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Deals, Dollars, and Disputes

M A X I M I Z I N G VA L U E M I N I M I Z I N G R I S K

A Summary of Private Equity Transactions for the Quarter Ended December 31, 2013

Introduction and Our Objective

We are pleased to present you with our Deals, Dollars, and Disputes report for

the quarter ended December 31, 2013. Our analysis involves a study of the merger

and acquisition transactions involving private equity firms (“PE firms”) during

the recent quarter.

Our objective in preparing this report is to provide a general overview of the

volume and value of transactions during the quarter along with an analysis of trends

when compared to prior quarters. We also hope to present useful information on

select topics related to valuation concepts and recent acquisition disputes in our

Featured Transactions and Insights section.

As an independent consulting firm with financial and accounting expertise, we

are committed to contributing thought leadership and relevant research regarding

business and valuation matters to assist our clients in today’s fast-paced and

demanding market. This report is just one example of how we intend to fulfill

this commitment.

We appreciate your comments and feedback and welcome requests for any

additional analysis that you might find helpful.

Floyd Advisory

FEBRUARY 2014

CONTENTS

Our Process and Methodology ................................................ 1

Summary of Q4 2013 PE Firm Transaction Activity ................ 2 Volume of PE Deals Announced and Completed ......................................... 2 Top 25 PE Firm Transactions for Q4 2013 ..................................................... 3 Industry Sector Transaction Analyses ........................................................... 4 Purchase Price Premium for Transactions Involving Controlling Stakes ........................................................................................... 6 PE Acquisition Type Analyses ........................................................................ 6

Featured Transactions and Insights ........................................ 8 Digital Insight: Five Months, Two Transactions, One Irrefutable Winner .................................................................................... 8

Our Process and MethodologyWe studied financial data for transactions involving PE firms, both as buyers and

sellers, during the most recent quarter for companies headquartered in North America.

As part of our review, we gathered and analyzed relevant transaction information

and data such as industry sector, equity interest, and deal structure among others

and created a database for our further analyses. From this information, we analyzed

market trends by industry, by common attributes, by valuation premiums, and by other

characteristics. Applying our professional judgment to these observations, we have

prepared this report. Within our Featured Transactions and Insights section, we have

highlighted two transactions as recommended reading.

For the purposes of this report, the transaction data we have analyzed is limited to

publicly available information. Please note that our third-party source has provided

us with an expanded set of transaction data which includes a broader array of private

equity deals. Data throughout this report may not be comparable to our prior report.

Page 1

DEA

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Deals, Dollars and Disputes | Q4 2013 | Floyd Advisory

Summary of Q4 2013 PE Firm Transaction Activity

Volume of PE Deals Announced and Completed

We noted a significant increase in deals in Q4 2013 compared with previous quarters.

Compared to Q3 2013, there was a 19% increase in announced deals and 15% increase

in completed deals. This is consistent with observations in our prior edition of relatively

higher deal activity in the fourth quarter.

During the past four quarters there has been an average of

11% more deals announced than completed.

Page 2

NORTH AMERICAN PE DEAL LANDSCAPEFor the Previous Four Quarters

200

300

400

500

600

700

NO

. OF

DEA

LS

■ No. of Announced Deals

■ No. of Completed Deals

Q1/2013

547

488

Q2/2013

513471

Q3/2013

518

470

Q4/2013

614

540

Source: Zephyr

Note: Includes data for which transaction details were reported and publicly available.

Floyd Advisory | Q4 2013 | Deals, Dollars and Disputes

Deal Value USD

(in millions)

PE Role(s) Target Seller Deal

Type*Acquiring Entity

(Advisors)Target Primary US

SIC Description

1 $24,900 Buyer, Seller & Advisor

Dell Inc. Mr. Michael Dell, Highfields Capital Management LP, Southeastern Asset Management Inc., Vanguard Group Inc., T Rowe Price Group Inc., Pzena Investment Management LLC, Blackrock Inc., Mr Carl C Icahn, Yacktman Asset Management Company, ACR Alpine Capital Research, Schnieder Capital Management Corporation

ACQ Denali Intermediate Inc. (Silver Lake Partners LP, MSDC Management LP)

Electronic computers

2 $6,000 Buyer & Seller

Neiman Marcus Group Ltd Inc.

Warburg Pincus LLC, Leonard Green & Partners LP, TPG Capital LP INS Canada Pension Plan Investment Board, Ares Management LLC

Department stores


Hub International Ltd

Morgan Stanley Investment Management LLC, Apax Partners Inc. INS Hellman & Friedman LLC Insurance agents, brokers, and service

4 $4,300 Seller Vanguard Health Systems Inc.

The Blackstone Group LP ACQ Tenet Healthcare Corporation

General medical and surgical hospitals

5 $2,725 Seller Local TV Holdings LLC

Oak Hill Capital Management Inc. ACQ Tribune Company Television broadcasting

6 $2,700 Seller Sourcefire Inc. New Enterprise Associates Inc., Sequoia Capital, Sierra Ventures Management LLC, Core Capital Partners LLP, Inflection Point Ventures

ACQ Cisco Systems Inc. Computer programming services

7 $2,600 Advisor Aviva USA Corporation

Aviva PLC ACQ Athene Holding LTD (Apollo Global Management LLC)

Life insurance


One Call Care Management Inc.

Odyssey Investment Partners LLC INS Apax Partners LLP Offices and clinics of health practioners

9 $1,807 Seller Antero Resources Corporation

Antero Resources Investment LLC IPO Oil and gas field exploration services

10 $1,805 Seller The Yankee Candle Company Inc.

Madison Dearborn Partners LLC ACQ Jarden Corporation Manufacturing industries

11 $1,700 Buyer American Energy Utica LLC

MIN First Reserve CorporationLLC, The Energy & Minerals Group

Drilling oil and gas wells

12 $1,650 Seller Mako Surgical Corporation

The Exxel Group SA, Sycamore Management Corporation, Tudor Investment Corporation, Ivy Capital Partners LLC, Aperture Venture Partners LLC, Meditech Advisors LP, Ziegler Meditech Equity Partners LP, Lumira Capital Corporation

ACQ Stryker Corporation Orthopedic, prosthetic and surgical appliances and supplies


CPG International Inc.

AEA Investors LP, Clearview Capital LLC INS Ares Management LLC, Ontario Teachers Pension Plan

Plastic products, not elsewhere specified manufacturing

14 $1,400 Seller Arinc Inc. Carlyle Group LP ACQ Rockwell Collins Inc. broadcasting and communications equipment


Rue21Inc. Karpreilly LLC, Granduer Peak Global Advisors LLC INS Apax Partners LLP Family clothing stores


The Active Network Inc.

Austin Ventures LP, North Bridge Venture Management V LLC, ABS Ventures LLC, Windspeed Ventures LLC, Canaan Management Inc., Enterprise Partners Management LLC

INS Vista Equity Partners LLC Computer processing and data preparation and processing services

17 $1,010 Buyer The Crosby Group LLC, Acco Material Handling Solutions LLC

Melrose Industries PLC INS Kohlberg Kravis Roberts & Company LP

Overhead traveling cranes, hoists and monorail systems

18 $1,000 Buyer, Seller & Advisor

TMS International Coporation

Onex Corporation INS Crystal Acqusition Company Inc. (Pritzker Organization LLC)

Business services, not elsewhere classified

19 $989 Seller Mandiant Corporation

Kleiner Perkins Caufield & Byers, One Equity Partners LLC ACQ Fireeye Inc. Computer programming services

20 $985 Seller Bushnell Holdings Inc.

Midocean US Advisor LP ACQ Alliant Techsystems Inc. Optical instruments and lenses

21 $930 Seller The Climate Corporation

New Enterprise Associates Inc., Allen & Company Inc., Glynn Capital Management, Western Technology Advisors Inc., Khosla Ventures LLC, Atomico (UK) Partners LLP, Index Venture Management LLP, Founders Fund Management LLC, Google Ventures

ACQ Monsanto Company Insurance agents, brokers, and service

22 $891 Buyer Tellabs Inc. INS Marlin Management Telephone communications, except radiotelephone

23 $862 Buyer Siemens Water Technologies LLC'S

Siemens AG INS AEA Investors LP Air and water resource and solid waste management

24 $850 Seller Passport Health Communications Inc.

Spectrum Equity Investors LP, Goldman Sachs Group Inc., Primus Venture Partners, Great Hill Partners LLC, Area Capital Corporation

ACQ Experian PLC Computer programming services

25 $820 Seller Six3 Systems Inc. GTCR Golder Rauner LLC, Mr Robert Coleman ACQ CACI International Inc. Security systems services

Page 3

Top 25 PE Firm Transactions by Deal Value Completed During Q4 2013

Source: Zephyr •ACQ = Acquisition, IBO = Institutional Buy-Out, MIN = Purchase of Minority Interest, IPO = Initial Public Offering. Note: Includes data for which transaction details were reported and publicly available.


Industry Sector Transaction Analyses

Private equity activity can indicate trends across industries

as firms will seek to secure an advantageous position in

flourishing industries in the pursuit of above market returns.

Page 4

FLOW OF PE FUNDS BY INDUSTRYWith Values Between $50M and $5B for Q4 2013

0%

10%

30%

20%

40%

50%

60%

70%

80%

90%

100%

■ PE Purchase from Non-PE ■ PE Sale to PE ■ PE Sale to Non-PE

WholesaleTrade

$310

$1,075

Manufacturing

$1,950

$2,587

$12,246

Services

$4,614

$2,276

$15,931

Transportation,Communications,

& Utilities

$2,570

$2,985

RetailTrade

$1,100

$975

Mining

$368

$2,896

$2,737

PublicAdministration

$862

$354

Finance,Insurance, & Real Estate

$4,400

$1,410

$1,999

FLOW OF PE DEALS BY INDUSTRYWith Values Between $50M and $5B for Q4 2013

0%

10%

30%

20%

40%

50%

60%

70%

80%

90%

100%

■ PE Purchase from Non-PE ■ PE Sale to PE ■ PE Sale to Non-PE

WholesaleTrade

1

3

Manufacturing

3

9

20

Services

4

14

30

Transportation,Communications,

& Utilities

8

2

RetailTrade

1

2

Mining

2

6

3

PublicAdministration

1

2

Finance,Insurance, & Real Estate

1

5

4

Source: Zephyr

* The Agriculture, Forestry, and Fishing and the Construction industries have been excluded from this analysis due to nominal activity.


Source: Zephyr



During Q4 2013, the retail trade industry had the highest median deal value, while manufacturing had the highest total deal value, bolstered by the $24.9 billion deal for Dell Inc.

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VALUE AND NUMBER OF DEALS BY INDUSTRYFor Q4 2013

Industry*

Median Deal Value (In Millions)

Average Deal Value (In Millions)

Total Sum of Completed

Deals (In Millions)**

Total Count of Completed

Deals**

Retail Trade $488 $1,350 $8,099 6

Wholesale Trade $408 $346 $1,385 4

Public Administration $289 $405 $1,216 3

Mining $221 $469 $6,093 13

Transportation, Communications, & Utilities $153 $465 $5,583 12

Finance, Insurance, & Real Estate $61 $527 $10,532 20

Manufacturing $30 $535 $42,231 79

Services $20 $153 $24,531 160

Construction $13 $31 $126 4

Agriculture, Forestry, And Fishing $3 $3 $3 1

Source: Zephyr

* Industries are based on main divisions defined in the United States Department of Labor’s Standard Identification Codes

** Calculations based on our third party data include only deals that list values


INDUSTRY FOCUS: MININGThe North American mining industry attracts private equity, for the most part, through oil and natural gas (as opposed to non-fuel mining). Investment opportunities within the many sectors of the oil and gas industry each have their respective risks and rewards. In Q4, 53% of the mining acquisitions were related to exploration services, while 13% were related to drilling services. New entrants to the industry join some experienced energy-focused private equity firms to search out promising investments. Shale rock (hydrocarbon) discoveries have been central to new investments within North America, providing relatively low risk.

Page 5


Purchase Price Premium for Transactions Involving Controlling Stakes

The median purchase price premium over share price both 30 days and 60 days

prior to announcement for the trailing four quarters was equal to 25.03% and

29.04%, respectively.

Markets made exceptional gains in the fourth quarter. The S&P had a 10.51% return

(pushing the index to its best year since 1997), which contributed to the surge in

purchase price premiums.

PE Acquisition Type Analyses We broke down the transactions by the following categories based on characteristics of

the acquirer and the stake acquired:

Deal Type Definition

Acquisition 51% - 100% A company acquires a majority stake (between 51% and 100%) using funding from a PE investor to support the transaction, including management buy-outs.

Minority Stake ≤ 50% One or more PE firms provide equity funding for a company or institution to take a stake less than or equal to 50%, including share buybacks.

Institutional Purchase A PE firm, its affiliate, or newly-formed vehicle company acquires a stake in the target company or is the parent of the acquirer.

Initial Public Offer A transaction where a percentage of ownership is offered and sold to public investors.

Page 6

MEDIAN PURCHASE PRICE PREMIUMSFor the Previous 4 Quarters

0%

10%

20%

30%

40%

50%

PER

CEN

TAG

E PR

EMIU

M

50

60

70

80

90

100

DAYS PEN

DIN

G

■ 30 Days Prior to Announcement

■ 60 Days Prior to Announcement

Q1/2013

24.95%

30.07%

Q2/2013

23.07%

28.01%

Q3/2013

25.11%27.38%

Q4/2013

34.31%

46.51%Average Number of Days “Pending”

Source: Zephyr



DEA

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Page 7

“Each deal must have its own strategic logic. In our experience, acquirers in the most successful deals have well-articulated, specific value creation ideas going into each deal. The strategic rationales for less successful deals tend to be vague, such as to pursue international scale, fill in portfolio gaps, or build a third leg of the portfolio.”

McKinsey & Company. Tim Koller, Marc Goedhart, David Wessels. Valuation: Measuring and Managing the Value of Companies. 5th ed.

■ Acquisition 51%-100%

■ Institutional Purchase

■ Initial Public Offering

■ Minority Stake ≤ 50%

141

7

130

262

Source: Zephyr


NUMBER OF COMPLETED PE DEALS BY ACQUISITION TYPEFor Q4 2013

$0

$400

$200

$600

$1,000

$800

USD

(in

Mill

ions

)

Acquisition51%-100%

$928

InstitutionalPurchase

$864

InitialPublic Offering

$643

Minority Stake≤ 50%

$65

Source: Zephyr


AVERAGE DEAL VALUE FOR PE FIRM TRANSACTIONSFor Q4 2013


Featured Transactions and Insights

Among the transaction activity and related events in the quarter, we select certain deals

that present information we consider especially worthy of further review and analysis

by those involved in structuring and negotiating business sales and acquisitions. Our

goal is to feature transactions that raise unique considerations from a valuation, deal

structure or subsequent dispute standpoint.

This quarter, we feature two transactions related to Digital Insight Corporation, a

company that was acquired and subsequently sold only a few months later at a

substantially higher price. The facts underlying these transactions raise intriguing

valuation questions and considerations. Reconciling these materially-different, agreed-

upon purchase prices creates a meaningful discussion on various valuation subjects.

Digital Insight: Five Months, Two Transactions, One Irrefutable Winner Rarely is a company bought and then sold in unrelated transactions within just a few

months. This is especially true when the subsequent sale reflects a return on equity

invested for the “interim” owner of over 370% on an annualized basis. However, this is

exactly what Thoma Bravo LLC (“Thoma Bravo”), a Chicago and San Francisco-based

private equity firm, realized on its five-month investment in Digital Insight.

Thoma Bravo purchased Digital Insight from Intuit, Inc. (“Intuit”) for $1.025 billion

on July 1, 2013, using $405 million of its capital plus debt financing for the remainder.

On December 2, 2013, Thoma Bravo agreed to sell Digital Insight for $1.65 billion to

NCR Corp. (“NCR”), earning a $625 million profit in just five months.

Page 8

“The M&A market often evinces aberrations—

companies selling too low when suffering distressed conditions and companies

selling too high when faddish or foolish buyers are overeager to acquire.

The feeding frenzy of M&A in recent years—the

search for synergy and hostile takeover battles—

have [SIC] bid up many M&A prices to

unrealistic levels.”

Pratt, Shannon P., Niculita, Alina V. Valuing a Business: The

Analysis and Appraisal of Closely Held Companies. 5th ed.


This brings to mind the following questions:

• Did Intuit sell Digital Insight for too little?

• Did NCR overpay for Digital Insight?

• Could fairness opinions support both transactions?

• How have the shareholders reacted?

To answer these questions, one needs to explore more deeply the details of the two

transactions and understand each parties’ motivations and pressures, as well the

benefits of transacting with a strategic acquirer. We will discuss the publicly available

facts for each transaction, review the valuation subjects raised, and compare and

contrast the economics of the two transactions.

Intuit Sale to Thoma Bravo

Digital Insight operated in the financial services industry and specialized in delivering

online statements and check imaging. Intuit bought Digital Insight for $1.33 billion on

February 6, 2007, and rebranded it as Intuit Financial Services (IFS). Despite this, the

core business appears to have stayed the same. Over time, IFS would grow to include

other companies such as Mint and Open Financial Exchange.

On July 1, 2013, Intuit sold the Digital Insight segment of IFS to Thoma Bravo LP in

an all-cash deal for $1.025 billion. Intuit publicly reported that the sale was part of a

process to focus on its core tax and accounting services. Additionally, Digital Insight

was apparently creating a conflict of interest for Intuit with another of its businesses,

Mint. Mint is a banking application that provides consumers information on banks

offering the best deals. The matter of concern was that Mint was steering consumers

away from the banks that were customers of Digital Insight. So, while not explicitly

a distressed sale, the decision and process to sell Digital Insight may have been

influenced by pressure, and possibly even duress.

Whether driven by pressure, duress, or just expediency, Intuit appears to have

acted hastily in expediting the sale of Digital Insight. Intuit’s sale process included a

30-day final close requirement that was reported to have eliminated certain bidders,

including NCR, who could not secure financing quickly enough. The acquirer, Thoma

Bravo, was able to draw upon its available cash and financing through bridge loans

to meet the compressed time frame. Most importantly, Thoma Bravo would have

been cognizant of the compressed time frame and may have factored that into its

competitive assessment of the parties able to make valid offers.

Thoma Bravo bought Digital Insight (at this point rebranded back to its original

name) for the synergistic opportunities that it would create with two of its other

portfolio companies, Hyland Software which provides enterprise software to financial

institutions, and Entrust which provides security software and solutions. However,

before any integration could occur, Thoma Bravo’s plans would change based on an

offer that no one would refuse.

Page 9

“In far too many cases, the decision on whether a firm is under or over-valued precedes the actual valuation, leading to seriously biased analyses.”

Damodaran, Aswath. Investment Valuation. 2nd Ed.


Thoma Bravo Sale to NCR

On December 2, 2013, Thoma Bravo announced that it was selling Digital Insight to

NCR for $1.65B. According to unconfirmed reports, NCR may have contacted Thoma

Bravo as early as the Intuit sale announcement date. If this were the case, one might

ask why NCR did not buy Digital Insight directly from Intuit, given their willingness to

pay such a substantial price. A possible and likely answer is that both the expedited

sale process and the amount of leverage utilized in its previous acquisitions rendered

NCR unable to secure financing in time.

NCR was motivated to buy Digital Insight by a refocusing effort of its own: it was

seeking another acquisition in the interest of transforming its image and modernizing

its line of business away from solely hardware. For NCR, Digital Insight also presented

significant potential cross-selling opportunities and synergies.

In a conference call to discuss the acquisition, CEO and President of NCR, Bill Nuti,

explained the purchase price for Digital Insight as follows:

“…it’s a completely different asset when bolted on to NCR then [sic]

it would be a private equity company. And put price aside; this is no

doubt the right deal at the right time and at the right price for NCR.…

I would also add that what Thoma Bravo has done in the last several

months that is somewhat beneficial to us in integration; they’ve done a

good job in reducing cost structure and taking out overhead, basically

leaving that work not for us, but for them and behind us.” 1

This explanation doesn’t directly address two factors: first, that five months prior,

Digital Insight was “bolted” onto a company with vast synergistic capabilities, and

that company offloaded it at what could be described in NCR’s context as a discount;

and second, that Thoma Bravo had only five months to work on Digital Insight. In

comparison to the average four-to-six year exit time for private equity firms, this is a

fraction of the time usually taken to optimize the performance and value of a portfolio

company. Despite its positive view of the transaction, NCR will be under pressure to

deliver on the anticipated cross-selling opportunities, synergies, and image adjustment

motivating the deal. External pressure was immediately evident from credit-rating

agencies such as Standard & Poors (“S&P”), who expressed concern about NCR’s

financial status following the transaction. Per S&P, “we view NCR’s financial risk profile

as ‘significant,’ reflecting its increased leverage following the series of debt financed

acquisitions.”2

“…it’s a completely different asset when

bolted on to NCR then [sic] it would be a private equity company. And put

price aside; this is no doubt the right deal at the right time and at the right

price for NCR.”

Nuti, Bill. “NCR Corp Conference call to Discuss the Acquisitions

of Digital Insight and Alaric Systems.” 2 Dec. 2013.

Page 10

1 NCR Corporation. “NCR Corp Conference call to Discuss the Acquisitions of Digital Insight and Alaric Systems”, 2 Dec. 2013.

2 Schlanger, Jacob L., and Philip L. Schrank. “Research Update: NCR Corp. ‘BB+’ Rating Affirmed; Outlook Stable; $1.1 Billion In New Debt Rated ‘BB’ (Recovery Rating: 5).” RatingsDirect. Standard & Poor’s Rating Services, 5 Dec. 2013. Web. 12 Feb. 2014


Did Intuit Sell Digital Insight for Too Little?

In light of the subsequent sale of Digital Insight by Thoma Bravo to NCR, it’s hard not

to question whether the value received by Intuit was less than optimal. This seems

especially obvious when considering that Intuit’s purchase price for the business

several years ago was over $1.3 billion. However, two major considerations may help

explain some of the valuation differential: conducting a sale under time constraints and

other pressures, as well as the distinction between selling to a strategic buyer versus

selling to a financial buyer.

Time pressures, as well as other restrictive items or stresses, tend to deminish the

free-market participation necessary to attain the highest value for a transaction. While

Intuit wanted to alleviate itself of its apparent conflict of interest and complete its

restructuring, it may have hurt itself financially in the process. As described above,

if the time pressures were removed, this may have allowed for a more inclusive

bidding process with multiple bidders, both financial and synergistic in nature,

ultimately resulting in a transaction closer to the value which NCR paid to Thoma

Bravo. Typically, price is increased by the number of bidders attempting to buy a

target. But price will also be increased by strategic buyers, who have unique abilities

to increase revenue opportunities and eliminate costs that financial and non-strategic

buyers would not possess. Ideally, a strategic buyer should not tender the total

value of its synergies to a seller, but rather should use them to its advantage in the

competitive bidding process, allowing for greater financial flexibility. In the context

of this assertion, it would seem unfortunate for Intuit that it seemingly excluded

synergistic buyers from its divesture process.

Based on the available information, it does appear likely Intuit sold Digital Insight

for too little, however, only Intuit can respond to the urgency placed on the closing

and the need for the closing requirements that eliminated a truly competitive bidding

process. It is worth noting that, without the subsequent sale of Digital Insight by

Thoma Bravo, one would not be likely to question the Inuit sales price and process.

This is a significant fact to consider for those sellers who restrict their sales processes

and risk leaving money behind unnecessarily.

Did NCR Overpay for Digital Insight?

In substance, Thoma Bravo provided the equivalent of bridge financing for NCR’s

acquisition of Digital Insight. In that context, one might instinctively interpret the price

as overstated. Surely, NCR would have preferred to meet Intuit’s timetable to bid and

close on a deal for Digital Insight. Unfortunately, the disclosed facts don’t provide any

insights on whether NCR tried to persuade Intuit to extend their timeline for such a

bid, or whether Intuit would have accepted such a risk.

Page 11

“Firms that are undervalued by financial markets can be targeted for acquisition by those who recognize this mispricing. The acquirer can then gain the difference between the value and the purchase price as surplus.”

Damodaran, Aswath. Investment Valuation. 2nd Ed.


However, when discussing the possible “overpayment” by NCR, one need not only

compare the purchase price paid by Thoma Bravo to Intuit, but also the synergistic

value that Digital Insight represented to NCR. If NCR is able to realize synergies from

the acquisition that allow it to earn a return greater than its cost of capital for the

transaction, they will have created incremental value for their shareholders. That said,

had they purchased Digital Insight at Thoma Bravo’s purchase price, their potential

synergistic value would have been much greater. Similarly, they would not have

relinquished such a large amount of their unique synergistic value to effectuate the

transaction. Market evidence of whether or not NCR overpaid is best found by studying

shareholder reactions, as discussed below.

Could Fairness Opinions Support Both Transactions?

It’s possible that fairness opinions could support each of the transactions, although

more pressure would most certainly be on the NCR fairness opinion recognizing the

materially lower price paid by Thoma Bravo only five months earlier.

In all likelihood, a fairness opinion for the NCR acquisition would differentiate

between the financial buyer and strategic buyer to justify the dramatic difference.

The opinion may also confirm that Intuit did not in fact sell Digital Insight for less than

its market potential for the reasons discussed earlier. Needless to say, the task would

have its challenges and would likely rely heavily on the uniqueness of NCR to realize

synergies from the acquisition that were financially beneficial. Interestingly, we have

not identified any public information that would indicate fairness opinions were done

for either transaction.

How Have The Shareholders Reacted?

Intuit and NCR are both public companies, so the shareholders for each would assess

the fairness of the bargained-for consideration of both transactions. Regarding the

seller, if the price was too low for a sale, then, theoretically, the market should drop

upon the announcement, evidencing a diminution of the overall company market

value. If the price for an acquisition is too high, then, similarly, the market for the

seller should rise upon the announcement to evidence an accretive event for the

overall company market value. Conversely, for an acquirer, if the price is too high

for a sale, there would theoretically be a drop in share price. Or, if the price for an

acquisition is low, then the market should rise to reflect the financial benefit received

by a company.

The share prices displayed on the next page present a simplistic view for the

shareholder reactions to the respective deals as they include share-price reaction to

other market events and news, and are limited in time frame. Even with those caveats,

they do offer some insights into the perceptions of investors when contemporaneously

absorbing the transaction details described above.

Page 12

“The value of control arises because it carries

with it the potential to take actions not

being taken by current board of directors and

management and, thereby, create value. If

the potential for value creation is great enough,

an acquirer will pay the premium necessary to

acquire a controlling block of shares.”

Cornell, Bradford. Guideline Public Company Valuation and

Control Premiums: An Economic Analysis. 29 Jan. 2013.


Though simplistic, the data suggests that Intuit investors were satisfied with their deal,

while it is clear that NCR investors were skeptical, as evidenced by the drop in share

price as of December 2, 2013. However, NCR shares subsequently rebounded, possibly

indicating the market overreacted or dismissed the event and was moved by the

overall rise in the market, making the analysis at this level somewhat inconclusive.

Conclusion

While much can be analyzed and learned from comparing and contrasting the two

transactions, Thoma Bravo emerges as the irrefutable winner. Thoma Bravo sourced

a tremendous acquisition and quickly took advantage of a strategic buyer’s desire to

own the target company. As to whether Intuit or NCR were winners or losers, that

decision is more complex, hinged on the risks and rewards associated with corporate

refocusing and the underlying foundations of those efforts which, from this brief

analysis, would seem to favor the established success of Intuit while exposing NCR’s

prospects to uncertainty which, with their management of Digital Insight, is very much

in their own hands.

Page 13

While much can be analyzed and learned from comparing and contrasting the two transactions, Thoma Bravo emerges as the irrefutable winner.

NCR

10/25/13 11/25/13 12/25/13 1/25/14

15%

10%

5%

0%

-5%

-10%

-15%

-20%

-25%

■ 12/2/13

PER

CEN

TAG

E

NCRS & P

Source: Google Finance

INTUIT

5/1/13 7/26/13 10/21/13 12/17/13

30%

25%

20%

15%

10%

5%

0%

-5%

-10%5/30/13 8/23/136/27/13 9/23/13 11/18/13

7/1/13 ■ PER

CEN

TAG

E

IntuitS & P

Source: Google Finance


New York555 Fifth Avenue, 6th FloorNew York, NY 10017212.867.5848

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ACKNOWLEDGEMENT We wish to acknowledge the valuable contribution to this analysis by Michael C. Gordon, Anson E. Smuts, Jake J. Raymond, Liz Klyuchnikova, and Genevieve S. Snow.

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