Gridley Presentation at DFJ Gotham Annual Meeting

May 17, 2012

What Buyers Are Thinking & Doing in Today’s M&A Market

3

What are Traditional Industry Leaders Doing in M&A?

4

Unprecedented Time for Enormous Value Creation

• Traditional Industry leaders are highly vulnerable like never before

Open Architecture New Business Models Open Source Cloud Computing

• Innovation at record speeds – Approximately $130 Billion of value created in 3 years

5

Gridley’s Message on Innovation in Tech Today

Revenue Multiple

0.0x$0

$200

5.0x 10.0x 20.0x

$70

$30

Eq

uit

y V

alu

es

$12.7

$11.0

$8.0

$3.9

$2.2

$0.8

$1.6$0.5 $0.4

$0.4 $1.2

$0.6

$0.9 $0.4

$10.7$4.7

$208.7

$73.0

$182.3

Comparative Equity Values ($ in billions)

Traditional Ad Agencies

Performance Based Marketing

Legend

Emerging Threats

Revenue Multiple

0.0x$0

$200

5.0x 10.0x 20.0x

$70

$30

Eq

uit

y V

alu

es

$12.7

$11.0

$8.0

$3.9

$2.2

$0.8

$1.6$0.5 $0.4

$0.4 $1.2

$0.6

$0.9 $0.4

$10.7$4.7

$208.7

$73.0

$182.3

Comparative Equity Values ($ in billions)

Traditional Ad Agencies

Performance Based Marketing

Legend

Emerging Threats

Revenue Multiple0.0x 15.0x 22.5x 50.0x7.5x

$0

$70

$30

$20Equ

ity V

alu

e

$73.0

$6.2

$7.1

$1.1$6.0

$11.7$10.7

$1.0

$3.2

$9.4

$11.9

$2.7

$32.4

$40.1

Comparative Equity Values ($ in billions)

Traditional Leaders

Emerging Innovators

Legend

57.5xRevenue Multiple

0.0x 15.0x 22.5x 50.0x7.5x$0

$70

$30

$20Equ

ity V

alu

e

$73.0

$6.2

$7.1

$1.1$6.0

$11.7$10.7

$1.0

$3.2

$9.4

$11.9

$2.7

$32.4

$40.1

Comparative Equity Values ($ in billions)

Traditional Leaders

Emerging Innovators

Legend

57.5x

Traditional Ad Agencies vs. Ad Tech Traditional Media vs. Social Networks

Retail vs. Ecommerce Emerging Companies vs. Traditional Big Data

0.0x 4.0x 8.0x 12.0x

($BN)

$0

$200

$100

$50

Equity V

alu

e

Revenue Multiple

$1.4$3.4

$14.7

$7.9

$1.0

$8.4

$2.0$0.6

$185.2

$101.2

$34.6

$34.9

$42.4

$10.4

$0.4

Traditional Retail

E-Commerce

0.0x 4.0x 8.0x 12.0x

($BN)

$0

$200

$100

$50

Equity V

alu

e

Revenue Multiple

$1.4$3.4

$14.7

$7.9

$1.0

$8.4

$2.0$0.6

$185.2

$101.2

$34.6

$34.9

$42.4

$10.4

$0.4

Traditional Retail

E-Commerce

Sources: Second Market and CapIQ as of November 25, 2011.Revenue Multiple

$200

2.0x 4.0x

Equ

ity V

alu

e

0.0x

$0

$6

$12.1

$10.2

$9.4 $4.7

$4.1

$3.2

$1.5$0.9

$0.6$0.5

$12

1.0x 3.0x

Sources: Second Market and CapIQ as of November 25, 2011

$208.7

$45$44.6

Traditional Leaders

Emerging Innovators

Legend

Sources: Second Market and CapIQ as of November 25, 2011.Revenue Multiple

$200

2.0x 4.0x

Equ

ity V

alu

e

0.0x

$0

$6

$12.1

$10.2

$9.4 $4.7

$4.1

$3.2

$1.5$0.9

$0.6$0.5

$12

1.0x 3.0x

Sources: Second Market and CapIQ as of November 25, 2011

$208.7

$45$44.6

Traditional Leaders

Emerging Innovators

Legend

6

The New “Kids” on the Block

Company Year Founded IPO Date Value Today

(Billions)

Revenue

(Billions) # of Employees

Older Brothers/Sisters

1998 Aug 2004 $38,875 33,077 $197,320

1995 Sep 1998 $12,383 27,770 $52,604

2008 Nov 2011 $1,610 11,471 $7,605

2009

2007 NA NA 75 $1,000(1)

2007 Dec 2011 $1,218 2,846 $5,850

2006 NA NA 141 $10,700(1)

2004 May 2012 $4,038 3,539 $100,000(1)

2002 May 2011 $617 2,447 $11,415

NA $4,000(1) NA NA

Source: CapIQ. Company filings. (1) Estimated value.

7

How New Kids Are Thinking About & Doing M&A

• Strategic value orientation not traditional financial metrics

• Tech and team focus – early stage deals

• Stock = big component of transaction

• Much more comfortable thinking across capabilities (advertising, commerce,

social, analytics, payments) as these disciplines converge

• Foster early relationships with entrepreneurs and boards that back them

What New Kids Are Acquiring

8

When New Kids Grow Up – eBay Case Study

Discover Pay

In-store

scanner

Nearby

Used, online

Online

retail

Nearby

Used, online

Online retail

Virtual goods

Local Retailers

/ SMB

Any product

Mobile

Location-

based service

Retailer

At Home

eBay made a series of acquisitions, most notably of PayPal, GSI Commerce, Red Laser, Zong, and Milo,

that enabled eBay to become a front-runner in the race to become the next generation in-store leader

Better

Merchandising

9

A Word About Other Buyers – Traditional Industry

Leaders

• Record levels of cash / business performing well

• Need to get their attention for M&A

• Conservative approach – not “stretch” / not “bet the bank”

• Fair pricing if interested

• Must be a logical fit – minimal “out-of-the-box” thinking

10

A Word About Other Buyers – Later Stage Growth

PE Firms

• Very aggressive

• Looking for market leadership, good growth, experienced management

• Frequently able to compete on price with strategic buyers

• Plenty of “dry powder” on hand

Source: Buyouts.

$97.6 $98.7

$12.9

$29.6

$0

$20

$40

$60

$80

$100

$120

Deals Completed Funds Raised

$ in

billion

s

2011

Q1 2012

Fundraising Has Outpaced Investing YTD

11

• New York has become #2 tech hub behind SF Bay Area

• NEA & Accel building presence through new offices in New York

• New York “core competencies” a target focus for buyers

– Brands and consumer retail

– Advertising / Madison Avenue

– Financials / payments

• Serial entrepreneur cycle – team members of formerly acquired companies leave

to start new companies

– Dodgeball / Foursquare

– DoubleClick Mafia

A Word About the New York Scene

12

Source: Capital IQ, TechCrunch, public filings, and press releases. *rumored value

Date

06/15/2011

06/13/2011

02/06/2011

01/19/2011

02/03/2010

01/25/2010

09/08/2011

06/17/2010

08/05/2008

09/07/2010

Acquirer/Target

Transaction

Value (in $M)

$524

400*

315

296

225

200*

151

135

125

120

1)

2)

3)

4)

5)

6)

7)

8)

9)

10)

Top 10 Private Digital NY Sale Transactions January 2008 – December 2011 (Disclosed deals / rumored pricing available)

13

Advice for Private Company Sellers / VCs with

Companies They Want to Sell

• Decent market for good companies – “Flight to Quality”

• Lots of lower-quality companies / deals not getting done

• Be realistic about price unless most likely buyer is a “New Kid” – otherwise buyers

care about earnings and traditional valuation metrics

• Be cautious of the speed at which market and buyer tone changes (e.g. ad tech)

• When speaking to likely acquirers, stay close to acquirer’s product management

team vs. focusing only on corporate development

• Keep likely acquirers abreast of material company events such as fund raisings

• Actively pursue strategic integrations with likely acquirers

– Overlapping customers and/or integrated offerings go a long way

• Keep track of M&A heavy-hitters, who often times move to other companies

– Former Google M&A head Jason Harinstein now at Groupon

– Former Yahoo! M&A head Andrew Siegel now at Condé Nast

A Word About the IPO Market

15

The Tech IPO Market in 2012YTD

Source: Capital IQ, Public Filings.

Note: Highlighting denotes IPOs that priced above initial filing range.

• More than half of this year’s U.S. tech IPOs have priced above the range, and all

but one have traded up afterwards % Performance

Pricing Date Company Sector / Subsector

Market Cap

at IPO Size (MM) Filing Range

IPO

price

One

Week

Since

IPO

Mar 28 CafePress Int. Svcs. / eCommerce $324 $86 $16.00 - $18.00 $19.00 (4.7%) (18.4%)

Mar 28 Millennial Media Int. Svcs. / Mobile 989 133 $11.00 - $13.00 $13.00 53.5% 17.5%

Mar 21 ExactTarget Int. Svcs. / Email 1,252 162 $15.00 - $17.00 $19.00 37.7% 34.2%

Mar 21 Vantiv FinTech / Pmt. Processing 2,198 500 $16.00 - $18.00 $17.00 17.9% 28.0%

Mar 14 Demandware SaaS & Outsrc. / eCommerce 465 88 $12.50 - $14.50 $16.00 61.2% 72.1%

Mar 01 Yelp Int. Svcs. / Local 917 107 $12.00 - $14.00 $15.00 33.3% 35.1%

Feb 23 Bazaarvoice Int. Svcs. / eCommerce 682 114 $8.00 - $10.00 $12.00 40.6% 40.4%

Feb 17 Brightcove Int. Svcs. / Content Mgmt. 300 55 $10.00 - $12.00 $11.00 37.3% 38.6%

Feb 09 Synacor Int. Svcs. / Content Mgmt. 134 34 $5.00 - $6.00 $5.00 0.4% 84.8%

Mean $807 $142 30.8% 36.9%

Median $682 $107 37.3% 35.1%

A Word About Gridley

17

Gridley Overview

Gridley & Company, a New York-based boutique investment bank, provides advisory

services to companies in the Information Services industry

Leading Boutique • Sharp focus provides clients with valuable strategic insights and perspectives

• Specialize in Internet Services, Digital Media & Marketing Services, Data

Services, Financial Technology, and SaaS & Outsourcing Services

• Founded in 2001

• Headquartered in New York, NY

Strong Reputation • Strong industry reputation on assignments led by senior bankers

• Experienced, bulge-bracket trained M&A bankers – The “A” Team

Trusted Advisor • Thoughtful ideas – not just logical combinations

• Deliver value to buyers, sellers, and investors alike

• Broad industry network developed over 25+ years with industry leaders,

emerging growth companies, and senior investors

Gridley & Company

18

Interested in Other Gridley Resources?

• Available at www.gridleyco.com/what-we-think/resources/

Measurement

POS

Quarterly Newsletter

eCommerce Mobile Ad Tech

Digital Content Digital NY

Gridley & Company LLC

10 East 53rd Street, 24th Floor

New York, NY 10022

212.400.9720 tel

212.400.9717 fax

Twitter: @gridleyco

www.gridleyco.com

Linda Gridley

President & CEO

212.400.9710

linda.gridley@gridleyco.com

QUESTIONS?