, but not from 12 months ago


Doing deals under currently favorable antitrust environment

Business as usual for many

Strength of non-U.S. buyers (dollar devaluation / public multiples)

Converging markets / new models spur M&A

Accommodate sellers looking to close deals before tax increases



Company Stock Price

7/15/2007

Stock Price

7/15/2008

% Change Year Ago

Cash

Current Period

Cash

Sun $5.37 $8.80 63.87% $3,620 $3,030

Apple $137.73 $169.64 23.17% $9,352 $19,450

IBM $108.60 $123.20 13.44% $14,991 $12,030

Oracle $20.40 $20.25 -0.74% $6,218 $11,040

SAP 52.14 51.68 -0.88% 3 151 3 840

Large Cap Tech Stocks


Symantec $19.80 $18.59 -6.11% $2,559 $2,430

Google $552.16 $516.09 -6.53% $6,082 $12,130

HP $47.25 $41.65 -11.85% $11,293 $11,650

Microsoft $29.82 $26.15 -12.31% $6,111 $24,020

Nokia $29.91 $24.86 -16.92% $3,130 $17,030

Yahoo $26.58 $21.54 -18.96% $1,514 $2,610

Cisco $29.89 $21.04 -29.61% $3,728 $24,430

EMC $19.19 $12.53 -34.71% $4,482 $5,610



Analysis: A Recently Launched Corum Client

Vertical market software company

North America based

Market leader

One of 4 good options in specialty market


ear va ue propos t on

Solid management team

Marketing and sales opportunities not fully exploited

Solid business model

Good revenue growth and solid EBITDA (12 million / 3+ million EBITDA) In market 8 weeks

15 interested / 5 buyer calls / 2 meetings / 1 offer in process and 3 parties moving

towards offers



Interest Translating into Deals

Vertical

market

IT servicesFinancialServicesSector Interested Parties

Current examples ofbuyer interest across

multiple sectors:


LOIs andOffers

SystemsManagement

Security

Telecom

er ca ar e

Gaming 12Embedded Technologies 12Security 11Financial Services 10Internet Infrastructure 10Compliance 10

Interested parties from billion dollarhousehold names to unknown companies



Global M&A Activity

Cross-border transaction levels remain strong

Dramatic increase in BRIC country transaction volumes over 2007

Asia Pacific firms remain bullish on M&A over the next 12 months

Europe and Asia both set records for deal volume in 2007


– Europe off pace from last year

– Asia could break that record this year

Weak dollar aiding in cross-border transactions

European buyers shopping in the U.S.

Huge U.S. trade deficit – dollars to reinvest



Global Marketplace

60% of Corum’s recent transactions are cross-border


A trend holding steady and seen throughout the technology industry

Cross-border

60%

Intra-country40%



International Scope


Buyers less likely to be local

New buyers from emerging countries increasing role in global M&A

View international companies as both competitors and potential acquirers



Representative Corum Transactions

Leading MRP and processautomation vendor for theglass industry

Glaston – FinlandAlbat+Wirsam – Germany

-

Developer of collaborative3D authoring and mapping

technology

Microsoft – U.S.Caligari – U.S.


driven business application

automation and batchintegration technologies

UC4 – Austria backed by Carlyle – UK AppWorx – U.S.

Developer of 3D digitaldesigns in the building, plantand marine markets

Autodesk – U.S.NavisWorks – UK

Provider of estimatingand earth measuringsoftware for contractors

Maxwell – U.S.

Quest – U.S.

Value-added distributor of voice,data and converged communicationssolutions

Datatec – South Africaon behalf of Westcon – U.S.CRANE – UK



Representative Corum Transactions

Electronic invoicing andlegal spend managementsolutions

DataCert – U.S.CorpraSoft – U.S.

IT services providerto government andcommercial organizations

TechTeam – U.S.RL Phillips – U.S.


Networking and lobbyservices for gamepublishers &developers

Activision – U.S.DemonWare − Ireland

Human capital managementsolutions

StepStone − NorwayExecuTRACK − Germany

HR information systems formiddle market enterprises

BPO – U.S.

HR Microsystems – U.S.

Provider of applicationssupport maintenanceservices (ASM)

Sierra Systems – Canada

RIS – Canada



International Buyer Activity

Need to Look Internationally

International Buyer U.S. Seller

Micro Focus Net Manage

Sopra Group Tumbleweed Communications

Ka sch TrafficCom Mobilit Solutions


Dassault Systems Engineous SoftwareSAP AG Visiprise, Inc.

Alcatel-Lucent Motive, Inc.

Logica Holdings Dolphin Digital Media

NEC NetCracker

Purple Labs OpenWave Mobile Phone Business

Springsoft Novas

3i Infotech Regulus Group



BRIC Countries and Beyond

BRIC - Brazil, Russia, India, and China… but don’t forget Mexico and South Korea

Responsible for 39% of IPO dollar raised in 2007 India third largest market for IPOs in Q1:2008

Economies performing well

Consumer spending strong, resulting in 800 million PC and Internet users by 2015*


China predicted to become the most influential country in regards to IT

Emerging economies’ GDP are now on par with those of developed economies

Mexico’s close proximity to the U.S. puts them in a position of power (IT Services)

Volatility among emerging nations remains a concern:

Stock markets overvalued?

Valuations tend to be lower

Geopolitical concerns

*DNV Technology Outlook 2015



International Buyers

Non-North AmericanPrivate Equity

• PE acquisitions impacted

International StrategicBuyers

• Flush with cash and putting

Imperative to LookGlobally

• Q2 had the highest activity


in N.A.

• Debt financing still elusive

• Sovereign funds continuespewing capital into market

• Leveraging the value of theEuro

• Targeting U.S. companies

• Not as affected by U.S.

economic lag

• Emerging market IPOskeep up supply of newbuyers

acquiring U.S. companies(all industries)

• Outbound M&A from Asiacontinues to rise

• 40% of first half 2008 M&A

worldwide was crossborder



Corum’s Market & Sector Re-Alignment

Horizontal Application Software Infrastructure Software


Vertical Application Software

Consumer Application Software

Internet

IT Services and BPO



Software and IT M&A Activity 1H:08

Where are the deals happening?

Oracle/BEA44%

45%

50%

Big 6 Volume and Value Percentages


$8.5 billion

16% 25% 5% 26% 20% 7%

4%

28%

7%

9%8%

0%

5%

10%

15%

20%

25%

30%

35%

40%

Horizontal Application

Software

Vertical Application

Software

Consumer Application

Software

Infrastruc ture Softwar e Inte rnet IT Service s and BPO

Volume Percentage

Value Perce ntage



Software and IT M&A Activity – A Closer Look

Vertical Application Software

Current Trends: Niche and point solutions attractive targets Buyers of vertical market solutions coming from other markets Tech M&A remains strong in sectors serving challenged markets


7% 6% 25% 12% 20% 29%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Q2

Q2:2008 Vertical Application Subsector Breakdown (Deal Volume)

A/E/C

Energy & Environment

Financial Service s

Government

Healthcare

Other



Top Buyers

Strategic BuyersActive Private Equity FirmsCompany # of Deals

2007# of DealsYTD 2008

Google 12 0

Microsoft 11 13

Oracle 10 5

Cisco 9 1

PE Firms (partial list)

Carlyle Group

Francisco Partners

Thoma Cressy Bravo

Golden Gate Capital


HP 7 3

Nuance 7 1

Sungard 7 3

Accenture 6 6

Dell 6 1

SAP 6 1

Yahoo! 6 3

AOL 5 5

Autodesk 5 7

BT Group 5 0

CDC Software 5 2

Silver Lake Partners

Apax Partners

Vista Equity

Palladium Equity Partners

Vector Capital



2008 Buyer Trends

Active European buyer communities

UK, France, Germany and the Nordics

Increased presence of buyers from emerging markets

BRIC, Latin America, Eastern Europe

North American strategic buyer communities holding steady


Immense deal scrutiny

Cash remains the deal consideration of choice

Specific domain expertise and geographical presence in high demand

PE-backed portfolio companies more active

Private equity firms getting back into the game



Buyers Thinking “Small”

Number of undisclosed deals up

Young leading edge technology developers are poised for growth Niche markets present growth opportunities


Large market leaders thinking small:



Thinking Small Case Study

Business Intelligence

Tier 1 Vendors


-mar e

Young / Small (>$50 million)

…and dozens more



Transaction Highlights – Strategic

Buyer Seller Value (Millions) Sector

Symantec Corporation SwapDrive $123 (est)

Whitepages.com Snapvine, Inc Undisclosed (rumor $20)

Blackbaud, Inc. Kintera Inc. $46


VMware, Inc. B-hive Networks Undisclosed

TIBCO Software Insightful Corporation $25

Observations Deals have to make strategic sense

High valuations for the right deal

Product expansion through complementary technology acquisitions

Market convergence



Transaction Highlights – Private EquityBuyer Seller Value (Millions) Sector

Vista Equity P2 Energy Undisclosed

Silver Lake Sumeru I2 Ltd. $185

Great Hill Partners CAM Commerce Solutions $180


Observations Current debt market still having impact

Dramatic increase in PE deals in Q2 vs. Q1

Strong focus on technology

PE firms looking at smaller opportunities, which may not require leverage

Battery Ventures HighJump Software Undisclosed

Carlyle Group and JMI Equity Gemcom Software Int’l. $180



Transaction Highlights – International

Buyer Seller Value (Millions) Sector

SAP AG Visiprise, Inc. Undisclosed

Forticom Nasza-klasa.pl $92

LeGuide.com SA Dooyoo AG Undisclosed


Observations Global expansion and local domain expertise

Desire to enter U.S. markets

Sector consolidation

SafeNet, Inc. Beep Science AS Undisclosed

EMC Corporation Conchango plc £42



Corum Q2 M&A Briefing

Report Highlights

Technology market overviewActive buyers, sober valuations

Strategic buyer spotlight

Horizontal ApplicationsSoftware

Vertical MarketApplication Software


Adobe

Technology SpotlightCloud Computing

Valuation data

International perspective on M&ASovereign Wealth Funds

In-depth sector coverage

Consumer Application

Software

InfrastructureSoftware

Internet

IT Services and BPO



Contact Information

Corum Group Ltd.Ward Carter, [email protected]

Ryan Blakely, VP [email protected]

Corum Grou International S.à.r.l.


Visit our Website atwww.corumgroup.com

, Bellevue, WA 98004USA

+1 425-455-8281

Miro Parizek, Managing Director

[email protected]

Beim ParadeplatzBasteiplatz 78001 ZürichSwitzerland

+41 44 251 82 65

2008 software/it m&a review

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