THE PREMIER PROVIDER OF M&A SERVICES TO

TECHNOLOGY COMPANIES WORLDWIDE.

April 2004 Webinar

Positioning Your Company For

Maximum Value
In Today’s M&A Climate

Corum Group Ltd.

www.corumgroup.com
THE PREMIER PROVIDER OF M&A SERVICES TO
TECHNOLOGY COMPANIES WORLDWIDE.

Webinar Topics

2004 M&A Review

M&A Activity By Sector

Current Deal Making Environment

Positioning for Maximum Value

 THE PREMIER PROVIDER OF M&A SERVICES TO
TECHNOLOGY COMPANIES WORLDWIDE.

The Corum Group

• M&A specialists since 1985
• Software and IT experts
• Offices in USA, Canada, and Europe
• 25% of transactions international
• Recognized industry leaders/experts
• Sponsor of Selling Up Selling Out Conferences
• Sponsor of World Financial Symposium Conferences
• Publisher of Merge newsletter
• Publisher of industry leading M&A research
 THE PREMIER PROVIDER OF M&A SERVICES TO
TECHNOLOGY COMPANIES WORLDWIDE.

This is the best M&A market in 4 years

Corum is seeing increasing numbers of ….
• Sellers making moves
• Buyer inquiries
• Serious expressions of interest
• Letters of intent and offers
• Companies with multiple offers
 THE PREMIER PROVIDER OF M&A SERVICES TO
TECHNOLOGY COMPANIES WORLDWIDE.

Recent Corum Transactions

StrataCare acquires GenSource
– Software systems for administering insurance
related claims and managing risk

EFI acquires ADS Communications

– Mobile workforce automation
– Field service dispatch for the office equipment
industry
 THE PREMIER PROVIDER OF M&A SERVICES TO
TECHNOLOGY COMPANIES WORLDWIDE.

Recent Corum Transactions

Apax Partners acquires Cartesis
– A leading provider of business performance
management
– Analytical applications for strategic financial
management
Ortivus AB acquires AVeL-TECH
– Public safety and mission critical operations
– Computer aided dispatch, automatic vehicle location
and vehicular applications
 THE PREMIER PROVIDER OF M&A SERVICES TO
TECHNOLOGY COMPANIES WORLDWIDE.

Companies in LOI

• Security Software – Parental control, content filtering and

pop-up ad control software

• Optical recognition software for high speed applications in

demanding environments

• High-end simulation software -- engineering and scientific

simulation for a wide spectrum of industries including
aerospace, automotive, defense, marine, petrochemical
and power
 THE PREMIER PROVIDER OF M&A SERVICES TO
TECHNOLOGY COMPANIES WORLDWIDE.

Companies in LOI

• ERP software for the manufacturing sector

• Storage management and data center operations tools for

large mainframes
 THE PREMIER PROVIDER OF M&A SERVICES TO
TECHNOLOGY COMPANIES WORLDWIDE.

M&A markets have rebounded because:

• Pent-Up Buyer Demand

• Pent-Up Seller Demand
• Recovering Economy
• Improving Corporate Profitability
• Stock Market Rebound
• Infusion of Capital

All factors have contributed to a renewed sense of

confidence among Buyers and Sellers
 THE PREMIER PROVIDER OF M&A SERVICES TO
TECHNOLOGY COMPANIES WORLDWIDE.

Rebound Factor # 1
Pent-Up Buyer Demand

• M&A slowed/stopped from 2001 to early 2003

• R&D and staffing was cut to the bone
• Buyers must buy revenue growth, customers and
technology to remain competitive
• Many companies must reinvent themselves to
survive
 THE PREMIER PROVIDER OF M&A SERVICES TO
TECHNOLOGY COMPANIES WORLDWIDE.

Rebound Factor # 2
Pent-Up Seller Demand

• Patient investors are now pressuring companies for a

liquidity event
• Pre-emptive offers from aggressive buyers are
triggering Sellers to evaluate M&A options
• Sellers see competitors being swallowed up
• Sellers see a window of opportunity
 THE PREMIER PROVIDER OF M&A SERVICES TO
TECHNOLOGY COMPANIES WORLDWIDE.

Rebound Factor # 3
A Recovering Economy
• The U.S. economy has slowly improved since late
2002
• However, the economy is still fragile
• High oil prices
• Inflation risk/Interest rate increase
• Geopolitical tensions
• The European economy is recovering at a slower
pace
• Strong Euro hurting exports and tourism
 THE PREMIER PROVIDER OF M&A SERVICES TO
TECHNOLOGY COMPANIES WORLDWIDE.

Rebound Factor # 4
Corporate Earnings Improvement
• Cost cutting has led to a steady improvement in
corporate profitability
• 76% of the S&P 500 companies that have reported first
quarter earnings have surpassed earnings
expectations1
• 19% average earnings growth expected in Q1 ‘042
• Companies adding cash to balance sheets

With earnings improving, management, investors and

analysts are more supportive of acquisition strategies
1
Reuters Research
2
Thompson First Call
 THE PREMIER PROVIDER OF M&A SERVICES TO
TECHNOLOGY COMPANIES WORLDWIDE.

Rebound Factor # 5
Stock Market Rally

• Companies have stronger currency with greater liquidity

• Market rebound has breathed new life into mid-cap

software companies

• The end result is that there are more active buyers today
creating competition for deals

NASDAQ 1-Year Performance

 THE PREMIER PROVIDER OF M&A SERVICES TO
TECHNOLOGY COMPANIES WORLDWIDE.

Rebound Factor # 6
New Capital For Acquisitions
• Software companies are now able to raise
additional capital
– Secondary offerings, private placements, and debt
offerings
• Retalix - $65 million stock offering (April ‘04)
• iVillage - $125 million stock offering (April ‘04)
• Tier-1 companies testing IPO markets (Spring ’04)
• Google, Salesforce.com, Brightmail
• Flood of new IPO filings
– Lindows, Bluenile.com, Blackboard, shopping.com
• Over $80 Billion in private equity overhang
 THE PREMIER PROVIDER OF M&A SERVICES TO
TECHNOLOGY COMPANIES WORLDWIDE.

Is The M&A Rebound Sustainable?

Improving IT spending will cause both buyers and
sellers to stay active

• Forrester expects IT spending growth to increase 5% in

2004
• CIO Magazine predicts a 7.3% increase in tech
spending
• IDC revealed that 42.6% of the companies surveyed
planned to increase IT spending over 2003 levels
THE PREMIER PROVIDER OF M&A SERVICES TO
TECHNOLOGY COMPANIES WORLDWIDE.

Webinar Topics

2004 M&A Review

M&A Activity By Sector

Current Deal Making Environment

Positioning for Maximum Value

 Number of M&A Announcements

0
5
10
15
20
25
30
35
40

Business Intelligence

Digital Media

Development Tools

Engineering

terprise Content Management

Enterprise Infrastructure

Enterprise Software
TECHNOLOGY COMPANIES WORLDWIDE.

Internet Infrastructure

Internet Pure Plays

THE PREMIER PROVIDER OF M&A SERVICES TO

IT Service
Which Sectors Are Active?

Security
M&A Activity in Q1 2004

Storage

Supply Chain Management

Wireless

al Market - Financial Services

Vertical Market - Healthcare

Vertical Market - Telecom

Vertical Market
 THE PREMIER PROVIDER OF M&A SERVICES TO
TECHNOLOGY COMPANIES WORLDWIDE.

M&A Activity - Security Software

• In response to blended, coordinated attacks, major

security vendors are building out a suite of security
solutions

• Best of breed technology converging

– Firewall/Intrusion Detection/Prevention
• Network Associates/ Entercept Security/ IntruVert

– Content Filtering/Anti-Virus
• ISS/ Cobion AG

– Identity Management/Access provisioning

• Netgrity/ Business Layers
 THE PREMIER PROVIDER OF M&A SERVICES TO
TECHNOLOGY COMPANIES WORLDWIDE.

M&A Activity – Financial Services

• Historically high levels of M&A activity
• Large, established market players act as consolidators
• Technology widely seen as the key to maximizing
customer relationships and controlling costs
• New legislation driving technology adoption and M&A
activity
– Check21 Initiative
– Fidelity National Financial/ Aurum
 THE PREMIER PROVIDER OF M&A SERVICES TO
TECHNOLOGY COMPANIES WORLDWIDE.

M&A Activity - ECM

• ECM Vendors are trying to managing the entire
information lifecycle
• Many vendors are building on core strengths, such as
document or web content management, and adding
functionality such as digital asset management, portal,
workflow and collaboration software
– Stellant/ Optika
– Verity/ Cardiff Software
• Sarbanes – Oxley has led to a resurgence in the
importance of information management
– Vignette/ Tower Technology
 THE PREMIER PROVIDER OF M&A SERVICES TO
TECHNOLOGY COMPANIES WORLDWIDE.

M&A Activity – Business Intelligence

• Significant activity in the summer of 2003
• Buyers currently digesting major acquisitions
– Business Objects/Crystal Decisions
– Hyperion Solutions/Brio Software
• High level of activity in financial analytics
– Cognos/ Adaytum
– Geac/ Comshare
– Systems Union/ MIS AG
– Apex Partners/ Cartesis
 THE PREMIER PROVIDER OF M&A SERVICES TO
TECHNOLOGY COMPANIES WORLDWIDE.

M&A Activity – Enterprise Solutions

• ERP companies backed by Private Equity funds acting
as consolidators
– Agilysis, SSA Global, Made2Manage
• Building around a “core company” concept
– Agilisys is the former SCT Manufacturing Division
– Acquired six companies in past two years
• Agilisys/ daly.commerce
• Agilisys/ Inter-American Data
• Focus on maintenance revenue and lifetime value of
customer base
 THE PREMIER PROVIDER OF M&A SERVICES TO
TECHNOLOGY COMPANIES WORLDWIDE.

M&A Activity – Enterprise Infrastructure

• M&A driven by technology trends
– Utility computing
– Service–Oriented Architectures
• Buyers are trying to anticipate where the market will be in
two to three years
• Consolidators filling gaps in product lines
– IBM, HP, Sun, CA, Microsoft
– HP acquired 6 companies recently to build out its
OpenView Management Suite
 THE PREMIER PROVIDER OF M&A SERVICES TO
TECHNOLOGY COMPANIES WORLDWIDE.

M&A Activity – Internet

• Business models are now proven and profitable
• Resurgent M&A activity from companies that “received a
second lease on life”
– InfoSpace/ Switchboard

• Significant activity among large industry players

– Yahoo!, InteractiveCorp, Google

• Internet advertising, search technology, online dating,

ecommerce, and social networking companies
– MemberWorks/ Lavalife
– Classmates.com/ StayFriends
– aQuantive/ NetConversions
– Yahoo!/ Kelko
 THE PREMIER PROVIDER OF M&A SERVICES TO
TECHNOLOGY COMPANIES WORLDWIDE.

M&A Activity – Engineering Software

• Product Lifecycle Management
– Bringing products to market faster and cheaper
– Private Equity Group/EDS PLM Business Unit
– Parametric Technology/Ohio Design Automation
– Agile Software – 5 acquisitions in 2003
• Eigner, Tradec, MS2, ProductFactory, OneRev
 THE PREMIER PROVIDER OF M&A SERVICES TO
TECHNOLOGY COMPANIES WORLDWIDE.

M&A Activity – Healthcare Technology

• Sector has been fairly quite for past 3 years
• Some smaller deals at low valuations
• Healthcare stocks have gained strength lately, so we
expect to see more deals
• Eastman Kodak was the big spender in 2003 acquiring 4
companies to bolster medical imaging business
– PracticeWorks, MiraMedica, and VIParchive, Algotec
Systems
 THE PREMIER PROVIDER OF M&A SERVICES TO
TECHNOLOGY COMPANIES WORLDWIDE.

M&A Activity – Software Development Tools

• Significant activity in late 2002
• IBM/Rational
• Borland/ Starbase and TogetherSoft/ WebGain
• Shift from providing tools for developers to providing
tools for CIOs
• Mercury Interactive - 3 acquisitions
» Software testing applications to application
management and technology optimization
• Serena merged with Merant to better compete with
IBM/Rational
 THE PREMIER PROVIDER OF M&A SERVICES TO
TECHNOLOGY COMPANIES WORLDWIDE.

Sector Activity – Lessons for All

• Every sector is active
• Buyers have launched aggressive acquisition
strategies to redefine themselves
• A feeding frenzy is typical and then you will see a
period of little M&A activity while buyers digest
acquisitions
• Sector consolidation happens quickly
• Merging with competitors to fight another day is now
commonplace
• Timing can dictate value and possibly effect your
ability to find a partner
THE PREMIER PROVIDER OF M&A SERVICES TO
TECHNOLOGY COMPANIES WORLDWIDE.

Webinar Topics

2004 M&A Review

M&A Activity By Sector

Current Deal Making Environment

Positioning for Maximum Value

 THE PREMIER PROVIDER OF M&A SERVICES TO
TECHNOLOGY COMPANIES WORLDWIDE.

Current Deal Making Environment

• Buyers are cautious…yet they are actively looking at
opportunities
• Buyers willing to act fast if the opportunity is right
• Mid-cap buyers creating competition for deals
• Sellers must be strategic to the buyer
• Buyer and Seller must develop personal bonds
• Deal mortality is high due to Sarbanes Oxley
• Timeline for completion of the M&A process increasing,
companies must plan ahead for an M&A event
• Quality sellers are back into the market
 THE PREMIER PROVIDER OF M&A SERVICES TO
TECHNOLOGY COMPANIES WORLDWIDE.

International Search
Geographic Mix of M&A Transactions
European
18%

Cross-Atlantic
22%

North American
60%

North American European Cross-Atlantic

A Strong Euro will Drive More Cross-Border Deals in 2004

 THE PREMIER PROVIDER OF M&A SERVICES TO
TECHNOLOGY COMPANIES WORLDWIDE.

M&A Valuation Trends

• Public vs. private company valuation gap

• Market leaders are commanding premium valuations

• Valuations of public software companies are at two year

high

• Buyers are using the valuations they paid on their prior

deals to justify price
 THE PREMIER PROVIDER OF M&A SERVICES TO
TECHNOLOGY COMPANIES WORLDWIDE.

M&A Valuation – Revenue Multiples

Valuations are improving because quality sellers have returned to
the market

M&A Transaction Multiples - Software Industry

7.00

6.00

5.00
P/S Multiple

4.00

3.00

2.00

1.00

0.00
1H:98 2H:98 1H:99 2H:99 1H:00 2H:00 1H:01 2H:01 1H:02 2H:02 1H:03 2H:03 1Q:04
 THE PREMIER PROVIDER OF M&A SERVICES TO
TECHNOLOGY COMPANIES WORLDWIDE.

Deal Structure

Consideration Analysis

41% 46%

13% All Cash

All Stock
Mix
Creative deal structure is the only way to complete transactions
today and bridge the valuation gap between buyer and seller
 THE PREMIER PROVIDER OF M&A SERVICES TO
TECHNOLOGY COMPANIES WORLDWIDE.

Due Diligence – Watch out for SOX

If you expect to be acquired by a public firm, you will be held to
the same level of standards as the public buyer

• CEO’s/CFO wary of certifying results post acquisition

• Due diligence much tougher and longer
• Financial statements must be GAAP compliant
• Corporate governance issues
• Integration of accounting systems/controls has become
an issue pre-closing
THE PREMIER PROVIDER OF M&A SERVICES TO
TECHNOLOGY COMPANIES WORLDWIDE.

Webinar Topics

2004 M&A Review

M&A Markets – By the Numbers

Current Deal Making Environment

Positioning for Maximum Value

 THE PREMIER PROVIDER OF M&A SERVICES TO
TECHNOLOGY COMPANIES WORLDWIDE.

What Do Buyers Value?

• Stable, Growing Revenues
• Recurring Revenues
• Positive cash flow
• Technology that has been proven in the marketplace
• Cutting Edge Technology
• Established Customers
• Market Penetration
• Compelling Strategic Fit
 THE PREMIER PROVIDER OF M&A SERVICES TO
TECHNOLOGY COMPANIES WORLDWIDE.

Maximizing Your Value

Different buyers will value elements of your company differently
• You must find out what they value to maximize your
value to them
• Listen more, talk less

Learn their business and current strategy

• Read analyst reports, SEC filings, press releases,
whitepapers, etc.

Effectively communicate how you can enhance their business

and help them achieve their goals
 THE PREMIER PROVIDER OF M&A SERVICES TO
TECHNOLOGY COMPANIES WORLDWIDE.

Deal Killers
• Unrealistic value expectations
• Unreasonable demands during negotiations or an
unwillingness to give in on some issues
• Poor financial reporting
• Not providing the buyer with information in a timely
fashion
• Irregularities discovered during due diligence
• Missing short term projections
• Personality conflicts or cultural fit issues
• Using inexperienced M&A, legal or accounting firms
 THE PREMIER PROVIDER OF M&A SERVICES TO
TECHNOLOGY COMPANIES WORLDWIDE.

Questions?
Bruce D. Milne
President and CEO
brucem@corumgroup.com

Ward Carter
Executive Vice President
wardc@corumgroup.com

David Keith
Senior Financial Analyst
davidk@corumgroup.com
Corum Group Ltd.
10500 NE 8th Street, Suite 1500
Bellevue, WA 98004
425-455-8281

www.corumgroup.com