l e a d e r s s u r v e y

Q4 2013

M&A Leaders Survey – Morrison & Foerster / 451 Research Q4 2013 2

This is the fourth semi annual survey produced by MoFo and 451 Research, with the latest poll querying technology insiders and dealmakers on topics that included:

• the level of M&A activity over the past six months, as compared to the previous two years;

• their expectations of M&A activity over the next six months compared with activity for 2013 to date;

• their expectations regarding valuations, IPO activity and competition among prospective buyers;

• their prognosis for the market over the next five years; and

• the roles of talent acquisition and employee retention in deal structure.

I. Market Analysis and Outlook

Our new survey found participants modestly bullish about the pace of mergers and acquisitions. A slight plurality said the past six months generated more deal activity than at any point in the past two years. More strikingly, those expecting M&A activity to pick up in the next six months into 2014 outnumbered those projecting a slowdown by a seven-to-one margin. At the same time, more respondents predicted an uptick in the number of bidders vying for deals, as well as an increase in private company valuations two distinct markers for more deal traction.

Asked to compare the level of M&A activity over the past six months with similar periods over the past two years, 40 percent of respondents reported an increase, compared to 36 percent who indicated they had been less active. The results are nearly identical to survey responses in April 2013 and in October 2012, after a 10-percentage-point increase following our April 2012 survey.

M&A Leaders SurveyMorrison & Foerster / 451 Research

Tech industry dealmakers are showing clear signs of optimism this fall about the recent pace and forward momentum of M&A activity, according to the latest M&A Leaders Survey conducted by Morrison & Foerster in partnership with 451 Research, a syndicated technology research firm. Our latest survey harvested data and comments from nearly 200 insiders within the technology M&A community, including C-suite and business development executives, in-house counsel, investment bankers, venture capital investors and financial advisers. They represent an elite pool of knowledge within the tech sector.

M&A activity in previous half-yearSurvey date More active Typical level Less activeOctober 2013 40% 24% 36%

April 2013 40% 24% 36%

October 2012 39% 24% 37%

April 2012 51% 26% 23%Source: M&A Leaders’ Survey from 451 Research / Morrison & Foerster

M&A Leaders Survey – Morrison & Foerster / 451 Research Q4 2013 3

Looking forward, however, the percentage of those expecting contraction was much lower than those who had recently experienced it. Over the next six months, 50 percent of participants expect M&A activity to increase, versus just 7 percent anticipating a decline. The low number of bearish responses is in sharp contrast to the April 2013 survey, when nearly 20 percent projected a decline in deal flow.

This tempered optimism requires some caveats. As Brenon Daly (research director for M&A at 451 Research) points out in his survey analysis, in each of the four M&A Leaders Surveys conducted since April 2012, 20 percent or fewer of respondents forecast a slowdown – yet in each of the last three surveys, 36 to 37 percent reported reduced M&A activity in the previous six months. As Daly points out, M&A forecasts have a tendency to get ahead of reality, not unlike projections of GDP.

451 Research reports that tech M&A volume globally is down 15 percent from where it was a year ago, and down even more compared to the same period in 2011. “The prolonged downturn may be a secular – rather than cyclical – change in the multibillion-dollar tech M&A market,” Daly writes. “More than a few buyers and advisers say they are adjusting their acquisition plans to this ‘new normal.’” Although overall deal volume has been down, for practitioners with clients pursuing large, high-profile M&A deals, such as the $21.6 billion acquisition by MoFo client SoftBank of Sprint, and Sprint’s $4 billion acquisition of Clearwire, 2013 (like 2012) has continued to present significant dealmaking opportunities.

II. Five-Year Forecast

The latest survey posed a new question to tech dealmakers: What is the likelihood that M&A spending will return to pre recession levels within five years? Forty percent felt confident that spending will recover to those levels by 2018, while another 31 percent put the odds at 50-50. We note that spending would have to roughly double to reach 2006-07 levels – and that “growth has . . . been tough to come by for many of the most active acquirers” in the tech industry.

Asked what it would take to restore M&A activity to pre recession form, our participants were split between a focus on current market leaders and on the next generation. Some look to top-line growth in industry giants: “Valuations for the largest consolidators need to come back,” said one participant, while another noted, “The desktop business is being disrupted by cloud, mobile and app vendors . . . if the large vendors do not acquire they will become disrupted.” Others look through the other end of the telescope: What’s needed, said one executive, is a “continued active IPO market so the buyer universe is expanded.” Another expands on that point: “The stage is being set with a significant group of newly public companies who will be transitioning into M&A mode as they settle into being public.”

M&A spending outlook for the next six months Survey date Increase Stay the same DecreaseOctober 2013 50% 43% 7%

April 2013 54% 27% 19%

October 2012 49% 34% 17%

April 2012 59% 33% 8%Source: M&A Leaders’ Survey from 451 Research / Morrison & Foerster

Response PercentAbsolutely will not recover 2%

Probably will not recover 27%

50/50 chance it will 31%

Probably will recover 35%

Absolutely will recover 5%Source: M&A Leaders’ Survey from 451 Research / Morrison & Foerster

What is the likelihood that M&A spending will recover to prerecession levels?

M&A Leaders Survey – Morrison & Foerster / 451 Research Q4 2013 4

Many respondents focused on macroeconomic issues. Comments variously cited the need for growth in Europe, China and other in emerging markets, as well as important domestic sectors for acquisition, such as government procurement. Many naturally call for a moderation of U.S. government dysfunction, e.g., “resolution of the federal budget brinksmanship.”

III. Valuation and Competition

The recent heating up of the IPO market may prove a spur to M&A activity, with the successful public offering of Twitter (which had been anticipated during our survey period) putting upward pressure on target company valuations. Asked about competition for deals in the past year, 38 percent see more bidders emerging for targets, vs. 25 percent expecting a drop-off in rivals. A similar split occurs over valuations of private companies: 36 percent predict prices will increase, while 21 percent foresee a decline.

451 Research notes a divide among valuations in the current market, with double-digit multiples paid for a few star performers, offset in the broader market by the shrinking number of buyers, providing leverage to acquirers. This is occurring at a time when the Nasdaq continues to be at its highest levels since 2000 and the S&P 500 consistently makes new record highs.

IV. Deal Structure and Human Capital Considerations

In addition to polling dealmakers on the direction of the market for corporate transactions, the latest M&A Leaders Survey recorded their perceptions on employee-related elements of deal structures. These include the frequency of transactions that can be viewed as “acqui-hires,” the most effective retention mechanisms, and the extent to which employee retention is likely to drive new deal structures.

In an interesting nuance to the latest results, respondents expect a significant emphasis on the human capital aspects of deals heading into 2014. Half of those surveyed forecast that dealmakers will place a greater focus on assessing talent at target companies prior to acquisition, vs. only 2 percent anticipating a decreased focus on talent. Meanwhile, 40 percent expect increased exploration of new deal structures for retaining key employees post acquisition, while just 4 percent expected such exploration to decrease. A smaller number (30 percent) predict an increase in M&A primarily as a means of acquiring employees (the acqui-hires), while 12 percent anticipate a decline.

Almost half of respondents report that they have often seen both the price and structure of an acquisition affected by the need to incentivize a target’s employees. Executives found the strongest retention incentive to be the granting of new stock options or RSUs (restricted stock units), with 87 percent rating them “somewhat” or “very” effective. Next was the payment of future cash bonuses, rated effective by 80 percent, followed closely by payment of future performance-based cash bonuses (also 80 percent, albeit trailing slightly in the “very effective” category).

V. Survey Composition

The M&A Leaders Survey has continued to draw from a wide range of technology influencers. Our participant group this time included 17 percent identifying themselves as C-level executives, along with 31 percent corporate and business development professionals and 10 percent in-house counsel. More than 40 percent work on the deal side – mostly in investment banking and financial advisory services, with the rest in venture capital and private equity. Nearly half of participants are based in Silicon Valley, with 12 percent in the New York area, and others located throughout the United States, Asia, the UK and continental Europe.

Private company valuation outlookSurvey date Increase Stay the same DecreaseOctober 2013 forecast 36% 43% 21%

April 2013 forecast 53% 33% 14%

October 2012 forecast 25% 47% 28%

April 2012 forecast 43% 47% 10%Source: M&A Leaders’ Survey from 451 Research / Morrison & Foerster

M&A Leaders Survey – Morrison & Foerster / 451 Research Q4 2013 5

About Morrison & Foerster

Morrison & Foerster is a global firm of exceptional credentials. With more than 1,000 lawyers in 17 offices in key technology and financial centers in the United States, Europe and Asia, we advise the world’s leading financial institutions, investment banks and technology, telecommunications, life sciences and Fortune 100 companies. The American Lawyer recently honored MoFo with its Grand Prize Global Deal of the Year award, in recognition of the firm’s role advising SoftBank in its acquisition of Sprint. M&A Advisor named MoFo Law Firm of the Year for the second straight year and Law 360 designated the firm as M&A Group of the Year. The strength of the M&A practice also played a key hand in the selection of MoFo as USA Law Firm of the Year by Chambers Global. And it was named Information Technology Law Firm of the Year by U.S. News – Best Lawyers, and the No. 1 Technology Law Firm for 2014 by the Vault Guide. Legal 500 ranks MoFo as the only firm in Band 1 for Technology across China, Hong Kong and the United States.

In addition to advising SoftBank in its acquisition of a 78 percent stake in Sprint, MoFo this year has represented SoftBank in its $1.53 billion joint venture investment in leading Finnish mobile game developer Supercell Oy; and its $1.26 billion control investment in Miami-based wireless distributor Brightstar Corp. In other noteworthy M&A tech deals, the firm recently represented:

• Market-leading radio consumer research company Arbitron in its $1.3 billion acquisition by Netherlands-based Nielsen Holdings N.V.A.;

• Leading global semiconductor chip maker Intel in several large transactions in the United States and Europe;

• Tsinghua Unigroup in its $1.8 billion acquisition of Spreadtrum Communications, a Shanghai-based fabless semiconductor developer and design company (the largest semiconductor acquisition globally in more than a year); and

• Cybersecurity services provider Sourcefire in its $2.7 billion acquisition by Cisco Systems.

Overall, the firm has handled some 20 M&A assignments valued at $1 billion or higher in the past year, including 11 that closed in 2013.

About 451 Research

451 Research, a division of The 451 Group, is focused on the business of enterprise IT innovation. The company’s analysts provide critical and timely insight into the competitive dynamics of innovation in emerging technology segments. Business value is delivered via daily concise and insightful published research, periodic deeper-dive reports, data tools, market-sizing research, analyst advisory, and conferences and events. Clients rely on 451 Research’s insight to support both strategic and tactical decision-making. 451 Research is headquartered in New York, with offices in San Francisco, Washington, D.C., London, Boston, Seattle, Denver and other key markets.

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