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Private Capital Market Update

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  • 1. PRIVATE AND CONFIDENTIALTECHNOLOGY FOCUS. BROAD REACH. OPTIMAL RESULTS.Private Capital Market Update
  • 2. 2I. Technology Private Equity Market Update
  • 3. 3$5.0$0.5$5.3$11.1$4.2$2.5$6.8$7.2$8.9$9.4$8.4 $8.8$6.7$5.7$10.7 $10.6$2.664 6579101975910290 8811794 92107103 10310766020406080100120140$0.0$2.0$4.0$6.0$8.0$10.0$12.0Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q12009 2010 2011 2012 2013Capital Invested ($B) Deal CountTechnology Private Equity Investing Losing Momentum...TECHNOLOGY PRIVATE EQUITY INVESTING ACTIVITYSource: PitchBook. Data Includes closed transactions only.* Capital invested data excludes transactions with undisclosed transaction amounts.Although Tech PE investing had gained strong momentum in 2012, Q1 2013 saw only$2.6B invested in technology companies, 60% lower than the year ago period($B)
  • 4. 4...As Middle Market Leveraged Lending Trends ImproveThe leveraged loan market continues to improve, fueled by low rates and availability of debtMIDDLE MARKET LEVERAGED CASH FLOW TRENDSKEY BASELINE INTEREST RATESSource: Market IntelligenceRate May 2013 May 2012Fed Funds Target Rate 0.25% 0.25%US Prime Rate 3.25% 3.25%3-Month LIBOR 0.27% 0.47%Metric May 2013 May 2012CF Senior Debt (x EBITDA): 1.50 - 2.50x 1.50 - 2.25xTotal Debt Limit (x EBITDA): 3.00 - 4.25x 3.00 - 4.00xSenior Cash Flow Pricing L+ 3.5% - 4.5% (bank)L+ 4.5% - 6.5% (non-bank)L+ 3.0% - 4.5% (bank)L+ 4.5% - 6.0% (non-bank)Subordinated Debt Pricing 14.0% - 17.0% 14.0% - 17.0%"One Stop" Pricing: 10.0% - 12.0% FixedL+ 7.5% - 9.0% Floating10.0% - 11.5% FixedL+ 9.0% - 10.0% FloatingMinimum Equity Contribution 25% - 35% 25% - 35%
  • 5. 5$266 $252 $145 $51 $100 $113293247121 120137112050100150200250300350$0$50$100$150$200$250$3002007 2008 2009 2010 2011 2012#FundsClosedCapitalRaised($B)Capital Raised ($B) # of Funds Closed$43$64$51$26$71$93$0$100$200$300$400$500$600$0$10$20$30$40$50$60$70$80$90$1002007 2008 2009 2010 2011 2012CumulativeOverhang($B)OveerhangbyVintage($B)Cumulative Overhang Overhang by VintagePrivate Equity Capital Remains Near Record Highs Significant amount of ‘dry powder’ built-up from large fund raises prior to the financialcrisis PE Fundraising trending toward larger funds as more capital was raised by fewer fundsSource: PitchBookPE FUNDRAISING BY YEARSource: PitchBookCAPITAL OVERHANG BY VINTAGECumulative Overhang$348BPE Firms continue to chip away at the significant amount of ‘dry-powder’ while thefundraising environment continues to improve
  • 6. 6$6.4$0.6 $1.6$6.4$10.6$4.3$6.3$12.4$6.3$10.1 $10.4$4.7$12.5$7.2$22.4$12.9$7.271511182419303727352931452235382905101520253035404550$0.0$5.0$10.0$15.0$20.0$25.0Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q12009 2010 2011 2012 2013Exit Value ($B) Exit CountTechnology Private Equity Portfolio Company Exits on the DeclineTECHNOLOGY PRIVATE EQUITY PORTFOLIO COMPANY EXIT ACTIVITYSource: PitchBook. Data Includes closed transactions only.* Total exit value data excludes transactions with undisclosed transaction amounts.Portfolio company sales posted a weak quarter after finishing 2012 on a strong note.$7.2B in exit value was recorded in Q1, down 42% from the year ago period($B)
  • 7. 7$40$88$95$88$85$70$48$61$100$40$85$100$0$20$40$60$80$100$1201Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 YTD2011YTD2012YTD2013Larger Deals Fueling Strategic Technology M&A ActivityTechnology M&A market marked by consolidation from major tech acquirers as theysnap up sector leaders leading to fewer, but larger dealsSTRATEGIC M&A MEDIAN DEAL SIZESource: PitchBookNOTABLE CASH POSITIONS$47.4B$12.8B$12.5B$74.5B$33.4B$13.2B$4.9B21 $1B+ strategicacquisitions sincebeginning of 2011$6.5 B($MM)
  • 8. 8$0.0 $0.6 $1.7 $0.4 $0.5$1.0$2.3$1.6$1.1$4.8$0.3$1.6 $1.6$0.9 $0.7$1.0$0.4052351412119173712965 5024681012141618$0.0$1.0$2.0$3.0$4.0$5.0$6.0Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q12009 2010 2011 2012 2013Amount Raised ($B) IPO CountTechnology IPO Market Dragging, Marked by CautionSource: PitchBook, CapitalIQTECHNOLOGY IPO MARKETCapital RaisedExcludes Facebook’s$16B IPOAfter a strong start to 2012, the inconsistent / sporadic tech IPO market is beginning tostabilize, with a number of high profile tech IPOs in registration for the coming months($B)
  • 9. 9Recent Significant Technology Transactions Robust demand and activity in SaaS, e-learning and social media sectors Interest from PE and strategic buyers driving valuations higher─ Quest bidding war between Dell and Insight Venture PartnersPRIVATE EQUITY STRATEGICAugust 2012Has received aninvestment fromFebruary 2012Has beenacquired byOctober 2011Has beenacquired byDecember 2011Has beenacquired byJuly 2012Has beenacquired byAugust 2012Has beenacquired byMay 2012Has beenacquired byAugust 2012Has beenacquired byApril 2012Has beenacquired byDecember 2011Has beenacquired bySeptember 2012Has beenacquired byJanuary 2012Has beenacquired byDecember 2011Has beenacquired byDecember 2011Has beenacquired byMay 2012Has beenacquired byJune 2012Has beenacquired byDecember 2012Has beenacquired byNovember 2012Has beenacquired byMay 2013Has beenacquired byJanuary 2013Has beenacquired byMay 2013Has beenacquired byMay 2013Has beenacquired byAugust 2012Has been formed byportfolio companies ofApril 2012Has beenacquired by
  • 10. 10II. Venture Capital Market Update
  • 11. 11Overall Venture Capital Investing Remains Stable …~$6 billion in venture capital invested in Q1 2013, both deal volume and dollar volumeremain below 2011 highs but above 2010 levelsQUARTERLY VENTURE CAPITAL INVESTING ACTIVITYSource: NVCA, PWC MoneyTree($B)$3.8$5.1 $5.4$5.9$5.1$7.1$5.4 $5.7$6.5$8.2$7.5 $7.4$6.3$7.3$6.6 $6.7$5.9676760 7619418171,018883907 9001,0741,0109808689609291,013863-2004006008001,0001,200$0.0$1.0$2.0$3.0$4.0$5.0$6.0$7.0$8.0$9.0Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q12009 2010 2011 2012 2013Capital Invested ($B) Deal Count
  • 12. 12$0.0$0.5$1.0$1.5$2.0$2.5$3.0$3.51Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13Seed Early Stage Expansion Later Stage…Though Later-Stage Deals Continue to Gain MomentumLater-stage deals continue to gain momentum in the investment community, especiallywhere capital is used to fuel sales growthSource: NVCA, PWC MoneyTree($B)QUARTERLY VENTURE CAPITAL INVESTING ACTIVITY
  • 13. 13Stable Fundraising in 2012 / 2013 Increasing the Supply of Capital$4.1B was raised by VCs in Q1 2013, narrowly below 2012 levels. While still below 2011highs, fundraising levels have climbed to pre-recession levelsQUARTERLY VC FUNDRAISINGSource: NVCA, PWC MoneyTreeNOTABLE RECENT FUNDS$3,500M$2,600M$2,000M$1,250M$900M$750M$2,700M($B)$3.7$8.1$2.7$2.1$6.1$4.7$6.3$5.1$3.3$4.1$8.1$4.7$4.1$0.0$1.0$2.0$3.0$4.0$5.0$6.0$7.0$8.0$9.04Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 YTD2011YTD2012YTD2013
  • 14. 14$0.0$1.0$2.0$3.0$4.0$5.0$6.0$7.0$8.0$9.01Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13CapitalInflowsDecreasing Momentum in Fundraising and InvestingWhile VC capital inflows and outflows remain above 2009 lows, both have been underpressure in recent periods and struggle to regain momentum from 2011 highsQUARTERLY VC INFLOWS / OUTFLOWSSource: NVCA, PWC MoneyTree($B)CapitalOutflows
  • 15. 150%5%10%15%20%25%30%35%40%45%Qtr 1 Qtr 2 Qtr 3 Qtr 4 Qtr 1 Qtr 2 Qtr 3 Qtr 4 Qtr 1 Qtr 2 Qtr 3 Qtr 4 Qtr 12010 2011 2012 2013Software Companies Continue to be Most Attractive Targets for VCs$2.3B invested in software companies represents 40 percent of all VC invested dollars.Later stage raisings continue to attract majority of VCVCALLOCATEDTOSOFTWARESOFTWAREVCINVESTING40% of all VC dollarsinvested in Q1 went tosoftware companiesSource: NVCA, PWC MoneyTree($MM)$211 $187 $315 $253 $380 $440 $477 $331 $331 $409 $491 $551 $565$1,027$1,401 $1,246 $1,477$1,462$1,799$2,179$2,072$1,689$2,421 $2,098 $2,161 $2,327$0$500$1,000$1,500$2,000$2,500$3,000$3,500Qtr 1 Qtr 2 Qtr 3 Qtr 4 Qtr 1 Qtr 2 Qtr 3 Qtr 4 Qtr 1 Qtr 2 Qtr 3 Qtr 4 Qtr 12010 2011 2012 2013First Sequence Financing All Other Software Financings
  • 16. 16Corporate Investors Decreasing Activity in InvestingCorporate VC investing decreased 17 percent yr/yr in Q4 2012 as corporations usedstrong balance sheets to return cash to shareholdersQUARTERLY CORPORATE VC INVESTING ACTIVITYSource: NVCA, PWC MoneyTree($MM)$705$669$835$500$230$356$297$462$376$644$455$429 $424$732$555$529 $523$553$670$437$0$100$200$300$400$500$600$700$800$900Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q42008 2009 2010 2011 2012
  • 17. 17Falvey Partners OverviewFOCUS SELECT TRANSACTION EXPERIENCEDecember 2011Has acquiredJuly 2012Has beenacquired bySeptember 2011Series DConvertiblePreferred StockLed bySeptember 2012Has beenacquired byA portfolio company ofJuly 2011Has been acquiredby a portfoliocompany ofApril 2011Has beenacquired byJuly 2011Has beenacquired byFebruary 2011Growth equityinvestment fromJuly 2011Has beenacquired byMarch 2011Has divestedits diagnosticsolutions unitNovember 2010Has received aninvestment fromA portfolio company ofOctober 2010PGI Notify and Sendplatforms acquired byAugust 2010Two divisions have beenacquired by a portfoliocompany ofApril 2010Has beenacquired byAugust 2010Series CConvertiblePreferred StockLed bySERVICES Sell-side or buy-side M&A Growth capital raising Board and corporate advisorySECTOR Software / SaaS Tech-enabled business services IT services Internet / digital mediaCOMPANY TYPE $50M - $250M in enterprise value Growing, with established scale Profitable or near-term path to profitabilityFalvey Partners is a leading advisory firm servingmid-market clients across technology sectors Founded in 2012 by Peter Falvey and key members of the Morgan Keegan / Revolution Partners team Falvey Partners professionals have closed dozens of software transactions representing billions ofdollars in transaction value

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