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Enterprise Technology Market Review

Market Review This Newsletter offers SCP’s perspectives on the Enterprise Software market with commentary on developments and the impact on M&A

activity

Table of Contents I. Technology-Focused Market Overview ................................................................................................................................................................................ 4

i. Performance of Large-Cap Enterprise Technology Companies: .................................................................................................................................. 4

ii. Enterprise Technology IPO Market Overview ................................................................................................................................................................ 9

iii. General M&A Market Overview .......................................................................................................................................................................................10

iv. VCs Funding Trends ............................................................................................................................................................................................................12

II. The News and Stories of the Year ........................................................................................................................................................................................15

i. Dell Goes Private ..................................................................................................................................................................................................................15

ii. The Year of the CMO ..........................................................................................................................................................................................................16

iii. The Fall of BlackBerry .........................................................................................................................................................................................................17

iv. Pivotal Initiative ....................................................................................................................................................................................................................17

v. Salesforce1 ..............................................................................................................................................................................................................................18

vi. New Partnerships ..................................................................................................................................................................................................................18

Oracle-Salesforce (June)...............................................................................................................................................................................................18

Oracle-Dell (June, September) ...................................................................................................................................................................................19

Salesforce-HP (November) .........................................................................................................................................................................................19

vii. Corporate Reorganizations and Leadership Changes ....................................................................................................................................................20

CA (April) .......................................................................................................................................................................................................................20

Intel (May) ......................................................................................................................................................................................................................20

Microsoft (August) ........................................................................................................................................................................................................20

SAP (June-July) ..............................................................................................................................................................................................................20

Symantec (June) .............................................................................................................................................................................................................21

III. Deals of the Year ......................................................................................................................................................................................................................22

i. Oracle/Responsys .................................................................................................................................................................................................................22

ii. Thoma Bravo/Intuit (Financial Services Division) – NCR/Digital Insight .............................................................................................................24

iii. OpenText /GXS ...................................................................................................................................................................................................................25

iv. Oracle/BigMachines ............................................................................................................................................................................................................26

v. Microsoft/Nokia ...................................................................................................................................................................................................................27

vi. IBM/Trusteer ........................................................................................................................................................................................................................28

vii. Cisco/Sourcefire ...................................................................................................................................................................................................................30

viii. Adobe/Neolane ....................................................................................................................................................................................................................31

ix. SAP/hybris .............................................................................................................................................................................................................................32

x. Salesforce/ExactTarget .......................................................................................................................................................................................................34

xi. IBM/SoftLayer ......................................................................................................................................................................................................................35

xii. Various PE Investors/BMC Software ..............................................................................................................................................................................36

xiii. Silver Lake Partners/Dell ....................................................................................................................................................................................................37

xiv. Oracle/Acme Packet ............................................................................................................................................................................................................39

xv. Oracle/Eloqua .......................................................................................................................................................................................................................40

IV. Predictions for 2014 .................................................................................................................................................................................................................41

i. Enterprise IPO debuts will slow down… because they can’t speed up ....................................................................................................................41

ii. Carve Outs over Buy Outs ..................................................................................................................................................................................................41

iii. The Year(s) of the CMO .....................................................................................................................................................................................................41

iv. Elliott will continue to Elliott .............................................................................................................................................................................................41

v. Eloqua, Marketo or ExactTarget will distance itself to become the clear leader .....................................................................................................42

vi. Mobile in 2014 .......................................................................................................................................................................................................................42

vii. Sales Enablement and Recurring Revenue Management will become ubiquitous ..................................................................................................42

V. Bibliography and Thanks ........................................................................................................................................................................................................44

4

I. Technology-Focused Market Overview

i. Performance of Large-Cap Enterprise Technology Companies:

2013 represented a mostly positive year trading for the key large-cap enterprise IT providers on the public market, although it was largely in-line with or slightly lagging the overall market. HP’s resurgence following an embattled 2012 was the top gainer out of the large-caps, while only IBM and EMC/VMware experienced share depreciation year-over-year.

Stock Price YoY ∆

Company 12/31/2012 3/31/2013 6/30/2013 9/30/2013 12/31/2013

Adobe $37.68 $43.52 $45.56 $51.94 $59.88 58.9%

CA $21.98 $25.18 $28.62 $29.67 $33.65 53.1%

Cisco $19.65 $20.90 $24.34 $23.43 $22.43 14.2%

EMC $25.30 $23.89 $23.62 $25.56 $25.15 -0.6%

HP $14.25 $23.84 $24.80 $20.99 $27.98 96.4%

IBM $191.55 $213.30 $191.11 $185.18 $187.57 -2.1%

Microsoft $26.71 $28.61 $34.55 $33.28 $37.41 40.1%

Oracle $33.32 $32.33 $30.71 $33.17 $38.26 14.8%

Salesforce $42.03 $44.71 $38.18 $51.91 $55.19 31.3%

SAP $60.79 $62.65 $56.19 $54.67 $62.55 2.9%

VMware $94.14 $78.88 $66.99 $80.90 $89.71 -4.7%

5

Adobe Adobe continued to meet investor expectations, increasing subscription revenues while decreasing legacy license/product-related revenues throughout 2013. The continued growth of Cloud revenue (in particular increasing average revenue per subscriber) has been met positively in the public market as share prices reached record highs despite declining aggregate y-o-y revenues and margins. Cloud adoption across two of Adobe’s most important divisions (Creative and Marketing) is expected to drive revenue as Adobe looks to expand into new markets and geographies. The Company also made its largest since the acquisition of Omniture in 2009, acquiring Neolane to help build out the Marketing Cloud.

Acquisitions:

08/01/13: Search Discovery – Website tag management SaaS (undisclosed)

06/27/13: Neolane – Marketing Automation Software ($600mm / 8.6x EV/Revenue) SCP on acquisition

05/22/13: Thumb Labs – Mobile software development services (undisclosed)

SCP on Other News and Notes:

The Year of the CMO

CA With new CEO Michael Gregoire at the helm, CA beat earnings estimates in three consecutive quarters in 2013 and subsequently raised forward guidance on both earnings and revenues. CA has benefited from growth in its Cloud initiatives, higher new sales in its Mainframe Solutions & Services segment and has been able to control costs and grow its enterprise solutions business. Gregoire was hired to lead the Company into its next-generation as a Cloud-solution provider and his tenure is off to a solid start.

Acquisitions:

04/22/13: Layer 7 – API management software ($155mm / 4.4x EV/Revenue)

03/24/13: Nolio – Software development solutions provider ($42mm / 14.0x EV/Revenue)

SCP on Other News and Notes:

Corporate Reorganizations and Leadership Changes: CA

Cisco Cisco saw lower than expected revenue growth in the first half of the year due to a significant slowdown in global technology sales (most notably in China), and realized its first year-over-year profit decline in eight quarters. Accordingly, sales and earnings growth projections were lowered for the next several quarters, including an expected decline in overall sales for early 2014. The Company attempted to ease investor concerns with an increased buyback program authorizing up to $97bn in stock repurchases. Cisco is facing further disruptions as the networking market shifts from under its feet faster than expected due to the rapid adoption of software defined networking and network functions virtualization technologies. Although Cisco was an aggressive acquirer in 2012 and 2013 (to build a foundation for the coming changes), it is likely that the Company will need to increase the speed and magnitude of acquisition in markets where its presence is threatened.

Acquisitions:

12/17/13: Kibits – Team collaboration software (undisclosed)

09/10/13: Whiptail – All-flash array storage ($415mm / 20.8x EV/Revenue)

07/23/13: Sourcefire – Intrusion detection & prevention ($2.7bn / 10.7x EV/Revenue) SCP on acquisition

06/20/13: Composite Softwware – Data integration software ($180mm)

05/29/13: JouleX – Energy management software ($107mm / 11.9x EV/Revenue)

04/03/13: Ubiquisys – Wireless base stations provider ($310mm)

03/25/13: Brainforce – IT service management SaaS ($22mm / 2.6x EV/Revenue)

01/29/13: Cognitive Security – NBAD software (undisclosed)

01/23/13: Intucell – Mobile network management software ($475mm / 15.8x EV/Revenue)

6

EMC EMC fell short of expectations late in the year (despite previously lowering guidance) as profit decreased due to increased operating costs and an overall tightening in IT spending. EMC is well positioned to capture increases in data center spend, but overall outlook is still trending negative. VMware continued to provide a boost to growth top-line growth, but investors began to question the overall size of the market opportunity for the Company. The Pivotal Initiative and the potential IPO in 2014 should provide for a more streamlined product offering in addition to a capital infusion.

Acquisitions:

07/11/13: ScaleIO – ECS VSAN software ($200-300mm1)

07/08/13: Aveksa – Access control and policy SaaS ($225mm2)

06/24/13: Stirof Technologies – Document management software and services (undisclosed)

05/21/13: Adaptivity – Application planning SaaS (undisclosed)

02/27/13: Trinity – Documentum consulting services (undisclosed)

01/04/13: iWave Software – Storage provisioning automation (undisclosed)

SCP on Other News and Notes:

The Pivotal Initiative

HP HP surprised the market by exceeding earnings expectations in consecutive quarters in early 2013 after a troublesome 2012 in which the Company took an $8.8bn charge related to its acquisition of Autonomy and another $8.0bn related to EDS. Q4 (reported in November) provided another lift as the Company beat revenue estimates, giving hope that product streamlining may be ahead of schedule. Most of the increases across HP were in the higher margin, business-related products groups such as servers, networking, and storage equipment, as well related services which show more promise for HP’s future. HP ended up as the top gainer in all of the Diversified IT, with the stock up nearly 100% on the year.

Acquisitions:

None in 2013

SCP on Other News and Notes:

New Partnerships: Salesforce-HP

IBM IBM was the Dow Jones Industrial Average’s lone loser in 2013 while it struggled to meet investor expectations as the Company focuses on driving towards 2015 goals set forth by Ginny Rometty in the 2011 annual report3. The Company experienced successive quarters of revenue decline as it transitions from its legacy business (with a larger focus on hardware sales) towards more recurring, Cloud-based offerings. IBM also made one of the most strategic deals of the year in the acquisition of hosted services provider SoftLayer, to form a cornerstone of its vision in the Cloud. IBM will look to provide a full-service Cloud offering with IBM Global Services providing pre-implementation consulting, SoftLayer hosting and Cloud applications to cross-sell.

Acquisitions:

12/19/13: Aspera – Data transfer software provider (undisclosed)

11/13/13: Fiberlink – Mobile device management SaaS ($300mm / 6.0x EV/Revenue4)

10/03/13: Xtify – Mobile messaging SaaS (undisclosed)

1 EMC Acquires Israeli Storage Startup ScaleIO For $200M-$300M To Compete Better With The Cloud Kings 2 The 451 Group estimate 3 50% of segment profit generated from software; 30% of revenue from growth markets; Spend $20bn on acquisitions between now and 2015, in Emerging Markets, Business Analytics, Cloud and Smarter Planet; $70bn to be returned through shareholders between now and 2015: $50bn through buybacks and $20bn through dividends 4 The 451 Group estimate

7

10/01/13: The Now Factory – Mobile device analytics software (undisclosed)

09/19/13: Daeja Image Systems – Multi-format document viewing (undisclosed)

08/15/13: Trusteer – Financial anti-fraud and endpoint security (~$1bn) SCP on acquisition

07/09/13: CSL International – Systems management and virtualization ($20mm5)

06/04/13: SoftLayer – Hosted services provider ($2bn / 4.7x EV/Revenue) SCP on acquisition

04/22/13: UrbanCode – Software development solutions provider (undisclosed)

02/07/13: StoredIQ – Unstructured data management provider (undisclosed)

02/01/13: Star Analytics – Data and application integration software (undisclosed)

SCP on Other News and Notes:

The Year of the CMO

Microsoft Microsoft beat estimates in its latest quarter (9/30) led by growth in search advertising and Cloud services. The Company’s stock price benefited in 2013 from several public announcements, including the release of both a new Xbox and tablet in addition to the retirement of long-time CEO Steve Ballmer. The next CEO of Microsoft will need to make a decision regarding Microsoft’s vision going forward, including whether to continue its current focus on both the consumer and the enterprise.

Acquisitions:

10/23/13: Apiphany – API distribution & management SaaS (undisclosed)

09/03/13: Nokia – Mobile phone designer and manufacturer ($5.0bn) SCP on acquisition

03/19/13: Netbreeze – Social media monitoring software (undisclosed)

03/14/13: Pando Networks – Download acceleration software (undisclosed)

03/05/13: MetricsHub – Cloud monitoring SaaS (undisclosed)

SCP on Other News and Notes:

Corporate Reorganizations and Leadership Changes: Microsoft

Oracle Oracle saw a year of flattening revenue and earnings, but bright spots included SaaS and improvements in hardware systems. The Company continues to invest heavily in its Cloud solutions both organically and inorganically. Oracle’s recent fiscal Q2 (November ‘13) results offer an optimistic view that revenue growth can accelerate in 2014 while executive leadership reiterated a focus on competing aggressively in Cloud-based applications versus the likes of Marketo, Salesforce, SuccessFactors/SAP and Workday, and hosting versus the likes of Amazon.com, IBM and Rackspace.

Acquisitions:

12/20/13: Responsys – Marketing automation software ($1.6bn / 7.7x EV/Revenue) SCP on acquisition

11/15/13: Bitzer Mobile – Mobile application management software (undisclosed)

10/23/13: BigMachines – CPQ sales automation SaaS (undisclosed) SCP on acquisition

10/17/13: Compendium – Content marketing SaaS (undisclosed)

03/25/13: Tekelec – Wireless infrastructure software (undisclosed)

03/13/13: Nimbula – Cloud creation IaaS provider (undisclosed)

02/04/13: Acme Packet – Session border control provider ($2.1bn / 5.9x EV/Revenue) SCP on acquisition

12/20/12: Eloqua – Lead generation software provider ($956mm / 9.7x EV/Revenue) SCP on acquisition

SCP on Other News and Notes:

The Year of the CMO

5 The 451 Group estimate

8

New Partnerships: Oracle-Salesforce

New Partnerships: Oracle-Dell

Salesforce Salesforce benefited from continued growth in its traditional Sales Force Automation business in addition to added revenue generated from the Marketing and Service Clouds. Salesfore’s SFA solution further solidified its position as the default offering for sales teams and the Marketing Cloud received a substantive boost from the acquisition of ExactTarget, the largest acquisition in the Company’s history. The Company delivered its first $1bn+ revenue quarter in November, beating estimates and pushing shares to all-time highs. Salesforce will need to continue to innovate and successfully sell solutions in areas that are both complementary and adjacent to Sales Force Automation to maintain the success the Company has experienced since its founding.

Acquisitions:

11/18/13: Cloudconnect.com – Database integration and synchronization SaaS (undisclosed)

06/07/13: EdgeSpring – BI analytics software provider ($134mm)

06/04/13: ExactTarget – Marketing Automation SaaS ($2.5bn / 7.6x EV/Revenue) SCP on acquisition

05/09/13: Clipboard – Online social bookmarking services (undisclosed)

02/06/13: EntropySoft – Content integration SaaS (undisclosed)

SCP on Other News and Notes:

The Year of the CMO

Salesforce1

New Partnerships: Salesforce-Oracle

New Partnerships: Salesforce-HP

SAP SAP spent 2013 focused on growing Cloud revenues and revenue related to HANA at the hands of its license software business. After a string of disappointing quarters in 2012, SAP built on its vision for HANA and the strategy of bundling complementary Cloud products with its existing sticky ERP customer base to deliver better results in 2013. SAP experienced turnover and consolidation within its internal organizational structure in 2013, which ultimately should provide a more streamlined message for customers attempting to understand differences between existing and acquired offerings. The Company is expected to continue to use mobility and HANA as its key differentiators in 2014, selectively looking to acquire businesses in complementary adjacencies.

Acquisitions:

09/10/13: KXEN – Predictive analytics software ($40mm / 3.3x EV/Revenue6)

06/05/13: hybris – E-Commerce software provider ($1.3bn / 10.7x EV/Revenue) SCP on acquisition

05/15/13: KMS – Employee onboard SaaS (undisclosed)

03/07/13: Camilion Solutions – Insurance policy management software (undisclosed)

02/22/13: SmartOps – Inventory management software (undisclosed)

01/31/13: Ticket-Web – Event ticketing PoS software (undisclosed)

SCP on Other News and Notes:

Corporate Reorganizations and Leadership Changes: SAP

6 The 451 Group Estimate

9

VMware VMware continues to capture the benefits of the Virtualization and Cloud movements and finished Q3 above expectations. Revenues from both license and services are steadily increasing along with operating margins, but end-user computing lagged. The Company also faced questions about its total addressable market throughout the year as it has largely penetrated a large component of its current market. The Pivotal Initiative should provide the opportunity for VMware to benefit from a streamlined product portfolio and upside growth from a potential IPO. VMware stands well positioned to continue this growth path with its stake in the adoption of the hybrid cloud and the software defined data center, as well as realizing the full benefits of the integration of Nicira products and the Desktone acquisition.

Acquisitions:

10/15/13: Desktone – Desktop virtualization SaaS (undisclosed)

02/11/13: Virsto Software – Storage virtualization software ($185mm / 92.3 EV/Revenue)

SCP on Other News and Notes:

The Pivotal Initiative

ii. Enterprise Technology IPO Market Overview

The U.S. market saw its highest number of IPOs since 2000 with 222 companies going public.7 2013 proved to be the busiest year in the Tech IPO market since 2007 with 45 Technology IPOs representing 14% of proceeds raised during the year.

The Enterprise IPOs8

7 Renaissance Capital. IPOs include companies with a market cap of at least $50mm 8 Notable exclusions include non-Enterprise Technology IPOs such as Twitter and Zulily

CompanyPricing

Date

Offer

Amount

Price at

IPO

Change

1st Day

∆ as of

12/31/13

Nimble Storage 12/13/2013 $168.0 $21.00 79.5% 115.7%

Mavenir Systems 11/7/2013 $54.5 $10.00 -4.5% 11.6%

Barracuda Networks 11/6/2013 $74.5 $18.00 19.7% 120.4%

Veeva 10/16/2013 $260.9 $20.00 85.8% 60.5%

RingCentral 9/27/2013 $97.5 $13.00 40.0% 41.3%

Violin Memory 9/27/2013 $162.0 $9.00 -22.0% -56.0%

Covisint 9/27/2013 $64.0 $10.00 26.3% 25.5%

FireEye 9/20/2013 $303.5 $20.00 80.0% 118.1%

Rocket Fuel 9/20/2013 $116.0 $29.00 93.4% 112.0%

Benefitfocus 9/18/2013 $130.8 $26.50 102.1% 117.9%

Cvent 8/9/2013 $117.6 $21.00 56.8% 73.3%

RetailMeNot 7/19/2013 $190.9 $21.00 31.9% 37.1%

Gigamon 6/12/2013 $128.3 $19.00 49.8% 47.8%

Textura 6/7/2013 $75.0 $15.00 39.4% 99.6%

ChannelAdvisor 5/23/2013 $80.5 $14.00 31.7% 197.9%

Marketo 5/17/2013 $78.8 $13.00 77.7% 185.2%

Tableau 5/17/2013 $254.2 $31.00 63.7% 122.4%

Rally Software 4/12/2013 $84.0 $14.00 27.2% 38.9%

Marin Software 3/22/2013 $105.0 $14.00 16.1% -26.9%

West Corporation 3/22/2013 $102.6 $20.00 -5.7% 28.6%

Model N 3/21/2013 $104.5 $15.50 23.9% -23.9%

Silver Spring Networks 3/13/2013 $80.8 $17.00 29.4% 23.5%

Average: 42.8% 66.8%

10

The IPOs that traded best post-pricing in 2013 were ChannelAdvisor and Marketo, whose shares increased 198% and 185% from their respective IPOs (as of 12/31/13). ChannelAdvisor and Marketo led a strong field of successful SaaS IPOs that also included Cvent, RetailMeNot, Textura and Veeva. Infrastructure software/networking also performed well in the public markets with Barracuda Networks, FireEye, Nimble Storage and Tableau. Compared to the overall Technology IPO market which averaged 52.4% return, collectively Enterprise Technology IPOs returned 68.8% (as of 12/31/13). Although many firms saw tremendous appreciation in their stock prices, a smaller portion did not fare as well. Violin

Memory, Marin Software and Model N shares have dropped (56%), (27%), and (24%) respectively, since their IPOs.

Marin and Model N both declined after initial gains, badly missing revenue and gross margin expectations in their first

few quarters as public companies. Violin Memory’s IPO struggled from the beginning, losing 22% on its first day of

trading. Since then the Company, whose revenue relies on large customers, lost HP as client and has seen shares drop

even further while losing its CEO, COO, and CTO.

According to Renaissance Capital, the active pipeline for IPO’s rebounded strongly in 2013 (companies that have filed

an update within last 90 days) with a significant increase in companies in enterprise software. Key potential enterprise

IPOs 2014 include firms such as Alibaba, AppDynamics, Apptio, Arista Networks, Atlassian, Box, Domo, Dropbox,

Good Technology, Pivotal, SilkRoad, Square, Xactly and Zendesk.

iii. General M&A Market Overview

Overall M&A activity decreased by 3.3% in 2013 over 2012 following a particularly weak Q4. In the second half of 2013, deal volume edged up 3.2%, but deal value ended down 3.2%. Despite a solid start to the year, Q4’s 12.7% drop to $570.5bn in total deal value (from $653.7bn in Q3) caused the year to end relatively flat for the third consecutive year.9

9 Mergermarket M&A Trend Report: 2013

$810$592 $419 $459 $613 $461 $448

$1,277

$677

$396 $429$581

$561 $543

$849

$682

$326$493

$588$517 $654

$733

$458

$569

$708

$469$751 $571

$3,669

$2,408

$1,711

$2,090$2,251 $2,289 $2,215

$0

$500

$1,000

$1,500

$2,000

$2,500

$3,000

$3,500

$4,000

2007 2008 2009 2010 2011 2012 2013

Total M&A Deal Value

Q1 Q2 Q3 Q4 Source: Mergermarket

11

The U.S. M&A market ticked upward 3.8%, the fourth consecutive annual increase despite a particularly weak Q4 (down 29.2% y-o-y). However if not for the $124.1bn Verizon Wireless deal, U.S. M&A would have been the lowest

in terms of total deal value since 2010 ($769bn vs. $721bn). This would have represented a 10.6% decline compared to 2012.2

U.S. Technology Deal Flow

Technology M&A increased 22.3% y-o-y, finishing the year at $166.3bn in total deal value. A pair of large PE deals (Dell and BMC) inflated that number, yet there were fewer large ($2bn+) deals by strategic acquirers than 2012. Strategic technology M&A looks strong heading into 2014 as large enterprises look to ignite growth and either establish or maintain leadership positions through the acquisition of innovators.

$361

$145 $199 $146$248

$127 $179

$501

$266 $186$178

$186

$188$168

$255

$263

$98 $153

$207

$233$325

$229

$78

$205 $243

$183 $312$221

$1,346

$752$688 $721

$823 $860 $893

$0

$200

$400

$600

$800

$1,000

$1,200

$1,400

2007 2008 2009 2010 2011 2012 2013

U.S. M&A Deal Value

Q1 Q2 Q3 Q4 Source: Mergermarket

0

200

400

600

800

1,000

1,200

1,400

1,600

$0

$20

$40

$60

$80

$100

$120

$140

$160

$180

2007 2008 2009 2010 2011 2012 2013

Deal Value ($bn) Number of Deals Closed Source: Mergermarket

12

IT Private Equity Deal Flow

$17$15

$39$41

$5 $4 $4 $3 $3 $3$5

$9$7

$5

$10$8

$15$15

$12

$16$16

$9

$15

$18

$7

$14

$17

$48

90

95

77

62

82

55

65

37

51

49

49

64 64

42

71

77

62

79

63

68

90

7073

94

58

82

89

94

0

10

20

30

40

50

60

70

80

90

100

$0

$10

$20

$30

$40

$50

$60

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

2007 2008 2009 2010 2011 2012 2013

Deal Value ($bn) Number of Deals Closed Source: Pitchbook

Technology Private Equity deal volume experienced a particularly weak Q1 2013 (the lowest in terms of both deals closed and capital invested since Q2 2010), but both Q2 and Q3 rebounded, with Q3 capital invested driven in large part by BMC. Q4 was highly influenced by the Dell deal, but even with that removed, Q4 was the largest quarter in IT PE since Q4 2007.

iv. VCs Funding Trends

In 2004, on average VCs acquired 40% of a company in Series A rounds and 24% of a company in Series D rounds. For the first three quarters of 2013, those figures have fallen to 29% and 13%, respectively. This is largely a result of a decrease in the amount needed to start a company. Founders require less capital to run an efficient and effective business, resulting in the ability to raise less money and give up less ownership.

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

'04 '04 '05 '05 '06 '06 '06 '07 '07 '08 '08 '09 '09 '09 '10 '10 '11 '11 '11 '12 '12 '13 '13

Median % Acquired by Stock Series

Series Seed Series A Series B Series C Series D or Later

*As of 9/30/13 Source: Pitchbook

13

This has consequently resulted in two principal impacts:

VCs investing less capital in more companies

More angel investors providing early capital in place of Series A rounds

The addition of less experienced investors has also contributed to valuation inflation in seed rounds. Moreover, companies have had a difficult time receiving up-rounds in Series A due to high seed-stage valuations. Median pre-money seed valuations have climbed 112% since the beginning of 2010, while Series A valuations have only increased by 26%.

$2.5 $4.9 $5.3

$7.3$8.5 $9.2

$17.8 $22.0

$25.6

$0

$5

$10

$15

$20

$25

$30

1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q

2009 2010 2011 2012 2013

Quarterly Median Pre-Money Valuation ($M)

Series Seed Series A Series B

Source: Pitchbook

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

VC Fundraising (#) by Fund Size

$1B+

$500M-$1B

$250M-$500M

$100M-$250M

$50M-$100M

Under $50M

Source: Pitchbook

14

VC funds are also decreasing in size. Two years ago, 53% of VC funds raised were at least $100mm in size, with 33% coming in at $250mm or more. Today that figure has fallen to just around 40%, with 50% of all VC funds actually below $50mm.

15

II. The News and Stories of the Year

i. Dell Goes Private

SCP analysis of Dell acquisition rationale and implications

After an eight-month battle with investors, Michael Dell and Silver Lake Partners took Dell private in September at a

valuation of $25 billion, the 10th largest LBO by deal size and the largest by revenue in history.10 The deal featured a

tennis match’s worth of back and forth (Michael Dell even used this tennis analogy to describe his sentiment with Carl

Icahn following the deal’s close; “It was like a tennis match where there’s all kind of trash-talking, and then afterwards

you’re telling each other ‘nice backhand’ and ‘great serve.’”10) and the ultimate outcome only came after months of

negotiations, proposals and counter-proposals and Michael Dell making a large bet that he was still the man to lead the

Company to its next iteration.

Michael Dell returned as CEO of Dell (the Company he founded in his University of Texas dorm room) in early 2007,

after a nearly three year hiatus. Upon Dell’s return, the Company (which derives half of its revenue from PC sales)

attempted to remake itself on the public market; to transform beyond sales of PCs and servers into a full-service

enterprise infrastructure vendor. Dell acquired over $10bn worth of companies in nearly every aspect of software

“including IT services (Perot Systems), security (SecureWorks, SonicWALL), networking (Force10), storage

(Compellent, AppAssure) and infrastructure software (Quest Software).”11 Despite the acquisitions and attempt to

transition core offerings, the Company lost half its value following his return.

According to Dell’s proxy filing, the first discussions on potentially going private began in June 2012 when Southeastern

Asset Management (Dell’s second-largest shareholder) proposed a buyout, but it was not until Egon Durban of Silver

Lake approached Michael Dell on the topic on July 17th that the discussions began in earnest. On August 14th, Dell

notified the Board of the proposed LBO with Silver Lake. Dell’s board formed a special committee to evaluate the

proposal and to solicit other strategic options for the Business.

Over the next several months, Dell’s Board:

Demanded six price increases from Dell/Silver Lake before ever putting the proposal up for vote

Attempted to put a COO in place to provide decision making checks and balances on Michael Dell

Evaluated a complicated strategic alternative proposed by Carl Icahn that demanded Dell issue debt to fund a $9 per share dividend or face a proxy fight for control over the board (ultimately teaming up with Southeastern Asset Management)

Entertained a tentative $14.25-per-share-offer from Blackstone and former Dell #2 Dave Johnson that would potentially not include Michael Dell as CEO

Hired a bank to talk to 72 potential bidders during a lengthy “go-shop” period

Michael Dell had to accept a discount on his shares in the Company twice to increase the offer when Silver Lake refused

to budge on price, ultimately agreeing with Silver Lake on a $13.75 “best and final” offer along with a $0.13 special

dividend. The final deal consisted of Michael Dell investing his 15.6% stake in the Company (about $3.4bn) and another

$500mm in cash along with $250mm from his family office, Silver Lake committing $1.4bn and a loan from Microsoft

of $2bn.

10 Dell’s Mitzvah Rescued Buyout as JPMorgan’s Lee Warned of Peril 11 The 451 Group

16

The deal captured headlines around the world for months, marked the end of Dell’s 25 year run on the public market,

the return of the mega-LBO and a significantly different, new chapter in one of enterprise technologies stalwarts.

ii. The Year of the CMO

With a limited number of exceptions12, most of the companies in the broader Marketing Automation space were founded in the late 1990s or early 2000s (Aprimo, Constant Contact, Eloqua, ExactTarget, Responsys, Silverpop), each taking slightly different approaches to the market. Some focused primarily on Email Marketing Automation, enabling marketers to send out personalized emails to large numbers of potential customers in seconds. Others took a more targeted approach to analyzing the utilization and effectiveness of resources in the marketing department. In early 2012, Gartner declared that the CMO would have more control of the IT budget than the CIO by 2017. The sales cycle had shifted dramatically over the years, with consumers educated about potential products and services well before ever coming in contact with a sales rep. This shift made the need for compelling marketing content an imperative for companies as each attempts to maintain a consistent brand experience across the various channels. Both strategic acquirers and the public market took note of this opportunity in 2012 with a slew of fairly high-profile Social Media Management acquisition (Salesforce-Buddy Media, Oracle-Vitrue, Google-Wildfire) and well-performing IPOs (ExactTarget, Eloqua). This Social Media Management consolidation was not the first round of acquisitions focused on CMO software. The first wave occurred in 2010 with Teradata’s acquisition of Aprimo and IBM’s acquisition of Unica. Aprimo took an analytic angle toward Marketing Resource Management while Unica provided largely on-premise license Marketing Management software and related maintenance. The space then went untouched by Diversified IT strategics (the one exception being Intuit’s acquisition of Demandforce for SMB marketing) through the end of 2012 until Oracle acquired Lead Management provider, Eloqua. This acquisition had a domino effect that helped drive 2013 to become “the Year of the CMO” in software. Eloqua went public in early August 2012 and traded well on the public market before Oracle ultimately acquired the Business on December 20, 2012 for a 104% premium over the price at which Eloqua priced its IPO. Eloqua was a frequent partner of Salesforce and it is rumored that Salesforce never had the opportunity to look at a counter offer on the Business. Oracle immediately looked to Eloqua to form its marketing platform. SCP analysis of Eloqua acquisition Largely in reaction to the Eloqua transaction, Salesforce quickly raised $1bn in debt, specifically earmarked for marketing-related acquisitions. Rumored to have evaluated a number of providers (including Act-On, HubSpot, Marketo and Neolane), Salesforce ultimately acquired ExactTarget, using its Marketing Automation capabilities to form the cornerstone of the (new) Marketing Cloud and spinning off its Lead Generation capabilities (from the acquisition of Pardot) to the Sales Cloud. SCP analysis of ExactTarget acquisition Six weeks later, Adobe followed up with an acquisition of its own, purchasing French Marketing Automation provider, Neolane. SCP analysis of Neolane acquisition Finally, Oracle closed out the year with the acquisition of Responsys. SCP analysis of Responsys acquisition All of this while Lead Generation provider, Marketo, traded up nearly 200% following its IPO in May and Social Media Management providers HootSuite, Spredfast and Sprinklr all raised large rounds in preparation for an IPO or a second wave of Social Management consolidation.

12 HubSpot – 2005, Marketo – 2006, Neolane – 2006, Unica – 1992

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Larry Ellison and Mark Hurd at Oracle set off the year of the CMO on December 20, 2012 and ultimately ended it exactly 365 days later, purchasing two different public Marketing Automation software providers.

iii. The Fall of BlackBerry

The Company that once dominated the corporate mobility market saw its fall from grace largely culminate in 2013. Blackberry went from a 50% share of the smartphone market and an $80bn market cap in 2008 to less than a 2% share of the smartphone market and a market cap under $3.9bn at the end of 201313. Shares of Blackberry dropped over 50% in 2013 alone. In January 2013, BlackBerry announced its much-delayed BlackBerry 10 system. The system was a major disappointment with sales far below expectations and resulted in the Company subsequently announcing 4,500 layoffs and reported a $1 billion write-down. Fairfax Financial, the largest shareholder, attempted to force an LBO of BlackBerry, but was unable to find any buyers. Unable to go private, on November 4, Blackberry announced $1 billion investment from Fairfax Financial, a Qatar-based sovereign-wealth fund and several Canadian investment funds. A stipulation of this investment was that CEO Thorsten Heins step down. John Chen (former CEO of Sybase) was named the interim CEO. The Company also announced the departures of three top executives. CFO Brian Bidulka was replaced by SVP and Controller, James Yersh while COO Kristian Tear and CMO Frank Boulben were dismissed without replacements14. Upon assuming leadership, Chen reached out to former relationships from SAP/Sybase to join him in revamping BlackBerry. Chen poached Jim Mackey (former SVP, Corporate Development at SAP) and Mark Wilson (SVP, Corporate and Field Marketing at Sybase) from OpenText and Avaya, respectively. Mackey will serve as EVP of Corporate Development and Strategic Planning and Wilson will serve as SVP of Marketing at BlackBerry. Chen also named John Sims (President, SAP Mobile Services) President of BlackBerry Enterprise.

iv. Pivotal Initiative

Pivotal is a new business entity within the EMC federation, and was formed by assets owned by EMC and VMware. Pivotal plans to be a platform for mainframe, client-server, and consumer grade computing. Its goal is to make cloud-based industrial software applications faster than anyone has before. If successful, Pivotal may be the first tech company to make a lasting mark without passing through a small startup phase. Its core offering is Pivotal One, a comprehensive solution that includes a set of application and data services that run on top of Pivotal CF, a turnkey solution for agile development teams to rapidly update and scale applications on a private cloud that can be instantly expanded and upgraded with no downtime, allowing enterprises to innovate with disruptive speed. The Pivotal strategy appears to be out of the playbook EMC employed in nurturing VMware to market dominance as an independent subsidiary, and the motives seem to be similarly in line. First, maintain Pivotal as a separate equity security with tremendous growth prospects so that EMC can use Pivotal stock options to retain top engineering talent for those assets which will need the most innovation. VMware shares have appreciated over 200% since the Company’s IPO, while EMC shares have returned less than 50% … much of which is due to VMware’s rise.

13 ABI Research 14 Blackberry Announces Management and Board Changes

18

Second, keeping Pivotal at an arm’s length from its corporate parents will allow the Company to maintain some semblance of neutrality in a field of complex coopetition among IT leaders. VMware’s similar position has facilitated its ability to effectively sell into and alongside Storage and Security vendors that are very much competitive with EMC, including Dell, HP, IBM, NetApp, and Symantec. In turn, Pivotal hopes that it will be able to peddle its big data wares to that group as well as those who are competitive to VMware, notably Citrix, Microsoft, and Red Hat.

v. Salesforce1

At Dreamforce in November, Marc Benioff unveiled his vision for mobility with the announcement of Salesforce1. Salesforce1 provides a CRM platform for developers and software vendors focused on mobile applications. The positioning was broader than simply mobility with Salesforce latching onto the Internet of Thing utilizing the term “the Internet of Customers.” Salesforce1 required a major refactoring and expansion of Salesforce's APIs with the new APIs all publicly available on the AppExchange. This vision integrates the Company’s Cloud platform, allowing Chatter, Force.com and Heroku (Saleforce’s platform for Ruby and Java) to work together seamlessly. The near-term impact is that the platform will enable Salesforce customers to more easily migrate applications to mobile devices. Customers will also have the ability to customize and brand their own version of the Salesforce1 platform with Marc Benioff showing off a Tesla-branded example at Dreamforce. The Internet of Things positioning seems more conceptually aspirational than near-term impactful. It is Salesforce’s attempt to reorient customers around the Internet of Customers because, as Marc Benioff stated, “there is a customer behind every interaction on the Internet." Salesforce’s view is that mobility will be the center of all customer relationships and CIOs need to focus on how to optimally connect devices to both employees and customers. How this translates to the Internet of Things seems a bit of an unnatural extension. A cynic would say that for the first time in a while Salesforce felt left out of a specific buzzword and tried to position its mobile platform around a hot term. The overall implications of the announcement remain to be seen, but it clearly has big implications for the Company. Salesforce does not seem to view mobile as a standalone application market, but instead an extension of existing solutions previously created for the web. This bet is in line with what large customers are demanding for mobility. Salesforce’s large customers have development teams in-house with capabilities to build out and customize mobile solutions much faster than Salesforce could on their behalf. That said, Salesforce’s traditional SMB-base will likely need robust frameworks and support (more closely resembling pre-built applications) to move existing solutions to the mobile world. It is unclear to what extent Salesforce1 will have capabilities tailored to this need. Traditional leaders in mobility like SAP and IBM undoubtedly took notice, in addition to leading mobile upstarts like Spring Mobile Solutions and Kony.

vi. New Partnerships

Oracle-Salesforce (June)

In one of the most head scratching announcement of the year, Larry Ellison and Marc Benioff held a call with media and research analysts on June 27 to announce a strategic partnership. Both CEOs played nicely on the call:

Marc Benioff:

“Larry and I both agree that salesforce.com and Oracle need to integrate our clouds. Salesforce.com's CRM integrated with Oracle’s Fusion HCM and Financial Cloud is the best of both worlds: the simplicity of salesforce.com combined with the power of Oracle”

Larry Ellison:

19

“We're committed to working very closely with salesforce.com to continuously improve our database and our Java middleware technology, so we can help salesforce.com deliver the highest level of security and reliability to their Cloud customers. Our two Companies are going to work together to jointly develop out-of-the-box integration between Salesforce's market-leading CRM applications and Oracle's Cloud applications”

“Sure, Salesforce and Oracle have some overlapping products, but I think there are far more opportunities to work together than to compete”

“Virtually every time we buy a company, they're running -- I wouldn't say every time, but almost every time we buy a company, they're running salesforce.com CRM”

Was this announcement mainly a publicity stunt between a former mentor-mentee? Did this mean that Salesforce and Oracle would work together more strategically going forward and cease the cause and effect of acquisitions and strategy that started when Oracle finally came around on the Cloud? While customers may benefit from deeper integration between the solutions, neither Oracle nor Salesforce altered strategic plans to accommodate the other. Oracle made two particularly aggressive acquisitions that cut directly against Salesforce (SCP analysis of BigMachines acquisition; SCP analysis of Responsys acquisition). Salesforce also announced a competitive partnership utilizing HP’s hardware and hired former 26 year Oracle veteran Keith Block as President and Vice Chairman following his ouster from Oracle. It appears that this may have been two great marketers making nice after the fallout in 2011, but seems to have limited implications from a strategy standpoint.

Oracle-Dell (June, September)

Twice in 2013, Oracle and Dell announced plans to more tightly integrate enterprise management capabilities. Taken individually each specific integration means very little, but collectively it shows a developing and deepening strategic partnership between two of the largest vendors in IT. Following its acquisition of Sun Microsystems in 2009, Oracle utilized and invested in the acquired SPARC-based hardware (mainly competing with IBM), but largely let Sun’s server business (using Intel x86 chips) atrophy. The formation of a strategic alliance with Dell indicates that Oracle will not attempt to compete in the x86 server market (long expected) and acknowledges that Dell and Oracle each have access to customers that the other wants. Marius Haas, the head of Dell’s Enterprise business, stated, “Oracle has a phenomenal engine into the top 500 enterprise accounts worldwide. They’d like to go after the broader market, and we’ve got a great relationship with companies there.” Oracle has the enterprise and Dell has the SMB and both would like more diversity. If successful, the loser in all of this may be Mark Hurd’s old firm, HP.

Salesforce-HP (November)

At Dreamforce in November, Salesforce announced a new partnership with Hewlett-Packard, unveiling a jointly-developed "Superpod," which will provide a dedicated infrastructure for large customers to run Salesforce in the Cloud. These dedicated servers will be housed and managed within Salesforce's data centers and running on HP’s Converged Infrastructure. This announcement, while not overly strategic from a partnership standpoint, is the first instance where Salesforce has acknowledged that some customers may simply want dedicated servers. Marc Benioff pointed out that this is not a single tenant model and that the software running on Superpod is exactly the same as that run on the rest of Salesforce’s stack, but it is a big extension after years of attacking “fake clouds.” This partnership also can be viewed as a counterstrike to the partnership from Oracle and Dell earlier in the year.

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vii. Corporate Reorganizations and Leadership Changes

CA (April)

Michael Gregoire, became the CEO of CA Technologies in December 2012, taking over for Bill McCracken. Gregoire has a largely application software background (having served as CEO of Taleo and EVP of Global Services at PeopleSoft) and it is his Cloud expertise that led to his selection as CEO. It is clear that CA must evolve past mainframe and distributed systems and move quickly into the Cloud and CA is betting that Gregoire’s application background provides him with the experience to do it. Four months after arriving, Gregoire announced a $150MM reorganization that included:

Layoffs of 1,200 employees, replacing them “with those that understand newer technologies”

Restructuring of commission incentives to drive new business

Balancing the shift into Cloud with the attractive higher margins of mainframe business Gregoire’s first year has been met positively by the public markets with CA trading up over 50% in CY 2013.

Intel (May)

Brian Krzanich, a 30 year Intel veteran who began with the Company at twenty two as an engineer, was announced as CEO of the Company in May following a six month search to replace Paul Otellini. In 2012, almost two-thirds of Intel’s $53bn in revenue came from the PC market, which Krzanich states “is not growing, let’s be honest.”15 Krzanich’s vision for the Business is to move beyond the chip world because “the assets that made us great in PCs and servers are even stronger in the mobile and cloud world.”15 To build on this vision, Kraznaich also promoted Renee James (who also was vying for the CEO role) to President, from her role as EVP and GM of Software & Services.

Microsoft (August)

In August, it was made public that Steve Ballmer would be stepping down as CEO of Microsoft after 33 years with the Company and 13 years as CEO. In an exclusive interview with the WSJ, Ballmer acknowledged that he and the Board were in alignment that Microsoft needed to evolve and restructure, but the Board’s issue was the speed at which it should be done. When Ballmer tried to change his traditional management style, he immediately received pushback. Ballmer stated, "No matter how fast I want to change, there will be some hesitation from all constituents—employees, directors, investors, partners, vendors, customers, you name it—to believe I'm serious about it, maybe even myself." Ballmer ultimately concluded that a new CEO would be able to enact the change that Microsoft needed at a faster pace than he would. The list of potential candidates is rumored to include Ford CEO Alan Mulally (who subsequently denied interest), Microsoft veteran Sataya Nadella, former Skype CEO Tony Bates and former Nokia CEO Stephen Elop. Now that the search has moved into 2014, the list could be expanded to include various other names as well.

SAP (June-July)

Lars Dalgaard, head of SAP’s Cloud operations and former CEO of SuccessFactors, left the Company in June to become a General Partner at Andreessen Horowitz. He was expected to remain involved with SAP in an advisory role with Ariba CEO Bob Calderoni assuming the position as President, SAP Cloud and becoming a member of the SAP Global Managing Board. This announcement was coupled with consolidation within Corporate Development with the previously separate SuccessFactors and SAP teams, merging under Arlen Shenkmen’s leadership.

15 New Chief at Intel Aims to Expand Chip Making

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Calderoni ultimately also announced his departure in January 2014 with Shawn Price (former CEO of Savvion and President at Zuora) assuming responsibility of SAP Cloud (including SuccessFactors and Ariba) in addition to on-premise CRM. Jim Hagemann Snabe also announced that he will be stepping down from his role as Co-CEO in May 2014 to spend more time with his family. The move will leave Bill McDermott as the sole CEO of SAP. Hagemann Snabe will join the Advisory Board after a shareholder vote in May 2014.

Symantec (June)

CEO Steve Bennett utilized 2013 to restructure the Company that he assumed control of in July 2012. Bennett has looked to rework the sales team, trim software products/reorganize business units, cut headcount and increase R&D and marketing spend. Bennett has focused on selling customers on Symantec as a protector of networks and mobile devices in addition to PCs.16 Bennett also announced a workforce reduction of up to 1,700 jobs, mainly focused on middle-management after Bennett found that the average manager had only five people reporting to them.17 The public market has received Bennett’s leadership well with the Company up over 50% since he assumed the role of CEO.

16 Symantec Replaces Technology Chief as CEO Leads Overhaul 17 Symantec Cutting up to 1,700 Jobs as Early as Today

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III. Deals of the Year Note: All multiples are LTM unless otherwise noted

i. Oracle/Responsys

/

12/20/13

Transaction Value: $1,607mm; Multiples: 7.7x EV/Revenue, 106.9x EV/EBITDA

Email marketing software provider

Deal Rationale

The acquisition came exactly 365 days following Oracle’s initial play in SaaS Marketing Automation with the

acquisition of Lead Generation provider Eloqua. In many ways this deal saddles Oracle with redundancies to

Eloqua, a solution that has been used as the cornerstone of Oracle’s Marketing Management offering

The principal technological addition that Oracle acquires with Responsys is B2C marketing expertise and

Email Marketing Automation, neither of which were particularly strong for Oracle historically

While Responsys does derive a significant portion (~32%) of its revenue from Professional Services, Oracle is

acquiring a Business that is on a $140mm run-rate for its Subscription business alone. This provides Oracle

with a sizable addition of Cloud revenue at a discount below other SaaS comps

The acquisition of Eloqua, BigMachines and Responsys all provide Oracle with strong technologies that are

complementary to its existing Sales Force Automation solution. As Salesforce has increasingly grabbed a

stranglehold on the SFA market, competitors have looked to differentiate offerings with Oracle focusing on

components that are in direct adjacencies to SFA

Implications

Oracle will likely continue to deploy Eloqua for B2B marketing and utilize Responsys for B2C marketing.

The lines between B2B and B2C only continue to blur and it will be interesting to see how Oracle’s sales reps

utilize each solution as the delineation B2B and B2C becomes increasingly ambiguous

Despite the very public partnership announcement, this deal is the second by Oracle (along with

BigMachines) in Q4 that seems particularly competitive to Salesforce (SCP analysis of BigMachines

acquisition). Although possessing Lead Generation functionality from the acquisition of Pardot,

ExactTarget’s core business was more directly competitive with Responsys than Eloqua (SCP analysis of

ExactTarget acquisition)

SAP was rumored to be involved in the bidding for Responsys, although this would stand in stark contrast to

many of the comments made by SAP leadership following the acquisition of hybris (SCP analysis of hybris

acquisition). SAP will ultimately need to acquire something in the Marketing department, but there remain

more targets than acquirers and should have its picking of the remaining offerings

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Marketo entered the public market with the intention of remaining there and has continued to appreciate in

value for its shareholders. The Company is betting that the opportunity to own the CMO can be done

independently from any CRM system and so far the public market has certainly agreed. Responsys ultimately

found an offer too good to pass up – it remains to be seen if the same will happen for Marketo

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ii. Thoma Bravo/Intuit (Financial Services Division) – NCR/Digital Insight

/ (Financial Services Division) /

07/01/2013 12/02/2013

Transaction Value: $1,025mm; Transaction Value: $1,650mm;

Multiples: N/A Multiples: 5.0x EV/Revenue, 55.0x EV/EBITDA

Online banking & payments software

Deal Rationale

Brad Smith assumed the role of CEO at Intuit in 2008, after serving as SVP and GM of Intuit’s Small

Business Division. Under Smith’s leadership, Intuit divested its Real Estate Solutions business (acquired by

Vista Equity for $128mm in 2009), Commercial Banking business (acquired by Bottomline Technologies for

$20mm in 2012) and website development software assets (acquired by The Endurance International Group

for $60mm in 2012). In middle of 2013, Smith set out to divest the largest business to date; the Business

formerly known as Digital Insight, which it had acquired for $1,350mm in 2006

Intuit retained a bank that contacted a limited number of parties that could close quickly, which seemingly

eliminated all strategic acquirers. The process is rumored to have been extremely fast including a “30-day

final close (which ultimately caused Thoma Bravo to fund the acquisition via bridge loans, before later lining

up more traditional financing).” Thoma Bravo paid $1,025mm for the Business and retained the Digital

Insight name that it had on the public market

Upon seeing the announcement of the acquisition, NCR expressed interest in Digital Insight, having not been

able to participate in the previous sale process. The deal was diligenced, negotiated and closed within five

months of the announcement by Thoma Bravo for a $625mm increase (61%)

NCR saw an opportunity for Digital Insight to fundamentally change its Financial Services business,

providing customers with a consistent experience across various channels. According to the investor

presentation on the acquisition, NCR stated that the acquisition would increase its available market by ~$5bn

Implications

The deal represents an unprecedented return for Thoma Bravo with its team benefiting from aggressiveness

and the ability to act quickly

Lost in much of this is that Digital Insight represents an extremely strategic acquisition for NCR and its

vision for transforming its three core lines of business. Radiant and Retalix were highlighted as the

cornerstone for the Hospitality and Retail businesses, and NCR expects Digital Insight to be that for the

Financial Services businesses. NCR plans to utilize Digital Insight to become a global leader in an omni-

channel retail banking transformation, enabling transactions across multiple touch points. This deal will likely

make NCR much more competitive with more traditional Financial Technology banking companies

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iii. OpenText /GXS

/

11/05/2013

Transaction Value: $1,165mm; Multiples: 2.4x EV/Revenue, 8.4x EV/EBITDA

Electronic data interchange and file transfer software and services

Deal Rationale

Under CEO Mark Barrenechea’s leadership, OpenText rebranded from Enterprise Content Management

(considered by Barrenechea to be an antiquated business term) to Enterprise Information Management in the

last year. The acquisition of GXS builds upon this repositioning, providing software that links supply-chain

information between vendors/suppliers and complements the acquisition of EasyLink (acquired for $246mm

in 2012)

Additionally, the deal doubles OpenText’s Cloud revenue (nonexistent prior to the purchase of EasyLink),

expands its geographic reach (specifically Latin America and Asia-Pacific), diversifies application software

from its traditional focus on SAP and expands its industry focus (specifically adding more of a presence in

Financial Services, Manufacturing, CPG and Retail)

OpenText is also able to capitalize on the favorable debt markets (taking on $800mm in new debt to pay off

$777mm in GXS debt, bringing its own long-term debt to $1.3bn), while Francisco Partners, Golden Gate,

Cerberus and Norwest Venture Partners are able to exit a deal that has been in portfolios since 2001

Implications

The most interesting and immediate implication from the acquisition is with regard to OpenText’s

relationship with SAP. OpenText has traditionally been sold as part of SAP's price-listed products and this

acquisition puts OpenText more squarely in competition with aspects of SAP/Ariba. OpenText cited IBM as

its principal competitor with the acquisition and Barrenechea stated that “in relation to SAP they are a strong,

strategic partner. I am hopeful that our relation with GXS will bring us closer together as companies. We

value the relationship that we have built over the last decade highly, and I suspect this will bring us closer, not

further apart.” It remains to be seen if SAP will view the acquisition in a similar way

The integration of GXS (the largest acquisition in Company’s history) will likely keep OpenText from making

large acquisitions in 2014 and potentially 2015. In the investor call with research analysts, Barrenechea stated

OpenText would onboard GXS within two years

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iv. Oracle/BigMachines

10/23/2013

Transaction Value: N/A; Multiples: N/A

CPQ Sales Automation SaaS

Deal Rationale

Oracle spent much of 2013 adding components complementary to Sales Force Automation, differentiating its

CRM solution from Salesforce and to a lesser extent SAP. Whereas Eloqua served as a key differentiating

quiver on the front-end (SCP analysis of Eloqua acquisition), BigMachines offers technology to drive deals at

the back-end of the sales cycle

Salesforce is both a key partner of and investor in BigMachines, and therefore in addition to differentiating

Oracle’s offering, the acquisition of BigMachines also strikes a blow to one of its principal competitors

Implications

Oracle likely will look to move BigMachines’ CPQ solution even more upmarket as the solution is particularly

tailored for the Fortune 500. A focus on selling to the largest enterprise clients has been the blue-print of

post-acquisition planning for Oracle under Mark Hurd’s leadership. Hurd has consistently cited that 60% of

Oracle’s revenue come from the top 2000 customers and that should be the focus of sales reps

This deal comes on the heels of the $37mm raise in September by APTTUS (BigMachines’ principal

competitor) from K1 Capital, ICONIQ Capital and Salesforce. APTTUS should see the opportunity to

greatly expand its footprint in the enterprise as Oracle focus on its largest customers

Subscription billing/recurring revenue management possibly represents the next area of

consolidation/acquisition at the back-end of the sales cycle with Oracle and SAP likely consolidators in the

market

/

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v. Microsoft/Nokia

/

09/03/2013

Transaction Value: $5,010mm; Multiples: N/A

Mobile phone designer & manufacturer

Deal Rationale

This deal cements a partnership that Microsoft and Nokia put together in February 2011, where the device

vendor built its smartphone products around the Windows Phone OS. Microsoft is acquiring almost all of

Nokia’s Devices & Services business, including its Mobile Phones and Smart Devices portfolio and its

Devices & Services production facilities, sales and marketing activities and support functions. About 32,000

Nokia staff will transfer to Microsoft, including 4,700 staff in Finland

The Windows Phone was losing ground to Nokia’s Lumia and Microsoft needed to find a way to “accelerate

growth” amidst competition with Google and Apple (and do so without losing Nokia, the only OEM

committed to Windows, once the partnership was up for renewal). The risk of losing the Nokia alliance

ultimately is greater than less than 10% of Microsoft's international cash holdings

Microsoft also gets a 10-year non-exclusive license to Nokia’s patents, including the Nokia brand (with an

option to extend the license)

Implications

While the traditional computing model remains under threat, buying Nokia appears to do little more than to

delay deciding on a strategic vision and avoid the “nuclear” option (Nokia partnering with Google). This

allows Microsoft more time to build its presence in mobile and to try to convince both consumer users and

enterprise businesses of the value of its suite of a multi-device experience powered by Windows (similar to

Apple’s model)

This acquisition solidifies Microsoft’s number-three position in the smartphone OS market and leaves Steve

Ballmer’s successor somewhat handcuffed with Ballmer’s vision for Microsoft in the near-term

Microsoft also gains opportunities in both emerging markets via inexpensive entry-level phones, and in

developed enterprise markets with an expansion of Windows-powered smart devices

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vi. IBM/Trusteer

/

08/15/2013

Transaction Value: ~$1,000mm; Multiples: N/A

Financial anti-fraud & endpoint integrity software

Deal Rationale

The rise of networked services and the proliferation of devices has caused a corresponding rise in cyber

security threats with hackers becoming increasingly more creative in ways to infiltrate systems. Together with

existing capabilities in advanced threat detection, analysis and remediation, Trusteer will allow IBM to offer

customers several additional layers of defense against sophisticated attackers. Trusteer has 7 of the top 10

banks in North America using the Company’s SaaS to detect malware used for financial fraud

The deal marks IBM’s first move in the broader security space since the acquisition of Q1 Labs in 2011. It

provides Big Blue with advanced endpoint malware detection in addition to threat intelligence and mobile

protection capabilities to help build a cybersecurity leadership position. IBM had historically been selling

Trend Micro’s endpoint security suite18

Brendan Hannigan, GM of IBM Security Systems, stated in a press release, “The acquisition of Trusteer

builds on more than 40 years of IBM's rich contribution to the security space. Trusteer will extend our data

security capabilities further into the cloud, mobile and endpoint security space. This acquisition helps provide

our clients with comprehensive network and endpoint anti-malware solutions"

Implications

This deal adds capabilities to help IBM become a large-cap leader in the market. Combining Trusteer’s

advanced endpoint protection capabilities with the software from BigFix (acquired by IBM in 2010) provides

IBM with fairly robust solutions

The success of the acquisition will not only require successful integration with IBM’s existing solutions, but

also the ability to accommodate other vendors’ offerings. Cybersecurity still remains a highly fragmented

market where “best-of-breed” appears to be the option of choice (for securing networks, systems, endpoints,

and data) and provides a target rich environment for IBM to continue to acquire

The deal will be combined with various aspects of IBM’s existing security/counter-fraud solutions including

i2, BigFix, QRadar, SPSS and InfoSphere and sit within the Security Systems Group. Before the transaction

there were some rumors that IBM could get out of the security market entirely and this obviously represents a

big move to the contrary

18 The 451 Group

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IBM will likely look to take Trusteer beyond the financial sector and into the broader enterprise security

market. While financial services was the principal use case for Trusteer, having proven its solutions

capabilities in one of the most critical security markets should allow for IBM to fairly easily take the solution

more horizontally

IBM also plans to form a cybersecurity software lab in Israel that consists of 200 Trusteer and IBM

researchers/developers and focuses on creating solutions for "mobile and application security, advanced

threat, malware, counter-fraud, and financial crimes"

30

vii. Cisco/Sourcefire

/

07/23/2013

Transaction Value: $2,700mm; Multiples: 10.7x EV/Revenue, 160.5x EV/EBITDA

Intrusion detection & prevention and anti-malware

Deal Rationale

With the third largest deal in the history of the Security market, Cisco bolstered its position in network

security and is banking on leveraging the Sourcefire brand in making a broader push into enterprise security

Security has been an on-again, off-again focus for Cisco, but at CiscoLive in June, CEO John Chambers

stated that Cisco is not “customers’ primary security vendor” and “that’s got to change.” Cisco will now

focus on a “threat-centric” security model moving forward, meaning that Cisco will focus attention on the

threats themselves more so than policy and controls

Implications

Cisco will likely attempt to utilize Sourcefire’s brand to make a significant mark in the enterprise Security

space (to compete with vendors like HP, IBM, Intel and Symantec). In Sourcefire, Cisco immediately gets an

established network security architecture, an anti-malware solution and additional security intelligence to form

the cornerstone of the new-look Cisco Security Group. Sourcefire will immediately contribute market leading

network security products and services to Cisco’s existing assets like TrustSec and ISE

The future of Software Defined Networking and a redefined perimeter is perhaps the greatest opportunity for

Cisco. Combining Cisco’s SDN solution and utilizing the strength of Sourcefire’s software security

applications leads to a natural opportunity to embed security in the network intelligence fabric (which would

be consistent with the Application-Centric Infrastructure vision announced by Cisco earlier in the year)

The Sourcefire team will become a part of the Cisco Security Group with founder and CTO Martin Roesch

becoming VP and Chief Architect for the Security Department

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viii. Adobe/Neolane

/

06/27/2013

Transaction Value: $600mm; Multiples: 8.6x EV/Revenue

Web & mobile marketing software

Deal Rationale

Following rumored unsuccessful bids for hybris and ExactTarget, Adobe ultimately acquires French

Marketing Automation provider, Neolane to add Marketing Automation capabilities to the Adobe Digital

Marketing Suite. Adobe will look to pair Neolane’s solution with the software assets from Omniture, Day

Software and Context Optional (by way of the Efficient Frontier acquisition)

Adobe looks to approach the CMO from more of a web-based focus prior to the acquisition of Neolane,

utilizing Omniture and Day Software (making it somewhat curious HubSpot was not the ultimately

acquisition). Neolane and Context Optional provide Adobe with strong CRM-based Marketing functionality

and the most robust Social Media Management platform of all the leaders in CRM

Implications

While a bit reactionary to the acquisition of Eloqua and ExactTarget, Neolane provides Adobe with the

functionality that CMOs are increasingly expecting from CRM providers

This deal makes it very likely that Act-On, HubSpot, Marketo, Responsys and Silverpop need to focus on

becoming standalone companies in the public market, potentially becoming acquirers instead of acquired

After addressing Marketing Automation, Adobe may still look to make an acquisition in E-Commerce

although there are far fewer providers of scale that address the enterprise segment

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ix. SAP/hybris

/

06/05/2013

Transaction Value: $1,341mm; Multiples: 10.7x EV/Revenue

E-commerce software provider

Deal Rationale

Once considered a foregone conclusion, the acquisition of hybris is finally cemented after SAP ultimately

scrapped its on-going efforts to build an E-Commerce platform. SAP’s organically built E-Commerce

platform significantly trailed the industry leaders and was viewed as lacking appropriate integration

functionality with non-SAP CRM offerings

E-Commerce represents a front office capability that should be able to leverage HANA’s in-memory

capabilities, so that SAP can perform various differentiated functions like predicting demands and trade

promotions that will help drive customer insight

SAP has attempted to position Salesforce as its principal competition (vs. Oracle) and used the M&A Call

with Research Analysts to highlight the deal’s differentiation vs. ExactTarget a day earlier

Co-CEO Bill McDermott:

“And for those of you that probably already know this, I don't want to be repetitive, but I think you and

all the CEOs I talked to already get enough emails, and they put them directly into the trash folder, so

some of the moves that we saw others make are quite puzzling”

“I just can't push the email blasts as strategic to any other CEOs I met”

Co-CEO Jim Hagemann Snabe:

“This is not about the email world of CRM. This is about the real-time interaction with consumers in

billions in volume.”

“Now coming to the competitive situation, you kind of begin to see a pattern here, a little bit like we saw

with our other competitor. There's either the strategy where you consolidate the past, and that's about

sales force automation and it's about sending emails out in marketing, or you define the future, which is

about individualized consumerization, the change of the experience for the consumer, understanding

each individual consumer's individual requirement and be able to analyze, predict and upsell. That's

where we are going. And so in many ways, you could say this is not about a catch-up. This is about

defining the next-generation CRM. And it's not about email, I can assure you.”

Implications

Although positioning itself vs. Salesforce/ExactTarget a day earlier, the more direct implication is putting

SAP in a more competitive position vs. Oracle's ATG Commerce Suite and IBM's WebSphere Commerce

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Although expected to be left as a standalone company within SAP, hybris will look to leverage the core

differentiators that SAP brings to CRM: mobility and HANA’s in-memory database capabilities

SAP has backed itself into a bit of a corner with regard to Marketing Automation, speaking very disparagingly

about the ExactTarget acquisition by Salesforce. Like many of its competitors before, SAP will ultimately

need to find a way to position these comments as non-contradictory if and win it purchases into Marketing

Automation (likely by unfairly calling ExactTarget simply Email Marketing)

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x. Salesforce/ExactTarget

/

06/04/2013

Transaction Value: $2,500mm; Multiples: 7.6x EV/Revenue

Marketing automation SaaS provider

Deal Rationale

Marc Benioff historically spoke fairly disparaging about Email technology, stating “Email will be dead. Many

teenagers today think of email as their parents’ way to communicate and as they enter the workforce, business

apps will have to change if they are to hold the attention of a new generation.” Benioff began to soften his

language at Dreamforce ’12, which ultimately resulted in the acquisition of ExactTarget

Following the acquisition of Eloqua by Oracle, Salesforce quickly began to evaluate Marketing vendors

(rumored to include Act-On, Marketo, Neolane and Silverpop), finally settling on ExactTarget due to both its

Marketing Automation and Lead Generation capabilities (from the acquisition of Pardot)

The deal represents an extremely successful outcome for ExactTarget management team and investors. After

initially filing for an IPO in 2007, ExactTarget withdrew its application to invest in its platform, raising money

from TCV, Battery and Scale Ventures. The Company (with a legacy focus on SMB Email Marketing)

emerged from the investment with a more robust offering built for enterprise businesses

Implications

Following the acquisition, ExactTarget immediately will become the core offering of the Marketing Cloud

with Buddy Media and Radian6 serving lesser, complementary roles in the suite. Scott Dorsey (CEO of

ExactTarget) will assume the head of Salesforce’s Marketing Cloud

The ExactTarget team will largely remain intact, operating as a fairly standalone entity within Salesforce that

includes its own Corporate Development department, focused on marketing acquisitions

The deal also adds to the perspective that there are three separate approaches19 to how Marketing

Automation technology will be utilized going forward:

Sales Force Automation-driven, ie. Oracle and Salesforce

Web/Inbound-led, ie. Adobe and HubSpot

Standalone platform (agnostic to CRM/Web Presence), ie. Marketo and Silverpop

19 The 451 Group

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xi. IBM/SoftLayer

/

06/04/2013

Transaction Value: $2,000mm; Multiples: 4.7x EV/Revenue

Hosted services provider

Deal Rationale

SoftLayer provides IBM with a cornerstone for its vision in the Cloud. Together with SoftLayer, IBM can

offer the flexibility, automation, and agility of the public Cloud with the security, reliability, and management

of the private Cloud. IBM should now be able to provide customers with the environment necessary to meet

their needs for security and pricing

This deal allows IBM to leverage the suite of its products and services to become a full service provider as

businesses look to develop next-generation Cloud strategy. IBM now has the high-end, strategic consulting

services to advise on options (IBM Global Business Services), SoftLayer to host in the desired environment

and applications/products to cross- and up-sell

Implications

SoftLayer immediately becomes the central infrastructure of IBM’s Cloud strategy and will be the catalyst for

consolidation of IBM’s family of Cloud products. Hosting is increasingly becoming commoditized, but the

ability for IBM to provide a “one-stop shop” for customers evaluating Cloud solutions makes SoftLayer

particularly strategic

The also deal immediately puts IBM in direct competition with Amazon Web Services, Microsoft Azure and

Rackspace and may increasingly pull IBM into the mid-market as many of SoftLayer customers are smaller

than IBM’s traditional base

The acquisition of SoftLayer could also lead to further commoditization of Cloud services offerings,

potentially resulting in additional acquisitions with various providers approaching with slight differentiation

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xii. Various PE Investors/BMC Software

05/06/2013

Transaction Value: $6,900mm; Multiples: 3.2x EV/Revenue, 10.0x EV/EBITDA

Systems management software provider

Deal Rationale

In what has increasingly become a blueprint for Elliott Management in technology, the firm identified a

middling public technology company and provoked an evaluation of strategic options. Similar to the

outcome with Novell (and what appears the case with Elliott’s involvement in Compuware), the outcome was

not likely the one for which Elliott initially hoped when it set out to “unlock shareholder value”

The Enterprise Service Management group has long weighed down BMC’s growth20, causing the Business to

trade at a multiple below many of its peers in the software industry. The transaction will also allow BMC to

evaluate its various lines of Business in a more private setting and appropriately invest in its SaaS business

without a focus on near-term profits, something that has moved from desirable to imperative with the

success of new competitors like ServiceNow, AppDynamics and New Relic

Implications

The LBO makes it likely that the Enterprise Service Management business will ultimately be divested and

allow BMC to focus on the higher growth core businesses

Three of the four principal players in IT Management experienced disruption or underwhelming results in

2012 and 2013. BMC, HP and IBM have all struggled at various points throughout the period while CA

emerged largely unscathed. CA and new CEO Michael Gregoire will need to continue to stay ahead of the

curve (particularly with regard to the Cloud) in its core Business to avoid the hard-times that have fallen on its

direct competitors

The deal trails only Dell as the largest post-recession PE transaction and is one of the first large “club deals”

since the recession. There are quite a few businesses with “legacy” offerings that could benefit from life off

the public market and sponsor capital to invest in more modern technologies. The success of BMC could

segue to more large take privates featuring various clubbing together to provide capital

20 The 451 Group

/

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xiii. Silver Lake Partners/Dell

/

02/05/2013

Transaction Value: $24,811mm; Multiples: 0.4x EV/Revenue, 5.2x EV/EBITDA

Computer & IT systems provider

SCP on the Dell story over 2013

Deal Rationale

Michael Dell and Silver Lake Partners

Dell fell hard from its position as one of the preeminent stocks of the late 1990s, particularly in the last five

years as the proliferation of smartphones and tablets cut into its leadership position in the PC market.

Following a brief hiatus, Michael Dell returned as CEO to the Company in 2007 and attempted to acquire his

way into businesses with higher margins than PCs (including IT services, security, networking, storage and

infrastructure software) all while managing shareholder expectations every three months. Michael Dell

ultimately concluded that the Business would be most efficiently and effectively transformed without an eye

towards monthly results, but instead a long-term investment horizon

Michael Dell found in Egon Durban and Silver Lake a partner with the capital and vision to invest in Dell for

returns in five-to-eight years.21 Throughout the negotiations, Silver Lake remained disciplined in the price it

was willing to pay for the Business, ultimately forcing Michael Dell to twice discount the price of his shares to

increase the overall price of the bid. The price Silver Lake is paying reflects a 25% premium on Dell’s stock

from before leaks of the LBO (with an overall higher deal premium due to Michael Dell’s stock discount), but

well below the level where Dell has traded since the end of the recession. The multiples (0.4x LTM Revenue

and 5.2x LTM EBITDA) are much more closely in-line with its legacy nature as a PC provider than its vision

as an enterprise infrastructure software provider

Ultimately it was extremely unlikely that any realistic bid would emerge without Michael Dell’s support, a

conflict which Carl Icahn lamented throughout the process. The alliance between Silver Lake and Michael

Dell never received a credible counter-proposal and was forced to insignificantly increase the price a few

times, before ultimately receiving board sign-off

Microsoft

Microsoft has been a partner of Dell’s for nearly 30 years and provided a loan up to $2bn to help Michael

Dell and Silver Lake take the Company private. It was rumored to be Egon Durban at Silver Lake who used

21 Dell’s Mitzvah Rescued Buyout as JPMorgan’s Lee Warned of Peril

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his close ties with Microsoft CEO Steven Ballmer (having sold Ballmer Skype) to bring in Microsoft as a

partner22

Microsoft is walking a thin-line with this investment, unwilling to take equity (for fear of upsetting other

partners),7 but able to support its long-time partner and gain more influence over its partner and the PC

sector in general

Microsoft may also be looking to Dell for support as it moves further into the enterprise market including

potentially virtualization and datacenter space

Implications

The most obvious and immediate implication is that under new private ownership structure, Dell will be able

to completely focus on its core platform for the future. Michael Dell specifically stated that the LBO would

allow the Company “to grow in cloud, mobile, Big Data, without thinking about the next quarter.” The Dell

software platform already includes three converging pillars: Systems Management (Quest, KACE, Wyse and

AppAssure), Security (SonicWall, SecureWorks, Quest) and Information Management (Boomi, TOAD,

Kitenga).22 It remains likely that Dell will attempt to build on its position in each of these areas through both

organic investment and M&A. Several of the aforementioned Dell acquisitions are large purchases of older

technology, and thus appear to be motivated by a desire to show rapid growth in Software revenues of any

strip. We expect Dell’s acquisition strategy to be more targeted going forward, focused on earlier-stage next-

gen technologies in key areas (Cloud, Big Data, Security, Storage), and for Dell to attempt to partially offset

the total cost of acquisition via more activity out of Dell Ventures

Despite PCs being a declining market with eroding margins, Dell has stated that plans to stay in the market

and intends to be aggressive in regaining global market share, in particular going after China

Sources have indicated that Silver Lake will have ultimate sign-off on all important management decisions and

can veto any transaction or spending exceeding $500 million23

22 The 451 Group 23 Dell’s Mitzvah Rescued Buyout as JPMorgan’s Lee Warned of Peril

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xiv. Oracle/Acme Packet

/

02/04/2013

Transaction Value: $2,063mm; Multiples: 5.9x EV/Revenue, 67.8x EV/EBITDA

Session border control provider

Deal Rationale

Oracle’s acquisition of Acme Packet represents a landmark transaction that will enable Oracle to integrate

more deeply into service providers’ infrastructure. Acme Packet provides session border controller solutions

that provide security and management for multimedia traffic, including subscriber authentication capabilities

that govern the types of access and quality of service that users receive

Like many providers to the telecom market, Acme Packet has struggled to grow its top line revenue recently

as service providers delayed or cut orders for new equipment. Oracle’s bid is approximately half of the level

at which Acme Packet traded in 2011

Network equipment vendors have been increasingly focused on integrating with the network services that

their customers are providing, and Oracle is striving to play a greater role in next-generation services

including VoLTE

Implications

A deal that seemingly came out of nowhere, the addition of Acme Packet could serve as one the more

strategic deals for Oracle in recent memory. The acquisition builds out Oracle’s Unified Communications

offering and makes it more directly competitive against companies like Cisco, Huawei, Alcatel-Lucent and

Sonus

Oracle can now play a role in accelerating the migration of service providers and enterprises to all-IP

networks and is poised to innovate with software-based technologies for monetizing network services. This

deal seems particularly strategic and, if integrated effectively, could prove transformative for Oracle

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xv. Oracle/Eloqua

12/20/2012

Transaction Value: $956mm; Multiples: 9.7x EV/Revenue

Marketing automation SaaS provider

Deal Rationale

Oracle is looking to couple Eloqua’s Lead Generation capabilities with its existing CRM platform and

RightNow’s Customer Service offering to build a Customer Experience Cloud suite to help companies

transform the way they market, sell, support and serve customers

The combined offering is expected to enable organizations to provide a highly personalized and unified

experience across channels, creating brand loyalty through social and online interactions, providing superior

service at every touch-point

Implications

The deal represents the first move into software for the CMO following the failed Social Media Management

acquisitions earlier in 2012 and a return to Enterprise Marketing Automation following acquisitions by IBM

(Unica) and Teradata (Aprimo) in 2010

Eloqua has been a historically strong partner of Salesforce and the deal puts Salesforce in an unusual position,

having one of its largest partners fall into the hands of one of its biggest competitors. This deal trigged

Salesforce raising $1bn in convertible debt with an eye towards acquisitions in Marketing Automation

The acquisition of Eloqua currently looks like a steal for Oracle with the nearest director comparable

company, Marketo, trading at close to north of 15.0x off of a nearly identical revenue base as Eloqua at the

time of the acquisition

/

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IV. Predictions for 2014

i. Enterprise IPO debuts will slow down… because they can’t speed up

Have enterprise IPOs been underpriced? At least in part, finishing up 42.8% on the first day trading in 2013

(Enterprise Technology IPO Market Overview). Both institutional and retail investors clamored for enterprise stocks

as they entered the public market, acquiring unprofitable businesses with high top line growth that were looking to

become leaders in various markets. We expect 2014 to correct this with underwriters becoming more aggressive in

pricing, with fears of “Facebooking” an IPO becoming a memory of the past. VCs and other selling shareholders are

leaving money on the table post-pricing and will likely pressure lead bookrunners to aim higher with initial trading.

ii. Carve Outs over Buy Outs

Dell and BMC headlined a number of software-focused LBOs in 2013 along with Active Network, Keynote and

Websense. Elliot Capital Management also attempted to force new (private) directions at both Compuware and

Riverbed. Vendors on the public market with more antiquated technology will continue go private at the hands of

software-focused PE firms, but we expect the larger trend to look more similar to Thoma Bravo’s acquisition of

Digital Insight and Vista Equity’s acquisition of Omnitracs. We expect PE firms to increasingly look to large

diversified IT companies with potential businesses that would benefit from life without the parent company.

Diversified IT firms will likely be more receptive to these strategies as they look to streamline product portfolios to

counter the transformative trends that have disrupted technology in the last decade.

iii. The Year(s) of the CMO

We named 2013 the Year of the CMO with acquisitions by Adobe, Oracle and Salesforce, Marketo’s IPO and high-

profile raises in the Social Media Management space. We expect 2014 to continue with this momentum in the Front

Office. Look for potential consolidation in Social Media Management, specifically companies that have proven

capabilities to scale in the Enterprise. Vitrue and Buddy Media did not meet the original acquisition theses in large

part due to the heavy services components each required. For the next wave of consolidation, Adobe, IBM, Oracle,

Salesforce and SAP will seek to avoid mistakes that were made in the summer of 2012 and will ensure that companies

have the software platform to meet the needs of the largest enterprises.

There also stand a few companies in the broader Marketing Automation space that could enter the public markets in

2014 including Act-On and HubSpot.

iv. Elliott will continue to Elliott

Elliott Capital Management used 2013 to cement its position as the leader in who enterprise technology CEOs fear

acquiring a large stake in their business. Elliot invested became nearly synonymous with management will face a

contentious period in the near future. The Company has seen mixed results from its recent strategy in enterprise

software, but do not expect the team to slow down now, highlighted by a January 2014 investment in Juniper.

42

v. Eloqua, Marketo or ExactTarget will distance itself to become the clear leader

History has shown “to the victor go the spoils,” particularly in the SaaS market with network effects leading to a clear

market leader… and then almost everyone else. This has proven true in SaaS CRM (NetSuite), ERP (NetSuite),

HCM/Financial Management (Workday), ITSM (ServiceNow), Web Analytics (Omniture), B2B/Procurement (Ariba)

and Customer Service Management (RightNow). We expect 2014 to be the year that one of the three company’s truly

distances itself from the others and will either benefit from innovation as a standalone (Marketo), established position

in SFA (ExactTarget) or size and strength of sales force (Eloqua).

vi. Mobile in 2014

A favorite investor of ours once said, “We were all over mobile… but that was in 2000. We were investing in mobile

before people were ready.” Well, mobile is definitely here and now the question is what it will look like.

Mobile CRM

Is mobile a standalone market? Do customers want pre-built applications or a platform to migrate existing desktop

and SaaS-based offerings? The answer for each of these appears to be both yes and no. A bi-furcation is occurring

between what an enterprise and SMB customer are seeking from mobile solution. Enterprises want a platform that

allow developers to build out from existing framework, while SMBs are seeking pre-packaged applications with less

customization. The winning providers will be the companies that can provide the appropriate platform for the

enterprise with the appropriate applications from SMBs. Salesforce1 has the potential transformative in this regard

and 2014 should prove if Salesforce has appropriately articulated its vision for mobile, or if the talk of “internet of

customer” confuses the message. SCP on Salesforce1

Enterprise Mobility Management

MDM continued to gain steam in 2013 with a host of companies led by AirWatch, Good Technology and MobileIron

each seeking ways to differentiate from one another. That trio appears to have a collective finger poised on the power

button in a sector-wide game of musical chairs, as many IT incumbents wait to see if those vendors will choose to go

public, can go public, and can do so at a compelling valuation, before making major entries into the sector. Some,

most notably Citrix with their acquisition of Zenprise and IBM via their purchase of Fiberlink, have chosen not to

wait, though their remains a large and eclectic group of potential acquirers that appear to need to build an Enterprise

Mobility Management position in one form or another. These include Device Manufacturers, Mobile Carriers, IT

Service Management players, Security vendors, Semiconductor shops, and the Virtualization leaders, among others.

vii. Sales Enablement and Recurring Revenue Management will become ubiquitous

Every year certain buzzwords and phrases seem to take off with companies repositioning themselves around the

success of the first movers. Transformative trends such as Cloud, Social, Big Data and the Internet of Things each

were evangelized by leading companies orienting customers around the opportunity and large-caps eventually

followed suit through marketing, investment or acquisition. Sales Enablement and Recurring Revenue Management

are two terms that gained steam in 2013 and we expect to be ubiquitous in 2014. Companies like SAVO, ClearSlide,

43

Bloomfire, Qvidian and Brainshark positioned around Sales Enablement in 2013, while Aria Systems and

ServiceSource latched onto Recurring Revenue Management. Look for strategics in CRM to begin to market around

these terms and to eventually acquire in companies in the broader universe.

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V. Bibliography and Thanks

We would like to thank all of the people that have provided us with insights over the course of 2013. There are a

number of people at private and public companies, in the research community and at both private equity and venture

capital firms with which we have been fortunate enough to interact.

We want to be clear that any uncited information is a compilation of our own proprietary insights and that we

maintained the utmost care to ensure that we not cross any confidentiality bestowed upon us. SCP also maintains

access to various research and data providers whose analysis and information has contributed to our understanding of

various sectors and industries over time. These include:

Gartner

The 451 Group

S&P Capital IQ

Mergermarket

CB Insights

We would especially like to thank each of these firms for their contributions to our brand building since our founding

5 years ago.