Corum Webinar Jan 19 2006

8/8/2019 Corum Webinar Jan 19 2006

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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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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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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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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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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


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



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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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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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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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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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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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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 Webinar Jan 19 2006

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Transcript of Corum Webinar Jan 19 2006