tech m&a: liquidity in troubled times?

8/8/2019 Tech M&A: Liquidity in Troubled Times?

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USA Switzerland Germany France United Kingdom Canada Norway Brazil

Software and IT M&A Outlook:

Tuesday, October 21, 2008

www.corumgroup.com

: am : am


2/43

Liquidity in Troubled Times

With financial markets in chaos:

Public markets are closed

Venture Capital has dried up

Recapitalizations are slow

Fear is the dominant emotion

And, valuations are lower.

Corum Group Presentation 2


3/43

Liquidity in Troubled Times

and fight back?

Is now a good time to test the



4/43

Six Benefits of a Global Search

Software/IT M&A is still very active

The tech sector is doin better than most

Transactions are yielding very attractive relative value

Its a defensive move

Youll improve your business model



5/43

Middle Market Software M&A Specialists

M&A specialists since 1985

Software and IT experts mostly former CEOs

ces n urope, ana a, at n mer ca an n te tates

200+ transactions completed

$6 billion in wealth created

60% cross-border transactions

Host of Selling Up Selling Outconferences

os o mu -na ona erge r e ngs Sponsor of World Financial Symposiums conferences

Publisher of industry-leading M&A research



6/43

Agenda

Market Insights

International Activity

Sector & Transaction Analysis

Discussion



7/43

Headlines Tell the Story

Can M&As Best Times Get Better?Wall Street Journal, January 2007

IT Spending Growth Expected to Slow in 08InformationWeek, December 2007

Stock Surge + Bond Boom = M&A MagicWall Street Journal, April 2007

M&A The Best Investment Game in Town

Bear Stearns No. 1 Foe: Fear ItselfCNN Money, March 2008

Wall Street Beat: IT M&A Provides OpportunitiesWashington Post, March 2008

oneyex ra.com , ay

Market Pressures Test Resilience of Buyout BoomWall Street Journal, June 2007

Small M&A Deals FlourishIDG News, June 2008

Wall Streets Crisis Hurts Companies Big and SmallWall Street Journal, September 2008

Dry-Up in Debt Wont Deter Tech DealsBarrons, September 2007

Time to Celebrate; 2007 Breaks M&A RecordWall Street Journal, October 2007

Worst Crisis Since 30s, With No End Yet in SightWall Street Journal, September 2008

Software Deals May Heat Up, Analyst Says

New York Times, October 2008

M&A Seen on the Brink After Record 2007

Reuters, December 2007

Tech Cos Seen Going M&A Route, Not IPO in 2008Reuters December 2007

Techs Next Step: More M&A?CNET, October, 2008

Markets 7-Day Rout Leaves U.S. ReelingWall Street Journal, October 2008


,


8/43

Good Times Over?

Widespread impact of mortgage market fallout

Financial institutions failing

World financial markets in turmoil

Comin off the worst one-da market decline in histor

Credit markets shut down

Uncertainty regarding bailout plan

In spite of problems,M&A deals are getting

done.

IPOs continue to contract

Energy and commodity prices declining

Important not to getcarried away with the

doom and gloom.

Consumer spending slowing

Corporate earnings down

Recession a reality

, .


Corum Software Peer Group valuations down


9/43

Impact on Equity Markets10

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Nov

07 1

Dec

07 1

Jan

08 1

Feb

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Mar

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May

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10/43

Turmoil Creates Opportunity

Even during tough times, technology creates new opportunities

New IT expenditures slowing MicroFocus is a provider of application modernization and management software

Strong growth in the battered financial services sector, due to increased consolidation

Predicting double digit organic sales growth, with no indication of a slowdown

Rising fuel costs and environmental concerns drives advancement in alternatives

GridPoint is a clean tech firm serving the electric utilities, consumer and environment

Has just raised $120 million equity financing

Deploying funds via acquisition strategy to expand product offering to utilities

Acquired V2Green which provides plug-in electric vehicle grid technology enabling utilities to smart charge electric


vehicles anywhere in the utilities service territory


11/43

What the Analysts Are SayingTop 10 Application Software Companies by Market Cap

Strong Buy 15 Buy 10 Hold 10 Strong Buy 15 Buy 9 Hold 9











12/43

Large Cap Tech Stocks

Company Stock Price

10/15/2007

Stock Price

10/15/2008

% Change Year Ago

Cash

Current Period

Cash

Sun $6.11 $4.97 18.66% $3,620 $2,700Microsoft $29.60 $22.66 23.45% $6,111 $21,170IBM $116.24 $88.29 24.05% $14,991 $9,850HP $50.90 $38.61 24.15% $11,293 $14,850Oracle $22.07 $15.95 27.73% $6,218 $13,020Symantec $20.59 $14.04 31.81% $2,559 $2,290SAP $54.53 $33.73 38.14% $3,151 $2,040Apple $166.98 $97.95 41.34% $9,352 $20,770Google $620.11 $339.17 45.30% $6,082 $12,730Cisco

$32.79

$16.57

49.47% $3,728

$26,240

EMC $22.56 $9.77 56.69% $4,482 $5,860Nokia $35.48 $15.11 57.41% $3,130 $11,020


Yahoo $27.86 $11.75 57.82% $1,514 $3,070


13/43

Sellers Concerns

Sustaining the business during downturn

Rising tax rates in 2009? (U.S.)

Missing the market

Emergence of new competitors

Addressing new emerging markets alone

Pressure to readjust value expectations

Threat of sector consolidation

-

How to achieve Liquidity


.


14/43

Things To Do Now

Adjust quickly to changing times

Cut expenses wherever you can conserve cash

Manage for breakeven or better

Consider M&A now it takes time to do a deal

Focus on selling your product and generating cash

Arrange relationships in advance of funding or M&A event

Keep your foot on the gas dont be a deer frozen in the headlights

. . . All in same boat no quick fixes



15/43

The Silver Lining

Buyout firms have capital to invest

Technology revenues and IT spending steady

Earnings remain mostly positive

Forward analyst estimates look good

PE buyers see opportunity in the coming months

Most buyers still active

Weaker competition will not survive

Stron cash reserves

Deals are getting done for quality companies



16/43

Current M&A Market

2008 YTD Global Deal Volume$2.73 trillion, down from $3.6 trillion

High tech deals for Q3:08 $37 billion, downfrom $58 billion

Unsolicited and hostile deals rosealmost two-fold to 22.1%

Overall Deal Volumes down 25%

trateg c uyers rema n act ve

Private equity getting back into the game

Consolidation continues across most

Strategic 16% Private Equity 74%

sec ors

Companies of all sizes continue to beaggressive buyers

ompan es n emerg ng coun r es areviewed as buyers, not just targets Asia Eastern Europe Latin America



17/43

Public Valuation Multiples

Median EV/S Multi les

3

1

2

0

Q2:08

Q3:08



18/43

Private Equity Credit Impact

Funding issues slow deal closings

Uncommitted funds still high $400+ Billion

Pressure to invest strong

Many PE have broad technology portfolios to build on leading to PE-backeds ra eg c acqu s ons y por o o compan es

Some highly leveraged PE funds/buyers saved from correction by sub-prime

melt-down

Private E uit on sidelines waitin for market to bottom?



19/43

Strategic Buyers Still Active

Less impacted by credit crunch

Stron balance sheets

Equity values down

Doing deals under currently favorable antitrust environment

Business as usual for many

Strength of non-U.S. buyers (still strong Euro)

Accommodate sellers looking to close deals before tax increases



20/43

Update:A Recently Launched Corum Client

Client Profile:

Vertical market software company

North America based

Market leader one of 4 ood o tions

Strong technology, team, business model

Solid revenue and EBITDA ($12 million / $3 million)

ct v ty:

Last Quarter: 15 interested, 5 buyer calls, 2 meetings, 1 offer

Now: 5 solid, qualified buyers, 4 additional meetings, 3 LOIs pending, 2 more LOIs

possible

Delays: Buyer seeking funding, digesting other deals, revising strategic plans



21/43

Interest Translating into Deals

Current examples of

Mobile

buyer interest across

multiple sectors:

Vertical

Market

Security

Sector Interested Parties

Internet Infrastructure 17

Marketing 16 Offers

Financial Services 15Security 14Compliance 14Gaming 12

E-Learning

SOAEmbedded Technologies 12

Interested parties from billion-dollar householdnames to unknown companies



22/43

Global M&A Activity

. .

Cross-border transactions vital aspect of M&A strategy

International M&A activity contributed over 40% to the total of announced

deals for last year and the trend to continues in 2008

Europe and Asia both set records for deal volume in 2007

. .

Weak dollar attracting non-U.S. buyers

Strong makes European targets attractive to acquisitive international

buyers looking to increase revenues and profits based in strongercurrency



23/43

Global Marketplace

o orum s recent transact ons are cross- or er

Cross-border

60 %

n ra-coun ry4 0%



24/43

International Scope

Buyers less likely to be local


View international companies as both competitors and potential acquirers


25/43

Recent Corum Transactions

Provider of applicationsDeveloper ofcollaborative 3D

suppor ma n enanceservices (ASM)

Sierra Systems CanadaRIS Canada

authoring technology

Microsoft U.S.Caligari U.S.

IT services providerto government and

commercial

Leading provider of event-driven business application

automation and batchintegration technologies

.

TechTeam U.S.RL Phillips U.S.

UC4 Austriabacked by Carlyle (UK)AppWorx U.S.

Provider of paymentprocessing software andservice

Provider of estimatingand earth measuringsoftware for contractors


. .Creditron Canada

axwe . .Quest U.S.


26/43

Recent Corum Transactions (Cont.)

Electronic invoicing andlegal spend management

Developer of 3D digitaldesigns in the building,

so u ons

DataCert U.S.CorpraSoft U.S.

p an an mar ne mar e s

Autodesk U.S.NavisWorks UK

Value-added distributor of voice, dataand converged communications

solutions

HR information systems for

middle market enterprises

Datatec South Africaon behalf of WestconCRANE UK

BPO U.S.HR Microsystems U.S.

Provider of estimating andearth measuring software forcontractors

Networking and lobbyservices for gamepublishers &developers


Glaston FinlandAlbat+ Wirsam Germany

Activision U.S.DemonWare Ireland


27/43

Recent Corum Transactions (Cont.)

Human capital management IT services and consultingsolutions

StepStone NorwayExecuTRACK Germany

Ness Technologies IsraelLogos Czech Republic

Provider of network bootingtechnology

Provider of security

software applications tothe System i platform

Double-Take Software U.S.emBoot - Canada

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

Leading competency-based, learning anddevelopment softwarecom an


Salary.com U.S.InfoBasis UK


28/43

G7 Deal Inflows and Outflows Q3:2008

Dollars Spent on Cross-Border Transactions All Industries

$88,237.00$30,034.00

$40,000.00 $20,000.00 $0.00 $20,000.00 $40,000.00 $60,000.00 $80,000.00 $100,000.00

UnitedStates

$15,391.00

$2,424.00

$22,974.00

$21,414.00

UnitedKingdom

France

$569.00

$18,083.00

$19,142.00

$1,442.00

Japan

Italy

Deal Inflow

Deal$Outflow

$8,699.00

$3,275.00

$2,139.00

$5,538.00

Canada

Germany


Source: Reuters


29/43

International Buyer Activity

Need to Look Internationally

Buyer Seller Value ($M)

Wolters Kluwer NV Addison Software $293.70

SunGard Data Systems GL Trade $402.40

Sophos Plc Utimaco Safeware AG $338.00

ABRY Partners Q9 Networks, Inc $339.60

, .

Expedia, Inc Venere.com Undisclosed

Sumisho Computer Sys. B4 Consulting $753.10

Aladdin Knowledge Sys. Secure Computing Corp. $65.00

Ness Technologies, Inc Logos AS Undisclosed

Telvent GIT S.A DTN Ener $445.00


Infosys Technologies Axon Group* $753.10

*Seller looking at competitive bid


30/43

India

Talk translates to action India is shopping

ver t e ast 18 mont s, n a as een a gger uyer t an se er

BRIC nations buy vs. sell ratios India 1 to 1 Russia 0.3 to 1 China ~ 0.1 to 1 Brazil ~ 0.1 to 1

Buyer Seller Deal Value

HCL Technologies Liberata Financial Services Undisclosed

Cranes Software Cubeware GmbH Undisclosed

UTV Software Communications True Games Interactive Undisclosed

ITC ltd. Pyxis Solutions $25 million


Infosys Technologies Axon Group plc* $753 million

HCL Technologies Control Point Solutions $20.8 million



31/43

International Buyers

Non-North AmericanPrivate Equity International StrategicBuyers Imperative to LookGlobally

PE acquisitions impactedsomewhat less than those inNorth America

Flush with cash and putting touse

Leveraging the value of the

International expansionnecessary to remaincompetitive

average peaked in Q1 and nowdeclining

Debt financing still elusive

Targeting U.S. companies

U.S. economic lag creatingfeeling of uncertainty

u oo goo regar ngoutbound M&A from Asia

Over 1/3 of first half 2008 M&Aworldwide was cross-border

Sovereign funds continue

supporting private equity



32/43

Corums Market & Sector Alignment

Vertical Application Software Internet

Consumer Application Software IT Services and BPO



33/43

Software and IT M&A Activity YTD 2008

Where are the deals ha enin ?

30%

15%

20%

Q1

5%

10%Q2

Q3

0%

Horizontal

Applications

VerticalMarket

Applications

Consumer

Applications

Infrastructure Internet ITServices



34/43

Software and IT M&A Activity A closer look

Horizontal A lication Software Market

Current Trends:Public company valuations stableDiverse group of buyersMarketing software boosts CRM sectorCommunications related technologies saw increased deal activity

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%BusinessIntelligence

Communications

Q3 2008 Horizontal Applications Market Breakdown (% of deals by subsector)

8.11% 20.27% 13.51% 14.86% 6.76% 8.11% 16.22% 12.16%Q3

CustomerRelationship

Management

EnterpriseResourcePlanning

HumanResources

Other


SupplyChain


35/43

Top Buyers

Strategic BuyersActive Private Equity Firms

2007

Q1-Q3 2008

Google 15 3

Microsoft 11 16

PE Firms (partial list)

Carlyle Group

Francisco Partners

rac e

Cisco 9 4

IBM 9 10

HP 7 4

Thoma Cressy Bravo

Golden Gate Capital

Silver Lake Partners

Nuance 7 2

SunGard 7 5

Accenture 6 6

Dell 6 1

Apax Partners

Vista Equity

SAP 6 2

Yahoo! 6 3

AOL 5 6

Palladium Equity Partners

Vector Capital

Hellman & Friedman


Autodesk 5 9

BT Group 5 4

CDC Software 5 2


36/43

What Buyers are Looking For

An inside look at what buyers are telling us they want

General considerations Vertical market penetration and domain expertise

Profitability not a requirement, but strongly preferred

Emerging countries growing in popularity

Revenue considerations

Emphasis on SaaS and recurring maintenance streams

Some buyers have lowered their revenue minimums

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



37/43

Q3 Transaction A closer look

International Security Vendors Join Forces

Antivirus security software Data encryption software

Headquartered in the U.K..

Headquartered in Germany

Deal: .Largest deal ever completed by SophosSophos took on debt to finance the transaction

Synergies: xpan s op os pos t on nto en po nt secur tyIncreased scale of combined entity will create a more competitive firmBroaden global presence

Other Details:


Private company acquires public companySophos pulled IPO last year, but adding Utimaco positions them re-new idea of IPO


38/43

Transaction Highlights Strategic

Buyer Seller Value (Millions) Sector

Cisco Systems Jabber Undisclosed

Red Hat, Inc. Qumranet $107

Comcast Interactive DailyCandy $125 (est)

o ware roup ec no og es

AOL Socialthing Undisclosed

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

Higher valuation achievable for the right deal


Acquisition targets complement, while being a springboard for future growth

Market convergence


39/43

Transaction Hi hli hts Private E uit


ABRY Partners Q9 Networks $339

Hellman & Friedman LLC SSP Group Holdings $393

Bedford Funding Authoria, Inc. $63

JMI Equity Halogen Software Undisclosed

Observations Tier two firms some of the most active among the PE community

Proportion of smaller deals, strategic, debt-free deals rising


Deal volumes picking up, but still dramatically off highs

Fund raising remains strong and, as a by-product of the current financial collapse, PE will be looking for value

buys


40/43

Transaction Highlights Cross-Border


Serco Group plc SI International $423

Sophos plc Ultimaco Software AG $338

GameTap Metaboli SA Undisclosed

emenos nanc a ects p c .

Nokia Oz Communications Undisclosed

Observations

Deal Drivers - global expansion, local domain expertise, scale


All markets and sub-sectors are being targeted

Regions leading the charge Asia, Central and Eastern Europe


41/43

Transaction Highlights Largest


Brocade Communications Foundry Networks $3000

Infosys Technologies* Axon Group plc $753

Microsoft Corporation GreenField Online $486

e vent . . nergy

McAfee Secure Computing $486

Observations

Only one transaction north of a billion


All strategic buyers

Defensive acquisitions to better compete with larger competitors



42/43

Corum Q3 M&A Briefing

Horizontal Applications

Report Highlights

Technology market overviewCurrent view on econom , to bu ers, hot sectors

o ware

Vertical MarketApplication Software

Strategic buyer spotlightAutodesk Consumer Application

SoftwareSocial Networking

Valuation dataInfrastructure

Software

International perspective on M&A

In-depth sector coverage Internet


IT Services and BPO


43/43

Contact Information

Corum Group Ltd.

Bruce Milne, Chairman

Ward Carter, Presidentwar c corumgroup.com

Ryan Blakely, VP Research

[email protected]

Corum Group International S..r.l.

Miro Parizek, Mana in Director

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

[email protected]

Beim ParadeplatzBasteiplatz 7

+1 425-455-8281 r c

Switzerland

+41 44 251 82 65


www.corumgroup.com

tech m&a: liquidity in troubled times?

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