doing deals in a depression m&a...emergence of new competitors corum group presentation 9...

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2009 Software / IT M&A Forecast2009 Software / IT M&A ForecastDoing Deals in a Depression

Thursday, January 15, 2009

10:00 am PST

Mark ReedExecutive Vice President

Ward CarterPresident

Corum Group Presentation ■ 2

Executive Vice PresidentCorum Group Ltd.

>> For today’s presentation or more information, contact Jessica Eastman([email protected], +1 425-455-8281)

PresidentCorum Group Ltd.

Ryan BlakelyVice President, ResearchCorum Group Ltd.

Jerome FougeratRegional DirectorCorum Group Ltd.

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

� 200+ transactions completed


� $6 billion in wealth created

� 60% 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

Agenda

1Market Insights

2International Activity


2International Activity

3Sector & Transaction Analysis

4Discussion

Current Market Reality

� Financial systems wounded – serious credit problems

� Stocks decimated – not likely to see good quarters soon

� Consumers MIA – unlike past declines


� Currencies in disarray – wild fluctuations, safe haven concerns

� Asset deflation – which many rely on for financing

� IPOs and Funding dead

…..M&A the only route to liquidity

Excerpt from Corum’s 2006 Year-End Report

… growing concern about potential consequences of gro wth in debt and speculation and

changes in the financial system and … changes in the financial system since 1998 (and the

selling of debt obligations to numerous buyers) have lessened the chances that relatively small

shocks will upset the entire system. Yet, “the same factors,” he wrote, “that may have reduced

the probability of future systemic events... may amplify the damage caused by, and complicate

the management of, very severe financial shocks. The changes that have reduced the


the management of, very severe financial shocks. The changes that have reduced the

vulnerability of the system to smaller shocks may h ave increased the severity of the large

ones.”

(Timothy Geithner, President of the New York Federal Reserve Bank, September 15, 2006 )

The Events Leading Here Are Well Documented

Recession or Depression?Does it really matter?

� We are in the first global recession of our lifetime

� It will be a killer of companies, indiscriminately destroying value


� It will be a killer of companies, indiscriminately destroying value

� Viable companies that act decisively will survive

� Companies that aren’t viable, or don’t act, will fail

� Doing nothing (buyer or seller) is not an option!

Lessons from Dot-com Meltdown

� Recovery could take years, not months

� Many could have sold in 1998-2001 but held off

� Markets didn’t recover until 2005 for many sectors


� Many companies never survived the downturn

� Takes time to do a deal – gates swing shut

But, things are much worse now…..

Seller’s Concerns

� Duration – how long?

� Sustaining the business during downturn

� Missing the market window for partnering

� Emergence of new competitors


� Emergence of new competitors

� Addressing new emerging markets alone

� Pressure to readjust value expectations

� Threat of sector consolidation

� Regulatory / Anti-trust impact – a regulation-happy Congress

� Personal stress… not a small issue

Silver Lining – Smaller Deals

� Less impacted by credit issues / debt not required

� Balance sheets strong for many buyers

� Attractive add-on to strategic & financial buyers


� Faster due diligence with smaller companies

� Easier to justify in make/buy/partner analysis

� Provide effectively outsourced R&D to larger firm

Sample Software Deals - Last 6 Weeks

� SXC Health Solutions acquires Zynchros

� Ray Flame acquires Peak Virtual Entertainment

� BDNA acquires PS’Soft

� Broadsoft acquires Sylantro


� Broadsoft acquires Sylantro

� PureSafety acquires Unique Software Solutions

� Gale acquires HighBeam

� Axeda acquires Questra

� Greycon acquires Effsys Effektiva

And hundreds more… (Do you know any of these companies?)

Developer of collaborative 3D authoring technology

Microsoft – U.S.Caligari – U.S.

Recent Corum Transactions

Provider of network booting technology

Double-Take Software – U.S.emBoot - Canada


Provider of security software applications to the System i platform

Help/Systems – U.S. On behalf of AudaxPowerTech – U.S.

SOA software development software to insurance, healthcare and financial services markets

Polaris Software – IndiaSEEC– U.S.

Provider of on-demand, learning and development software

salary.com – U.S.InfoBasis – U.S.

IT services and solutions for finance and telecommunications

Ness Technologies – IsraelLogos – Czech Republic

Software-based training innovation firm

SilkRoad Technology – U.S.VTN Technologies – Canada

Recent Corum Transactions

Design and integration of Pliable Display Technology

U.S.IDELIX Software – Canada

Undisclosed


Visual analysis and presentation tools for the professional and consumer markets

Thompson Reuters – U.S.Progeny Software – Canada

Digital marketing technologies

CanadaCanada

Undisclosed

Undisclosed

Trends and Drivers

� Cash – preferred currency for most buyers

� Use of earnouts and notes increasing

� Tight credit washing out weaker buyers

� Smaller deals increasing – fewer transformational blockbusters


� Smaller deals increasing – fewer transformational blockbusters

� M&A business as usual for growth minded companies

� Divestitures have increased – need to reinvent

Technology M&A Market

Year Total Volume Total Value Deals worth $1B+

2008 2,804 $290B 32

2007 3,637 $481B 80

2006 4,024 $457B 74


*451 Group

2006 4,024 $457B 74

2005 3,039 $374B 71

2004 2,079 $226B 28

2003 1,506 $61B 14

2002 1,920 $83B 12

Public Valuation Multiples

11.02 x10.12 x

11.01 x

7.69 x

1.55 x 1.81 x 1.71 x1.04 x

Q1 Q2 Q3 Q4

Horizontal Applications

EV/EBITDA EV/S

Vertical Applications

10.71 x11.39 x

8.98 x

6.47 x

2.08 x 1.98 x 1.67 x1.47 x

Q1 Q2 Q3 Q4

Infrastructure

EV/EBITDA EV/S

Internet


11.34 x 11.07 x

9.37 x

6.92 x

1.99 x 2.19 x 1.71 x1.26 x

Q1 Q2 Q3 Q4

Vertical Applications

EV/EBITDA EV/S

11.26 x 10.99 x 11.45 x

5.41 x

1.91 x 1.70 x0.99 x

0.61 x

Q1 Q2 Q3 Q4

Consumer Applications

EV/EBITDA EV/S

15.25 x

11.94 x

9.60 x8.11 x

2.45 x 2.71 x 2.34 x

1.10 x

Q1 Q2 Q3 Q4

EV/EBITDA EV/S

12.80 x

6.92 x 6.50 x5.36 x

0.85 x 0.89 x 0.80 x0.70 x

Q1 Q2 Q3 Q4

IT Services

EV/EBITDA EV/S

Private Equity – Credit Impact

� Deal volumes continue to decline – under 6% vs 36% in ‘07� Huge cash reserves still available

� But, new fundraising could suffer� Existing portfolio companies need infusion

� Debt scarce so more equity in deals � Focus internally on portfolio companies – and triage


� Focus internally on portfolio companies – and triage� Loan defaults more common� Lack of IPO exit opportunities� Tougher times demands more attention

� Add-on investments for portfolio companies vs. new platform deals� Less emphasis on new deals due to uncertainty

Private Equity on sidelines, waiting for market to bottom?

Strategic Buyers Active

But doing smaller deals

� Deal flow still strong (down 22%)

� Buyers do deals to remain competitive and fuel growth

� Consolidation continues in most sectors


� Consolidation continues in most sectors

� Tech spending still encouraging

� Business as usual for many

� Strength of non-U.S. buyers (but weaker Euro)

� Converging markets / new models spur M&A

Large Cap Tech Stocks

Company Stock Price 01/14/2008

Stock Price 01/13/2009

% Change Year AgoCash

Current Period Cash

Symantec $15.67 $13.54 -13.59% $1,890 $2,300

IBM $105.01 $85.34 -18.73% $14,991 $9,760

HP $45.79 $35.83 -21.75% $11,293 $10,250

Oracle $22.06 $17.14 -22.30% $8,262 $10,650

EMC $22.56 $16.80 -25.53% $4,482 $5,870


EMC $22.56 $16.80 -25.53% $4,482 $5,870

SAP $49.32 $36.29 -26.41% $3,151 $2,040

Cisco $26.29 $16.45 -37.42% $3,151 $2,040

Microsoft $33.70 $19.82 -41.18% $10,339 $19,100

Yahoo $23.70 $12.10 -48.94% $1,513 $3,210

Apple $178.78 $87.71 -50.93% $9,352 $24,490

Google $653.82 $314.32 -51.92% $6,081 $14,410

Nokia $34.41 $14.31 -58.41% $3,130 $11,020

Sun $15.13 $4.19 -72.30% $2,272 $2,630

Interest Translating into Deals

Mobile

Vertical Market

Commun-icationsSector Interested Parties

Security 20

Current examples of buyer interest across multiple sectors:


LOIs and Offers

Enterprise Software

Legacy

Security

Security 20Financial Services 13Human Resources 12Systems Management 11Network Management 8Vertical Market 8Collaboration 7

Interested parties from billion-dollar household names to unknown companies

Global M&A Activity

� U.S. credit crisis has become global economic crisis

� Cross-border transactions vital aspect of M&A strategy

� International buyers remain major contributor in overall M&A landscape

� European M&A down 33% (All Industries)


� Western Europe down 36%

� Eastern Europe down 26%

� Nordics down 10%

� U.S. sellers continue to look overseas for buyers

� Weak dollar attracting non-U.S. buyers

� € makes European targets attractive to acquisitive international buyers

looking to increase revenues and profits based in stronger currency

Global Marketplace

Over 60% of Corum’s Transactions are Cross-border – Some examples include:


A trend holding steady and seen throughout the technology industry

International Buyer Activity

Need to Look Internationally

Buyer Seller Value ($M)

Sun Microsystems, Inc. MySQL AB $1000.00

Microsoft Corporation Fast Search & Transfer ASA $1240.00

Unit 4 Agresso Coda $309.10

Nokia Corporation Symbian Ltd. $339.60


Nokia Corporation Symbian Ltd. $339.60

Saongroup Tecoloco.com Undisclosed

Orbotech Ltd. Photon Dynamics, Inc. $290.00

Sumisho Computer Sys. B4 Consulting $753.10

Sophos Plc Utimaco Safeware AG $338.00

Google, Inc. Rambler Media $140.0

Perfect World Co., Ltd. InterServ, Inc. $23.00

Archer Entertainment, Inc. Ubroadcast, Inc. Undisclosed

France

Sometimes overlooked, but did you know…

� 4000 software companies generating global revenue of $8B

� Europe’s 3rd largest software community

� 20 of the top 200 European software vendors

� Home of market leaders – Dassault, Business Objects (SAP)


Buyer Seller Deal Value

Lefebvre Software AS Group Undisclosed

VMware, Inc. Trango Virtual Processors $15 Million

SunGard GL Trade SA $405 Million

Wavecom SA Anyware Technologies $15.7 Million

IBM Corporation ILOG, Inc. $340 Million

Cegedim Activ Protectia Undisclosed

Representative 2008 Transactions

International Buyers

Non-North American Private Equity

• PE acquisitions impacted less than those in North America

International Strategic Buyers

• Flush with cash

Imperative to Look Globally

• International expansion necessary to remain


than those in North America

• Debt financing still elusive

• Sovereign funds continue supporting private equity

• Leveraging the value of the Euro and GBP

• U.S. companies are viewed as being “On Sale”

necessary to remain competitive

• Buyers unlikely to be local

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

Corum’s Market & Sector Alignment

Horizontal Application Software Infrastructure Software


Vertical Application Software

Consumer Application Software

Internet

IT Services and BPO

Software and IT M&A Activity 2008

Where did the deals happen?

30%

35%

Transactions by Market


0%

5%

10%

15%

20%

25%

Horizontal

Application

Software

Veritcal

Application

Software

Consumer

Application

Software

Infrastructure

Software

Internet IT Services &

BPO

Q1

Q2

Q3

Q4

Software and IT M&A Activity – A closer look

Infrastructure Software Market

Current Trends:� Public company valuations down� Steady decline in deal volume from quarter to quarter� Diverse group of buyers, with scale, capital and acquisition history� Communications and Security remain active� Positive outlook for market in 2009


� Positive outlook for market in 2009

30.73% 7.26% 4.47% 5.03% 16.48% 13.13% 6.15% 10.61% 6.15%

0.00% 10.00% 20.00% 30.00% 40.00% 50.00% 60.00% 70.00% 80.00% 90.00% 100.00%

2008

2008 Infrastructure Market Transaction Breakdown (% deals by subsector)

Communications

Development Tools

Legacy Extension & SOA

Network Management

Other

Security

Storage

Systems Management

Virtualization

Top Strategic Buyers

Company # of Deals 2007 # of Deals 2008 2009?

Google 15 4 A deal a month to 4 total and 55% drop in stock price

Microsoft 11 15 Will be a major buyer in 2009, as usual

Oracle 10 11 Targeting new markets – Financial Services, Infrastructure

Cisco 9 4 History of ‘transformational’ deals, could see more this year

IBM 9 10 Will be a major buyer in 2009, as usual

HP 7 5 Smaller number of deals in 2008, but spent of $20 billion


HP 7 5 Smaller number of deals in 2008, but spent of $20 billion

Nuance 7 4 Broad telecom space hit hard, expect some fire sales

SunGard 7 6 Should be some attractive targets in the financial services sector

Accenture 6 6 New projects in the coming year harder to close, so acquire them

Dell 6 1 Looking to get back in the M&A market, with a focus on IT Services

SAP 6 2 Strategy for smaller tuck-in deals, but have been fairly quiet

Yahoo! 6 4 Will Autodesk CEO bring M&A strategy with her?

AOL 5 6 Lots of uncertainty in 2008; 2009 will be no different

Autodesk 5 9 Did 3 deals in December alone; Autodesk will continue to buy

CDC Software 5 2 Enterprise software market pretty quiet now

What Buyers Are Telling Us

An inside look at what buyers want

� Smaller tuck-in opportunities

� Vertical market penetration and domain expertise

� Stable financial picture


� Defendable market assumptions

� Proven business model - emphasis on SaaS and recurring maintenance streams

Assumptions based upon 100’s of profiles from both strategic and private equity firms

0

10

20

1/7/2008 2/7/2008 3/7/2008 4/7/2008 5/7/2008 6/7/2008 7/7/2008 8/7/2008 9/7/2008 10/7/2008 11/7/2008 12/7/2008

Evolving M&A Marketplace


-50

-40

-30

-20

-10

Nasdaq

NYSE

S&P 500

FTSE

TSX

Stockholm

Transaction Highlights – Strategic

Buyer Seller Value (Millions $) Sector

Thomson Reuters Paisly Consulting Undisclosed

Research In Motion Certicom $52

Salary.com Genesys Software Systems Undisclosed


Observations� Heightened deal scrutiny, thus strategic fit needs to be clear

� Higher valuation achievable for the right deal

� Product expansion

� Smaller deals

HighJump Software BelTek Systems Design Undisclosed

CA, Inc Eurekify Undisclosed

Transaction Highlights – Private Equity


One Equity Partners and Allen Shapiro

TV Guide Network (A division of Macrovision Solutions)

$225

Canal Partners Limos.com Undisclosed

Francisco Partners API Software Undisclosed


Observations� Tier two firms remain some of the most active

� Proportion of smaller deals, ‘strategic’

� 6% of total deal volume in 2008, compared to 36% in 2007

� Acquiring via portfolio company.

New Mountain Capital LLC Camber Corporation Undisclosed

EQT Partners and APT Private Equity Partners

KMD A/S $375

Transaction Highlights – Cross-Border

Buyer Seller Value (Millions) Sector

XING AG Socialmedian, Inc. $7.50

MicroFocus Relativity Technologies $9.70

Atari Cryptic Studios $27 (plus up to $20 in earnout)


Observations� Deal Drivers - global expansion, local domain expertise, scale

� All markets and sub-sectors are being targeted

� Look for Brazil and China to be active acquirers in 2009

earnout)

Exact Group BV Orisoft Technology $4

Tekelec mBalance $40 (plus up to $20 in earnout)

Transaction Highlights – Largest


eBay Inc. Bill Me Later, Inc. $945

Symantec Corporation Message Labs Ltd. $695

Tata Consulting Services Citigroup Global Services Limited

$505


Observations� The ‘Mega’ deals are gone

� Strategic buyers are doing the ‘big’ deals

� Less risky ‘bolt-on deals’

Limited

Hewlett Packard LeftHand Networks $360

eBay Inc. Den Bla Avis a/s $390

Looking Forward - Trends

Uncertainty Surrounds 2009, Not Necessarily Software M&A

Trends to keep an eye on

� Increasing number of divestitures

� Unsolicited offers


� Buyers are bridging the valuation gap with earn outs and delayed payments

� Private equity firms shopping on behalf of their current portfolio

� Valuation volatility

Looking Forward - Sectors

Sectors to watch

� Vertical Markets

� Healthcare

� Financial Services


� Energy

� Infrastructure

� Communications

� Security

� Virtualization

� Consumer Applications

Looking Forward - Initiatives

Key Initiatives for 2009

� Cloud Computing

� Virtualization

� Social Networking


� Social Networking

� Enterprise Mashups

� Green-IT

Horizontal Applications Software

Vertical Market Application Software

Corum M&A Briefing

2008 Review / 2009 Forecast

Report Highlights

Technology market overview Current view on economy, top buyers, active sectors

Strategic buyer spotlight


Consumer Application Software

Infrastructure Software

Internet

IT Services and BPO

Strategic buyer spotlightElectronic Arts

Technology SpotlightSocial Networking, Cloud Computing, Green-IT,Web-Oriented Architectures, and more

Valuation data

International perspective on M&A

In-depth sector coverage

Selling Up Selling Out Bootcamps

� Seattle, WAJanuary 22, 2009

� Paris, FranceJanuary 27, 2009


January 27, 2009

� London, UKFebruary 3, 2009

>> Registration and details at www.corumgroup.comOr contact Jessica Eastman ([email protected], +1 425-455-8281)

Contact Information

Corum Group Ltd.

Ward Carter, [email protected]

Ryan Blakely, VP [email protected] Corum Group International S.à.r.l .


Visit our Website at www.corumgroup.com

10500 NE 8th Street, Suite 1500Bellevue, WA 98004USA

+1 425-455-8281

Corum Group International S.à.r.l .

Jerome Fougerat, Regional [email protected]

Beim ParadeplatzBasteiplatz 78001 ZürichSwitzerland

+41 44 251 82 65

doing deals in a depression m&a...emergence of new competitors corum group presentation 9...

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