AN M&A UPDATE. Software M&A Sizzles - The Market Roars Back

Transcription

1 AN M&A UPDATE Software M&A Sizzles - The Market Roars Back Corum Group Ltd.

2 Agenda Opening Remarks - Corum M&A Market Overview Market Trends Public Markets IPO Market Venture Capital Top Buyers & Active Sectors Valuations Corum Q3 M&A Briefing Release

3 Corum Group M&A specialists since 1985 Software and IT experts mostly former CEOs Dominant North American and European presence 200+ transactions completed $6 Billion in wealth created 55+% cross border transactions Recognized industry leaders/experts Sponsor of Selling Up Selling Out conferences Sponsor of World Financial Symposiums Conferences Publisher of industry leading M&A research

4 M&A Volumes Out Pace Previous Year Again Deal Drivers: Enormous liquidity in the market Strong stock market Wall Street is receptive to smart, strategic deals Need for global presence Companies stimulate growth via acquisition Greater competition for deals Private Equity firms driving M&A activity recaps Converging market sectors

5 Industry Wide Technology M&A Activity % Deals By Sector 45.00% 40.00% 35.00% 30.00% 25.00% 20.00% 15.00% 10.00% 5.00% 0.00% Digital Media Enterprise Applications Enterprise Infrastructure Gaming Internet IT Services Security Wireless Vertical Markets 2005 % Deal Volume 2006 YTD % Deal Volume

6 Industry Wide Technology M&A Activity (continued) % Deal Value By Sector 60.00% 50.00% 40.00% 30.00% 20.00% 10.00% 0.00% Digital Media Enterprise Applications Enterprise Infrastructure Gaming Internet IT Services Security Wireless Vertical Markets 2005 % Deal Value 2006 YTD % Deal Value

7 Industry Wide Deal Volume Past 8 Quarters 14.00% 12.00% * % Deal Volume 10.00% 8.00% 6.00% 4.00% 2.00% 0.00% Q1:05 Q2:05 Q3:05 Q4:05 Q1:06 Q2:06 Q3:06 Q4:06 Cumulative look at % deal volume per quarter over the past 8 quarters YTD Q3 historically weaker than Q4 1 st half stronger then 2 nd half * Projected % deal volume assuming deal levels maintain momentum through close of 2006

8 Is it 1998? M&A levels are strong, but justified Valuations are strategic, while sensible New technology is pervasive and real Sellers are optimistic, but rational Buyers are opportunistic, yet cautious

9 M&A Is the Primary Source of Liquidity In Dollar Volume US dollar volume all industries In Billions $1,700 $1,600 $1,500 $1,400 $1,300 $1,200 $1,100 $1,000 $900 $800 $700 $600 $500 $400 $300 $200 $100 $ YTD:06 M&A Dollar Volume IPO Amount Raised

10 Why Does M&A Dominate? The need to buy is stronger than ever Acquisitions add more growth Counter takeover attempts Consolidation Speed up time to market Buy talent and domain expertise Fill product gaps Get ahead of a technology curve Tap into emerging consumer markets Cost of being public and complying with SOX

11 Global Market Place 58% of Corum s transactions have been cross-border A trend we seeing throughout the industry Domestic 42% Cross Border 58% Data represents transactions since January 2005

12 Momentum Continues Stability strong stock market and Euro will enable more overseas buyers Expansion - US firms will go international for acquisitions need to capitalize on growing IT markets/opportunities Fear recent deal activity increases pressure on all to keep pace; acquire or be acquired Innovation small start-ups developing the most cutting edge solutions Resources friendly capital markets & high cash balances coupled with improved revenue growth

13 Slower IPO Market Pushes M&A IPO data all industries October most active in more than a year 50% of October offerings closed with double digit gains Q3:05 Q3:06 % Change # of IPO Pricings % Total Value $9, $6, % Average Value $ $ % Values are in millions Source: D&B Software IPO s during Q3:06 = 3 Software IPO filings during Q4:06 = 5

14 VC s Are Actively Backing the Next Generation of Tech Companies Total Investment in Software Industry $ Invested $1,600 $1,400 $1,200 $1,000 $800 $600 $400 $ # of Investments $0 0 Q1:04 Q2:04 Q3:04 Q4:04 Q1:05 Q2:05 Q3:05 Q4:05 Q1:06 Q2:06 Source: PricewaterhouseCoopers/Venture Economics/NVCA/MoneyTree survey

15 Top Buyers in 2006 Year To Date Strategic Buyers Active Private Equity Firms* Microsoft 15 Accel-KKR IBM 12 Apax Partners Oracle 11 Carlyle Group EMC 9 Francisco Partners L-3 Communications 7 Golden Gate Capital Sage Group 7 Silver Lake Partners Cisco Systems 6 Symphony Technology Group Jupitermedia 6 Thoma Cressey NeoMedia Technologies 6 Accenture 5 Google 5 * Partial List Kronos 5 Motorola 5 VeriSign Strategic buyers with 2 to 4 transactions

16 What Do Buyers Really Buy? Vision Research Management Business Model Planning R&D Process Patents Documentation Pricing Support Market Share Staff User Base Marketing Channels Alliances Competitive Position Technology Sales Process Capital Structure Accounting Policies Growth Profitability Domain Expertise >> Don t forget the intangibles

17 Active Sectors Wireless technologies and infrastructure Enterprise infrastructure and systems management Convergence companies as the lines between the Internet, television, and telecommunications disappear Digital Media Security companies Internet and E-commerce especially the small but growing category Vertical market applications especially financial services and niche market technologies Mature, profitable companies with strong balance sheet and install base but slowing growth as targets for consolidation or private equity (acquisition)

18 Corum Transactions Sectors where Corum has recently completed transactions Digital Media Enterprise Applications Enterprise Infrastructure Security Vertical Markets With an exceptionally strong first half complete, we look forward to a similar close to companies currently under LOI or term sheets

19 Current Activity With an exceptionally strong first half complete, we look forward to a similar close to 2006: 6+ companies currently under LOI or term sheets Enterprise Applications Enterprise Infrastructure Gaming and Entertainment Vertical Markets Manufacturing Financial Services

20 Public Markets Reaching New Highs

21 Looking Back Valuation Multiples Valuations are up 13% from 2005

22 Public Multiples Differ Dramatically by Sector 5x 4x 3x Software as a Service 3.90x 9.49x 2x 1x 0 Niche Applications 1.00x 2.50x Security Software 1.39x 7.83x Financial Services 1.50x 4.00x TTM EV/Sales Range

23 Public Valuation Multiples

24 Corum Q3 Briefing Sample Vertical Market Technology The Vertical Market applications sector continued to demonstrate strength during the quarter. Total deal count YTD is up over 40% from the total for all of 2005, with a traditionally strong fourth quarter still to come. In part, this activity demonstrates the competitive pressure to build market share and fill out product suites with the necessary functionality that drives companies to be acquisitive. Along with acquired technology come customer bases and recurring support revenue, loads of domain expertise, brand name recognition and distribution channels. None of these resources would be present if the decision was made to build versus buy, so the market for these specialized solutions companies continues to thrive. Some notable transactions that reflect this include: First Data, a significant player in electronic commerce payments, acquired Peace Software, which develops advanced software for managing utility billing and customer care. This represents a new market for First Data, allowing them to expand beyond their traditional market servicing merchant payments and credit card issuers, and facilitating a broad range of consumer financial transactions. Peace offers highly specialized technology, a broad multi-national user base, and significant knowledge of the market. Softbrands, a leader in software solutions for manufacturing and hospitality industries worldwide, acquired MAI Systems and its subsidiary, Hotel Information Systems. Softbrands has been on an aggressive path the past two years in an effort to build girth in the applications space, and the addition of $23 million in revenue from MAI takes Softbrands over the $100 million revenue mark. The acquisition also moves Softbrands into a number two position worldwide in the hospitality space. The two firms are also highly complementary building on the other s relative strength in Europe vs North America, and in chains vs independents. Strategic fit is everything when it comes to making these deals come together. If you are a specialized solutions vendor in a niche market, there is quite possibly a buyer for your software company. That is especially true if you are a leader or near-leader in your market, can demonstrate growth along with growth opportunities in your sector, are profitable, and have solid, state of the art technology.

25 Corum Q3 Briefing Sample (continued) Other Vertical Markets Public Peer Group (In $U.S. millions except share prices) Stock Stock Market Enterprise Trailing Multiple Forward Multiple Symbol Company Price Value Value P/E EV/EBITDA EV/S P/E EV/S DRTE Dendrite International Inc. $9.78 $427.6 $ x 7.36 x 0.81 x x 0.78 x EPIQ EPIQ Systems Inc. $14.71 $285.4 $ x 7.91 x 2.33 x x 2.01 x JDAS JDA Software Group Inc. $15.42 $450.2 $ x x 1.55 x x 0.89 x MFLO Moldflow Corporation $11.91 $134.5 $ x x 1.14 x - - RLRN Renaissance Learning Inc. $14.31 $421.8 $ x x 3.49 x x - ROK Rockwell Automation Inc. $58.10 $10,220.0 $10, x 9.73 x 1.95 x x 1.82 x Median Valuation Multiples x 9.92 x 1.75 x x 1.35 x M&A Transactions NIIT to Acquire Element K NIIT Global to acquire Element K, a leading provider of learning solutions in North America. Element K's learning solutions business leverages its renowned technology KnowledgeHub, and an award-winning suite of more than 3,500 courses. Its learning solutions are enhanced through custom content development and strategic learning services to address specific business challenges. Together, NIIT and Element K will emerge as the leading global provider of comprehensive Learning Solutions, with more than 3,000 employees, over US$250 million in revenue, and a presence in 32 countries. This acquisition is strategic for NIIT and consistent with its stated plans for accelerated growth. Announcement Date: July 2, 2006 Deal Value: Undisclosed

26 Contact Information Corum Group Ltd NE 8 th Street, Suite 1500 Bellevue, WA USA (425) Corum Group International S.a.r.l General Guisan Quai 30 CH-8002 Zurich Switzerland