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M&A Flash Report – July 2009

Software and IT Industry Market Update

Thursday, July 2, 2009

10:00 am PT

www.corumgroup.com
 Ward Carter
President
Corum Group Ltd.

Mark Reed
Ward's technology background includes a variety of management positions with Executive Vice President
the Burroughs Corporation (later Unisys). Then, as vice president of a Wall Street Corum Group Ltd.
investment firm and as principal in a regional venture firm, he raised capital for
ventures in computer hardware, software, and biotechnology. As an executive for
a Seattle-based archival storage software company, he attracted venture capital
and assisted with the eventual acquisition of the company by a larger competitor.
As president of InfoMatrix, and later Discovery Sales + Marketing, Ward provided
strategic consulting support to emerging software companies. 

He joined Corum in 1997, has successfully managed numerous software company

mergers and acquisitions worldwide, and was appointed president in 2006. He
graduated with Honors from Seattle University with a B.A. in Business. Ryan Blakely
Vice President, Research
Corum Group Ltd.

>> For today’s presentation or more information, contact Pat Sultan

(pats@corumgroup.com, +1 425-455-8281 ext. 248)

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Agenda

 Overview of Current Market

 Managing for an Exit

 Marc Brown - Microsoft

 Market and Valuation Analysis

 Closing Comments - Q&A

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Recent Headlines are Mixed

 Economic contraction is slowing

 Markets up 30-50% from lows
 Mortgage defaults continue
 Inflation a threat
 Unemployment rising
 “Optimism” indexes rising
 M&A valuations stabilizing
 Recovery by 2010 or 2014??

…. Have markets bottomed?

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Where are Markets Headed?

 Don’t know, and can’t control

 DJIA +/- 2000 points in 12 months?

 Don’t base decisions on indexes

 What you can control: how you spend your cash &
manage your business

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Take Stock of Where You Are

Be honest about your business

Growing, adding customers, hiring, solid cash position,

attractive market, profitable

Cash stable, business slowing, not hiring

Burning cash, flat or negative growth, market sector troubled

Step back, evaluate situation and goals

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 Starting Today

1) Manage your cash carefully

2) Tune business model for the times

Old Model New Model
 Growth at all cost  Cash flow at all cost
 Get big fast  Cut the fat
 Revolutionary product  Become necessary
 Horizontal expansion  Core focus
 The next big thing  Improve customers’
business now

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Starting Today…

3) Look at your company with an acquirer’s eye

4) Clean up your company

 Record keeping
 Business process
 Business planning & projections

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Starting Today…

5) Make decisions with M&A in mind

 Development
 Marketing and Sales
 Revenue composition

6) Articulate your story

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Reminders…

 The M&A process takes time

 Sectors consolidate quickly
 You may only get one chance
 Start preparing early
 Take time to understand the M&A dynamics
of your market
 Pick good advisors who know your business

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 M&A – from a Buyer’s Perspective

 Use downturn to build a more

valuable company
 Act while competitors are scrambling
 Benefit from strong recurring revenue
 Deal based on perceived value, not multiples
 No patience for unsubstantiated upside pitch
 Cash balances strong

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 Corporate Cash

Company Year Ago Cash Current Period Cash

Sun $2,272 $2,700

Apple $11,875 $25,010
Nokia $3,130 $2,404
Microsoft $10,339 $23,900
Oracle $8,262 $12,620
HP $10,153 $12,920
EMC $5,843 $7,250
Cisco $5,191 $33,550
Google $8,656 $17,780
SAP $1,804 n/a
Yahoo! $2,292 $3,450
IBM $12,741 $12,300
Symantec $1,890 $1,990

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 Top Technology Stocks

Stock Price Stock Price Stock Price % Change from

Company
07/01/2008 03/03/2009 07/01/2009 March
Sun $10.74 $4.54 $9.22 103.08%
Apple $174.68 $87.71 $142.83 62.84%
Nokia $24.21 $9.25 $14.77 59.68%
Microsoft $26.87 $16.03 $24.04 49.97%
Oracle $21.31 $15.06 $21.74 44.36%
HP $44.00 $28.30 $38.68 36.68%
EMC $14.65 $10.13 $13.14 29.71%
Cisco $23.15 $14.50 $18.80 29.66%
Google $534.73 $326.67 $418.99 28.26%
SAP $51.89 $32.28 $40.37 25.06%
Yahoo! $20.20 $12.58 $15.41 22.50%
IBM $119.27 $88.01 $104.84 19.12%
Symantec $19.74 $13.15 $15.63 18.86%

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 Shopping List – Buyer One

 Competitors active in M&A

 “Dramatically expand” software side through acquisitions
 Prefer SaaS
 Vertical focus vs. horizontal
 Consider Retail, Telecom, Financial Services, Public
Sector, Healthcare
 Targets 5 to 100 mil in rev
 OEM or outright acquisition

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 Shopping List – Buyer Two

 IT services / BPO Services

 Building geographic reach, adding technology and
customers
 $10 to 200 mil revenue
 North America, Japan or Europe
 ERP, CRM, Data Recovery, Infrastructure Mgmt,
Healthcare
 Off-shoring opportunities a plus

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Marc Brown
Managing Director, Corporate Development
Group

Marc Brown is a managing director in the Corporate Development Group at Microsoft

Corp., where he has been employed since January 2000. From May 1998 to December
1999, he was an associate in the Private Equity and Emerging Companies Group of the
law firm Goodwin, Procter & Hoar LLP. Before that, he was an associate in the Mergers
and Acquisition and Merchant Banking groups at the Union Bank of Switzerland, from 1987
to 1991.
 
Brown holds a doctor of jurisprudence degree from Georgetown University Law Center, an
MBA in Finance from New York University and a bachelor of arts in Economics from
Colgate University.

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 Ryan Blakely
Vice President, Research
Corum Group Ltd.

Ryan joined Corum in 1998 and has held a number of roles central to research and market
analysis in the software and technology space. With over ten years experience in the
software M&A environment, Ryan has an intimate understanding of the software industry
as a whole, especially as it relates to mergers and acquisitions. As the Vice President of
Research, Ryan directs Corum’s research group in both North America and Europe, and
has played a direct role in developing buyer relationships during his tenure with Corum. He
also is a major contributor to Corum’s research reports. Ryan graduated from Washington
State University with a B.A. in Business Management, with a focus on Entrepreneurial
Studies.

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M&A Activity – June

Number of Software and IT M&A Transactions

June

0 50 100 150 200 250 300 350 400

2009 2008 2007 2006 2005 2004

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 M&A Activity

June

May

April

March

February

January

0 50 100 150 200 250 300 350 400

2009 2006 2005

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Corum Index – M&A Statistics

Q2:08 Q1:09 Q2:09

# of Transactions 718 615 714
# of Mega Deals 14 0 8
Largest Deal $28,100 $775 $8,500
Average Deal Size $382 $67 $274
Median Seller Size $31 $25 $38
# VC backed Exits 97 70 84
% Terms Undisclosed 60% 77% 73%
All Cash (announced) 44% 55% 43%
% Targets were Public 17% 18% 20%
% Public Buyers 55% 43% 46%

$ values in millions

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 Public Markets

Nasdaq S&P Tech Dow

120.00

110.00

100.00

90.00

80.00

70.00

60.00

50.00

40.00
Jun-08 Jul-08 Aug-08 Sep-08 Oct-08 Nov-08 Dec-08 Jan-09 Feb-09 Mar-09 Apr-09 May-09 Jun-09

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Horizontal Application Software Market

Public Valuations

Horizontal
Application
Software

Q2:08 Q3:08 Q4:08 Q1:09 Q2:09

EV/EBITDA 10.12 x 11.01 x 7.69 x 6.82 x 9.99 x
EV/S 1.81 x 1.71 x 1.04 x 1.12 x 1.50 x

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 Horizontal Application Software Market

Notable Transactions Spotlight:

Target Buyer Sector: Accounting/Payroll

Target: PayCycle Inc.
ETH Tech Ltd. Clear2Pay NV
Buyer: Intuit
Cura Software Softpro Systems Date: June 2009
Solutions Transaction Value: $170
XyEnterprise SDL International million
Structure: Cash
PayCycle Inc. Intuit, Inc. Transaction Multiple: 5.7x

Comments:
 Expanding product portfolio
 SaaS

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 Vertical Application Software Market

Public Valuations

Vertical
Application
Software

Q2:08 Q3:08 Q4:08 Q1:09 Q2:09

EV/EBITDA 11.07 x 9.37 x 6.92 x 6.53 x 8.17 x
EV/S 2.19 x 1.71 x 1.26 x 1.14 x 1.51 x

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 Vertical Application Software Market

Notable Transactions
Spotlight:

Target Buyer Sector: Financial Services

eResearch OmniComm Target: Prospectus Central
Technology (EDC) Systems Buyer: RR Donnelley & Sons
Date: June 2009
eQuilibrium EnerNOC Transaction Value: Undisclosed
Solutions
Prospectus Central R.R. Donnelley Comments:
 Big buys small
 Distressed sector
 Building on prior success
 SaaS

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Consumer Application Software Market

Public Valuations

Consumer
Application
Software

Q2:08 Q3:08 Q4:08 Q1:09 Q2:09

EV/EBITDA 10.99 x 11.45 x 5.41 x 2.74 x 4.47 x
EV/S 1.70 x 0.99 x 0.61 x 0.64 x 0.53 x

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 Consumer Application Software Market

Notable Transactions
Spotlight:
Target Buyer Sector: Mobility
Fueps SpA Dada SpA Target: Dash Navigation
Id Software ZeniMax Media Buyer: Research In Motion
Date: June 2009
Mustache Inc. Fanzter Transaction Value: Undisclosed
Dash Navigation Research In
Motion Comments:
 SaaS
 Differentiator
 Hot space

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Infrastructure Market

Public Valuations

Infrastructure
Software

Q2:08 Q3:08 Q4:08 Q1:09 Q2:09

EV/EBITDA 11.39 x 8.98 x 6.47 x 6.98 x 8.74 x
EV/S 1.98 x 1.67 x 1.47 x 1.43 x 1.72 x

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 Infrastructure Market

Notable Transactions
Spotlight:
Target Buyer Sector: Development Tools
HourGlass Ipswitch Target: Wind River
Technologies Buyer: Intel Corporation
Wind River Intel Corporation Date: June 2009
Transaction Value: $884 million
Structure: Cash
Transaction Multiple: 2.2x

Comments:
 New software focus

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Internet Market

Public Valuations

Internet

Q2:08 Q3:08 Q4:08 Q1:09 Q2:09

EV/EBITDA 11.94 x 9.60 x 8.11 x 7.54 x 11.81 x
EV/S 2.71 x 2.34 x 1.10 x 1.60 x 2.30 x

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 Internet Market

Notable Transactions
Spotlight:
Target Buyer Sector: Advertising /
Talkzilla.com TZ Holdings local networking
Siliconinvestor.com TZ Holdings Target: Going
Buyer: AOL, Inc.
SendTec Inc. PHIDS Inc. Date: June 2009
SnapTell A9.com Transaction Value: Undisclosed
Going Inc. AOL
Comments:
 Desire to be local
 Million-plus unique visitors monthly

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IT Services Market

Public Valuations

IT Services

Q2:08 Q3:08 Q4:08 Q1:09 Q2:09

EV/EBITDA 6.92 x 6.50 x 5.36 x 5.32 x 5.24 x
EV/S 0.89 x 0.80 x 0.70 x 0.56 x 0.63 x

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 IT Services Market

Notable Transactions
Spotlight:
Target Buyer Sector: Services
Resource Group Swisscom AG Target: Carillion plc
AG Buyer: Capita Group plc
Bearing Point Keane Date: June 2009
Transaction Value: $57 million
Structurum AS Inmeta ASA
Carillion plc Capita Group plc Comments:
 Intra-country
 Services around the network
 Valuation in ‘services’ range

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Contact Information

Corum Group Ltd.

Ward Carter, President

wardc@corumgroup.com

Ryan Blakely, VP Research

ryanb@corumgroup.com
Corum Group International S.à.r.l.
10500 NE 8th Street, Suite 1500
Beim Paradeplatz
Bellevue, WA 98004
Basteiplatz 7
USA
8001 Zürich
Switzerland
+1 425-455-8281
+41 44 251 82 65

Research and Conferences:

www.corumgroup.com

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