Technology Sector M&A Review – 2009

Technology M&A Review

2009
1. Macro View

2009 was some year. It started with the world economy toppling, world markets diving and a depression
was forecast by many. However, a succession of bank bailouts, nationalisations and a massive global
quantitative easing programme has worked wonders and confidence seems to have returned to virtually all
markets; starting with bonds and feeding into commodities, equities and riskier assets. The tech heavy
NASDAQ ended the year up 44% and the UK Techmark performance was just behind it.

Key statistics for the year:

31 Dec 31-Dec
Change
2008 2009

FTSE 4,437 5,413 22%

FTSE Techmark 100 1,217 1,704 40%
NASDAQ 1,577 2,269 44%
US$ / £ exchange rate 1.46 1.62 11%
Technology M&A transactions Val.($bn) - Year 253 172 -32%
Technology M&A transactions Val.($bn) - 1H 136 38 -72%
Technology M&A transactions Val.($bn) - 2H 117 134 15%
Technology M&A transactions Vol. (No.) 5,295 4,058 -23%
Technology M&A Price to EBIT multiple 12 13 6%

2. Global Technology M&A Activity

Technology M&A activity has also sprung back into life after a strong second half. At times during the year
you had to rub your eyes and wonder whether it really was 2009, as some valuations were very attractive
and the names of the M&A targets had a familiar ring to them; with the likes of Skype, Friends Reunited,
Integralis and Razorfish all changing hands again.

Valuations peaked nearly three years ago, in early 2007, but may well now have bottomed as the average
trailing Price to EBIT ratio jumped above 13x towards year end.

© ICON Corporate Finance, 2010 1

Technology Sector M&A Review – 2009

While the volume of M&A deals fell 23% in 2009 they have actually remained very steady at around 1,000
deals per quarter throughout the year, despite the very volatile macro environment.

Perhaps the biggest surprise, particularly given the shortage of capital globally, is that the total value of
technology M&A deals rose so strongly in the second half of 2009 (see chart below). They were up 15% on
the same period in 2008 and were over 3x the levels in the first half of the year. Again, this is a reflection of
both the growth in confidence and the strong balance sheets in the technology sector.

So, many of the signs are positive and we are now seeing increasing moves towards planning IPOs in
2010, which should help boost the M&A market further.

$000 Value of Technology M&A deals P/EBIT Technology M&A valuation P/Sales

2.5
250,000 24
2.3
EBIT Multiple Sales Multiple
22 2.1
200,000
20 1.9

150,000 18 1.7
1.5
16
100,000 1.3
14
1.1
12
50,000 0.9
10 0.7
0 8 0.5
Q1 00
Q3 00
Q1 01
Q3 01
Q1 02
Q3 02
Q1 03
Q3 03
Q1 04
Q3 04
Q1 05
Q3 05
Q1 06
Q3 06
Q1 07
Q3 07
Q1 08
Q3 08
Q1 09
Q3 09

Q3 01

Q1 02

Q3 02

Q1 03

Q3 03

Q1 04

Q3 04

Q1 05

Q3 05

Q1 06

Q3 06

Q1 07

Q3 07

Q1 08

Q3 08

Q1 09

Q3 09
Momentum in technology M&A built strongly as the year progressed. This is clearly shown in that 70% of
the 24 mega deals (valued at greater than $1bn) announced in 2009, were announced in the second half of
the year. The largest technology companies continue to invest in acquisitions throughout the cycle and were
again prominent amongst the most acquisitive companies in 2009.

Biggest Number of M&A Deals - 2009

Cisco 14
IBM 11
Capita 11
Fujitsu 9
Thomson Reuters 9
Hitachi 9
Oracle 9
Microsoft 7
NTT Data 6
3i-infotech 6
CDC Software 6
Google 6

It is perhaps not that surprising to see Cisco as the top acquirer in 2009. After all, Cisco was 25 years old
last year and has completed over 130 acquisitions in that time. So having announced 14 acquisitions in
2009 alone, the pace of acquisitions is certainly not slacking.

Other interesting trends include an increasing wave of Japanese M&A with Fujitsu, Hitachi and NTT all very
acquisitive both at home (with some group restructuring), but also increasingly abroad. We also saw
continued acquisitive activity from China (CDC) and India (3i-infotech), amongst others.

© ICON Corporate Finance, 2010 2

Technology Sector M&A Review – 2009

However, not everyone was aggressive, 2009 was relatively quiet for Microsoft who had no mega deals,
IBM who had quite a few small ones but just one biggish deal and other big companies such as Intel,
Symantec and SAP who were all more cautious. In fact, IBM approved a $9bn share buyback programme
indicating where they see best value.

Deals worth highlighting:

• Xerox sprung perhaps the biggest surprise with a big move from its printing roots with the $8.7bn
acquisition of business outsourcer, Affiliated Computer Services (ACS). The cash and share
acquisition valued ACS at 1.3x revenues. It triples Xerox service revenues and means ACS has
come full circle, because until now ACS has been a consistent buyer of IT service businesses (i.e.
in the UK it recently acquired Syan and Anix);
• Dell is also moving away from its core hardware products by beefing up its service offering with the
$3.9bn cash offer for Perot Systems at 1.4x revenues. In Germany, Software AG acquired IDS
Scheer, the German IT services and BPM software vendor, in another shift into IT services from its
software roots. It paid 1.2x revenues;
• In another surprise move Oracle proposed to acquire Sun Microsystems for $7.4bn ($5.6bn net)
days after talks between IBM and Sun collapsed. According to Larry Ellison the attraction is the
Java operating language and Solaris operating system. It will certainly beef up its competitive
position against the likes of IBM and HP – assuming regulators approve it;
• Fearing it might have missed out, Cisco has played catch up in October paying $2.9bn for the
acquisition of Starent Networks, the IP-based mobile video infrastructure and it also bid $3.4bn for
Tandberg the video conferencing business;
• Back in late 2005, eBay made a significant $2.6bn acquisition of Skype, the internet
communications business that (at the time) had revenues of just $7m. Four years on, the business
now has revenues of circa $600m but the valuation remains broadly the same! Silver Lake
Partners, the private equity investors, have taken a 65% stake that values Skype at $2.7bn or 4.6x
revenues. Nevertheless, still a very tasty valuation.

Some other interesting deals where valuations stand out:

• Vignette, one of the darlings of the dotcom era that peaked with a share price of nearly $1,000 a
share in 2000, has been sold for $12.70 a share to OpenText in a $323m deal. At 1.8x sales the
valuation seems quite attractive; but not if you bought your shares in 2000;
• IBM acquired SPSS, the business intelligence software vendor, for $1.2bn or 4x revenues;
• Storage is a particularly active sector in 2009 with EMC buying Data Domain (which was subject to
a $2.4bn bidding war between EMC and Net Apps). Data Domain had $270m revenues in 2008
and although the business is growing rapidly the $2.4bn valuation is eye watering;
• SpringSource, the Java platform software company, sold for one of the highest valuations of the
year at over 20x revenues to virtualisation company, VMWare;
• Metavante has grown significantly in the past few years and been aggressively buying companies
in the banking and payments software sector globally. Surprisingly, they were acquired themselves
at the bottom of the market in April 2009 by Fidelity NIS in an all share deal for over $4bn (net). Yet,
despite the immaculate timing, they still had to pay 2.6x revenues;
• Razorfish has had an interesting decade. It was at one point a high-flying $2bn market cap
“interactive agency” but was tripped up by the dotcom crisis and was subsequently sold to SBI for a
mere $8m in 2002. They then flipped the business a year later to aQuantive for $160m. aQuantive
were then bought by Microsoft in 2007. In 2009 they then sold Razorfish again, this time to
advertising group Publicis, in a $530m deal that values the digital design and marketing agency at
1.4x revenues;
• Elsewhere in digital media, Adobe paid $1.8bn or 6x revenues to acquire Omniture, the online
advertising measurement platform. Also Google acquired AdMob in a $750m deal that valued the
online mobile advertising business at 15-20x revenues.

© ICON Corporate Finance, 2010 3

Technology Sector M&A Review – 2009

Of the larger UK companies making overseas acquisitions, Autonomy was the standout UK buyer with the
$775m acquisition in March of Interwoven the US listed content management solutions provider. Autonomy
shares have now risen 10 fold in the past 5 years and remains one of the few UK listed megacap tech
companies.

MicroFocus are striving to join them; they acquired both Borland and Compuware in 2009 for an aggregate
cost of $174m. These two deals in applications testing is a major move for the group and one that the stock
market clearly likes as its shares have nearly doubled in the past year, increasing its valuation to over £1bn.

There were of course a lot less private equity led large cap leveraged buyouts – a reversal from recent
years, as these transactions dominated the market until a year ago. In fact, buyouts accounted for a
massive 20% of all M&A deals by value a few years ago but slumped down to 3% of all deals in the middle
of 2009 – back to the levels of the entire 1990s.

Biggest Deals in 2009

Deal T/o
Date Acquirer name Target name
(US$m) multiple

Sep-09 Xerox Corp Affiliated Comp. Services Inc 8,700 1.3

Nov-09 Nordic Telephone TDC A/S 8,654 1.2
Apr-09 Oracle Corporation Sun Microsystems Inc 5,600 0.4
Nov-09 CPP Investment Board IMS Health Inc 5,200 2.2
Nov-09 Liberty Global Inc UnityMedia GmbH 5,195 2.9
Apr-09 Fidelity National Metavante Technologies Inc 4,393 2.6
Sep-09 Dell Computer Corp Perot Systems Corporation 3,900 1.4
Nov-09 Cisco Systems Inc Tandberg ASA 3,400 4.2
Oct-09 Cisco Systems Inc Starent Networks Corp 2,900 11.4
Nov-09 Hewlett-Packard 3Com Corporation 2,700 2.1
Sep-09 Silver Lake Partners LP Skype Technologies SA 2,700 4.6
Feb-09 Live Nation Inc Ticketmaster Ent. Inc 2,500 1.7
Jul-09 EMC Corporation Data Domain Inc 2,400 8.9
Sep-09 Adobe Systems Omniture Inc 1,800 6.1
Sep-09 Hitachi Ltd Renesas Electronics Corp 1,478 -
Oct-09 LG Telecom LG Dacom Corporation 1,411 0.6
Dec-09 eAccess Ltd EMOBILE Ltd 1,340 n.a.
Dec-09 Telefónica HanseNet Tel GmbH 1,350 0.7
Oct-09 Adecco SA MPS Group Inc 1,300 0.6
Jun-09 WebMD Health HLTH Corporation 1,288 3.4
Jul-09 IBM Corporation SPSS Inc 1,200 4.0
Apr-09 eBay Inc GMarket Inc 1,200 6.7
Jun-09 Ericsson Nortel CDMA business 1,130 -
Nov-09 Windstream Corp Iowa Tel Services Inc 1,128 4.6

© ICON Corporate Finance, 2010 4

Technology Sector M&A Review – 2009

3. UK Technology M&A Activity

While the recovery in UK Technology M&A activity has lagged the US, there has nonetheless been an
increasing number of high profile deals. Valuations in the first half of the year were modest (as there were a
number of forced sellers) but improved during 2009. Deals that stood out this year include:

• One of the stand out sales in 2009 must be the sale of London based social network gaming
developer Playfish to Electronic Arts. Playfish games have been installed and played by millions of
people worldwide on platforms such as Facebook, MySpace, Google, Bebo, iPhone and Android.
EA paid $300m plus potentially a further $100m earn out for a business with estimated revenues
from its games of about $75m. It was actually quite a busy year in the gaming sector with Eidos,
Cashcade and Gaming Technology Solutions all changing hands, albeit in smaller deals;
• Social networking remains very popular but selling the vision is sometimes easier that delivering the
reality. Friends Reunited was sold in 2009 by ITV in a £25m deal that valued the site at 1.4x
revenues; hardly the sort of valuation one would normally expect for an internet business and a far
cry from the £120m (or nearly 10x revenues) paid by ITV in the heat of the market in late 2005;
• Integralis, the UK IT security services business (bought by Articon of Germany ten years ago),
has also changed hands again as Japanese telecoms business NTT Communications paid €75m
or 12x EBIT for the business. The deal is another example of the convergence of data and
telecoms markets and a relatively rare example of Japan acquisitions in Europe;
• The largest deal in the UK was the acquisition of Tiscali UK for £236m by Talk Talk, a subsidiary of
Carphone Warehouse, this continues their trend of consolidating the ISP sector having already
acquired AOL (UK) and others. They have now built a substantial group via acquisition, currently
being the UK’s number 3 broadband provider, serving over 3.9m fixed line customers comprising
2.8m broadband and 1.1m voice-only and narrowband customers. At 3x Tiscali historic EBIT the
price looks cheap;
• Valuations increased as the year progressed and two notable transactions in the last quarter show
this; Cisco paid $183m for Scansafe the UK based, web security, software as a service business.
At 8x revenues (including earn out) it is a very full looking price, but shows the value of building a
SaaS model. Then in December, Spinvox the high profile, Marlow based, voice-to-text software
business was sold to Nuance Communications. Despite chewing up a lot of cash (it raised $100m
just last year) it still fetched a healthy $102m (two thirds in cash) equating to about 6.4x sales;
• Daisy completed its fourth acquisition in as many months after its reverse acquisition by Freedom4
as it rapidly consolidates the telecoms services market. They have acquired Eurotel, AT
Communications, Redstone Telecoms and Vialtus. In total, they have spent £162m buying up these
resellers and in aggregate the valuation works out at a very attractive looking 0.7x revenues and
just over 5x EBIT. As the chart below clearly shows, the early bird catches the worm - as the earlier
deals had much more attractive valuations;

Daisy Group acquisitions

90,000 9.0

80,000 8.0
Value EV / EBIT
70,000 7.0

60,000 6.0

50,000 5.0

40,000 4.0

30,000 3.0

20,000 2.0

10,000 1.0

- 0.0
Daisy Vialtus AT Comms Eurotel Redstone

© ICON Corporate Finance, 2010 5

Technology Sector M&A Review – 2009

• Vertex sold Exchange FS to a management team backed by Lloyds Development Capital in a

£115m deal that had an eye catching valuation of 6x revenues and over 20x EBITDA. While the
valuation looked full it’s interesting to see some activity in the private equity sector again with LDC
completing 11 deals in the UK in 2009;
• Capita had another busy year. Capita is one of the lone UK companies to have continued
aggressively acquiring UK technology companies throughout the credit crunch cycle. In fact, Capita
have acquired another 11 companies in 2009 at a total cost of over £150m. Most recently, they
acquired Synetrix from Apax for £75m which equated to 2.3x trailing sales or 13x EBIT. They also
flipped the IBS Opensystems R&B (Revenue and Benefits) business to Civica in a £10m deal after
being told to dispose of the division by The Competition Commission after its acquisition of IBS last
year;
• System C Healthcare acquired Liquidlogic, the social care software provider, in a £14.2m deal with
£10m in cash upfront and the balance in an earn out. At over 2x revenues and 15x EBIT, System C
paid a full price. The market initially gave the deal the thumbs up as System C shares rose 20% in
September but have since fallen back;
• Vin Murria’s Advanced Computer Software raised £45m in May in a placing and has since bought
Business Systems Group for £11.4m and a couple of other small deals. Further bigger deals are
expected in the health space in 2010;
• Xploite lived up to their name, displaying nimble feet in flipping its Anix IBM storage operations for
£31m (13x EBIT) to ACS (who themselves were subsequently acquired by Xerox). The Anix
business was acquired for only £11m as recently as 2007 and so represents an excellent profit for
Xploite shareholders.

Other deals of note in the UK include the sale of Systems Group and VirtualizeIT to US buyers in the
virtualisation space, Iris did an infill legal acquisition and other smaller deals were closed by Alterian,
Avisen, Netcall, Monitise,365iT, Ci-Net, Brady, idox, CDC, Miles 33, XLN, Hitachi Consulting, Civica, CACI,
EzGov, NCC and RM.

Top UK Technology M&A Targets 2009

Deal T/o multiple

Date Acquirer name Target name
(£m) (x)

May-09 TalkTalk Telecom Tiscali UK 236 2.3

Nov-09 Electronic Arts Playfish 225 5.3
Aug-09 MBO Team Exchange FS 115 6.3
Oct-09 Cisco Systems Inc ScanSafe 111 8.0
Feb-09 Meetic SA Match.com International 94 1.7
Feb-09 SQEX Eidos Plc 84 0.6
Jul-09 PartyGaming Plc Cashcade 83 2.5
Jul-09 FREEDOM4 Group Plc Daisy Communications 81 1.5
Oct-09 e-Rewards Bidco Research Now Plc 81 2.0
Dec-09 Capita Group Plc Synetrix 75 2.3
Dec-09 Nuance Comms. Inc Spinvox 65 6.4
Jul-09 FREEDOM4 Group Plc Vialtus 42 1.1
Jun-09 Capita Group Plc Carillion IT Services 36 0.4
Dec-09 Astra 5.0 FDM Group Plc 35 0.7
May-09 Affiliated Computer Services Anix Group 32 0.7
Sep-09 Thomson Reuters (Legal) Abacus Enterprise 30 -
Dec-09 Playtech Gaming Tech.Solns Plc 29 14.8
May-09 Amor Group Pragma Systems 28 1.1
Aug-09 Brightsolid Friends Reunited 25 1.4
Dec-09 Cyberspace Bidco CybIT Holdings Plc 24 0.9

© ICON Corporate Finance, 2010 6

Technology Sector M&A Review – 2009

4. Outlook

Our upbeat view a year ago (in the midst of the downturn) was that confidence would rebuild and the
technology sector M&A activity levels would recover as 2009 progressed. That proved to be broadly right.
Listed company share prices of technology stocks are indicating that during 2010 the recovery will continue
and with fewer forced sellers we would expect these rising prices to attract increasing trade sales.

The best valuations in 2010 are likely to be achieved in the higher growth technology areas; as a result we
expect to see continued strong interest in mobile apps, financial software, storage, green, cloud computing,
social computing, security (yes, again), video, analytics/business intelligence and virtualisation.

Brian Parker
Head of M&A

ICON Corporate Finance

Creating Wealth from Technology

For further details visit www.iconcorpfin.co.uk or contact:

Brian Parker, Head of M&A

T +44 (0) 207 152 6375 E brian@iconcorpfin.co.uk

Alan Bristow, CEO

T +44 (0) 207 152 6375 E alan@iconcorpfin.co.uk

Our Track Record of Global Deals

London Office 53 Davies Street, London W1K 5JH T +44 (0)207 152 6375 F +44 (0)207 152 6376
Regulated by the Financial Services Authority. Member of the BVCA. Registered in England & Wales No. 3714426

Note: The information and opinions in this report were prepared by ICON Corporate Finance Ltd. The data was provided by Zephyr, a Bureau
Van Dijk database product and public sources. We have endeavoured to provide accurate and timely information but we cannot guarantee it.
The brief sector overview is provided for information purposes only and is based on deals completed in the period under review.

© ICON Corporate Finance, 2010 7