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USA Switzerland Germany France United Kingdom Canada Norway Brazil
www.corumgroup.com
2009 Software / IT M&A Forecast2009 Software / IT M&A ForecastDoing Deals in a Depression
Thursday, January 15, 2009
10:00 am PST
Mark ReedExecutive Vice President
Ward CarterPresident
Corum Group Presentation ■ 2
Executive Vice PresidentCorum Group Ltd.
>> For today’s presentation or more information, contact Jessica Eastman([email protected], +1 425-455-8281)
PresidentCorum Group Ltd.
Ryan BlakelyVice President, ResearchCorum Group Ltd.
Jerome FougeratRegional DirectorCorum Group Ltd.
Middle Market Software M&A Specialists
� M&A specialists since 1985
� Software and IT experts – mostly former CEOs
� Offices in Europe, Canada, Latin America and United States
� 200+ transactions completed
Corum Group Presentation ■ 3
� $6 billion in wealth created
� 60% cross-border transactions
� Host of Selling Up Selling Out conferences
� Host of multi-national Merge Briefings
� Sponsor of World Financial Symposiums conferences
� Publisher of industry-leading M&A research
Agenda
1Market Insights
2International Activity
Corum Group Presentation ■ 4
2International Activity
3Sector & Transaction Analysis
4Discussion
Current Market Reality
� Financial systems wounded – serious credit problems
� Stocks decimated – not likely to see good quarters soon
� Consumers MIA – unlike past declines
Corum Group Presentation ■ 5
� Currencies in disarray – wild fluctuations, safe haven concerns
� Asset deflation – which many rely on for financing
� IPOs and Funding dead
…..M&A the only route to liquidity
Excerpt from Corum’s 2006 Year-End Report
… growing concern about potential consequences of gro wth in debt and speculation and
changes in the financial system and … changes in the financial system since 1998 (and the
selling of debt obligations to numerous buyers) have lessened the chances that relatively small
shocks will upset the entire system. Yet, “the same factors,” he wrote, “that may have reduced
the probability of future systemic events... may amplify the damage caused by, and complicate
the management of, very severe financial shocks. The changes that have reduced the
Corum Group Presentation ■ 6
the management of, very severe financial shocks. The changes that have reduced the
vulnerability of the system to smaller shocks may h ave increased the severity of the large
ones.”
(Timothy Geithner, President of the New York Federal Reserve Bank, September 15, 2006 )
The Events Leading Here Are Well Documented
Recession or Depression?Does it really matter?
� We are in the first global recession of our lifetime
� It will be a killer of companies, indiscriminately destroying value
Corum Group Presentation ■ 7
� It will be a killer of companies, indiscriminately destroying value
� Viable companies that act decisively will survive
� Companies that aren’t viable, or don’t act, will fail
� Doing nothing (buyer or seller) is not an option!
Lessons from Dot-com Meltdown
� Recovery could take years, not months
� Many could have sold in 1998-2001 but held off
� Markets didn’t recover until 2005 for many sectors
Corum Group Presentation ■ 8
� Many companies never survived the downturn
� Takes time to do a deal – gates swing shut
But, things are much worse now…..
Seller’s Concerns
� Duration – how long?
� Sustaining the business during downturn
� Missing the market window for partnering
� Emergence of new competitors
Corum Group Presentation ■ 9
� Emergence of new competitors
� Addressing new emerging markets alone
� Pressure to readjust value expectations
� Threat of sector consolidation
� Regulatory / Anti-trust impact – a regulation-happy Congress
� Personal stress… not a small issue
Silver Lining – Smaller Deals
� Less impacted by credit issues / debt not required
� Balance sheets strong for many buyers
� Attractive add-on to strategic & financial buyers
Corum Group Presentation ■ 10
� Faster due diligence with smaller companies
� Easier to justify in make/buy/partner analysis
� Provide effectively outsourced R&D to larger firm
Sample Software Deals - Last 6 Weeks
� SXC Health Solutions acquires Zynchros
� Ray Flame acquires Peak Virtual Entertainment
� BDNA acquires PS’Soft
� Broadsoft acquires Sylantro
Corum Group Presentation ■ 11
� Broadsoft acquires Sylantro
� PureSafety acquires Unique Software Solutions
� Gale acquires HighBeam
� Axeda acquires Questra
� Greycon acquires Effsys Effektiva
And hundreds more… (Do you know any of these companies?)
Developer of collaborative 3D authoring technology
Microsoft – U.S.Caligari – U.S.
Recent Corum Transactions
Provider of network booting technology
Double-Take Software – U.S.emBoot - Canada
Corum Group Presentation ■ 12
Provider of security software applications to the System i platform
Help/Systems – U.S. On behalf of AudaxPowerTech – U.S.
SOA software development software to insurance, healthcare and financial services markets
Polaris Software – IndiaSEEC– U.S.
Provider of on-demand, learning and development software
salary.com – U.S.InfoBasis – U.S.
IT services and solutions for finance and telecommunications
Ness Technologies – IsraelLogos – Czech Republic
Software-based training innovation firm
SilkRoad Technology – U.S.VTN Technologies – Canada
Recent Corum Transactions
Design and integration of Pliable Display Technology
U.S.IDELIX Software – Canada
Undisclosed
Corum Group Presentation ■ 13
Visual analysis and presentation tools for the professional and consumer markets
Thompson Reuters – U.S.Progeny Software – Canada
Digital marketing technologies
CanadaCanada
Undisclosed
Undisclosed
Trends and Drivers
� Cash – preferred currency for most buyers
� Use of earnouts and notes increasing
� Tight credit washing out weaker buyers
� Smaller deals increasing – fewer transformational blockbusters
Corum Group Presentation ■ 14
� Smaller deals increasing – fewer transformational blockbusters
� M&A business as usual for growth minded companies
� Divestitures have increased – need to reinvent
Technology M&A Market
Year Total Volume Total Value Deals worth $1B+
2008 2,804 $290B 32
2007 3,637 $481B 80
2006 4,024 $457B 74
Corum Group Presentation ■ 15
*451 Group
2006 4,024 $457B 74
2005 3,039 $374B 71
2004 2,079 $226B 28
2003 1,506 $61B 14
2002 1,920 $83B 12
Public Valuation Multiples
11.02 x10.12 x
11.01 x
7.69 x
1.55 x 1.81 x 1.71 x1.04 x
Q1 Q2 Q3 Q4
Horizontal Applications
EV/EBITDA EV/S
Vertical Applications
10.71 x11.39 x
8.98 x
6.47 x
2.08 x 1.98 x 1.67 x1.47 x
Q1 Q2 Q3 Q4
Infrastructure
EV/EBITDA EV/S
Internet
Corum Group Presentation ■ 16
11.34 x 11.07 x
9.37 x
6.92 x
1.99 x 2.19 x 1.71 x1.26 x
Q1 Q2 Q3 Q4
Vertical Applications
EV/EBITDA EV/S
11.26 x 10.99 x 11.45 x
5.41 x
1.91 x 1.70 x0.99 x
0.61 x
Q1 Q2 Q3 Q4
Consumer Applications
EV/EBITDA EV/S
15.25 x
11.94 x
9.60 x8.11 x
2.45 x 2.71 x 2.34 x
1.10 x
Q1 Q2 Q3 Q4
EV/EBITDA EV/S
12.80 x
6.92 x 6.50 x5.36 x
0.85 x 0.89 x 0.80 x0.70 x
Q1 Q2 Q3 Q4
IT Services
EV/EBITDA EV/S
Private Equity – Credit Impact
� Deal volumes continue to decline – under 6% vs 36% in ‘07� Huge cash reserves still available
� But, new fundraising could suffer� Existing portfolio companies need infusion
� Debt scarce so more equity in deals � Focus internally on portfolio companies – and triage
Corum Group Presentation ■ 17
� Focus internally on portfolio companies – and triage� Loan defaults more common� Lack of IPO exit opportunities� Tougher times demands more attention
� Add-on investments for portfolio companies vs. new platform deals� Less emphasis on new deals due to uncertainty
Private Equity on sidelines, waiting for market to bottom?
Strategic Buyers Active
But doing smaller deals
� Deal flow still strong (down 22%)
� Buyers do deals to remain competitive and fuel growth
� Consolidation continues in most sectors
Corum Group Presentation ■ 18
� Consolidation continues in most sectors
� Tech spending still encouraging
� Business as usual for many
� Strength of non-U.S. buyers (but weaker Euro)
� Converging markets / new models spur M&A
Large Cap Tech Stocks
Company Stock Price 01/14/2008
Stock Price 01/13/2009
% Change Year AgoCash
Current Period Cash
Symantec $15.67 $13.54 -13.59% $1,890 $2,300
IBM $105.01 $85.34 -18.73% $14,991 $9,760
HP $45.79 $35.83 -21.75% $11,293 $10,250
Oracle $22.06 $17.14 -22.30% $8,262 $10,650
EMC $22.56 $16.80 -25.53% $4,482 $5,870
Corum Group Presentation ■ 19
EMC $22.56 $16.80 -25.53% $4,482 $5,870
SAP $49.32 $36.29 -26.41% $3,151 $2,040
Cisco $26.29 $16.45 -37.42% $3,151 $2,040
Microsoft $33.70 $19.82 -41.18% $10,339 $19,100
Yahoo $23.70 $12.10 -48.94% $1,513 $3,210
Apple $178.78 $87.71 -50.93% $9,352 $24,490
Google $653.82 $314.32 -51.92% $6,081 $14,410
Nokia $34.41 $14.31 -58.41% $3,130 $11,020
Sun $15.13 $4.19 -72.30% $2,272 $2,630
Interest Translating into Deals
Mobile
Vertical Market
Commun-icationsSector Interested Parties
Security 20
Current examples of buyer interest across multiple sectors:
Corum Group Presentation ■ 20
LOIs and Offers
Enterprise Software
Legacy
Security
Security 20Financial Services 13Human Resources 12Systems Management 11Network Management 8Vertical Market 8Collaboration 7
Interested parties from billion-dollar household names to unknown companies
Global M&A Activity
� U.S. credit crisis has become global economic crisis
� Cross-border transactions vital aspect of M&A strategy
� International buyers remain major contributor in overall M&A landscape
� European M&A down 33% (All Industries)
Corum Group Presentation ■ 21
� Western Europe down 36%
� Eastern Europe down 26%
� Nordics down 10%
� U.S. sellers continue to look overseas for buyers
� Weak dollar attracting non-U.S. buyers
� € makes European targets attractive to acquisitive international buyers
looking to increase revenues and profits based in stronger currency
Global Marketplace
Over 60% of Corum’s Transactions are Cross-border – Some examples include:
Corum Group Presentation ■ 22
A trend holding steady and seen throughout the technology industry
International Buyer Activity
Need to Look Internationally
Buyer Seller Value ($M)
Sun Microsystems, Inc. MySQL AB $1000.00
Microsoft Corporation Fast Search & Transfer ASA $1240.00
Unit 4 Agresso Coda $309.10
Nokia Corporation Symbian Ltd. $339.60
Corum Group Presentation ■ 23
Nokia Corporation Symbian Ltd. $339.60
Saongroup Tecoloco.com Undisclosed
Orbotech Ltd. Photon Dynamics, Inc. $290.00
Sumisho Computer Sys. B4 Consulting $753.10
Sophos Plc Utimaco Safeware AG $338.00
Google, Inc. Rambler Media $140.0
Perfect World Co., Ltd. InterServ, Inc. $23.00
Archer Entertainment, Inc. Ubroadcast, Inc. Undisclosed
France
Sometimes overlooked, but did you know…
� 4000 software companies generating global revenue of $8B
� Europe’s 3rd largest software community
� 20 of the top 200 European software vendors
� Home of market leaders – Dassault, Business Objects (SAP)
Corum Group Presentation ■ 24
Buyer Seller Deal Value
Lefebvre Software AS Group Undisclosed
VMware, Inc. Trango Virtual Processors $15 Million
SunGard GL Trade SA $405 Million
Wavecom SA Anyware Technologies $15.7 Million
IBM Corporation ILOG, Inc. $340 Million
Cegedim Activ Protectia Undisclosed
Representative 2008 Transactions
International Buyers
Non-North American Private Equity
• PE acquisitions impacted less than those in North America
International Strategic Buyers
• Flush with cash
Imperative to Look Globally
• International expansion necessary to remain
Corum Group Presentation ■ 25
than those in North America
• Debt financing still elusive
• Sovereign funds continue supporting private equity
• Leveraging the value of the Euro and GBP
• U.S. companies are viewed as being “On Sale”
necessary to remain competitive
• Buyers unlikely to be local
• New buyers from emerging countries increasing role in global M&A
Corum’s Market & Sector Alignment
Horizontal Application Software Infrastructure Software
Corum Group Presentation ■ 26
Vertical Application Software
Consumer Application Software
Internet
IT Services and BPO
Software and IT M&A Activity 2008
Where did the deals happen?
30%
35%
Transactions by Market
Corum Group Presentation ■ 27
0%
5%
10%
15%
20%
25%
Horizontal
Application
Software
Veritcal
Application
Software
Consumer
Application
Software
Infrastructure
Software
Internet IT Services &
BPO
Q1
Q2
Q3
Q4
Software and IT M&A Activity – A closer look
Infrastructure Software Market
Current Trends:� Public company valuations down� Steady decline in deal volume from quarter to quarter� Diverse group of buyers, with scale, capital and acquisition history� Communications and Security remain active� Positive outlook for market in 2009
Corum Group Presentation ■ 28
� Positive outlook for market in 2009
30.73% 7.26% 4.47% 5.03% 16.48% 13.13% 6.15% 10.61% 6.15%
0.00% 10.00% 20.00% 30.00% 40.00% 50.00% 60.00% 70.00% 80.00% 90.00% 100.00%
2008
2008 Infrastructure Market Transaction Breakdown (% deals by subsector)
Communications
Development Tools
Legacy Extension & SOA
Network Management
Other
Security
Storage
Systems Management
Virtualization
Top Strategic Buyers
Company # of Deals 2007 # of Deals 2008 2009?
Google 15 4 A deal a month to 4 total and 55% drop in stock price
Microsoft 11 15 Will be a major buyer in 2009, as usual
Oracle 10 11 Targeting new markets – Financial Services, Infrastructure
Cisco 9 4 History of ‘transformational’ deals, could see more this year
IBM 9 10 Will be a major buyer in 2009, as usual
HP 7 5 Smaller number of deals in 2008, but spent of $20 billion
Corum Group Presentation ■ 29
HP 7 5 Smaller number of deals in 2008, but spent of $20 billion
Nuance 7 4 Broad telecom space hit hard, expect some fire sales
SunGard 7 6 Should be some attractive targets in the financial services sector
Accenture 6 6 New projects in the coming year harder to close, so acquire them
Dell 6 1 Looking to get back in the M&A market, with a focus on IT Services
SAP 6 2 Strategy for smaller tuck-in deals, but have been fairly quiet
Yahoo! 6 4 Will Autodesk CEO bring M&A strategy with her?
AOL 5 6 Lots of uncertainty in 2008; 2009 will be no different
Autodesk 5 9 Did 3 deals in December alone; Autodesk will continue to buy
CDC Software 5 2 Enterprise software market pretty quiet now
What Buyers Are Telling Us
An inside look at what buyers want
� Smaller tuck-in opportunities
� Vertical market penetration and domain expertise
� Stable financial picture
Corum Group Presentation ■ 30
� Defendable market assumptions
� Proven business model - emphasis on SaaS and recurring maintenance streams
Assumptions based upon 100’s of profiles from both strategic and private equity firms
0
10
20
1/7/2008 2/7/2008 3/7/2008 4/7/2008 5/7/2008 6/7/2008 7/7/2008 8/7/2008 9/7/2008 10/7/2008 11/7/2008 12/7/2008
Evolving M&A Marketplace
Corum Group Presentation ■ 31
-50
-40
-30
-20
-10
Nasdaq
NYSE
S&P 500
FTSE
TSX
Stockholm
Transaction Highlights – Strategic
Buyer Seller Value (Millions $) Sector
Thomson Reuters Paisly Consulting Undisclosed
Research In Motion Certicom $52
Salary.com Genesys Software Systems Undisclosed
Corum Group Presentation ■ 32
Observations� Heightened deal scrutiny, thus strategic fit needs to be clear
� Higher valuation achievable for the right deal
� Product expansion
� Smaller deals
HighJump Software BelTek Systems Design Undisclosed
CA, Inc Eurekify Undisclosed
Transaction Highlights – Private Equity
Buyer Seller Value (Millions $) Sector
One Equity Partners and Allen Shapiro
TV Guide Network (A division of Macrovision Solutions)
$225
Canal Partners Limos.com Undisclosed
Francisco Partners API Software Undisclosed
Corum Group Presentation ■ 33
Observations� Tier two firms remain some of the most active
� Proportion of smaller deals, ‘strategic’
� 6% of total deal volume in 2008, compared to 36% in 2007
� Acquiring via portfolio company.
New Mountain Capital LLC Camber Corporation Undisclosed
EQT Partners and APT Private Equity Partners
KMD A/S $375
Transaction Highlights – Cross-Border
Buyer Seller Value (Millions) Sector
XING AG Socialmedian, Inc. $7.50
MicroFocus Relativity Technologies $9.70
Atari Cryptic Studios $27 (plus up to $20 in earnout)
Corum Group Presentation ■ 34
Observations� Deal Drivers - global expansion, local domain expertise, scale
� All markets and sub-sectors are being targeted
� Look for Brazil and China to be active acquirers in 2009
earnout)
Exact Group BV Orisoft Technology $4
Tekelec mBalance $40 (plus up to $20 in earnout)
Transaction Highlights – Largest
Buyer Seller Value (Millions $) Sector
eBay Inc. Bill Me Later, Inc. $945
Symantec Corporation Message Labs Ltd. $695
Tata Consulting Services Citigroup Global Services Limited
$505
Corum Group Presentation ■ 35
Observations� The ‘Mega’ deals are gone
� Strategic buyers are doing the ‘big’ deals
� Less risky ‘bolt-on deals’
Limited
Hewlett Packard LeftHand Networks $360
eBay Inc. Den Bla Avis a/s $390
Looking Forward - Trends
Uncertainty Surrounds 2009, Not Necessarily Software M&A
Trends to keep an eye on
� Increasing number of divestitures
� Unsolicited offers
Corum Group Presentation ■ 36
� Buyers are bridging the valuation gap with earn outs and delayed payments
� Private equity firms shopping on behalf of their current portfolio
� Valuation volatility
Looking Forward - Sectors
Sectors to watch
� Vertical Markets
� Healthcare
� Financial Services
Corum Group Presentation ■ 37
� Energy
� Infrastructure
� Communications
� Security
� Virtualization
� Consumer Applications
Looking Forward - Initiatives
Key Initiatives for 2009
� Cloud Computing
� Virtualization
� Social Networking
Corum Group Presentation ■ 38
� Social Networking
� Enterprise Mashups
� Green-IT
Horizontal Applications Software
Vertical Market Application Software
Corum M&A Briefing
2008 Review / 2009 Forecast
Report Highlights
Technology market overview Current view on economy, top buyers, active sectors
Strategic buyer spotlight
Corum Group Presentation ■ 39
Consumer Application Software
Infrastructure Software
Internet
IT Services and BPO
Strategic buyer spotlightElectronic Arts
Technology SpotlightSocial Networking, Cloud Computing, Green-IT,Web-Oriented Architectures, and more
Valuation data
International perspective on M&A
In-depth sector coverage
Selling Up Selling Out Bootcamps
� Seattle, WAJanuary 22, 2009
� Paris, FranceJanuary 27, 2009
Corum Group Presentation ■ 40
January 27, 2009
� London, UKFebruary 3, 2009
>> Registration and details at www.corumgroup.comOr contact Jessica Eastman ([email protected], +1 425-455-8281)
Contact Information
Corum Group Ltd.
Ward Carter, [email protected]
Ryan Blakely, VP [email protected] Corum Group International S.à.r.l .
Corum Group Presentation ■ 41
Visit our Website at www.corumgroup.com
10500 NE 8th Street, Suite 1500Bellevue, WA 98004USA
+1 425-455-8281
Corum Group International S.à.r.l .
Jerome Fougerat, Regional [email protected]
Beim ParadeplatzBasteiplatz 78001 ZürichSwitzerland
+41 44 251 82 65