tech m&a: liquidity in troubled times?
TRANSCRIPT
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USA Switzerland Germany France United Kingdom Canada Norway Brazil
Software and IT M&A Outlook:
Tuesday, October 21, 2008
www.corumgroup.com
: am : am
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Liquidity in Troubled Times
With financial markets in chaos:
Public markets are closed
Venture Capital has dried up
Recapitalizations are slow
Fear is the dominant emotion
And, valuations are lower.
Corum Group Presentation 2
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Liquidity in Troubled Times
and fight back?
Is now a good time to test the
Corum Group Presentation 3
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Six Benefits of a Global Search
Software/IT M&A is still very active
The tech sector is doin better than most
Transactions are yielding very attractive relative value
Its a defensive move
Youll improve your business model
Corum Group Presentation 4
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Middle Market Software M&A Specialists
M&A specialists since 1985
Software and IT experts mostly former CEOs
ces n urope, ana a, at n mer ca an n te tates
200+ transactions completed
$6 billion in wealth created
60% cross-border transactions
Host of Selling Up Selling Outconferences
os o mu -na ona erge r e ngs Sponsor of World Financial Symposiums conferences
Publisher of industry-leading M&A research
Corum Group Presentation 5
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Agenda
Market Insights
International Activity
Sector & Transaction Analysis
Discussion
Corum Group Presentation 6
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Headlines Tell the Story
Can M&As Best Times Get Better?Wall Street Journal, January 2007
IT Spending Growth Expected to Slow in 08InformationWeek, December 2007
Stock Surge + Bond Boom = M&A MagicWall Street Journal, April 2007
M&A The Best Investment Game in Town
Bear Stearns No. 1 Foe: Fear ItselfCNN Money, March 2008
Wall Street Beat: IT M&A Provides OpportunitiesWashington Post, March 2008
oneyex ra.com , ay
Market Pressures Test Resilience of Buyout BoomWall Street Journal, June 2007
Small M&A Deals FlourishIDG News, June 2008
Wall Streets Crisis Hurts Companies Big and SmallWall Street Journal, September 2008
Dry-Up in Debt Wont Deter Tech DealsBarrons, September 2007
Time to Celebrate; 2007 Breaks M&A RecordWall Street Journal, October 2007
Worst Crisis Since 30s, With No End Yet in SightWall Street Journal, September 2008
Software Deals May Heat Up, Analyst Says
New York Times, October 2008
M&A Seen on the Brink After Record 2007
Reuters, December 2007
Tech Cos Seen Going M&A Route, Not IPO in 2008Reuters December 2007
Techs Next Step: More M&A?CNET, October, 2008
Markets 7-Day Rout Leaves U.S. ReelingWall Street Journal, October 2008
Corum Group Presentation 7
,
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Good Times Over?
Widespread impact of mortgage market fallout
Financial institutions failing
World financial markets in turmoil
Comin off the worst one-da market decline in histor
Credit markets shut down
Uncertainty regarding bailout plan
In spite of problems,M&A deals are getting
done.
IPOs continue to contract
Energy and commodity prices declining
Important not to getcarried away with the
doom and gloom.
Consumer spending slowing
Corporate earnings down
Recession a reality
, .
Corum Group Presentation 8
Corum Software Peer Group valuations down
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Impact on Equity Markets10
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Corum Group Presentation 9
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Turmoil Creates Opportunity
Even during tough times, technology creates new opportunities
New IT expenditures slowing MicroFocus is a provider of application modernization and management software
Strong growth in the battered financial services sector, due to increased consolidation
Predicting double digit organic sales growth, with no indication of a slowdown
Rising fuel costs and environmental concerns drives advancement in alternatives
GridPoint is a clean tech firm serving the electric utilities, consumer and environment
Has just raised $120 million equity financing
Deploying funds via acquisition strategy to expand product offering to utilities
Acquired V2Green which provides plug-in electric vehicle grid technology enabling utilities to smart charge electric
Corum Group Presentation 10
vehicles anywhere in the utilities service territory
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What the Analysts Are SayingTop 10 Application Software Companies by Market Cap
Strong Buy 15 Buy 10 Hold 10 Strong Buy 15 Buy 9 Hold 9
Strong Buy 10 Buy 11 Hold 6 Strong Buy 11 Buy 10 Hold 5
Strong Buy 2 Buy 1 Hold 12 Strong Buy 2 Buy 0 Hold 13
Strong Buy 9 Buy 8 Hold 7 Strong Buy 7 Buy 7 Hold 9
Strong Buy 0 Buy 6 Hold 9 Strong Buy 0 Buy 4 Hold 9
Strong Buy 4 Buy 3 Hold 5 Strong Buy 4 Buy 3 Hold 6
Strong Buy 8 Buy 4 Hold 3 Strong Buy 8 Buy 4 Hold 4
Strong Buy 2 Buy 3 Hold 16 Strong Buy 3 Buy 4 Hold 13
Corum Group Presentation 11
Strong Buy 1 Buy 3 Hold 3 Strong Buy 3 Buy 2 Hold 2
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Large Cap Tech Stocks
Company Stock Price
10/15/2007
Stock Price
10/15/2008
% Change Year Ago
Cash
Current Period
Cash
Sun $6.11 $4.97 18.66% $3,620 $2,700Microsoft $29.60 $22.66 23.45% $6,111 $21,170IBM $116.24 $88.29 24.05% $14,991 $9,850HP $50.90 $38.61 24.15% $11,293 $14,850Oracle $22.07 $15.95 27.73% $6,218 $13,020Symantec $20.59 $14.04 31.81% $2,559 $2,290SAP $54.53 $33.73 38.14% $3,151 $2,040Apple $166.98 $97.95 41.34% $9,352 $20,770Google $620.11 $339.17 45.30% $6,082 $12,730Cisco
$32.79
$16.57
49.47% $3,728
$26,240
EMC $22.56 $9.77 56.69% $4,482 $5,860Nokia $35.48 $15.11 57.41% $3,130 $11,020
Corum Group Presentation 12
Yahoo $27.86 $11.75 57.82% $1,514 $3,070
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Sellers Concerns
Sustaining the business during downturn
Rising tax rates in 2009? (U.S.)
Missing the market
Emergence of new competitors
Addressing new emerging markets alone
Pressure to readjust value expectations
Threat of sector consolidation
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How to achieve Liquidity
Corum Group Presentation 13
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Things To Do Now
Adjust quickly to changing times
Cut expenses wherever you can conserve cash
Manage for breakeven or better
Consider M&A now it takes time to do a deal
Focus on selling your product and generating cash
Arrange relationships in advance of funding or M&A event
Keep your foot on the gas dont be a deer frozen in the headlights
. . . All in same boat no quick fixes
Corum Group Presentation 14
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The Silver Lining
Buyout firms have capital to invest
Technology revenues and IT spending steady
Earnings remain mostly positive
Forward analyst estimates look good
PE buyers see opportunity in the coming months
Most buyers still active
Weaker competition will not survive
Stron cash reserves
Deals are getting done for quality companies
Corum Group Presentation 15
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Current M&A Market
2008 YTD Global Deal Volume$2.73 trillion, down from $3.6 trillion
High tech deals for Q3:08 $37 billion, downfrom $58 billion
Unsolicited and hostile deals rosealmost two-fold to 22.1%
Overall Deal Volumes down 25%
trateg c uyers rema n act ve
Private equity getting back into the game
Consolidation continues across most
Strategic 16% Private Equity 74%
sec ors
Companies of all sizes continue to beaggressive buyers
ompan es n emerg ng coun r es areviewed as buyers, not just targets Asia Eastern Europe Latin America
Corum Group Presentation 16
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Public Valuation Multiples
Median EV/S Multi les
3
1
2
0
Q2:08
Q3:08
Corum Group Presentation 17
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Private Equity Credit Impact
Funding issues slow deal closings
Uncommitted funds still high $400+ Billion
Pressure to invest strong
Many PE have broad technology portfolios to build on leading to PE-backeds ra eg c acqu s ons y por o o compan es
Some highly leveraged PE funds/buyers saved from correction by sub-prime
melt-down
Private E uit on sidelines waitin for market to bottom?
Corum Group Presentation 18
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Strategic Buyers Still Active
Less impacted by credit crunch
Stron balance sheets
Equity values down
Doing deals under currently favorable antitrust environment
Business as usual for many
Strength of non-U.S. buyers (still strong Euro)
Accommodate sellers looking to close deals before tax increases
Corum Group Presentation 19
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Update:A Recently Launched Corum Client
Client Profile:
Vertical market software company
North America based
Market leader one of 4 ood o tions
Strong technology, team, business model
Solid revenue and EBITDA ($12 million / $3 million)
ct v ty:
Last Quarter: 15 interested, 5 buyer calls, 2 meetings, 1 offer
Now: 5 solid, qualified buyers, 4 additional meetings, 3 LOIs pending, 2 more LOIs
possible
Delays: Buyer seeking funding, digesting other deals, revising strategic plans
Corum Group Presentation 20
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Interest Translating into Deals
Current examples of
Mobile
buyer interest across
multiple sectors:
Vertical
Market
Security
Sector Interested Parties
Internet Infrastructure 17
Marketing 16 Offers
Financial Services 15Security 14Compliance 14Gaming 12
E-Learning
SOAEmbedded Technologies 12
Interested parties from billion-dollar householdnames to unknown companies
Corum Group Presentation 21
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Global M&A Activity
. .
Cross-border transactions vital aspect of M&A strategy
International M&A activity contributed over 40% to the total of announced
deals for last year and the trend to continues in 2008
Europe and Asia both set records for deal volume in 2007
. .
Weak dollar attracting non-U.S. buyers
Strong makes European targets attractive to acquisitive international
buyers looking to increase revenues and profits based in strongercurrency
Corum Group Presentation 22
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Global Marketplace
o orum s recent transact ons are cross- or er
Cross-border
60 %
n ra-coun ry4 0%
Corum Group Presentation 23
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International Scope
Buyers less likely to be local
Corum Group Presentation 24
View international companies as both competitors and potential acquirers
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Recent Corum Transactions
Provider of applicationsDeveloper ofcollaborative 3D
suppor ma n enanceservices (ASM)
Sierra Systems CanadaRIS Canada
authoring technology
Microsoft U.S.Caligari U.S.
IT services providerto government and
commercial
Leading provider of event-driven business application
automation and batchintegration technologies
.
TechTeam U.S.RL Phillips U.S.
UC4 Austriabacked by Carlyle (UK)AppWorx U.S.
Provider of paymentprocessing software andservice
Provider of estimatingand earth measuringsoftware for contractors
Corum Group Presentation 25
. .Creditron Canada
axwe . .Quest U.S.
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Recent Corum Transactions (Cont.)
Electronic invoicing andlegal spend management
Developer of 3D digitaldesigns in the building,
so u ons
DataCert U.S.CorpraSoft U.S.
p an an mar ne mar e s
Autodesk U.S.NavisWorks UK
Value-added distributor of voice, dataand converged communications
solutions
HR information systems for
middle market enterprises
Datatec South Africaon behalf of WestconCRANE UK
BPO U.S.HR Microsystems U.S.
Provider of estimating andearth measuring software forcontractors
Networking and lobbyservices for gamepublishers &developers
Corum Group Presentation 26
Glaston FinlandAlbat+ Wirsam Germany
Activision U.S.DemonWare Ireland
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Recent Corum Transactions (Cont.)
Human capital management IT services and consultingsolutions
StepStone NorwayExecuTRACK Germany
Ness Technologies IsraelLogos Czech Republic
Provider of network bootingtechnology
Provider of security
software applications tothe System i platform
Double-Take Software U.S.emBoot - Canada
Help/Systems U.S.On behalf of AudaxPowerTech U.S.
Leading competency-based, learning anddevelopment softwarecom an
Corum Group Presentation 27
Salary.com U.S.InfoBasis UK
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G7 Deal Inflows and Outflows Q3:2008
Dollars Spent on Cross-Border Transactions All Industries
$88,237.00$30,034.00
$40,000.00 $20,000.00 $0.00 $20,000.00 $40,000.00 $60,000.00 $80,000.00 $100,000.00
UnitedStates
$15,391.00
$2,424.00
$22,974.00
$21,414.00
UnitedKingdom
France
$569.00
$18,083.00
$19,142.00
$1,442.00
Japan
Italy
Deal Inflow
Deal$Outflow
$8,699.00
$3,275.00
$2,139.00
$5,538.00
Canada
Germany
Corum Group Presentation 28
Source: Reuters
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International Buyer Activity
Need to Look Internationally
Buyer Seller Value ($M)
Wolters Kluwer NV Addison Software $293.70
SunGard Data Systems GL Trade $402.40
Sophos Plc Utimaco Safeware AG $338.00
ABRY Partners Q9 Networks, Inc $339.60
, .
Expedia, Inc Venere.com Undisclosed
Sumisho Computer Sys. B4 Consulting $753.10
Aladdin Knowledge Sys. Secure Computing Corp. $65.00
Ness Technologies, Inc Logos AS Undisclosed
Telvent GIT S.A DTN Ener $445.00
Corum Group Presentation 29
Infosys Technologies Axon Group* $753.10
*Seller looking at competitive bid
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India
Talk translates to action India is shopping
ver t e ast 18 mont s, n a as een a gger uyer t an se er
BRIC nations buy vs. sell ratios India 1 to 1 Russia 0.3 to 1 China ~ 0.1 to 1 Brazil ~ 0.1 to 1
Buyer Seller Deal Value
HCL Technologies Liberata Financial Services Undisclosed
Cranes Software Cubeware GmbH Undisclosed
UTV Software Communications True Games Interactive Undisclosed
ITC ltd. Pyxis Solutions $25 million
Corum Group Presentation 30
Infosys Technologies Axon Group plc* $753 million
HCL Technologies Control Point Solutions $20.8 million
*Seller looking at competitive bid
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International Buyers
Non-North AmericanPrivate Equity International StrategicBuyers Imperative to LookGlobally
PE acquisitions impactedsomewhat less than those inNorth America
Flush with cash and putting touse
Leveraging the value of the
International expansionnecessary to remaincompetitive
average peaked in Q1 and nowdeclining
Debt financing still elusive
Targeting U.S. companies
U.S. economic lag creatingfeeling of uncertainty
u oo goo regar ngoutbound M&A from Asia
Over 1/3 of first half 2008 M&Aworldwide was cross-border
Sovereign funds continue
supporting private equity
Corum Group Presentation 31
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Corums Market & Sector Alignment
Vertical Application Software Internet
Consumer Application Software IT Services and BPO
Corum Group Presentation 32
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Software and IT M&A Activity YTD 2008
Where are the deals ha enin ?
30%
15%
20%
Q1
5%
10%Q2
Q3
0%
Horizontal
Applications
VerticalMarket
Applications
Consumer
Applications
Infrastructure Internet ITServices
Corum Group Presentation 33
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Software and IT M&A Activity A closer look
Horizontal A lication Software Market
Current Trends:Public company valuations stableDiverse group of buyersMarketing software boosts CRM sectorCommunications related technologies saw increased deal activity
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%BusinessIntelligence
Communications
Q3 2008 Horizontal Applications Market Breakdown (% of deals by subsector)
8.11% 20.27% 13.51% 14.86% 6.76% 8.11% 16.22% 12.16%Q3
CustomerRelationship
Management
EnterpriseResourcePlanning
HumanResources
Other
Corum Group Presentation 34
SupplyChain
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Top Buyers
Strategic BuyersActive Private Equity Firms
2007
Q1-Q3 2008
Google 15 3
Microsoft 11 16
PE Firms (partial list)
Carlyle Group
Francisco Partners
rac e
Cisco 9 4
IBM 9 10
HP 7 4
Thoma Cressy Bravo
Golden Gate Capital
Silver Lake Partners
Nuance 7 2
SunGard 7 5
Accenture 6 6
Dell 6 1
Apax Partners
Vista Equity
SAP 6 2
Yahoo! 6 3
AOL 5 6
Palladium Equity Partners
Vector Capital
Hellman & Friedman
Corum Group Presentation 35
Autodesk 5 9
BT Group 5 4
CDC Software 5 2
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What Buyers are Looking For
An inside look at what buyers are telling us they want
General considerations Vertical market penetration and domain expertise
Profitability not a requirement, but strongly preferred
Emerging countries growing in popularity
Revenue considerations
Emphasis on SaaS and recurring maintenance streams
Some buyers have lowered their revenue minimums
Assumptions based upon 100s of profiles from both strategic and private equity firms
Corum Group Presentation 36
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Q3 Transaction A closer look
International Security Vendors Join Forces
Antivirus security software Data encryption software
Headquartered in the U.K..
Headquartered in Germany
Deal: .Largest deal ever completed by SophosSophos took on debt to finance the transaction
Synergies: xpan s op os pos t on nto en po nt secur tyIncreased scale of combined entity will create a more competitive firmBroaden global presence
Other Details:
Corum Group Presentation 37
Private company acquires public companySophos pulled IPO last year, but adding Utimaco positions them re-new idea of IPO
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Transaction Highlights Strategic
Buyer Seller Value (Millions) Sector
Cisco Systems Jabber Undisclosed
Red Hat, Inc. Qumranet $107
Comcast Interactive DailyCandy $125 (est)
o ware roup ec no og es
AOL Socialthing Undisclosed
Observations Heightened deal scrutiny, thus strategic fit needs to be clear
Higher valuation achievable for the right deal
Corum Group Presentation 38
Acquisition targets complement, while being a springboard for future growth
Market convergence
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Transaction Hi hli hts Private E uit
Buyer Seller Value (Millions) Sector
ABRY Partners Q9 Networks $339
Hellman & Friedman LLC SSP Group Holdings $393
Bedford Funding Authoria, Inc. $63
JMI Equity Halogen Software Undisclosed
Observations Tier two firms some of the most active among the PE community
Proportion of smaller deals, strategic, debt-free deals rising
Corum Group Presentation 39
Deal volumes picking up, but still dramatically off highs
Fund raising remains strong and, as a by-product of the current financial collapse, PE will be looking for value
buys
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Transaction Highlights Cross-Border
Buyer Seller Value (Millions) Sector
Serco Group plc SI International $423
Sophos plc Ultimaco Software AG $338
GameTap Metaboli SA Undisclosed
emenos nanc a ects p c .
Nokia Oz Communications Undisclosed
Observations
Deal Drivers - global expansion, local domain expertise, scale
Corum Group Presentation 40
All markets and sub-sectors are being targeted
Regions leading the charge Asia, Central and Eastern Europe
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Transaction Highlights Largest
Buyer Seller Value (Millions) Sector
Brocade Communications Foundry Networks $3000
Infosys Technologies* Axon Group plc $753
Microsoft Corporation GreenField Online $486
e vent . . nergy
McAfee Secure Computing $486
Observations
Only one transaction north of a billion
Corum Group Presentation 41
All strategic buyers
Defensive acquisitions to better compete with larger competitors
*Seller looking at competitive bid
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Corum Q3 M&A Briefing
Horizontal Applications
Report Highlights
Technology market overviewCurrent view on econom , to bu ers, hot sectors
o ware
Vertical MarketApplication Software
Strategic buyer spotlightAutodesk Consumer Application
SoftwareSocial Networking
Valuation dataInfrastructure
Software
International perspective on M&A
In-depth sector coverage Internet
Corum Group Presentation 42
IT Services and BPO
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Contact Information
Corum Group Ltd.
Bruce Milne, Chairman
Ward Carter, Presidentwar c corumgroup.com
Ryan Blakely, VP Research
Corum Group International S..r.l.
Miro Parizek, Mana in Director
10500 NE 8th Street, Suite 1500Bellevue, WA 98004USA
Beim ParadeplatzBasteiplatz 7
+1 425-455-8281 r c
Switzerland
+41 44 251 82 65
Corum Group Presentation 43
www.corumgroup.com