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THE GLOBAL LEADER IN SOFTWARE M&A
AN M&A UPDATE
2006 Software M&A Reviewand 2007 Outlook
Corum Group Ltd.www.corumgroup.com
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THE GLOBAL LEADER IN SOFTWARE M&A
• Opening Remarks - Corum• M&A Market Overview• Market Trends
• IPO Market• International• Public Markets
• Valuations• Top Buyers & Active Sectors• Corum Q4 M&A Briefing Release
Agenda
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THE GLOBAL LEADER IN SOFTWARE M&A
Corum Group
• M&A specialists since 1985• Software and IT experts – mostly former CEOs• Dominant North American and European presence• 200+ transactions completed• $6 Billion in wealth created• 55+% cross-border transactions• Recognized industry leaders/experts• Sponsor of Selling Up Selling Out conferences• Sponsor of World Financial Symposiums Conferences • Publisher of industry leading M&A research
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THE GLOBAL LEADER IN SOFTWARE M&A
Headlines Tell the Story
“Private Equity Fueling Buyouts”Associated Press, December 2006
“2006 - Bubble 2?”Seattle Times, December 2006
“Hong Kong tops New York this year in IPOs”New York Times, December 2006
“Money is everywhere – but for how long?”Wall Street Journal, January 2007
“Wall Street Bonuses – so much money – too few Ferrari’s”New York Times, January 2007
“Can M&A’s Best Times Get Better?”Wall Street Journal, January 2007
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THE GLOBAL LEADER IN SOFTWARE M&A
Surge in M&A Continues
2006 vs 2005 - M&A up 30+% worldwide / all industries
2006 – $3.7 Trillion in worldwide M&A2000 – $3.4 Trillion in worldwide M&A
Europe – $1.43 Trillion in 2006 (up 39% vs. ‘05)US – $1.56 Trillion in 2006 (up 36% vs. ‘05)
Source: Thomson Financial
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THE GLOBAL LEADER IN SOFTWARE M&A
Software and IT M&A Activity
# of Transactions by Sector
0%5%
10%15%20%25%30%35%40%45%
Digital
Med
ia
Enterpr
ise App
licatio
ns
Enterpr
ise In
frastr
uctur
eGam
ing
Intern
et
Intern
et Inf
rastru
cture
Intern
et Pure
Plays
IT Service
sSec
urity
Wireles
sVert
ical M
arkets
2005 % Deal Volume 2006 % Deal Volume
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THE GLOBAL LEADER IN SOFTWARE M&A
Software and IT M&A Activity
Transaction Value by Sector
0%
10%
20%
30%
40%
50%
60%
Digital
Med
ia
Enterpr
ise App
licatio
ns
Enterpr
ise In
frastr
uctur
e
Gaming
Intern
etIT Serv
ices
Securi
ty
Wireles
sVert
ical M
arkets
2005 % Deal Value 2006 % Deal Value
8
THE GLOBAL LEADER IN SOFTWARE M&A
M&A Is the Primary Source of LiquidityIn Dollar Volume – US dollar volume all industries
$0$100$200$300$400$500$600$700$800$900
$1,000$1,100$1,200$1,300$1,400$1,500$1,600$1,700
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
In B
illio
ns
M&A Dollar Volume IPO Amount Raised
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THE GLOBAL LEADER IN SOFTWARE M&A
Slow IPO Market is Recovering
Source: D&B
IPO data all industries
• December most active IPO month since 1999
• 2006 much stronger than ‘05
• Venture-backed technology deals returned to the IPO scene
• Eleven technology IPOs in Q4 - up from three in Q3
Q4:05 Q4:06 % Change
# of IPO Pricings 48 82 70.83%
Total Value $7,000 $16,100 130.00%
Average Value $145 $196 35.17%
Values are in millions
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THE GLOBAL LEADER IN SOFTWARE M&A
Surge in M&A - Deal Drivers
• Enormous liquidity (equity and debt)• Strong stock markets• Recovery in IPOs• Analysts favorable to acquisitions• Private Equity in 25% of deals• Converging market sectors• Heavy competition for market leadership• Strength of Euro / British Pound
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THE GLOBAL LEADER IN SOFTWARE M&A
M&A Dominant Corporate StrategySupport for acquisitions is stronger than ever:• Immediate impact on top/bottom line• Stimulate growth in new or existing markets• Counter takeover attempts• Speed time to market• Forestall competitive threats• Gain talent, brand and domain expertise• Fill product and technology gaps• Tap into emerging markets • Provide pathway to a global presence• Gain access to innovation
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THE GLOBAL LEADER IN SOFTWARE M&A
Global M&A Activity
• Cross-border transactions increasing• European deal activity was up 39% in 2006• Of European buyers, the United Kingdom was the most active
globally with $339 billion of transactions
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THE GLOBAL LEADER IN SOFTWARE M&A
Global Marketplace
64% of Corum’s recent transactions have been cross-border –A trend we are seeing throughout the industry
Cross Border 64%
Intra-Country36%
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THE GLOBAL LEADER IN SOFTWARE M&A
Corum Transactions (Partial 2006)
Carlyle Group / UC4 Software GmbH• Enterprise job scheduling and event-driven IT automation
NCR Corporation / IDVelocity• RFID infrastructure and process management software
WellPoint Systems Inc. / IDEAS International• Provider of accounting and campaign finance solutions for domestic and
multinational marketplace
NICE Systems / FAST Video Security• Developer of video systems for security and surveillance purposes
Blue Cross Blue Shield / REDmedic• Provider of a personal medical profile available to emergency personnel
via the internet
Thomson West / Cowles Legal• User-friendly solutions for estate planning and trust terminations
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THE GLOBAL LEADER IN SOFTWARE M&A
Corum Transactions (More 2006)
Microsoft / iView Multimedia• Digital asset cataloging solution for creative professionals
Apax Partners / Plexus Systems• On-demand manufacturing execution software (SaaS)
Rocket Software / Mainstar Software• Storage management and disaster recovery solutions for OS/390
environments
Gemcom Software / Surpac Minex Group• Mine planning, engineering, geology, surveying, mineral exploration and
resource modeling solutions for the mining industry
Harland Financial / Financialware, Inc.• Enterprise Content Management system for banks and financial
institutions
MDA / Mindbox• Sophisticated decisioning software for mortgage banking
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THE GLOBAL LEADER IN SOFTWARE M&A
Current Activity
With a strong 2006 completed, we enter 2007 with optimism
8 companies currently under Letter of Intent:• Enterprise Applications• Enterprise Infrastructure• Systems Management• Gaming and Entertainment• Vertical Markets
• Specialty services• Financial Services
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THE GLOBAL LEADER IN SOFTWARE M&A
Public Markets – Reaching New Highs
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THE GLOBAL LEADER IN SOFTWARE M&A
Public Valuation Multiples
Sector Q4:05 Q1:06 Q2:06 Q3:06 Q4:06 Y on Y Q to QDigital Media 3.50 x 2.65 x 2.82 x 2.74 x 2.59 xEnterprise Applications 3.19 x 2.91 x 4.27 x 4.35 x 4.43 xBusiness Intelligence 1.36 x 3.10 x 2.15 x 2.87 x 3.03 xEnterprise Content Management 1.52 x 1.59 x 1.46 x 1.89 x 2.15 xSupply Chain Management 1.70 x 1.82 x 1.58 x 1.60 x 1.89 xEnterprise Infrastructure 2.20 x 2.15 x 2.36 x 2.40 x 2.77 xLegacy Extention / SOA 1.40 x 2.72 x 2.59 x 1.36 x 1.70 xSoftware Development Tools 2.34 x 1.95 x 1.44 x 1.88 x 1.71 xStorage 3.17 x 2.81 x 2.43 x 2.66 x 2.98 xGaming 2.19 x 1.59 x 1.44 x 2.25 x 2.47 xInternet Infrastructure 4.10 x 4.41 x 3.57 x 4.03 x 3.63 xInternet Pure Play 4.10 x 6.07 x 3.34 x 4.00 x 3.78 xIT Services 0.74 x 0.85 x 0.78 x 0.84 x 0.80 xSecurity 3.76 x 3.36 x 3.00 x 2.94 x 3.36 xWireless 2.85 x 2.18 x 2.28 x 2.07 x 2.34 xVertical Market - Engineering 3.00 x 2.61 x 2.71 x 2.69 x 3.06 xVertical Market - Financial Services 2.88 x 3.15 x 3.26 x 3.53 x 3.17 xVertical Market - Government 1.07 x 1.45 x 1.21 x 1.24 x 1.13 xVertical Market - Healthcare 2.36 x 2.54 x 1.98 x 2.69 x 2.36 xVertical Market - Other 2.51 x 2.63 x 2.63 x 1.75 x 2.02 xVertical Market - Telecom 2.37 x 2.52 x 2.02 x 2.12 x 2.10 x
TTM EV/S Multiples
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THE GLOBAL LEADER IN SOFTWARE M&A
Public Multiples ─ Differ Dramatically by Sector
TTM EV/Sales Range
Niche Applications
1.00x – 2.50x
Security Software
1.39x – 7.83x
Financial Services
1.50x – 4.00x
Software as a Service
3.90x – 9.49x
0
1x
2x
3x
4x
5x
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THE GLOBAL LEADER IN SOFTWARE M&A
Looking Back – Valuation Multiples
2.32.7 2.7
2.9
6.7
3.0
2.0 1.5 1.5 1.6 1.8 2.1 2.3 2.2 2.52.6
2.9 2.95
0.00
1.00
2.00
3.00
4.00
5.00
6.00
7.00
P/S
Mul
tiple
1H:9
8
2H:9
8
1H:9
9
2H:9
9
1H:0
0
2H:0
0
1H:0
1
2H:0
1
1H:0
2
2H:0
2
1H:0
3
2H:0
3
1H:0
4
2H:0
4
1H:0
5
2H:0
5
1H:0
6
2H:0
6
M&A Transaction Multiples - Software Industry
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THE GLOBAL LEADER IN SOFTWARE M&A
Top Buyers in 2006
100+ Strategic buyers with 2 to 4 transactions
Strategic Buyers Active Private Equity Firms*Microsoft 16 Accel-KKRIBM 13 Apax PartnersOracle 11 Carlyle GroupEMC 9 Francisco PartnersMotorola 8 Golden Gate CapitalJupitermedia 7 Silver Lake PartnersL-3 Communications 7 Symphony Technology GroupSage Group 7 Thoma CresseyCisco Systems 6NeoMedia Technologies 6Yahoo 6 * Partial ListAccenture 5Google 5Kronos 5Trimble Navigation 5VeriSign 5
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THE GLOBAL LEADER IN SOFTWARE M&A
Vertical Market Consolidation – Fewer Buyers
Tougher to find buyers for smaller companiesExample: Financial Services Software Sector
• Advanced Financial Solutions(Metavante ‘04)
• BancTec (taken private – Welsh Carson PE ‘99)
• Bisys Group (Open Solutions ‘05)• Bottomline Technologies• Carreker (Checkfree in ‘07)• CheckFree• Concord EFS (First Data ‘03)• Digital Insight (Intuit ‘06)• First Data• Fiserv• Jack Henry
• John Harland (M&F Worldwide ‘07)• Kirchman (Metavante ‘06)• Metavante• Misys • Open Solutions (Carlyle ‘06)• S2 Systems (Total Systems ‘05))• Sanchez (Fidelity National in ‘04)• Sungard (taken private – Silver
Lake Partners ‘05)• Total Systems• TSA
2000 to 2006 - Key Buyers - 60% of list is gone
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THE GLOBAL LEADER IN SOFTWARE M&A
Private Buyers
Number of private buyers increasing• Slow IPO market and high cost of being public• Cash and credit available to Private Equity• Financial buyers comfortable with technology deals
Notable companies going private in 2006• John H. Harland• Embarcadero• WatchGuard Technologies• Sabre Holdings• Open Solutions
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THE GLOBAL LEADER IN SOFTWARE M&A
Transaction Highlights – Private Equity
Buyer Seller Value (Millions $) Sector
Silver Lake Partners Sabre Holdings $5,000 Vertical Market
Carlyle Group Open Solutions, Inc. $1,300 Financial Services
Silver Lake Partners IPC $800 Vertical Market
Thoma Cressey Embarcadero $234 Enterprise Infrastructure
Francisco Partners WatchGuard Technologies $151 Security
Insight Venture Partners Netsmart Technologies $115 Healthcare
Thoma Cressey Vision Solutions, iTera and Sirius Computer Solutions $100 Enterprise Infrastructure
Francisco Partners Endeavor Information Systems Undisclosed Vertical Market
Carlyle Group / Kennet Partners FRS Global Undisclosed Vertical Market
Vista Equity Who'sCalling Undisclosed Enterprise Applications
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THE GLOBAL LEADER IN SOFTWARE M&A
Transaction Highlights – International
Buyer Seller Value (Millions $) Sector
Publicis Group S.A. Digitas Inc $1,300 Internet Infrastructure
Check Point Software Protect Data AB $586 Security
ePLDT SPI Technologies $159 IT Services
Stepstone ExecuTRACK Software $41 Enterprise Applications
Yahoo! Inc. Wretch $22 Internet Pure Play
McAfee, Inc. Onigma $20 Security
Nokia Gate5 Undisclosed Wireless
Microsoft iView Undisclosed Digital Media
Tandberg Television Zetools Undisclosed Digital Media
Sage Group plc / Sage Software Canada Ltd.
Corum Corporation (no relation) Undisclosed Enterprise Applications
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THE GLOBAL LEADER IN SOFTWARE M&A
Transaction Highlights – Strategic
Buyer Seller Value (Millions $) Sector
Google YouTube $1,650 Internet Pure Play
Intuit Inc Digital Insight $1,350 Financial Services
Trimble Navigation @Road Inc $496 Wireless
Oracle Stellent, Inc. $440 Enterprise Applications
Rocket Software Seagull Software $56 SOA
Corel Corporation InterVideo $196 Digital Media
Kronos Unicru $150 Enterprise Applications
Cisco System Arroyo Video $92 Digital Media
IBM Webify Undisclosed Enterprise Infrastructure
ADP Employease Undisclosed Enterprise Applications
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THE GLOBAL LEADER IN SOFTWARE M&A
Mega Deals
2006 – Strong Year for $ Billion+ Transactions
Mega Deal Breakdown
• 21 in the software and IT marketplace
• 17 by strategic buyers
• 7 were cross-border
• Value range: $1 billion to $7.4 billion
Companies with multiple technology deals in excess of $1 billion
• Carlyle Group – Freescale and Open Solutions
• IBM – FileNet and Internet Security Systems
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THE GLOBAL LEADER IN SOFTWARE M&A
Active Sectors
Strong activity across all sectors in 2006
Outlook for 2007:
• Enterprise Applications
• Internet - Infrastructure and pure plays
• IT Services
• Security
• Vertical market applications
• Wireless technologies and infrastructure
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THE GLOBAL LEADER IN SOFTWARE M&A
Corum Q4 Briefing SampleEnterprise Applications
Public Peer Group (In $U.S. millions – except share prices)Stock Stock Market EnterpriseSymbol Company Price Value Value P/E EV/EBITDA EV/S P/E EV/S
CA CA, Inc. $22.79 $11,990.0 $13,290.0 126.6 x 16.07 x 3.43 x 22.56 x 3.29 xLWSN Lawson Software Inc. $7.45 $1,400.0 $1,120.0 -248.33 x 30.37 x 2.41 x 16.93 x 1.31 xORCL Oracle Corp. $17.21 $89,190.0 $87,210.0 24.59 x 13.40 x 5.43 x 15.50 x 4.47 xQADI QAD Inc. $8.40 $271.5 $239.8 18.26 x 11.60 x 1.05 x 20.49 x 0.94 xSAP SAP AG $53.16 $259,780.0 $255,910.0 118.13 x 69.92 x 21.08 x 24.73 x 19.27 xCRM Salesforce.com $36.74 $4,170.0 $3,930.0 734.80 x 98.57 x 8.85 x 85.44 x 5.50 x
Median Valuation Multiples 71.36 x 23.22 x 4.43 x 21.53 x 3.88 x
Trailing Multiple Forward Multiple
M&A Transactions
Witness Systems Acquires Demos Solutions and Exametric, Inc.
Witness Systems, a global provider of workforce optimization software and services, announcedthat it has acquired Demos Solutions Consulting Group Ltd. (also known as Demos Solutions) and Exametric, Inc., the two leaders in supplying enterprise productivity and resource planning solutions to the financial services industry. The acquisitions broaden the revenue opportunity and customer base for Witness Systems, further extending the business valu e of its workforce optimization solutions from contact centers to bank branches and ultimately to other areas in the enterprise. The two companies will be combined and operate as Witness Enterprise Solutions, a group focusing initially on WFO Solutions for retail bank branches and operations.
Announcement: October 2 2006Deal Value: $29 Million (Cash plus potential earn out up to $18 million of next three years )
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THE GLOBAL LEADER IN SOFTWARE M&A
Corum Q4 Briefing Sample (continued)
Security Public Peer Group (In $U.S. millions – except share prices)
Stock Stock Market EnterpriseSymbol Company Price Value Value P/E EV/EBITDA EV/S P/E EV/S
CHKP Check Point Software Tech Ltd. $22.08 $5,100.0 $3,910.0 18.54 x 11.91 x 6.85 x 15.33 x 6.35 xENTU Entrust Inc. $4.32 $259.1 $228.2 -25.41 x -67.32 x 2.48 x 54.00 x 1.94 xMFE McAfee Inc. $28.31 $4,520.0 $3,360.0 33.31 x 12.05 x 3.08 x 19.00 x 2.75 xSFNT SafeNet Inc. $24.50 $518.3 $438.4 -2450.00 x 13.30 x 1.53 x 18.56 x 1.39 xSCUR Secure Computing Corp. $6.64 $428.3 $512.1 -39.06 x 23.86 x 3.30 x 27.67 x 2.04 xSYMC Symantec Corp. $20.87 $19,580.0 $19,110.0 51.92 x 12.66 x 3.89 x 16.56 x 3.36 xVRSN VeriSign Inc. $24.23 $5,880.0 $5,340.0 9.01 x 12.90 x 3.42 x 21.83 x 3.47 xWBSN Websense Inc. $22.88 $1,020.0 $721.4 30.51 x 11.31 x 4.18 x 21.79 x 3.43 x
Median Valuation Multiples 13.77 x 12.35 x 3.36 x 20.40 x 3.06 x
Trailing Multiple Forward Multiple
M&A Transactions McAfee, Inc. To Acquire Citadel Security Software Inc. McAfee, Inc. will acquire Citadel Security Software Inc., a leading provider of solutions in security policy compliance and vulnerability remediation. Security risk management is emerging as a high growth opportunity. The acquisition will add to McAfee's suite of products that help enterprises neutralize security vulnerabilities and reduce risk, giving McAfee a broader capability for security policy compliance enforcement and vulnerability remediation. Highly regulated enterprises, including government and health-care customers, will especially benefit as McAfee integrates Citadel's automated solutions that help enterprises comply with regulatory requirements and internal policies, speed their compliance process and minimize threat exposure. Announcement: October 3 2006 Deal Value: $56.15 Million (Cash, plus an estimated $4 million in working capital reimbursement) Seller Revenue: $14.24 ttm
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THE GLOBAL LEADER IN SOFTWARE M&A
Corum LinksVIP Pass for Corum's Selling Up Selling Out Conference
To take advantage of the special VIP offer for this webinar’s attendees:
1) Go to Corum's conference registration page at https://www.corumgroup.com/ConferenceRegistration.asp
2) Select the conference you wish to attend3) Enter your Contact Information4) Enter Promo Code of “webjan"5) Check box "I prefer to be called for payment information." You will not be contacted for
payment information.
You will receive a complimentary VIP Pass to the conference.
Corum M&A Reporthttp://www.corumgroup.com/ResearchAndReportsregistration.asp
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THE GLOBAL LEADER IN SOFTWARE M&A
Contact Information
Corum Group Ltd.10500 NE 8th Street, Suite 1500Bellevue, WA 98004USA+1 425-455-8281
Corum Group International S.à.r.lGeneral Guisan – Quai 30CH-8002 ZurichSwitzerland+41 1 251 82 65
www.corumgroup.com