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M&A Flash Report M&A Flash Report –– July 2009July 2009pp yySoftware and IT Industry Market Update
Thursday, July 2, 200910:00 am PT
www.corumgroup.com
Ward CarterPresidentCorum Group Ltd.
Mark ReedExecutive Vice PresidentCorum Group Ltd.
Ward's technology background includes a variety of management positions with the Burroughs Corporation (later Unisys). Then, as vice president of a Wall Street investment firm and as principal in a regional venture firm he raised capital forinvestment firm and as principal in a regional venture firm, he raised capital for ventures in computer hardware, software, and biotechnology. As an executive for a Seattle-based archival storage software company, he attracted venture capital and assisted with the eventual acquisition of the company by a larger competitor. As president of InfoMatrix, and later Discovery Sales + Marketing, Ward provided strategic consulting support to emerging software companies.
Ryan BlakelyVice President, ResearchCorum Group Ltd.
strategic consulting support to emerging software companies.
He joined Corum in 1997, has successfully managed numerous software company mergers and acquisitions worldwide, and was appointed president in 2006. He graduated with Honors from Seattle University with a B.A. in Business.
Corum Group Presentation ■ 2
>> For today’s presentation or more information, contact Pat Sultan(pats@corumgroup.com, +1 425-455-8281 ext. 248)
Corum Group Ltd.
Agendag
Overview of Current Market
Managing for an Exit
Marc Brown - Microsoft
Market and Val ation Anal sisMarket and Valuation Analysis
Closing Comments - Q&A
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Recent Headlines are Mixed
Economic contraction is slowingg
Markets up 30-50% from lows
Mortgage defaults continueMortgage defaults continue
Inflation a threat
Unemployment risingUnemployment rising
“Optimism” indexes rising
M&A valuations stabilizingM&A valuations stabilizing
Recovery by 2010 or 2014??
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…. Have markets bottomed?
Where are Markets Headed?
Don’t know, and can’t control
DJIA +/- 2000 points in 12 months?
Don’t base decisions on indexes
What o can control ho o spend o r cash &What you can control: how you spend your cash &
manage your business
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Take Stock of Where You Are
Be honest about your business
Growing, adding customers, hiring, solid cash position attractive market profitableposition, attractive market, profitable
Cash stable, business slowing, not hiringCas s ab e, bus ess s o g, o g
Burning cash, flat or negative growth, market sector troubled
Step back evaluate situation and goals
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Step back, evaluate situation and goals
Starting Todayg y
1) Manage your cash carefully ) g y y
2) Tune business model for the times
Old ModelGrowth at all costG t bi f t
New ModelCash flow at all costC t th f tGet big fast
Revolutionary productHorizontal expansion
Cut the fatBecome necessaryCore focusp
The next big thing Improve customers’ business now
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Starting Today…g y
3) Look at your company with an acquirer’s eye3) Look at your company with an acquirer s eye
4) Clean up your companyR d k iRecord keepingBusiness processBusiness planning & projections
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Starting Today…g y
5) Make decisions with M&A in mind5) Make decisions with M&A in mindDevelopment Marketing and SalesMarketing and SalesRevenue composition
6) Articulate your story
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Reminders…
The M&A process takes timeThe M&A process takes timeSectors consolidate quicklyYou may only get one chanceStart preparing earlyp p g yTake time to understand the M&A dynamics of your marketyPick good advisors who know your business
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M&A – from a Buyer’s Perspectivey
Use downturn to build a moreUse downturn to build a more
valuable company
A t hil tit bliAct while competitors are scrambling
Benefit from strong recurring revenue
Deal based on perceived value, not multiples
No patience for unsubstantiated upside pitch
Cash balances strong
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Corporate Cash
Company Year Ago Cash Current Period Cash
Sun $2,272 $2,700
Apple $11,875 $25,010
Nokia $3,130 $2,404
Microsoft $10,339 $23,900
Oracle $8,262 $12,620
HP $10,153 $12,920
EMC $5,843 $7,250
Cisco $5,191 $33,550
Google $8,656 $17,780
SAP $1,804 n/a
Yahoo! $2,292 $3,450
IBM $12,741 $12,300
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Symantec $1,890 $1,990
Top Technology Stocksgy
Stock Price Stock Price Stock Price % Change fromCompany Stock Price 07/01/2008
Stock Price 03/03/2009
Stock Price 07/01/2009
% Change from March
Sun $10.74 $4.54 $9.22 103.08%
Apple $174.68 $87.71 $142.83 62.84%
Nokia $24.21 $9.25 $14.77 59.68%
Microsoft $26.87 $16.03 $24.04 49.97%
Oracle $21.31 $15.06 $21.74 44.36%
HP $44.00 $28.30 $38.68 36.68%
EMC $14.65 $10.13 $13.14 29.71%
Cisco $23.15 $14.50 $18.80 29.66%
$ $ $Google $534.73 $326.67 $418.99 28.26%
SAP $51.89 $32.28 $40.37 25.06%
Yahoo! $20.20 $12.58 $15.41 22.50%
IBM $119 27 $88 01 $104 84 19 12%
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IBM $119.27 $88.01 $104.84 19.12%
Symantec $19.74 $13.15 $15.63 18.86%
Shopping List – Buyer Oneg y
Competitors active in M&ACompetitors active in M&A“Dramatically expand” software side through acquisitionsPrefer SaaSPrefer SaaSVertical focus vs. horizontalConsider Retail Telecom Financial Services PublicConsider Retail, Telecom, Financial Services, Public Sector, HealthcareTargets 5 to 100 mil in revOEM or outright acquisition
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Shopping List – Buyer Twog y
IT services / BPO ServicesIT services / BPO Services Building geographic reach, adding technology and customers$10 to 200 mil revenueNorth America, Japan or Europe ERP, CRM, Data Recovery, Infrastructure Mgmt, HealthcareOff-shoring opportunities a plus
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M BMarc BrownManaging Director, Corporate Development Group
Marc Brown is a managing director in the Corporate Development Group at Microsoft Corp., where he has been employed since January 2000. From May 1998 to December 1999, he was an associate in the Private Equity and Emerging Companies Group of the law firm Goodwin Procter & Hoar LLP Before that he was an associate in the Mergers andGoodwin, Procter & Hoar LLP. Before that, he was an associate in the Mergers and Acquisition and Merchant Banking groups at the Union Bank of Switzerland, from 1987 to 1991.
Brown holds a doctor of jurisprudence degree from Georgetown University Law Center, an MBA i Fi f N Y k U i it d b h l f t i E i f C l tMBA in Finance from New York University and a bachelor of arts in Economics from Colgate University.
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Ryan BlakelyVi P id R hVice President, ResearchCorum Group Ltd.
Ryan joined Corum in 1998 and has held a number of roles central to research and marketRyan joined Corum in 1998 and has held a number of roles central to research and market analysis in the software and technology space. With over ten years experience in the software M&A environment, Ryan has an intimate understanding of the software industry as a whole, especially as it relates to mergers and acquisitions. As the Vice President of Research, Ryan directs Corum’s research group in both North America and Europe, and
Chas played a direct role in developing buyer relationships during his tenure with Corum. He also is a major contributor to Corum’s research reports. Ryan graduated from Washington State University with a B.A. in Business Management, with a focus on Entrepreneurial Studies.
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M&A Activity – Juney
Number of Software and IT M&A TransactionsNumber of Software and IT M&A Transactions
June
0 50 100 150 200 250 300 350 400
2009 2008 2007 2006 2005 2004
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M&A Activityy
May
June
March
April
May
January
February
0 50 100 150 200 250 300 350 400
2009 2006 2005
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Corum Index – M&A Statistics
Q2:09Q2:08 Q1:09 Q2:097148
$8,500
Q2:0871814
$28,100
# of Transactions# of Mega DealsLargest Deal
Q1:096150
$775$274$3884
$382$3197
Average Deal SizeMedian Seller Size# VC backed Exits
$67$2570
73%43%20%46%
60%44%17%55%
% Terms UndisclosedAll Cash (announced)% Targets were Public% Public Buyers
77%55%18%43% 46%55%% Public Buyers 43%
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$ values in millions
Public Markets
Nasdaq S&P Tech Dow
Jun‐08 Jul‐08 Aug‐08 Sep‐08 Oct‐08 Nov‐08 Dec‐08 Jan‐09 Feb‐09 Mar‐09 Apr‐09 May‐09 Jun‐09
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Jun 08 Jul 08 Aug 08 Sep 08 Oct 08 Nov 08 Dec 08 Jan 09 Feb 09 Mar 09 Apr 09 May 09 Jun 09
Horizontal Application Software Market
Public Valuations
HorizontalHorizontalApplicationSoftware
Q2:08 Q3:08 Q4:08 Q1:09 Q2:09
EV/EBITDA 10.12 x 11.01 x 7.69 x 6.82 x 9.99 x
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EV/EBITDA 10.12 x 11.01 x 7.69 x 6.82 x 9.99 x
EV/S 1.81 x 1.71 x 1.04 x 1.12 x 1.50 x
Horizontal Application Software Market
Notable Transactions S tli htNotable Transactions Spotlight:
Sector: Accounting/PayrollTarget: PayCycle Inc.
Target BuyerETH T h Ltd Cl 2P NV
g y yBuyer: IntuitDate: June 2009Transaction Value: $170 millionStructure: Cash
ETH Tech Ltd. Clear2Pay NVCura Software Solutions
Softpro Systems
Structure: CashTransaction Multiple: 5.7x
Comments:
XyEnterprise SDL InternationalPayCycle Inc. Intuit, Inc.
Expanding product portfolio SaaS
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Vertical Application Software Market
Public Valuations
VerticalVertical ApplicationSoftware
Q2:08 Q3:08 Q4:08 Q1:09 Q2:09
EV/EBITDA 11.07 x 9.37 x 6.92 x 6.53 x 8.17 x
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EV/S 2.19 x 1.71 x 1.26 x 1.14 x 1.51 x
Vertical Application Software Market
Notable TransactionsNotable TransactionsSpotlight:
Sector: Financial ServicesTarget: Prospectus Central
Target BuyerR h O iC Target: Prospectus Central
Buyer: RR Donnelley & SonsDate: June 2009Transaction Value: Undisclosed
eResearchTechnology (EDC)
OmniCommSystems
eQuilibrium Solutions
EnerNOC
Comments:Big buys smallDistressed sector
SolutionsProspectus Central R.R. Donnelley
Distressed sectorBuilding on prior successSaaS
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Consumer Application Software Market
Public Valuations
ConsumerConsumer ApplicationSoftware
Q2:08 Q3:08 Q4:08 Q1:09 Q2:09
EV/EBITDA 10.99 x 11.45 x 5.41 x 2.74 x 4.47 x
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EV/S 1.70 x 0.99 x 0.61 x 0.64 x 0.53 x
Consumer Application Software Market
Notable TransactionsNotable TransactionsSpotlight:
Sector: Mobility T t D h N i ti
Target BuyerF S A D d S A Target: Dash Navigation
Buyer: Research In MotionDate: June 2009Transaction Value: Undisclosed
Fueps SpA Dada SpAId Software ZeniMax MediaMustache Inc. Fanzter
Comments:SaaSDifferentiator
Dash Navigation Research In Motion
DifferentiatorHot space
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Infrastructure Market
Public Valuations
Infrastructure Software
Q2:08 Q3:08 Q4:08 Q1:09 Q2:09
EV/EBITDA 11.39 x 8.98 x 6.47 x 6.98 x 8.74 x
/
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EV/S 1.98 x 1.67 x 1.47 x 1.43 x 1.72 x
Infrastructure Market
Notable TransactionsNotable TransactionsSpotlight:
Sector: Development ToolsT t Wi d Ri
Target BuyerH Gl I it h Target: Wind River
Buyer: Intel CorporationDate: June 2009Transaction Value: $884 million
HourGlassTechnologies
Ipswitch
Wind River Intel Corporation$
Structure: CashTransaction Multiple: 2.2x
Comments:Comments:New software focus
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Internet Market
Public Valuations
InternetInternet
Q2:08 Q3:08 Q4:08 Q1:09 Q2:09
EV/EBITDA 11.94 x 9.60 x 8.11 x 7.54 x 11.81 x
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EV/S 2.71 x 2.34 x 1.10 x 1.60 x 2.30 x
Internet Market
Notable TransactionsNotable TransactionsSpotlight:
Sector: Advertising / l l t ki
Target BuyerT lk ill TZ H ldi local networking
Target: GoingBuyer: AOL, Inc.Date: June 2009
Talkzilla.com TZ HoldingsSiliconinvestor.com TZ HoldingsSendTec Inc. PHIDS Inc.
Transaction Value: Undisclosed
Comments:Desire to be local
SnapTell A9.comGoing Inc. AOL
Desire to be localMillion-plus unique visitors monthly
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IT Services Market
Public Valuations
ITServicesITServices
Q2:08 Q3:08 Q4:08 Q1:09 Q2:09
EV/EBITDA 6.92 x 6.50 x 5.36 x 5.32 x 5.24 x
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EV/S 0.89 x 0.80 x 0.70 x 0.56 x 0.63 x
IT Services Market
Notable TransactionsNotable TransactionsSpotlight:
Sector: ServicesT t C illi l
Target BuyerR G S i AG Target: Carillion plc
Buyer: Capita Group plcDate: June 2009Transaction Value: $57 million
Resource Group AG
Swisscom AG
Bearing Point Keane$
Comments:Intra-countryServices around the network
Structurum AS Inmeta ASACarillion plc Capita Group plc
Services around the networkValuation in ‘services’ range
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Contact Information
Corum Group Ltd.
Ward Carter, Presidentwardc@corumgroup.com
R Bl k l VP R hRyan Blakely, VP Researchryanb@corumgroup.com
10500 NE 8th Street, Suite 1500Bellevue WA 98004
Corum Group International S.à.r.l.
Beim ParadeplatzBellevue, WA 98004USA
+1 425-455-8281
Basteiplatz 78001 ZürichSwitzerland
+41 44 251 82 65
Research and Conferences:
+41 44 251 82 65
Corum Group Presentation ■ 34
Research and Conferences:www.corumgroup.com