You are on page 1of 40

THE PREMIER PROVIDER OF M&A SERVICES TO SOFTWARE / IT COMPANIES

Technology M&A

2005 Review & 2006 Forecast

Corum Group Ltd.


www.corumgroup.com
THE PREMIER PROVIDER OF M&A SERVICES TO SOFTWARE / IT COMPANIES

Agenda

• Opening Remarks
• M&A Review
• 2005 Baker’s Dozen
• 2006 Fast Start
• M&A Drivers
• Stock Market & IPO
• Venture Capital / Private Equity
• Private Equity Case Study
• Sector Analysis
• M&A Valuation Trends
• What Will Drive Deals in 2006
• Questions & Answers

2
THE PREMIER PROVIDER OF M&A SERVICES TO SOFTWARE / IT COMPANIES

Corum Group
• M&A specialists since 1985
• Software and IT experts – mostly former CEO’s
• Offices throughout North America, and Europe – soon Asia
• Nearly 200 transactions completed
• $6 billion in wealth created
• 35% 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

3
THE PREMIER PROVIDER OF M&A SERVICES TO SOFTWARE / IT COMPANIES

Corum Transaction Analysis


A Baker’s Dozen of Recent Deals

NICE Systems / FAST Video


• FAST Video is a Swiss developer of video systems for security and surveillance
purposes
• NICE is an Israel based provider of advanced content analytics for most forms of
communication – video, web, radio, telephony and offers security related systems
• NICE acquired FAST to strengthen their digital video product suite and complement
their current security offering
• The transaction was valued at $21 million cash plus earnout

FileNET Corporation / Yaletown Technology Group


• Yaletown (YTG) develops products for managing documents in electronic form,
specifically email
• FileNET, a leader in the ECM space, acquired YTG to strengthen their position in
the emerging content compliance market and provide a more comprehensive
solution
• The transaction was valued at approximately $11 million, net of cash

4
THE PREMIER PROVIDER OF M&A SERVICES TO SOFTWARE / IT COMPANIES

Corum Transaction Analysis (continued)

Open Solutions Inc. / COWWW


• COWWW provides web-based archiving, retrieval and document distribution for
financial institutions and other regulated industries

• Open Solutions (OSI) is a rapidly growing and acquisitive provider of enabling


solutions for banks and credit unions

• OSI had OEM’d similar technology and wanted to control development

• Terms were not disclosed, but this was an all cash transaction

J.L. Halsey / Lyris


• Lyris provides email marketing software

• J.L. Halsey, a public company with large private equity interests and proven
management, was in the process of reinventing themselves as a software and
Internet company

• Lyris brought Halsey profits, growth, customers and a combination of software


products and SaaS

• The valuation was approximately $30 million cash

5
THE PREMIER PROVIDER OF M&A SERVICES TO SOFTWARE / IT COMPANIES

Corum Transaction Analysis (continued)

Trader Publishing Company / Best Image


• Best Image is a leading provider of real estate agent Internet marketing and lead
generation services
• Trader Publishing is the nation’s leading producer of specialty offline and online
classified advertising publications specific to real estate, vehicles, and others
• Acquisition allows Trader Publishing to expand its real estate focus by leveraging
Best Image’s solid business model, brand name, tools and prestigious client base
• Terms were not disclosed, but it was a strategic valuation

Blue Cross Blue Shield / Optical Image


• Optical Image offered document management software for various industries
• Blue Cross Blue Shield (BCBS) is known for their technology outsourcing and has
a number of technology based subsidiaries
• BCBS was large customer of Optical Image and felt the business model was
sound, so BCBS brought the technology in-house
• Terms were undisclosed, but in line with strategic valuations

6
THE PREMIER PROVIDER OF M&A SERVICES TO SOFTWARE / IT COMPANIES

Corum Transaction Analysis (continued)

ANSYS / Century Dynamics


• Century Dynamics is a leading supplier of engineering simulation software for the
mechanical computer aided engineering market

• ANSYS designs, develops, markets and supports engineering simulation solutions


and was looking to broaden their offerings into new vertical markets

• Industry consolidation continues as larger vendors seek to be the sole technology


source to customers

• Terms were not disclosed, but this transaction consisted of both cash and earnout
components

RainMaker Software / Computer Law Systems (CLS)


• CLS is a leading vertical market provider of legal automation software for corporate,
government and private practice law offices

• RainMaker is also focused exclusively on the legal market, but serving a different
market segment than CLS

• The acquisition allowed RainMaker to address law offices of all sizes across multiple
sectors, while the combined organization is able to take advantage of scale
7 • Terms were not disclosed, but this was an all cash transaction
THE PREMIER PROVIDER OF M&A SERVICES TO SOFTWARE / IT COMPANIES

Corum Transaction Analysis (continued)

BMC Software / Calendra


• Calendra, a French vendor of identity management solutions

• BMC was rebuilding their Control SA security and saw Calendra as good foundation
for their next generation technology

• Calendra quickly became a major player in the identity management space after a
couple of key sales

• Valuation was in line with other related identity management transactions

Vertex / Cape Systems


• Cape is a UK based SCM vendor with specific solutions developed for pallet and
packing optimization

• Vertex is a small public company also in the SCM space with specific WMS solutions

• Vertex acquired Cape for their strong brand, niche technology and management
team

• Terms were in line with current valuations

8
THE PREMIER PROVIDER OF M&A SERVICES TO SOFTWARE / IT COMPANIES

Corum Transaction Analysis (continued)

National Instruments / Electronics Workbench


• Electronics Workbench develops and markets desktop electronic design
automation software used by educators and design engineers
• National Instruments (NI) is a technology pioneer in virtual instrumentation
• The acquisition enables NI to take a leadership position in the integration of design,
simulation and test tools by creating a graphical system design platform
• Terms were not disclosed, but it was a strategic valuation

BVRP / V-COM
• V-COM provided proprietary and third party software utilities
• BVRP, a French software utilities vendor, saw an opportunity to bolster their
product suite and expand their US presence
• Terms were not disclosed, but it was a strategic valuation

9
THE PREMIER PROVIDER OF M&A SERVICES TO SOFTWARE / IT COMPANIES

Corum Transaction Analysis (continued)

Torex PLC / Hoffman Datentechnik GmbH


• Hoffmann is a German based HR scheduling and deployment software provider

• Torex is a European retail systems solutions provider operating in over 15


countries.

• Torex had developed a growth strategy which included acquisitions and felt that
Hoffmann’s strong focus in the retail market was a good fit with their strategy

• Hoffmann was acquired for EUR4.25 million

10
THE PREMIER PROVIDER OF M&A SERVICES TO SOFTWARE / IT COMPANIES

Quick Start – 2006 Transactions


MDA / Mindbox
• Mindbox provides sophisticated decisioning software to automate knowledge
intensive business processes. Mindbox is especially strong in the financial
services industry, specifically mortgage banking
• MDA provides advanced information solutions to capture and process vast
amounts of data, produce essential information and improve decision making
• MDA acquired Mindbox to expand their offerings to include advanced decision
making and their presence in the US lender market
• Terms were not disclosed

8+ companies currently under LOI or negotiating term sheets


• Vertical Markets
– Oil and Gas
– Insurance Related
– Financial Services
• Enterprise Infrastructure
• Supply Chain Management
• Storage Management
• Online Gaming
11 • Bioinformatics
THE PREMIER PROVIDER OF M&A SERVICES TO SOFTWARE / IT COMPANIES

Historical Prospective: M&A Climate Evolution

1999 - Holding your breath – Y2K


2000 - dot-com / Pent up demand – explosive
2001 - Denial and desperation
2002 - Back to business basics
2003 - Tempered recovery
2004 - Stability returns
2005 - Rational exuberance
2006 - Stable and positive

12
THE PREMIER PROVIDER OF M&A SERVICES TO SOFTWARE / IT COMPANIES

Technology M&A Activity

We are back to 1998/99 levels

2,800

2,400
Number of Tech Deals

2,000

1,600

1,200

800

400

0
1997 1998 1999 2000 2001 2002 2003 2004 2005

13
THE PREMIER PROVIDER OF M&A SERVICES TO SOFTWARE / IT COMPANIES

Why Is M&A the Dominant Exit Strategy?

The need to acquire is stronger than ever

• Acquisitions add more growth faster


• Speed up time to market
• Consolidation – “The World Is Flat”
• Counter takeover attempts
• 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

14
THE PREMIER PROVIDER OF M&A SERVICES TO SOFTWARE / IT COMPANIES

M&A Active in All Industries


Large strategic acquisitions in all industries
• Bank of America / MBNA
• Sprint / Nextel
• P&G / Gillette
• eBay / Skype
• Oracle / Siebel
Today, the deal making climate is optimal
• Liquidity in equity & debt markets
• Relatively low interest rates
• Wall Street is receptive to smart, strategic deals
• Stable stock market

15
THE PREMIER PROVIDER OF M&A SERVICES TO SOFTWARE / IT COMPANIES

M&A Dollar Volume – All Industries (US Only)

$1,500

$1,250
In Billions

$1,000

$750

$500

$250

$0
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

16
THE PREMIER PROVIDER OF M&A SERVICES TO SOFTWARE / IT COMPANIES

M&A Activity – Technology Sector


Deal activity is now accelerating in the technology
industry
• IT spending has stabilized and is growing in many
market segments
• Executives are confident / support strategic acquisitions
• Companies are in growth mode vs. survival mentality of
past years
• Elevated M&A activity puts pressure on all companies to
be in the M&A market in order to remain competitive
and not miss opportunities

17
THE PREMIER PROVIDER OF M&A SERVICES TO SOFTWARE / IT COMPANIES

2005 - Increase in Mega Deals


Buyer / Seller Deal Value (millions)
Silver Lake / SunGard $11,130 *
Cisco / Scientific Atlanta $6,900
Silver Lake / Agilent $6,060 *
Oracle / Siebel $5,850
Sun / Storage Technology $4,100
Adobe / Macromedia $3,400
eBay / Skype $2,600
Nasdaq Stock Market / Instinet Group $1,878
InterActiveCorp / Ask Jeeves $1,850
NewsCorp / IGN and Myspace $1,300
Eastman Kodak / Creo $1,200
Silver Lake / Serena $1,200 *
IBM / Ascential $1,001
Yahoo / Alibaba $1,000
Concerto / Aspect Communications $1,000
Golden Gate / GEAC $1,000 *
Carlyle / SS&C $982 *

* Financial Buyers
18
THE PREMIER PROVIDER OF M&A SERVICES TO SOFTWARE / IT COMPANIES

Active Buyers in 2005

Strategic Financial
Oracle Corp. - 15 Francisco Partners
IBM Corp.- 15 Golden Gate Capital
Cisco Systems - 12 Halo Holdings
Microsoft Corporation - 9 Silver Lake Partners
JupiterMedia Corp. - 7 Carlyle Group
Think Partnership - 6
Yahoo! Inc. - 6
Computer Associates - 6
eBay Inc. - 5
SAP AG- 5
Bentley Systems Inc - 5
Fiserv, Inc - 5

Over ten companies have done 4 transactions

19
THE PREMIER PROVIDER OF M&A SERVICES TO SOFTWARE / IT COMPANIES

Active Sectors in 2006

Current Sectors in Active Consolidation


• Internet Pure Plays
• Internet Infrastructure
• Vertical Market Specialists
• Enterprise Applications
• Financial Services
• Wireless

20
THE PREMIER PROVIDER OF M&A SERVICES TO SOFTWARE / IT COMPANIES

Is the M&A Market Momentum Sustainable?

Yes, as long as:


• Corporate IT spending levels continue to rise
• Tempered IPO market – M&A remains the most liquid exit strategy
• Buyers continue to seek out strategic M&A opportunities
• Private Equity firms continue to drive consolidation
• Economy remains steady – a healthy stock market will continue to drive
M&A
– Public company earnings have grown over 10% per quarter for 13
consecutive quarters
– The average P/E ratio for the S&P 500 was 14.6 as of December 20, 2005,
which is a reasonable valuation that leaves room for companies to drive
their stock prices up through strategic M&A

21
THE PREMIER PROVIDER OF M&A SERVICES TO SOFTWARE / IT COMPANIES

Slow IPO Market Continues to Push M&A

2003 2004 2005


# of IPO Pricings 68 216 194
IPO Volume $15B $43B $34B
New IPO Filings 105 315 252

Q4:04 Q4:05
# of IPO Pricings 79 46
IPO Volume $15.4B $6.9B
New IPO Filings 45 50

Number of Software IPO’s in 2005 - 7

22
THE PREMIER PROVIDER OF M&A SERVICES TO SOFTWARE / IT COMPANIES

IPO Drawbacks
Why companies aren’t going public
• High compliance cost
• Greater management liability
• Intense market scrutiny
• Less flexibility regarding corporate structure
• Higher liquidity in M&A vs. IPO
• 30% of all IPO’s in 2005 were priced below original range
• 2005 average IPO opening day gain: 1.17%

23
THE PREMIER PROVIDER OF M&A SERVICES TO SOFTWARE / IT COMPANIES

M&A Is the Primary Source of Liquidity


In Dollar Volume – US dollar volume all industries

$1,700
$1,600
$1,500
$1,400
$1,300
$1,200
$1,100
In Billions

$1,000
$900
$800
$700
$600
$500
$400
$300
$200
$100
$0
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

M&A Dollar Volume IPO Amount Raised

24
THE PREMIER PROVIDER OF M&A SERVICES TO SOFTWARE / IT COMPANIES

Venture Capital / Private Equity

2005 Facts:
• VC’s have been averaging approximately 700 investments in the US
per quarter – These numbers are rising
• Up rounds are outpacing down rounds for the 5th consecutive quarter
• Ratio of VC backed M&A exits vs. IPO’s – 5:1

Going Forward:
• VC’s are actively seeking investments in Asia and Israel
• VC’s are looking for a smaller quantity of higher quality investments
• VC’s are more technology savvy – strong desire for emerging
technologies

25
THE PREMIER PROVIDER OF M&A SERVICES TO SOFTWARE / IT COMPANIES

VC’s Are Actively Backing the Next Generation


of Tech Companies

Total Investment in Software Industry


$1,700

$1,500

$1,300
In Millions

$1,100

$900

$700

$500
*
02

02

03

03

03

03

04

04

04

04

05

5
20

30

40
3Q

4Q

1Q

2Q

3Q

4Q

1Q

2Q

3Q

4Q

1Q

Q
Source: PricewaterhouseCoopers/Venture Economics/NVCA/MoneyTree survey
26 * Estimate
THE PREMIER PROVIDER OF M&A SERVICES TO SOFTWARE / IT COMPANIES

Consolidation – The Role of Private Equity


Golden Gate Capital - Invest in high growth business in
change intensive industries
• In 2002 Golden Gate provided Infor (then Agilisys) access to their
$700 million fund to enable strategic consolidation through
acquisition
• Since December 2002 Infor has completed 12 acquisitions in the
enterprise software marketplace
• Four of their transactions have been international

27
THE PREMIER PROVIDER OF M&A SERVICES TO SOFTWARE / IT COMPANIES

Consolidation – The Role of Private Equity

Golden Gate Capital / Infor’s acquisition history:

Acquired Company Country


Formation Systems USA
Mapics, Inc. USA
Mercia Software USA
Finmatica S.p.A Italy
Aperum USA
NxTrend Technology, Inc USA
Varial Software AG Germany
daily.commerce, inc USA
INFOR Business Solutions AG Germany
Future Three Software USA
Brian International Germany
GEAC Computer Corp USA

28
THE PREMIER PROVIDER OF M&A SERVICES TO SOFTWARE / IT COMPANIES

Software Sector Coverage


21 Markets Covered by Corum

Business Intelligence Software Development Tools


Connectivity/Legacy Extension/Web Security
Services Storage
Digital Media Supply Chain Management
Engineering Vertical Market –
Enterprise Applications • Financial Services Industry
Enterprise Content Management • Government/DoD/Homeland Security
Enterprise Infrastructure • Healthcare Industry
Gaming • Telecom
Internet Infrastructure • Other
Internet Pure Plays Wireless
IT Services

29
THE PREMIER PROVIDER OF M&A SERVICES TO SOFTWARE / IT COMPANIES

Sector Statistics

Transactions by sector
• Fairly even distribution across sector
• Sectors with most activity
– Financial Services
– Internet
– Vertical market applications

Median transaction value


• $40 million

Approximately 50% of technology transaction terms


were not disclosed

30
THE PREMIER PROVIDER OF M&A SERVICES TO SOFTWARE / IT COMPANIES

Sector Valuations
Software Sectors TTM EV/S Multiple
Business Intelligence 3.16 x
Connectivity 1.40 x
Digital Media 3.50 x
Engineering 3.00 x
Enterprise Applications 3.19 x
Enterprise Infrastructure 2.20 x
Enterprise Content Management 1.52 x
Gaming 2.19 x
Internet Infrastructure 4.10 x
Internet Pure Plays 4.10 x
IT Services 0.74 x
Security 3.76 x
Software Development Tools 2.34 x
Storage 3.17 x
Supply Chain Management 1.70 x
Wireless 2.85 x

Vertical Market Software Applications


Financial Services 2.88 x
Government/DoD/Homeland Security 1.07 x
Healthcare 2.37 x
Telecom 2.37 x
Other 2.51 x

31
THE PREMIER PROVIDER OF M&A SERVICES TO SOFTWARE / IT COMPANIES

Sector Analysis - Digital Media


Overview
• Creation
• Publishing
• Distribution

Active buyer profile – Jupitermedia


• 2005 transaction history
• Active 4th quarter
• Cross border emphasis
• More acquisitions in 2006

32
THE PREMIER PROVIDER OF M&A SERVICES TO SOFTWARE / IT COMPANIES

Sector Analysis - Enterprise Applications


Active market
• Long history
• Catalyst for consolidation

Acquisition Drivers – specific to sector


• Emerging / New markets
• Private Equity
• Verticalization

33
THE PREMIER PROVIDER OF M&A SERVICES TO SOFTWARE / IT COMPANIES

Sector Analysis - Internet Pure Plays


How did we get here?

2006
• Online businesses are up 25%
• 30% of households made online purchases

Active Internet sub sectors


• Online Advertising
• Paid Search
• eCommerce
• Niche / Specialized content sites

34
THE PREMIER PROVIDER OF M&A SERVICES TO SOFTWARE / IT COMPANIES

Valuation Multiples

M&A Transaction Multiples - Software Industry

4.00

3.50

3.00

2.50

2.00

1.50

1.00

0.50

0.00
1H '01 2H '01 1H '02 2H '02 1H '03 2H '03 1H '04 2H '04 1H '05 2H '05

35 Source: Corum Group Research


THE PREMIER PROVIDER OF M&A SERVICES TO SOFTWARE / IT COMPANIES

Key Factors Driving High Valuations

• Rapid growth
• High profitability
• Recurring revenue
• Attractive business models
• Current technology
• Strong customer base
• Specialized domain expertise
• Distribution / channel strength
• Brand recognition
• Strong management and technology team(s)

36
THE PREMIER PROVIDER OF M&A SERVICES TO SOFTWARE / IT COMPANIES

2006 Technology M&A Drivers

• Strong economy: Russell 2000 all time high


• Heavy investment in IT
• Emerging markets: Asia, India, Israel
• Heightened strategic buyer activity
• Private equity enabling consolidation
• Competitive M&A environment
• Development and adoption of new technology
• Re-invention and acceptance of old business models
• Convergence of once disparate technology silos
• Greater acquisition interest in “smaller” firms
• Flattened interest rates

37
THE PREMIER PROVIDER OF M&A SERVICES TO SOFTWARE / IT COMPANIES

Question & Answer Session

38
THE PREMIER PROVIDER OF M&A SERVICES TO SOFTWARE / IT COMPANIES

Contact Information
Presenters:
Bruce Milne, Chairman and CEO
Ward Carter, President
Ryan Blakely, Director of Research

Corum Group Ltd.


10500 NE 8th Street
Suite 1500
Bellevue, WA 98004
USA
+1 425 455 8281

Corum Group International S.a.r.l


Glärnischstrasse 36
CH-8022 Zurich
Switzerland
+41 44 251 82 65

www.corumgroup.com
39
THE PREMIER PROVIDER OF M&A SERVICES TO SOFTWARE / IT COMPANIES

Corum Links
VIP Pass for Corum's Selling Up Selling Out Conference

To take advantage of the special VIP offer for January 19th webinar attendees:

1) Go to Corum's conference registration page at


https://www.corumgroup.com/ConferenceRegistration.asp
2) Select the conference you wish to attend
3) Enter your Contact Information
4) Enter Promo Code of “WebJan"
5) Check box "I preferred to be called for payment information". You will not be
called.

You will receive a complimentary VIP Pass to the conference.

Corum M&A Report


http://www.corumgroup.com/ResearchAndReportsregistration.asp

40