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2,3 (za SaaS je 5,5)

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  • 1. Software Equity Group is an investment bank and M&A advisory serving the software and technology sectors. Since 1992, our firm has represented and guided private companies throughout the United States and Canada, as well as Europe, Asia Pacific, Africa and Israel. We have advised public companies listed on the NASDAQ, NYSE, Toronto, London and Euronext exchanges. Software Equity Group also represents several of the world's leading private equity firms. Our value proposition is unique and compelling. We are skilled and accomplished investment bankers with extraordinary software, internet and technology domain expertise. Our software industry experience spans virtually every product category, technology and market. We have profound understanding of software company finances, operations and valuation. We monitor and analyze every publicly disclosed software M&A transaction, as well as the market, economy and technology trends that impact these deals. We're formidable negotiators and savvy dealmakers who facilitate strategic combinations that enhance shareholder value. Perhaps most important are the relationships we've built, and the industry reputation we enjoy. Software Equity Group is known and respected by publicly traded and privately owned software and technology companies worldwide, and we speak with them often. Our Quarterly and Annual Software Industry Equity Reports are read and relied upon by more than fifteen thousand industry executives, entrepreneurs and equity investors in twenty-six countries, and we have been quoted widely in such leading publications as Information Week, The Daily Deal, Barrons, U.S. News & World Report, Reuters, Mergers & Acquisitions, USA Today, Arizona Republic, Detroit Free Press, Entrepreneur Magazine, Softletter, Software Success, Software CEO Online and Software Business Magazine. Software Equity Group’s senior bankers have keynoted and spoken at more than one hundred software industry conferences and seminars, including Software Business, SoftExpo, Culpepper, VAR Conference, ACETECH, and the Arizona, Colorado, Chicago, Southern California, Denver, San Diego, Washington State and Boulder Software Associations.
  • 2. Software Equity Group, L.L.C. Contents U.S. ECONOMY: SOFTWARE INDUSTRY MACROECONOMICS .............................................................. 2 PUBLIC MARKETS AND PUBLIC SOFTWARE & INTERNET COMPANY PERFORMANCE ..................... 3 SOFTWARE INDUSTRY GROWTH & IT SPENDING PROJECTIONS ........................................................................ 3 PUBLIC SOFTWARE COMPANY PERFORMANCE................................................................................................. 3 PUBLIC SAAS COMPANY PERFORMANCE ......................................................................................................... 6 U.S. SOFTWARE IPOS ................................................................................................................................... 6 PUBLIC INTERNET COMPANY PERFORMANCE ................................................................................................... 7 MERGERS AND ACQUISITIONS: THE NUMBERS ...................................................................................... 8 TOTAL M&A SPENDING AND DEAL VOLUME: .................................................................................................... 8 SOFTWARE M&A SPENDING AND DEAL VOLUME: ............................................................................................. 8 DEAL CURRENCY: .......................................................................................................................................... 9 PRIVATE VS. PUBLIC BUYERS: ........................................................................................................................ 9 M&A VALUATIONS: ...................................................................................................................................... 10 M&A EXIT VALUATIONS BY SOFTWARE CATEGORY: ....................................................................................... 11 SAAS M&A:................................................................................................................................................. 11 MERGERS AND ACQUISITIONS: BUYER MOTIVES ................................................................................. 11 PRODUCT ENHANCEMENT: ........................................................................................................................... 11 NEW MARKET/SUBSECTOR/TERRITORY:........................................................................................................ 13 VERTICAL MARKETS: .................................................................................................................................... 13 PRODUCT CATEGORY CONSOLIDATION: ........................................................................................................ 14 INVESTMENT ACQUISITIONS: ......................................................................................................................... 14 SOFTWARE INDUSTRY PRIVATE EQUITY ................................................................................................ 14 APPENDIX A: 2Q07 PUBLIC MARKET VALUATIONS AND STATISTICS BY PRODUCT CATEGORY .. 16 APPENDIX B: 2Q07 MERGERS AND ACQUISITIONS, SELECT PUBLIC SELLER VALUATIONS ......... 19 APPENDIX C: MERGERS AND ACQUISITIONS, MOST ACTIVE BUYERS .............................................. 20 APPENDIX D: SELECTED MERGERS AND ACQUISITIONS..................................................................... 22 1| 2Q07 SOFTWARE INDUSTRY EQUITY REPORT Copyright © 2007 Software Equity Group, L.L.C.
  • 3. Software Equity Group, L.L.C. U.S. ECONOMY: SOFTWARE INDUSTRY Figure 1: U.S. Gross Domestic Product MACROECONOMICS 5.6% 4.3% The U.S. economy stumbled in the first quarter, 4.0% 4.1% 3.8% with real gross domestic product increasing an 3.5% 3.3% 3.3% anemic 0.7 percent in 1Q07 – the slowest in 14 3.1% 2.5% quarters, and well below the 2.5% advance 2.5% chalked up in 4Q06 (Figure 1). Economists 2.0% 1.7% believe GDP rebounded in the second quarter, with initial results to be released at the end of 0.7% July. Residential fixed investment, the GDP component that includes spending on housing, 2004 2005 2006 2007 plunged 15.8% in 1Q07 and 19.8% in 4Q06. The Note: 2Q07 is an estimate housing market continues to struggle as it adjusts to a supply glut and more cautious mortgage Despite sluggish growth and continuing weakness lenders, taking almost a full percentage point out in the housing market, the jobless rate remains of GDP. Conversely, consumer spending, which near six-year lows at 4.5%, down from 4.6% a accounts for about 70% of economic activity, year earlier. The economy added 190,000 non- surged 4.2% in 1Q07, adding 2.9 percentage farm jobs in May and 132,000 in June, and has points to GDP. A mid-year survey of 60 economic averaged 145,000 per month for the year. The forecasters by The Wall Street Journal cautiously U.S. IT labor market showed impressive strength projects GDP to grow at 2.6% in the latter half of in April and May, growing 436 basis points faster 2007, and 2.9% in 2008. Economists disagreed than non-farm employment. According to Bank of about the inflationary impact of this anticipated America, IT services employment now stands at growth, particularly escalating food and energy approximately 2.87 million, 5.3% above the prior prices. peak in March 2001. While jobless claims appeared to hold steady in May and June, some The Conference Board’s Index of Leading economists believe construction unemployment is Economic Indicators, an important short-term understated by some 500,000 jobs previously forecasting guide, increased 0.3% in May, with held by undocumented workers. five of the ten components advancing. The positive indicators, beginning with the largest Abroad, China is poised to pass Germany and positive, were average weekly initial claims for become the world’s third largest national unemployment insurance (inverted), stock prices, economy. According to International Monetary building permits, index of consumer expectations, Fund data, China’s 2006 GDP is estimated at and vendor performance. The negative $2.8 trillion, slightly below Germany’s $2.9 trillion contributors, beginning with the largest negative, for the same period, and within striking distance of were real money supply, average weekly Japan’s $4.4 trillion GDP. Analysts estimate manufacturing hours and interest rate spread. China’s 2Q07 GDP to increase 11% and continue Manufacturers’ new orders for consumer goods its torrid pace for the remainder of the year. Since and materials, and manufacturer’s new orders for 1999, China’s economy has leapfrogged that of non-defense capital goods, both remained steady Italy, France and the United Kingdom. in May. 2| 2Q07 SOFTWARE INDUSTRY EQUITY REPORT Copyright © 2007 Software Equity Group, L.L.C.
  • 4. Software Equity Group, L.L.C. Figure 2: Major Market Indices Compared to the SEG Software and SEG Internet Indices 20.0% S&P 500 Nasdaq Dow SEG Sofware Index SEG Internet Index 15.0% 10.0% 5.0% 0.0% -5.0% January February March April May June PUBLIC MARKETS AND PUBLIC SOFTWARE & Figure 3: Software Market Growth Projections ($ INTERNET COMPANY PERFORMANCE billions) Category 2005 2010 CAGR (2005 - 2010) The major stock market indexes advanced Application Development and Deployment $ 29 $ 41 7.2% relentlessly in 2Q07, more than compensating for Enterprise Applications 65 101 9.2% Database 18 24 5.9% a sluggish first quarter. During the past year, Desktop Applications 24 38 9.6% stock prices have surpassed the forecasts of all Systems Infrastructure 75 101 6.1% Total: $ 211 $ 305 7.6% but the most optimistic analysts, with the Dow, Source: IDC Corporation S&P 500, and NASDAQ increasing in value May 2007 IT Spending Survey which forecasts IT 20.3%, 18.4% and 19.8%, respectively. investments by large enterprises over the next Comparing the first trading day of 2007 to the last twelve months, server consolidation and ERP trading day of 1H07, the Dow, S&P 500 and software ranked as the highest priorities (Figure NASDAQ, are up 7.6%, 6.0% and 7.8%, 4), while open source software and software-as-a- respectively (Figure 2). With most publicly traded service ranked lowest on the list. As we’ve companies already reporting record profit reported in each of the past three quarters, SaaS margins, and analysts forecasting continued has yet to gain traction among very large expansion, there is widespread belief stock enterprises, at least for enterprise-wide market values will increase for the remainder of deployment. The IT spending categories showing 2007. We see some possibility, however, for a greatest advance since Goldman’s January sell-off and correction in the third quarter, and Spending Survey were LAN upgrades, PCs subsequent rebound by year end. (including laptops), server consolidation, server virtualization and VOIP. Categories that have Software Industry Growth & IT Spending maintained a high spending priority ranking Projections include business intelligence, data center According to IDC Corporation, the software consolidation and ERP software. market is expected to grow to $306 billion in 2010, a 45% increase over 2005’s $211 billion software Public Software Company Performance spending tally (Figure 3). Within the software The SEG Software Index, our index of 263 sector, desktop applications are projected to show publicly traded software companies, closely greatest spending growth (+9.6%), compared to tracked the NASDAQ during 1H07 (Figure 2). The more modest growth in database software equity valuation of the SEG Software Index ended spending (+5.9%). According to Goldman Sachs’ 1H07 up 7.8% compared to the beginning of 3| 2Q07 SOFTWARE INDUSTRY EQUITY REPORT Copyright © 2007 Software Equity Group, L.L.C.
  • 5. Software Equity Group, L.L.C. Figure 4: CTO Tech Spending Priorities the SEG Software Index posted an impressive gain of 18.3% in 2Q07 compared to 2Q06. Over • Server consolidation the same time period, cash as a percent of market • ERP software • Server virtualization cap decreased to 15.9% in 2Q07 from 18.4% in • Business intelligence 2Q06, reflecting the higher valuations and for • Voice-over-IP some, recent acquisitions. Composite financial • Data center consolidation performance data for the public SEG Software • Application integration Index are enumerated in Figure 6. • LAN/network upgrades • Disk storage Figure 5: SEG Software Index Historical Growth • Disaster recovery/business continuance Metrics • Security 25% • IT consulting services Cash & Equivalents • New PCs or PC upgrades 20% TTM Revenue • Business process / IT outsourcing TTM EBITDA HIGH TTM Net Income • Web application development 15% Enterprise Value • Business process management / workflow 10% • Compliance/risk management • Cost cutting 5% • CTO Tech Spending Priorities Identity and access management • Storage virtualization 0% • Customer relationship management • IT operations management software -5% • Mobile computing / remote access • Outsourced software development -10% • Collaboration software • Wireless networking -15% • Service-oriented-architecture 1Q06 2Q06 3Q06 4Q06 1Q07 2Q07 • Storage management software • Microsoft Vista upgrades • Managed services • Thin client computing Size continues to play a role in software company • Utility/grid/on-demand computing valuations. SEG Software Index companies with • Desktop virtualization revenues greater than $1 billion posted a median • Open source software EV/Revenue ratio of 3.4x in 2Q07, compared to a LOW • Software-as-a-service/remote hosted software median ratio of 2.6x for software companies with Data Source: Goldman Sachs May 2007 IT Spending Survey revenue between $200 million and $1 billion (Figure 7 & 8). While the EV/Revenue ratios were greater for larger software companies, the same 1H07, after reaching a high of 8.0% and dipping to a negative 1.4% low. One of the big winners did not hold true for EV/EBITDA ratios. was aQuantive, which was acquired by Microsoft Companies with revenue less than $100 million were valued at 17.3x EV/EBITDA, while software at a per share price 158.7% greater than its companies with revenue greater than $1 billion January 2, 2007 closing price. posted a 15.6x EV/EBITDA multiple. The Public software company financial performance, differential is unsurprising and historically with few exceptions, exceeded expectations, consistent. Investors expect smaller companies to further demonstrating to investors that software is Figure 6: SEG Software Key Statistics not yet a maturing industry with limited upside as SEG - Software some had feared. Median trailing-twelve-month Measure 1Q06 2Q06 3Q06 4Q06 1Q07 2Q07 (TTM) revenue of companies listed in the SEG EV/Revenue 2.2x 2.1x 1.9x 2.2x 2.4x 2.4x Software Index grew 11.7%, and median TTM EV/EBITDA 15.2x 13.7x 12.8x 14.6x 14.8x 15.6x EV/Earnings 25.4x 28.1x 25.7x 28.4x 26.2x 27.4x EBITDA grew 18.9% (Figure 5). TTM earnings of Current Ratio 2.1 2.1 2.0 1.9 1.9 1.8 SEG Software Index companies gained 3.5%, Gross Profit Margin 62.9% 63.4% 62.1% 61.6% 64.8% 62.7% while cash & cash equivalents posted a 3.7% EBITDA Margin 12.8% 13.5% 14.3% 13.7% 13.8% 13.6% Net Income Margin 5.0% 4.7% 4.2% 4.3% 4.6% 4.1% increase in 2Q07 compared to 2Q06. With TTM Revenue Growth 10.4% 12.5% 13.4% 13.8% 11.6% 11.7% investors once again warming to the software TTM Earnings Growth 25.3% 8.7% 2.8% 11.5% 7.3% 3.5% sector, the median enterprise value (valuation) of 4| 2Q07 SOFTWARE INDUSTRY EQUITY REPORT Copyright © 2007 Software Equity Group, L.L.C.
  • 6. Software Equity Group, L.L.C. Figure 7 & Figure 8: SEG Software Enterprise Value / Revenue and Enterprise Value / EBITDA by Size of Buyer (TTM Revenue) 4.0x 25.0x 2Q06 3Q06 4Q06 1Q07 2Q07 2Q06 3Q06 4Q06 1Q07 2Q07 3.4x 19.9x 20.0x 19.0x 17.3x 2.9x 3.0x 2.6x 2.6x 2.4x 15.6x 14.9x 2.1x 15.0x 13.7x 13.9x 13.4x 2.1x 12.9x 13.1x 1.9x 1.8x 2.0x 1.8x 10.0x 1.0x 5.0x 0.0x 0.0x Composite SEG- Revenue Greater Revenue between Revenue between Revenue Less Than Composite SEG- Revenue Greater Revenue between Revenue between Revenue Less Than Technology Index Than $1 billion $200 million and $1 $100 million and $100 million Technology Index Than $1 billion $200 million and $1 $100 million and $100 million billion $200 million billion $200 million Figure 9: SEG Software Categories SEG - Software Index Category EV/Rev. EV/EBITDA Revenue Growth Earnings Growth 1Q06 2Q06 3Q06 4Q06 1Q07 2Q07 1Q06 2Q06 3Q06 4Q06 1Q07 2Q07 2Q07 (TTM) 2Q07 (TTM) Infrastructure Software Database & File Management 2.5x 2.3x 2.0x 2.3x 2.6x 3.1x 12.5x 9.9x 9.5x 9.5x 9.3x 12.0x 2.3% 21.6% Development Tools, Operating Systems & 1.8x 2.1x 1.6x 1.2x 2.0x 2.5x 27.8x 26.7x 14.0x 14.0x 22.1x 26.3x 11.3% -0.6% Application Testing Software eCommerce Enablement Software 1.3x 0.9x 0.7x 1.1x 1.0x 2.3x 16.6x 14.8x 11.4x 11.4x 13.3x 14.6x -5.2% 3.4% Enterprise Application Integration 1.5x 1.7x 1.4x 1.8x 2.0x 2.2x 11.5x 15.7x 13.9x 13.9x 13.7x 11.4x 12.2% 8.9% Messaging, Conferencing & Communications 1.5x 1.3x 1.3x 1.8x 1.8x 1.3x 11.2x 15.9x 14.1x 14.1x 15.5x 14.1x 16.7% 9.0% Networking & Connectivity 2.2x 2.0x 1.8x 1.5x 1.6x 1.5x 22.6x 18.7x 18.1x 18.1x 16.2x 13.8x 4.5% -135.9% Security 3.0x 3.0x 2.4x 3.1x 3.2x 3.2x 13.8x 13.9x 11.7x 11.7x 15.4x 14.6x 16.2% -3.0% Storage & Systems Management Software 3.1x 3.2x 3.5x 3.6x 3.7x 3.6x 14.6x 13.1x 13.0x 13.0x 14.4x 14.0x 20.9% 11.2% Wireless 2.0x 2.0x 1.7x 1.4x 1.8x 1.6x 9.9x 14.1x 7.2x 7.2x 10.6x 12.9x 11.9% -54.0% Application Software Accounting & Finance 4.6x 3.5x 4.0x 4.4x 3.8x 4.3x 14.2x 17.3x 17.7x 17.7x 14.4x 16.9x 17.9% 16.6% Billing & Service Provisioning 2.4x 2.2x 1.2x 1.6x 1.8x 1.7x 11.5x 11.1x 9.0x 9.0x 7.4x 9.4x 6.7% 19.7% Business Intelligence 2.2x 2.1x 1.8x 2.3x 2.0x 2.3x 11.7x 11.7x 10.8x 10.8x 15.8x 15.6x 13.9% 1.6% Content/Document Management 1.3x 1.3x 1.4x 1.3x 1.7x 1.7x 11.6x 13.2x 15.9x 15.9x 17.5x 15.3x 7.5% -9.7% Customer Relationship Management, Marketing & 2.7x 2.4x 2.1x 2.3x 2.4x 3.2x 16.6x 18.6x 18.3x 18.3x 17.7x 33.2x 19.3% -20.1% Sales Software Education & Computer Based Training 2.0x 2.6x 1.9x 2.0x 2.2x 2.5x 13.3x 24.0x 24.5x 24.5x 34.4x 27.9x 10.8% -54.8% Electronic Design Automation 2.4x 2.7x 2.5x 2.8x 3.0x 3.2x 17.6x 14.2x 11.3x 11.3x 13.9x 24.2x 9.6% 39.8% Engineering, PLM & CAD/CAM Software 2.2x 2.2x 1.9x 2.4x 2.9x 3.2x 17.3x 14.6x 12.5x 12.5x 14.2x 17.5x 11.5% 5.4% Enterprise Resource Planning 1.6x 1.6x 1.4x 2.3x 2.2x 2.1x 13.1x 9.4x 15.4x 15.4x 16.3x 13.9x 14.8% -65.7% Entertainment 1.5x 1.4x 1.6x 1.8x 1.6x 1.6x 12.0x 11.7x 11.5x 11.5x 13.3x 13.1x 3.7% 48.8% Financial Services Software 2.5x 2.4x 2.4x 2.5x 2.6x 2.7x 13.8x 14.3x 10.8x 10.8x 13.5x 13.1x 11.7% 34.4% Healthcare 3.0x 2.6x 2.7x 2.8x 2.6x 2.8x 18.4x 15.8x 12.3x 12.3x 14.7x 14.3x 13.2% 65.1% HR & Workforce Management 3.1x 2.3x 2.0x 2.2x 2.7x 3.5x 19.2x 15.0x 10.8x 10.8x 20.9x 25.8x 31.4% 51.2% Multimedia, Graphics, Digital Media 2.3x 2.7x 2.3x 2.7x 2.5x 2.6x 26.9x 20.7x 18.1x 18.1x 21.6x 20.3x 18.8% -1.2% Supply Chain Management & Logistics 1.6x 1.7x 1.5x 1.5x 1.6x 1.9x 17.6x 12.3x 12.6x 12.6x 13.0x 13.3x 7.2% 3.2% Web Analytics 4.4x 5.0x 4.5x 4.5x 4.2x 4.1x 19.7x 16.5x 14.2x 14.2x 16.7x 19.3x 46.8% -0.3% be less profitable as they pump money into R&D In quarters past, median trailing twelve month and sales, but they also expect much faster revenue and earnings varied widely by product growth. Larger companies, however, are generally category, and 2Q07 was no exception (Figure 9). expected to grow more slowly, but generate Year-over-year, public company providers of web significant – and ever increasing – profitability. analytics and human resource management software led all other software categories in public While median software industry multiples are a company revenue growth (+46.8% and +31.4%, benchmark, EV/Revenue multiples for specific respectively), while public software companies software product categories provide greater providing solutions for ecommerce enablement insight and guidance about market trends, IT (negative 1.4%) and database and file spending priorities, and areas ripe for near-term management (+2.3%) lagged far behind. As for consolidation. earnings performance, healthcare led all other software industry product categories over the same year-over-year time period, reporting an 5| 2Q07 SOFTWARE INDUSTRY EQUITY REPORT Copyright © 2007 Software Equity Group, L.L.C.
  • 7. Software Equity Group, L.L.C. Figure 10: Pure Play Software as a Service (SaaS) Public Software Companies TTM Revenue EV/Rev. EV/EBITDA EBITDA Margin Growth Company Category Company Sector Company Sector Company Sector Company Sector 2Q07 2Q07 2Q07 2Q07 Concur (NASDAQ: CNQR) Accounting & Finance 6.4x 4.3x 16.9x 14.4x 43.2% 17.9% 23.3% 26.3% DealerTrack (NASDAQ: TRAK)* Vertical - Automotive 6.3x 2.7x 18.8x 14.3x 38.7% 11.7% 33.7% 17.4% Kenexa (NASDAQ: KNXA) Human Resource Management 5.9x 3.5x 26.0x 25.8x 76.7% 31.4% 22.7% 14.6% Kintera (NASDAQ: KNTA) Accounting & Finance 1.3x 4.3x - 14.4x -2.6% 17.9% N/A 26.3% RightNow (NASDAQ: RNOW) CRM, Sales & Marketing Software 4.0x 3.2x N/A 33.2x 19.3% 19.3% N/A 10.1% Salesforce.com (NYSE: CRM) CRM, Sales & Marketing Software 8.6x 3.2x 86.7x 33.2x 58.4% 19.3% 10.0% 10.1% Taleo (NASDAQ: TLEO) Human Resource Management 3.5x 3.5x 54.3x 25.8x 25.7% 31.4% 6.4% 14.6% LivePerson (NASDAQ: LPSN) CRM, Sales & Marketing Software 6.9x 3.2x 42.1x 33.2x 55.4% 19.3% 16.4% 10.1% Vocus (NASDAQ: VOCS) CRM, Sales & Marketing Software 8.6x 3.2x 70.4x 33.2x 47.8% 19.3% 12.2% 10.1% Salary.com (NASDAQ: SLRY) Human Resource Management 5.5x 3.5x - 25.8x 50.6% 31.4% - 14.6% Omniture (NASDAQ: OMTR) Web Analytics 9.4x 4.1x 74.0x 19.3x 86.3% 46.8% 12.7% 23.9% Visual Sciences (NASDAQ: VSCN) Web Analytics 4.0x 4.1x 24.8x 19.3x 55.9% 46.8% 16.3% 23.9% Median: 6.1x 42.1x 49.2% 16.3% average earnings increase of 65.1%, while that of the SEG Software Index in 2Q07. As a software companies providing networking and result, SaaS providers continued to be favored by connectivity solutions posted a median decline in investors, with markedly higher valuations on an earnings of 135.9% (See Appendix A). enterprise value to revenue basis (6.1x vs. 2.4x) and enterprise value to EBITDA basis (42.1x vs. 15.6x). Public SaaS Company Performance To enable our clients and subscribers to better U.S. Software IPOs assess SaaS market adoption and SaaS provider The software IPO market showed renewed signs financial performance, we began in our 1Q06 of life in 1H07, as six newly listed software Report to separately track the financial companies raised an aggregate $739 million performance of pure play, enterprise-focused (Figure 11). While the Street is demanding SaaS providers. The SEG SaaS Index has consistent earnings growth from established expanded from 10 to 12 public companies (Figure public software companies, investors are less 10), and will continue to expand as additional discerning when it comes to new entrants. SaaS pure plays enter the public market. In 2Q07, Although five of the six companies were SaaS providers reported median revenue growth unprofitable, only Veraz Networks failed to post a of 49.2% over the same quarter a year ago, first day closing share price higher than its markedly outpacing the overall software industry offering price. Anxiously seeking the next Google (+11.7%). Despite higher infrastructure costs and or Salesforce, investors focused squarely (some more deferred revenue than their perpetual would argue solely) on revenue growth. The license counterparts, the median EBITDA margin median next-fiscal-year (NFY) revenue growth for SaaS Index companies was 2.7% greater than estimate of the six newly public companies is a Figure 11: 1H07 Software IPOs NFY Revenue Fiscal Year Date Went Offering First Day EV / EV / Enterprise Value Growth Company End Category Public Amount Return Rev. EBITDA Estimates Comverge [NASDAQ: December Vertical - Utilities 4/13/07 $95,400,000 23.9% 13.9x N/A $470,402,400 50.4% COMV] PROS Holdings December Financial Analytics 6/28/07 $75,000,000 16.8% 6.8x 35.6x $339,641,900 N/A [NYSE: PRO] Software Salary.com Human Resource March 2/15/07 $59,850,000 19.0% 5.5x N/A $126,585,000 43.8% [NASDAQ: SLRY] Management Software Solera Holdings Vertical - Automotive June 5/11/07 $350,000,000 15.0% 3.5x 12.1x $1,560,261,900 390.0% [NYSE: SLH] Insurance Sourcefire [NASDAQ: March Security 3/9/07 $86,550,000 3.3% 4.5x N/A $212,850,000 25.9% FIRE] Veraz Networks December Networking Software 4/5/07 $72,000,000 -2.5% 2.4x N/A $257,801,400 20.7% [NASDAQ: VRAZ] MEDIAN: $80,775,000 15.9% 5.0x 23.8x $298,721,650 43.8% Average: $123,133,333 12.6% 6.1x 23.8x $494,590,433 106.2% NOTE: First day return compares listed offering price to first day close 6| 2Q07 SOFTWARE INDUSTRY EQUITY REPORT Copyright © 2007 Software Equity Group, L.L.C.
  • 8. Software Equity Group, L.L.C. Figure 12: U.S. Software IPO Pipeline Company Category Filing Date Offering Annual Net Income Amount Revenue athenahealth (NASDAQ: Vertical - Healthcare 6/22/07 $86,250,000 $75,800,000 -$9,200,000 ATHN Proposed) Software BladeLogic (NASDAQ: Data Management 4/5/07 $82,500,000 $24,600,000 -$7,200,000 BLOG Proposed) Software Constant Contact Customer Relationship 6/25/06 $86,250,000 $27,600,000 -$7,800,000 (NASDAQ: CTCT Management, Marketing Proposed) & Sales Software Deltek (NASDAQ: PROJ Project Management 5/8/07 N/A $228,000,000 $15,000,000 Proposed) Software DemandTec (NASDAQ: Demand Chain 5/24/07 $60,000,000 $43,000,000 -$2,000,000 DMAN Proposed) Management Software HireRight (NASDAQ: HIRE Human Resources 2/12/07 $66,000,000 $55,000,000 $11,000,000 Proposed) Management Software Monotype Imaging Holdings Graphics & Publishing 1/26/07 $154,000,000 $86,200,000 $7,100,000 (NASDAQ: TYPE Software Proposed) Netsuite (NASDAQ: NETS Enterprise Resource 7/2/07 N/A $77,000,000 -$20,000,000 Proposed) Planning SoundBite (NASDAQ: Messaging, 4/16/07 N/A $29,000,000 $0 SDBT Proposed) Conferencing & Communications SS&C Technologies Financial Services 6/13/07 $200,000,000 $205,000,000 $1,100,000 Holdings (NASDAQ: SSNC Software Proposed) VMware (NYSE: VMW Virtualization Software 4/26/07 $792,000,000 $703,900,000 $86,900,000 Proposed) MEDIAN: $86,250,000 $75,800,000 $0 Average: $190,875,000 $141,372,727 $6,809,091 very impressive 43.8%. Time will tell. But with the limited partners, and allay debt repayment word out, other unprofitable software companies concerns that could stymie future buyouts. are lining up to go public. Of the eleven software The largest software IPO on deck for 2H07 is IPOs that filed S1s in 1H07, only five are EMC’s spinout of VMware, which will likely be a profitable (Figure 12). blockbuster. EMC is planning to sell approximately 10% of VMware for close to $800 Several noteworthy software IPO trends are million dollars. Analysts are projecting VMware to emerging in 2007. First, SaaS companies are grow by 60% in CY07. While VMware is coming to market in greater numbers. Although unquestionably the biggest IPO in the pipeline, Salary.com was the only SaaS IPO in the first Netsuite, a Larry Ellison backed company, is the half, companies poised for public listing in 2H07 most hyped. If listed, Netsuite will be the first include SaaS providers athenahealth, Constant publicly traded SaaS ERP company and a Contact, HireRight and NetSuite. Second, several competitor to Oracle. Ellison is listed as owning public companies previously taken private by 74% of Netsuite’s common stock. leveraged buyout firms are now poised for reentry. While only two such private equity owned Public Internet Company Performance companies are currently in the IPO pipeline Though the software and (Deltek, a New Mountain Capital portfolio internet/ecommerce/Web 2.0 sectors are rapidly company, and SS&C, a Carlyle Group company), converging, clear distinctions remain between the we expect as many as a half-dozen more to file two in terms of business model, revenue model, S1s in the next twelve months, as private equity solution deployment and end user requirements. firms look to cash in, provide returns to patient We've opted for the time being to track these major categories separately to enable a more 7| 2Q07 SOFTWARE INDUSTRY EQUITY REPORT Copyright © 2007 Software Equity Group, L.L.C.
  • 9. Software Equity Group, L.L.C. Figure 13: SEG Internet Key Statistics The median trailing-twelve-month revenue SEG - Internet multiple for public internet companies was 2.2x, Measure 1Q06 2Q06 3Q06 4Q06 1Q07 2Q07 while median EV/EBITDA and EV/Earnings were EV/Revenue 1.8x 1.6x 2.2x 2.2x 2.4x 2.2x EV/EBITDA 17.9x 20.0x 17.6x 17.8x 18.9x 17.8x 17.8x and 39.9x, respectively. The median current EV/Earnings 23.7x 28.9x 26.7x 30.3x 35.8x 39.9x ratio, measured as current assets divided by Current Ratio 2.7x 2.5x 2.6x 2.2 2.5 2.3 current liabilities, an indication of a company’s Gross Profit Margin 43.4% 40.8% 48.3% 42.9% 55.1% 53.1% EBITDA Margin 16.8% 14.2% 14.6% 15.2% 15.5% 13.0% liquidity, was a healthy 2.3. While internet Net Income Margin 43.4% 8.3% 10.4% 5.9% 5.5% 3.0% companies continued to reap the benefits of Revenue Growth 29.1% 28.4% 22.0% 21.6% 9.8% 24.1% growing numbers and usage, they were required Earnings Growth 27.4% -31.8% 1.1% 10.2% -7.7% 19.7% to invest heavily in marketing and infrastructure: Median 2Q07 revenue for SEG Internet Index granular analysis of each. Broadly defined, companies increased 24.1% from 2Q06, while internet companies are primarily internet based median earnings decreased 19.7% over the same and their solutions are primarily – often period. Enterprise valuations of companies exclusively – web deployed. Our Internet Index is comprising the SEG Internet Index varied widely comprised of companies whose principal business by internet category in 2Q07, (Figure 14), with models fall within one or more of the following Internet Search Engine companies posting an categories: impressive 6.0x EV/Revenue median valuation, • Advertisers – Companies that provide key and eCommerce & Portals companies posting a elements in the internet advertising arena, such rather anemic 1.5x multiple. Internet Advertising as search marketing services, software to host companies posted the highest year-over-same and manage ads, and a network of websites that quarter revenue growth in 2Q07 (+39.9%). run ads. Representative companies include 24/7 Real Media, aQuantive and SINA. MERGERS AND ACQUISITIONS: THE NUMBERS • New media – Companies that provide online information and content. Representative Total M&A Spending and Deal Volume: The law companies include CNET, Jupiter Media, Napster of supply and demand forced buyers to dig and WebMD. deeper in 2Q07. The second quarter tally of 2,464 transactions across all industry sectors was in line • Search engines – Companies include with prior quarters, but the aggregate price tag Baidu.com, Google, Infospace, LookSmart, MIVA, increased sharply to $470.3 billion, setting the Sohu.com and Yahoo! stage for total M&A dollar volume in 2007 to surpass 2006 by 30% or more (Figure 15). While • eCommerce & portals – Companies whose some buyers and pundits might regard the trend main line of business is conducted over the web. as M&A inflation, the better explanation is Representative companies include 1-800 companies exiting today have greater value than FLOWERS.COM, Amazon.com, Bluefly, eBay and many of the underperforming companies acquired Expedia. two and three years ago for modest premiums. The 27 companies comprising the SEG Internet Software M&A Spending and Deal Volume: Index have had a much more volatile 1H07 than The North American software and IT services companies comprising the NASDAQ, S&P 500 sector was largely consistent with the activity and and SEG Software indices (Figure 2). Composite spending levels of the overall M&A market, financial performance measures for the posting 408 M&A transactions in 2Q07, slightly companies comprising the SEG Internet Index are below the 431 software and services deals enumerated in Figure 13. reported for 2Q06 (Figure 16). Aggregate M&A Figure 14: SEG Internet Categories SEG - Internet Index Category EV/Rev. EV/EBITDA Revenue Growth Earnings Growth 1Q06 2Q06 3Q06 4Q06 1Q07 2Q07 1Q06 2Q06 3Q06 4Q06 1Q07 2Q07 2Q07 (TTM) 2Q07 (TTM) Advertising 5.3x 5.1x 4.5x 4.2x 4.2x 4.4x 21.0x 22.8x 20.2x 22.6x 22.4x 19.3x 39.9% 66.5% eCommerce & Portals 1.8x 1.4x 1.3x 1.5x 1.6x 1.5x 27.8x 18.7x 15.9x 17.4x 14.9x 13.1x 24.1% -3.9% New Media 5.5x 4.3x 3.2x 3.4x 3.5x 2.2x 26.5x 22.7x 19.4x 18.6x 19.2x 27.0x 17.3% -52.4% Search Engine 4.2x 7.6x 6.1x 5.8x 6.1x 6.0x 16.1x 25.2x 20.7x 29.2x 29.0x 22.7x 23.4% 32.7% 8| 2Q07 SOFTWARE INDUSTRY EQUITY REPORT Copyright © 2007 Software Equity Group, L.L.C.
  • 10. Software Equity Group, L.L.C. Figure 15: U.S. Merger and Acquisition Activity 16,000 $1,800 $1,827B Q2: $470.3B $1,426B $1,223B 10,884 10,808 $1,500 12,000 Number of Deals Value ($ billions) $1,326B 10,884 Q2: 2892 10,198 9,278 11,123 9,514 $1,200 8,281 8,554 $1,223B 8,000 $900 $820B $452B $600 $654B 4,000 $526B $300 0 $0 1999 2000 2001 2002 2003 2004 2005 2006 2007 Deals Value Source: Mergerstat Figure 16:U.S. Software Sector Specific M&A currency in 1Q07. We believe several factors are Activity at play. Sellers have grown uncomfortable with the current valuations of public buyers following the run-up in software stock prices; and buyers 438 431 425 408 are aggressively buying back their stock to boost earnings per share and avoid investor criticism for retaining excessive cash on their balance sheets. 101 101 Private vs. Public Buyers: Despite ongoing 92 83 64 68 61 50 software industry consolidation and the resulting diminution in the number of public software Q3 2006 Q4 2006 Q1 2007 Q2 2007 company buyers, M&A deal volume has not Software Life Science Comm. dramatically declined, in large part because Source: Mergerstat private buyers took up the slack and have spending, however, increased a remarkable 108% remained active. Privately held acquirers over the same quarter last year. Software deals accounted for only 24% of all software industry fetched $25.4 billion in 2Q07, compared to a total mergers and acquisitions in 2003, but represented of $12.2 billion in 2Q06 (Figure 17). Looking at 32% of all such buyers in 2006. 2Q07 showed the trailing twelve months, software M&A further increase, with private buyers, consisting spending is up 67% year-over-year due, in part, to several mega-deals (equity value greater than $1 Figure 17: U.S. Software M&A by Dollar Volume $30.5B billion) in 1H07, including aQuantive, DoubleClick, WebEx, Talx and Kronos (See Appendix B). $25.5B $26.3B $25.4B Deal Currency: Cash has long been favored over stock as software M&A deal currency, and 2Q07 showed an even greater preference for hard cash (Figure 18). All-cash deals represented 82% of software transactions in 2Q07, compared to 71% of software M&A transactions in 2Q06 and 68% in 1Q07. Only 19% of software M&A deals used all- Q3 2006 Q4 2006 Q1 2007 Q2 2007 stock or cash and stock in 2Q07, a marked Source: Mergerstat change from the 32% of deals that used stock as 9| 2Q07 SOFTWARE INDUSTRY EQUITY REPORT Copyright © 2007 Software Equity Group, L.L.C.
  • 11. Software Equity Group, L.L.C. Figure 18: Software M&A – Form of Payment Figure 19: U.S. Public vs Private Software M&A 2% 13% 8% Buyers and Sellers 5% 16% 28% 11% Percentage of Software Buyers 27% 35% 37% 20% 37% 82% 81% 68% 67% 72% 65% 63% 63% Q3 2006 Q4 2006 Q1 2007 Q2 2007 Cash Cash & Stock Stock Q3 2006 Q4 2006 Q1 2007 Q2 2007 Private Public primarily of venture backed and private equity owned companies, accounting for a whopping 37% of all software M&A transactions (Figure 19). Percentage of Software Sellers We fully expect the volume and percentage of private buyer transactions in 2007, led by private equity/buyout firms, will surpass 2006. 89% 89% 89% 90% M&A Valuations: Software industry M&A valuations in 1H07 held few surprises. Across all software product categories, the median exit valuation (based on TTM revenue and the seller’s 11% 11% 11% 10% equity value) was 2.3x in 2Q07, on par with 1Q07 (2.3x) and 2Q06 (2.3x) (Figure 20). We expect no valuation surprises for the remainder of 2007, and Q3 2006 Q4 2006 Q1 2007 Q2 2007 predict median software industry M&A valuations Private Public will be consistent with the past two years. Once again, however, we caution our readers about significant that public and private sellers traded using the median deal multiple to assess the fair places in 1H07. Public company sellers, market or prospective exit valuation of a particular accounting for 37% of all software M&A software company. transactions over 1H07, had a median exit valuation of 3.0x TTM revenue. During the same Size, status and subsector continue to be key time period, private company sellers accounted determinants of software company exit valuations for 63% of all transactions and commanded a (Figure 22). For software M&A transactions substantially lower median selling price of 2.1x during the last twelve months with ascertainable TTM revenue. In our 2006 Annual Report we revenue multiples, we separately analyzed the observed quite the opposite phenomenon: public effect on valuation of equity structure (private vs. sellers garnered a modest 2.1x TTM revenue public company), size (revenue) of buyer and multiple while private sellers received a far more seller, and software product category. The impressive 2.7x multiple during 2006. What exercise proved highly instructive. changed? Undervalued public software companies with stagnant growth and significant As a first step, we separated public and private recurring revenue have been picked clean, forcing software company sellers to ascertain any acquirers of publicly traded software companies to difference in selling price. As in past years, the loosen their purse strings in 2007 as they bid for disparity between the two in terms of median exit companies with higher CAGRs and market caps. valuation was significant, but it was more Increased debt leverage also helped jack-up public software company prices in 1H07. 10| 2Q07 SOFTWARE INDUSTRY EQUITY REPORT Copyright © 2007 Software Equity Group, L.L.C.
  • 12. Software Equity Group, L.L.C. M&A Exit Valuations by Software Category: Figure 20: U.S. Software M&A Valuation as a Despite these myriad exit valuation variables, Multiple of Revenue (Quarterly) Figure 23 reminds us the seller’s software product category is the single most important M&A valuation driver. Exit valuations over the last 2.7x twelve months ranged from 4.6x for messaging 2.3x 2.3x software sellers to 1.3x for supply chain 1.9x management providers. Security still ranks near the top of the exit valuation chart, along with web analytics, database tools and file management. SaaS M&A: In today’s software M&A market, no discussion of exit valuation would be complete without an analysis of pure play SaaS company Q3 2006 Q4 2006 Q1 2007 Q2 2007 exits. Buyers today are placing inordinately high value on the recurring revenue streams, bookings, Additionally, we sliced 1H07’s TTM median and profitability potential of SaaS providers. software M&A multiple horizontally and vertically, Figure 24 lists 1H07’s most notable SaaS M&A segregating vertical market software company transactions. sellers (e.g. retail, financial services, telecom, manufacturing, etc.) from sellers with horizontal software solutions (infrastructure, enterprise MERGERS AND ACQUISITIONS: BUYER MOTIVES applications, etc.). Vertical market solution providers received a median 2.1x TTM revenue Product Enhancement: While software industry exit valuation, while horizontal solution providers buyouts and mega deals have grabbed the lion’s commanded a median 2.4x valuation. Historically, share of the press, the data reveals most software median exit valuations have been 25% to 33% M&A transactions in 1H07 were far more strategic higher for horizontal solution providers than than financial. An analysis of some 185 software vertical solution providers. Clearly, 2007 transactions in 2Q07 indicates six out of ten continues to be a banner M&A year for vertical buyers acquired “tuck-ins.” Their appetites market software companies, another recent trend whetted by an insatiable appetite for growth, we expect to continue. market leverage and competitive differentiation, they purchased smaller companies with We also separated public and private software complementary solutions and enabling company buyers to ascertain any difference in exit technologies in an attempt to complete and valuation paid. In transactions where an exit extend the functionality of their product suites. valuation multiple was ascertainable, private Buyers of every type aggressively pursued these buyers (both strategic and private equity), strategic transactions, which we characterize as comprised 16% of all software company acquirers “Product Enhancements,” including the largest and paid a median M&A price of 2.2x TTM. By public software companies; mid-cap public contrast, public companies comprised 84% of all software companies taken private by buyout firms; software company buyers and paid a median and smaller VC-backed or small-cap software purchase price of 2.5x TTM. companies seek greater viability and growth. Finally, we analyzed TTM exit valuations based Product Enhancement deals, as a percentage of upon the size (revenue) of buyer and seller. As in total software M&A transactions, have grown prior years, buyer size was a key determinant of steadily over the past two years, comprising 56% exit valuation. Buyers with revenue greater than in 2H06 (Figure 25), 57% in 1Q07 and 59% of $200 million paid a median purchase price of 2.6x 2Q07 software transactions. A typical example in seller’s TTM revenue over the last twelve months; 2Q07 is Microsoft’s acquisition of aQuantive while buyers with less than $200 million revenue (12.2x TTM revnue) to stave off fierce competition paid a median 1.7x TTM revenue. and gain a better foothold in the high growth internet advertising category. Other Product 11| 2Q07 SOFTWARE INDUSTRY EQUITY REPORT Copyright © 2007 Software Equity Group, L.L.C.
  • 13. Software Equity Group, L.L.C. Figure 22: 1H06 Median Valuations Figure 22 Cont.: 1H07 Median Valuations Public Sellers Public Sellers 2.0x Median Multiple 3.0x Median Multiple (Equity Value) (Equity Value) Almost exact reversal 37% 22% in valuations 78% 63% Private Sellers Private Sellers 3.0x Median Multiple 2.1x Median Multiple (Equity Value) (Equity Value) Vertical Seller Vertical Seller 2.5x Median Multiple 2.1x Median Multiple (Equity Value) (Equity Value) 26% 33% 74% 67% Horizontal Seller Horizontal Seller 2.7x Median Multiple 2.4x Median Multiple (Equity Value) (Equity Value) Private Buyers Private Buyers 2.1x Median Multiple 2.2x Median Multiple (Equity Value) (Equity Value) 16% 84% Public Buyers Public Buyers 2.8x Median Multiple 2.5x Median Multiple (Equity Value) (Equity Value) Buyer Less Than Buyer Greater Buyer Less Than Buyer Greater $200 million Than $200 million $200 million Than $200 million 1.6x Median 3.2x Median 1.7x Median 2.6x Median Multiple (Equity Multiple (Equity Multiple (Equity Multiple (Equity Value) Value) Value) Value) 41% 59% Seller Greater Seller Greater Seller Greater Seller Greater Than $20 Than $20 Than $20 Than $20 Million*: 1.1x Million*: 2.7x Million*: 1.5x Million*: 2.1x Seller Less Seller Less Seller Less Seller Less Than $20 Than $20 Than $20 Than $20 Million*: 1.7x Million*: 4.5x Million*: 1.7x Million*: 3.3x *: Revenue *: Revenue 12| 2Q07 SOFTWARE INDUSTRY EQUITY REPORT Copyright © 2007 Software Equity Group, L.L.C.
  • 14. Software Equity Group, L.L.C. Figure 23: U.S. Software M&A by Product Enhancement transactions in 2Q07 include Category Tibco’s acquisition of Spotfire (4.3x), a business intelligence software provider; SAP’s acquisition Messaging, Conferencing & of Outlook Corporation to enhance its business 4.6x Communications intelligence capabilities; and PTC’s purchase of NC Graphics for enhanced computer-aided Security 4.0x manufacturing capabilities. We fully expect Product Extension deals will Web Analytics 3.8x continue to dominate the software M&A landscape for the remainder of 2007. Database & File Management 3.4x New Market/Subsector/Territory: The buyers in transactions we characterize as “Market Networking & Connectivity 2.7x Expansion” are primarily motivated by a perceived need to enter an entirely new product category or geographical territory. Market expansion Education & Computer Based Training 2.6x transactions also include horizontal enterprise software company buyers seeking to enter a vertical market or bolster their vertical domain Business Intelligence 2.5x expertise through vertical acquisition. This M&A driver category is still a minor contributor to Engineering, PLM & CAD/CAM 2.2x overall software M&A activity, accounting for 2% Software of transactions in 2Q07, down from 4% in 1Q07. A good example: Illinois Tool Works, a $14.5 billion Other Verticals (A&D, Telco, Retail, etc.) 2.2x provider of tools (nail guns, industrial adhesives, etc.), made its second foray into software by acquiring Kiwiplan. Another market expansion HR & Workforce Management 2.2x buyer was Constellation Software, a publicly traded Canadian software company that acquired Healthcare 2.1x Grampian, a software provider to the U.K. distillery industry. Development Tools, IT Asset Management & Application Testing 2.1x Vertical Markets: This category consists of vertical Software software companies that acquire other vertical software developers serving the same vertical Wireless 2.0x markets. Seeking to gain market share and cross- sell opportunities, these vertical buyers accounted Content/Document Management 1.9x for 32% of all software M&A transactions in 2Q07, down slightly from 35% in 1Q07. Healthcare has historically been the most active M&A vertical Manufacturing & Asset Management 1.9x market category, but 1H07 saw an uncharacteristic decline in healthcare deals. The financial services vertical, however, was Financial Services Software 1.8x especially active throughout the first-half of the year. Noteworthy financial services deals include Multimedia, Graphics, Digital Media Open Solution’s acquisition of IA Systems and 1.7x Fincentric, Checkfree’s acquisition of Upstream, and JP Morgan’s acquisition of Xign. Other Supply Chain Management & Logistics 1.3x vertical market software transactions in 2Q07 included Pearson’s acquisition of eCollege (9.8x) in the education vertical, DealerTrak’s acquisition of automotive software provider Arkona (4.6x), 13| 2Q07 SOFTWARE INDUSTRY EQUITY REPORT Copyright © 2007 Software Equity Group, L.L.C.
  • 15. Software Equity Group, L.L.C. Figure 24: 1H07 Select SaaS M&A Transactions Revenue Buyer Seller Purchase Price Seller Revenue Multiple Cisco Systems WebEx (Nasdaq: WEBX) $ 3,200,000,000 $ 380,010,000 8.4x Equifax TALX (Nasdaq: TALX) $ 1,400,000,000 $ 256,830,000 5.5x Pearson eCollege {NASDAQ:ECLG] $ 538,000,000 $ 54,880,000 9.8x Websense Surfcontrol [LSE:SRF] $ 400,000,000 $ 121,400,000 3.3x Experian Hitwise $ 240,000,000 $ 40,000,000 6.0x Infor Workbrain [WB.TO] $ 199,980,000 $ 96,509,000 2.1x Dealertrak Holdings Arkona [OTC:ARKN] $ 58,900,000 $ 12,760,000 4.6x Omniture Touch Clarity $ 51,500,000 - - Dealertrak Holdings Curomax $ 35,700,000 $ 10,200,000 3.5x UCN ScheduleQ $ 689,590 $ 100,000 6.9x Sungard Data Systems Aceva Technologies - $ 9,700,000 - Adobe Scene7 - - - Cognos Celequest - - - Convio GetActive - - - IBM Watchfire - - - JP Morgan Xign - - - Omniture Instadia - - - Server Intellect ValiantHost - - - Streamezzo Kamayo - - - Sungard Data Systems Aspiren - - - TouchStone Software DriverMagic.com - - - Turning Technologies Totus - - - Vurv Technology People Business Network - - - MEDIAN: 5.5x and Premier’s acquisition of CareScience (2.3x) in notable consolidation play in 2Q07 was the healthcare vertical. Websense’s $400 million acquisition of SurfControl in the content filtering space, and Product Category Consolidation: While certain Microfocus’ acquisition of Acucorp in the industry pundits continue to hype the application modernization tools category. consolidation wave sweeping the software sector, acquisitions of competitors by their software Investment Acquisitions: Although some 37% of company rivals to gain market share and 1Q07’s total software M&A transactions were by eliminate direct competition accounted for only private buyers, most were venture-backed private 3% of 2Q07 software deals, up from 1% in 1Q07 software companies spending VC and private but down from a 4% average for 2H06. The most equity investor cash. However, 4% of software M&A transactions in 2Q07 were direct buyouts by Figure 25: U.S. Software M&A Drivers VCs and private equity firms that continue to have endless supplies of acquisition cash for 4% companies they can heavily leverage. The most notable of these investment acquisitions in 2Q07 was Battery’s announced $137 million acquisition 32% of Quovadx, developer of technology integration software predominantly for healthcare and 59% financial services customers. SOFTWARE INDUSTRY PRIVATE EQUITY 3% Private equity firms raised more than $260 billion 2% dollars during the past two years, and are hard at Product Enhancement Market Expansion work spending it. Private equity buyers accounted Product Category Consolidation Vertical Consolidation for approximately 25% of all M&A dollars in 2006, Investment Opportunity 14| 2Q07 SOFTWARE INDUSTRY EQUITY REPORT Copyright © 2007 Software Equity Group, L.L.C.
  • 16. Software Equity Group, L.L.C. Figure 26: Private Equity’s Total Amount of $22 billion in loans and bonds until September. Uninvested Cash on Hand ($ Billions) Kohlberg Kravis, one of the largest private equity firms, has seen at least six deals delayed, $302 modified or canceled in the past month due to fluctuating credit markets. $227 Since 2002, private equity software buyouts of software companies have increased 1,940 $136 percent, dwarfing traditional venture capital (Figure 27). These LBOs have been driven, in $84 large part, by banks’ willingness to regard $59 recurring maintenance and support revenue as adequate collateral, enabling private equity firms to obtain the necessary leverage to aggressively 2002 2003 2004 2005 2006 pursue software company buy-outs and Source: Goldman Sachs recapitalizations. The degree of debt leverage for these software transactions has continually and a whopping 40% in 1Q07 – a new record. increased, rising from 3.9x trailing twelve months According to Goldman Sachs, buyout shops have EBITDA in 2002 to 5.1x TTM EBITDA in 2006 approximately $300 billion of unvested cash on (Figure 28). Recently, we’ve encountered LBO hand (Figure 26), equating to $1.3 trillion of transactions with debt leverage at greater than investing power assuming current debt leverage 7.0x TTM EBITDA. Should the recent changes in norms. Those norms, however, are about to the debt markets continue, we expect to see a change, and that does not portend well for private significant decline in highly leveraged software equity firms. industry mega-deals in 2H07. Debt investors have recently begun to pull back Figure 28: Lending Amounts as a Multiple of after seeing a drastic decline in market demand EBITDA for bonds backed by US sub prime-mortgages 6.0x Lending Amounts as a Multiple of EBITDA and the high yield bonds that fuel private equity. 5.0x 5.1x The result, risk-averse debt investors are 4.6x 4.1x demanding better terms and rates for high-yield 4.0x 3.9x loans and bonds, the fuel for leveraged buyouts. According to Standard & Poors, an estimated $235 billion in loans are waiting to be sold, nearly 2.0x all for LBOs. First Data has delayed its sale of Figure 27: Dollars Invested by Private Equity 0.0x Buyout Firms in Software Compared to Other 2002 2003 2004 2005 2006 Venture Capital Source: Standard & Poors LCD; Data as of 4Q06 2100% Private Equity Dollars By Stage of Development 1825% 1550% 1275% 1000% 725% 450% 175% -100% 2002 2003 2004 2005 2006 Startup/Seed Early Stage Expansion Later Stage Buyout Source: PWC/NVCA, SEG 15| 2Q07 S INDUSTRY EQUITY REPORT OFTWARE Copyright © 2007 Software Equity Group, L.L.C.
  • 17. Software Equity Group, L.L.C. APPENDIX A: 2Q07 PUBLIC MARKET VALUATIONS AND STATISTICS BY PRODUCT CATEGORY Accounting & Finance 2Q07 1Q07 Database & File Management 2Q07 1Q07 Current Ratio 1.2 1.2 Current Ratio 2.0 2.2 EBITDA Margin 26.3% 30.4% EBITDA Margin 24.5% 21.3% Gross Profit Margin 65.9% 60.5% Gross Profit Margin 74.5% 81.8% Net Income Margin 16.6% 15.9% Net Income Margin 12.4% 11.0% TTM Earnings Growth (YoY) 16.6% -1.9% TTM Earnings Growth (YoY) 21.6% 21.0% TTM Revenue Growth (YoY) 17.9% 15.4% TTM Revenue Growth (YoY) 2.3% 4.6% TTM EBITDA Growth (YoY) 16.0% 21.5% TTM EBITDA Growth (YoY) 14.4% 26.3% Cash as Percent of Market Cap 13.8% 11.1% Cash as Percent of Market Cap 19.2% 24.5% Enterprise Value Growth (YoY) 19.1% 10.8% Enterprise Value Growth (YoY) 17.8% -6.4% EV/Revenue 4.3x 3.8x EV/Revenue 3.1x 2.6x EV/EBITDA 16.9x 14.4x EV/EBITDA 12.0x 9.3x EV/Earnings 21.8x 21.2x EV/Earnings 24.4x 20.3x Billing & Service Provisioning 2Q07 1Q07 Development Tools, Operating Systems & App Testing 2Q07 1Q07 Current Ratio 3.0 2.8 Current Ratio 2.0 1.7 EBITDA Margin 20.0% 21.5% EBITDA Margin 4.1% 2.2% Gross Profit Margin 47.9% 45.7% Gross Profit Margin 73.9% 73.2% Net Income Margin 7.9% 7.7% Net Income Margin 0.6% -2.9% TTM Earnings Growth (YoY) 19.7% 16.6% TTM Earnings Growth (YoY) -0.6% -8.7% TTM Revenue Growth (YoY) 6.7% 18.1% TTM Revenue Growth (YoY) 11.3% 10.1% TTM EBITDA Growth (YoY) -2.2% 4.0% TTM EBITDA Growth (YoY) -0.1% -0.6% Cash as Percent of Market Cap 43.2% 40.3% Cash as Percent of Market Cap 20.4% 20.2% Enterprise Value Growth (YoY) 8.3% -16.2% Enterprise Value Growth (YoY) 20.8% 6.0% EV/Revenue 1.7x 1.8x EV/Revenue 2.5x 2.0x EV/EBITDA 9.4x 7.4x EV/EBITDA 26.3x 22.1x EV/Earnings 19.0x 15.2x EV/Earnings 32.6x 31.3x Business Intelligence 2Q07 1Q07 eCommerce - Software 2Q07 1Q07 Current Ratio 1.7 1.6 Current Ratio 2.2 2.1 EBITDA Margin 16.5% 13.6% EBITDA Margin 11.9% 12.2% Gross Profit Margin 75.7% 76.6% Gross Profit Margin 68.2% 67.2% Net Income Margin 6.4% 5.9% Net Income Margin 11.6% 14.8% TTM Earnings Growth (YoY) 1.6% -18.3% TTM Earnings Growth (YoY) 3.4% 61.9% TTM Revenue Growth (YoY) 13.9% 10.8% TTM Revenue Growth (YoY) -5.2% 1.4% TTM EBITDA Growth (YoY) 19.8% -2.1% TTM EBITDA Growth (YoY) -13.2% 14.7% Cash as Percent of Market Cap 18.7% 18.4% Cash as Percent of Market Cap 12.9% 13.9% Enterprise Value Growth (YoY) 16.1% 3.2% Enterprise Value Growth (YoY) 11.7% -35.9% EV/Revenue 2.3x 2.0x EV/Revenue 2.3x 1.0x EV/EBITDA 15.6x 15.8x EV/EBITDA 14.6x 13.3x EV/Earnings 25.6x 21.1x EV/Earnings 14.2x 11.2x Content & Document Management 2Q07 1Q07 Education & Computer Based Training 2Q07 1Q07 Current Ratio 2.0 2.0 Current Ratio 1.0 1.1 EBITDA Margin 12.4% 10.3% EBITDA Margin 7.9% 10.1% Gross Profit Margin 67.3% 69.9% Gross Profit Margin 63.5% 69.6% Net Income Margin 3.9% 3.6% Net Income Margin -4.5% -5.9% TTM Earnings Growth (YoY) -9.7% 88.6% TTM Earnings Growth (YoY) -54.8% -50.4% TTM Revenue Growth (YoY) 7.5% 8.9% TTM Revenue Growth (YoY) 10.8% 1.7% TTM EBITDA Growth (YoY) 21.9% 31.6% TTM EBITDA Growth (YoY) 19.5% -40.5% Cash as Percent of Market Cap 23.9% 23.2% Cash as Percent of Market Cap 8.1% 7.5% Enterprise Value Growth (YoY) 31.5% 8.9% Enterprise Value Growth (YoY) 3.3% 11.7% EV/Revenue 1.7x 1.7x EV/Revenue 2.5x 2.2x EV/EBITDA 15.3x 17.5x EV/EBITDA 27.9x 34.4x EV/Earnings 30.0x 32.8x EV/Earnings 44.4x 39.3x Customer Relationship Management 2Q07 1Q07 Electronic Design Automation 2Q07 1Q07 Current Ratio 1.5 1.6 Current Ratio 2.2 1.4 EBITDA Margin 10.1% 10.1% EBITDA Margin 16.2% 18.6% Gross Profit Margin 66.7% 66.0% Gross Profit Margin 79.4% 80.8% Net Income Margin 0.8% -1.0% Net Income Margin 5.6% 3.8% TTM Earnings Growth (YoY) -20.1% -46.6% TTM Earnings Growth (YoY) 39.8% -17.9% TTM Revenue Growth (YoY) 19.3% 19.6% TTM Revenue Growth (YoY) 9.6% 10.7% TTM EBITDA Growth (YoY) 14.9% 9.5% TTM EBITDA Growth (YoY) -2.8% 14.0% Cash as Percent of Market Cap 13.1% 14.7% Cash as Percent of Market Cap 12.9% 15.3% Enterprise Value Growth (YoY) 41.0% 14.6% Enterprise Value Growth (YoY) 32.5% 19.7% EV/Revenue 3.2x 2.4x EV/Revenue 3.2x 3.0x EV/EBITDA 33.2x 17.7x EV/EBITDA 24.2x 13.9x EV/Earnings 47.9x 105.0x EV/Earnings 37.2x 49.0x 16| 2Q07 SOFTWARE INDUSTRY EQUITY REPORT Copyright © 2007 Software Equity Group, L.L.C.
  • 18. Software Equity Group, L.L.C. APPENDIX A: 2Q07 PUBLIC MARKET VALUATIONS AND STATISTICS BY PRODUCT CATEGORY (CONTINUED) Engineering, PLM & CAD/CAM Software 2Q07 1Q07 Healthcare 2Q07 1Q07 Current Ratio 2.3 1.5 Current Ratio 2.4 2.4 EBITDA Margin 19.9% 19.2% EBITDA Margin 17.4% 16.4% Gross Profit Margin 72.6% 73.8% Gross Profit Margin 55.9% 54.2% Net Income Margin 7.6% 5.2% Net Income Margin 8.4% 7.3% TTM Earnings Growth (YoY) 5.4% -6.6% TTM Earnings Growth (YoY) 65.1% 32.8% TTM Revenue Growth (YoY) 11.5% 10.7% TTM Revenue Growth (YoY) 13.2% 19.0% TTM EBITDA Growth (YoY) 26.2% 24.0% TTM EBITDA Growth (YoY) 51.5% 48.5% Cash as Percent of Market Cap 10.6% 9.8% Cash as Percent of Market Cap 12.9% 12.8% Enterprise Value Growth (YoY) 18.6% 19.0% Enterprise Value Growth (YoY) 21.1% 6.0% EV/Revenue 3.2x 2.9x EV/Revenue 2.8x 2.6x EV/EBITDA 17.5x 14.2x EV/EBITDA 14.3x 14.7x EV/Earnings 27.9x 32.2x EV/Earnings 41.8x 39.3x Enterprise Application Integration 2Q07 1Q07 HR & Workforce Management 2Q07 1Q07 Current Ratio 1.8 2.0 Current Ratio 2.1 2.2 EBITDA Margin 18.7% 15.2% EBITDA Margin 14.6% 10.4% Gross Profit Margin 72.5% 71.3% Gross Profit Margin 56.7% 57.0% Net Income Margin 5.3% 6.1% Net Income Margin 5.5% 3.5% TTM Earnings Growth (YoY) 8.9% 11.1% TTM Earnings Growth (YoY) 51.2% 24.5% TTM Revenue Growth (YoY) 12.2% 8.3% TTM Revenue Growth (YoY) 31.4% 22.1% TTM EBITDA Growth (YoY) 20.1% 16.9% TTM EBITDA Growth (YoY) 52.3% 40.8% Cash as Percent of Market Cap 24.6% 27.8% Cash as Percent of Market Cap 12.6% 10.8% Enterprise Value Growth (YoY) 18.8% 4.2% Enterprise Value Growth (YoY) 60.0% 7.8% EV/Revenue 2.2x 2.0x EV/Revenue 3.5x 2.7x EV/EBITDA 11.4x 13.7x EV/EBITDA 25.8x 20.9x EV/Earnings 23.7x 25.2x EV/Earnings 29.0x 32.6x Enterprise Resource Planning 2Q07 1Q07 Messaging, Conferencing & Communications 2Q07 1Q07 Current Ratio 1.5 1.5 Current Ratio 1.5 1.5 EBITDA Margin 8.8% 8.8% EBITDA Margin 6.5% 8.2% Gross Profit Margin 49.8% 50.3% Gross Profit Margin 53.6% 55.2% Net Income Margin 2.2% 3.1% Net Income Margin -7.1% -2.8% TTM Earnings Growth (YoY) -65.7% -60.6% TTM Earnings Growth (YoY) 9.0% -16.6% TTM Revenue Growth (YoY) 14.8% 10.4% TTM Revenue Growth (YoY) 16.7% 17.2% TTM EBITDA Growth (YoY) -8.5% 3.0% TTM EBITDA Growth (YoY) 58.6% 32.8% Cash as Percent of Market Cap 15.7% 17.2% Cash as Percent of Market Cap 17.5% 15.8% Enterprise Value Growth (YoY) 21.1% 12.5% Enterprise Value Growth (YoY) 22.9% 9.7% EV/Revenue 2.1x 2.2x EV/Revenue 1.3x 1.8x EV/EBITDA 13.9x 16.3x EV/EBITDA 14.1x 15.5x EV/Earnings 35.9x 26.4x EV/Earnings 33.6x 28.2x Entertainment 2Q07 1Q07 Networking & Connectivity 2Q07 1Q07 Current Ratio 2.7 2.3 Current Ratio 2.6 2.7 EBITDA Margin 10.9% 13.3% EBITDA Margin 4.7% 5.9% Gross Profit Margin 33.9% 35.6% Gross Profit Margin 73.6% 73.6% Net Income Margin -3.4% -1.7% Net Income Margin -0.9% -0.9% TTM Earnings Growth (YoY) 48.8% 26.0% TTM Earnings Growth (YoY) -135.9% 23.2% TTM Revenue Growth (YoY) 3.7% 8.9% TTM Revenue Growth (YoY) 4.5% 8.3% TTM EBITDA Growth (YoY) 32.7% 25.7% TTM EBITDA Growth (YoY) -8.2% -7.9% Cash as Percent of Market Cap 12.7% 11.5% Cash as Percent of Market Cap 24.5% 24.8% Enterprise Value Growth (YoY) 12.4% 18.0% Enterprise Value Growth (YoY) -20.4% -17.3% EV/Revenue 1.6x 1.6x EV/Revenue 1.5x 1.6x EV/EBITDA 13.1x 13.3x EV/EBITDA 13.8x 16.2x EV/Earnings 27.7x 34.1x EV/Earnings 21.0x 26.7x Financial Services Software 2Q07 1Q07 Security 2Q07 1Q07 Current Ratio 1.3 1.3 Current Ratio 2.0 2.1 EBITDA Margin 19.9% 17.1% EBITDA Margin 13.8% 12.2% Gross Profit Margin 54.8% 52.8% Gross Profit Margin 67.9% 66.0% Net Income Margin 11.1% 7.1% Net Income Margin 5.6% 7.3% TTM Earnings Growth (YoY) 34.4% 21.3% TTM Earnings Growth (YoY) -3.0% 1.7% TTM Revenue Growth (YoY) 11.7% 9.6% TTM Revenue Growth (YoY) 16.2% 14.8% TTM EBITDA Growth (YoY) 14.6% 13.9% TTM EBITDA Growth (YoY) 0.5% 7.5% Cash as Percent of Market Cap 9.1% 8.4% Cash as Percent of Market Cap 17.1% 19.5% Enterprise Value Growth (YoY) 25.5% 27.0% Enterprise Value Growth (YoY) 19.8% 1.1% EV/Revenue 2.7x 2.6x EV/Revenue 3.2x 3.2x EV/EBITDA 13.1x 13.5x EV/EBITDA 14.6x 15.4x EV/Earnings 22.6x 21.7x EV/Earnings 27.6x 24.2x 17| 2Q07 SOFTWARE INDUSTRY EQUITY REPORT Copyright © 2007 Software Equity Group, L.L.C.
  • 19. Software Equity Group, L.L.C. APPENDIX A: 2Q07 PUBLIC MARKET VALUATIONS AND STATISTICS BY PRODUCT CATEGORY (CONTINUED) Storage & Systems Management Software 2Q07 1Q07 Current Ratio 1.7 1.7 EBITDA Margin 19.7% 20.4% Gross Profit Margin 70.7% 63.2% Net Income Margin 7.8% 8.9% TTM Earnings Growth (YoY) 11.2% 2.4% TTM Revenue Growth (YoY) 20.9% 15.5% TTM EBITDA Growth (YoY) 25.6% 26.7% Cash as Percent of Market Cap 11.7% 11.7% Enterprise Value Growth (YoY) 16.5% 9.1% EV/Revenue 3.6x 3.7x EV/EBITDA 14.0x 14.4x EV/Earnings 25.5x 26.6x Supply Chain Management & Logistics 2Q07 1Q07 Current Ratio 1.8 1.8 EBITDA Margin 6.2% 6.5% Gross Profit Margin 56.6% 59.6% Net Income Margin -0.1% 0.6% TTM Earnings Growth (YoY) 3.2% 33.4% TTM Revenue Growth (YoY) 7.2% 6.3% TTM EBITDA Growth (YoY) 32.0% 15.7% Cash as Percent of Market Cap 23.9% 21.7% Enterprise Value Growth (YoY) 30.7% -0.5% EV/Revenue 1.9x 1.6x EV/EBITDA 13.3x 13.0x EV/Earnings 24.1x 24.3x Web Analytics 2Q07 1Q07 Current Ratio 2.1 2.3 EBITDA Margin 23.9% 22.8% Gross Profit Margin 65.4% 71.9% Net Income Margin 7.9% 6.2% TTM Earnings Growth (YoY) -0.3% 109.5% TTM Revenue Growth (YoY) 46.8% 20.3% TTM EBITDA Growth (YoY) 33.2% 32.0% Cash as Percent of Market Cap 10.9% 21.5% Enterprise Value Growth (YoY) 19.6% 10.3% EV/Revenue 4.1x 4.2x EV/EBITDA 19.3x 16.7x EV/Earnings 35.6x 33.9x Wireless 2Q07 1Q07 Current Ratio 6.2 5.8 EBITDA Margin 14.0% 13.7% Gross Profit Margin 53.6% 53.8% Net Income Margin 1.9% 0.6% TTM Earnings Growth (YoY) -54.0% -12.4% TTM Revenue Growth (YoY) 11.9% 11.9% TTM EBITDA Growth (YoY) 38.2% 10.1% Cash as Percent of Market Cap 29.7% 31.7% Enterprise Value Growth (YoY) -19.8% -8.3% EV/Revenue 1.6x 1.8x EV/EBITDA 12.9x 10.6x EV/Earnings 41.4x 21.7x 18| 2Q07 SOFTWARE INDUSTRY EQUITY REPORT Copyright © 2007 Software Equity Group, L.L.C.
  • 20. Software Equity Group, L.L.C. APPENDIX B: 2Q07 MERGERS AND ACQUISITIONS, SELECT PUBLIC SELLER VALUATIONS Quarterly Revenue Buyer Seller Purchase Price Enterprise Value PP/R EV/R EV/EBITDA Growth (YoY) Allen Systems Group Mobius Management Systems [NASDAQ:MOBI] $ 211,000,000 $ 160,897,000 2.4x 1.8x N/A N/A Battery Ventures Quovadx [NASDAQ:QVDX] $ 136,700,000 $ 106,280,000 1.6x 1.3x 15.2x 4.5% Captaris [NASDAQ:CAPA] Castelle [NASDAQ:CSTL] $ 18,200,000 $ 9,410,000 1.7x 0.9x 10.7x -4.5% DealerTrack [NASDAQ:TRAK] Arkona [OTC:ARKN] $ 58,900,000 $ 58,162,280 4.6x 4.6x 40.7x 30.4% Henry Schein [NASDAQ:HSIC] Software of Excellence [NZX:SOE] $ 58,000,000 $ 57,713,000 3.0x 3.0x N/A N/A IBM [NYSE:IBM] Telelogic [Nordic Exchange:TLOG] $ 745,000,000 $ 733,800,000 3.1x 3.1x 15.3x 19.0% Infor Workbrain [WB.TO] $ 199,980,000 $ 180,750,000 2.1x 1.9x N/A N/A Invensys [OTC: IVNSY] Cimnet [OTC:CIMK] $ 24,000,000 $ 24,471,550 4.3x 4.4x 29.6x 23.0% Microsoft [NASDAQ:MSFT] aQuantive [NASDAQ:AQNT] $ 6,000,000,000 $ 5,783,290,000 12.2x 11.7x 44.4x 54.7% Motorola [NYSE:MOT] Terayon [PINKSHEETS:TERN.PK] $ 140,000,000 $ 178,200,000 2.1x 2.6x N/A N/A Oracle [NASDAQ:ORCL] Agile Software [NASDAQ:AGIL] $ 495,000,000 $ 330,560,000 3.8x 2.5x N/A 1.2% Pearson Education eCollege.com [NASDAQ: ECLG] $ 538,000,000 $ 529,912,000 9.8x 9.7x 23.0x 23.2% Software AG [FRANKFORT:SOW] WebMethods [NASDAQ:WEBM] $ 546,000,000 $ 468,790,000 2.6x 2.2x 52.4x 1.1% Software Solutions Partners Sirius Financial Solutions [LSE:SIR] $ 86,800,000 $ 77,014,000 1.1x 1.0x 3.9x 9.0% Symphony Technology Group Aldata Solutions [HELSINKI:ALD] $ 167,152,000 $ 157,632,000 1.4x 1.3x 35.7x -18.8% Ericsson [NASDAQ:ERIC] LHS [XETRA:LHS] $ 441,400,000 $ 418,900,000 4.6x 4.3x 5.9x 54.0% Websense [NASDAQ:WBSN] SurfControl [LSE:SRF] $ 400,000,000 $ 358,917,000 3.3x 3.0x 51.5x N/A Median: 3.0x 2.6x 26.3x 14.0% 19| 2Q07 SOFTWARE INDUSTRY EQUITY REPORT Copyright © 2007 Software Equity Group, L.L.C.
  • 21. Software Equity Group, L.L.C. APPENDIX C: MERGERS AND ACQUISITIONS, MOST ACTIVE BUYERS Purchase Company Seller Price Autodesk NavisWorks $25,000,000 Opticore Birdstep Technology Service Factory $16,777,500 Segco Software $12,512,000 Broadcom Global Locate $146,000,000 Octalica $31,000,000 Business Objects Cartesis S.A. $300,000,000 Inxight $100,000,000 Chinadotcom Optic Saratoga Systems Syndmail Vectra Divestco i Land Data Spectrum Seismic Processing Experian Group Hitwise $240,000,000 Tallyman Collections Business Informarketing Fox Interactive Media Flektor Photobucket Google DoubleClick $3,100,000,000 GreenBorder Security Marratech Panoramio Peakstream Telelogic [Nordic IBM Exchange:TLOG] $745,000,000 Watchfire Infor Workbrain [WB.TO] $199,980,000 Hansen $100,000,000 Intelligentias DATAKOM Systeam Italy Leica Geosystems Geospatial Imaging Acquis Earth Resource Mapping Ionic Software Microsoft aQuantive [NASDAQ:AQNT] $6,000,000,000 Engyro Stratature ScreenTonic Terayon Motorola [PINKSHEETS:TERN.PK] $140,000,000 Modulus Video Nuance Communications VoiceSignal Technologies $293,000,000 Tegic Communications $265,000,000 Open Solutions Fincentric IA Systems 20| 2Q07 SOFTWARE INDUSTRY EQUITY REPORT Copyright © 2007 Software Equity Group, L.L.C.
  • 22. Software Equity Group, L.L.C. APPENDIX C: MERGERS AND ACQUISITIONS, MOST ACTIVE BUYERS (CONTINUED) Purchase Company Seller Price Oracle Agile Software [NASDAQ:AGIL] $495,000,000 Appforge LodeStar Quest Software ScriptLogic $90,000,000 Magnum Technologies $18,200,000 SAP MaXware Outlook Wicom Communications Software AG Systems WebMethods [NASDAQ:WEBM] $546,000,000 Orgaplan Software $7,830,000 The Sage Group Snowdrop Systems $22,909,197 Pro-Concept $15,037,500 Xpert TouchStone Software DriverMagic.com PCDrivers.com 62nds Solutions 21| 2Q07 SOFTWARE INDUSTRY EQUITY REPORT Copyright © 2007 Software Equity Group, L.L.C.
  • 23. Software Equity Group, L.L.C. APPENDIX D: SELECTED MERGERS AND ACQUISITIONS Battery Ventures acquires Quovadx (NASDAQ: QVDX) Category: SOA Software Purchase Price: $136,700,000 Seller Revenue: $81,200,000 EBITDA: $5,590,000 Revenue Multiple: 1.7x EBITDA Multiple: 24.5x Payment Terms: Cash SEG’s Perspective: Battery Ventures, a large venture capital/private equity firm, acquires Quovadx, developer of SOA solutions and software for healthcare organizations and financial services firms. Battery’s deep pockets will likely help Quovadx grow market share and compete against larger rivals. Healthcare IT spending is projected to grow at a 7.7% CAGR1 and SOA software and services are projected to grow at a 41.7% CAGR2. Immediately prior to deal announcement, Quovadx sold its CareScience division, an ASP based provider with over 200 hospital customers, to Premier, a Group Purchasing Organization comprising 1,700 hospitals and 45,000 other healthcare sites3. The $136.7 million purchase price paid by Battery Ventures includes the proceeds of the CareScience sale and represents a 24% premium compared to Quovadx’s closing stock price prior to announcement. 1: CAGR 2004-2009 Estimate. Source: CIBC Report, February, 2007 2: CAGR 2006-2010 Estimate. Source: Forrester 3: Puchase Price: $34.9 million, 2.3x TTM Revenue, 19.4x TTM EBITDA Birdstep Technology (Oslo: BIRD) acquires ServiceFactory AB Category: Enterprise Mobility Management Software Purchase Price: $16,777,500 Seller Revenue: $3,758,160 EBITDA: $601,305 Revenue Multiple: 4.5x EBITDA Multiple: 27.9x Payment Terms: Stock Birdstep Technology (Oslo: BIRD) acquires Secgo Software Category: Enterprise Mobility Management Software Purchase Price: $12,512,000 Seller Revenue: $4,216,000 EBITDA: $210,800 Revenue Multiple: 3.0x EBITDA Multiple: 59.4x Payment Terms: Stock and Earnout SEG’s Perspective: Birdstep, a developer of mobile workforce management solutions acquires both ServiceFactory (the developer of Orbyte – a service and access management system for broadband network operators and service providers) and Secgo Software (a developer of enterprise mobility management solutions). Secgo’s information security and mobility management solutions complement Birdstep’s connectivity offering to mobile operators while Orbyte, by ServiceFactory, gives Birdstep the opportunity to leverage its customer base by enabling mobile operators to offer wireless data services on top of their voice offerings. The company beefed up its global presence with the acquisition of US based lap-top connectivity software provider Aramova in December 2006. According to IDC, Enterprise Mobility Management is a $214 million market, growing 35% annually. 22| 2Q07 SOFTWARE INDUSTRY EQUITY REPORT Copyright © 2007 Software Equity Group, L.L.C.
  • 24. Software Equity Group, L.L.C. Business Objects (NASDAQ: BOBJ) acquires Cartesis Category: Corporate Performance Management Software (CPM) Purchase Price: $300,000,000 Seller Revenue: $125,000,000 Revenue Multiple: 2.4x Payment Terms: Cash SEG’s Perspective: Business Objects, one of the largest pure play business intelligence providers, acquires Cartesis, developer of enterprise performance management software. Cartesis extends Business Objects’ existing business intelligence (BI) platform with financial reporting and consolidation, as well as governance, IRR and compliance management. The acquisition follows closely after Oracle’s acquisition of Hyperion (3.4x1, 17.1x2), arguably the leader in Cartesis’ core CPM market. Cartesis was acquired from PricewaterhouseCoopers in 2004 by a group of private equity buyers which grew Cartesis’ revenue 43% in 2005 and 28% in 2006 with the help of two acquisitions (Advance Info Systems, INEA). The acquisition is expected to be neutral to slightly accretive to earnings in the year following closing. 1: Enterprise Value/TTM Revenue 2: Enterprise Value/TTM EBITDA Business Objects (NASDAQ: BOBJ) acquires Inxight Category: Data Analytics Software Purchase Price: $100,000,000 (estimate) Seller Revenue: $25,000,000 (estimate) Revenue Multiple: 4.0x Payment Terms: Cash SEG’s Perspective: Business Objects, one of the world’s largest business intelligence (BI) software providers, acquires Inxight, a Palo Alto Research Center spinout and developer of unstructured data access and analysis software. Inxight positions Business Objects in the fast growing unstructured data management market, aiding its expansion beyond BI and into enterprise performance management. According to IDC, Inxight is estimated to have 3% of the information access tools market, which is expected to grow at a 22% CAGR over the next five years and is dominated by Autonomy, Fast Search & Transfer, Convera and Endeca. The acquisition follows closely on the heels of Reuters’ recent acquisition of text analytics solution provider ClearForest, and is Business Objects’ second acquisition (Cartesis) of 2007. CAE (NYSE: CGT) acquires Engenuity Technologies (TSX: EGY) Category: Simulation and Visualization Software Purchase Price: $19,763,693EV Seller Revenue: $11,161,800 Revenue Multiple: 1.8xEV Payment Terms: Cash SEG’s Perspective: CAE, a $1 billion provider of simulation equipment and services for the aviation and defense industries, acquires Engenuity Technologies, a developer of simulation and visualization software for the aerospace and defense vertical. Engenuity’s ability to leverage CAE’s modeling, simulation and training products in the competitive aerospace and defense vertical garnered a 14% purchase price premium1 despite being unprofitable and posting a 6% decline in revenue over the last three years. Initial investors in Engenuity will remain dissatisfied. CAE’s purchase price is 76% less than Engenuity’s 1999 IPO price. 1: The purchase price represents a premium of 14% based on the weighted volume average closing price for Engenuity over its last 20 trading days. 23| 2Q07 SOFTWARE INDUSTRY EQUITY REPORT Copyright © 2007 Software Equity Group, L.L.C.
  • 25. Software Equity Group, L.L.C. CheckFree (NASDAQ: CKFR) acquires Corillian (NASDAQ: CORI) Category: Internet banking software and services Purchase Price: $219,780,000EV Seller Revenue: $60,960,000 Seller EBITDA: $2,250,000 Revenue Multiple: 3.6xEV EBITDA Multiple: 97.7xEV Payment Terms: Cash SEG’s Perspective: Financial software and services provider CheckFree acquires Corillian, a developer of online banking, payment and security solutions to the financial services industry. The acquisition, CheckFree’s second in 2007, brings together Corillian’s online banking platform and suite of financial applications, and CheckFree’s electronic billing, payment and online transaction services. With Corillian, CheckFree is better positioned to provide an integrated electronic billing and payment platform. Despite doubling revenue since its IPO in 2000, Corillian has struggled to remain profitable, posting losses in four of the last seven years and disappointing investors. Even with CheckFree’s 49% premium, the purchase price was 36% under Corillian’s IPO price. CheckFree recently acquired Carreker for $169 million (1.5xEV TTM revenue), a provider of payments technology and consulting services to the financial services industry. The two acquisitions follow Intuit’s acquisition of banking software provider Digital Insight ($1.26EV billion, 5.3xEV TTM revenue) in late 2006. DealerTrack (NASDAQ: TRAK) acquires Arkona (OTC: ARKN) Category: Automotive Dealer Management Software Purchase Price: $58,162,280EV Seller Revenue (TTM): $12,760,000 EBITDA (TTM): $1,430,000 Revenue Multiple (TTM): 4.6xEV EBITDA Multiple (TTM): 40.7xEV Payment Terms: Cash SEG’s Perspective: DealerTrack, developer of SaaS solutions to automotive dealers, financing sources and other automotive service and information providers, makes another acquisition in its target vertical by purchasing Arkona, a developer of on-demand software for automotive dealerships. Arkona had grown revenue 105% from FY04 and had gained real traction among independent automotive dealerships. DealerTrak has performed well, too, despite problems plaguing the domestic automobile industry. The company’s stock price has risen over 90% from its IPO opening in 2005, in large part due to strategic acquisitions that have grown revenue 147.6% in CY06 compared to CY04. Arkona is DealerTrack’s eighth and largest automotive retail acquisition since 2005 and its second in 2007 (Curomax – $37.5 million1, 3.7x2). The purchase price represents a 4% premium over Arkona’s five day average closing stock price prior to announcement. 1: Equity Purchase Price 2: Purchase Price/TTM revenue 24| 2Q07 SOFTWARE INDUSTRY EQUITY REPORT Copyright © 2007 Software Equity Group, L.L.C.
  • 26. Software Equity Group, L.L.C. Equifax (NYSE: EFX) acquires TALX (NASDAQ: TALX) Category: Human Resource / Payroll Solutions Purchase Price: $1,397,622,000EV Seller Revenue: $256,830,000 Seller EBITDA: $89,710,000 Revenue Multiple: 5.4xEV EBITDA Multiple: 15.6xEV Payment Terms: Cash and Stock SEG’s Perspective: Equifax, one of the nation’s largest credit reporting agencies, acquires TALX, a provider of unemployment tax management services, and automated employment and income verification services. Talx brings Equifax 9,000 customers, a new market, and proprietary database of 142 million employment records to complement Equifax’s stable, recurring, transaction-based revenue model. Equally compelling, Talx has grown revenue 29% and earnings 55% over the last three years, with analysts forecasting 13% revenue growth in its next fiscal year1. According to Equifax, the purchase price represents an 11.0x multiple of CY07 EBITDA2 and will be accretive to Equifax’s EPS in 2008. 1: Talx next fiscal year ends March 2008 2: Pro forma for synergy opportunities Experian (London: EXPN) acquires Hitwise Category: Internet Marketing Intelligence Purchase Price: $240,000,000 Seller Revenue (TTM): $40,000,000 (estimate) Revenue Multiple (TTM): 6.0x Payment Terms: Cash SEG’s Perspective: Experian, a leading provider of credit, marketing, automotive and consumer related solutions and services, continues to grow its Marketing Solutions business with the acquisition of Hitwise, a provider of on-demand web intelligence solutions for internet marketers. The acquisition of Hitwise provides Experian best-of-breed digital intelligence solutions to further leverage its data, tools and expertise in consumer research services and email distribution. Specifically, Hitwise leverages the sales and distribution network of email delivery and analytics company CheetahMail, one of three additional acquisitions (Informarketing – Brazilian direct marketing services provider and Tallyman – collections management software) announced in Q207. The acquisition also provides Experian better footing in the US online advertising market which is projected to grow to $32 billion by 2010, a five year 20% CAGR1. 1. Interactive Advertising Bureau Infor acquires Workbrain (TSX: WB) Category: Workforce Management Purchase Price: $180,750,000EV Revenue (TTM): $96,509,000 EBITDA (TTM): ($185,000) Revenue Multiple: 1.9xEV Payment Terms: Cash SEG’s Perspective: Infor, the world’s largest private software company and third largest ERP provider, acquires Workbrain, a Canada based developer of web-based workforce management solutions for large enterprises. While Infor had earlier aggregated a broad array of human resource management solutions from acquisitions of SSA Global and Geac, it did not have a foothold in workforce planning, scheduling, time & attendance and intelligence, all core components of Workbrain’s product portfolio. Until recently, Workbrain had been a high growth company, growing new license revenue 58% in CY04 and 41% in CY05, but stalled badly, reporting 25| 2Q07 SOFTWARE INDUSTRY EQUITY REPORT Copyright © 2007 Software Equity Group, L.L.C.
  • 27. Software Equity Group, L.L.C. new license revenue growth of only 2% in CY06. The arrested growth combined with Workbrain’s $2.5 million net income loss made its investors more receptive to Infor’s 26% premium1. Infor’s acquisition of Workbrain positions it to compete head-on with Kronos, which is being acquired by private equity firm Hellman & Friedman for $1.8 billion (2.9x2, 15.0x3). 1: 26% premium represents the increase over Workbrain’s closing stock price prior to announcement 2: Enterprise Value/TTM Revenue 3: Enterprise Value/TTM EBITDA Invesnsys (LSE: ISYS) acquires Cimnet (OTC: CIMK) Category: Manufacturing Software Purchase Price: $23,670,000EV Seller Revenue (TTM): $5,610,000 EBITDA (TTM): $635,900 Revenue Multiple: 4.2x EV EBITDA Multiple: 37.2x EV Payment Terms: Cash SEG’s Perspective: Invensys, a multibillion dollar industrial automation, controls and process conglomerate acquires Cimnet, developer of manufacturing software for the aerospace, automotive, pharmaceutical, medical devices, food and beverage and consumer packaged goods industries. The acquisition of Cimnet’s manufacturing intelligence and MES software is a natural plug-in to Invensys’ solutions that encompass the entire manufacturing and control enterprise. Despite competing against much larger ERP and manufacturing software and services vendors, Cimnet was able to grow revenue at a CAGR of 23.2% from CY2003 to CY2006 and posted net income of $1.4 million in CY2006. The purchase price represents an 8.5% premium over Cimnet’s 30 day average closing stock price prior to announcement. Mediasurface plc (AIM: MSR) acquires Immediacy Category: Web Content Management Solutions (WCM) Purchase Price: $11,100,000 Seller Revenue (TTM): $6,739,000 Revenue Multiple (TTM): 1.7x Payment Terms: Cash and Stock SEG’s Perspective: European web content management provider Mediasurface acquires Immediacy, a developer of web content management software for mid-sized businesses. The acquisition provides Mediasurface further down-market penetration and complements its Morello and Pepperio web content management products for large enterprises and small businesses, respectively. The deal consideration included two million shares of Mediasurface stock with 90% of that going to Immediacy’s four major shareholders who are locked up until year end 2007. Mediasurface acquired Class-Act Bv ($515,000) for its Silverbullet content management software in April 2005 and renamed the product Pepperio in early 2006. 26| 2Q07 SOFTWARE INDUSTRY EQUITY REPORT Copyright © 2007 Software Equity Group, L.L.C.
  • 28. Software Equity Group, L.L.C. Microsoft (NASDAQ: MSFT) acquires aQuantive (NASDAQ:AQNT) Category: Digital Marketing and Services Purchase Price: $5,783,290,000 Seller Revenue: $492,650,000 EBITDA: $130,380,000 Revenue Multiple (TTM): 11.7x EBITDA Multiple (TTM): 44.4x Payment Terms: Cash SEG’s Perspective: In its largest acquisition to date, Microsoft acquires digital marketing and services company aQuantive. aQuantive’s acquisition is highly strategic for Microsoft, enabling it to compete with Google and Yahoo in the online media space. Avenue A / Razorfish is a leading interactive ad agency that will give Microsoft a major platform to serve advertisers, agencies, media owners, publishers and the digital marketing ecosystem, as well as promote Silverlight, Microsoft’s new rich-media and video plug-in, over Adobe’s Flash. Atlas, a provider of advanced tools to advertisers and publishers, competes directly with DoubleClick, a company Microsoft reportedly lost to Google in a bidding war earlier this year. The $66.50 per share bid represents an 85% premium over aQuantive’s pre-announcement last day trading price. The deal follows acquisitions of DoubleClick by Google ($3.1 billion), RightMedia by Yahoo ($650 million1), and 24/7 Real Media by WPP Group ($649 million) in a major consolidation of the lucrative internet advertising market, one that, dominated for decades by traditional broadcast television, is now projected to grow to US $32 billion by 2010, a five year 20% CAGR2. 1. Purchase price equals 80% of the shares outstanding 2. Interactive Advertising Bureau Oracle (NASDAQ: ORCL) acquires Agile (NASDAQ: AGIL) Category: Product Lifecycle Management (PLM) Purchase Price: $330,560,000EV Seller Revenue: $130,120,000 EBITDA: ($5,850,000) Revenue Multiple: 2.5x EV Payment Terms: Cash SEG’s Perspective: Enterprise software giant Oracle acquires Agile Software, a developer of product lifecycle management solutions. With Agile, Oracle picks up a relatively small but respected company in one of the fastest growing enterprise application segments. Agile runs on Oracle and 98% of Agile’s customers are Oracle technology customers. PLM spend is expected to reach $7.3 billion in 2009 and grow at an 11% CAGR1. Despite boasting renewal rates of 95% on maintenance and support contracts and 46% recurring revenue, Agile has reported a net loss for each of its last three fiscal years, but its exit valuation was buoyed by a significant cash hoard which constituted 33% of the equity purchase price. Agile posted a 0.4% decrease in revenue over its last twelve months, but analysts projected 10.0% growth in its next fiscal year ending April 2008. Oracle paid a 14% premium over Agile’s closing stock price prior to announcement. 1: Source: AMR Research 2006 27| 2Q07 SOFTWARE INDUSTRY EQUITY REPORT Copyright © 2007 Software Equity Group, L.L.C.
  • 29. Software Equity Group, L.L.C. Pearson (NYSE: PSO) acquires eCollege (NASDAQ: ECLG) Category: Education Software Purchase Price: $529,000,000EV Seller Revenue (TTM): $54,877,000 EBITDA (TTM): $23,030,000 Revenue Multiple: 9.6x EV EBITDA Multiple: 23.0x EV Payment Terms: Cash SEG’s Perspective: Pearson Education, one of the world’s largest educational textbook publishers for the K-12, higher education and professional markets, acquires eCollege, a provider of on-demand information services to the post- secondary and K-12 education market. While eCollege’s $55 million in revenue pales in comparison to Pearson Education’s digital education sales of $1 billion, eCollege is a leader in the high growth online distance learning market, and has grown revenue at a 2003-2006 CAGR of 22%. Analysts were projecting eCollege would grow revenue 21.6% in CY07 compared to CY06, and 19.9% in CY08 compared to CY07. The purchase price represents a modest 7% premium over the company’s closing stock price prior to announcement. Sage (LSE: SGE) acquires Snowdrop Systems Category: Human Resource Management Purchase Price: $33,650,000 Revenue: $14,850,000 EBITDA: $2,180,000 Revenue Multiple: 2.3x EBITDA Multiple: 15.4x Payment Terms: Cash SEG’s Perspective: Sage, a U.K. based global supplier of business management solutions, acquires Snowdrop Systems, developer of human resources and payroll management software to over 700 mid-sized businesses in the U.K. Snowdrop will complement Sage’s existing ERP solutions for SME customers with products that manage the entire employee life-cycle, including recruitment, training, development and succession planning. Snowdrop was able to grow revenue 35% year-over-year to $14.9 million, a rounding error compared to Sage’s $1 billion in revenue, but a welcome growth metric considering Sage’s 7% organic growth. 28| 2Q07 SOFTWARE INDUSTRY EQUITY REPORT Copyright © 2007 Software Equity Group, L.L.C.
  • 30. Software Equity Group, L.L.C. Quest Software (NASDAQ: QSFT) acquires ScriptLogic Category: Windows-based Systems Lifecycle Management Software Purchase Price: $90,000,000 Revenue: $20,000,000 Revenue Multiple: 4.5x Payment Terms: Cash SEG’s Perspective: Database and app management developer Quest Software acquires ScriptLogic, a provider of systems lifecycle management solutions for Windows-based networks. ScriptLogic gives Quest greater access to the SME market and a two-tier VAR distribution model to supplement Quest’s direct sales force. The acquisition follows closely on the heels of ScriptLogic’s launch of Security Explorer for SharePoint, a product for managing Microsoft SharePoint Server 2007. Quest is no stranger to purchasing Windows management providers, having acquired Aelita Software ($115 million, 3.8x1) and Vintela Software ($56.5 million, 4.7x2) in 2004 and 2005, respectively. Quest acquired Magnum Technologies in May 2007 and gained entry into the business services management (BSM) space, a market that Forrester predicts will nearly triple by the end of 2008. 1. Purchase Price/Revenue 2. Purchase Price/Revenue Software AG (XETRA: SOW) acquires WebMethods (NASDAQ: WEBM) Category: Enterprise Application Integration (EAI) Purchase Price: $417,790,000EV Revenue (TTM): $209,290,000 EBITDA (TTM): $8,950,000 Revenue Multiple: 2.0xEV EBITDA Mulitple: 46.7xEV Payment Terms: Cash SEG’s Perspective: Germany-based Software AG, Europe’s largest SOA provider, acquires fellow EAI developer WebMethods to leverage its enterprise business process management strategy. The combined company will service 4,000 customers and double Software AG’s customer base in North America. The two companies will likely be formidable competition for IBM and Oracle, which have made EAI a major strategic priority. EAI is expected to become an $11.5 billion market by 2013 and grow at a seven year CAGR of 14.0%1 as CIOs continue to spend on SOAs and integrated web services. Since WebMethods had stumbled recently, growing 3.4% TTM (5,5% projected for next fiscal year), the acquisition was a positive outcome for WebMethods’ shareholders, who received a 26% premium2. 1 Source: Research and Markets: Enterprise Application Integration (EAI) Market Opportunities, Strategies, and Forecasts, 2007 to 2013 2: 26% premium represents the increase over WebMethod’s closing stock price prior to announcement Tibco (NASDAQ: TIBX) acquires Spotfire Category: Business Intelligence (BI) Purchase Price: $195,000,000 Revenue (TTM): $45,000,000 (estimate) Revenue Multiple (TTM): 4.3x (estimate) Payment Terms: Cash SEG’s Perspective: Tibco, a leading provider of service oriented architecture and business process management software, acquires Spotfire, developer of next generation BI solutions with visual analytics. Tibco will combine its current infrastructure software with Spotfire’s applications products to create a complete solution that facilitates analytics on real-time data feeds. Tibco will face fierce competition from large pure-play BI vendors (Cognos, Business Objects), enterprise software companies (SAP, Oracle, IBM) and infrastructure developers (BEA, Sybase, Software AG/WebMethods). Approximately 80% of Spotfire’s revenue was from 29| 2Q07 SOFTWARE INDUSTRY EQUITY REPORT Copyright © 2007 Software Equity Group, L.L.C.
  • 31. Software Equity Group, L.L.C. new licenses, a result of renewed CIO interest in BI applications. The all-cash transaction represents a significant premium over the median TTM M&A valuation for BI software companies (2.5x Purchase Price/Revenue). Tibco expects the deal to be dilutive to its pro forma FY07 EPS. Websense (NASDAQ: WBSN) acquires SurfControl (LSE: SRF) Category: Content Filtering Software Purchase Price: $358,917,000EV Seller Revenue: $121,400,000 EBITDA: $6,970,000 Revenue Multiple: 3.0x EV EBITDA Multiple: 51.5x EV Payment Terms: Cash SEG’s Perspective: Internet security company Websense acquires SurfControl, a leading provider of on-demand email and website scanning technology. With SurfControl, Websense eliminates its main competitor in the content filtering space, increases revenue by 64% and adds 16 million subscription seats and 25,000 customers. Websense also benefits from SurfControl’s recent acquisition of BlackSpider, an on-demand email security solution ($38 million, 5.0x TTM Revnue) that should enable Websense to penetrate the elusive SME market. Websense paid 6.0x TTM revenue in December to acquire PortAuthority, a leading provider of information leak prevention solutions, its first acquisition as a public company. Websense expects SurfControl to be 20% accretive to earnings over the next twelve months. 30| 2Q07 SOFTWARE INDUSTRY EQUITY REPORT Copyright © 2007 Software Equity Group, L.L.C.
  • 32. To keep your finger on the pulse of the software equity markets, subscribe to our Quarterly Reports at http://www.softwareequity.com/research_reports.aspx, Software Equity Group is an investment bank and M&A advisory serving the software and technology sectors. Since 1992, our firm has represented and guided private companies throughout the United States and Canada, as well as Europe, Asia Pacific, Africa and Israel. We have advised public companies listed on the NASDAQ, NYSE, Toronto, London and Euronext exchanges. Software Equity Group also represents several of the world's leading private equity firms. For confidential consultation without obligation, please contact Managing Director, Ken Bender (858) 509-2800, kbender@softwareequity.com. CONTACT INFORMATION: Software Equity Group, L.L.C. 12220 El Camino Real, Suite 320 San Diego, CA 92130 www.softwareequity.com p: (858) 509-2800 f: (858) 509-2818 This report was prepared by Software Equity Group, L.L.C. (SEG), an investment bank and M&A advisory serving the software and technology sectors. SEG is solely responsible for its content. This material is based on data obtained from sources we deem to be reliable; it is not guaranteed as to its accuracy and does not purport to be complete. This information is not to be used as the primary basis of investment decisions. For more, please visit www.softwareequity.com, or phone (858) 509-2800.

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