2008 software/it m&a review
TRANSCRIPT
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Bellevue Boston Houston London Mexico City Munich Oslo Paris Philadelphia Phoenix Portland Rio de Janeiro Toronto Zurich
www.corumgroup.com
2008 Mid2008 Mid--Year ReviewYear ReviewSoftware and IT M&A Outlook:WHAT LIES AHEAD?
Thursday, July 17, 2008
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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
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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
Corum Group Presentation ■ 3
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
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Agenda
1Market Insights
Corum Group Presentation ■ 4
3Sector Analysis
4Discussion
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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
Corum Group Presentation ■ 5
“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
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0
5
10
15
Impact on Equity Markets
Corum Group Presentation ■ 6
-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
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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
Corum Group Presentation ■ 7
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
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Sellers’ Concerns
Duration of downturn
Sustaining the business during downturn
Rising tax rates in 2009? (U.S.)
Missing the market
Corum Group Presentation ■ 8
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.
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The Silver Lining
On the plus side:
Technology revenues remain strong
Earnings remain mostly positive
Forward analyst estimates look good
Lending requirements loosening
Corum Group Presentation ■ 9
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
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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
Corum Group Presentation ■ 10
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
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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
Corum Group Presentation ■ 11
.
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
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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%
Corum Group Presentation ■ 12
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%
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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
Corum Group Presentation ■ 13
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?
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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
Corum Group Presentation ■ 14
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
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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
Corum Group Presentation ■ 15
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
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Analysis: A Recently Launched Corum Client
Vertical market software company
North America based
Market leader
One of 4 good options in specialty market
Corum Group Presentation ■ 16
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
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Interest Translating into Deals
Vertical
market
IT servicesFinancialServicesSector Interested Parties
Current examples ofbuyer interest across
multiple sectors:
Corum Group Presentation ■ 17
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
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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
Corum Group Presentation ■ 18
– 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
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Global Marketplace
60% of Corum’s recent transactions are cross-border
Corum Group Presentation ■ 19
A trend holding steady and seen throughout the technology industry
Cross-border
60%
Intra-country40%
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International Scope
Corum Group Presentation ■ 20
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
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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.
Corum Group Presentation ■ 21
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
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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.
Corum Group Presentation ■ 22
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
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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
Corum Group Presentation ■ 23
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
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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*
Corum Group Presentation ■ 24
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
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International Buyers
Non-North AmericanPrivate Equity
• PE acquisitions impacted
International StrategicBuyers
• Flush with cash and putting
Imperative to LookGlobally
• Q2 had the highest activity
Corum Group Presentation ■ 25
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
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Corum’s Market & Sector Re-Alignment
Horizontal Application Software Infrastructure Software
Corum Group Presentation ■ 26
Vertical Application Software
Consumer Application Software
Internet
IT Services and BPO
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Software and IT M&A Activity 1H:08
Where are the deals happening?
Oracle/BEA44%
45%
50%
Big 6 Volume and Value Percentages
Corum Group Presentation ■ 27
$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
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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
Corum Group Presentation ■ 28
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
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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
Corum Group Presentation ■ 29
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
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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
Corum Group Presentation ■ 30
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
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Buyers Thinking “Small”
Number of undisclosed deals up
Young leading edge technology developers are poised for growth Niche markets present growth opportunities
Corum Group Presentation ■ 31
Large market leaders thinking small:
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Thinking Small Case Study
Business Intelligence
Tier 1 Vendors
Corum Group Presentation ■ 32
-mar e
Young / Small (>$50 million)
…and dozens more
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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
Corum Group Presentation ■ 33
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
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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
Corum Group Presentation ■ 34
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
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Transaction Highlights – International
Buyer Seller Value (Millions) Sector
SAP AG Visiprise, Inc. Undisclosed
Forticom Nasza-klasa.pl $92
LeGuide.com SA Dooyoo AG Undisclosed
Corum Group Presentation ■ 35
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
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Corum Q2 M&A Briefing
Report Highlights
Technology market overviewActive buyers, sober valuations
Strategic buyer spotlight
Horizontal ApplicationsSoftware
Vertical MarketApplication Software
Corum Group Presentation ■ 36
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
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Contact Information
Corum Group Ltd.Ward Carter, [email protected]
Ryan Blakely, VP [email protected]
Corum Grou International S.à.r.l.
Corum Group Presentation ■ 37
Visit our Website atwww.corumgroup.com
, Bellevue, WA 98004USA
+1 425-455-8281
Miro Parizek, Managing Director
Beim ParadeplatzBasteiplatz 78001 ZürichSwitzerland
+41 44 251 82 65