q3q3--2008 review2008 review - corum group...corum group presentation 2. liquidity in troubled times...

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Q3Q3--2008 Review2008 ReviewQ3Q3--2008 Review2008 ReviewSoftware and IT M&A Outlook:Tech M&A: Liquidity in Troubled Times?Tech M&A: Liquidity in Troubled Times?

Tuesday, October 21, 20089 00 am 10 30 am PT

www.corumgroup.com

9:00 am – 10:30 am PT

Liquidity in Troubled Timesy

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

Liquidity in Troubled Timesy

So, how do you preserve wealthSo, how do you preserve wealth and fight back?

Is now a good time to test the markets?markets?


Six Benefits of a Global Search

Software/IT M&A is still very active

The tech sector is doing better than mostg

Transactions are yielding very attractive relative value

It’s a defensive move

New relationships may enhance your valueNew relationships may enhance your value

You’ll improve your business model


Middle Market Software M&A Specialistsp

M&A specialists since 1985

Software and IT experts – mostly former CEOs

Offi i E C d L ti A i d U it d St tOffices in Europe, Canada, Latin America and United States

200+ transactions completed

$6 billion in wealth created

60% cross-border transactions

Host of Selling Up Selling Out conferences

H t f lti ti l M B i fiHost of multi-national Merge Briefings

Sponsor of World Financial Symposiums conferences

Publisher of industry-leading M&A research


Agendag

11Market Insights

22International Activity

33Sector & Transaction Analysis

44Discussion


Headlines Tell the Storyy

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

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

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

“M&A – The Best Investment Game in Town”M t UK M 2007

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

“Wall Street Beat: IT M&A Provides Opportunities”Washington Post, March 2008

Moneyextra.com UK, May 2007

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

“Small M&A Deals Flourish”IDG News, June 2008

“Wall Street’s Crisis Hurts Companies Big and Small”Wall Street Journal, September 2008

“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

“Worst Crisis Since ‘30s, With No End Yet in Sight”Wall 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 2008”Reuters, December 2007

“Tech’s Next Step: More M&A?CNET, October, 2008

“Markets 7-Day Rout Leaves U.S. Reeling”Wall Street Journal, October 2008


Reuters, December 2007

Good Times Over?

Widespread impact of mortgage market fallout

Financial institutions failing

World financial markets in turmoil

Coming off the worst one-day market decline in historyg y y

Credit markets shut down

Uncertainty regarding bailout plan

Economic indicators negative

In spite of problems, M&A deals are getting

done.Economic indicators negative

IPOs continue to contract

Energy and commodity prices declining

Important not to get carried away with the

doom and gloom. But be realistic

Consumer spending slowing

Corporate earnings down

Recession a reality

But, be realistic.


y

Corum Software Peer Group valuations down

Impact on Equity Markets

10

y

‐10

0

1‐Oct‐07 1‐Nov‐07 1‐Dec‐07 1‐Jan‐08 1‐Feb‐08 1‐Mar‐08 1‐Apr‐08 1‐May‐08 1‐Jun‐08 1‐Jul‐08 1‐Aug‐08 1‐Sep‐08 1‐Oct‐08

30

‐20

Nasdaq

‐40

‐30 NYSE

S&P 500

FTSE

TSX

Rate Cut

kes Hold

Mae

Bailout

/barrel

oms

d AIG Fall

Bailo

ut

‐60

‐50

ency In

terest R

Recession Tak

Mac/Fan

ny M

f Oil at $145/

Recession Loo

oint Rate Cu

t

earns Falls

n, M

errill an

d

Governm

ent


‐70 Emerge

Fear of

Fred

dy

Price of

Fear of

Half‐po

Bear St

Lehm

a

Globa

l

Turmoil Creates Opportunityy

Even during tough times, technology creates new opportunities…

New IT expenditures slowing

MicroFocus is a provider of application modernization and management software

Takes advantage of companies spending less on new IT by modernizing oldTakes advantage of companies spending less on new IT by modernizing old

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

What the Analysts Are Sayingy y g

Top 10 Application Software Companies by Market CapCompany Current Month Three Months agoCompany Current Month Three Months ago

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






Strong Buy 4 Buy 3 Hold 5 Strong Buy 2 Buy 4 Hold 5Strong Buy 4 Buy 3 Hold 5 Strong Buy 2 Buy 4 Hold 5




g y y g y y


Large Cap Tech Stocks

Company Stock Price 10/15/2007

Stock Price 10/15/2008

% Change Year AgoCash

Current Period Cash

g

Sun $6.11 $4.97 ‐18.66% $3,620 $2,700

Microsoft $29.60 $22.66 ‐23.45% $6,111 $21,170

IBM $116.24 $88.29 ‐24.05% $14,991 $9,850

HP $50.90 $38.61 ‐24.15% $11,293 $14,850

Oracle $22.07 $15.95 ‐27.73% $6,218 $13,020

Symantec $20.59 $14.04 ‐31.81% $2,559 $2,290

SAP $54.53 $33.73 ‐38.14% $3,151 $2,040

Apple $166.98 $97.95 ‐41.34% $9,352 $20,770

Google $620.11 $339.17 ‐45.30% $6,082 $12,730

Cisco $32.79 $16.57 ‐49.47% $3,728 $26,240

EMC $22.56 $9.77 ‐56.69% $4,482 $5,860

Nokia $35.48 $15.11 ‐57.41% $3,130 $11,020


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

Sellers’ Concerns

Duration of downturnDuration of downturn

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

Regulatory / Anti trust impact on marketsRegulatory / Anti-trust impact on markets

How to achieve Liquidity

All reasons to be in market now


All reasons to be in market now.

Things To Do Now

Adjust quickly to changing times

g

j y g g

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

Expand your reach with partnerships and broader channelsExpand your reach with partnerships and broader channels

Arrange relationships in advance of funding or M&A event

Keep your foot on the gas – don’t be a deer frozen in the headlights

. . . All in same boat – no quick fixes


The Silver Lining

On the plus side:On the plus side:Buyout firms have capital to invest

Technology revenues and IT spending steady

E i i tl itiEarnings 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

Strong cash reservesStrong cash reserves

Deals are getting done for quality companies


Current M&A Market

Broad Market Technology MarketBroad Market

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

Technology Market

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

St t i b i tiUnsolicited and hostile deals rose almost two-fold to 22.1%

Overall Deal Volumes down 25%

Strategic buyers remain active

Private equity getting back into the game

Consolidation continues across most t• Strategic 16%

• Private Equity 74%sectors

Companies of all sizes continue to be aggressive buyers

C i i i t iCompanies in emerging countries are viewed as buyers, not just targets• Asia• Eastern Europe• Latin America


Public Valuation Multiples

Median EV/S Multiples

2

3

p

1

2

Q1:08

0

Q1:08

Q2:08

Q3:08


Private Equity – Credit Impacty

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

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-backed

strategic acquisitions by portfolio companiesstrategic acquisitions by portfolio companies

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

melt-down

Private Equity on sidelines, waiting for market to bottom?


Private Equity on sidelines, waiting for market to bottom?

Strategic Buyers Still Activeg y

Filling void left by private equityFilling void left by private equityLess impacted by credit crunch

Strong balance sheetsg

Equity values down

Doing deals under currently favorable antitrust environment

Business as usual for many

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

Converging markets / new models spur M&AConverging markets / new models spur M&A

Accommodate sellers looking to close deals before tax increases


Update: A Recently Launched Corum Client

Client Profile:Vertical market software company

North America based

Market leader – one of 4 good optionsMarket leader one of 4 good options

Strong technology, team, business model

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

A ti itActivity: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

Outlook: Optimistic – offers best solution in competitive market


Outlook: Optimistic – offers best solution in competitive market

Interest Translating into Dealsg

Current examples of

Mobilebuyer interest across multiple sectors:

LOIs and

Vertical MarketSecurity

Sector Interested Parties

Internet Infrastructure 17Marketing 16Vertical Market 16 LOIs and

OffersVertical Market 16Financial Services 15Security 14Compliance 14Gaming 12

E-LearningSOA

Embedded Technologies 12

Interested parties from billion-dollar household names to unknown companies


Global M&A Activityy

Feeling effects of U S credit crisisFeeling effects of U.S. credit crisis

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

U S sellers continue to look overseas for buyersU.S. sellers continue to look overseas for buyers

Weak dollar attracting non-U.S. buyers

Strong € makes European targets attractive to acquisitive international buyers looking to increase revenues and profits based in stronger currency


Global Marketplace

60% f C ’ t t ti b d60% of Corum’s recent transactions are cross-border

Cross-border60%

I t tIntra-country40%

A trend holding steady and seen throughout the technology industry


A trend holding steady and seen throughout the technology industry

International Scope

Buyers less likely to be local

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


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

View international companies as both competitors and potential acquirers

Recent Corum Transactions

Provider of applications support maintenance

Developer of collaborative 3D support maintenance

services (ASM)

Sierra Systems – CanadaRIS – Canada

authoring technology

Microsoft – U.S.Caligari – U.S.

IT services provider to government and commercial organizations

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

TechTeam – U.S.RL Phillips – U.S.

g g

UC4 – Austria backed by Carlyle (UK)AppWorx – U.S.

Provider of payment processing software and service

Purepay U S

Provider of estimating and earth measuring software for contractors

M ll U S


Purepay – U.S.Creditron – Canada

Maxwell – U.S.Quest – U.S.

Recent Corum Transactions (Cont.)

Electronic invoicing and legal spend management

l ti

Developer of 3D digital designs in the building,

l t d i k t solutions

DataCert – U.S.CorpraSoft – U.S.

plant and marine markets

Autodesk – U.S.NavisWorks – UK

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

HR information systems for middle market enterprises

Datatec – South Africa on behalf of WestconCRANE – UK

BPO – U.S.HR Microsystems – U.S.

Provider of estimating and earth measuring software for contractors

Networking and lobby services for game publishers & developers


Glaston – FinlandAlbat+ Wirsam – Germany

Activision – U.S.DemonWare − Ireland

Recent Corum Transactions (Cont.)

Human capital management IT services and consultingsolutions

StepStone − NorwayExecuTRACK − Germany

g

Ness Technologies − IsraelLogos − Czech Republic

Provider of network booting technology

Provider of security software applications to the System i platform

Double-Take Software – U.S.emBoot - Canada

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

Leading competency-based, learning and development software company


p y

Salary.com – U.S.InfoBasis – UK

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

United States

$15,391.00

$2,424.00

‐$22,974.00

‐$21,414.00

United Kingdom

France

D l $ I fl

$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

International Buyer Activityy y

Need to Look InternationallyBuyer 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

Capgemini Getronics Inc $399 80Capgemini Getronics, Inc $399.80

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 Energy $445.00


gy $

Infosys Technologies Axon Group* $753.10

*Seller looking at competitive bid

India

Talk translates to action – India is shoppingO th l t 18 th I di h b bi b th llOver the last 18 months, India has been a bigger buyer than seller

BRIC nations’ buy vs. sell ratiosIndia 1 to 1Russia 0.3 to 1China ~ 0.1 to 1Brazil ~ 0.1 to 1

Representative Q3 TransactionsBuyer Seller Deal Value

HCL Technologies Liberata Financial Services Undisclosed

Cranes Software Cubeware GmbH Undisclosed

Representative Q3 Transactions

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


International Buyersy

Non-North American Private Equity

International Strategic Buyers

Imperative to Look Globally

• PE acquisitions impacted somewhat less than those in North America

• Fundraising 12 month rolling

• Flush with cash and putting to use

• Leveraging the value of the Euro

• International expansion necessary to remain competitive

O tl k d di• Fundraising 12 month rolling average peaked in Q1 and now declining

• Debt financing still elusive

Euro

• Targeting U.S. companies

• U.S. economic lag creating feeling of uncertainty

• Outlook good regarding outbound M&A from Asia

• Over 1/3 of first half 2008 M&A worldwide was cross-border

• Sovereign funds continue supporting private equity


Corum’s Market & Sector Alignmentg

Horizontal Application Software Infrastructure SoftwareHorizontal Application Software Infrastructure Software

Vertical Application Software Internet

Consumer Application Software IT Services and BPO


Software and IT M&A Activity YTD 2008y

Where are the deals happening?pp g

25%

30%

15%

20%

25%

Q1

5%

10%Q2

Q3

0%

Horizontal Applications

Vertical Market Applications

Consumer Applications

Infrastructure Internet IT Services


Software and IT M&A Activity – A closer looky

Horizontal Application Software Marketpp

Current Trends:Public company valuations stableDiverse group of buyersM k ti ft b t CRM tMarketing software boosts CRM sectorCommunications related technologies saw increased deal activity

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

Communications

Content Management

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

Content Management

Customer Relationship Management

Enterprise Resource Planning

Human Resources

Other


Supply Chain

Top Buyersy

Strategic BuyersActive Private Equity FirmsCompany # of Deals # of DealsCompany # of Deals

2007# of Deals

Q1-Q3 2008Google 15 3

Microsoft 11 16

Oracle 10 7

PE Firms (partial list)

Carlyle Group

Francisco PartnersOracle 10 7

Cisco 9 4

IBM 9 10

HP 7 4

Thoma Cressy Bravo

Golden Gate Capital

Silver Lake PartnersNuance 7 2

SunGard 7 5

Accenture 6 6

Dell 6 1

Apax Partners

Vista Equity

P ll di E i PDell 6 1

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

What Buyers are Looking Fory g

An inside look at what buyers are telling us they want

General considerationsVertical market penetration and domain expertise

Profitability not a requirement, but strongly preferred

Emerging countries growing in popularity

Revenue considerationsEmphasis on SaaS and recurring maintenance streams

Some buyers have lowered their revenue minimums

Many PE firms have a $2 million EBITDA minimum thresholdMany PE firms have a $2 million EBITDA minimum threshold

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


Q3 Transaction – A closer look

International Security Vendors Join Forces

Antivirus security softwareFY 2008 revenue of $213 million

Data encryption softwareFY 2007/08 revenue of €59 2FY 2008 revenue of $213 million

Headquartered in the U.K.FY 2007/08 revenue of €59.2Headquartered in Germany

Deal: €217 million ($314 million) for 75 5%€217 million ($314 million) for 75.5%Largest deal ever completed by SophosSophos took on debt to finance the transaction

Synergies:E d S h ’ iti i t d i t itExpands Sophos’ position into endpoint securityIncreased scale of combined entity will create a more competitive firmBroaden global presence

Other Details:


Ot e eta sPrivate company acquires public companySophos pulled IPO last year, but adding Utimaco positions them re-new idea of IPO

Transaction Highlights – Strategicg g g

Buyer Seller Value (Millions) Sector

Cisco Systems Jabber Undisclosed

Red Hat, Inc. Qumranet $107

Comcast Interactive DailyCandy $125 (est)

JDA Software Group i2 Technologies $346JDA Software Group i2 Technologies $346

AOL Socialthing Undisclosed

ObservationsHeightened 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

Transaction Highlights – Private Equityg g q y


ABRY Partners Q9 Networks $339

Hellman & Friedman LLC SSP Group Holdings $393

Bedford Funding Authoria, Inc. $63

Marlin Equity Chelford Group plc UndisclosedMarlin Equity Chelford Group plc Undisclosed

JMI Equity Halogen Software Undisclosed

ObservationsTier 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

Transaction Highlights – Cross-Borderg g


Serco Group plc SI International $423

Sophos plc Ultimaco Software AG $338

GameTap Metaboli SA Undisclosed

T SA Fi i l Obj t l $53 6Temenos SA Financial Objects plc $53.6

Nokia Oz Communications Undisclosed

ObservationsDeal Drivers - global expansion, local domain expertise, scale


All markets and sub-sectors are being targeted

Regions leading the charge – Asia, Central and Eastern Europe

Transaction Highlights – Largestg g g


Brocade Communications Foundry Networks $3000

Infosys Technologies* Axon Group plc $753

Microsoft Corporation GreenField Online $486

T l t GIT S A DTN E $445Telvent GIT S.A. DTN Energy $445

McAfee Secure Computing $486

ObservationsOnly one transaction north of a billion


All strategic buyers

Defensive acquisitions to better compete with larger competitors


Corum Q3 M&A Briefingg

Horizontal Applications S ftReport Highlights

Technology market overview Current view on economy, top buyers, hot sectors

Software

Vertical Market Application Software

y, p y ,

Strategic buyer spotlightAutodesk

Technology Spotlight

Consumer Application Software

Technology SpotlightSocial Networking

Valuation data Infrastructure Software

International perspective on M&A

In-depth sector coverage Internet


IT Services and BPO

Contact Information

Corum Group Ltd.

Bruce Milne, Chairman

Ward Carter, Presidentd @[email protected]

Ryan Blakely, VP [email protected]

Corum Group International S.à.r.l.

Miro Parizek, Managing Director

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

g [email protected]

Beim ParadeplatzBasteiplatz 78001 Zü i h

Visit our Website at

+1 425-455-8281 8001 ZürichSwitzerland

+41 44 251 82 65


Visit our Website at www.corumgroup.com

q3q3--2008 review2008 review - corum group...corum group presentation 2. liquidity in troubled times...

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