Ferguson Pitchbook

UBS Technology M&A

March 2005

Discussion of Current Industry Trends

STRICTLY CONFIDENTIAL

[yuanni] [printed: 03/14/05 17:59] [saved: 03/14/05 18:01] S:\intc\M&A\Projects\2005\Seth Conference\Merrill Corp Presentation_ppt.ppt

2

Table of Contents

SECTION 1 M&A Market Conditions 2

SECTION 2 M&A Drivers and Considerations 8

SECTION 3 UBS Overview 14

SECTION 1

M&A Market Conditions


4

M&A Volume in the US

¨ Large, strategic combinations are back—Proctor & Gamble / Gillette, JPMorgan / BankOne, Cingular / AT&T Wireless, Sprint / Nextel, Oracle / PeopleSoft, Symantec / Veritas, Johnson & Johnson / Guidant and Wachovia / SunTrust

¨ Significant financial sponsor activity in the middle market– Taking advantage of depressed market conditions and attractive debt markets

Current rebound in activity across all industries is reflective of a return to a healthier market

608

433

529

1,045

1,411

1,219

1,328

530

407

296

15411611097

0

250

500

750

1,000

1,250

1,500

1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

($ in

bill

ion)

Volume up 41% in 2004 vs. 2003

Source: Securities Data Corporation


5

Technology M&A ActivityTechnology M&A Volume Has Increased Steadily Since 2002 Lows

58 5898

157

65 46 47 65

2660

148

233

36

19 17

2524

$85

$143

$485

$124

$641522

65

95

$65

$311

$103

0

50

100

150

200

250

300

350

400

450

500

1997 1998 1999 2000 2001 2002 2003 2004

Dea

l Val

ue (U

S$ B

illio

ns)

0

500

1,000

1,500

2,000

2,500

3,000

No. of D

eals

> $10bn

$1bn - $10bn

< $1bn

No. of Deals

1997 1998 1999 2000 2001 2002 2003 2004

No. of Deals 1,133 1,409 1,862 2,648 1,705 1,318 1,329 1,508

Source: Securities Data Corporation

Note: Oracle/PeopleSoft included as 2004 transaction, original hostile offer was first launched in Q3 2003


6

M&A Deal Activity is IntensifyingMarket recovery in 2003 and stability in 2004 have increased corporate confidence and created an environment conducive to M&A transactions

¨ Technology companies are exiting defensive, "survive the downturn" mentality and reviewing strategic options – Recalibrating under invested businesses– Capturing upside as economic conditions continue to improve

¨ Technology M&A deal volume increased 60% in 2004– M&A pipeline is expected to be strong for 2005

281325 352 371 370 394

345399

100

200

300

400

500

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

2003 2004

102.6

$64.2$64.9

40

60

80

100

120

2002 2003 2004

(1%)60%

Number of Announced Transactions 1 Technology M&A Deal Volume (US$ Billions) 1

¨ 179 additional transactions were announced in 2004 compared with 2003

¨ Volume of discussions has intensified drastically

Source: Security Data Corporation

Note:1 Oracle/PeopleSoft included as 2004 transaction, original hostile offer was first launched in Q2 2003


7

Current Trends in Technology M&A

TREND OVERVIEW RECENT TRANSACTIONS

Resurgence in Deal Activity

A recovery in technology stock prices and increased corporate confidence have driven M&A activity – Companies have restructured their businesses and increased earnings – Companies are eager to make acquisitions to capture upside as market conditions improve

2004 marked the return of the Technology M&A “mega-deals” – Deals over $1 billion represented 36% of deal value in 2004, versus 27% in 2003 – Return of landscape shaping deals such as Symantec/Veritas, ARM/Artisan and the

completion of Oracle/PeopleSoft

IBM / Ascential ($1,100mm) Symantec / Veritas ($13,521mm) Lenovo Group / IBM PC Business

($1,300mm) CA / Netegrity ($451mm) Juniper / Netscreen ($3,816mm) Oracle / Peoplesoft ($10,300mm) ARM / Artisan ($933mm)

Sector Consolidation

Sector consolidation continues to drive M&A – As companies refocus on growth, they are seeking opportunities to expand product

offerings, acquire new technology and achieve critical mass – Regulatory environments created product opportunities for acquirors and at the same time

forced smaller listed firms to re-assess the pros and cons of operating on a standalone basis

3Com / TippingPoint ($408mm) Credence / NPTest ($663mm) Serena / Merant ($380mm) Cisco / NetSolve ($137mm)

Mm)

Stock Consideration

Stock consideration has become a more favorable M&A currency as technology stock prices have recovered – Most technology companies have been trading at or close to their three-year highs

In some recent deals, cash consideration has been linked to stock consideration as acquirors tap into the equity markets to raise funds for acquisitions – Improvements in capital markets have allowed companies to raise cash at a low cost through

convertibles or straight equity

Symantec / Veritas ($13,521mm) Safenet / Rainbow ($463mm) Credence / NPTest ($663mm)

– Issued convertible Serena / Merant ($380mm)

– Issued convertible

Private Equity Activity

Private equity players continue to show interest in acquiring technology companies – Some technology stocks have enjoyed only limited participation in the market recovery – Low interest rates have enabled private equity players to borrow at low costs to fund

acquisitions – The downturn has created companies with lower cost structures and higher profitability – The recent market recovery has provided private equity players with better exit opportunities

Carlyle / Insight ($2,100mm) Golden Gate Capital / Blue Martini

($54mm) Veritas Capital / DynCorp from

CSC ($850mm) Bain Capital, Silver Lake Partners,

Warbug Pincus / UGS PLM from EDS ($2,050mm)


8

M&A and IPO Activity in the Technology SectorNumber of Announced M&A Transactions and IPO Filings

Source: Securities Data Corporation and UBS Equity Capital Markets Group

Note: Oracle/PeopleSoft included as 2004 M&A transaction, original hostile offer was first launched in Q3 2003

1,133

1,409

1,862

2,648

1,705

1,318

1,508

1,329

124

100

309

235

23 19 21

60

0

500

1,000

1,500

2,000

2,500

3,000

1997 1998 1999 2000 2001 2002 2003 2004

No. o

f A

nnounce

d M

&A

Dea

ls

0

50

100

150

200

250

300

350

No. o

f IPOs Filed

M&A IPO

SECTION 2

M&A Drivers and Considerations


10

Principal Drivers of Technology M&A

Achieve Scale

Critical mass and financial strength Customer leverage Increased distribution and sales support Market position consolidation Leapfrog competition

Expand Product Offering

New market entry — product or geography Capture new customer bases Buy vs. make — time to market Engineering talent and/or management acquisition Off-income statement R&D

Offer Complete Solution

Fill product gaps Capitalize on installed base Accelerate time to market Strengthen channel partnerships Offer one-stop shop


11

M&A Considerations

Business Rationale

Compelling strategic rationale Create or consolidate market leadership position Essential new technologies, markets or products

Financial Considerations

Transaction multiples compared to public comparables and precedent transactions Impact on combined company revenue and earnings growth trajectories Effect on margins Revenue and cost synergies EPS accretion / dilution

Market Reaction

Market perception of target company / merger partner Consistent, simple to understand story Financial parameter clarity Price paid / consideration mix

Execution Risk

Time to closure Anti-trust / regulatory Tight contract terms Integration strategy

A number of factors to consider in pursuing any M&A transaction


12

Process ConsiderationsPublic Offering Versus Sale

Initial Public Offering Sale of Business

PROS:

¨ Primary shareholders retain voting control and existing management continues to execute the strategic vision of the business

¨ Proceeds from an IPO can be used to increase scale through acquisitions or fuel organic growth

¨ Shareholders can participate in potential upside should the business continue to execute and market conditions remain favorable

CONS

¨ The organization must take on the costs associated with public filing and compliance requirements while managing greater scrutiny by investors

¨ An IPO lock-up prevents current shareholders from achieving immediate liquidity

¨ There is a high degree of uncertainty in future capital market conditions

¨ There is the potential for a downside in valuation should the business lose traction

PROS:

¨ Reduces or eliminates execution risks of the current business plan as well as future capital market uncertainties

¨ M&A valuation includes control premium

¨ Can offer a more immediate path to liquidity for current shareholders

¨ Avoids the costs associated with being a public company

¨ Partnering increases opportunity to cross-sell and up-sell through larger distribution platform and gain rapid critical mass to better compete

CONS:

¨ Primary shareholders relinquish voting control and new management executes the strategic vision of the company

¨ Cash transactions eliminate the upside participation in the pro forma company

¨ Integration and execution risk of combined business


13

30%

36%

39%

40%

52%

61%

0% 10% 20% 30% 40% 50% 60% 70%

ERP

Business Intelligence

Record Management

Process Control

Storage

Security

0500

1,0001,5002,0002,5003,0003,5004,000

2003 2004 2005 2006 2007

($ m

illio

ns)

Advisory Services IT Spending

Sarbanes-Oxley 404 Compliance

Benefits Costs

¨ Intended to restore investor confidence in U.S. public markets

¨ Drives greater consistency and transparency in reported filings

¨ Increased executive accountability over financial reporting

¨ Increased spending at the CFO and CTO level to meet compliance criteria

¨ Increased cost of being public, especially small cap companies

¨ Entails significant allocation of resources

¨ Not meeting SOX deadline requirements or announcing inadequacies in significant controls can have negative effect on stock price– UTStarcom– Chordiant Software– Interpublic Group

Advisory Services Vs. IT Spending Mix for SOX Compliance

Anticipated Technology Spending to Support SOX Compliance

Source: Forrester Research survey of 454 technology decision-makers Source: Gartner 2004 estimates


14

Typical Timing of an M&A TransactionIllustrative Timeline of a Sell-Side Controlled Auction Engagement

Negotiations and Closing

Negotiate and sign definitive agreement

Closing

Due Diligence and Preparation

Marketing

Preparation of management presentation

Initiate contact with buyers

Activity

Due diligence meetings

Information Memorandum

Finalize buyer list

Deliver Information Memorandum

Finalize management presentation and data room

Buyer due diligence

Receipt and review of final proposals

Organizational meetings

Action

Weeks

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17

SECTION 3

UBS Overview


16

UBS—A Leading Global Financial Services Firm

“Wall Street Powerhouse”FORBES 2004

The UBS WayBLOOMBERG 2004

World’s Best Investment BankEUROMONEY 2004

World’s Best BankEUROMONEY 2003

Best Investment BankTHE ECONOMIST 2003

World’s Best Investment Bank INVESTMENT DEALERS’ DIGEST 2002

“UBS is a banking giant but, a Wall Street powerhouse? Oh Yes.

This is a house… that’s grown out of its regional shell to assume premier proportions in world finance. But it’s the push into the rarified realm of Investment Banking that sets UBS apart. ”“BIG KID ON THE BLOCK”

FORBES

“UBS has achieved what once seemed impossible for any European investment bank: it has broken into the front rank in the US market, source of roughly half the global investment banking fee pool. In the 12 months ending in April 2004, it doubled its share in announced US M&A deals. ”WORLD’S BEST INVESTMENT BANK

EUROMONEY 2004

Our strength is backed by industry accolades


17

UBS—A Leading M&A Advisor with Rapid Improvement in Market Share

2003–2004# of Transactions / Market Share 1

2003–2004 Market Share versus 2000—2002

Notes: Data represents all M&A deals worldwide greater than $100 million in transaction value. Full credit given to acquiror and target advisor(s). Excludes withdrawn deals, equity carveouts, exchange offers, and open market repurchases

1 Market share based on number of transactions. Market shares do not sum to 100% due to multiple advisors on each transaction (e.g., target advisor and acquiror advisor)UBS has positioned itself as one of the leading M&A advisors worldwide and has

unprecedented momentum, capturing more market share than any other bank since 2002

6.4%

8.1%

8.5%

8.6%

10.4%

10.8%

12.2%

13.0%

13.8%

14.8%

Lazard

Lehman Bros

Merrill Lynch

Deutsche Bank

CSFB

Morgan Stanley

Citigroup

JP Morgan

Goldman Sachs 459

426

403

377

333

322

265

262

252

197 (38%)

(23%)

(11%)

(5%)

(2%)

(1%)

+3%

+6%

+9%

+23%

CSFB

Merrill Lynch

Morgan Stanley

JP Morgan

Citigroup

Goldman Sachs

Lazard

Deutsche Bank

Lehman Bros


18

February 2005 US$415 million Sale to eBay

February 2005 US$850 million Sale of Selected DynCorp Units to Veritas Capital

November 2004 US$137million Sale to Cisco Systems

July 2004 US$170 million Sale to FindWhat.com

May 2004 US$663 million Acquisition of NPTest

May 2004 US$380 million Sale to Serena Software

March 2004 US$463 million Sale to SafeNet

January 2004 US$601 million Sale to Manpower

January 2004 US$467 million Financial Restructuring

November 2003 US$295 million Sale to NetScreen

Overview of UBS Technology M&A Group

¨ Strong technology-focused M&A presence with deep industry knowledge and company relationships

¨ Experienced in a wide range of advisory assignments– Buyer advisory– Seller advisory– Cross-border transactions– Merger of equals– Shareholder value protection– Leveraged transactions

Technology M&A Expertise 2004 Technology M&A Transactions Less Than $1 Billion

Source: SDC

Financial Advisor Rank Value ($mm) No. of Deals

Goldman Sachs & Co 1 7,168.2 17 Morgan Stanley 2 6,025.4 22 Credit Suisse First Boston 3 5,187.3 15 UBS 4 4,476.8 11 JP Morgan 5 4,375.4 14 Banc of America Securities LLC 6 2,148.2 5 Citigroup 7 2,114.1 12 Jefferies & Co 8 2,093.0 21 Lehman Brothers 9 1,560.4 9 Rothschild 10 1,492.6 3

Selected Recent Transactions


19

Contact Information

UBS Securities LLC555 California StreetSuite 4650San Francisco CA 94104Tel. +1-415-352 5650

www.ubs.com

UBS Investment Bank is a business group of UBS AGUBS Securities LLC is a subsidiary of UBS AG

This presentation has been prepared by UBS Securities LLC (“UBS”) for the exclusive use of recipient (together with its subsidiaries and affiliates, the “company”) using information provided by the company and other publicly available information. UBS has not independently verified the information contained herein, nor does UBS make any representation or warranty, either express or implied, as to the accuracy, completeness or reliability of the information contained in this presentation. Any estimates or projections as to events that may occur in the future (including projections of revenue, expense, net income and stock performance) are based upon the best judgment of UBS from the information provided by the company and other publicly available information as of the date of this presentation. There is no guarantee that any of these estimates or projections will be achieved. Actual results will vary from the projections and such variations may be material. Nothing contained herein is, or shall be relied upon as, a promise or representation as to the past or future. UBS expressly disclaims any and all liability relating or resulting from the use of this presentation.

This presentation has been prepared solely for informational purposes and is not to be construed as a solicitation or an offer to buy or sell any securities or related financial instruments. The company should not construe the contents of this presentation as legal, tax, accounting or investment advice or a recommendation. The company should consult its own counsel, tax and financial advisors as to legal and related matters concerning any transaction described herein. This presentation does not purport to be all-inclusive or to contain all of the information which the company may require. No investment, divestment or other financial decisions or actions should be based solely on the information in this presentation.

This presentation has been prepared on a confidential basis solely for the use and benefit of the company; provided that the company and any of its employees, representatives, or other agents may disclose to any and all persons, without limitation of any kind, the tax treatment and tax structure of the transaction and all materials of any kind (including opinions or other tax analyses) that are provided to the company relating to such tax treatment and tax structure. Distribution of this presentation to any person other than the company and those persons retained to advise the company is unauthorized. This material must not be copied, reproduced, distributed or passed to others at any time without the prior written consent of UBS.

Ferguson Pitchbook

Documents

Transcript of Ferguson Pitchbook