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STRICTLY CONFIDENTIAL

UBS Technology M&A


Discussion of Current Industry Trends

March 2005

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Table of Contents
SECTION 1 SECTION 2 SECTION 3

M&A Market Conditions M&A Drivers and Considerations UBS Overview

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SECTION 1

M&A Market Conditions

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M&A Volume in the US


Current rebound in activity across all industries is reflective of a return to a healthier market
Large, strategic combinations are backProctor & Gamble / Gillette, JPMorgan / BankOne, Cingular / AT&T Wireless, Sprint / Nextel, Oracle / PeopleSoft, Symantec / Veritas, Johnson & Johnson / Guidant and Wachovia / SunTrust
Significant financial sponsor activity in the middle market Taking advantage of depressed market conditions and attractive debt markets
1,500 1,411 1,328 1,250 1,219

1,045 1,000

Volume up 41% in 2004 vs. 2003

($ in billion)

750 608 530 500 407 296 250 97 0 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 110 116 154 529 433

Source: Securities Data Corporation

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Technology M&A Activity


Technology M&A Volume Has Increased Steadily Since 2002 Lows

500 450 400 350

$485 > $10bn 95 $1bn - $10bn < $1bn No. of Deals $311

3,000

2,500

Deal Value (US$ Billions)

2,000

300 65 250 200 150 100 50 58 0 1997 1998 1999 2000 2001 2002 2003 2004 58 $85 26 98 65 $143 25 60 157 148 $124 24 36 $65 19 46 $64 17 47 65 0 $103 22 15 500 1,000 233 1,500

No. of Deals

1997 No. of Deals 1,133

1998 1,409

1999 1,862

2000 2,648

2001 1,705

2002 1,318

2003 1,329

2004 1,508

Source: Securities Data Corporation Note: Oracle/PeopleSoft included as 2004 transaction, original hostile offer was first launched in Q3 2003

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M&A Deal Activity is Intensifying


Market recovery in 2003 and stability in 2004 have increased corporate confidence and created an environment conducive to M&A transactions
Technology companies are exiting defensive, "survive the downturn" mentality and reviewing strategic options Recalibrating under invested businesses Capturing upside as economic conditions continue to improve

Technology M&A deal volume increased 60% in 2004 M&A pipeline is expected to be strong for 2005
Number of Announced Transactions 1
500 400 300 200 100 Q1 Q2 Q3 2003 Q4 Q1 Q2 2004 Q3 Q4 281 325 352 371 399 370 394

Technology M&A Deal Volume (US$ Billions) 1


120
(1% ) 60%

102.6

345

100 80 60 40 2002 $64.9

$64.2

2003

2004

179 additional transactions were announced in 2004 compared with 2003 Volume of discussions has intensified drastically

Source: Security Data Corporation Note: 1 Oracle/PeopleSoft included as 2004 transaction, original hostile offer was first launched in Q2 2003

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Current Trends in Technology M&A


TREND OVERVIEW
A recovery in technology stock prices and increased corporate confidence have driven M&A activity Companies have restructured their businesses and increased earnings Companies are eager to make acquisitions to capture upside as market conditions improve 2004 marked the return of the Technology M &A mega-deals Deals over $1 billion represented 36% of deal value in 2004, versus 27% in 2003 Return of landscape shaping deals such as Symantec/Veritas, ARM/Artisan and the completion of Oracle/PeopleSoft Sector consolidation continues to drive M &A As companies refocus on growth, they are seeking opportunities to expand product offerings, acquire new technology and achieve critical mass Regulatory environments created product opportunities for acquirors and at the same time forced smaller listed firms to re-assess the pros and cons of operating on a standalone basis Stock consideration has become a more favorable M &A currency as technology stock prices have recovered Most technology companies have been trading at or close to their three-year highs In some recent deals, cash consideration has been linked to stock consideration as acquirors tap into the equity markets to raise funds for acquisitions Improvements in capital markets have allowed companies to raise cash at a low cost through convertibles or straight equity Private equity players continue to show interest in acquiring technology companies Some technology stocks have enjoyed only limited participation in the market recovery Low interest rates have enabled private equity players to borrow at low costs to fund acquisitions The downturn has created companies with lower cost structures and higher profitability The recent market recovery has provided private equity players with better exit opportunities

RECENT TRANSACTIONS
IBM / Ascential ($1,100mm) Symantec / Veritas ($13,521mm) Lenovo Group / IBM PC Business ($1,300mm) CA / Netegrity ($451mm) Juniper / Netscreen ($3,816mm) Oracle / Peoplesoft ($10,300mm) ARM / Artisan ($933mm) 3Com / TippingPoint ($408mm) Credence / NPTest ($663mm) Serena / Merant ($380mm) Cisco / NetSolve ($137mm)

Resurgence in Deal Activity

Sector Consolidation

Stock Consideration

Mm) Symantec / Veritas ($13,521mm) Safenet / Rainbow ($463mm) Credence / NPTest ($663mm) Issued convertible Serena / Merant ($380mm) Issued convertible Carlyle / Insight ($2,100mm) Golden Gate Capital / Blue Martini ($54mm) Veritas Capital / DynCorp from CSC ($850mm) Bain Capital, Silver Lake Partners, Warbug Pincus / UGS PLM from EDS ($2,050mm)

Private Equity Activity

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M&A and IPO Activity in the Technology Sector


Number of Announced M&A Transactions and IPO Filings
3,000 309 2,500 2,648 300 350

No. of Announced M &A Deals

235 2,000 1,862 1,705

250

No. of IPOs Filed

200 1,508 1,500 1,133 1,000 1,409 1,318 124 100 100 60 500 23 0 1997 1998 1999 2000 M&A 2001 IPO 2002 2003 2004 19 21 0 50 1,329 150

Source: Securities Data Corporation and UBS Equity Capital Markets Group Note: Oracle/PeopleSoft included as 2004 M&A transaction, original hostile offer was first launched in Q3 2003

SECTION 2

M&A Drivers and Considerations

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Principal Drivers of Technology M&A

Critical mass and financial strength

Achieve Scale

Customer leverage Increased distribution and sales support Market position consolidation Leapfrog competition New market entry product or geography

Expand Product Offering

Capture new customer bases Buy vs. make time to market Engineering talent and/or management acquisition Off-income statement R&D Fill product gaps

Offer Complete Solution

Capitalize on installed base Accelerate time to market Strengthen channel partnerships Offer one-stop shop

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M&A Considerations
A number of factors to consider in pursuing any M&A transaction

Business Rationale

Compelling strategic rationale Create or consolidate market leadership position Essential new technologies, markets or products Transaction multiples compared to public comparables and precedent transactions

Financial Considerations

Impact on combined company revenue and earnings growth trajectories Effect on margins Revenue and cost synergies EPS accretion / dilution Market perception of target company / merger partner

M arket Reaction

Consistent, simple to understand story Financial parameter clarity Price paid / consideration mix Time to closure

Execution Risk

Anti-trust / regulatory Tight contract terms Integration strategy

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Process Considerations
Public Offering Versus Sale

Initial Public Offering PROS: Primary shareholders retain voting control and existing management continues to execute the strategic vision of the business Proceeds from an IPO can be used to increase scale through acquisitions or fuel organic growth Shareholders can participate in potential upside should the business continue to execute and market conditions remain favorable CONS The organization must take on the costs associated with public filing and compliance requirements while managing greater scrutiny by investors An IPO lock-up prevents current shareholders from achieving immediate liquidity There is a high degree of uncertainty in future capital market conditions PROS:

Sale of Business

Reduces or eliminates execution risks of the current business plan as well as future capital market uncertainties M&A valuation includes control premium Can offer a more immediate path to liquidity for current shareholders Avoids the costs associated with being a public company Partnering increases opportunity to cross-sell and up-sell through larger distribution platform and gain rapid critical mass to better compete CONS: Primary shareholders relinquish voting control and new management executes the strategic vision of the company Cash transactions eliminate the upside participation in the pro forma company Integration and execution risk of combined business

There is the potential for a downside in valuation should the business lose traction

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Sarbanes-Oxley 404 Compliance


Benefits Intended to restore investor confidence in U.S. public markets Drives greater consistency and transparency in reported filings Increased executive accountability over financial reporting Increased spending at the CFO and CTO level to meet compliance criteria Costs Increased cost of being public, especially small cap companies Entails significant allocation of resources Not meeting SOX deadline requirements or announcing inadequacies in significant controls can have negative effect on stock price UTStarcom Chordiant Software Interpublic Group

Advisory Services Vs. IT Spending Mix for SOX Compliance


4,000 3,500 3,000 2,500 2,000 1,500 1,000 500 0 2003 2004 Advisory Services 2005 2006 2007 IT Spending

Anticipated Technology Spending to Support SOX Compliance


Security Storage Process Control Record Management Business Intelligence ERP 0% 10% 20% 30% 30% 40% 50% 60% 70% 40% 39% 36% 52% 61%

Source: Gartner 2004 estimates

($ millions)

Source: Forrester Research survey of 454 technology decision-makers

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Typical Timing of an M&A Transaction


Illustrative Timeline of a Sell-Side Controlled Auction Engagement
Weeks Activity Action Organizational meetings 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17

Due Diligence and Preparation

Due diligence meetings Information Memorandum Preparation of management presentation Finalize buyer list Initiate contact with buyers

Marketing

Deliver Information Memorandum Finalize management presentation and data room Buyer due diligence

Receipt and review of final proposals

Negotiations and Closing

Negotiate and sign definitive agreement Closing

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SECTION 3

UBS Overview

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UBSA Leading Global Financial Services Firm


Our strength is backed by industry accolades

Wall Street Powerhouse FORBES 2004

The UBS Way BLOOMBERG 2004

Worlds Best Investment Bank EUROMONEY 2004 Worlds Best Bank EUROMONEY 2003

Best Investment Bank THE ECONOMIST 2003

Worlds Best Investment Bank INVESTMENT DEALERS DIGEST 2002

UBS is a banking giant but, a Wall Street powerhouse? Oh Yes. This is a house thats grown out of its regional shell to assume premier proportions in world finance. But its the push into the rarified realm of Investment Banking that sets UBS apart.
BIG KID ON THE BLOCK FORBES

UBS has achieved what once seemed impossible for any European investment bank: it has broken into the front rank in the US market, source of roughly half the global investment banking fee pool. In the 12 months ending in April 2004, it doubled its share in announced US M&A deals.
WORLDS BEST INVESTMENT BANK
EUROMONEY 2004

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UBSA Leading M&A Advisor with Rapid Improvement in Market Share


20032004 # of Transactions / Market Share 1
14.8%

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20032004 Market Share versus 20002002


+23% Lehman Bros Deutsche Bank Lazard Goldman Sachs Citigroup JP Morgan Morgan Stanley Merrill Lynch CSFB (38% ) (23% ) (1% ) (2% ) (5% ) (11% ) +9% +6% +3%

Goldman Sachs JP Morgan Citigroup Morgan Stanley CSFB 333 322 Deutsche Bank Merrill Lynch Lehman Bros Lazard 265 8.6% 262 8.5% 252 197 6.4% 8.1% 377

459

426 13.8% 403 13.0% 12.2%

10.8% 10.4%

Notes: Data represents all M&A deals worldwide greater than $100 million in transaction value. Full credit given to acquiror and target advisor(s). Excludes withdrawn deals, equity carveouts, exchange offers, and open market repurchases 1 Market share based on number of transactions. Market shares do not sum to 100% due to multiple advisors on each transaction (e.g., target advisor and acquiror advisor)

UBS has positioned itself as one of the leading M&A advisors worldwide and has unprecedented momentum, capturing more market share than any other bank since 2002

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Overview of UBS Technology M&A Group


Technology M&A Expertise
Strong technology-focused M&A presence with deep industry knowledge and company relationships Experienced in a wide range of advisory assignments Buyer advisory Seller advisory Cross-border transactions Merger of equals Shareholder value protection Leveraged transactions

2004 Technology M&A Transactions Less Than $1 Billion


Financial Advisor Goldman Sachs & Co Morgan Stanley Credit Suisse First Boston UBS JP Morgan Banc of America Securities LLC Citigroup Jefferies & Co Lehman Brothers Rothschild
Source: SDC

Rank

Value ($mm)

No. of Deals

1 2 3 4 5 6 7 8 9 10

7,168.2 6,025.4 5,187.3 4,476.8 4,375.4 2,148.2 2,114.1 2,093.0 1,560.4 1,492.6

17 22 15 11 14 5 12 21 9 3

Selected Recent Transactions

February 2005 US$415 million Sale to eBay

February 2005 US$850 million Sale of Selected DynCorp Units to Veritas Capital

November 2004 US$137million Sale to Cisco Systems

July 2004 US$170 million Sale to FindWhat.com

M ay 2004 US$663 million Acquisition of NPTest

M ay 2004 US$380 million Sale to Serena Software

M arch 2004 US$463 million Sale to SafeNet

January 2004 US$601 million Sale to Manpower

January 2004 US$467 million Financial Restructuring

November 2003 US$295 million Sale to NetScreen

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Contact Information

UBS Securities LLC 555 California Street Suite 4650 San Francisco CA 94104 Tel. +1-415-352 5650

www.ubs.com
This presentation has been prepared by UBS Securities LLC (UBS) for the exclusive use of recipient (together with its subsidiaries and affiliates, the company) using information provided by the company and other publicly available information. UBS has not independently verified the information contained herein, nor does UBS make any representation or warranty, either express or implied, as to the accuracy, completeness or reliability of the information contained in this presentation. Any estimates or projections as to events that may occur in the future (including projections of revenue, expense, net income and stock performance) are based upon the best judgment of UBS from the information provided by the company and other publicly available information as of the date of this presentation. There is no guarantee that any of these estimates or projections will be achieved. Actual results will vary from the projections and such variations may be material. Nothing contained herein is, or shall be relied upon as, a promise or representation as to the past or future. UBS expressly disclaims any and all liability relating or resulting from the use of this presentation. This presentation has been prepared solely for informational purposes and is not to be construed as a solicitation or an offer to buy or sell any securities or related financial instruments. The company should not construe the contents of this presentation as legal, tax, accounting or investment advice or a recommendation. The company should consult its own counsel, tax and financial advisors as to legal and related matters concerning any transaction described herein. This presentation does not purport to be all-inclusive or to contain all of the information which the company may require. No investment, divestment or other financial decisions or actions should be based solely on the information in this presentation. This presentation has been prepared on a confidential basis solely for the use and benefit of the company; provided that the company and any of its employees, representatives, or other agents may disclose to any and all persons, without limitation of any kind, the tax treatment and tax structure of the transaction and all materials of any kind (including opinions or other tax analyses) that are provided to the company relating to such tax treatment and tax structure. Distribution of this presentation to any person other than the company and those persons retained to advise the company is unauthorized. This material must not be copied, reproduced, distributed or passed to others at any time without the prior written consent of UBS.

UBS Investment Bank is a business group of UBS AG UBS Securities LLC is a subsidiary of UBS AG

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