Webinar 011105 Corum Group 2004 M&a Review & 2005 Forecast

8/8/2019 Webinar 011105 Corum Group 2004 M&a Review & 2005 Forecast

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THE PREMIER PROVIDER OF M&A SERVICES TO TECHNOLOGY COMPANIES WORLDWIDE

2004 M&A Review

&

2005 M&A Forecast

Bruce Milne

David Keith

Corum Group Ltd.

www.corumgroup.com


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Opening Remarks

Stock Market & IPO Review

Venture Capital Climate in 2004

M&A Review

What Drove Deals in 2004?

Sector Analysis

M&A Valuation Trends

What Will Drive Deals in 2005?

Agenda


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Corum Group

M&A specialists since 1985

Software and IT experts

Offices in USA, Canada, and Europe

25% of transactions international

Recognized industry leaders/experts

Sponsor of Selling Up Selling OutConferences

Sponsor of World Financial Symposiums Conferences

Publisher of Merge newsletter

Publisher of industry leading M&A research


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2004 The Comeback Year for Tech

Innovative consumer products iPod

Google IPO

Firefox gains on Explorer

Open source (Linux) gains acceptance in the data center and

makes inroads into to the enterprise

Oracle/PeopleSoft

Worldwide adoption of 3G cell phones the next platform play

Internet/ecommerce/online advertising thrives

The Internet as a political fundraising tool

Blogs & instant messaging

Desktop searching


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2004 A Year of Optimism and Opportunities

Global equities markets at 2 year highs

Best IPO market in 4 years

Venture Capitalists active again

Merger activity at 4 year highs


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Global Equity Markets Rebound

This has led to a renewed sense of optimismamong executives, investors and advisors

Country Index 52-wk Change

Brazil Bovespa 48%Hong Kong Hang Seng 31%U.S. NASDAQ 24%

Australia All Ordinaries 21%Germany DAX 18%Japan Nikkei 225 18%Canada TSX Composite 15%France CAC 40 13%

U.K. FTSE 100 13%U.S. DJIA 12%

Source: Corum Group Research


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M&A Activity Mirrors the Direction of the

Stock Market

0

10

20

30

40

50

60

70

80

90

100

110

120

Jan-04 Feb-04 Mar-04A r-04 May-04 Jun-04 Jul-04 Aug-04 Sep-04 O -04 Nov-04 Dec-04

#ofSoftwareTransa

ctions

1,800

1,900

2,000

2,100

2,200

NASDAQ

NASDAQ # of M&AAnnouncements



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IPO Markets Improve

2003 2004 % Change

# of IPO Pricings 68 215 216%

IPO Volume $15B $43B 187%

New IPO Filings 105 315 200%

Source: IPOhome.com


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Top Performing Tech IPOs

Company Business YTD Gain

Shanda Interactive Online games in China 261%51 Jobs Human resources s/w in China 259%

Marchex Ecommerce 207%eCOST.com Online discount retailer 180%Cogent Fingerprinting technology 175%Volterra Semiconductors Semiconductors 167%Interchange Paid search services 136%Rightnow Technologies Customer service s/w 130%

Google Internet 127%



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M&A is the Primary Source of LiquidityIn 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

In

Billins

M&A Dollar Volume IPO Amount Raised



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Improving IPO and M&A Markets Leads to

More VC Investment

Source: PricewaterhouseCoopers/Venture Economics/NVCA/MoneyTree survey

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

InMillio


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Where Are VCs Placing Their Bets?

Wireless

Device management/security, synchronization,data services, multimedia entertainment,WAN security, messaging/content delivery

Next generation communications

Voice/telephony applications, VoIP services

RFID

Readers, chips, tags, antennas

Solutions that simplify IT management

Solutions that increase networking capacity

Semiconductor technology


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Tech M&A: Fewer Deals, But Higher Value

2003 2004 % Change

# of Deals 1,300 1,000 -23%

Deal Value $24B $29B 20%

Valuation Offers 1.5x 2.0x 2.0x 3.0x

Time to Close 12+ months 10 -12 months

LOI to Close 120+ days 90 120 days*


*Due to more comfort with SOX, both buyers & sellers better prepared


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Top Buyers in 2004


Cisco Systems - 12

IBM - 10

Kintera 8

HP - 7Bentley Systems - 5

Broadcom Corporation - 5

Allen Systems Group - 4

aQuantive - 4

InfoSpace - 4


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2004 Deal Consideration

Cash was King in 2004


1%

9%

40%

All Cash All Stoc Mi


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More Buyer Competition in 2004

Abundant liquidity in markets Low interest rates

High cash balances

The S&P 500 - $2 trillion in cash & short term assets

Strong stock market

Pent up demand, buyers must do something to stimulate growth

113 buyers acquired 2 companies




More competition for deals

Return of strategic buyers

Private equity putting money to work

Recapitalizations


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Recapitalizations A Driving Force in 2004

Over $100B of committed capital

$32.5B raised in the 1st nine months of 04

Recent deals involving Private Equity:

Apex Partners/Cartesis

Made2Manage (Battery Ventures)/DTR Software

Consortium of PE Firms/ Payroll processing BPOCompany


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The Mega Deals of 2004

Juniper Networks/NetScreen Technologies ($4B)

Networking & security converging -moving and inspecting packets a natural fit

JNPR needed to move beyond Telcos andISPs and into the Enterprise

Oracle/PeopleSoft ($10.3B)

Every company is for sale at the right price

Acquiring revenue growth & customers

Symantec/Veritas Software ($13.5B)

Security & storage converging - need forintegrated solutions

SYMC seeking EPS Growth and to lessenreliance on consumer market


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Most Firms are a Collection of Acquisitions


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Case Study: Symantec

Symantec has acquired 36 companies since its IPO in June1989

Significant M&A Deals:

DMA PC anywhere (1991)

Fifth Generation Systems Backup and security utilities (1993)

Binary Research Disk cloning technology (Ghost) (1998)

AXENT Technologies Enterprise security software (2000)

Veritas Software Storage software (2004)


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Recent Acquisitions:

Veritas Software Storage Management

Brightmail, Inc. E-mail services and anti-spam software

Turn Tide Anti-spam routers

Nexland, Inc. Internet security appliancesSafeWeb, Inc. SSL VPN appliances

PowerQuest Inc. Automated deployment and recovery

ON Technology Corp. Software distribution/configuration

Recourse Technologies Advanced intrusion detection solutions

SecurityFocus Enterprise security threat management

RIPTech Managed security services provider Mountain Wave Software used to detect security incidents


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Has Symantec Created Value through Acquisitions?

Over a 10-Year Period:

Market Capitalization has grown to $15.0B

Revenue has increased to $2.0B

Cash flow has increased to $1.0B

Over 4,000 new jobs have been created

The company has tactically used M&A to enter new

markets, supplement its own R&D, and acquire cuttingedge technology


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M&A Sector Coverage

Business Intelligence IT Services

Connectivity Software Development Tools

Digital Media Security

Engineering Storage

Enterprise Applications Supply Chain Management

Enterprise Content Management Vertical Market Financial Services

Enterprise Infrastructure Vertical Market Healthcare

Gaming Vertical Market Telecom

Internet Infrastructure Vertical Market Other

Internet Pure Plays Wireless


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Consolidation - Enterprise Applications

Changing market dynamics driving consolidation

IT customers want to buy from fewer vendors

Customers want integrated solutions

IT purchases smaller & taking longer

The result:

Vendors are trying to bulk up

Fill in product gaps

Harder for small vendors to survive forcing many tosell


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Consolidation ERP Market

Top Tier Vendors

Baan

Oracle

PeopleSoft

SAP

JD Edwards

Mid Tier Vendors

ACCPAC

Best Software

Daamgard

ExactEpicor

Great Plains

Lawson

Macola

Navision

SageSBT Accounting Systems

Scala

Soloman

3rd Tier Vendors

AccountMate Software

Harper and Shuman

Maxwell Business Systems

Myob LimitedPWA Group

PeachTree Software

Real World Corp.

Sesam

State of the Art Inc.


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Consolidation ERP Market 2005

Top Tier Vendors

BaanOraclePeopleSoft

SAPJD Edwards

Mid Tier Vendors

ACCPAC

Best Software

Daamgard

ExactEpicor

Great Plains

Lawson

Macola

Navision

SageSBT Accounting Systems

Scala

Soloman

3rd Tier Vendors

AccountMate Software

Harper and Shuman

Maxwell Business Systems

Myob LimitedPWA Group

PeachTree Software

Real World Corp.

Sesam

State of the Art Inc.

I p c : L b y r wh y r y h v wh y


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Enterprise Infrastructure

Technology Trend: Utility Computing

M&A Deals: HP/Novadigm & Consera

Veritas/Ejasent

Sun Microsystems/Center Run

Technology Trend: Service Oriented Architecture

M&A Deals: CA/Adjion Solutions

HP/Talking Blocks

Oblix/Confluent Software

Actional Corp/Westbridge Technologies

Digital Evolution/Flamenco Networks


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Technology Trend: Who gets access and to what?

Automatic provisioning

M&A Deals: HP/TruLogicaNetegrity/Business Layers

Computer Associates/Netegrity

Sun/Waveset

IBM/Access360

BMC Software/Calendra

Security Access/Identity Management


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Storage

Document management & storage converging

EMC/Documentum

Storage & security converging

Symantec/Veritas

Storage technology for the mid-market

EMC/Danz

Converging of SAN, NAS & Direct Attached storagetechnologies

Adaptec/Snap Appliance


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Factors Affecting M&A Valuations in 2004

Historical Financials

Revenue growth

Historical margins

What does business look like going forward Projected revenue growth

Value of sales pipeline

Value of customer base

Strategic importance to buyer


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M&A Valuation

2.3

2.7 2.72.9

6.7

3.0

2.0 1.5 1.5 1.61.8 2.1 2.3

2.2

0.00

1.00

2.00

3.00

4.00

5.00

6.00

7.00

P

/S

Multiple

1H:98 2H:98 1H:99 2H:99 1H:00 2H:00 1H:01 2H:01 1H:02 2H:02 1H:03 2H:03 1H:04 2H:04

M&A T an a tion Multi l So t a In u t

Sou : Co um G ou R a h

Valuationsconstrainedbybuyersownvaluationmultiplesandpriordeals


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Valuation Study: 2003 - 2004

Private software firms with revenue under $10 million

21% of transactions were less than 1.25x

60% of transactions were greater than 2.00x 33% were greater than 3.00x

High growth companies

High margin companies

Next generation technologies

Security software


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2004 Valuations Security Software

2.0x 3.0x 3.0x 7.0x 10.0x +

Price to Sale Multiples

Software

IndustryM&A

Multiples

Security

SoftwarePublic

Multiples

Security

SoftwareM&A Multiples

Multiples driven by VC

investment


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1.25x 2.00x 2.0x 3.0x


Software

IndustryM&A

Multiples

2004 Valuations Niche Applications

NicheSoftware

FirmsM&A

Multiples

Multiples held back by

size of market opportunity


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1.20x 1.50x


High

ValueBPOM&A

Multiples

2004 Valuations IT Service

1.50x 2.00x0.60x

Govt ITService

M&AMultiples

Application/

SystemsIntegration

M&AMultiples

Rellers/Distributors

Low ValueBPO

0.80x 1.10x

Valuations depend on

where you are in the value

chain


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How To Improve Your M&A Success

Prepare early and do it thoroughly

Align shareholder interests

Agree to valuation range/expectations

Understand your companys value proposition Create an environment of trust

Personal trust between buyer and seller is the keyto getting deals done today


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Contact Information

Corum Group Ltd.

10500 NE 8th Street, Suite 1500Bellevue, WA 98004USA(425) 455-8281

Corum Group International

Hottingerstrasse 21CH-8032 ZurichSwitzerland

+41 1 251 82 65

www.corumgroup.com

Webinar 011105 Corum Group 2004 M&a Review & 2005 Forecast

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