2008 mid2008 mid--year review year review · corum group presentation 23 dassault systems engineous...

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2008 Mid2008 Mid--Year ReviewYear ReviewSoftware and IT M&A Outlook:WHAT LIES AHEAD?

Thursday, July 17, 2008

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 ■ 2

� 200+ transactions completed

� $6 billion in wealth created

� 58% 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

Broad Exposure to Software M&A

Corum’s information is drawn from� Global M&A engagements � Research facilities in the U.S. and Europe� Buyer / client / advisor feedback� Educational events and speaking activities


The last 90 days� Selling Up Selling Out conference series:

Paris, San Diego, Bellevue, Austin, London, Denver

� Merge Briefings:Toronto, Ottawa, Montreal, Calgary, Vienna, Zurich, Frankfurt, Dusseldorf, Hamburg, Berlin, Helsinki, Munich, Stuttgart, São Paulo, Mexico City, Brazilia and Florianopolis

� World Financial Symposiums: Boston

� Other industry events

Agenda

1Market Insights

2International Activity


2International Activity

3Sector Analysis

4Discussion

Headlines Tell the Story

“Can M&A’s Best Times Get Better?”Wall Street Journal, January 2007

“Money is Everywhere – But for How Long?”Wall Street Journal, January 2007

“Stock Surge + Bond Boom = M&A Magic”Wall Street Journal, April 2007

“As Deal Barriers Fall, Takeover Bids Multiply”

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

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

“Bear Stearns’ No. 1 Foe: Fear Itself”CNN Money, March 2008


“As Deal Barriers Fall, Takeover Bids Multiply”Wall Street Journal, May 2007

“M&A – The Best Investment Game in Town”Moneyextra.com UK, May 2007

“Market Pressures Test Resilience of Buyout Boom”Wall Street Journal, June 2007

“Dry-Up in Debt Won’t Deter Tech Deals”Barron’s, September 2007

“Time to Celebrate; 2007 Breaks M&A Record”Wall Street Journal, October 2007

“M&A Seen on the Brink After Record 2007”Reuters, December 2007

“Deal Making: It Shall Return”Wall Street Journal, May 2008

“As Markets Plunge, So Does Deal Making”New York Times, June 2008

“Let’s Still Make a Deal”Business Week, June 2008

“M&A World Continues to Spin but at a Slower Pace”Wall Street Journal, July 2008

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Economic Climate Weakens

� Credit crunch won’t go away

� Energy prices drag on economy – $150 or $200 oil?

� Consumer spending slows – but supports U.S. economy

� Broad indices headed downward – Bear Market

� Corporate earnings down


� Corporate earnings down

� Recession a reality

� More Sellers while Buyers reset on valuations

� Corum Software Peer Group valuations down

� But… IT sector Buyers are still active

In spite of problems, M&A deals are getting done

Sellers’ Concerns

� Duration of downturn

� Sustaining the business during downturn

� Rising tax rates in 2009? (U.S.)

� Missing the market

� Emergence of new competitors


� Emergence of new competitors

� Addressing new emerging markets alone

� Pressure to readjust value expectations

� Threat of sector consolidation

� Regulatory / Anti-trust impact on markets

� How to achieve Liquidity

All reasons to be in market now.

The Silver Lining

On the plus side:� Technology revenues remain strong

� Earnings remain mostly positive

� Forward analyst estimates look good

� Lending requirements loosening


� PE buyers see opportunity in the coming months

� PE and VC investors raising new funds

� International markets remain strong – Euro up

� No buyers saying “We’re pulling back”

� Large cap stocks up

� Strong cash reserves

Deals are getting done for quality companies

M&A is the Primary Source of Liquidity

In Dollar Volume – U.S. dollar volume all industries

$1,100$1,200$1,300$1,400$1,500$1,600$1,700


Source: Dealogic, IPO Central

$0$100$200$300$400$500$600$700$800$900

$1,000$1,100

In B

illio

ns

M&A Dollar Volume IPO Amount Raised

Current M&A Market

Broad Market

1H:08 Global Deal Volume $1.57 trillion, down 35%

2Q:08 Global Deal Volume $940 billion down 37% vs. year ago

Technology Market

High tech deals for Q2 $36.5 billion

Strategic buyers remain active

Private equity getting back into the game


$940 billion down 37% vs. year ago

Private Equity down 82% globally •89% in U.S.•59% in Europe

Consolidation continues across most sectors

Companies of all sizes continue to be aggressive buyers

Companies in emerging countries are viewed as buyers, not just targets• Asia• Eastern Europe• Latin America

Public Valuation Multiples

Market Median EV / Revenue Multiples

Q1:08 Q2:08 %∆

Horizontal Applications 1.84x 1.81x -2%

Vertical Applications 1.93x 2.19x 13%

Consumer Applications 1.91x 1.70x -11%


Consumer Applications 1.91x 1.70x -11%

Infrastructure 2.08x 1.98x -5%

Internet 2.45x 2.71x 11%

IT Services 0.85x 0.89x 5%

Private Equity – Credit Impact

� Deal volumes by PE down dramatically from 1H:07

� Funding issues slow deal closings

� Uncommitted funds still high – $200+ Billion

� Pressure to invest strong

� Many PE have broad technology portfolios to build on – leading to PE-backed


� Many PE have broad technology portfolios to build on – leading to PE-backed

strategic acquisitions by portfolio companies

� No venture backed IPOs in U.S. during past quarter (1st time in 30 years)

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

melt-down

Private Equity on sidelines, waiting for market to bottom?

Strategic Buyers Very Active

Fill any void left by private equity

� Less impacted by credit crunch

� Strong balance sheets

� Equity values down, but not from 12 months ago


� Doing deals under currently favorable antitrust environment

� Business as usual for many

� Strength of non-U.S. buyers (dollar devaluation / public multiples)

� Converging markets / new models spur M&A

� Accommodate sellers looking to close deals before tax increases

Company Stock Price 7/15/2007

Stock Price 7/15/2008

% Change Year AgoCash

Current Period Cash

Sun $5.37 $8.80 63.87% $3,620 $3,030

Apple $137.73 $169.64 23.17% $9,352 $19,450

IBM $108.60 $123.20 13.44% $14,991 $12,030

Oracle $20.40 $20.25 -0.74% $6,218 $11,040

SAP $52.14 $51.68 -0.88% $3,151 $3,840

Large Cap Tech Stocks


SAP $52.14 $51.68 -0.88% $3,151 $3,840

Symantec $19.80 $18.59 -6.11% $2,559 $2,430

Google $552.16 $516.09 -6.53% $6,082 $12,130

HP $47.25 $41.65 -11.85% $11,293 $11,650

Microsoft $29.82 $26.15 -12.31% $6,111 $24,020

Nokia $29.91 $24.86 -16.92% $3,130 $17,030

Yahoo $26.58 $21.54 -18.96% $1,514 $2,610

Cisco $29.89 $21.04 -29.61% $3,728 $24,430

EMC $19.19 $12.53 -34.71% $4,482 $5,610

Analysis: A Recently Launched Corum Client

� Vertical market software company

� North America based

� Market leader

� One of 4 good options in specialty market

� Clear value proposition


� Clear value proposition

� Solid management team

� Marketing and sales opportunities not fully exploited

� Solid business model

� Good revenue growth and solid EBITDA (12 million / 3+ million EBITDA)

� In market 8 weeks

� 15 interested / 5 buyer calls / 2 meetings / 1 offer in process and 3 parties moving

towards offers

Interest Translating into Deals

Vertical market

IT servicesFinancial ServicesSector Interested Parties

Vertical Market 15

Current examples of buyer interest across multiple sectors:


LOIs and Offers

Systems Management

Security

Telecom

Vertical Market 15Gaming 12Embedded Technologies 12Security 11Financial Services 10Internet Infrastructure 10Compliance 10

Interested parties from billion dollar household names to unknown companies

Global M&A Activity

� Cross-border transaction levels remain strong

� Dramatic increase in BRIC country transaction volumes over 2007

� Asia Pacific firms remain bullish on M&A over the next 12 months

� Europe and Asia both set records for deal volume in 2007


– Europe off pace from last year

– Asia could break that record this year

� Weak dollar aiding in cross-border transactions

� European buyers shopping in the U.S.

� Huge U.S. trade deficit – dollars to reinvest

Global Marketplace

60% of Corum’s recent transactions are cross-border


A trend holding steady and seen throughout the tech nology industry

Cross-border60%

Intra-country40%

International Scope


� Buyers less likely to be local

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

� View international companies as both competitors and potential acquirers

Representative Corum Transactions

Leading MRP and process automation vendor for the glass industry

Glaston – FinlandAlbat+Wirsam – Germany

Leading provider of event-

Developer of collaborative 3D authoring and mapping technology

Microsoft – U.S.Caligari – U.S.


Leading provider of event-driven business application automation and batch integration technologies

UC4 – Austria backed byCarlyle – UKAppWorx – U.S.

Developer of 3D digital designs in the building, plant and marine markets

Autodesk – U.S.NavisWorks – UK

Provider of estimating and earth measuring software for contractors

Maxwell – U.S.Quest – U.S.

Value-added distributor of voice, data and converged communications solutions

Datatec – South Africa on behalf of Westcon – U.S.CRANE – UK

Representative Corum Transactions

Electronic invoicing and legal spend management solutions

DataCert – U.S.CorpraSoft – U.S.

IT services provider to government and commercial organizations

TechTeam – U.S.RL Phillips – U.S.


Networking and lobby services for game publishers & developers

Activision – U.S.DemonWare − Ireland

Human capital management solutions

StepStone − NorwayExecuTRACK − Germany

HR information systems for middle market enterprises

BPO – U.S.HR Microsystems – U.S.

Provider of applications support maintenance services (ASM)

Sierra Systems – CanadaRIS – Canada

International Buyer Activity

Need to Look Internationally

International Buyer U.S. Seller Micro Focus Net ManageSopra Group Tumbleweed CommunicationsKapsch TrafficCom Mobility Solutions


Kapsch TrafficCom Mobility SolutionsDassault Systems Engineous SoftwareSAP AG Visiprise, Inc.Alcatel-Lucent Motive, Inc.Logica Holdings Dolphin Digital MediaNEC NetCrackerPurple Labs OpenWave Mobile Phone BusinessSpringsoft Novas3i Infotech Regulus Group

BRIC Countries and Beyond

BRIC - Brazil, Russia, India, and China… but don’t fo rget Mexico and South Korea

� Responsible for 39% of IPO dollar raised in 2007

� India third largest market for IPOs in Q1:2008

� Economies performing well

� Consumer spending strong, resulting in 800 million PC and Internet users by 2015*


� China predicted to become the most influential country in regards to IT

� Emerging economies’ GDP are now on par with those of developed economies

� Mexico’s close proximity to the U.S. puts them in a position of power (IT Services)

Volatility among emerging nations remains a concern :

� Stock markets overvalued?

� Valuations tend to be lower

� Geopolitical concerns

*DNV Technology Outlook 2015

International Buyers

Non-North American Private Equity

• PE acquisitions impacted somewhat less than those

International Strategic Buyers

• Flush with cash and putting to use

Imperative to Look Globally

• Q2 had the highest activity of European companies


somewhat less than those in N.A.

• Debt financing still elusive

• Sovereign funds continue spewing capital into market

to use

• Leveraging the value of the Euro

• Targeting U.S. companies

• Not as affected by U.S. economic lag

• Emerging market IPOs keep up supply of new buyers

of European companies acquiring U.S. companies (all industries)

• Outbound M&A from Asia continues to rise

• 40% of first half 2008 M&A worldwide was cross border

Corum’s Market & Sector Re-Alignment

Horizontal Application Software Infrastructure Software


Vertical Application Software

Consumer Application Software

Internet

IT Services and BPO

Software and IT M&A Activity 1H:08

Where are the deals happening?

Oracle/BEA 44%45%

50%

Big 6 Volume and Value Percentages


$8.5 billion

16% 25% 5% 26% 20% 7%

4%

28%

7%

9%8%

0%

5%

10%

15%

20%

25%

30%

35%

40%

Horizontal Application

Software

Vertical Application

Software

Consumer Application

Software

Infrastructure Software Internet IT Services and BPO

Volume Percentage

Value Percentage

Software and IT M&A Activity – A Closer Look

Vertical Application Software

Current Trends:� Niche and point solutions attractive targets� Buyers of vertical market solutions coming from other markets� Tech M&A remains strong in sectors serving challenged markets


7% 6% 25% 12% 20% 29%

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

Q2

Q2:2008 Vertical Application Subsector Breakdown (Deal Volume)

A/E/C

Energy & Environment

Financial Services

Government

Healthcare

Other

Top Buyers

Strategic BuyersActive Private Equity FirmsCompany # of Deals

2007# of Deals YTD 2008

Google 12 0

Microsoft 11 13

Oracle 10 5

Cisco 9 1

IBM 9 8

PE Firms (partial list)

Carlyle Group

Francisco Partners

Thoma Cressy Bravo

Golden Gate Capital


IBM 9 8

HP 7 3

Nuance 7 1

Sungard 7 3

Accenture 6 6

Dell 6 1

SAP 6 1

Yahoo! 6 3

AOL 5 5

Autodesk 5 7

BT Group 5 0

CDC Software 5 2

Silver Lake Partners

Apax Partners

Vista Equity

Palladium Equity Partners

Vector Capital

2008 Buyer Trends

� Active European buyer communities

� UK, France, Germany and the Nordics

� Increased presence of buyers from emerging markets

� BRIC, Latin America, Eastern Europe

� North American strategic buyer communities holding steady


� Immense deal scrutiny

� Cash remains the deal consideration of choice

� Specific domain expertise and geographical presence in high demand

� PE-backed portfolio companies more active

� Private equity firms getting back into the game

Buyers Thinking “Small”

� Number of undisclosed deals up

� Young leading edge technology developers are poised for growth

� Niche markets present growth opportunities

Large market leaders thinking small:


Large market leaders thinking small:

Thinking Small Case Study

Business Intelligence

Tier 1 Vendors

Mid-market


Mid-market

Young / Small (>$50 million)

…and dozens more

Transaction Highlights – Strategic

Buyer Seller Value (Millions) Sector

Symantec Corporation SwapDrive $123 (est)

Whitepages.com Snapvine, Inc Undisclosed (rumor $20)

Blackbaud, Inc. Kintera Inc. $46


VMware, Inc. B-hive Networks Undisclosed

TIBCO Software Insightful Corporation $25

Observations� Deals have to make strategic sense

� High valuations for the right deal

� Product expansion through complementary technology acquisitions

� Market convergence

Transaction Highlights – Private Equity


Vista Equity P2 Energy Undisclosed

Silver Lake Sumeru I2 Ltd. $185

Great Hill Partners CAM Commerce Solutions $180


Observations� Current debt market still having impact

� Dramatic increase in PE deals in Q2 vs. Q1

� Strong focus on technology

� PE firms looking at smaller opportunities, which may not require leverage

Battery Ventures HighJump Software Undisclosed

Carlyle Group and JMI Equity Gemcom Software Int’l. $180

Transaction Highlights – International


SAP AG Visiprise, Inc. Undisclosed

Forticom Nasza-klasa.pl $92

LeGuide.com SA Dooyoo AG Undisclosed


Observations� Global expansion and local domain expertise

� Desire to enter U.S. markets

� Sector consolidation

SafeNet, Inc. Beep Science AS Undisclosed

EMC Corporation Conchango plc £42

Corum Q2 M&A Briefing

Report Highlights

Technology market overview Active buyers, sober valuations

Strategic buyer spotlightAdobe

Horizontal Applications Software

Vertical Market Application Software


Adobe

Technology SpotlightCloud Computing

Valuation data

International perspective on M&ASovereign Wealth Funds

In-depth sector coverage

Consumer Application Software

Infrastructure Software

Internet

IT Services and BPO

Contact Information

Corum Group Ltd.Ward Carter, [email protected]

Ryan Blakely, VP [email protected]

10500 NE 8th Street, Suite 1500 Corum Group International S.à.r.l.


Visit our Website at www.corumgroup.com

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

+1 425-455-8281

Corum Group International S.à.r.l.Miro Parizek, Managing [email protected]

Beim ParadeplatzBasteiplatz 78001 ZürichSwitzerland

+41 44 251 82 65

2008 mid2008 mid--year review year review · corum group presentation 23 dassault systems engineous...

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