Corum Webinar Mid Year Update July 2006
Transcript of Corum Webinar Mid Year Update July 2006
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THE PREMIER PROVIDER OF M&A SERVICES TO SOFTWARE / IT COMPANIES
Software Mergers & AcquisitionsMid Year Update
July 2006
Corum Group Ltd.
Corum Group International S..r.l
www.corumgroup.com
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Opening Remarks M&A Review
Corum Transactions 1H:06
2H:06 Outlook
IPOs, Venture Capital and Private Equity
Sector Analysis
Valuations
What Will Drive Deals in 2006
Guest Speakers Questions & Answers
Agenda
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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 40% 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 Analysis - Recent Deals
MacDonald, Dettwiler & Associates / Mindbox Mindbox provides sophisticated decisioning software to automate knowledge intensive
business processes. Mindbox is especially strong in the financial services industry,specifically mortgage banking. Mindbox is based in Greenbrae, CA.
MDA, headquartered in Richmond, BC Canada, provides advanced information solutions tocapture and process vast amounts of data, produce essential information and improvedecision making.
MDA acquired Mindbox to expand their offerings to include advanced decision making andtheir presence in the US lender market.
Terms were not disclosed.
NICE / FAST Video
FAST Video is a Swiss developer of video systems for security and surveillance purposes.
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 complement theircurrent security offering.
The transaction was valued at $33 million plus earnout.
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Corum Transaction Analysis (continued)
Harland Financial Solutions / Financialware, Inc. Financialware, based Indianapolis, Indiana, is a leading provider of Enterprise Content
Management solutions specific to the financial services industry.
Atlanta based Harland Financial Solutions, a subsidiary of John H. Harland Company, suppliessoftware and services to financial institutions of all sizes.
Harland will integrate the Financialware ECM product into their core, lending, mortgage, item andpayment processing systems, providing a single view into all of a customers financial data.
Terms were not disclosed.
The Carlyle Group / UC4 Software
UC4 is an Austrian software vendor in the enterprise job scheduling and workload automationspace.
The Carlyle Group is a global private equity firm with investments across multiple industriesincluding technology and business services.
Terms were not disclosed.
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Corum Transaction Analysis (continued)
Wellpoint Systems Inc. / IDEAS International Inc. IDEAS International, a New Jersey-based company, develops sophisticated international financial
management software and professional services to the oil and gas industry.
Wellpoint Systems provides critical management software related services within the energyindustry. Wellpoint is based in Calgary, Alberta, Canada.
IDEAS brings a large install base, growing revenues and international operations to Wellpoint.
The transaction was valued at $6.15 million cash, including $1.4 million in common shares and$1.5 million in performance-based consideration.
NCR Corporation / IDVelocity, LLC
IDVelocity, located in Greensboro, North Carolina, develops end-to-end RFID solutions.
NCR, out of Dayton, Ohio, is a global technology company operating in a number of customer
centric industries like retail, data warehousing and banking.
NCR saw IDVelocity as an opportunity to extend their RFID solution portfolio and complementarywith other NCR technologies.
Terms were not disclosed.
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Corum Transaction Analysis (continued)
Apax Partners / Plexus Systems (Investment) Plexus, out of Auburn Hills, Michigan, offers on-demand (SaaS) manufacturing performance
system which automates business processes for discrete manufacturers.
Apax Partners is a leading global private equity investment group.
Terms were not disclosed.
Microsoft / iView iView is a UK developer of professional level digital asset management and cataloging software
for photographers and creative professionals.
Microsoft will expand their Digital Asset Management offering and continue to develop and supportthe iView product line for both the Mac and Windows operating systems.
Terms were not disclosed.
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Corum Transaction Analysis (continued)
Blue Cross Blue Shield of SC / REDmedic, Inc. REDmedic, out of Santa Clara, California, is a provider of online personal health information
services.
Blue Cross Blue Shield of South Carolina, an independent licensee of the Blue Cross Blue ShieldAssociation, has a number of technology subsidiaries which they are building through acquisitions.
Terms were not disclosed.
Confidential
Legal software provider acquired by large multi-national software and services company.
Terms were not disclosed.
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Momentum Continues
With an exceptionally strong first half complete, we lookforward to a similar close to 2006.
7+ companies currently under LOI or term sheets
Mining Software (Announced - Gemcom / Surpac Minex Group)
Compliance
Storage Management
Gaming
Services
Vertical Markets
Insurance
Government
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M&A Environment Macro View
Billion dollar+ strategic acquisitions are happening Disney / Pixar
EMC / RSA Security
Infor Global / SSA Global
Currently, the deal making climate is optimal Liquidity in equity & debt markets
Wall Street is receptive to smart, strategic deals
Fairly stable stock market
Competitive bids from the private equity community SOX compliance is better understood
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M&A Environment Technology Sector
Deal activity continues to accelerate in thetechnology industry
IT spending has stabilized and continues to grow inmany market segments
Executives are confident / support strategic acquisitions Companies are in growth mode vs. survival mentality of
past years
Elevated M&A activity puts pressure on all companies tobe in the M&A market in order to remain competitive andnot miss opportunities
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Is it 1998?
M&A levels are strong, but justified
Valuations are strategic, while sensible
New technology is pervasive, but real
Sellers are optimistic, but rational
Buyers are opportunistic, yet cautious
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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 1H:06
InBillion
M&A Dollar Volume IPO Amount Raised
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IPO Market
Number of IPOs increasing IPO candidates have gained financial stability
Positive perception of technology IPOs again
Drawbacks of being publicly held
High compliance cost
Greater management liability
Intense market scrutiny Less flexibility regarding corporate structure
Higher liquidity in M&A vs. IPO
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Venture Capital
Currently:
8 venture backed technology companies went public in Q2
74 venture backed technology companies exited via M&A in Q2
Ratio of VC backed M&A exits vs. IPOs 9:1
Investments in software companies rising
Post money valuations up, mainly due to slow IPO market
Overall the VC market is very stable
Going Forward:
VCs are actively seeking investments abroad
VCs are looking for a smaller quantity of higher qualityinvestments
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Total VC Investment in Software Industry
$500
$700
$900
$1,100
$1,300
$1,500
$1,700
Q3:02
Q4:02
Q1:03
Q2:
03
Q3:03
Q4;03
Q1:04
Q2:
04
Q3:04
Q4:04
Q1:05
Q2:
05
Q3:05
Q4:05
Q1:06
InMillion
Technology Investment Steady
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Private Equity
Currently: Buyouts continue to be a major driver of software M&A
Q2 was the third most active (All industries)
Private equity funds raised $24+ billion in Q1
Persistent interest in technology
Going Forward:
Continue to play a major roll in the consolidation of mature
markets Renewed confidence in resurgent IPO market
In an effort to differentiate, PEs are taking a more hands onapproach
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Active Buyers in 2006
Strategic Buyers Private Equity (Active)Microsoft - 12 Apax Partners
L-3 Communications - 8 Carlyle GroupIBM - 6 Francisco Partners
Oracle - 6 Golden Gate Capital
EMC - 6 Halo Technology Holdings
NeoMedia - 6 Thoma CresseyJupitermedia - 5
Sage Group - 4Think Partnership - 4
Numerous others with 3 transactions
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Software Sector Coverage
21 Markets Covered by Corum
Business Intelligence
Connectivity/Legacy Extension/WebServices
Digital Media
EngineeringEnterprise Applications
Enterprise Content Management
Enterprise Infrastructure
Gaming
Internet Infrastructure
Internet Pure PlaysIT Services
Security
Software Development Tools
Storage
Supply Chain Management
WirelessVertical Market
Financial Services Industry
Government/DoD/Homeland Security
Healthcare Industry
Other
Telecom
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Sector Statistics
Transaction volume by sector
Most Active Sectors
Vertical Market Applications
Internet Infrastructure
Enterprise Applications
Slow Sectors
Software Development Tools
Financial Services
Median transaction value all sectors 2005 $40 million
1H:06 $44.5 million
Approximately 60+ percent of technology transactions terms were not disclosed
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Sector Valuations
Software Sectors TTM EV/S Multiple
Business Intelligence 2.15 xConnectivity/Legacy Extension/Web Services 2.59 xDigital Media 2.82 xEngineering 2.71 x
Enterprise Applications 4.27 xEnterprise Content Management 1.46 xEnterprise Infrastructure 2.36 xGaming/Entertainment 1.44 x
Internet Infrastructure 3.57 xInternet Pure Plays 3.34 xIT Services 0.78 xSecurity 3.00 x
Software Development Tools 1.44 xStorage 2.43 xSupply Chain Management 1.58 xWireless 2.28 x
Vertical Market Software Sectors
Financial Services Industry 3.26 x
Government/DOD/Homeland Security 1.21 xHealthcare Industry 1.98 xOther 2.63x
Telecom Industry 2.02 x
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Sector Analysis
Enterprise Applications Vital to the operation of the enterprise
Mature market, forcing companies to grow inorganically
Rising cost of acquiring new market share
M&A Activity
Cross-border transactions
Compliance related solutions
Private Equity reshaping sector
Numerous PE firms active in Q2
Building on previous investments
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Sector Analysis
Internet Infrastructure
Driving forces
Strong public peer group valuations
Surge of new players to the market
Continued acceptance of new technology
Diminished concerns over the Internet model failing again
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Sector Analysis
Vertical Market Applications
Lead all sectors in deal volume
Interest in niche market technology
Micro Verticals with multiple transactions Education/eLearning
Natural Resources
Retail Solutions
Legal Solutions
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Valuation
Software valuations ttm
Transaction multiples have increased, but not at the samepace as deal volume
Transaction value differs from company to company and
market to market
High value strategic valuations do exist
Although many deals are in the 1x to 2x range
Financial metrics are elusive
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Key Factors Driving High Valuations
Rapid growth High profitability
Track record of sustainability
Recurring revenue
Attractive business models Current and robust technology
Strong customer base
Specialized domain expertise
Distribution / channel strength
Brand recognition
Geographic position of power Localized solutions
Strong management and technology team(s)
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2006 Technology M&A Drivers
Strong economy
Heavy investment in IT
Emerging markets: Asia, India, Israel
Heightened strategic buyer activity
Industry stalwarts expand scope of business Private equity enabling consolidation
Competitive M&A environment multiple offers
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
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Guest Speakers
Jason Wright, Principal Apax PartnersMr. Wright joined Apax in 2000 and is currently a member of the Financial
Business Services Group, focusing primarily on investments in the area ofsoftware as a service and technology.
Ken Hamlin, CEO IDVelocity
Mr. Hamlin is the Founder, CEO and corporate visionary for IDVelocity and has
been actively involved in the manufacturing software space with a number offirms throughout his career.
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Question & Answer Session
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Contact Information
Presenters:Bruce Milne, Chairman and CEO
Ryan Blakely, Director of Research
Corum Group Ltd.10500 NE 8th StreetSuite 1500Bellevue, WA 98004USA+1 425 455 8281
Corum Group International S..r.lGlrnischstrasse 36
CH-8022 ZurichSwitzerland+41 44 251 82 65
www.corumgroup.com
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Corum Links
VIP Pass for Corum's Selling Up Selling Out Conference
To take advantage of the special VIP offer for our July 18th Webinar attendees:
1) Go to Corum's conference registration page athttps://www.corumgroup.com/ConferenceRegistration.asp
2) Select the conference you wish to attend
3) Enter your Contact Information4) Enter Promo Code of WebJuly"
5) Check box "I preferred to be called for payment information." You will not becalled.
You will receive a complimentary VIP Pass to the conference.
Corum M&A Report
http://www.corumgroup.com/ResearchAndReportsregistration.asp