corum webinar jan 19 2006
TRANSCRIPT
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THE PREMIER PROVIDER OF M&A SERVICES TO SOFTWARE / IT COMPANIES
Technology M&A
2005 Review & 2006 Forecast
Corum Group Ltd.www.corumgroup.com
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Opening Remarks
M&A Review 2005 Bakers Dozen
2006 Fast Start
M&A Drivers
Stock Market & IPO Venture Capital / Private Equity
Private Equity Case Study
Sector Analysis
M&A Valuation Trends
What Will Drive Deals in 2006
Questions & Answers
Agenda
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Corum Group
M&A specialists since 1985
Software and IT experts mostly former CEOs
Offices throughout North America, and Europe soon Asia
Nearly 200 transactions completed
$6 billion in wealth created
35% Cross border transactions Recognized industry leaders/experts
Sponsor of Selling Up Selling Outconferences
Sponsor of World Financial SymposiumsConferences
Publisher of industry leading M&A research
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Corum Transaction AnalysisA Bakers Dozen of Recent Deals
NICE Systems / FAST Video
FAST Video is a Swiss developer of video systems for security and surveillancepurposes
NICE is an Israel based provider of advanced content analytics for most forms ofcommunication video, web, radio, telephony and offers security related systems
NICE acquired FAST to strengthen their digital video product suite and complementtheir current security offering
The transaction was valued at $21 million cash plus earnout
FileNET Corporation / Yaletown Technology Group
Yaletown (YTG) develops products for managing documents in electronic form,
specifically email
FileNET, a leader in the ECM space, acquired YTG to strengthen their position inthe emerging content compliance market and provide a more comprehensivesolution
The transaction was valued at approximately $11 million, net of cash
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Corum Transaction Analysis (continued)
Open Solutions Inc. / COWWW
COWWW provides web-based archiving, retrieval and document distribution forfinancial institutions and other regulated industries
Open Solutions (OSI) is a rapidly growing and acquisitive provider of enablingsolutions for banks and credit unions
OSI had OEMd similar technology and wanted to control development
Terms were not disclosed, but this was an all cash transaction
J.L. Halsey / Lyris
Lyris provides email marketing software
J.L. Halsey, a public company with large private equity interests and proven
management, was in the process of reinventing themselves as a software andInternet company
Lyris brought Halsey profits, growth, customers and a combination of softwareproducts and SaaS
The valuation was approximately $30 million cash
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Corum Transaction Analysis (continued)
Trader Publishing Company / Best Image
Best Image is a leading provider of real estate agent Internet marketing and leadgeneration services
Trader Publishing is the nations leading producer of specialty offline and onlineclassified advertising publications specific to real estate, vehicles, and others
Acquisition allows Trader Publishing to expand its real estate focus by leveragingBest Images solid business model, brand name, tools and prestigious client base
Terms were not disclosed, but it was a strategic valuation
Blue Cross Blue Shield / Optical Image
Optical Image offered document management software for various industries
Blue Cross Blue Shield (BCBS) is known for their technology outsourcing and has
a number of technology based subsidiaries BCBS was large customer of Optical Image and felt the business model was
sound, so BCBS brought the technology in-house
Terms were undisclosed, but in line with strategic valuations
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Corum Transaction Analysis (continued)
ANSYS / Century Dynamics
Century Dynamics is a leading supplier of engineering simulation software for themechanical computer aided engineering market
ANSYS designs, develops, markets and supports engineering simulation solutionsand was looking to broaden their offerings into new vertical markets
Industry consolidation continues as larger vendors seek to be the sole technologysource to customers
Terms were not disclosed, but this transaction consisted of both cash and earnoutcomponents
RainMaker Software / Computer Law Systems (CLS)
CLS is a leading vertical market provider of legal automation software for corporate,
government and private practice law offices
RainMaker is also focused exclusively on the legal market, but serving a differentmarket segment than CLS
The acquisition allowed RainMaker to address law offices of all sizes across multiplesectors, while the combined organization is able to take advantage of scale
Terms were not disclosed, but this was an all cash transaction
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THE PREMIER PROVIDER OF M&A SERVICES TO SOFTWARE / IT COMPANIES
Corum Transaction Analysis (continued)
BMC Software / Calendra
Calendra, a French vendor of identity management solutions
BMC was rebuilding their Control SA security and saw Calendra as good foundationfor their next generation technology
Calendra quickly became a major player in the identity management space after acouple of key sales
Valuation was in line with other related identity management transactions
Vertex / Cape Systems
Cape is a UK based SCM vendor with specific solutions developed for pallet andpacking optimization
Vertex is a small public company also in the SCM space with specific WMS solutions
Vertex acquired Cape for their strong brand, niche technology and managementteam
Terms were in line with current valuations
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Corum Transaction Analysis (continued)
National Instruments / Electronics Workbench
Electronics Workbench develops and markets desktop electronic design
automation software used by educators and design engineers
National Instruments (NI) is a technology pioneer in virtual instrumentation
The acquisition enables NI to take a leadership position in the integration of design,simulation and test tools by creating a graphical system design platform
Terms were not disclosed, but it was a strategic valuation
BVRP / V-COM
V-COM provided proprietary and third party software utilities
BVRP, a French software utilities vendor, saw an opportunity to bolster theirproduct suite and expand their US presence
Terms were not disclosed, but it was a strategic valuation
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THE PREMIER PROVIDER OF M&A SERVICES TO SOFTWARE / IT COMPANIES
Corum Transaction Analysis (continued)
Torex PLC / Hoffman Datentechnik GmbH
Hoffmann is a German based HR scheduling and deployment software provider
Torex is a European retail systems solutions provider operating in over 15countries.
Torex had developed a growth strategy which included acquisitions and felt thatHoffmanns strong focus in the retail market was a good fit with their strategy
Hoffmann was acquired for EUR4.25 million
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Quick Start 2006 Transactions
MDA / Mindbox
Mindbox provides sophisticated decisioning software to automate knowledgeintensive business processes. Mindbox is especially strong in the financial
services industry, specifically mortgage banking
MDA provides advanced information solutions to capture and process vastamounts of data, produce essential information and improve decision making
MDA acquired Mindbox to expand their offerings to include advanced decisionmaking and their presence in the US lender market
Terms were not disclosed
8+ companies currently under LOI or negotiating term sheets Vertical Markets
Oil and Gas
Insurance Related Financial Services
Enterprise Infrastructure
Supply Chain Management
Storage Management
Online Gaming
Bioinformatics
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Historical Prospective: M&A Climate Evolution
1999 - Holding your breath Y2K
2000 - dot-com / Pent up demand explosive2001 - Denial and desperation
2002 - Back to business basics
2003 - Tempered recovery2004 - Stability returns
2005 - Rational exuberance
2006 - Stable and positive
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Technology M&A Activity
0
400
800
1,200
1,600
2,000
2,400
2,800
1997 1998 1999 2000 2001 2002 2003 2004 2005
NumberofTechDeals
We are back to 1998/99 levels
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Why Is M&A the Dominant Exit Strategy?
The need to acquire is stronger than ever
Acquisitions add more growth faster Speed up time to market
Consolidation The World Is Flat
Counter takeover attempts Buy talent and domain expertise
Fill product gaps
Get ahead of a technology curve
Tap into emerging consumer markets
Cost of being public and complying with SOX
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THE PREMIER PROVIDER OF M&A SERVICES TO SOFTWARE / IT COMPANIES
M&A Active in All IndustriesLarge strategic acquisitions in all industries
Bank of America / MBNA
Sprint / Nextel
P&G / Gillette
eBay / Skype
Oracle / Siebel
Today, the deal making climate is optimal
Liquidity in equity & debt markets
Relatively low interest rates
Wall Street is receptive to smart, strategic deals
Stable stock market
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M&A Dollar Volume All Industries (US Only)
$0
$250
$500
$750
$1,000
$1,250
$1,500
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
InBillion
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M&A Activity Technology Sector
Deal activity is now accelerating in the technologyindustry
IT spending has stabilized and is growing in manymarket segments
Executives are confident / support strategic acquisitions
Companies are in growth mode vs. survival mentality ofpast years
Elevated M&A activity puts pressure on all companies tobe in the M&A market in order to remain competitive
and not miss opportunities
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2005 - Increase in Mega DealsBuyer / Seller Deal Value (millions)Silver Lake / SunGard $11,130 *Cisco / Scientific Atlanta $6,900
Silver Lake / Agilent $6,060 *Oracle / Siebel $5,850Sun / Storage Technology $4,100Adobe / Macromedia $3,400eBay / Skype $2,600Nasdaq Stock Market / Instinet Group $1,878
InterActiveCorp / Ask Jeeves $1,850NewsCorp / IGN and Myspace $1,300Eastman Kodak / Creo $1,200Silver Lake / Serena $1,200 *IBM / Ascential $1,001
Yahoo / Alibaba $1,000Concerto / Aspect Communications $1,000Golden Gate / GEAC $1,000 *Carlyle / SS&C $982 *
* Financial Buyers
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THE PREMIER PROVIDER OF M&A SERVICES TO SOFTWARE / IT COMPANIES
Active Buyers in 2005
Strategic Financial
Oracle Corp. - 15 Francisco Partners
IBM Corp.- 15 Golden Gate CapitalCisco Systems - 12 Halo Holdings
Microsoft Corporation - 9 Silver Lake Partners
JupiterMedia Corp. - 7 Carlyle Group
Think Partnership - 6
Yahoo! Inc. - 6Computer Associates - 6
eBay Inc. - 5
SAP AG- 5
Bentley Systems Inc - 5
Fiserv, Inc - 5
Over ten companies have done 4 transactions
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Active Sectors in 2006
Current Sectors in Active Consolidation
Internet Pure Plays
Internet Infrastructure
Vertical Market Specialists
Enterprise Applications
Financial Services
Wireless
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Is the M&A Market Momentum Sustainable?
Yes, as long as:
Corporate IT spending levels continue to rise
Tempered IPO market M&A remains the most liquid exit strategy
Buyers continue to seek out strategic M&A opportunities
Private Equity firms continue to drive consolidation
Economy remains steady a healthy stock market will continue to drive
M&A Public company earnings have grown over 10% per quarter for 13
consecutive quarters
The average P/E ratio for the S&P 500 was 14.6 as of December 20, 2005,which is a reasonable valuation that leaves room for companies to drivetheir stock prices up through strategic M&A
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THE PREMIER PROVIDER OF M&A SERVICES TO SOFTWARE / IT COMPANIES
IPO Drawbacks
Why companies arent going public
High compliance cost
Greater management liability
Intense market scrutiny
Less flexibility regarding corporate structure
Higher liquidity in M&A vs. IPO 30% of all IPOs in 2005 were priced below original range
2005 average IPO opening day gain: 1.17%
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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
InB
illion
M&A Dollar Volume IPO Amount Raised
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Venture Capital / Private Equity
2005 Facts:
VCs have been averaging approximately 700 investments in the US
per quarter These numbers are rising Up rounds are outpacing down rounds for the 5th consecutive quarter
Ratio of VC backed M&A exits vs. IPOs 5:1
Going Forward: VCs are actively seeking investments in Asia and Israel
VCs are looking for a smaller quantity of higher quality investments
VCs are more technology savvy strong desire for emergingtechnologies
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THE PREMIER PROVIDER OF M&A SERVICES TO SOFTWARE / IT COMPANIES
Source: PricewaterhouseCoopers/Venture Economics/NVCA/MoneyTree survey* Estimate
Total Investment in Software Industry
$500
$700
$900
$1,100
$1,300
$1,500
$1,700
3Q02
4Q02
1Q03
2Q03
3Q03
4Q03
1Q04
2Q04
3Q04
4Q04
1Q05
Q20
5
Q305
Q405
InMillion
s
VCs Are Actively Backing the Next Generationof Tech Companies
*
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Consolidation The Role of Private Equity
Golden Gate Capital - Invest in high growth business inchange intensive industries
In 2002 Golden Gate provided Infor (then Agilisys) access to their$700 million fund to enable strategic consolidation throughacquisition
Since December 2002 Infor has completed 12 acquisitions in theenterprise software marketplace
Four of their transactions have been international
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Consolidation The Role of Private Equity
Golden Gate Capital / Infors acquisition history:
Acquired Company CountryFormation Systems USA
Mapics, Inc. USA
Mercia Software USA
Finmatica S.p.A Italy
Aperum USANxTrend Technology, Inc USA
Varial Software AG Germany
daily.commerce, inc USA
INFOR Business Solutions AG GermanyFuture Three Software USA
Brian International Germany
GEAC Computer Corp USA
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Software Sector Coverage
21 Markets Covered by Corum
Business Intelligence
Connectivity/Legacy Extension/WebServices
Digital Media
Engineering
Enterprise Applications
Enterprise Content ManagementEnterprise Infrastructure
Gaming
Internet Infrastructure
Internet Pure Plays
IT Services
Software Development Tools
Security
Storage
Supply Chain Management
Vertical Market
Financial Services Industry
Government/DoD/Homeland Security
Healthcare Industry
Telecom
Other
Wireless
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THE PREMIER PROVIDER OF M&A SERVICES TO SOFTWARE / IT COMPANIES
Sector ValuationsSoftware Sectors TTM EV/S Multiple
Business Intelligence 3.16 x
Connectivity 1.40 x
Digital Media 3.50 x
Engineering 3.00 x
Enterprise Applications 3.19 x
Enterprise Infrastructure 2.20 x
Enterprise Content Management 1.52 x
Gaming 2.19 x
Internet Infrastructure 4.10 x
Internet Pure Plays 4.10 x
IT Services 0.74 x
Security 3.76 xSoftware Development Tools 2.34 x
Storage 3.17 x
Supply Chain Management 1.70 x
Wireless 2.85 x
Vertical Market Software ApplicationsFinancial Services 2.88 x
Government/DoD/Homeland Security 1.07 x
Healthcare 2.37 x
Telecom 2.37 x
Other 2.51 x
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Sector Analysis - Digital MediaOverview
Creation
Publishing Distribution
Active buyer profile Jupitermedia
2005 transaction history
Active 4th quarter
Cross border emphasis
More acquisitions in 2006
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Sector Analysis - Enterprise ApplicationsActive market
Long history
Catalyst for consolidation
Acquisition Drivers specific to sector
Emerging / New markets
Private Equity Verticalization
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Sector Analysis - Internet Pure PlaysHow did we get here?
2006
Online businesses are up 25%
30% of households made online purchases
Active Internet sub sectors
Online Advertising
Paid Search
eCommerce
Niche / Specialized content sites
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Valuation Multiples
0.00
0.50
1.00
1.502.00
2.50
3.00
3.50
4.00
1H '01 2H '01 1H '02 2H '02 1H '03 2H '03 1H '04 2H '04 1H '05 2H '05
M&A Transaction Multiples - Software Industry
Source: Corum Group Research
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Key Factors Driving High Valuations
Rapid growth
High profitability
Recurring revenue Attractive business models
Current technology
Strong customer base
Specialized domain expertise
Distribution / channel strength
Brand recognition
Strong management and technology team(s)
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2006 Technology M&A Drivers
Strong economy: Russell 2000 all time high
Heavy investment in IT
Emerging markets: Asia, India, Israel
Heightened strategic buyer activity
Private equity enabling consolidation
Competitive M&A environment Development and adoption of new technology
Re-invention and acceptance of old business models
Convergence of once disparate technology silos
Greater acquisition interest in smaller firms
Flattened interest rates
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Question & Answer Session
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Contact Information
Presenters:
Bruce Milne, Chairman and CEO
Ward Carter, President
Ryan Blakely, Director of Research
Corum Group Ltd.10500 NE 8th Street
Suite 1500Bellevue, WA 98004USA+1 425 455 8281
Corum Group International S.a.r.lGlrnischstrasse 36CH-8022 ZurichSwitzerland+41 44 251 82 65
www.corumgroup.com
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Corum LinksVIP Pass for Corum's Selling Up Selling Out Conference
To take advantage of the special VIP offer for January 19th webinar attendees:
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