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Tech M&A Monthly: Deal Structures Today

Today’s combination of active public markets, resurgent IPOs and a growing pool of buyers means that deal structures are getting more complex as buyers and sellers get creative in order to get deals done. The September edition of Tech M&A Monthly will examine some of the many ways that structure is more important than price in many cases, following up on last year’s highly-praised webcast on the topic. When is a profit sharing agreement appropriate? What’s the role of consulting agreements? How do cross-border issues complicate matters? September 10, Corum dealmakers will address these questions and more, drawing on the largest body of tech M&A in history. In addition, we’ll examine the key deals, trends and valuations from the past month in the Horizontal, Infrastructure and Consumer technology markets.

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Tech M&A Monthly
Deal Structures Today
10 September 2015
2
A leader in the software industry, Bruce has founded or owned four software companies, including the largest
vertical market software company, AMI, an Inc. 500 firm rated by IDC as the fastest growing computer-related
company in the world.
He has served on advisory boards for Microsoft, IBM, DEC, Comdex and Apple, and as board member/founding
investor in some of the most innovative firms in their field, including Blue Coat, Bright Star and Sabaki. Past
advisor to two governors and a senator, a board member of the Washington Technology Center, and founder of
the WTIA, the nation’s most active regional technology trade association.
He worked with the Canadian government to found SoftWorld, and he was recently chosen as one of the 200
most influential individuals in the IT community in Europe. He was also the only American juror for the recent
Tornado 100 Awards given to Europe’s top technology firms
A graduate with Distinction from Harvard Business School, Bruce has written three books on business models for
success, including Power Planning. He is a frequent lecturer and author.
Welcome
Bruce Milne
CEO
Corum Group Ltd.
3
Timothy joined Corum in 2011, and oversees the company’s marketing efforts globally from the headquarters near
Seattle. Chief among these is Corum's extensive conference schedule, “Selling Up, Selling Out,” the Merge Briefing,
the Tech M&A Monthly webcast and Corum's platinum sponsorship of the World Financial Symposiums' live events
and Market Spotlight series. Through these events, Corum Group serves as the world’s leading educator in
technology mergers and acquisitions.
Prior to joining Corum, Timothy served as marketing and product manager for GIS software startup Depiction, Inc.,
and previously worked in marketing for VizX Labs, a pioneering SaaS startup delivering DNA analysis tools. In
addition to marketing for software startups, Tim has worked for a US Senate campaign and taught science in Rio de
Janeiro.
Timothy graduated Magna Cum Laude from Bethel University in St. Paul, Minnesota, with degrees in History and
Biology.
Moderator
Timothy Goddard
VP, Marketing
Corum Group Ltd.
4
Agenda
 Welcome
 Special Report: Selling Your Games Company
 Research Report
 Tech M&A Structures Today
 Asset vs. Stock Sale
 Employment Agreements & Noncompetes
 Earnouts
 Profit Sharing & Options
 Acquihire Deals
 Debt & Leverage
 Cross-Border Issues
 Q&A
5
Selling Your Games Company
Daniel Bernstein
Vice President
Corum Group Ltd.
Daniel Bernstein has worked in a number of roles over a twenty year career in high
technology, most recently as the founder and CEO of Sandlot Games Corporation, a
leading casual games publisher and developer. Having sold Sandlot Games to Digital
Chocolate in 2011, Daniel started a small games studio and a consulting practice where
he advises larger companies such as RealNetworks and smaller high growth businesses
on product development, strategic initiatives, and M&A opportunities.
Prior to Sandlot Games, Daniel Bernstein held director level positions in companies such
as Wild Tangent and Monolith. An accomplished composer, Daniel also writes music for
most of the games he works on.
Daniel holds a BS in Computer Science and an MA in Music Composition from the
University of Virginia.
6
Game Development M&A
There is a value chain of opportunity associated with
your games business, with multiple vectors
 Deriving maximum value out of your company
 How the buyers perceive you
 Market trends
 Preparing for acquisition

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Tech M&A Monthly: Deal Structures Today

  • 1. 1 Tech M&A Monthly Deal Structures Today 10 September 2015
  • 2. 2 A leader in the software industry, Bruce has founded or owned four software companies, including the largest vertical market software company, AMI, an Inc. 500 firm rated by IDC as the fastest growing computer-related company in the world. He has served on advisory boards for Microsoft, IBM, DEC, Comdex and Apple, and as board member/founding investor in some of the most innovative firms in their field, including Blue Coat, Bright Star and Sabaki. Past advisor to two governors and a senator, a board member of the Washington Technology Center, and founder of the WTIA, the nation’s most active regional technology trade association. He worked with the Canadian government to found SoftWorld, and he was recently chosen as one of the 200 most influential individuals in the IT community in Europe. He was also the only American juror for the recent Tornado 100 Awards given to Europe’s top technology firms A graduate with Distinction from Harvard Business School, Bruce has written three books on business models for success, including Power Planning. He is a frequent lecturer and author. Welcome Bruce Milne CEO Corum Group Ltd.
  • 3. 3 Timothy joined Corum in 2011, and oversees the company’s marketing efforts globally from the headquarters near Seattle. Chief among these is Corum's extensive conference schedule, “Selling Up, Selling Out,” the Merge Briefing, the Tech M&A Monthly webcast and Corum's platinum sponsorship of the World Financial Symposiums' live events and Market Spotlight series. Through these events, Corum Group serves as the world’s leading educator in technology mergers and acquisitions. Prior to joining Corum, Timothy served as marketing and product manager for GIS software startup Depiction, Inc., and previously worked in marketing for VizX Labs, a pioneering SaaS startup delivering DNA analysis tools. In addition to marketing for software startups, Tim has worked for a US Senate campaign and taught science in Rio de Janeiro. Timothy graduated Magna Cum Laude from Bethel University in St. Paul, Minnesota, with degrees in History and Biology. Moderator Timothy Goddard VP, Marketing Corum Group Ltd.
  • 4. 4 Agenda  Welcome  Special Report: Selling Your Games Company  Research Report  Tech M&A Structures Today  Asset vs. Stock Sale  Employment Agreements & Noncompetes  Earnouts  Profit Sharing & Options  Acquihire Deals  Debt & Leverage  Cross-Border Issues  Q&A
  • 5. 5 Selling Your Games Company Daniel Bernstein Vice President Corum Group Ltd. Daniel Bernstein has worked in a number of roles over a twenty year career in high technology, most recently as the founder and CEO of Sandlot Games Corporation, a leading casual games publisher and developer. Having sold Sandlot Games to Digital Chocolate in 2011, Daniel started a small games studio and a consulting practice where he advises larger companies such as RealNetworks and smaller high growth businesses on product development, strategic initiatives, and M&A opportunities. Prior to Sandlot Games, Daniel Bernstein held director level positions in companies such as Wild Tangent and Monolith. An accomplished composer, Daniel also writes music for most of the games he works on. Daniel holds a BS in Computer Science and an MA in Music Composition from the University of Virginia.
  • 6. 6 Game Development M&A There is a value chain of opportunity associated with your games business, with multiple vectors  Deriving maximum value out of your company  How the buyers perceive you  Market trends  Preparing for acquisition
  • 7. 7 IP ownership Own Your IP Work on Licensed Product
  • 8. 8 New technologies Mobile, Wearable, VR Expertise Desktop or Console
  • 12. 12 Upcoming Casual Connect Events  Casual Connect Tel Aviv 2015  19 - 21 October 2015  Location: Tel Aviv, Israel  Casual Connect Europe 2016  16 - 18 February 2016  Location: Amsterdam, Netherlands
  • 13. 13 Corum Research Report Elon Gasper Vice President, Director of Research Amber Stoner Senior Analyst a
  • 14. 14 Public Markets 0% 5% 10% 15% 20% 25% 30% 35% Weekly Percentage Change NASDAQ S&P TECH Dow Jones
  • 15. 15 The Bull Market, 2009-2015 0% 50% 100% 150% 200% 250% 300% 350% Daily Percentage Change NASDAQ S&P TECH Dow Jones
  • 16. 16 Start End Years Dotcom Bubble Oct. 11, 1990 Mar. 24, 2000 9.5 Postwar Boom Jun. 13, 1949 Aug. 2, 1956 7.1 Current Mar. 9, 2009 ? 6.5 *Since the Great Depression. Source: S&P Capital IQ, The Associated Press Macro view: 3 Longest* Bull Market Runs
  • 17. 17 Aug. 2014 Aug. 2015 # of Transactions 294 321 # of Mega Deals 4 4 Largest Deal $3.5B $8.0B Private Equity Deals 17 13 # VC backed Exits 49 47 % Cross Border Transactions 32% 30% % of Startup Acquisitions 15% 15% Average Life of Target 15 13 Corum Index Buyer Seller Price Carlyle/GIC Veritas (Symantec) $8.0B FIS SunGard $5.1B Audi/BMW HERE (Nokia) $2.7B QVC Zulily $2.4B
  • 18. 18 Mega Deals – YTD 2015 HORIZONTAL $6.3B $1.0B $5.3B INFRASTRUCTURE $126.4B $13.8B CONSUMER $17.1B VERTICAL $34.5B $4.0B $3.6B IT SERVICES $11.8B $2.3B $1.9B INTERNET $9.7B $1.4B $1.5B $4.4B $2.8B $1.3B $2.5B $4.0B $1.6B $2.1B $1.1B $5.1B $2.2B $1.4B $3.0B $3.0B $4.8B $2.8B $2.4B $16.5B $1.2B $16.7B $1.9B $11.8B $1.9B $37.0B $15.4B $8.0B $9.1B $1.9B $2.7B $2.4B
  • 22. 22 Infrastructure Software Market 3.8x 15.4x Public Valuation Multiples EV Sales Corum Analysis EV EBITDA Since Q2 Aug. 2015 Slid back to April levels, slightly ahead of overall market trends… …with EBITDA beating those trends by keeping established summer pace
  • 23. 23 …with EBITDA keeping established summer pace Slide back to the numbers in April, though with a strong recovery potential Deal Spotlight: Security Sold to Target: Perspecsys Inc. [Canada] Acquirer: Blue Coat Systems Inc. [USA] Transaction Value: ~$105M (15x revenue) ‒ Provides a platform that helps enterprises using cloud-based applications to maintain privacy and security ‒ Enables Blue Coat to offer a wider range of Cloud Access Security Broker (CASB) capabilities through its Secure Web Gateway portfolio Infrastructure Software Market
  • 24. 24 …with EBITDA keeping established summer pace Slide back to the numbers in April, though with a strong recovery potential Deal Spotlight: Security, Identity Management Infrastructure Software Market Sold to Target: Xceedium Inc. [USA] Acquirer: CA Technologies [USA] Transaction Value: $100M (6.7x revenue) ‒ Provides Xsuite, an identity management solution for hybrid IT environments ‒ Complements CA’s host-based access control approach
  • 25. 25 …with EBITDA keeping established summer pace Slide back to the numbers in April, though with a strong recovery potential Deal Spotlight: Identity and Access Management Infrastructure Software Market Sold to Target: Whitebox Security Ltd. [USA] Acquirer: SailPoint Technologies [USA] ‒ Provides data access governance solutions that protect sensitive data against internal and external breaches ‒ Bolsters ability to provide complete visibility into and control over unstructured data ‒ SailPoint acquired by Thoma Bravo in September 2014
  • 26. 26 …with EBITDA keeping established summer pace Slide back to the numbers in April, though with a strong recovery potential Deal Spotlight: Security Infrastructure Software Market Sold to Target: Caspida [USA] Acquirer: Splunk Inc. [USA] Transaction Value: $190M ‒ Provides machine learning tools to detect malware and advanced threats ‒ Joint solutions would unify breach response and breach detection ‒ Raised ~$12M from VCs; reported revenues of ~$2M would make this 95x revenue
  • 27. 27 …with EBITDA keeping established summer pace Slide back to the numbers in April, though with a strong recovery potential Deal Spotlight: Security Infrastructure Software Market Sold to Target: Good Technology [USA] Acquirer: BlackBerry [Canada] Transaction Value: $425M ‒ Provides mobile device management, messaging, security and Intranet access software for use on a broad range of handheld devices ‒ Supports Blackberry’s efforts to sell mobile security software to government and corporate customers ‒ Follows withdrawn IPO & patent lawsuit defeat, invalidating several of Good’s patents
  • 28. 28 …with EBITDA keeping established summer pace Slide back to the numbers in April, though with a strong recovery potential Deal Spotlight: Mobility Infrastructure Software Market Sold to Target: Halosys Inc. [USA] Acquirer: Sonata Software Ltd [India] Transaction Value: $5M ‒ Provides a single Unified Enterprise Mobile Enablement platform that enables businesses to build and deploy mobile apps ‒ In line with trend of IT Services companies buying software product businesses Sold to Target: ITR Mobility [USA] Acquirer: Zebra Technologies Corporation [USA] ‒ Provides mobile code legacy migration and modernization of Windows CE and mobile apps ‒ Helps Zebra ease the conversion of legacy mobility applications to current systems
  • 29. 29 …with EBITDA keeping established summer pace Slide back to the numbers in April, though with a strong recovery potential Deal Spotlight: Storage Infrastructure Software Market Sold to Target: Dot Hill Systems Corp [USA] Acquirer: Seagate Technology [Ireland] Transaction Value: $694M (2.7x revenue) ‒ Provides storage arrays, software and data protection services ‒ Supports the growth of Seagate’s OEM-focused cloud storage system
  • 30. 30 2.1x 12.9x Public Valuation Multiples EV Sales Corum Analysis EV EBITDA Since Q2 Aug. 2015 Consumer Technology Market Falling back to Q1 levels… ...with a matching drop in EBITDA metrics
  • 31. 31 Deal Spotlight: Sports and Entertainment Consumer Technology Market Sold to Target: Runtastic [Austria] Acquirer: Adidas [Germany] Transaction Value: $239M ‒ Provides mobile device fitness planning and tracking applications for consumers globally ‒ Follows competitor Under Armour’s mobile app buying spree
  • 32. 32 Deal Spotlight: Fantasy Sports Sold to Consumer Technology Market Target: numberFire [USA] Acquirer: FanDuel [USA] ‒ Provides sports statistics aggregation and analysis service for fantasy sports ‒ Integration of numberFire’s sports data and analytics should expand capabilities of FanDuel’s platform
  • 33. 33 Deal Spotlight: Gaming Sold to Target: bwin.party [Gibraltar] Acquirer: GVC Holdings [UK], operator of Sportingbet Transaction Value: $1.7B (2.6x revenue) ‒ Provides online gaming & sports betting websites for consumers in Europe ‒ Also sponsors various sporting events in Europe HORIZONTAL $6.3B $1.0B $5.3B INFRASTRUCTURE $126.4B $13.8B CONSUMER $17.1B VERTICAL $34.5B $4.0B $3.6B IT SERVICES $11.8B $2.3B $1.9B INTERNET $9.7B $1.4B $1.5B $4.4B $2.8B $1.3B $2.5B $4.0B $1.6B $2.1B $1.1B $5.1B $2.2B $1.4B $3.0B $3.0B $4.8B $2.8B $2.4B $16.5B $1.2B $16.7B $1.9B $11.8B $1.9B $37.0B $15.4B $8.0B $9.1B $1.9B $2.7B $2.4B Consumer Technology Market
  • 34. 34 Deal Spotlight: MTG Target: Turtle Entertainment [Germany] Acquirer: Modern Times Group [Sweden] Transaction Value: $87M ‒ Provides eSports online tournaments, leagues and events Target: Zoomin.tv [Netherlands] Acquirer: Modern Times Group [Sweden] Transaction Value: $49M ‒ Provides a news, entertainment and video games video sharing website Sold to Sold to Consumer Technology Market
  • 35. 35 Deal Spotlight: Sports and Gaming Sold to Target: StanJames.com [Gibraltar] Acquirer: Unibet [Malta] Transaction Value: $29.2M ‒ Provides online and mobile sports betting, casino and poker gaming Consumer Technology Market Target: Slingo [USA] Acquirer: Gaming Realms [UK] Transaction Value: $18M ‒ Provides online and mobile social and casino-style video games Sold to
  • 36. 36 Deal Spotlight: Gaming Sold to Target: FL Mobile [Cayman Isl.] Acquirer: Tsinghua Holdings [China] Transaction Value: $624M ‒ Former online game publishing unit of NQ Mobile ‒ Acquirer (Jinxing Rongda) is a division of Tsinghua Holdings Consumer Technology Market
  • 37. 37 Horizontal Application Software Market 3.3x 16.9x Public Valuation Multiples EV Sales Since Q2 Corum Analysis EV EBITDA Aug. 2015 Backed off to Q3 2014 levels in conjunction with general market correction… … with a drop of twice as much for value based on profits
  • 38. 38 ..and businesses are still shy to yield high returns. Backed off to early last year as business intelligence models step into the market Deal Spotlight: Big Data Horizontal Application Software Market Sold to Target: 1010data [USA] Acquirer: Advance/Newhouse [USA] Transaction value: $500M (10x revenue) ‒ Big data discovery and data sharing platform for retail, manufacturing, telecom, and financial services Sold to Target: Onyara [USA] Acquirer: Hortonworks [USA] Transaction value: $38.5M ‒ Open source IoT data management SaaS ‒ Expands IoT capabilities and introduces Hortonworks’ Hadoop software to new customers
  • 39. 39 ..and businesses are still shy to yield high returns. Backed off to early last year as business intelligence models step into the market Deal Spotlight: Business Intelligence Horizontal Application Software Market Sold to Target: Xtraction Solutions [Australia] Acquirer: LANDesk Software [USA] Transaction Value: $20M (5x revenue) ‒ Provides data-aggregation technology that allows IT organizations to connect multiple data sources into a single solution ‒ Expands the LANDESK Workspaces product portfolio
  • 40. 40 ..and businesses are still shy to yield high returns. Backed off to early last year as business intelligence models step into the market Deal Spotlight: Business Intelligence Horizontal Application Software Market Sold to Target: Infoactive [Canada] Acquirer: Tableau [USA] ‒ Infographics web app startup with expertise in mobile and cloud products ‒ Adds functionality to Tableau’s free data visualization platform, Tableau Public
  • 41. 41 ..and businesses are still shy to yield high returns. Backed off to early last year as business intelligence models step into the market Deal Spotlight: SCM Horizontal Application Software Market Sold to Target: GT Nexus [USA] Acquirer: Infor [USA] Transaction value: $675M ‒ Global trade and logistics SCM SaaS ‒ The addition of GT Nexus Solutions to the Infor CloudSuite of applications strengthens their position as the retail industry shifts towards contract-based manufacturing
  • 42. 42 ..and businesses are still shy to yield high returns. Backed off to early last year as business intelligence models step into the market Deal Spotlight: SCM Horizontal Application Software Market Sold to Target: Merchantry [USA] Acquirer: Tradeshift [USA] Transaction value: $30M (10x revenue) ‒ Product information management (PIM) SaaS enabling companies to connect to their suppliers across multiple online channels ‒ Enables Tradeshift to provide e-procurement capability and in-depth catalog management on its platform
  • 43. 43 ..and businesses are still shy to yield high returns. Backed off to early last year as business intelligence models step into the market Deal Spotlight: SCM Horizontal Application Software Market Sold to Target: BearWare [USA] Acquirer: Descartes [Canada] Transaction value: $11.2M ‒ Mobile tracking system to enable better collaboration between retailers and logistics service providers ‒ Complements Descartes’ Airclic product, a cloud-based mobile automation solution
  • 44. 44 ..and businesses are still shy to yield high returns. Backed off to early last year as business intelligence models step into the market Deal Spotlight: Marketing & Adtech Horizontal Application Software Market Sold to Target: OptAim [China] Acquirer: iClick Interactive Asia [Hong Kong] ‒ Leading Chinese mobile ad network and customer analytics SaaS ‒ Strengthens iClick’s performance-based advertising and programmatic marketing capabilities and provides access to 550 million mobile users
  • 45. 45 Corum Research Report Elon Gasper Vice President, Director of Research Amber Stoner Senior Analyst a
  • 47. 47 Tech M&A Deal Structures Today Rob Schram Senior Vice President Corum Group Ltd. Asset Sale vs. Stock Sale • Important tax implications • Stock sales more favorable to sellers • Asset deals more favorable to buyers • C corporation asset sales create double tax issues • When asset deals happen, make sure you have experienced accountants Transaction Structure
  • 48. 48 Tech M&A Deal Structures Today Jon Scott Senior Vice President Corum Group Ltd. Employment Agreements, Consulting Agreements & Noncompetes • Employment agreements can be beneficial, especially if earnouts are involved • Limit time periods on noncompetes and keep them specific. Transaction Structure
  • 49. 49 Tech M&A Deal Structures Today Ward Carter Chairman Corum Group Ltd. Earnouts • Often used to bridge the gap between buyer & seller • Should be avoided when possible • When used, carefully structure control agreements to ensure success • Properly structured, can create good upside Transaction Structure
  • 50. 50 Mark Johnson Vice President Corum Group International, Ltd. Tech M&A Deal Structures Today Profit Sharing & Options • Provides a “carrot” to encourage assistance & performance by sellers post-sale • Can bridge gaps, as with earnout • Avoid relying too heavily on either • Future performance is generally out of your control. Transaction Structure
  • 51. 51 Tech M&A Deal Structures Today Dan Bernstein Vice President Corum Group Ltd. Acquihire Deals • Talented, effective teams are sought-after commodities • Structures must be navigated carefully • Employment agreements play an important role, but shareholders must still be satisfied Transaction Structure
  • 52. 52 Tech M&A Deal Structures Today John Simpson Vice President Corum Group Ltd. Debt & Leverage • Can raise red flags for a seller • When sellers provide debt, they share the risk • Can negatively impact company’s performance • Cheap institutional debt can enable all-cash deals, but may lower value Transaction Structure
  • 53. 53 Jim Perkins Vice President Corum Group Ltd. Tech M&A Deal Structures Today Cross-Border Issues • Can require governmental approvals, including anti-trust, currency or labor issues • Foreign exchanges may require approvals • Differing tax laws may also create complications Transaction Structure