### SlideShare for iOS

by Linkedin Corporation

FREE - On the App Store

Software & Internet Financial Performance / Valuation

Software & Internet Financial Performance / Valuation

- Total Views
- 834
- Views on SlideShare
- 834
- Embed Views

- Likes
- 0
- Downloads
- 7
- Comments
- 0

No embeds

Uploaded via SlideShare as Adobe PDF

© All Rights Reserved

- 1. The Software Industry Th S ft I d t Financial ReportSoftware Equity Group, L.L.C.12220 El Camino RealSuite 320San Diego, CA 92130info@softwareequity.com(858) 509-2800
- 2. Unmatched Expertise. Extraordinary ResultsOverview Deal TeamSoftware Equity Group is an investment bank and M&A advisory firm serving the software and technologysectors. Founded in 1992, our firm has guided and advised companies on five continents, including Ken Benderprivately-held software and technology companies in the United States, Canada, Europe, Asia Pacific, Managing DirectorAfrica and Israel. We have represented public companies listed on the NASDAQ, NYSE, American, (858) 509-2800 ext. 222Toronto, London and Euronext exchanges. Software Equity Group also advises several of the worlds kbender@softwareequity.comleading private equity firms. We are ranked among the top ten investment banks worldwide for applicationsoftware mergers and acquisitions. R. Allen Cinzori Managing DirectorServices (858) 509-2800 ext. 226 acinzori@softwareequity.comOur value proposition is unique and compelling. We are skilled and accomplished investment bankerswith extraordinary software, internet and technology domain expertise. Our industry knowledge andexperience span virtually every software product category, technology, market and delivery model. We Dennis Clerkehave profound understanding of software company finances, operations and valuation. We monitor and Executive Vice Presidentanalyze every publicly disclosed software M&A transaction, as well as the market, economy and (858) 509-2800 ext. 233technology trends that impact these deals. We offer a full complement of M&A execution to our clients dclerke@softwareequity.comworldwide.worldwide Our capabilities include: include:. Brad Weekes Sell-Side Advisory Services – leveraging our extensive industry contacts, skilled professionals and Vice President proven methodology, our practice is focused, primarily on guiding our client s wisely toward the (858) 509-2800 ext. 239 achievement of their exit objectives. bweekes@softwareequity.com Buy-Side Advisory Services – utilizing a proven buy-side methodology, we help our clients acquire strategically, assess insightfully, value intelligently and structure transactions to better assure their desired outcome. Kris Beible Director, Business Development Management Buyouts & Recapitalization – assisting founders and owners of software and (858) 509-2800 ext. 227 technology companies to gain full or partial liquidity by facilitating capital investments by p gy p g p q y y g p y private equity q y kbeible@softwareequity.com kbeible@softwareequity com firms and other financial institutions. Private Equity & Debt Placement – facilitating private companies with leading institutional investors for financings that range from $5 million to $500 million. 12220 El Camino Real, Suite 320 San Diego, CA 92130 Mentoring Program – providing guidance to software companies contemplating an exit to ensure (858) 509-2800 (P) they’re doing everything now to better their odds and enhance their future exit valuation ahead. (858) 509-2818 (F) www.softwareequity.comTransactionsWe’ve enjoyed serving our software clients for 20 years and have highlighted a small subset of companies we’ve assisted:
- 3. Software Equity Group, L.L.C. Q2 2012 Software Industry Financial Report ContentsU.S. ECONOMY: SOFTWARE INDUSTRY MACROECONOMICS........................................................................ 2IT SPENDING ............................................................................................................................................................ 2INTERNET RETAIL SPENDING AND ADVERTISING ............................................................................................ 3PUBLIC SOFTWARE/SAAS/INTERNET COMPANY STOCK PERFORMANCE ................................................... 3PUBLIC SOFTWARE COMPANY FINANCIAL PERFORMANCE .......................................................................... 4PUBLIC SOFTWARE COMPANY MARKET VALUATIONS ................................................................................... 5PUBLIC SOFTWARE COMPANY FINANCIAL PERFORMANCE: BY PRODUCT CATEGORY.......................... 6PUBLIC SOFTWARE COMPANY MARKET VALUATIONS: BY PRODUCT CATEGORY ................................... 7PUBLIC SOFTWARE AS A SERVICE (SAAS) FINANCIAL PERFORMANCE ...................................................... 8PUBLIC SOFTWARE AS A SERVICE (SAAS) COMPANY MARKET VALUATIONS ........................................... 9PUBLIC SOFTWARE AS A SERVICE (SAAS) FINANCIAL PERFORMANCE: BY PRODUCT CATEGORY .... 10PUBLIC SOFTWARE AS A SERVICE (SAAS) COMPANY MARKET VALUATIONS: BY PRODUCTCATEGORY ............................................................................................................................................................ 10PUBLIC INTERNET COMPANY FINANCIAL PERFORMANCE ........................................................................... 10PUBLIC INTERNET COMPANY MARKET VALUATIONS .................................................................................... 12PUBLIC INTERNET COMPANY FINANCIAL PERFORMANCE: BY PRODUCT CATEGORY ........................... 12PUBLIC INTERNET COMPANY MARKET VALUATIONS: BY PRODUCT CATEGORY .................................... 13INITIAL PUBLIC OFFERINGS................................................................................................................................ 14SOFTWARE/SAAS M&A DEAL VOLUME AND SPENDING ............................................................................... 16IMPORTANT CHANGE IN SOFTWARE AND SAAS M&A DATA ACCOUNTING............................................... 17SOFTWARE M&A VALUATIONS .......................................................................................................................... 17SOFTWARE M&A VALUATIONS BY EQUITY STRUCTURE............................................................................... 18SOFTWARE M&A VALUATIONS BY SIZE ........................................................................................................... 18SOFTWARE M&A BY VERTICAL AND HORIZONTAL MARKETS ..................................................................... 19SOFTWARE M&A BY PRODUCT CATEGORY .................................................................................................... 20SOFTWARE AS A SERVICE (SAAS) M&A DEAL VOLUME AND VALUATIONS .............................................. 21INTERNET M&A DEAL VOLUME AND VALUATIONS ......................................................................................... 23APPENDIX A: 2Q12 PUBLIC SOFTWARE MARKET VALUATIONS AND STATISTICS BY PRODUCTCATEGORY ............................................................................................................................................................ 25 This Report may not be reproduced in whole or in part without the expressed prior written authorization of Software Equity Group, L.L.C. Software Equity Group registers each Report with the U.S. Copyright Office and vigorously enforces its intellectual property rights. Copyright © 2012 Software Equity Group, L.L.C., All Rights Reserved
- 4. Software Equity Group, L.L.C.APPENDIX A: 2Q12 PUBLIC SOFTWARE MARKET VALUATIONS AND STATISTICS BY PRODUCTCATEGORY ............................................................................................................................................................ 26APPENDIX B: 2Q12 PUBLIC SAAS MARKET VALUATIONS AND STATISTICS BY PRODUCT CATEGORY 27APPENDIX C: 2Q12 PUBLIC INTERNET MARKET VALUATIONS AND STATISTICS BY PRODUCTCATEGORY ............................................................................................................................................................ 28APPENDIX D: 2Q12 MERGERS AND ACQUISITIONS, SELECT PUBLIC SELLER VALUATIONS .................. 29APPENDIX E: 2Q12 MERGERS AND ACQUISITIONS, MOST ACTIVE BUYERS .............................................. 30APPENDIX F: 2Q12 MERGERS AND ACQUISITIONS, SELECT INDUSTRY MEGA-DEALS............................ 32APPENDIX G: 2Q12 MERGERS AND ACQUISITIONS, SELECT SOFTWARE-AS-A-SERVICE SELLERS ..... 33 This Report may not be reproduced in whole or in part without the expressed prior written authorization of Software Equity Group, L.L.C. Software Equity Group registers each Report with the U.S. Copyright Office and vigorously enforces its intellectual property rights. Copyright © 2012 Software Equity Group, L.L.C., All Rights Reserved
- 5. Software Equity Group, L.L.C. Investment Banking / Mergers & AcquisitionsFigure 1: U.S. Gross Domestic Product and Unemployment Rate10% GDP % Growth Unemployment Rate8%6% 5.0% 3.6% 3.7%4% 2.7% 3.2% 3.1% 3.0% 2.6% 2.1% 2.1% 2.2% 2.2% 1.5% 1.7% 1.8% 1.5%2% 1.3% 1.1% 1.2% 0.4%0% -0.7% -0.7%-2% -2.7%-4% -5.4%-6% -6.4%-8% 2Q06 2Q07 2Q08 2Q09 2Q10 2Q11 2Q12U.S. ECONOMY: SOFTWARE INDUSTRY IT SPENDINGMACROECONOMICS SEG carefully monitors enterprise IT spendingWe begin with a brief synopsis of U.S. Gross each quarter as a means of forecastingDomestic Product (GDP) performance based downstream public software company financialupon the most recent data available. GDP is best performance and software M&A deal volume.defined as the total market value of all final goods Simply put, we long ago determined that healthyand services produced in a country in a given IT spending drives public software companies toyear, equal to total consumer, investment and buy, not build, in response to growing marketgovernment spending, plus the value of exports, demand. To provide some perspective, weminus the value of imports. estimate every percentage increase/decrease in IT spending equates to approximately $5 billion.The Bureau of Economic Analysis (BEA) issuedits first estimate of U.S. GDP for the second Our readers will recall large enterprises cut backquarter of 2012, indicating the U.S. economy sharply on spending for software, hardware andcontinues to decelerate. After four consecutive IT services in 2009 during the economicquarters of accelerating growth in 2011, this year downturn, when IT capital spending declined byhas been marred by sequential deceleration in Q1 more than 10%. The spending cut had an almostand Q2 (Figure 1). The second quarter’s immediate and traumatic impact on publiclackluster growth rate of 1.5% reflected a sharp software company revenue and software M&Adecline in consumer spending, which fell from activity and valuations declined. In 2010 and2.4% in Q1 to 1.5% in Q2, as well as the fragile 2011, enterprise customers loosened their pursestate of the U.S. and global economies. There strings and domestic IT capital spending grew 8%was some good news for the software industry, as and 6%, respectively.equipment and software purchases increased7.2%, compared to Q1’s 5.4%. Reflecting the increased uncertainty in the global economy, analysts continue to forecast tepidA June employment report released by the U.S. worldwide IT spending forecasts for 2012.Bureau of Labor Statistics confirmed the job Goldman recently lowered its 2012 forecast ofmarket remains weak. After three consecutive worldwide IT spending from 4% in January to 3%.quarters of slow but steady improvement, the U.S. Goldman attributed the reduction to lower GDPunemployment rate remained unchanged at growth in advanced economies. Gartner also8.2%. forecasts 3% growth in worldwide IT spending, up from their previous estimate of 2.5% in 1Q12. 2| 2Q12 SOFTWARE INDUSTRY FINANCIAL REPORT www.softwareequity.com
- 6. Software Equity Group, L.L.C. Investment Banking / Mergers & AcquisitionsWhen increasing its IT forecast, Gartner pointed 1Q12, reaching $8.4 billion, a 15% year-over-yearto a stabilized outlook despite the Eurozone’s increase from 1Q11’s $7.3 billion.debt and banking crisis, a weak US recovery, andChina’s GDP slowdown. Among Goldman, The appropriate benchmarks in this arena,Gartner and IDC the consensus for domestic IT according to marketers and agencies, is thespending in 2012 is 3% (Figure 2). percentage of time digitally connected consumers spend on the Internet relative to their overallThough IT spending will grow only modestly, media consumption, and the spending on Internetsome will fare better than most. Gartner forecasts advertising relative to total advertising spending.enterprise spending on public cloud services will In May 2012, Mary Meeker of Kleiner Perkinsreach $109 billion in 2012, and grow to $207 showed the gap has closed dramatically: Internetbillion by 2016. consumption was 26% of total media consumption, and Internet advertisers grabbed a record 22% of all advertising dollars.Figure 2: Domestic IT Spending PUBLIC SOFTWARE/SAAS/INTERNET COMPANY 10.0% 9.0% 8.0% STOCK PERFORMANCE 6.0% 6.0% 5.0% 3.0% Following strong growth and solid returns in theYoY Change in IT Spending first quarter, each of the major stock indices 0.0% retreated sharply by the close of the second 2007 2008 2009 2010 2011 2012 quarter, but managed to hold onto positive year- ‐5.0% to-date returns. The tech heavy NASDAQ index finished Q2 with a total YTD return of 12.7%, ‐10.0% 5.9% lower than at the close of Q1. The S&P 500 -10.0% and DOW lagged behind, ending Q2 with YTD returns of 8.3% and 5.4%, respectively (Figure 3). ‐15.0% IT Spending values calculated using an average of Goldman, Gartner and IDC estimates Among SEG’s three tracking indices, the market performance of public companies comprising ourINTERNET RETAIL SPENDING AND ADVERTISING SaaS Index far outshone their perpetual software and Internet counterparts. Thanks to acceleratingIn the Internet sector, we believe online retail growth, heightened M&A activity and stellar exitspending and Internet advertising spending each multiples (see M&A section for details), the stockquarter presage the financial performance and prices of public SaaS companies posted a medianM&A activity of many public Internet companies. 28.2% year-to-date return by the close of Q2,Buoyed by a continually growing number of after surging 22.0% in June. Five superstarsshoppers, online retail sales continued to rise posted YTD stock returns in excess of 50%: Ellie17% in 1Q12 (the latest quarter for which data is Mae (218.6%), Athenahealth (61.2%), Aribaavailable) according to comScore, achieving the (59.4%), LivePerson (51.9%) and Bazaarvoicehighest growth rate since 2007. It was the tenth (51.7%). Ariba’s return was driven by the 19.6%consecutive quarter of growth for online retail. premium paid by SAP when acquiring theAmong online retail’s most popular categories in Company in May 2012.1Q12 were digital content and subscriptions,computer software, consumer electronics, jewelry After posting a 22.4% median stock return in theand watches and events tickets, each growing by first quarter, the highest among our three trackingat least 17% year-over-year. indices, the SEG Internet Index closed Q2 with the lowest YTD stock return, 4.3%. The sharp dropThe Interactive Advertising Bureau (IAB) and was primarily attributable to renewed economicPricewaterhouseCoopers (PwC) reported Internet fears, faltering on-line consumer spending, andadvertising revenues soared to record levels in Facebook’s IPO debacle which adversely impacted an array of high risk, highly valued Internet stocks. 3| 2Q12 SOFTWARE INDUSTRY FINANCIAL REPORT www.softwareequity.com
- 7. Software Equity Group, L.L.C. Investment Banking / Mergers & AcquisitionsFigure 3: Major Market Indices Compared to the SEG Software, Internet & SaaS Indices DOW S&P NASDAQ SEG SaaS SEG SW Index SEG Internet Index 30.0% 25.0% 20.0% 15.0% 10.0% 5.0% 0.0% (5.0%) Jan Feb Mar Apr May JunPUBLIC SOFTWARE COMPANY FINANCIAL Healthcare providers were also well representedPERFORMANCE among the ten companies achieving the highest TTM revenue growth, led by Greenway MedicalThe 144 public companies comprising the SEG Technologies (45%), MedAssets (40%) andSoftware Index grew TTM revenue a median Merge Healthcare (39%). Other software15.5% in 2Q12, barely surpassing the first providers in the top ten were recently publicquarter’s 14.9% (Figure 4). Still, the modestly Splunk (83%) and Sapiens International (54%).improved revenue growth rate was impressive,given Q2’s macro-economic headwinds and The second quarter’s growth rate helped drive thelowered IT spending forecasts. Q2’s improved median TTM revenue of the SEG Software Indexmedian growth rate follows on the heels of two above $365 million (Figure 4). Indeed, Q2’sconsecutive quarters of declining growth. median TTM revenue is more than twice the median TTM revenue of the SEG Software IndexOf the top ten software companies posting the in 2Q08.highest TTM revenue growth in Q2, five derivedall or a substantial part of their revenue frommobile software solutions. The list includes Qihoo Figure 4: SEG Software Index Median Metrics(202% TTM revenue growth), Gree (158%), SEG - Software: Median MetricsMillennial Media (117%), Zynga (65%) and Velti Measure 2Q11 3Q11 4Q11 1Q12 2Q12(63%). EV/Revenue 2.9x 2.4x 2.5x 2.7x 2.5x EV/EBITDA 14.1x 11.6x 12.3x 12.9x 11.5xBut mobile proved to be a double-edged sword. EV/Earnings 24.8x 21.6x 21.5x 23.0x 22.3x Current Ratio 2.1 2.0 2.0 2.0 2.0Six of the ten software companies with the lowest Cash & Eq ($M) $145.4 $150.0 $132.0 $143.3 $171.2TTM revenue growth were also mobile solution Gross Profit Margin 68.9% 68.2% 67.4% 66.4% 66.2%providers: Smith Micro Software (-58% TTM EBITDA Margin 19.0% 19.0% 18.9% 18.9% 18.5%revenue growth), Myriad Group (-40%), Access Net Income Margin 9.6% 10.5% 10.4% 10.0% 10.4%(-32%), RealNetworks (-13%), BSQUARE (-9%) TTM Revenue Growth 15.2% 17.0% 16.9% 14.9% 15.5%and Motricity (-7%). Unlike their top performing TTM Total Revenue ($M) $325.9 $344.8 $355.6 $352.4 $365.1peers, these mobile companies are struggling to TTM Total EBITDA ($M) $52.3 $58.9 $60.8 $53.2 $58.5adapt legacy business models to a rapidly Debt / Equity Ratio 24.7% 21.8% 21.6% 23.6% 21.7%evolving market. 4| 2Q12 SOFTWARE INDUSTRY FINANCIAL REPORT www.softwareequity.com
- 8. Software Equity Group, L.L.C. Investment Banking / Mergers & AcquisitionsOver this same time period, the number of public Public software companies continued to increasesoftware companies has declined from 218 to cash and equivalents on their balance sheets,144 - further evidence that consolidation in the undoubtedly a reflection of their notable EBITDAsoftware sector is resulting in not only fewer, but margins. In 2Q08, the median cash andconsiderably larger, publicly traded software equivalents of the SEG Software Index was $72.7companies (Figure 5). million and the median EBITDA margin was only 12.8%. In 2Q12, median cash and equivalentsPublic software companies proved especially had grown 136% to $171.2 million, and theadept at maintaining their healthy EBITDA median EBITDA margin had increased 31% overmargins in the second quarter. The median the four year period (Figure 6). The significantEBITDA margin of the on-premise public software cash reserves and strong balance sheets of mostcompanies comprising our Software Index was public software companies, particularly the18.5% in Q2, down slightly from 1Q12’s 18.9% industry’s largest players, bode well for many(Figure 4). small and mid-cap software company M&A targets.Many of the most profitable on-premise softwarecompanies are industry behemoths that have the Figure 6: SEG Software Historical Mediansize and market leverage to drive high margins, Cash and Median EBITDA Marginsincluding Oracle (43% EBITDA margin), Microsoft Cash EBITDA Margin(42%) and SAP (37%). But an array of smaller, 180 25% 160mid-cap public software companies also had a 140 20% Median EBITDA Marginkeen eye on the bottom line in 2Q12, led by Median Cash Balance ($ millions) 120 15%CheckPoint Software (56% EBITDA margin), 100Gree (53%) and ANSYS (48%). 80 10% 60 40 5%Among our top ten most profitable software 20companies was a considerably smaller player, 0 0% 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12SolarWinds, with TTM revenue of $215 million.Benefitting from a highly unique and cost effectiverevenue and sales strategy, SolarWinds drove Q2EBITDA margins to 48%. PUBLIC SOFTWARE COMPANY MARKET VALUATIONSFigure 5: SEG Software Index TTM Revenue At the close of 2Q12, the median EV/Revenuevs. Company Count multiple of public companies in our SEG Software Index was 2.5x, slightly lower than 1Q12’s 2.7x. 250 $400 The median EV/Revenue multiple of the SEG $350 Software Index has now been at or above 2.0x for# of Public Software Companies 200 eleven consecutive quarters (Figure 7). $300 in SEG Software Index Median TTM Revenue 150 $250 ($ millions) Figure 7: SEG Software Median EV/Revenue $200 Multiples 100 $150 3.5x $100 3.0x 50 Median EV/Revenue Multiple 2.5x $50 2.0x 0 $0 2Q08 2Q09 2Q10 2Q11 2Q12 1.5x 1.0x 0.5x 0.0x 5| 2Q12 SOFTWARE INDUSTRY FINANCIAL REPORT www.softwareequity.com
- 9. Software Equity Group, L.L.C. Investment Banking / Mergers & AcquisitionsThe second quarter’s market downturn had an PUBLIC SOFTWARE COMPANY FINANCIALespecially adverse impact on smaller public PERFORMANCE: BY PRODUCT CATEGORYsoftware company valuations (Figure 8). Astestament, in 2Q12, the median EV/Revenue In the second quarter, median TTM revenue grewmultiple of SEG Software Index companies with 20% or more in four of our SEG Software IndexTTM revenues between $100 million and $200 product categories (Figure 10). Vertically focusedmillion plunged to 2.1x from 2.7x the prior quarter. software providers led the pack, posting a medianOnly one year ago, this group achieved a median 24.2% TTM revenue growth rate. The categoryEV/Revenue of 3.8x. was led by Sapiens International (54.0%), PROS Holdings (36.1%), and EPIQ Systems (30.2%).Figure 8: SEG Software Valuation by Size of Networking & Network Performance ManagementBuyer (TTM Revenue) finished close behind, closing 2Q12 with a 22.9% 4.5x TTM revenue growth rate. Companies benefitting 4.0x from strong demand to optimize performance of 3.5x cloud infrastructure and mobile networks include 3.0x Allot Communications (37.5%), Aruba NetworksMedian EV/Revenue 2.5x (36.4%), and Keynote Systems (32.7%). 2.0x 1.5x Healthcare providers (22.6%) continue to benefit 1.0x from massive regulatory changes which attempt 0.5x to deal with the skyrocketing costs of healthcare 0.0x by incentivizing healthcare providers to adopt 2Q11 3Q11 4Q11 1Q12 2Q12 Revenue Greater Than $1 billion Revenue Between $200 million and $1 billion healthcare technology to streamline operations Revenue Between $100 million and $200 million Revenue Less Than $100 million and improve care. The category was led by Greenway Medical Technologies (45.3%), MedAssets (39.5%), Merge Healthcare (39.1%),Size (i.e., annual revenue) wasn’t the only Accelrys (29.9%) and Simulations Plus (28.4%).important determinant of a public software The other hot product category with TTM revenuecompany’s EV/Revenue multiple. EBITDA growth above 20% was Billing & Servicemargins clearly played a part in Q2’s public Management (22.3%).software company market valuations. Publicsoftware companies with 40% or higher EBITDA Five software product categories posted TTMmargins were awarded with a median revenue growth rates below 10%: Storage, DataEV/Revenue multiple of 3.9x, nearly two times the Management & Integration (7.7%), Financial &2.0x multiple of those with EBITDA margins below Accounting (7.1%), Development Platforms10% (Figure 9). (6.4%) and IT Conglomerates (5.3%).Figure 9: 2Q12 EV/Revenue Multiples vs. As for the most profitable software productEBITDA Margin categories, companies in the IT Conglomerate 4.5x 3.9x and Vertical - Finance categories posted the 4.0x 3.4x highest median EBITDA margins in the second 3.5x quarter, 36.9%. Among the most profitable of the Median EV/Revenue 3.0x 2.6x 2.5x industry’s behemoths were Oracle (43% EBITDA 2.0x 2.0x 1.9x margin), Microsoft (42%) and SAP (37%). The 1.5x Vertical – Finance category, consisting of 1.0x software providers vertically focused on the 0.5x finance industry, demonstrated strength from top 0.0x < 10% > 10% > 20% > 30% > 40% to bottom, with four out of five generating EBITDA <= 20% <= 30% <= 40% margins above 31%. This category was led by MSCI (45.3% EBITDA margins) and FX Alliance (38.3 EBITDA margins). 6| 2Q12 SOFTWARE INDUSTRY FINANCIAL REPORT www.softwareequity.com
- 10. Software Equity Group, L.L.C. Investment Banking / Mergers & AcquisitionsFigure 10: SEG Software Index Median Metrics by Product Category SEG Software Index Revenue EBITDA EBITDA YTD Stock EV/Revenue EV/EBITDA Category Growth Growth Margin Return 2Q11 3Q11 4Q11 1Q12 2Q12 2Q11 3Q11 4Q11 1Q12 2Q12 2Q12 (TTM) 2Q12 (TTM) 2Q12 (TTM) 2012Billing & Service Management 2.8x 1.3x 1.3x 1.3x 1.3x 7.4x 5.2x 5.6x 6.6x 6.9x 22.3% 0.3% 18.5% (1.1%)Business Intelligence 3.2x 2.8x 2.4x 2.3x 2.5x 43.1x 39.6x 36.5x 39.3x 38.1x 19.0% 6.0% 8.7% 12.6%Development Platforms 2.6x 1.8x 1.9x 2.3x 1.9x 10.5x 8.0x 9.0x 10.1x 9.1x 6.4% 2.9% 22.1% 14.5%Engineering & PLM 2.4x 1.9x 2.0x 2.6x 2.3x 17.4x 12.8x 13.5x 14.3x 11.5x 13.5% 43.1% 19.9% 15.4%Enterprise Resource Planning 3.2x 2.8x 2.8x 3.0x 2.4x 11.1x 9.1x 9.6x 10.2x 8.3x 10.1% 10.4% 29.0% 11.7%Financial & Accounting 2.8x 2.3x 2.6x 2.8x 2.7x 10.1x 8.9x 9.2x 9.8x 9.8x 7.1% 9.5% 25.6% 15.4%Gaming 1.0x 1.4x 1.2x 1.2x 0.9x 10.9x 9.1x 7.8x 7.1x 7.6x 14.1% 7.3% 9.2% (18.4%)Healthcare 3.9x 3.5x 3.1x 3.6x 3.3x 19.6x 19.0x 15.5x 18.4x 15.3x 22.6% 45.7% 22.3% 2.8%IT Conglomerates 2.6x 2.6x 2.5x 3.1x 2.9x 8.8x 8.5x 9.0x 8.2x 7.7x 5.3% 6.6% 36.9% 11.7%Mobile Solutions/Content 3.3x 2.1x 2.2x 2.9x 2.5x 25.7x 18.2x 25.4x 19.9x 15.4x 16.2% (15.5%) 6.6% (4.9%)Networking & Network Performance Management 4.3x 3.0x 2.9x 3.4x 2.9x 24.8x 16.9x 19.7x 20.0x 19.1x 22.9% 29.7% 17.5% (6.2%)Security 3.1x 2.6x 2.9x 3.2x 2.9x 16.5x 13.1x 14.5x 13.0x 10.2x 19.4% 15.7% 19.7% 0.0%Storage, Data Management & Integration 2.6x 2.1x 2.2x 2.5x 2.4x 12.7x 9.8x 9.8x 10.3x 9.4x 7.7% 10.6% 22.6% 15.8%Supply Chain Management & Logistics 2.2x 1.9x 2.2x 2.3x 2.1x 12.0x 11.2x 11.9x 12.9x 11.3x 17.3% 36.9% 19.6% 12.9%Systems Management 7.3x 5.0x 5.5x 5.9x 5.9x 21.7x 18.5x 20.9x 22.2x 23.0x 18.1% 21.1% 26.2% 34.0%Vertical - Finance 4.7x 3.8x 3.9x 3.8x 3.7x 15.4x 13.3x 12.7x 11.6x 11.6x 13.1% 15.9% 36.9% 7.3%Vertical - Other 3.1x 2.7x 2.8x 3.3x 3.0x 15.1x 14.1x 16.4x 18.5x 16.6x 24.2% 13.1% 18.0% 11.5% Median 2.9x 2.4x 2.5x 2.7x 2.5x 14.2x 11.4x 12.3x 12.9x 11.5x 15.6% 13.4% 18.5% 9.9%The Mobile solutions product category had the EV/Revenue multiples ranging from 5.0x to 7.3xlowest median EBITDA margin in 2Q12, at 6.6%. over the past four quarters.Typical of any product category undergoing rapidmarket adoption and consolidation, EBITDA A distant second was the Vertical – Financemargins varied drastically from one mobile category, which closed 2Q12 with a mediansolutions provider to the next. Gree, an emerging EV/Revenue multiple of 3.7x, no doubt bolsteredprovider of mobile social games, finished 2Q12 by the category’s strong EBITDA margins. Thewith an EBITDA margin of 53.0%. By contrast, Healthcare category finished 2Q12 with a medianSmith Micro, a legacy provider of phone tools to EV/Revenue multiple of 3.3x.mobile OEMs and wireless carriers, finished 2Q12with EBITDA margins of -74.4%. Interestingly, the median EV/Revenue multiples of most software product categories were barelyPUBLIC SOFTWARE COMPANY MARKET impacted by their TTM revenue growth ratesVALUATIONS: BY PRODUCT CATEGORY (Figure 11). Vertical-Other, the product category with the highest TTM revenue growth rate in 2Q12Sixteen of the seventeen product categories posted a median EV/Revenue multiple of 3.0x,comprising the SEG Software Index saw their while IT Conglomerates, the category with themedian EV/Revenue multiples decline YoY as a lowest TTM revenue growth rate, closed 2Q12result of the deteriorating economic climate and with a median EV/Revenue multiple of 2.9x.market perturbation. The lone exception was the The Billing & Service Management productIT Conglomerates category, which managed to category experienced the largest YoY decline inimprove its median EV/Revenue multiple YoY, as market valuation. The category has been ainvestors sought safer investments in the face of perennial laggard and the majority of companiesincreasing uncertainty. But it’s all relative. in the category are struggling to reinvent themselves. Even Synchronoss Technologies,Five of our software product categories achieved which has been a category stand out over thea median EV/Revenue multiple of 3.0x or higher past year, returned to earth and finished 2Q12in 2Q12. The Systems Management category with median EV/Revenue multiple of 2.7x, downposted a whopping EV/Revenue multiple of 5.9x, from 4.9x in 1Q12. Nevertheless, Synchronossled by companies who are spearheading the remains the category standout, providing best ofcloud revolution, namely: SolarWinds (14.4x class solutions to service providers struggling toEV/Revenue), VMWare (9.7x), RedHat (8.5x) and manage and synchronize the barrage of mobileCitrix Systems (5.9x). The Systems Management devices connecting to their networks.group has been strong for well over a year with 7| 2Q12 SOFTWARE INDUSTRY FINANCIAL REPORT www.softwareequity.com
- 11. Software Equity Group, L.L.C. Investment Banking / Mergers & AcquisitionsFigure 11: SEG Software Median EV/Revenue vs. Four outperformers achieved TTM revenueTTM Revenue Growth growth of 46% or more in 2Q12: Bazaarvoice (64.6%), Cornerstone OnDemand (63.2%), 7.0x TTM Revenue has virtually no impact on the median EV/Revenue multiple of Demandware (48.7%) and Ellie Mae (46.4%). By 6.0x software product categories 11 contrast, IntraLinks Holdings was the sole public SaaS provider who didn’t achieve double digit Median EV/Revenue 5.0x 4.0x 6 TTM revenue growth, registering a relatively paltry 13 14 16 17 7.3% (Figure 13). 3.0x 1 3 9 5 12 7 10 4 2.0x 2 15 Unsurprisingly, the growth of these SaaS 1.0x 8 companies has been driven in large part by their 0.0x enhanced investment in sales and marketing, 0% 5% 10% 15% 20% 25% 30% which has grown from 23% of total revenue in TTM Revenue Growth 1. IT Conglomerates 12. Business Intelligence 2Q10, to 32% in 2Q12 (Figure 14). What is 7. Engineering & PLM 2. 3. Development Platforms Financial & Accounting 8. 9. Gaming Mobile Solutions/Content 13. 14. Security Healthcare surprising is the return (measured in TTM revenue 4. Storage, Data Management & Integration 10. Supply Chain Management & Logistics 15. Billing & Service Management 5. 6. Enterprise Resource Planning Vertical - Finance 11. Systems Management 16. 17. Networking & Network Performance Vertical - Other growth) of their sales and marketing investments. Since 2Q10, public SaaS company sales and marketing spends as a percent of total revenuePUBLIC SOFTWARE AS A SERVICE (SAAS) has grown nearly 50%. Impressively, over thisFINANCIAL PERFORMANCE same time period, TTM revenue growth has grown 150%.As SEG forecasted in our Q1 report, the medianTTM revenue growth rate of public SaaS In 2Q12, four SaaS providers spent more thancompanies in 2Q12 exceeded 30%. The final tally 50% of their revenues on S&M: Cornerstoneof 30.3% is the highest in three years (Figure 12). OnDemand (64.2%), Salesforce (52.3%), VocusThe median TTM revenue growth rate of our (52.1%) and Netsuite (50.9%). Interestingly,SaaS Index constituents has now remained above despite spending 50% more on sales & marketing20% for six consecutive quarters. With SaaS as a percent of total revenue, Netsuite and Vocusadoption growing once again, we anticipate the both finished 2Q12 with median TTM revenuemedian SaaS TTM revenue growth rate will growth below the median (24.6% and 21.0%remain above 30% throughout the year. respectively). Along with the stellar revenue growth, publicFigure 12: SEG SaaS Index Median Metrics SaaS companies remain mindful of the bottom line as well. In 2Q12, the median EBITDA margin SEG - SaaS: Median Metrics of the SEG SaaS Index was 9.9%, up 24% from Measure 2Q11 3Q11 4Q11 1Q12 2Q12 2Q11’s 8.0%. Three outperformers reportedEV/Revenue 5.7x 5.1x 4.4x 5.3x 5.0x EBITDA margins above 20%: EBIX (43.6%),EV/EBITDA 40.7x 33.8x 29.7x 33.6x 30.1xEV/Earnings 92.0x 72.0x 82.2x 34.1x 38.1x OpenTable (29.8%) and Medidata (20.8%). ByCurrent Ratio 1.7 1.9 1.8 1.7 2.2 contrast six public SaaS companies finished 2Q12Cash & Eq ($M) $55.4 $74.4 $68.1 $78.8 $95.5 with negative EBITDA margins: CornerstoneGross Profit Margin 68.9% 69.8% 70.0% 70.9% 71.0% OnDemand (-25.5%), Bazaarvoice (-19.4%),EBITDA Margin 8.0% 10.5% 9.2% 9.9% 9.9% Callidus Software (-10.3%), Netsuite (-6.8%),Net Income Margin 0.9% 1.5% 1.8% -0.5% 0.4% ServiceNow (-6.7%) and ExactTarget (-2.1%).TTM Revenue Growth 29.2% 27.3% 26.1% 28.4% 30.3% It’s clear these five companies are prioritizingTTM Total Revenue ($M) $134.3 $134.3 $160.0 $169.0 $172.7 revenue growth as all but Callidus, finished 2Q12TTM Total EBITDA ($M) $12.7 $17.6 $20.7 $21.9 $23.7Debt / Equity Ratio 3.9% 4.7% 3.5% 2.5% 7.1% with TTM revenue growth above 43%. 8| 2Q12 SOFTWARE INDUSTRY FINANCIAL REPORT www.softwareequity.com
- 12. Software Equity Group, L.L.C. Investment Banking / Mergers & AcquisitionsFigure 13: Public SaaS Companies SEG SaaS Index EV/Revenue EV/EBITDA TTM Revenue Growth EBITDA Margin Company Category 2Q11 3Q11 4Q11 1Q12 2Q12 2Q11 3Q11 4Q11 1Q12 2Q12 2Q11 3Q11 4Q11 1Q12 2Q12 2Q11 3Q11 4Q11 1Q12 2Q12Ariba, Inc. (ARBA) ERP & Supply Chain 7.5x 6.1x 6.1x 5.6x 7.1x 103.2x 85.5x 84.9x 76.5x 87.0x 14.5% 26.9% 38.5% 42.7% 36.7% 7.3% 7.1% 7.2% 7.4% 8.1%Athenahealth, Inc. (ATHN) Vertically Focused 5.5x 6.8x 6.2x 6.9x 7.2x 37.3x 40.3x 36.2x 45.7x 48.1x 29.2% 30.5% 30.5% 32.0% 34.4% 14.8% 16.9% 17.1% 15.0% 15.1%Bazaarvoice, Inc. (BV) Other SaaS - - - 11.0x 9.4x - - - - - 66.8% - - - 64.6% -27.9% -24.1% -20.8% -20.4% -19.4%Callidus Software Inc. (CALD) Workforce Mgmt 2.4x 1.9x 2.2x 2.9x 2.4x - - - - - 4.5% 17.6% 19.6% 18.2% 15.4% -3.4% -3.6% -5.6% -7.0% -10.3%Concur (CNQR) Other SaaS 7.4x 5.6x 6.4x 7.9x 8.0x 46.1x 39.5x 49.0x 68.9x 59.2x 18.6% 18.4% 19.3% 21.0% 24.0% 16.1% 14.1% 13.1% 11.4% 13.6%Constant Contact (CTCT) Other SaaS 3.5x 2.1x 2.6x 3.4x 2.3x 53.6x 27.6x 29.1x 33.6x 21.3x 31.6% 28.2% 25.2% 23.1% 21.4% 6.6% 7.8% 9.0% 10.2% 10.9%Cornerstone OnDemand (CSOD) Workforce Mgmt 17.1x 11.8x 11.0x 11.5x 11.7x - - - - - 55.2% 51.0% 51.9% 67.0% 63.2% -27.1% -33.7% -30.9% -24.0% -25.5%DealerTrack (TRAK) Vertically Focused 3.1x 2.3x 3.0x 3.2x 3.1x 23.4x 15.4x 18.3x 21.1x 20.1x 16.6% 26.3% 37.9% 44.9% 39.2% 13.1% 15.2% 16.3% 15.3% 15.4%Demandware, Inc (DWRE) Other SaaS - - - 14.6x 12.5x - - - 386.9x 553.5x - - - 54.1% 48.7% 4.8% 2.9% 1.5% 3.8% 2.3%Ebix Inc. (EBIX) Vertically Focused 5.7x 4.2x 4.2x 5.3x 4.1x 13.4x 9.7x 9.9x 12.1x 9.3x 29.5% 27.3% 24.6% 27.8% 22.8% 42.9% 42.9% 42.8% 43.5% 43.6%Ellie Mae (ELLI) Other SaaS 4.2x 1.6x 1.8x 2.2x 4.6x 52.3x 15.6x 21.6x 24.8x 29.8x 23.3% - 25.5% 28.4% 46.4% 8.0% 10.5% 8.6% 9.0% 15.4%ExactTarget, Inc. (ET) CRM & Marketing - - - 7.9x 6.0x - - - - - 40.7% 40.7% - 54.5% - -5.1% -5.1% -6.0% -3.3% -2.1%IntraLinks Holdings (IL) Other SaaS 5.9x 2.4x 1.7x 1.7x 1.3x 33.1x 15.7x 13.4x 12.5x 13.9x 34.8% 30.6% 23.8% 15.5% 7.3% 17.8% 15.6% 12.8% 13.9% 9.0%Kenexa (KNXA) Workforce Mgmt 3.2x 2.1x 2.4x 2.4x 2.5x 54.3x 29.2x 30.2x 28.3x 29.8x 36.7% 46.9% 52.4% 44.1% 38.8% 5.9% 7.3% 7.8% 8.5% 8.5%LivePerson (LPSN) CRM & Marketing 4.9x 4.4x 4.6x 5.3x 5.8x 23.7x 21.6x 22.8x 25.8x 30.1x 23.7% 21.9% 20.8% 21.1% 21.3% 20.6% 20.5% 20.4% 20.5% 19.2%Medidata Solutions (MDSO) Other SaaS 2.9x 1.8x 2.0x 2.3x 3.0x 15.1x 8.2x 9.3x 11.0x 14.6x 17.4% 19.0% 17.9% 10.8% 14.5% 19.1% 21.4% 21.7% 20.4% 20.8%Netsuite (N) ERP & Supply Chain 10.9x 9.7x 11.7x 12.9x 12.5x - - - - - 19.6% 21.1% 21.9% 22.4% 24.6% -7.1% -7.9% -7.3% -7.4% -6.8%OpenTable, Inc. (OPEN) Other SaaS 18.5x 11.3x 6.5x 7.3x 5.9x 73.2x 39.9x 23.0x 24.1x 19.8x 50.9% 54.3% 52.3% 40.9% 30.3% 25.2% 28.2% 28.1% 30.2% 29.8%RealPage (RP) Vertically Focused 9.2x 6.6x 7.5x 6.2x 4.9x 70.1x 50.8x 63.4x 54.5x 39.8x 36.6% 38.3% 39.8% 37.0% 34.4% 13.1% 13.0% 11.8% 11.3% 12.2%Responsys (MKTG) CRM & Marketing 7.3x 5.2x 2.7x 3.4x 3.4x 40.7x 28.1x 14.0x 21.8x 20.3x - - 54.1% 43.4% 36.3% 18.0% 18.5% 19.0% 15.7% 16.6%Salesforce.com (CRM) CRM & Marketing 10.3x 9.0x 7.9x 7.8x 8.2x 133.0x 152.2x 182.8x 166.2x 189.6x 29.6% 33.0% 34.6% 36.8% 37.7% 7.8% 5.9% 4.3% 4.7% 4.3%SciQuest (SQI) ERP & Supply Chain 6.3x 5.9x 5.3x 5.0x 5.0x 34.6x 38.3x 38.0x 37.3x 41.5x 19.0% 19.7% 22.0% 25.8% 23.3% 18.2% 15.3% 14.0% 13.5% 12.1%ServiceNow, Inc. (NOW) Other SaaS - - - - 17.4x - - - - - 124.3% 113.8% 113.8% - - -64.2% 13.7% 13.7% -2.9% -6.7%SPS Commerce (SPSC) ERP & Supply Chain 3.3x 3.6x 4.4x 4.8x 4.9x 37.6x 47.2x 65.3x 68.7x 68.5x 19.1% 22.5% 26.7% 30.0% 31.6% 8.7% 7.6% 6.7% 6.9% 7.1%The Ultimate Software Group, Inc. (ULTI) Workforce Mgmt 5.7x 5.1x 6.3x 6.6x 7.0x 72.2x 59.0x 68.7x 66.2x 71.3x 16.5% 16.8% 17.0% 18.2% 19.6% 7.9% 8.6% 9.2% 9.9% 9.9%Vocus (VOCS) CRM & Marketing 4.3x 3.1x 2.8x 2.6x 3.0x - 956.7x 206.5x 130.0x 285.2x 17.4% 19.1% 18.9% 18.7% 21.0% -0.4% 0.3% 1.4% 2.0% 1.1%Zix Corporation (ZIXI) Other SaaS 6.0x 5.4x 4.3x 4.6x 3.9x 25.0x 19.8x 14.6x 14.6x 12.5x 30.9% 31.5% 31.7% 15.4% 12.4% 24.0% 27.2% 29.3% 31.3% 31.2% Median: 5.7x 5.1x 4.4x 5.3x 5.0x 40.7x 33.8x 29.7x 33.6x 30.1x 29.2% 27.3% 26.1% 28.4% 30.3% 8.0% 10.5% 9.2% 9.9% 9.9%The steadily improving TTM revenue growth rates Figure 14: Public SaaS Company S&Mand EBITDA margins of public SaaS providers are Spend as % of Total Revenuecreating a force to be reckoned with, a sizable 35.0% 33% 33% 32% 35% 31%and growing group of companies with scale, a 30.0% 28% 28% 30%strong financial model, and strong balance S&M as % of Total Revenue 25% 25% TTM Revenue Growth 25.0% 23% 25%sheets. The median TTM revenue for the SEG 20.0% 20%SaaS Index is now $173M, up 29% YoY; medianCash & Equivalents ended 2Q12 at $96M, up 15.0% 26.5% 27.1% 25.5% 28.4% 30.3% 15%72% YoY. 10.0% 20.5% 10% 15.1% 5.0% 12.1% 13.0% 5%PUBLIC SOFTWARE AS A SERVICE (SAAS) 0.0% 0% Q2 2010 Q3 2010 Q4 2010 1Q 2011 2Q 2011 3Q 2011 4Q 2011 1Q 2012 2Q 2012COMPANY MARKET VALUATIONSIn 2Q12, the median EV/Revenue multiple of the27 pure-play public SaaS providers comprising ServiceNow (17.4x), Demandware (12.5x),our SEG SaaS Index fell to 5.0x, from 5.3x in Netsuite (12.5x) and Cornerstone OnDemand1Q12 (Figure 12). However, it wasn’t all bad (11.7x). Investors are clearly favoring growth overnews, as over 50% of public SaaS providers profitability in the current market, as three of theactually maintained or increased their four SaaS providers with the highest marketEV/Revenue QoQ. Leading the pack was Ellie valuations had negative EBITDA margins; theMae, closing 2Q12 with a 109% QoQ jump in fourth, Demandware, reported a paltry 2.3%EV/Revenue. Ellie Mae is revolutionizing the EBITDA.mortgage industry with a SaaS based solutiondesigned to address the litany of inefficiencies Indeed, there was a clear, causal relationship inwithin the mortgage origination process. Even in 2Q12 between SaaS company market valuationsthe face of declining mortgage volumes, the and TTM revenue growth rates (Figure 15).Company has managed to accelerate revenue Public SaaS companies with TTM revenue growthgrowth (12.3% to 46.4%) and expand EBITDA rates between 10%-20% registered a medianmargins (6.6% to 15.4%) over the past three EV/Revenue of 3.5x, while those generating TTMyears. revenue growth rates above 40% boasted a median EV/Revenue multiple of 9.4x. ByFour public SaaS companies had EV/Revenue contrast, there was very little relationship betweenmultiples above 10x at the close of 2Q12: EBITDA margins and public SaaS company 9| 2Q12 SOFTWARE INDUSTRY FINANCIAL REPORT www.softwareequity.com
- 13. Software Equity Group, L.L.C. Investment Banking / Mergers & Acquisitionsmarket valuations (Figure 16). As testament, Vertically Focused SaaS providers posted aSaaS providers with negative EBITDA margins 34.4% TTM revenue growth at the close of 2Q12,were awarded with a median EV/Revenue the highest among all categories.multiple of 6.0x, compared to a median DealerTrack, a provider of solutions to theEV/Revenue of 4.0x for those with EBITDA automotive industry, led the pack with a TTMmargins above 20%. revenue growth rate of 39.2%.Figure 15: SEG SaaS Median EV/Revenue vs. Vertically Focused SaaS providers achievedTTM Revenue Growth EBITDA margins of 15.3% in 2Q12, 55% higher than the SaaS sector median of 9.9%. Ebix, a 10 9.4x provider of e-commerce solutions to the insurance 9 industry, earned top honors within the category 8 with EBITDA margins of 43.6%.Median EV/Revenue 7 6 5 5.0x 4.9x SaaS companies comprising the ERP & Supply 4 3.5x Chain product category of our SaaS Index 3 No companies with TTM Revenue Not enough data to report meaningful achieved the largest YoY jump in median TTM 2 Growth < =0% median revenue growth, driven by a five consecutive 1 quarters of accelerating growth. SaaS companies 0 <= 0% > 0% > 10% > 20% > 30% > 40% in this category are benefitting from growing <= 10% <= 20% <= 30% <= 40% enterprise and SMB acceptance of cloud-based, TTM Revenue Growth remotely hosted applications. PUBLIC SOFTWARE AS A SERVICE (SAAS) Figure 16: SEG SaaS Median EV/Revenue vs. COMPANY MARKET VALUATIONS: BY PRODUCT EBITDA Margins CATEGORY 7.0x SaaS providers in the ERP & Supply Chain 6.0x 5.9x 6.0x category finished 2Q12 with the highest median 4.9x EV/Revenue multiple, 6.0x. The category was Median EV/Revenue 5.0x 4.0x bolstered by strong performances from Netsuite 4.0x (12.5x) and Ariba (7.1x). 3.0x 2.0x Public SaaS companies in the Workforce 1.0x Management category improved their median 0.0x EV/Revenue multiple in 2Q12, to 4.8x. Ultimate <= 0% > 0% > 10% > 20% Software Group led the pack, boosting its YoY <= 10% <= 20% EV/Rev an impressive 22.8%. The category’s EBITDA Margins relative strength was driven, at least in part, by investor hopes of capitalizing on the wave ofPUBLIC SOFTWARE AS A SERVICE (SAAS) consolidation in the SaaS WFM arena.FINANCIAL PERFORMANCE: BY PRODUCTCATEGORY PUBLIC INTERNET COMPANY FINANCIAL PERFORMANCEThe SEG SaaS Index, consisting of 27 pure playSaaS providers, now has sufficient critical mass The median TTM revenue of SEG Internet Indexfor us to track four distinct subcategories: CRM & companies grew an impressive 27.4% in 2Q12,Marketing, ERP & Supply Chain, Workforce 41% higher than 2Q11 (Figure 18). AmongManagement and Vertically Focused providers SEG’s three tracking indices, companies(Figure 17). comprising our Internet Index have the highest median TTM revenue ($394.7 million), making their median revenue growth in 2Q12 all the more impressive. 10| 2Q12 SOFTWARE INDUSTRY FINANCIAL REPORT www.softwareequity.com
- 14. Software Equity Group, L.L.C. Investment Banking / Mergers & AcquisitionsFigure 17: SEG SaaS Index Median Metrics by Product Category SEG SaaS Index EV/Revenue EV/EBITDA TTM Revenue Growth EBITDA Margin Category 2Q11 3Q11 4Q11 1Q12 2Q12 2Q11 3Q11 4Q11 1Q12 2Q12 2Q11 3Q11 4Q11 1Q12 2Q12 2Q11 3Q11 4Q11 1Q12 2Q12 CRM & Marketing 4.9x 4.4x 2.8x 4.4x 4.6x 47.1x 28.1x 29.1x 33.6x 30.1x 29.6% 28.2% 25.2% 29.9% 21.4% 7.2% 6.9% 6.7% 7.5% 7.6% ERP & Supply Chain 6.9x 6.0x 5.7x 5.3x 6.0x 37.6x 47.2x 65.3x 68.7x 68.5x 19.1% 21.8% 24.3% 27.9% 28.1% 8.0% 7.4% 6.9% 7.1% 7.6% Vertically Focused 5.6x 5.4x 5.2x 5.7x 4.5x 30.3x 27.8x 27.3x 33.4x 29.9x 29.3% 28.9% 34.2% 34.5% 34.4% 14.0% 16.1% 16.7% 15.2% 15.3% Workforce Management 4.5x 3.6x 4.3x 4.7x 4.8x 63.3x 44.1x 49.4x 47.2x 50.6x 26.6% 32.3% 35.7% 31.1% 29.2% 1.2% 1.9% 1.1% 0.7% -0.9% Median: 5.7x 5.1x 4.4x 5.3x 5.0x 40.7x 33.8x 29.7x 33.6x 30.1x 29.2% 27.3% 26.1% 28.4% 30.3% 8.0% 10.5% 9.2% 9.9% 9.9%By comparison, public software companies had As for profitability, the median EBITDA margin ofmedian TTM revenue of $365.1 million in 2Q12, public Internet companies continued to decline inbut a considerably lower TTM revenue growth 2Q12, closing the quarter at 13.5%, after reachingrate of 15.5%. a historic high in 1Q11 of 16.8%. The declining profitability is primarily attributable to higher salesOf the 19 public Internet companies with TTM and marketing expenses to drive market adoption.revenue of $1 billion or more, nearly two-thirds It was a strategy that worked, for some: Jivegrew TTM revenue by more than 20% in 2Q12. Software is a good example, which publicly listedQ2’s top Internet performers spanned an array of in 2011, posted 64% TTM revenue growth, but aInternet categories, including eCommerce -45% EBITDA margin in 2Q12.(Amazon, eBay), Search (Google, Baidu), Gaming(Tencent, Zynga), Travel (Priceline, Expedia) Figure 19: SEG Internet Index RevenueSocial Networks (Facebook) and Lead Gen Growth Distribution(Groupon). 250%Nevertheless, growth disparities among public 200%Internet providers abounded in Q2; the SEGInternet index has the widest variance of revenue TTM Revenue Growth 150%growth rates among our three tracking indices(Figure 19). Five public Internet companies 100%achieved TTM revenue growth at or above 100%in 2Q12, including Groupon (232.2%), Qihoo 50% Median: 27.4%(201.7%), Youku (123%), Zillow (113.3%), and 0%LinkedIn (111.1%). ‐50%At the other end of the spectrum, ten SEGInternet providers posted negative revenuegrowth, led by Yahoo (-16.4%), Mecox (-9.0%), Nevertheless, the SEG Internet Index includes aeHealth (-7.3%) and AOL (-5.2). good number of companies that are highly profitable. One out of eight public Internet companies achieved EBITDA margins of 40% orFigure 18: SEG Internet Index Median Metrics greater, including ChangYou.com (65.7%), Baidu SEG - Internet: Median Metrics (58.5%), Facebook (53.4%), Netease (50.2%) and Measure 2Q11 3Q11 4Q11 1Q12 2Q12 TripAdvisor (45.6%).EV/Revenue 3.2x 2.7x 2.5x 2.3x 2.3xEV/EBITDA 18.7x 13.8x 12.3x 13.1x 12.5x Though EBITDA margins may have declined, theEV/Earnings 34.0x 28.1x 22.2x 26.5x 24.0x surge in revenue enabled many InternetCurrent Ratio 2.5 2.7 2.6 2.4 2.5Cash & Eq ($M) $114.2 $135.9 $152.1 $152.1 $155.4 companies to boost their cash reserves. By theGross Profit Margin 67.0% 66.3% 66.9% 67.5% 67.5% close of the second quarter, the median Cash &EBITDA Margin 15.1% 14.7% 14.8% 13.7% 13.5% Equivalents of companies comprising the SEGNet Income Margin 4.4% 4.4% 3.8% 4.5% 4.9% Internet Index was $155.4M, up 36% from 2Q11TTM Revenue Growth 19.5% 21.2% 26.0% 29.8% 27.4% (Figure 18).TTM Total Revenue ($M) $319.2 $345.4 $375.7 $393.6 $394.7TTM Total EBITDA ($M) $43.7 $51.7 $54.3 $56.9 $52.8Debt / Equity Ratio 10.6% 11.8% 18.2% 13.7% 13.4% 11| 2Q12 SOFTWARE INDUSTRY FINANCIAL REPORT www.softwareequity.com
- 15. Software Equity Group, L.L.C. Investment Banking / Mergers & AcquisitionsFigure 20: SEG Internet Valuation by Size (TTM Revenue) SEG Internet Index Companies EV/Revenue EV/EBITDA Revenue Growth EBITDA Margin 2Q11 3Q11 4Q11 1Q12 2Q12 2Q11 3Q11 4Q11 1Q12 2Q12 2Q12 (TTM) 2Q12 (TTM) Revenue Greater Than $1 billion 3.6x 2.7x 3.4x 3.4x 3.3x 13.1x 17.5x 16.7x 18.5x 21.1x 30.3% 18.9% Revenue Between $200 million and $1 billion 3.5x 2.6x 2.4x 2.2x 1.8x 14.5x 12.2x 10.9x 11.6x 10.2x 26.4% 17.7% Revenue Between $100 million and $200 million 3.2x 2.6x 2.1x 2.5x 2.2x 12.7x 8.7x 7.9x 9.2x 7.1x 30.4% 8.1% Revenue Less Than $100 million 1.4x 2.2x 2.3x 2.3x 3.1x 19.6x 18.9x 16.0x 16.3x 18.5x 16.1% -6.6%PUBLIC INTERNET COMPANY MARKET But unlike SaaS investors who seemed indifferentVALUATIONS to profitability (Figure 16), Internet investors paid great attention to the bottom line in 2Q12. PublicThe median EV/Revenue multiple for the 87 Internet companies with EBITDA margins greaterpublic companies comprising the SEG Internet than 40% in 2Q12 were rewarded with a premiumIndex was 2.3x in 2Q12, the same as in Q1, but median market valuation of 8.7x, while those withdown 30% YoY from 2Q11’s 3.2x (Figure 18). 0% - 10% EBITDA margins were punished with aIn contrast to the YoY decline in the broader median 1.0x EV/Revenue multiple (Figure 22).index, Internet companies with revenue under$100 million saw their median EV/Revenue Figure 22: SEG Internet Median EV/Revenue vs.multiples climb 121% over the past year (Figure EBITDA Margin20). 10.0x 9.0x 8.7xInvestors clearly favored public Internet 8.0xcompanies with above average TTM revenue 7.0x Median EV/Revenuegrowth. As testament, companies in the SEG 6.0xInternet Index with TTM revenue growth rates 5.0x 4.4x 3.7xabove 40% were rewarded with a median 5.3x 4.0x 3.1xEV/Revenue multiple, while those with negative 3.0xTTM revenue growth rates had a median market 2.0x 1.0x 1.3x 1.0xvaluation of 1.0x (Figure 21). 0.0x <= 0% > 0% > 10% > 20% > 30% > 40%Figure 21: SEG Internet Median EV/Revenue vs. <= 10% <= 20% <= 30% EBITDA Margins <= 40% <= 50%TTM Revenue Growth 6.0x 5.3x 5.0x PUBLIC INTERNET COMPANY FINANCIAL PERFORMANCE: BY PRODUCT CATEGORYMedian EV/Revenue 3.9x 4.0x 3.0x 2.4x Compelled by market forces to scale rapidly, then 2.0x 1.6x monetize, the Social product category racked up 1.0x 1.0x 0.9x the highest median TTM revenue growth rate (64.2%) among all Internet companies in Q2 0.0x <= 0% > 0% > 10% > 20% > 30% > 40% (Figure 23). All six companies within this category <= 10% <= 20% <= 30% <= 40% TTM Revenue Growth grew TTM revenue at a rate that was at least twice that of the median growth rate for all Internet companies in the second quarter: LinkedInInvestors found unprofitable but rapidly growing (111.1% TTM revenue growth), Facebookpublic Internet companies to be as appealing as (88.3%), Mail.ru Group (84.0%), Yelp (75.4%),their SaaS brethren. Internet providers with Jive (64.3%) and Renren (56.4%).negative EBITDA margins at the close of 2Q12had a whopping median EV/Revenue multiple of Four other product categories finished 2Q12 with4.4x, thanks to a stellar median TTM revenue TTM revenue growth rates above the Internetgrowth rate of 67.4% (Figure 22). sector median: Services (57.8%), Ad Tech & Lead Gen (37.5%), Gaming (33.5%) and Travel (26.7%). 12| 2Q12 SOFTWARE INDUSTRY FINANCIAL REPORT www.softwareequity.com
- 16. Software Equity Group, L.L.C. Investment Banking / Mergers & AcquisitionsFigure 23: SEG Internet Index Median Metrics by Product Category SEG - Internet Index Revenue EBITDA EBTIDA YTD EV/Revenue EV/EBITDA Growth Growth Margin Stock Category (TTM) (TTM) (TTM) Return 2Q11 3Q11 4Q11 1Q12 2Q12 2Q11 3Q11 4Q11 1Q12 2Q12 2Q12 2Q12 2Q12 2012Ad Tech & Lead Gen 3.3x 2.6x 2.6x 3.0x 2.3x 10.9x 11.1x 11.9x 14.1x 11.4x 37.5% 36.9% 14.0% -1.1%Commerce 1.9x 1.4x 1.1x 0.9x 0.7x 19.2x 13.7x 13.0x 16.6x 18.8x 17.5% 6.5% 8.3% 10.7%Content & Media 3.4x 2.7x 2.2x 2.0x 1.7x 18.2x 11.0x 10.6x 10.5x 10.1x 18.9% -6.9% 13.3% 7.0%Gaming 4.4x 4.7x 3.1x 3.2x 3.1x 9.8x 8.0x 6.0x 4.2x 4.0x 33.5% 28.7% 45.5% -4.3%Infrastructure 3.0x 2.6x 1.7x 1.9x 1.8x 19.2x 17.0x 12.9x 14.1x 16.2x 18.1% 21.8% 10.9% -1.6%Services 4.9x 4.5x 3.2x 2.6x 2.4x 21.8x 16.3x 16.7x 17.0x 15.2x 57.8% 44.5% 11.9% 10.2%Social 22.6x 19.9x 12.4x 13.5x 12.9x 136.9x 114.3x 47.7x 33.5x 33.0x 64.2% -33.8% 12.9% 30.7%Travel 7.3x 5.0x 5.4x 4.7x 3.1x 32.6x 23.4x 14.1x 15.0x 15.5x 26.7% 16.5% 21.7% -4.7% Median: 3.3x 2.7x 2.5x 2.3x 2.3x 18.7x 13.7x 12.2x 13.1x 12.4x 27.4% 21.4% 13.5% 4.3%The Services product category, the best PUBLIC INTERNET COMPANY MARKETperformer of the four, was boosted by strong TTM VALUATIONS: BY PRODUCT CATEGORYrevenue growth from Qihoo (202.1%), Angie’s List(64.5%), Shutterfly (58.9%) and Bankrate The public market valuations of companies(57.8%). Companies within the Ad Tech & Lead comprising the SEG Internet Index varied widelyGen category continued to benefit from the by Internet category in 2Q12 (Figure 23). Socialdramatic growth in advertising dollars migrating Media led the pack, closing 2Q12 with a medianfrom offline to online, as well as from increased EV/Revenue multiple of 12.9x, while Commercespending on lead generation services. Notable brought up the rear with a paltry 0.7x.examples in this category include Groupon(232.2% TTM revenue growth), LinkedIn (111.1%) In a sharp contrast with last quarter, revenueand Baidu (80.3%). growth and EV/Revenue market valuations were not as linked in Q2 (Figure 24). Companies in theGaming arguably turned in the best overall Internet Services category grew TTM revenuefinancial performance among all Internet 57.8%, yet finished 2Q12 with a relatively modestcategories in Q2, posting an impressive 33.5% EV/Revenue multiple of 2.4x.median revenue growth rate and a noteworthymedian EBITDA margin of 44.5%. All but Zynga By contrast, companies in the Internet Travelposted EBITDA margins above 38%, aided by category grew TTM revenue 26.7% - less thanlower customer acquisition costs and the viral half the Service category’s growth rate - butnature of online gaming. The product category’s posted a median EV/Revenue multiple of 3.1x.median EBITDA margin was more than twice thatof the runner up, Travel (21.7%). Figure 24: SEG Internet Index Product CategoryCommerce category posted a median EBITDA Median EV/Revenue vs. TTM Revenue Growthmargin of 8.3% in 2Q12, the lowest of all Internetproduct categories. The profitability of Internet 14.0xeCommerce providers has historically lagged 12.0x 8other categories due to the significant revenue Median EV/Revenue 10.0xsharing inherent in their business model.As testament, Amazon posted an EBITDA margin 8.0xof 3.6% in 2Q12. 6.0x 4.0x 4 5By contrast, eCommerce providers with business 2 3 6 7 2.0xmodels that eschew inventory management, 1logistics and distribution expenses were able to 0.0x 0% 10% 20% 30% 40% 50% 60% 70%achieve considerably higher levels of profitability. TTM Revenue GrowthAs example, eBay generated EBITDA margins of 1. Commerce 6. Ad Tech & Lead Gen28.2% in the second quarter. 2. 3. Infrastructure Content & Media 7. 8. Services Social 4. Travel 5. Gaming 13| 2Q12 SOFTWARE INDUSTRY FINANCIAL REPORT www.softwareequity.com
- 17. Software Equity Group, L.L.C. Investment Banking / Mergers & AcquisitionsThe highest Internet category market valuations in America’s eBay, was boosted by investorsQ2, however, were reserved for companies enamored with emerging markets and thecomprising the Social Media category, which company’s 36% TTM revenue growth rate inracked up a median EV/Revenue multiple of 2Q12.12.9x - nearly six times higher than the overallInternet median of 2.3x. Companies with market INITIAL PUBLIC OFFERINGSvaluations exceeding the median InternetEV/Revenue multiple included Facebook (15.7x), After an impressive start in the first quarter whenMail.ru Group (14.8x), Yelp (12.4x) and Renren eleven software/SaaS/Internet companies went(8.3x). public, the software IPO market slowed markedly Q2 with only five newly listed companies (FigureThe Social Media category’s stellar 12.9x median 25). Still, 2H12’s tally of sixteen IPOs exceedsEV/Revenue multiple, however, represents a 43% last year’s first half count of thirteen, and isYoY decline drop from the breathtaking median notably higher than 2010’s first half count of five.22.9x EV/Revenue multiple these companiesenjoyed in 2Q11. The Facebook IPO debacle and Collectively, the sixteen newly listed companiesdoubts about the future growth prospects of touted a median TTM revenue growth rate ofFacebook and others have unquestionably 54.3% and a median TTM EBITDA margin ofdampened investor enthusiasm for Social Media 1.8%. In aggregate, they raised over $8.2 billion,providers. ranging individually from $25.2 million to $6.7 billion.Investors seemed wholly disinterested in InternetCommerce providers in the second quarter. The Q2’s new public entrants rewarded investors withgroup closed 2Q12 with a median 0.7x median YTD stock gain of 37.9% by close ofEV/Revenue multiple, by far the lowest of our quarter, although some fared better than others.Internet categories. Lackluster revenue growth, The best YTD performer was Synacor, a providerwell below the Internet median, is surely to blame of digital video delivery solutions, which posted ahere. The notable exception was Mercardolibre, 174.0% gain. By contrast, Envivio, a provider ofwhich posted a median EV/Revenue multiple of video processing solutions, dropped 28.8% since10.0x, over fourteen times the Commerce its IPO.category median for 2Q12. Mercardolibre, LatinFigure 25: U.S. Software, SaaS and Internet IPOs in 2012 EV / Revenue EBITDA First Day Company (Ticker) Category IPO Date Net Proceeds Enterprise Value EV / Rev Revenue YTD Return EBITDA Growth Margin ReturnServiceNow, Inc. Systems Management 6/28/12 $195,021,000 $2,859,000,000 16.9x n/a $168,969,000 113.0% (6.7%) 32.2% 36.7%(NYSE:NOW)Facebook, Inc. Internet - Social 5/18/12 $6,700,000,000 $78,538,839,520 19.4x 36.9x $4,038,000,000 88.0% 52.8% 0.6% (18.2%)(NASDAQ:FB)Envivio Inc. Internet - Infrastructure 4/25/12 $64,909,350 $199,919,110 3.9x 90.3x $50,646,000 68.8% 4.4% (5.7%) (28.8%)(NASDAQ:ENVI)Proofpoint, Inc. Security 4/20/12 $59,800,000 $409,851,640 4.7x n/a $87,676,000 26.3% (12.5%) 8.3% 30.4%(NASDAQ:PFPT)Splunk, Inc. Storage, Data 4/19/12 $213,435,000 $3,296,700,400 27.3x n/a $120,960,000 82.6% (5.2%) 108.7% 65.3%(NASDAQ:SPLK) Management & IntegrationMillennial Media, Inc. Mobile Solutions/Content 3/29/12 $123,318,000 $1,855,543,000 17.9x n/a $103,678,000 116.8% (0.1%) 92.3% 1.5%(NYSE:MM)ExactTarget, Inc. SaaS - CRM & Marketing 3/22/12 $161,500,000 $1,571,645,470 7.6x n/a $207,493,000 54.5% (3.3%) 32.2% 15.1%(NYSE:ET)Demandware, Inc. SaaS - Other 3/15/12 $81,840,000 $737,949,470 13.1x 346.8x $56,547,000 54.1% 3.8% 47.4% 48.1%(NYSE:DWRE)Yelp, Inc. Internet - Social 3/2/12 $99,742,500 $1,449,946,790 17.4x n/a $83,285,000 74.5% (8.5%) 63.9% 51.5%(NYSE:YELP)Bazaarvoice, Inc. SaaS - Other 2/24/12 $105,844,740 $950,055,560 10.1x n/a $93,986,000 64.6% (20.4%) 37.6% 51.7%(NASDAQ:BV)Brightcove, Inc. Internet - Infrastructure 2/17/12 $51,150,000 $368,043,500 5.8x n/a $63,563,000 45.4% (22.1%) 30.0% 39.2%(NASDAQ:BCOV)Synacor, Inc. Internet - Infrastructure 2/13/12 $25,200,000 $127,286,620 1.4x 19.0x $91,060,000 37.5% 7.4% 2.8% 174.0%(NASDAQ:SYNC)FX Alliance, Inc. Vertical - Finance 2/9/12 $58,032,000 $270,796,960 2.3x 5.9x $118,265,000 19.4% 39.0% 14.5% 30.9%(NYSE:FX)AVG Technologies, Inc. Security 2/3/12 $119,040,000 $1,055,689,120 3.9x 12.6x $272,392,000 25.4% 30.7% (18.2%) (18.7%)(NYSE:AVG)Greenway Medical Technologies, Healthcare 2/2/12 $62,000,000 $348,719,740 3.3x 63.4x $105,784,180 45.3% 5.2% 30.0% 63.1%Inc.Guidewire Software, Inc. Vertical - Other 1/25/12 $106,996,500 $842,377,160 4.4x 32.5x $190,182,000 28.8% 13.6% 31.7% 116.3%(NASDAQ:GWRE) Median $102,793,620 $896,216,360 6.7x 34.7x $104,731,090 54.3% 1.8% 30.8% 37.9%Financial data is the latest available from CapIQ on offering date.First day return compares listed offering price to first day close. 14| 2Q12 SOFTWARE INDUSTRY FINANCIAL REPORT www.softwareequity.com
- 18. Software Equity Group, L.L.C. Investment Banking / Mergers & AcquisitionsWhy such disparate shareholder returns amongtwo companies in the same niche productcategory? As the market reacted to globaleconomic concerns in Q2, investors opted for thelarger, albeit slower growing, more value pricedSynacor over the smaller, faster growing, morevolatile - and considerably more expensive(EV/Revenue) - Envivio.Many of 2H12’s IPOs had strong first dayperformances, indicating investors found them tobe appropriately priced with good upside. Splunk,a provider of IT infrastructure intelligence, saw itsinitial offering price soar 108.7% by the close oftrading. Other stocks which posted stellar firstday returns in the first half of the year includedMillennial Media (92.3%), Yelp (63.9%),Demandware (47.4%), Bazaarvoice (37.6%),ServiceNow (32.2%) and ExactTarget (32.2%).The much anticipated Facebook IPO proved to bea disaster, marred by last minute overpricing,NASDAQ trading delays, and warnings fromanalysts of some Facebook underwriters that mayhave been communicated to select clients prior tothe first day of trading. In the aftermath,disgruntled investors have filed lawsuits, andinvestors are questioning the lofty valuations andfuture prospects of not only Facebook, but muchof the Internet sector.At the close of Q2, Facebook’s stock was down18.2%, but the company was still trading at arather lofty EV/Revenue multiple of 15.7x, whichis likely unsustainable if earnings falter orFacebook is unable to quickly improve andmonetize its mobile offerings.The aftershock from Facebook’s botched IPOruined investor appetite for newly public techcompanies and shut down the software IPOmarket down for nearly five weeks. Near theclose of Q2, however, ServiceNow, a SaaSprovider of enterprise IT management software,joined the ranks of public companies and closedup 32.2% its first day. It seems sidelinedinvestors just couldn’t resist ServiceNow’s 113%TTM revenue growth rate and ~85% recurringrevenue. 15| 2Q12 SOFTWARE INDUSTRY FINANCIAL REPORT www.softwareequity.com
- 19. Software Equity Group, L.L.C. Investment Banking / Mergers & AcquisitionsFigure 26: U.S. Software Mergers & Acquisition Activity 500 $25 453 453 450 431 426 430 422 421 $23.7 423 407 400 383 $21.3 $21.3 $20 372 $17.3 350 330 311 $17.9 $13.5Number of Deals 300 $16.1 $15 Value (BIllions) $13.1 $12.7 250 $12.8 200 $10 $7.6 150 $4.6 100 $5 $3.3 50 0 $0 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 Deals ValueSOFTWARE/SAAS M&A DEAL VOLUME AND SPENDINGAs we went to press, 422 software industry M&A EV, 8.8x TTM revenue); Dell’s acquisition oftransactions were reported in the second quarter Quest Software ($2.2 billion EV, 2.6x TTM(Figure 26). We expect the final tally for 2Q12 to revenue); Microsoft’s acquisition of Yammer ($1.2reach 430, since M&A data for the quarter is often billion EV); and Apax Partners’ acquisition ofrevised and released well into the following Paradigm ($1 billion EV).quarter. Indeed, the updated tally for 1Q12 was423 software/SaaS transactions, significantly It remains to be seen whether the secondgreater than the 401 deals initially referenced in quarter’s private equity-backed mega deal signalsour first quarter report. If our projection holds a broader return by PE firms to large buyouts.true, 2Q12 deal volume will likely equal or exceed And it’s worth noting 2Q12 marked the third2Q11’s 430 deals. The quarterly software/SaaS consecutive quarter of at least one SaaS megaM&A tally has now surpassed 400 - the historical deal, evidence that SaaS market adoptionbenchmark for healthy software M&A volume - for continues to grow and SaaS companies areeight straight quarters. achieving sufficient critical mass to attract the software industry’s largest public companies.For those 2Q12 software/SaaS transactions withannounced price tags, the aggregate purchase On a TTM basis, which presents a more reliableprice was $21.3 billion, 32% higher than 1Q12’s trend line of software M&A spending, the$16.1 billion, and the second highest quarterly aggregate software/SaaS M&A price tag issoftware M&A spend since 1Q09. Software and holding steady, despite the ongoing uncertaintySaaS mega deals (i.e., > $500 million) were about the broader economy. As of the close ofmostly responsible for the sharp increase. the second quarter, $73.9 billion was expended on software/SaaS transaction dollars during theSoftware/SaaS mega deals in the second quarter prior twelve months, the identical amount spentincluded SAP’s acquisition of Ariba ($4.4 billion during the twelve month period ending 1Q11. 16| 2Q12 SOFTWARE INDUSTRY FINANCIAL REPORT www.softwareequity.com
- 20. Software Equity Group, L.L.C. Investment Banking / Mergers & AcquisitionsThe average deal size, after a period of rapid Figure 28: Median Software M&A Valuation as agrowth, began to level off in 4Q11, and continued Multiple of Revenue (top) and EBITDA (bottom)to grow only modestly through the 2Q12 when theTTM average deal size was $42.2 million, a 2.5x 2.2x 1.8x 1.9xmodest 5.5% YoY increase (Figure 27). 1.7xFigure 27: TTM Average M&A Deal Size $45.0 $42 $41 $42 $42 2Q11 3Q11 4Q11 1Q12 2Q12 $40TTM Average Deal Value (Millions) $40.0 $37 $35.0 $33 $31 $30.0 $28 14.7x $25.0 13.4x 13.4x $20 $20 $20 12.2x 12.1x $20.0 $16 $15.0 $10.0 $5.0 $0.0 2Q11 3Q11 4Q11 1Q12 2Q12 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 Despite Q2’s relatively unimpressive median TTM exit multiple, it’s important to note that 29.2% ofIMPORTANT CHANGE IN SOFTWARE AND SAAS software/SaaS M&A transactions in the pastM&A DATA ACCOUNTING twelve months with ascertainable exit multiples had an EV/Revenue multiple of 3.0 or greaterHistorically, we aggregated M&A data for both on- (Figure 29). Indeed, in the second quarter, 8.3%premise and SaaS software company of M&A deals with ascertainable exit multiples hadtransactions because of the relative dearth of an exit multiple of 5.0x or greater, suggesting thatpure-play SaaS deals. We noted, though, the in the current deal environment, software/SaaSconsiderably higher median multiple of these M&A is increasingly comprised of two seller types,SaaS deals tended to skew the median M&A the “haves” (i.e., those deemed by buyers to bemultiple higher. Since SaaS is no longer a highly strategic) and the “have nots.”nascent part of the overall software M&Aecosystem, and SaaS transactions now constitute Figure 29: 2Q12 Median Software M&Aa meaningful percentage of total software M&A, EV/Revenue Multiple Distributionwe began in 3Q11 to analyze and separatelyreport M&A data for SaaS and on-premise 60.0% 50.0%software deals. To ensure our historical and 50.0%current comparisons are consistent, all historical 40.0%M&A data referenced in our charts this issue hasbeen recalculated to exclude SaaS M&A 30.0%transactions. 20.0% 16.7% 12.5% 8.3% 8.3%SOFTWARE M&A VALUATIONS 10.0% 4.2% 0.0%The software industry’s benchmark median exit <=1.0x >1.0x & >2.0x & >3.0x & >4.0x & >5.0xmultiple inched down to 1.7x TTM revenue in <=2.0x <=3.0x <=4.0x <=5.0x2Q12 from 1.9x in 1Q12 (Figure 28). While theexit multiple is somewhat below the software Among Q2’s transactions with the highest exitindustry’s ten year average of 2.0x TTM revenue, multiples were Equinix’s acquisition of ancotel ($quarterly exit multiples tend to fluctuate 140 million, 6.5x TTM Revenue); Bazaarvoice’sconsiderably quarter-to-quarter. acquisition of PowerReviews ($127.8 million EV, 11.1x TTM revenue); Intuit’s acquisition of Demandforce ($423.5 million EV, estimated 11.3x 17| 2Q12 SOFTWARE INDUSTRY FINANCIAL REPORT www.softwareequity.com
- 21. Software Equity Group, L.L.C. Investment Banking / Mergers & AcquisitionsTTM revenue); and Zillow’s purchase of SOFTWARE M&A VALUATIONS BY EQUITYRentJuice Corporation ($37.4 million EV, 102.4x STRUCTURETTM revenue). While a variety of factors impact exit valuation,The largest SaaS deal of the quarter was SAP’s one important driver is the seller’s equityacquisition of Ariba ($4.4B EV, 8.8x TTM structure. We separated public and privateRevenue), a leading provider of collaborative software company buyers to ascertain anybusiness solutions for buying and selling goods difference in median purchase price paid in 2Q12.and services. The acquisition follows on the heels Historically, public buyers have paid higher exitof SAP’s blockbuster acquisition of multiples than private buyers: 2.5x vs. 2.0x TTMSuccessFactors in 4Q11 ($3.5B EV, 12.0x TTM revenue in 2007; 2.0x vs.1.7x in 2008; 1.9xRevenue). All told, SAP has spent over $8 billion vs.1.2x in 2009; 2.4x vs.1.8x in 2010, and 2.4x vs.on SaaS mega deals in the past six months. 2.0x in 2011. That trend continued in 2Q12 as public buyers paid a median 2.5x TTM revenue,Since very few software transactions publicly while private buyers paid only 1.3x TTM revenuedisclose a private software seller’s TTM EBITDA, (Figure 30). The significant premium paid bywe lacked sufficient data to ascertain the median public buyers can be attributed, at least in part, toEBITDA exit multiple paid in 2Q12 for private the sizable amounts of cash on their balancesoftware company sellers (Figure 28). We did, sheets; their preference for larger targets thathowever, determine 2Q12’s median exit multiple typically yield a higher multiple; and the greaterfor public software company sellers was 12.1x inclination of public buyers to pursue strategicTTM EBITDA, a tick down from 1Q12’s 12.2x transactions, while private buyers are often moreTTM EBITDA exit multiple. inclined toward financial transactions.Figure 30: 2Q12 Median EV/Revenue SOFTWARE M&A VALUATIONS BY SIZEExit Multiple by Ownership Structure Another key driver of exit multiples is size – of Public Sellers 1.4x Median Multiple both buyer and seller. As testament, in 2Q12, buyers with TTM revenue greater than $200 million paid a median EV/Revenue multiple of 32% 2.8x, while buyers with TTM revenue less than 68% $200 million paid only 1.4x TTM revenue (Figure 31). Private Sellers Figure 31: 2Q12 Median EV/Revenue Exit 2.5x Median Multiple Multiple by Size Buyer Greater Buyer Less Than Private Buyers Than $200 million $200 million 1.3x Median Multiple 2.8x Median 1.4x Median Multiple Multiple 28% 72% 44% 56% Public Buyers 2.5x Median Multiple Seller Greater Seller Greater Than $20 Than $20 million: 2.7x 0.8x million: 1.5x 1.3x Seller Less Seller Less Than $20 Than $20 million: 2.0x 4.5x million: 2.4x 1.6x 18| 2Q12 SOFTWARE INDUSTRY FINANCIAL REPORT www.softwareequity.com
- 22. Software Equity Group, L.L.C. Investment Banking / Mergers & AcquisitionsEqually noteworthy - sellers with less than $20 revenue, deep domain expertise, and highlymillion TTM revenue received a median defensible market positions. The most activeEV/Revenue multiple of 4.5x from buyers with verticals in 2Q12 were Healthcare and Financial$200 million of revenue or more, while sellers with Services, garnering 25.5% and 23.6%,greater than $20 million TTM revenue were paid a respectively (Figure 32).median exit valuation of 2.7x. Both verticals continued to see heightened dealWhy? A rapidly growing smaller company will activity, mostly due to regulatory changes,often deem an exit premature and spurn growing governmental scrutiny, and evolvingadvances by a strategic acquirer, prompting the market conditions. The Education verticallarger suitor to raise the bid. Case in point: accounted for 10.9% of 2Q12’s deal total, drivenPowerReviews, a small but highly respected by high demand for software solutions thatsocial commerce network which enables brands address demands for greater accountability andand retailers to organize and manage consumer leverage more cost-effective learning.insights to drive sales, was highly complementarywith Bazaarvoice’s existing business and was Vertical software companies have been ingobbled up for 11.1x TTM revenue. growing demand since 4Q11 (Figure 33). Vertical targets accounted for 30% of total M&ASOFTWARE M&A BY VERTICAL AND HORIZONTAL transactions in 4Q11, 32% in 1Q12 and, as noted,MARKETS 35% in 2Q12. The median EV/Revenue exit multiple of these vertical targets has nearlyAnother important determinant of exit valuation is doubled over the same time period, growing fromthe seller’s market focus and related domain 1.0x in 4Q11 to 1.9x in 2Q12 (Figure 34).expertise. We analyzed 2Q12’s median softwareM&A multiple horizontally and vertically, Figure 33: Horizontal & Vertical M&A Volumesegregating software company sellers with 100%vertical market solutions (e.g. retail, financial 90% 30% 32% 80% 37% 37% 35%services, telecom, manufacturing, etc.) from 70%sellers with horizontal software solutions 60% 50%(infrastructure, enterprise applications, etc.). 40% 63% 63% 70% 68% 65% 30% 20%Figure 32: 2Q12 M&A Volume by Vertical 10% 0% 2Q11 3Q11 4Q11 1Q12 2Q12 Real Estate Retail Utilities 3.6% 0.9% 3.6% Automotive Vertical Horizontal 0.9% Education Public Sector 10.9% 4.5% Figure 34: Horizontal & Vertical M&A Median EV/Revenue Exit Multiples Other Verticals 17.3% Financial Services 23.6% 3.5x 3.0x 3.0xOil & Gas 6.4% 2.5x 2.3x 2.0x 1.9x 1.9x 2.0x Manufacturing 1.6x 0.9% 1.5x 1.3x Healthcare 1.0x Legal Hospitality 25.5% 1.0x 0.9% 0.9% 0.5x 0.0x 3Q11 4Q11 1Q12 2Q12In 2Q12, providers of vertical software accounted Vertical Horizontalfor 35% of all software M&A, confirming verticalproviders remain attractive acquisition targetsprimarily because of their predictable recurring 19| 2Q12 SOFTWARE INDUSTRY FINANCIAL REPORT www.softwareequity.com
- 23. Software Equity Group, L.L.C. Investment Banking / Mergers & AcquisitionsSOFTWARE M&A BY PRODUCT CATEGORY Other software product categories with median EV/Revenue multiples significantly above theWe begin this section with two fundamental truths: general software median of 2.5x in 2Q12 wereFirst, while such factors as revenue growth, equity Mobile (2.8x), Multimedia, Graphics and Digitalstructure and delivery model can demonstrably Media (2.5x), CRM (2.4x), Healthcare (2.4x) andimpact a software company’s exit valuation, the BI, Risk and Compliance (2.4x). Software productnature of it product offering – its software product categories lagging the general software mediancategory – is the single most important M&A include Supply Chain Mgmt (1.2x) and Othervaluation driver. Second, product category Verticals (1.4x).median exit valuations are highly volatile, oftenhighly dependent on market adoption, and From the standpoint of deal activity, the Mobilefluctuate greatly from year to year. Each premise product category led all others by far, accountingcontinued to hold true in 2Q12. for 22.5% of 2Q12’s transactions (Figure 36). Other active M&A categories this quarterFor most software product categories, there is included: Multimedia, Graphics and Digital Mediaoften an insufficient number of transactions each (4.5%), Engineering, PLM and CAD/CAM (3.2%)quarter that publicly report both seller TTM Development Tools & Application Testing (3.2%)revenue and buyer purchase price, essential in and Networking & Network Performance Mgmtdetermining the median exit value for the (2.6%). The breadth of M&A product categoriescategory. Consequently, we aggregate the data with transactions in the second quarter speaks toeach quarter for each category on a TTM basis. the current vibrancy of the software M&A market.As a result, it may take several quarters to detectchanging product category valuation trends, as The second quarter marks the first time thecertain outlier transactions consummated nine or mobile category has not only led in M&A volume,twelve months ago may have a residual impact on but also in median EV/Revenue exit multiple.their product category multiples. With the exception of a few headline grabbing deals, the mobile category has been historicallyAmong the 32 product categories we tracked in characterized by a large number of transactions2Q12, eleven had both sufficient deal activity and involving small, private companies that weredeal data to ascertain a TTM revenue multiple unable to command a significant exit premium.(Figure 35). Software company sellers that were While 2Q12’s results suggest the fortunes offocused on Network Performance Management mobile targets may be changing, it’s important togarnered the highest median TTM revenue note mobile deal structures frequently includemultiple, 7.5x, nearly 3x higher than the second stock, earnouts and other contingencies that puthighest category. Sellers within this product reported transaction values at high risk. For acategory are benefitting from the accelerating shift detailed overview on mobile M&A, see our blog:to cloud and mobile computing, which are http://softwareequitygroup.wordpress.com/2012/0transforming the IT infrastructures of both large 7/19/what-you-need-to-know-about-mobile-q2-enterprises and SMBs. update-ma-snapshot-hot-companies-and-product- categories-deal-structures-and-more/ Figure 35: Median EV/Revenue Multiple by Software Product Category 7.5x 2.8x 2.5x 2.4x 2.4x 2.4x 2.1x 2.0x 1.9x 1.4x 1.2x Healthcare Content, Document Graphics, Digital Mobile CRM Financial Services Manufacturing & Other Verticals Performance Mgmt Supply Chain BI, Risk and Compliance (A&D, Telco, Retail, etc.) Process Mgmt Asset Mgmt Multimedia, Mgmt & Business Software Media Network 20| 2Q12 SOFTWARE INDUSTRY FINANCIAL REPORT www.softwareequity.com
- 24. Software Equity Group, L.L.C. Investment Banking / Mergers & Acquisitions Figure 36: Software M&A by Product Category Content & Document Mgmt Billing & Service Mgmt 3.5% Data Mgmt & Integration Development Tools & Application Testing 1.0% Business Intelligence 1.6% 3.2% 1.3% Asset & Facilities Mgmt 1.3% CRM & Marketing 2.6% Engineering, PLM & CAD/CAM 3.2% Accounting & Finance EDA 1.0% 1.6% Utilities 1.3% EDI/ Middleware Retail 0.6% 0.3% Real Estate 1.3% ERP Gaming 1.0% 0.6% Public Sector 1.6% Messaging, Conferencing & Other Verticals Communications 6.1% 2.3% Oil & Gas 2.3% Manufacturing Vertical Deals 0.3% Legal 0.3% Hospitality 0.3% Healthcare Mobile 9.0% 22.5% Financial Services 8.4% Education 3.9% Automotive 0.3% Multimedia, Graphics & Digital Media 4.5% Web Analytics 0.6% Security 2.9% Networking & Network Performance Mgmt 2.6% Talent & Workforce Mgmt Storage & Systems Mgmt Supply Chain & Logistics 2.3% 2.3% 2.3%SOFTWARE AS A SERVICE (SAAS) M&A DEAL SaaS exit valuations are also ramping, and haveVOLUME AND VALUATIONS begun to approach pre-Recession highs. The median EV/Revenue exit multiple for SaaSThe number of SaaS M&A transactions continues providers in the second quarter was 4.0x, up 2.6%to soar. In 2Q12, 59 SaaS companies were QoQ, and 14.3% YoY (Figure 38). 2Q12’sacquired, a 31% increase from 45 transactions in median exit valuation is more than double the2Q11. SaaS targets accounted for 14.0% of all median 1.7x TTM EV/Revenue exit multiple of on-software industry acquisitions in 2Q12, compared premise software companies in 2Q12.to only 7.8% of all software M&A deals just twoyears ago (Figure 37). Figure 38: Median SaaS M&A ValuationFigure 37: SaaS M&A Deals as % of Total Multiple as a Multiple of TTM RevenueSoftware M&A Deals SaaS M&A Deals SaaS as % of Software 4.0x 3.9x 80 18% 3.7x 3.7x SaaS M&A Deals as a % of Total 68 16% 70 65 59 14% 3.5x Software M&A Deals# of SaaS M&A Deals 60 48 12% 50 45 39 39 10% 40 30 8% 2Q11 3Q11 4Q11 1Q12 2Q12 30 26 20 6% 20 13 4% 8 10 10 2% 0 0% 21| 2Q12 SOFTWARE INDUSTRY FINANCIAL REPORT www.softwareequity.com
- 25. Software Equity Group, L.L.C. Investment Banking / Mergers & AcquisitionsFigure 39: SaaS M&A by Product Category Billing & Service Mgmt Business Intelligence Utilities 3% 2% 2% CRM & Marketing Retail 25% 2% Real Estate 7% Other Verticals 5% Manufacturing 2% Vertical Deals Development Tools & Legal Application Testing 2% 2% Insurance 2% Hospitality 3% Facilities & Asset Mgmt Healthcare 2% 2% Financial Services Messaging, 2% Conferencing & Education Communications 3% 12% Automotive Web Analytics Storage, Data Mgmt & 2% 3% Integration Talent & Workforce 2% Mgmt Supply Chain & Logistics 14% 3%SAP’s acquisition of Ariba wasn’t the only The broad based appeal of SaaS is evidenced byblockbuster SaaS deal in the second quarter. the fact that 2Q12’s transactions included SaaSMicrosoft acquired Yammer ($1 billion EV), often targets in ten different product categories andreferred to as the Facebook of the workplace. twelve vertical markets.Yammer’s social elements, which candemonstrably enhance workplace productivity, The CRM & Marketing product categorywere deemed by Microsoft to be a vital extension accounted for a whopping 25% of all SaaS M&Afor its tired, but industry leading Office Suite. The transactions in 2Q12. We believe this signals the$1 billion price tag follows shortly after the target last flurry of consolidation in this product category,raised venture capital at a significantly lower pre- with larger vendors bulking up in response tomoney valuation, reminiscent of the now maligned increased market adoption of SaaS deployedFacebook/Instagram deal. CRM apps among enterprises and SMBs (Figure 39). Notable Q2 transactions in this categoryAnother notable second quarter SaaS deal was include: Salesforce.com’s acquisitions ofIntuit’s acquisition of Demandforce ($423.5 Thinkfuse and ChoicePass; Oracle’s acquisitionsmillion, estimated 11.3x TTM revenue), a provider of Collective Intellect and Vitrue; Experian’sof SaaS applications that automate digital acquisition of Conversen; LivePerson’s acquisitionmarketing and communications. Demandforce’s of Amadesa; and as noted above, Intuit’shorizontal customer base of SMB businesses and acquisition of Demandware.complementary products provide Intuit withsignificant cross sell opportunities and a direct The Talent & Workforce Management productpath to higher revenue per customer. category of our SaaS Index accounted for approximately 14% of the Q2 SaaS M&A tally.There were a number of other notable SaaS deals Talent/Workforce Management was one of thein the quarter (for a full list of SaaS acquisitions, earliest SaaS deployed application suites to gainsee Appendix G). Clearly, the industry’s largest a significant foothold among enterprises, and theyon-premise software companies now view SaaS continue to appeal to larger on-premise softwareas a viable deployment model and strategic providers that are under pressure to add SaaS toimperative. Second quarter SaaS company their product mix.acquirers included: Oracle, Salesforce.com, EMC,Autodesk, Experian, VMWare and LivePerson. 22| 2Q12 SOFTWARE INDUSTRY FINANCIAL REPORT www.softwareequity.com
- 26. Software Equity Group, L.L.C. Investment Banking / Mergers & AcquisitionsCollectively, vertical solution providers (pure-play Historically, Groupon has been highly acquisitiveSaaS and hybrid) accounted for 35% of all SaaS in this category, but not so in the second quarter.M&A transactions. SaaS sellers targeting real However, a broad array of buyers in an array ofestate accounted for 7% of all SaaS deals. The industries took up the slack, including: Deluxeremaining deals were spread nearly evenly across Corporation’s acquisition of OrangeSoda ($27.7the eleven other vertical product categories. million EV); Twitter’s acquisition of RestEngine; Facebook’s acquisition of Tagtile; IHS’ acquisitionINTERNET M&A DEAL VOLUME AND VALUATIONS of GlobalSpec ($135 million EV); and Cox Target Media’s acquisition of Savings.com ($100 millionInternet M&A activity in the second quarter was EV).robust, finishing the quarter with 273 transactions,up 37% YoY (Figure 40). The second quarter’s Content & Media was also among the most active273 Internet transactions was 65% of the final Internet categories from an M&A perspective, withtally for traditional on-premise software M&A, up 62 transactions in the second quarter. By far themarkedly from 3Q10 when Internet M&A was only most notable 2Q12 transaction in this product30% of the on-premise software deal total. category was Facebook’s acquisition of Instagram. Hammered out over a weekendFigure 40: Internet M&A Volume session between the CEO’s of both companies, the $1 billion price tag caused many to scratch their heads since Instagram had zero revenue 273 and no discernible business model. While it certainly made strategic sense to marry the leading mobile image sharing application with the 220 world’s largest social network, it seems highly 216 203 doubtful the deal will ever yield sufficient return to 199 justify the price tag. Social Media M&A volume was relatively low in Q2 compared to prior quarters, somewhat 2Q11 3Q11 4Q11 1Q12 2Q12 surprising given the high market valuations and visibility of public Social Media players. Still, thereThe most active Internet M&A category in 2Q12 were some noteworthy acquisitions in the secondwas Ad Tech & Lead Gen, which accounted for 70 quarter, including Twitter’s purchase oftransactions in Q2 (Figure 41). A good number of Hotspots.io; LinkedIn’s acquisition of SlideSharethe sellers in this category were daily deal sites ($72 million EV); Salesforce.com’s acquisition ofthat hoped to emulate Groupon and Living Social, BuddyMedia ($745 million EV); and Facebook’sbut were unsuccessful due to their inability to purchase of Face.com ($60 million EV).scale quickly and massively, making them ripe forconsolidation. Other Ad Tech & Lead Gen deals The TTM Internet M&A median exit multiple wasin Q2 included a new breed of online marketing 2.1x in 2Q12 (Figure 42). However, that mediancompanies leveraging social media and easy touse software to help local businesses, a highly Figure 42: Median Internet M&A Valuationssought after target market in the Internet space. as Multiple of Revenue 2.8x 2.6xFigure 41: Internet M&A Volume by Product 2.0x 2.1x 2.1xCategory Category Q2 2011 Q3 2011 Q4 2011 1Q 2012 2Q 2012 Ad-Tech & Lead Gen 42 67 60 65 70 Commerce 56 36 38 36 57 Content & Media 36 45 48 51 62 Gaming 15 6 14 13 25 Infrastructure 25 27 27 31 30 Social Tech 25 35 16 24 29 Total 199 216 203 220 273 2Q11 3Q11 4Q11 1Q12 2Q12 23| 2Q12 SOFTWARE INDUSTRY FINANCIAL REPORT www.softwareequity.com
- 27. Software Equity Group, L.L.C. Investment Banking / Mergers & Acquisitionsis derived by aggregating median multiples overthe prior twelve months, and doesn’t reflect therecent surge in Internet M&A volume and exitvalues.The median exit multiple for the second quarter,only, was 2.5x, markedly higher than the trailingtwelve months figure. Given an expanded anddynamic group of public Internet companies thatare trading at lofty valuations, a vibrant andgrowing addressable market, and rapidly evolvingInternet deployed technologies, we expectInternet valuations will continue to grow robustlyfor the remainder of 2012. 24| 2Q12 SOFTWARE INDUSTRY FINANCIAL REPORT www.softwareequity.com
- 28. Software Equity Group, L.L.C. Investment Banking / Mergers & AcquisitionsAPPENDIX A: 2Q12 PUBLIC SOFTWARE MARKET VALUATIONS AND STATISTICS BY PRODUCT CATEGORY Billing & Service Management 2Q11 3Q11 4Q11 1Q12 2Q12 Financial & Accounting 2Q11 3Q11 4Q11 1Q12 2Q12EV/Revenue 2.8x 1.3x 1.3x 1.3x 1.3x EV/Revenue 2.8x 2.3x 2.6x 2.8x 2.7xEV/EBITDA 7.4x 5.2x 5.6x 6.6x 6.9x EV/EBITDA 10.1x 8.9x 9.2x 9.8x 9.8xEV/Earnings 12.4x 9.3x 12.0x 11.8x 11.1x EV/Earnings 24.6x 18.8x 19.6x 25.0x 18.1xGross Profit Margin 52.0% 51.8% 52.9% 53.5% 54.1% Gross Profit Margin 69.7% 69.0% 67.0% 66.0% 64.4%EBITDA Margin 25.5% 21.9% 23.3% 21.8% 18.5% EBITDA Margin 27.0% 27.5% 26.6% 25.4% 25.6%Net Income Margin 16.0% 18.2% 17.1% 15.5% 12.9% Net Income Margin 12.1% 13.4% 11.0% 12.2% 13.2%TTM Revenue Growth (YoY) 9.3% 10.7% 34.1% 19.1% 22.3% TTM Revenue Growth (YoY) 6.6% 7.2% 7.9% 5.7% 7.1%TTM EBITDA Growth (YoY) 9.4% 13.8% 5.6% 0.8% 0.3% TTM EBITDA Growth (YoY) 4.8% 9.6% 10.1% 10.3% 9.5%TTM Earnings Growth (YoY) -7.4% -15.1% -34.0% -10.1% -5.2% TTM Earnings Growth (YoY) -15.0% -14.3% -9.7% -5.8% -6.9%Current Ratio 2.6 3.1 4.3 2.3 2.4 Current Ratio 1.4 1.3 1.4 1.3 1.4Cash as Percent of Market Cap 20.8% 32.1% 34.1% 22.8% 20.9% Cash as Percent of Market Cap 11.9% 12.1% 14.7% 11.4% 13.0%Enterprise Value Growth (YoY) 19.2% 8.4% -3.0% -10.3% -22.4% Enterprise Value Growth (YoY) 32.5% 9.3% 3.5% 8.4% 4.1% Business Intelligence 2Q11 3Q11 4Q11 1Q12 2Q12 Gaming 2Q11 3Q11 4Q11 1Q12 2Q12EV/Revenue 3.2x 2.8x 2.4x 2.3x 2.5x EV/Revenue 1.0x 1.4x 1.2x 1.2x 0.9xEV/EBITDA 43.1x 39.6x 36.5x 39.3x 38.1x EV/EBITDA 10.9x 9.1x 7.8x 7.1x 7.6xEV/Earnings 27.8x 142.0x 56.9x 66.4x 66.0x EV/Earnings 19.8x 20.2x 15.1x 12.3x 10.5xGross Profit Margin 79.3% 79.2% 78.7% 78.9% 78.5% Gross Profit Margin 55.5% 57.7% 58.9% 56.9% 57.4%EBITDA Margin 10.0% 7.3% 8.0% 8.9% 8.7% EBITDA Margin 10.4% 12.1% 12.8% 11.6% 9.2%Net Income Margin 5.7% 3.6% 5.2% 4.9% 4.0% Net Income Margin 4.9% 6.0% 5.5% 5.5% 6.0%TTM Revenue Growth (YoY) 18.2% 21.6% 25.2% 23.7% 19.0% TTM Revenue Growth (YoY) -0.4% 2.6% 4.8% 6.9% 14.1%TTM EBITDA Growth (YoY) -8.9% -6.8% -4.9% 4.6% 6.0% TTM EBITDA Growth (YoY) 82.8% 29.3% 44.5% 41.4% 7.3%TTM Earnings Growth (YoY) 76.4% -6.2% -14.3% 2.9% -29.0% TTM Earnings Growth (YoY) -162.0% -74.0% -23.2% -44.1% -32.4%Current Ratio 2.1 1.9 1.8 1.8 1.9 Current Ratio 2.4 2.7 2.3 2.3 2.6Cash as Percent of Market Cap 14.0% 15.5% 15.9% 15.3% 14.8% Cash as Percent of Market Cap 20.8% 24.5% 22.8% 22.9% 35.7%Enterprise Value Growth (YoY) 32.1% 53.5% 14.9% 16.2% -5.8% Enterprise Value Growth (YoY) 34.2% 39.4% 30.6% 15.0% -16.7% Development Platforms 2Q11 3Q11 4Q11 1Q12 2Q12 Healthcare 2Q11 3Q11 4Q11 1Q12 2Q12EV/Revenue 2.6x 1.8x 1.9x 2.3x 1.9x EV/Revenue 3.9x 3.5x 3.1x 3.6x 3.3xEV/EBITDA 10.5x 8.0x 9.0x 10.1x 9.1x EV/EBITDA 19.6x 19.0x 15.5x 18.4x 15.3xEV/Earnings 19.0x 14.0x 14.9x 18.7x 18.3x EV/Earnings 38.7x 37.5x 31.1x 30.3x 38.1xGross Profit Margin 76.4% 77.2% 77.2% 76.4% 76.6% Gross Profit Margin 65.3% 65.7% 66.0% 65.9% 65.2%EBITDA Margin 21.3% 22.0% 22.4% 22.2% 22.1% EBITDA Margin 18.9% 21.8% 21.5% 22.1% 22.3%Net Income Margin 12.0% 12.6% 12.8% 12.9% 12.8% Net Income Margin 2.2% 4.2% 3.9% 3.8% 3.4%TTM Revenue Growth (YoY) 23.2% 15.0% 11.0% 7.7% 6.4% TTM Revenue Growth (YoY) 16.3% 17.6% 16.6% 18.7% 22.6%TTM EBITDA Growth (YoY) 20.0% 21.8% 10.8% 2.4% 2.9% TTM EBITDA Growth (YoY) 6.3% 23.3% 40.1% 45.3% 45.7%TTM Earnings Growth (YoY) -33.8% -26.5% -17.3% -12.3% -11.9% TTM Earnings Growth (YoY) -19.9% -31.0% -72.1% -62.0% -31.6%Current Ratio 2.3 2.4 2.0 2.2 2.0 Current Ratio 2.0 1.9 1.9 1.9 2.2Cash as Percent of Market Cap 15.6% 19.5% 19.9% 21.8% 20.6% Cash as Percent of Market Cap 10.4% 8.8% 9.2% 7.6% 13.0%Enterprise Value Growth (YoY) 34.7% 15.0% -10.0% -17.1% -16.6% Enterprise Value Growth (YoY) 42.2% 56.2% 21.1% 11.6% -8.8% Engineering & PLM 2Q11 3Q11 4Q11 1Q12 2Q12 IT Conglomerates 2Q11 3Q11 4Q11 1Q12 2Q12EV/Revenue 2.4x 1.9x 2.0x 2.6x 2.3x EV/Revenue 2.6x 2.6x 2.5x 3.1x 2.9xEV/EBITDA 17.4x 12.8x 13.5x 14.3x 11.5x EV/EBITDA 8.8x 8.5x 9.0x 8.2x 7.7xEV/Earnings 28.4x 20.8x 24.6x 25.1x 24.3x EV/Earnings 14.6x 14.4x 15.0x 13.3x 12.9xGross Profit Margin 83.4% 83.1% 83.0% 83.0% 83.6% Gross Profit Margin 70.2% 70.2% 70.9% 71.5% 71.5%EBITDA Margin 15.1% 15.8% 16.2% 18.5% 19.9% EBITDA Margin 35.2% 35.7% 37.1% 37.4% 36.9%Net Income Margin 11.4% 11.9% 7.7% 8.3% 10.4% Net Income Margin 14.9% 14.7% 19.4% 24.2% 23.9%TTM Revenue Growth (YoY) 12.9% 14.2% 15.5% 13.5% 13.5% TTM Revenue Growth (YoY) 15.2% 11.9% 8.5% 7.7% 5.3%TTM EBITDA Growth (YoY) 13.0% 25.9% 38.4% 37.5% 43.1% TTM EBITDA Growth (YoY) 21.8% 21.3% 10.8% 6.1% 6.6%TTM Earnings Growth (YoY) -64.4% -22.3% -54.6% -35.8% -18.3% TTM Earnings Growth (YoY) -11.9% -20.7% -19.0% -12.3% -11.9%Current Ratio 2.1 2.1 1.7 1.7 1.8 Current Ratio 1.3 1.4 1.8 1.5 1.3Cash as Percent of Market Cap 18.4% 19.3% 19.4% 20.5% 18.3% Cash as Percent of Market Cap 14.6% 13.3% 15.4% 15.5% 18.6%Enterprise Value Growth (YoY) 40.8% 18.6% 3.5% 3.0% 11.5% Enterprise Value Growth (YoY) 24.1% 15.0% -1.4% 6.0% -2.1% Enterprise Resource Planning 2Q11 3Q11 4Q11 1Q12 2Q12 Mobile Solutions/Content 2Q11 3Q11 4Q11 1Q12 2Q12EV/Revenue 3.2x 2.8x 2.8x 3.0x 2.4x EV/Revenue 3.3x 2.1x 2.5x 3.3x 2.6xEV/EBITDA 11.1x 9.1x 9.6x 10.2x 8.3x EV/EBITDA 23.4x 17.2x 13.5x 22.6x 15.0xEV/Earnings 20.8x 14.9x 17.9x 16.7x 13.1x EV/Earnings 31.9x 21.7x 22.2x 16.0x 19.9xGross Profit Margin 70.2% 70.2% 70.9% 71.5% 71.5% Gross Profit Margin 66.7% 66.8% 65.8% 64.2% 63.5%EBITDA Margin 30.0% 30.0% 29.5% 29.3% 29.0% EBITDA Margin 10.5% 11.3% 7.0% 7.5% 10.9%Net Income Margin 14.1% 14.4% 14.2% 16.3% 18.4% Net Income Margin 0.4% 1.6% 2.1% 1.6% 1.3%TTM Revenue Growth (YoY) 13.7% 17.9% 16.3% 12.4% 10.1% TTM Revenue Growth (YoY) 20.2% 17.6% 12.7% 10.6% 12.3%TTM EBITDA Growth (YoY) 22.0% 36.2% 36.0% 33.5% 10.4% TTM EBITDA Growth (YoY) 12.8% 19.5% 6.5% -14.9% 3.1%TTM Earnings Growth (YoY) -16.6% -24.4% -28.2% -29.6% -39.8% TTM Earnings Growth (YoY) -38.2% -13.5% -31.3% -9.8% -16.8%Current Ratio 1.3 1.4 1.8 1.5 1.2 Current Ratio 3.3 3.5 3.5 3.6 3.6Cash as Percent of Market Cap 14.6% 19.5% 18.7% 17.6% 22.2% Cash as Percent of Market Cap 14.3% 14.2% 19.9% 19.8% 19.5%Enterprise Value Growth (YoY) 37.0% 18.6% 0.6% 6.0% -2.1% Enterprise Value Growth (YoY) 10.9% 15.5% -2.2% -26.7% -35.7% 25| 2Q12 SOFTWARE INDUSTRY FINANCIAL REPORT www.softwareequity.com
- 29. Software Equity Group, L.L.C. Investment Banking / Mergers & AcquisitionsAPPENDIX A: 2Q12 PUBLIC SOFTWARE MARKET VALUATIONS AND STATISTICS BY PRODUCT CATEGORY Networking & Network Perf Mgmt 2Q11 3Q11 4Q11 1Q12 2Q12 Vertical - Finance 2Q11 3Q11 4Q11 1Q12 2Q12EV/Revenue 4.3x 3.0x 2.9x 3.4x 2.9x EV/Revenue 4.7x 3.8x 3.9x 3.8x 3.7xEV/EBITDA 24.8x 16.9x 19.7x 20.0x 19.1x EV/EBITDA 15.4x 13.3x 12.7x 11.6x 11.6xEV/Earnings 37.5x 27.8x 30.8x 35.4x 22.8x EV/Earnings 46.7x 33.9x 33.5x 28.4x 25.9xGross Profit Margin 68.9% 69.1% 69.0% 69.4% 70.0% Gross Profit Margin 69.8% 69.8% 69.6% 68.8% 68.5%EBITDA Margin 16.4% 17.9% 18.5% 17.8% 17.5% EBITDA Margin 36.7% 36.6% 36.8% 36.6% 36.9%Net Income Margin 8.8% 12.8% 11.6% 12.8% 12.7% Net Income Margin 13.8% 13.9% 13.9% 14.6% 15.7%TTM Revenue Growth (YoY) 23.6% 21.5% 29.0% 25.6% 22.9% TTM Revenue Growth (YoY) 18.1% 15.6% 15.0% 15.1% 13.1%TTM EBITDA Growth (YoY) 48.1% 60.5% 46.4% 35.5% 29.7% TTM EBITDA Growth (YoY) 20.8% 23.6% 13.8% 13.9% 15.9%TTM Earnings Growth (YoY) -55.6% -60.0% -46.5% -29.6% -24.6% TTM Earnings Growth (YoY) -15.9% -11.6% -19.9% -16.2% -14.7%Current Ratio 2.8 3.1 3.0 3.0 2.7 Current Ratio 1.2 1.2 1.2 1.1 1.3Cash as Percent of Market Cap 12.4% 18.5% 17.6% 11.7% 16.8% Cash as Percent of Market Cap 5.5% 6.3% 6.6% 10.8% 10.7%Enterprise Value Growth (YoY) 91.2% 20.1% -15.8% -12.3% -16.6% Enterprise Value Growth (YoY) 24.4% 11.2% -7.2% -3.8% -0.2% Security 2Q11 3Q11 4Q11 1Q12 2Q12 Vertical - Other 2Q11 3Q11 4Q11 1Q12 2Q12EV/Revenue 3.8x 3.7x 5.1x 4.8x 5.6x EV/Revenue 3.4x 2.6x 2.6x 2.8x 2.6xEV/EBITDA 16.5x 15.8x 25.2x 15.5x 13.6x EV/EBITDA 15.3x 13.0x 16.0x 16.7x 15.6xEV/Earnings 23.9x 20.3x 19.6x 18.0x 13.6x EV/Earnings 24.3x 26.1x 27.3x 30.3x 39.5xGross Profit Margin 79.2% 78.9% 79.1% 79.3% 79.0% Gross Profit Margin 57.5% 57.5% 57.1% 56.9% 56.6%EBITDA Margin 20.6% 21.4% 21.0% 22.2% 21.4% EBITDA Margin 17.0% 16.6% 16.5% 16.6% 15.7%Net Income Margin 14.5% 9.8% 10.2% 11.6% 13.8% Net Income Margin 10.4% 10.5% 10.1% 8.7% 7.1%TTM Revenue Growth (YoY) 23.5% 19.1% 16.8% 26.3% 19.4% TTM Revenue Growth (YoY) 10.4% 15.4% 21.6% 20.7% 26.5%TTM EBITDA Growth (YoY) 9.2% 4.6% 9.3% 13.2% 15.7% TTM EBITDA Growth (YoY) 13.6% 31.9% 29.3% 28.6% 15.5%TTM Earnings Growth (YoY) -0.4% 1.2% -16.8% -15.3% -11.2% TTM Earnings Growth (YoY) -13.0% -24.2% -38.5% -4.7% 13.9%Current Ratio 1.1 1.2 1.2 2.0 2.0 Current Ratio 1.3 1.3 1.2 1.7 1.6Cash as Percent of Market Cap 14.9% 18.6% 15.9% 13.2% 12.1% Cash as Percent of Market Cap 15.0% 12.3% 14.6% 7.3% 12.5%Enterprise Value Growth (YoY) 46.3% 43.3% 11.9% 25.0% -2.0% Enterprise Value Growth (YoY) 53.5% 39.3% 45.3% 37.1% 8.0% Storage, Data Management & Integration 2Q11 3Q11 4Q11 1Q12 2Q12EV/Revenue 2.6x 2.1x 2.2x 2.5x 2.4xEV/EBITDA 12.7x 9.8x 9.8x 10.3x 9.4xEV/Earnings 24.5x 18.8x 18.1x 19.9x 17.7xGross Profit Margin 75.1% 75.3% 75.4% 74.6% 74.8%EBITDA Margin 22.0% 22.3% 22.1% 22.7% 22.6%Net Income Margin 12.2% 11.8% 12.0% 12.2% 12.5%TTM Revenue Growth (YoY) 15.7% 15.7% 8.5% 9.4% 7.7%TTM EBITDA Growth (YoY) 16.0% 19.0% 9.8% 14.2% 10.6%TTM Earnings Growth (YoY) -19.9% -26.2% -20.9% -20.7% -13.8%Current Ratio 2.0 1.9 2.0 2.0 2.3Cash as Percent of Market Cap 15.5% 19.5% 18.7% 21.8% 21.9%Enterprise Value Growth (YoY) 46.5% 18.9% 0.0% 0.3% -7.5% Supply Chain Management & Logistics 2Q11 3Q11 4Q11 1Q12 2Q12EV/Revenue 2.2x 1.9x 2.2x 2.3x 2.1xEV/EBITDA 12.0x 11.2x 11.9x 12.9x 11.3xEV/Earnings 20.8x 19.1x 18.5x 20.5x 21.1xGross Profit Margin 57.7% 57.4% 58.4% 59.1% 59.5%EBITDA Margin 14.8% 15.8% 17.6% 18.6% 19.6%Net Income Margin 9.1% 9.9% 11.0% 10.6% 10.9%TTM Revenue Growth (YoY) 13.6% 18.5% 20.2% 14.4% 17.3%TTM EBITDA Growth (YoY) 23.9% 27.7% 34.3% 53.6% 36.9%TTM Earnings Growth (YoY) -12.8% -19.7% -30.0% -28.8% -25.1%Current Ratio 2.2 2.3 2.4 2.6 2.6Cash as Percent of Market Cap 16.9% 19.5% 18.3% 15.4% 18.5%Enterprise Value Growth (YoY) 20.4% 20.2% 23.4% 31.0% 34.7% Systems Management 2Q11 3Q11 4Q11 1Q12 2Q12EV/Revenue 5.6x 3.9x 3.9x 4.2x 4.3xEV/EBITDA 17.0x 13.6x 15.1x 16.8x 16.3xEV/Earnings 28.5x 20.8x 25.3x 30.9x 30.4xGross Profit Margin 85.2% 85.1% 85.2% 85.5% 85.7%EBITDA Margin 28.3% 28.9% 29.3% 30.0% 28.5%Net Income Margin 17.1% 17.7% 17.4% 17.8% 16.8%TTM Revenue Growth (YoY) 14.6% 13.5% 14.0% 14.2% 13.4%TTM EBITDA Growth (YoY) 14.7% 16.6% 16.7% 17.9% 16.8%TTM Earnings Growth (YoY) -20.3% -19.5% -20.5% -11.5% -10.3%Current Ratio 1.7 1.7 1.5 1.5 1.5Cash as Percent of Market Cap 13.6% 16.5% 18.5% 15.6% 14.5%Enterprise Value Growth (YoY) 46.6% 13.2% -6.2% 2.9% 3.6% 26| 2Q12 SOFTWARE INDUSTRY FINANCIAL REPORT www.softwareequity.com
- 30. Software Equity Group, L.L.C. Investment Banking / Mergers & AcquisitionsAPPENDIX B: 2Q12 PUBLIC SAAS MARKET VALUATIONS AND STATISTICS BY PRODUCT CATEGORY CRM & Marketing 2Q11 3Q11 4Q11 1Q12 2Q12EV/Revenue 6.1x 4.8x 3.6x 5.3x 4.6xEV/EBITDA 47.1x 27.8x 25.9x 29.7x 30.1xEV/Earnings 216.7x 80.9x 68.3x 57.7x 60.6xGross Profit Margin 71.9% 72.0% 72.3% 73.2% 73.8%EBITDA Margin 7.2% 6.9% 6.7% 7.5% 7.6%Net Income Margin 1.8% 1.8% 1.7% 2.7% 2.1%TTM Revenue Growth (YoY) 29.6% 28.2% 25.2% 29.9% 21.4%TTM EBITDA Growth (YoY) 11.8% 16.5% 3.6% 14.9% 27.6%TTM Earnings Growth (YoY) -15.2% -27.2% 16.5% 20.7% 31.5%Current Ratio 2.0 2.4 2.4 2.4 3.3Cash as Percent of Market Cap 11.7% 14.9% 21.4% 13.3% 12.8%Enterprise Value Growth (YoY) 75.3% 56.2% -6.6% -2.9% -5.8% ERP & Supply Chain 2Q11 3Q11 4Q11 1Q12 2Q12EV/Revenue 6.9x 6.0x 5.7x 5.3x 6.0xEV/EBITDA 37.6x 47.2x 65.3x 68.7x 68.5xEV/Earnings 62.9x 88.6x 96.6x 57.5x 65.2xGross Profit Margin 70.8% 71.3% 71.6% 71.8% 71.7%EBITDA Margin 8.0% 7.4% 6.9% 7.1% 7.6%Net Income Margin 2.9% 1.2% 3.7% 1.7% 1.7%TTM Revenue Growth (YoY) 19.1% 21.8% 24.3% 27.9% 28.1%TTM EBITDA Growth (YoY) -13.4% -18.6% -18.5% -7.1% -5.7%TTM Earnings Growth (YoY) 15.5% 88.0% -44.6% -35.1% -41.8%Current Ratio 1.4 1.6 1.6 1.6 1.6Cash as Percent of Market Cap 11.1% 11.7% 10.0% 8.2% 7.6%Enterprise Value Growth (YoY) 148.6% 76.7% 74.5% 42.6% 35.8% Vertically Focused 2Q11 3Q11 4Q11 1Q12 2Q12EV/Revenue 5.6x 5.4x 5.2x 5.7x 4.5xEV/EBITDA 30.3x 27.8x 27.3x 33.4x 29.9xEV/Earnings 52.5x 97.6x 88.8x 17.5x 79.6xGross Profit Margin 59.8% 60.2% 60.5% 60.6% 60.5%EBITDA Margin 14.0% 16.1% 16.7% 15.2% 15.3%Net Income Margin 2.9% 3.8% 4.4% 12.2% 10.4%TTM Revenue Growth (YoY) 29.3% 28.9% 34.2% 34.5% 34.4%TTM EBITDA Growth (YoY) 19.8% 38.2% 35.9% 23.5% 30.8%TTM Earnings Growth (YoY) -47.8% -37.4% -25.3% -57.6% -49.8%Current Ratio 2.1 2.1 1.6 1.8 2.8Cash as Percent of Market Cap 6.3% 5.0% 4.9% 4.7% 4.8%Enterprise Value Growth (YoY) 56.6% 45.0% 25.5% 23.8% 13.9% Workforce Management 2Q11 3Q11 4Q11 1Q12 2Q12EV/Revenue 4.5x 3.6x 4.3x 4.7x 4.8xEV/EBITDA 63.3x 44.1x 49.4x 47.2x 50.6xEV/Earnings 607.5x 336.2x 432.1x 412.1x 399.7xGross Profit Margin 60.2% 59.6% 59.0% 58.6% 58.1%EBITDA Margin 1.2% 1.9% 1.1% 0.7% -0.9%Net Income Margin -8.2% -8.9% -11.0% -10.9% -13.1%TTM Revenue Growth (YoY) 26.6% 32.3% 35.7% 31.1% 29.2%TTM EBITDA Growth (YoY) 5.8% 30.6% 25.3% 6.3% -2.4%TTM Earnings Growth (YoY) -13.1% 15.1% 20.7% -45.6% -50.2%Current Ratio 1.2 1.9 1.6 1.5 1.3Cash as Percent of Market Cap 10.8% 16.0% 14.9% 10.2% 9.3%Enterprise Value Growth (YoY) 162.1% 83.7% 44.7% 33.7% 12.3% Other SaaS 2Q11 3Q11 4Q11 1Q12 2Q12EV/Revenue 5.9x 2.4x 2.0x 7.3x 5.2xEV/EBITDA 46.1x 15.7x 21.6x 24.5x 19.8xEV/Earnings 124.9x 49.0x 43.8x 34.1x 26.1xGross Profit Margin 71.7% 71.8% 71.5% 71.6% 72.2%EBITDA Margin 17.0% 14.8% 13.0% 12.6% 14.5%Net Income Margin 3.0% 4.0% 2.6% 3.0% 4.4%TTM Revenue Growth (YoY) 30.9% 30.6% 24.7% 21.0% 27.1%TTM EBITDA Growth (YoY) 24.8% 51.3% 3.4% 16.1% 14.2%TTM Earnings Growth (YoY) -74.0% -79.4% 12.8% 11.4% 65.5%Current Ratio 1.9 2.0 2.1 2.1 2.5Cash as Percent of Market Cap 11.8% 18.3% 22.5% 14.9% 12.9%Enterprise Value Growth (YoY) 67.0% 30.0% -29.1% -27.3% 20.4% 27| 2Q12 SOFTWARE INDUSTRY FINANCIAL REPORT www.softwareequity.com
- 31. Software Equity Group, L.L.C. Investment Banking / Mergers & AcquisitionsAPPENDIX C: 2Q12 PUBLIC INTERNET MARKET VALUATIONS AND STATISTICS BY PRODUCT CATEGORY Ad Tech & Lead Generation 2Q11 3Q11 4Q11 1Q12 2Q12 Services 2Q11 3Q11 4Q11 1Q12 2Q12EV/Revenue 3.3x 2.6x 2.6x 3.0x 2.3x EV/Revenue 4.9x 4.4x 3.0x 2.6x 2.4xEV/EBITDA 10.9x 11.1x 12.0x 14.1x 11.4x EV/EBITDA 21.4x 16.0x 16.8x 17.0x 15.2xEV/Earnings 17.4x 15.8x 16.8x 28.3x 28.8x EV/Earnings 38.9x 66.0x 20.6x 38.1x 34.1xGross Profit Margin 68.4% 67.3% 66.7% 67.7% 67.6% Gross Profit Margin 68.7% 69.4% 70.8% 71.7% 71.8%EBITDA Margin 21.7% 20.9% 17.8% 13.9% 14.0% EBITDA Margin 8.7% 9.5% 7.8% 13.3% 11.9%Net Income Margin 6.8% 6.8% 6.3% 4.4% 3.6% Net Income Margin -3.9% -2.7% 3.0% 3.0% 4.7%TTM Revenue Growth (YoY) 24.3% 25.1% 29.8% 34.4% 37.5% TTM Revenue Growth (YoY) 24.6% 31.8% 29.7% 52.5% 57.8%TTM EBITDA Growth (YoY) 16.1% 31.5% 24.3% 26.3% 36.9% TTM EBITDA Growth (YoY) 14.8% 6.2% 17.0% 30.0% 44.5%TTM Earnings Growth (YoY) -21.3% -8.5% -10.5% -22.9% -13.9% TTM Earnings Growth (YoY) -24.4% -16.4% -41.4% -38.0% -89.8%Current Ratio 3.2 3.1 3.0 2.9 2.8 Current Ratio 2.2 1.8 2.0 2.2 1.7Cash as Percent of Market Cap 11.7% 12.9% 14.3% 18.2% 20.3% Cash as Percent of Market Cap 7.5% 9.8% 12.0% 11.5% 10.3%Enterprise Value Growth (YoY) 47.6% 35.4% -0.1% -12.8% -21.5% Enterprise Value Growth (YoY) 14.9% -5.8% -35.5% -37.4% -43.7% Commerce 2Q11 3Q11 4Q11 1Q12 2Q12 Social 2Q11 3Q11 4Q11 1Q12 2Q12EV/Revenue 1.9x 1.4x 1.1x 0.9x 0.7x EV/Revenue 22.7x 18.9x 12.4x 13.7x 13.0xEV/EBITDA 19.4x 13.8x 12.9x 16.7x 18.8x EV/EBITDA 137.6x 107.2x 41.5x 33.7x 32.8xEV/Earnings 51.2x 33.3x 27.5x 15.4x 14.7x EV/Earnings 254.5x 269.8x 361.0x 232.0x 156.5xGross Profit Margin 40.7% 39.3% 37.5% 36.9% 37.0% Gross Profit Margin 76.1% 75.7% 75.2% 76.8% 75.2%EBITDA Margin 8.0% 9.7% 9.3% 8.6% 8.3% EBITDA Margin 13.4% 13.6% 13.4% 12.2% 12.9%Net Income Margin 3.4% 2.6% 2.3% 3.8% 3.1% Net Income Margin -11.2% -13.3% -11.9% 2.3% 2.4%TTM Revenue Growth (YoY) 9.2% 9.3% 13.2% 14.3% 17.5% TTM Revenue Growth (YoY) 87.9% 89.7% 102.8% 74.5% 64.2%TTM EBITDA Growth (YoY) 1.4% 5.9% 8.4% 2.0% 6.5% TTM EBITDA Growth (YoY) 45.0% 84.8% 0.0% -22.5% -33.8%TTM Earnings Growth (YoY) 4.5% 28.6% 24.6% 21.1% 43.3% TTM Earnings Growth (YoY) -29.7% -8.1% 29.2% 13.4% 7.1%Current Ratio 2.3 2.3 2.2 1.8 1.8 Current Ratio 3.7 3.1 2.7 2.7 3.0Cash as Percent of Market Cap 12.7% 20.0% 15.6% 12.7% 13.5% Cash as Percent of Market Cap 5.0% 15.4% 19.7% 13.8% 10.1%Enterprise Value Growth (YoY) 39.5% 24.4% -14.6% -28.3% -25.8% Enterprise Value Growth (YoY) n/a n/a n/a 0.9% -5.6% Content & Media 2Q11 3Q11 4Q11 1Q12 2Q12 Travel 2Q11 3Q11 4Q11 1Q12 2Q12EV/Revenue 3.4x 2.7x 2.2x 2.0x 1.7x EV/Revenue 7.3x 5.0x 5.5x 4.7x 3.1xEV/EBITDA 18.1x 10.9x 10.7x 10.6x 10.1x EV/EBITDA 32.5x 23.4x 14.1x 15.1x 15.4xEV/Earnings 32.8x 16.6x 17.0x 17.5x 20.8x EV/Earnings 41.9x 34.5x 23.2x 25.8x 27.8xGross Profit Margin 50.2% 51.3% 51.7% 52.0% 51.9% Gross Profit Margin 80.0% 78.8% 78.7% 79.9% 79.9%EBITDA Margin 11.3% 12.8% 12.6% 13.4% 13.3% EBITDA Margin 22.1% 21.9% 22.2% 22.1% 21.7%Net Income Margin -2.4% 4.1% 2.5% 0.6% 1.4% Net Income Margin 12.0% 8.4% 8.9% 8.2% 12.9%TTM Revenue Growth (YoY) 12.4% 12.6% 25.6% 25.8% 18.9% TTM Revenue Growth (YoY) 28.2% 25.7% 28.7% 31.5% 26.7%TTM EBITDA Growth (YoY) 12.2% 24.7% 17.2% 14.5% -6.9% TTM EBITDA Growth (YoY) 19.3% 24.0% 19.8% 17.1% 16.5%TTM Earnings Growth (YoY) -68.9% -13.0% -27.5% 10.0% 32.4% TTM Earnings Growth (YoY) -10.8% -4.4% -16.3% -16.7% -22.7%Current Ratio 2.3 2.6 2.6 2.6 2.1 Current Ratio 1.6 1.9 1.9 2.0 2.1Cash as Percent of Market Cap 21.6% 22.1% 27.3% 20.9% 18.3% Cash as Percent of Market Cap 8.5% 10.4% 9.8% 12.2% 13.2%Enterprise Value Growth (YoY) 16.5% -7.9% -44.3% -24.0% -37.4% Enterprise Value Growth (YoY) 14.6% 6.2% -20.6% -25.6% -35.4% Gaming 2Q11 3Q11 4Q11 1Q12 2Q12EV/Revenue 4.4x 4.5x 3.1x 3.2x 3.1xEV/EBITDA 9.7x 7.9x 6.0x 4.2x 4.0xEV/Earnings 11.6x 10.4x 8.4x 8.8x 7.3xGross Profit Margin 75.9% 75.8% 75.8% 74.6% 71.1%EBITDA Margin 42.5% 45.9% 45.3% 44.2% 45.5%Net Income Margin 37.1% 36.8% 33.6% 34.4% 32.3%TTM Revenue Growth (YoY) 24.3% 29.7% 34.2% 35.7% 33.5%TTM EBITDA Growth (YoY) 16.1% 24.8% 27.0% 23.9% 28.7%TTM Earnings Growth (YoY) -20.8% -22.0% -15.1% -14.5% -9.3%Current Ratio 4.1 3.2 2.7 2.7 2.2Cash as Percent of Market Cap 25.0% 18.9% 30.0% 29.5% 28.5%Enterprise Value Growth (YoY) 41.6% 28.8% -26.2% -5.9% -8.2% Infrastructure 2Q11 3Q11 4Q11 1Q12 2Q12EV/Revenue 3.0x 2.6x 1.7x 2.0x 1.8xEV/EBITDA 19.4x 16.8x 12.6x 14.3x 16.2xEV/Earnings 33.6x 28.0x 22.7x 29.6x 24.0xGross Profit Margin 65.7% 63.0% 65.8% 66.7% 66.6%EBITDA Margin 12.0% 12.0% 11.8% 11.2% 10.9%Net Income Margin 4.5% 4.5% 3.5% 3.0% 4.6%TTM Revenue Growth (YoY) 15.9% 19.3% 24.6% 24.4% 18.1%TTM EBITDA Growth (YoY) 25.1% 18.9% 18.7% 23.8% 21.8%TTM Earnings Growth (YoY) -20.4% -17.9% -22.4% -6.0% 1.9%Current Ratio 3.1 2.8 2.8 2.6 2.9Cash as Percent of Market Cap 14.7% 21.7% 19.5% 22.6% 24.2%Enterprise Value Growth (YoY) 55.5% 31.1% -14.5% -24.8% -31.9% 28| 2Q12 SOFTWARE INDUSTRY FINANCIAL REPORT www.softwareequity.com
- 32. Software Equity Group, L.L.C. Investment Banking / Mergers & AcquisitionsAPPENDIX D: 2Q12 MERGERS AND ACQUISITIONS, SELECT PUBLIC SELLER VALUATIONS TTM RevBuyer Seller Purchase Price Enterprise Value EV/Rev EV/EBITDA Grow thSAP (DB:SAP) Ariba Inc. (NasdaqGS:ARBA) $4,607,750,000 $4,411,350,000 8.8x 108.0x 27.3%Dell Inc. (NasdaqGS:DELL) Quest Softw are Inc. (NasdaqGS:QSFT) $2,507,250,000 $2,244,050,000 2.6x 14.0x 12.4%DTS Inc. (NasdaqGS:DTSI) SRS Labs, Inc. (NasdaqGM:SRSL) $148,100,000 $113,240,000 3.4x 50.7x 8.5%Lagardere Active SAS LeGuide.com S.A. (ENXTPA:ALGUI) $80,170,000 $91,960,000 2.6x 7.4x 13.0%CreaFund CVBA; Uniholding SA Transics International NV (ENXTBR:TRAN) $64,310,000 $79,780,000 1.3x 7.7x 19.9%R.R. Donnelley & Sons (NasdaqGS:RRD) EDGAR Online Inc. (NasdaqCM:EDGR) $74,670,000 $71,200,000 2.3x - 49.3%Prow ebClub Prow ebCE (ENXTPA:ALPRW) $34,250,000 $44,480,000 0.8x 14.9x 20.3% 29| 2Q12 SOFTWARE INDUSTRY FINANCIAL REPORT www.softwareequity.com
- 33. Software Equity Group, L.L.C. Investment Banking / Mergers & AcquisitionsAPPENDIX E: 2Q12 MERGERS AND ACQUISITIONS, MOST ACTIVE BUYERS Purchase Enterprise TTM RevBuyer Seller Price (m m ) Value (m m ) (m m ) EV/RevBitzio, Inc. (OTCBB:BTZO) actsmartw are GmbH - - - - Knuckle Face, Inc. - - - -Chaotic Moon, L.P. DollarApp - - - - Symbiot, Inc. - - - -Citrix Systems, Inc. (NasdaqGS:CTXS) Bytemobile, Inc. - - - - Podio ApS - - - - The Citrix XenClient Enterprise Group - - - -Cologix, Inc. Carrier Connex Inc. - - - - The Minnesota Gatew ay - - - -Constellation Softw are Inc. (TSX:CSU) Smyth Systems Inc. - - - - Cognera Corp. - - - - Lender Processing Services, Inc., Certain Assets - - - - Aptitude Solutions, Inc. and True Automation, Inc. - - - - New Century Softw are Inc. - - - -Dell Inc. (NasdaqGS:DELL) Clerity Solutions, Inc. - - - - MAKE Technologies Inc. - - - - Quest Softw are Inc. (NasdaqGS:QSFT) $2,507.3 $2,244.1 $880.0 2.6xEbix Inc. (NasdaqGS:EBIX) Fintechnix Pty Limited $5.1 $5.1 - - PlanetSoft, Inc. $40.0 $40.0 - -EMC Corporation (NYSE:EMC) Syncplicity, Inc. - - - - Watch4Net Solutions Inc. - - - -Expedite 5, Inc. (AIM:ZATT) Hattrick Holdings Limited $29.5 $29.5 - - Sneaky Games, Inc. $6.1 $5.9 - -Facebook, Inc. (NasdaqGS:FB) Face.com $60.0 $60.0 - - Glancee, Inc. - - - - Instagram, Inc. $1,000.0 $1,000.0 - - Karma Science, Inc. - - - - Tagtile - - - -Google Inc. (NasdaqGS:GOOG) Meebo, Inc. - - - - Quickoffice, Inc. - - - -Groupon, Inc. (NasdaqGS:GRPN) DITTO.ME, INC. - - - - Pospitality LLC - - - -IHS Inc. (NYSE:IHS) GlobalSpec, Inc. $135.0 $135.0 - - Xedar Corporation (OTCPK:XDRC) $28.0 $28.0 - -IBM (NYSE:IBM) TeaLeaf Technology, Inc. - - - - Varicent Softw are Inc. - - - - Vivisimo, Inc. - - - -Intuit Inc. (NasdaqGS:INTU) AisleBuyer LLC - - - - Demandforce, Inc.* $423.5 $423.5 $37.0 11.3xLANDesk Softw are, Inc. Managed Planet Softw are, Inc. - - - - Wavelink Corporation $82.0 $82.0 - -LivePerson Inc. (NasdaqGM:LPSN) Amadesa, Inc. - - - - Look IO Inc - - - -Oracle Corporation (NasdaqGS:ORCL) Collective Intellect, Inc. - - - - Vitrue, Inc. - - - -Possible Worldw ide Inc. Carnation Internet Tanácsadó Zrt - - - - Grape LLC - - - -*Revevenue Estimate 30| 2Q12 SOFTWARE INDUSTRY FINANCIAL REPORT www.softwareequity.com
- 34. Software Equity Group, L.L.C. Investment Banking / Mergers & AcquisitionsAPPENDIX E: 2Q12 MERGERS AND ACQUISITIONS, MOST ACTIVE BUYERS (CONT…) Purchase Enterprise TTM RevBuyer Seller Price (m m ) Value (m m ) (m m ) EV/RevPriority One Netw ork Group Ltd. Opus Media Plc $1.0 $1.0 - - Tw o Way Limited (ASX:TTV) - - - -Sailthru, Inc. Frame - - - - Seamless Receipts, Inc. - - - -salesforce.com, inc (NYSE:CRM) Buddy Media, Inc. $745.0 $745.0 - - ChoicePass Inc. - - - - Stypi - - - - Thinkfuse - - - -SAP AG (DB:SAP) Ariba Inc. (NasdaqGS:ARBA) $4,607.8 $4,411.4 $502.0 8.8x Syclo LLC - - - -Descartes Systems (TSX:DSG) Infodis B.V. $3.3 $3.3 - - Integrated Export Systems, Ltd. $34.2 $34.2 - -Thomson Reuters(TSX:TRI) Apsmart Limited - - - - Fast Facts Computer Systems Ltd. - - - - Zaw ya Limited - - - -Trimble Navigation (NasdaqGS:TRMB) GEOTrac Systems Inc. - - - - SketchUp - - - -Tw itter, Inc. Hotspots.io - - - - RestEngine - - - -u-blox Holding AG (SWX:UBXN) 4m Wireless Ltd. $9.0 $9.0 - - Cognovo Limited $16.5 $16.5 - -ValueFirst Messaging Pvt. Ltd. Gingersoft Media Pvt. Ltd. - - - - Way2Online Interactive India Pvt. Ltd. $35.7 $35.7 - -VMw are, Inc. (NYSE:VMW) Cetas Softw are, Inc. - - - - DynamicOps, Inc. - - - - Wanova, Inc. $100.0 $100.0 - -WMS Industries Inc. (NYSE:WMS) Genesis Communications Inc. - - - - Jadestone Group AB - - - -YTL Pow er Investments Limited FrogAsia Sdn Bhd - - - - FrogTrade Ltd $11.8 $20.6 - -Zhejiang Daily Media (SHSE:600633) Hangzhou Bianfeng Netw ork Tech. Co. $498.1 $498.1 $63.0 7.9x Shanghai Haofang Online Info. Tech. Co. $55.8 $55.8 - -Zynga, Inc. (NasdaqGS:ZNGA) Wild Needle, Inc. - - - - Zynga Eugene - - - -*Revenue Estimate 31| 2Q12 SOFTWARE INDUSTRY FINANCIAL REPORT www.softwareequity.com
- 35. Software Equity Group, L.L.C. Investment Banking / Mergers & AcquisitionsAPPENDIX F: 2Q12 MERGERS AND ACQUISITIONS, SELECT INDUSTRY MEGA-DEALS TTM RevBuyer Seller Purchase Price Enterprise Value EV/Rev EV/EBITDA Grow thSAP (DB:SAP) Ariba Inc. (NasdaqGS:ARBA) $4,607,750,000 $4,411,350,000 8.8x 108.0x 27.3%Dell Inc. (NasdaqGS:DELL) Quest Softw are Inc. (NasdaqGS:QSFT) $2,507,250,000 $2,244,050,000 2.6x 14.0x 12.4%Microsoft Corporation (NasdaqGS:MSFT) Yammer, Inc.* $1,200,000,000 $1,200,000,000 40.0x - -Facebook, Inc. (NasdaqGS:FB) Instagram, Inc. $1,000,000,000 $1,000,000,000 - - -Apax Partners Worldw ide LLP; JMI Equity Paradigm B.V. $1,000,000,000 $1,000,000,000 - - -salesforce.com, inc (NYSE:CRM) Buddy Media, Inc. $745,000,000 $745,000,000 - - -*Revenue Estimate 32| 2Q12 SOFTWARE INDUSTRY FINANCIAL REPORT www.softwareequity.com
- 36. Software Equity Group, L.L.C. Investment Banking / Mergers & AcquisitionsAPPENDIX G: 2Q12 MERGERS AND ACQUISITIONS, SELECT SOFTWARE-AS-A-SERVICE SELLERS Enterprise TTM Date Buyer Seller Value Revenue EV/Rev06/27/2012 Rafter, Inc. HubEdu, Inc. - - -06/27/2012 Trader Media Group Limited DELTAPOINT ASSOCIATES LIMITED - - -06/26/2012 Accufund, Inc. AccuFund CRM - - -06/26/2012 Spectrum Equity Investors Active Internet Technologies, LLC $55,000,000 - -06/25/2012 salesforce.com, inc (NYSE:CRM) Thinkfuse - - -06/18/2012 salesforce.com, inc (NYSE:CRM) ChoicePass Inc. - - -06/15/2012 Forum Trading Solutions Ltd PLUS Trading Solutions Ltd. $440,000 - -06/15/2012 Microsoft Corporation (NasdaqGS:MSFT) Yammer, Inc.* $1,200,000,000 - 40.0x06/14/2012 Syncapse Corp. Clickable, Inc. - - -06/14/2012 Vista Equity Partners Bullhorn, Inc. - - -06/13/2012 The Descartes Systems Group Inc (TSX:DSG) Integrated Export Systems, Ltd. $34,200,000 - -06/13/2012 New market International, Inc. MeetingMatrix International, Inc. - - -06/13/2012 Infor Global Solutions, Inc. Easy (Ez) Revenue Management - - -06/12/2012 Revionics, Inc. Retail Optimization, Inc. - - -06/08/2012 Autodesk, Inc. (NasdaqGS:ADSK) Vela Systems, Inc. - - -06/06/2012 Francisco Partners Management LLC Plex Systems, Inc. - - -06/05/2012 Oracle Corporation (NasdaqGS:ORCL) Collective Intellect, Inc. - - -06/05/2012 ON24, Inc. Imaste-ips S.L. - - -06/01/2012 WineDirect, Inc. Vin65 Corp. - - -05/31/2012 Sales Engine International LLC Manticore Technology, Inc. - - -05/30/2012 Econocom Telecom Services SAS Tactem SAS $1,240,000 $1,240,000 1.0x05/24/2012 Quindell Portfolio Plc (AIM:QPP) Quindell Enterprise Technology $9,890,000 $4,700,000 2.1x05/23/2012 Oracle Corporation (NasdaqGS:ORCL) Vitrue, Inc. - - -05/23/2012 Barclaycard Analog Analytics Inc. - - -05/22/2012 SAP America, Inc. Ariba Inc. (NasdaqGS:ARBA) $4,411,350,000 $501,900,000 8.8x05/21/2012 Experian plc (LSE:EXPN) Conversen, Inc. - - -05/21/2012 EMC Corporation (NYSE:EMC) Syncplicity, Inc. - - -05/16/2012 LivePerson Inc. (NasdaqGM:LPSN) Amadesa, Inc. - - -05/15/2012 Quandrant4 Systems Corp. (OTCPK:QFOR) empow HR, Inc. - - -05/14/2012 Logic Solutions, Inc. Quantum Compliance, Inc - - -05/14/2012 Documotive Limited Fusion Information Systems Ltd - - -05/11/2012 Gatew ay EDI, Inc. National Healthcare Exchange $8,210,000 - -05/11/2012 Heritage Acquisitions Limited Agentplus Pty Ltd. - - -05/10/2012 Xceligent, Inc. ePropertyData.com LLC - - -05/09/2012 TriNet Group, Inc. App7, Inc. - - -05/08/2012 Fair Isaac Corp. (NYSE:FICO) Entiera, Inc. - - -05/08/2012 EPiServer AB 200OK AB - - -05/07/2012 Synchronoss Technologies, Inc. (NasdaqGS:SNCR) SpeechCycle, Inc. $38,000,000 - -05/02/2012 Aprimo, Incorporated eCircle AG - - -05/02/2012 Zillow , Inc. (NasdaqGS:Z) RentJuice Corporation $37,420,000 $365,000 102.4x05/01/2012 C3, LLC Efficiency 2.0, LLC - - -05/01/2012 salesforce.com, inc (NYSE:CRM) Stypi - - -05/01/2012 Peoplefluent, Inc. Socialtext, Inc. - - -04/30/2012 Reputation Rhino LLC ReputationManagements.com - - -04/30/2012 Arts et Biens Prenax Global AB - - -04/27/2012 Intuit Inc. (NasdaqGS:INTU) Demandforce, Inc.* $423,500,000 $38,000,000 11.3x04/24/2012 VMw are, Inc. (NYSE:VMW) Cetas Softw are, Inc. - - -*Revenue Estimate33| 2Q12 SOFTWARE INDUSTRY FINANCIAL REPORT www.softwareequity.com
- 37. Software Equity Group, L.L.C. Investment Banking / Mergers & AcquisitionsAPPENDIX G: 2Q12 MERGERS AND ACQUISITIONS, SELECT SOFTWARE-AS-A-SERVICE SELLERS (CONT…) Enterprise TTM Date Buyer Seller Value Revenue EV/Rev04/23/2012 KANA Softw are, Inc. Trinicom - - -04/23/2012 Mangrove Employer Services, Inc. CanopyHR Solutions, LLC - - -04/18/2012 Marketo, Inc. Crow d Factory, Inc. - - -04/17/2012 ADERANT Holdings, Inc. Omega Legal Systems, Inc. - - -04/13/2012 International Business Machines Corporation (NYSE:IBM) Varicent Softw are Inc. - - -04/11/2012 Boathouse Capital; Renovus Capital Partners Atomic Learning, Inc. - - -04/11/2012 Atos S.A. (ENXTPA:ATO) blueKiw i Softw are SA $26,220,000 $6,500,000 4.0x04/11/2012 Citrix Systems, Inc. (NasdaqGS:CTXS) Podio ApS - - -04/09/2012 Underw riters Laboratories Inc. UL EduNeering, Inc. - - -04/05/2012 QL2 Softw are, LLC RivalWatch, Inc. - - -04/05/2012 Harris Computer Systems, Inc. Cognera Corp. - - -04/04/2012 Allen Systems Group, Inc. Net Transmit & Receive, S.L. - - -* Revenue Estimate34| 2Q12 SOFTWARE INDUSTRY FINANCIAL REPORT www.softwareequity.com
- 38. To keep your finger on the pulse of the software equity markets, subscribe to our Monthly and Quarterly Reportsat 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, American, Toronto, London and Euronext exchanges. Software Equity Group also represents several ofthe worlds leading private equity firms. For a confidential consultation without obligation, please contact KrisBeible, Director, Business Development (858 509-2800, kbeible@softwareequity.com).CONTACT INFORMATION:Software Equity Group, L.L.C.12220 El Camino Real, Suite 320San Diego, CA 92130www.softwareequity.comp: (858) 509-2800f: (858) 509-2818The information contained in this Report is obtained from sources we believe to be reliable, but no representationor guarantee is made about the accuracy or completeness of such information, or the opinions expressed herein.Nothing in this Report is intended to be a recommendation of a specific security or company or intended toconstitute an offer to buy or sell, or the solicitation of an offer to buy or sell, any security. Software Equity GroupLLC may have an interest in one or more of the securities or companies discussed herein.Financial data provided by Capital IQ.This Report may not be reproduced in whole or in part without the expressed prior written authorization ofSoftware Equity Group, L.L.C.Software Equity Group registers each Report with the U.S. Copyright Office and vigorously enforces itsintellectual property rights. Copyright © 2012 by Software Equity Group, L.L.C., All Rights Reserved

Full NameComment goes here.