Signal Hill

ITSecurity:Q12012M&AReview

Don More
ManagingDirector dmore@signalhill.com

The ITSecurity sector witnessed significant M&A growth year-over-year for Q1, with all deal metrics tracked by Signal Hill rising. Total enterprise value is down slightly compared to Q4, but up almost 2000% compared to Q1 2011. The same is true for median deal size, which slipped about 22% compared quarter over quarter, but is up almost three-fold compared to a year ago. Game changing deals like SonicWalls massive $1.3 billion acquisition by Dell in March for 4.8x revenue are helping to keep up momentum in the sector, as are small but still significant transactions such as Mykonos acquisition by Juniper ($80 million). Growth in trends including bring your own device and social networking security are helping to drive IT Security M&A and we expect an active M&Amarket to continue for the sector throughout the remainder of 2012.
Figure 1: Quarterly IT Security M&A Deal Analysis, Q1 2011 - Q1 2012 Source:SignalHill Q1 2011 Number of Deals %changefrompriorperiod Total Enterprise Value ($M) %changefrompriorperiod Median Announced Deal Size ($M) %changefrompriorperiod Median EV/TTM Revenue Multiple %changefrompriorperiod 14 $75.5 $21.0 4.3x Q2 2011 15 7.1% $511.5 577.5% $29.3 39.5% 3.4x 21.0% Q3 2011 23 53.3% $556.4 8.8% $13.9 -52.6% 2.7x -20.6% Q4 2011 23 0.0% $1,737.8 212.3% $103.3 643.2% 3.0x 11.1% Q1 2012 22 -4.3% $1,372.3 -21.0% $80.0 -22.6% NA* LTM Q1 2010 58 $1,555.4 $30.0 3.2x LTM Q1 2011 60 3.4% $14,477.8 830.0% $95.0 216.7% 3.4x 6.3% LTM Q1 2012 82 36.7% $4,178.0 -71.1% $35.0 -63.2% 3.4x 0.0%

*Onlyonemetricpubliclyavailable:SonicWall/Dell(4.8x)

Figure 2: IT Security Public Company Valuation Metrics Q1 2012 Source:SignalHill PricingDate03/30/12 MedianMetrics Bellweather SmallCap All Security Companies Stock Price % of 52 Week High 91% 72% 76% Financial Data Q/Q Rev Growth YoY Seq. 12% 12% 12% 4% 2% 3% LTM Margins Valuation Data P/E Multiples Price / Earnings CY CY LTM 2012(E) 2013(P) 35.6x 17.4x 27.8x 22.3x 18.7x 22.2x 20.3x 21.2x 20.8x

EV/Revenues EV/EBITDA1 CY CY CY CY Gross EBITDA LTM 2012(E) 2013(P) LTM 2012(E) 2013(P) 79% 71% 77% 22% 6.5x 18% 2.0x 19% 2.3x 6.5x 2.5x 2.8x 5.7x 2.0x 2.5x 14.3x 12.7x 14.3x 13.9x 14.0x 14.3x 11.6x 15.2x 12.8x

(1)EBITDAexcludesallone-timechargesandexpenses

Figure 3: 1-Year Relative Stock Price Performance, Q1 2012

Figure 4: 2-Year Relative Stock Price Performance, Q1 2012

Source:SignalHill

Source:SignalHill

IT Security: Q1 2012 M&A Review

www.signalhill.com

SelectedTransactions:Q12012
SonicWall acquired by Dell Enterprise Value:$1,250.0 million Revenue Multiple:4.8x Dell agreed to acquire SonicWall, a provider of unified threat management (UTM) solutions, from private equity firm Thoma Bravo. This transaction is a testament to the rebound in the market and supports our observations that strategics have tremendous appetite for security assets. The acquisition will help Dell round out its security solutions portfolio with the addition of SonicWalls firewalls, network security and data protection solutions. SonicWall has 300,000 customers in 50 countries, 950 employees and a channel program with 15,000 retailers, which Dell plans to integrate into its own PartnerDirect program. SonicWall has over 130 patent apps, with 64 issued to date, which also adds value to the transaction. Thoma Bravo paid $717 million and 2.4x revenue for the company two years earlier. Juniper Networks, a networking equipment provider, acquired Mykonos Software, a San Francisco-based provider of intrusion deception systems that protect Web sites and Web applications. Mykonos technology is designed to secure websites and web applications from advanced hacker attacks. The software employs deception-based technology that uses a trap to detect and divert attacks. It also provides device-level tracking beyond the IP address, which allows for attackers to be uniquely identified, monitored and/or blocked a clear benefit over traditional web security appliances and Web Application Firewalls (WAFs). The acquisition not only complements Junipers existing security offerings, such as firewalls and protective systems for a corporate network, but allows Juniper the ability to provide both its enterprise and service provider customers with a new tool to detect an attack before it is in progress. Juniper will be able to sell the technology as both a standalone and as an integrated solution, allowing customers the benefit of a proactive security approach that stops hackers in real time. Social microblogging site Twitter acquired Dasient, an Internet security start-up focusing on anti-malware for large enterprises in the financial services, media, and online sectors. Dasients scanning software helps businesses identify and contain malware on the Web and is touted as an anti-malvertising service, which claims to protect advertising networks and publishers from malware. The acquisition of Dasient will allow Twitter to provide anti-malware technology to its ever-growing, realtime information network. Dasients technology will become part of Twitters revenue engineering team, which suggests it will most likely be used to identify malicious ads submitted through the companys selfserve ad platform, Twitters latest attempt at increasing monetization. Three-year-old Dasient, which was founded by ex-Googlers, had raised $2 million in investments from Google Ventures, Floodgate and Radar Partners.

Target Sector: Traffic Security Mykonos Software acquired by Juniper Networks EnterpriseValue:$80.0 million Revenue Multiple:NA

Target Sector:Vulnerability Dasient acquired byTwitter Enterprise Value:NA Revenue Multiple:NA

Target Sector:Vulnerability Compliance360 (Signal Hill client) acquired bySAIGlobal Enterprise Value:NA RevenueMultiple:NA

SAI Global Limited, a provider of Code of Conduct, compliance and ethics training, GRC solutions, and environmental, health & safety (EH&S) software, acquired Compliance 360, a software provider of enterprise governance, risk management, compliance and audit management (GRC) solutions (a Signal Hill client). Compliance 360's cloud-based Software-as-a-Service (SaaS) design and delivery allows businesses to securely manage financial controls, internal audit processes and compliance obligations with minimal IT infrastructure costs. The software supports key GRC requirements including enterprise risk management, compliance management and audit management as well as assessments and surveys linked to each business process. The platform also integrates content from third parties like LexisNexis, Target Sector:Governance, Risk &Compliance ISACA, ANSI, etc. and delivers this content linked to specific compliance obligations.

Signal Hill 2012

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