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Angels Forum


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Angels Forum

  1. 1. The Current State Of The Technology M&A and IPO Markets October 2006 Presented by: David Liu MANAGING DIRECTOR, JEFFERIES BROADVIEW [email_address]
  2. 2. While The M&A Market Has Recovered, The IPO Market Is Still Lackluster 252 41 71 106 164 216 460 600 239 169 187 218 274 148 132 225 273 173 112 325 230 22 20 20 49 45 27 0 100 200 300 400 500 600 700 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006YTD 0 50 100 150 200 250 300 350 Source: Jefferies Broadview's Global Mergers & Acquisitions and IPO databases. Number of M&A Transactions Number of IPOs M&A (Transactions > $50MM) and IPO Activity 1993 – 200 6YTD North America – Technology 280 3 1 313
  3. 3. 2006 YTD US Technology IPO Activity Priced Transactions Company Subsector Pricing CommVault Systems Comm. Equipment Top DivX Software Above Riverbed Technology Comm. Equipment Above Innerworkings New Media Top Qimonda Semiconductors Below WNS Holdings Services Top Gmarket New Media Top Omniture New Media Below Techwell Semiconductors Below Synchronoss Services Below Verigy Semiconductors Below LoopNet New Media Mid CPI International Comm. Equipment Top Corel Software Below Visicu Software Above Himax Technologies Semiconductors Top China GrenTech Semiconductors Above Nextest Systems New Media Bottom Eagle Test Systems Semiconductors Within Liquidity Services New Media Mid SMART Modular Semiconductors Below Digital Music Group New Media Within New Media Within Backlog Company Subsector New Media Optium Semiconductors Withdrawn/Postponed Company Subsector Go Daddy Group New Media Alien Technology Semiconductors New Media Wintegra Semiconductors Ritz Interactive New Media Technology Spectrum Services On The Road Company Subsector Pricing Date 09/21/06 09/21/06 09/20/06 08/15/06 08/08/06 07/25/06 06/28/06 06/27/06 06/21/06 06/14/06 06/12/06 06/06/06 04/27/06 04/25/06 04/04/06 03/30/06 03/29/06 03/21/06 03/08/06 02/22/06 02/02/06 02/01/06 01/24/06 While t he markets were closed over the past several months , recent activity suggests the markets may be opening again Shutterfly New Media Top 09/28/06 eHealth New Media Acme Packet Comm. Equipment Above 10/12/06 10/12/06 SAIC Services Top 10/12/06 Above IPG Photonics Comm. Equipment Mitel Networks Comm. Equipment Local Matters New Media Veraz Networks Comm. Equipment Netlist Semiconductors Jazz Semiconductor Semiconductors Wireless Ronin Technologies Services Paradigm Software Double-Take Software Software Mellanox Technologies Semiconductors
  4. 4. Summary Of Median Performance For Technology IPOs Since 2004 <ul><li>As of October 19, 2006. Source: Jefferies Broadview’s IPO Database / Hoover’s IPO Central / Capital IQ. </li></ul><ul><li>Includes transactions priced between 7/1/2006 to 10/19/2006. </li></ul>Offering Amount TTM Revenue TTM Revenue Growth Quarters of Profitability EBIT Margin % Change From IPO TTM Period Median Profile (1) IPO prospects need to have revenue in excess of $50MM and should be growing at a minimum of 30% per year H1 2004 $86,000 $87,357 54.8% 5 7.6% 43.2% H2 2004 $74,300 $47,447 60.3% 3 4.4% 6.7% H1 2005 $78,000 $67,286 72.1% 8 12.5% 33.3% H2 2005 $86,971 $73,027 74.4% 5 9.4% 14.8% H1 2006 $96,000 $90,550 32.6% 3 8.4% 1.1% H2 2006 (2) $127,304 $73,027 114.0% 4 6.8% 47.0%
  5. 5. Wall Street Still Has A Strong Appetite For Companies With Compelling Attributes <ul><li>Revenue growth takes precedent over profitability and critical mass, though all three are important </li></ul><ul><li>Subscription-based models are preferred, particularly those where cash is collected upfront and can be used as a proxy for bookings for valuation purposes </li></ul><ul><li>From a Software perspective, horizontally focused companies are preferred (vs. vertically focused) because of their larger addressable markets </li></ul><ul><li>From an Internet perspective, focused and differentiated businesses such as niche E-Commerce companies (vs. broad plays) are trading at fundamentally higher multiples </li></ul>TEV / LTM Revenue: 7.4x TEV / LTM Revenue: 6.1x TEV / LTM Revenue: 2.4x TEV / LTM Revenue: 1.5x
  6. 6. Technology IPO Investors Primarily Care About Growth <ul><ul><li>VALUATION STATISTICS </li></ul></ul><ul><ul><li>TEV/2007E Revenue: 4.1x </li></ul></ul><ul><ul><li>TEV/2007E EBITDA: 19.5x </li></ul></ul><ul><ul><li>2006-2007E Growth: 40% </li></ul></ul><ul><ul><li>Price Change Since IPO: 132% </li></ul></ul><ul><ul><li>INVESTMENT HIGHLIGHTS </li></ul></ul><ul><ul><li>Disruptive business model & technology in a highly fragmented, low technology, low-margin market </li></ul></ul><ul><ul><li>Serves large and growing Print, E-Commerce and Small Business Services markets </li></ul></ul><ul><ul><li>Significant growth opportunities including up-selling print-related products and international expansion </li></ul></ul><ul><ul><li>VALUATION STATISTICS </li></ul></ul><ul><ul><li>TEV/2007E Revenue: 2.0x </li></ul></ul><ul><ul><li>TEV/2007E EBITDA: 6.4x </li></ul></ul><ul><ul><li>2006-2007E Growth: 3% </li></ul></ul><ul><ul><li>Price Change Since IPO: (20%) </li></ul></ul><ul><ul><li>INVESTMENT HIGHLIGHTS </li></ul></ul><ul><ul><li>Pl atform for consolidation and robust acquisition pipeline </li></ul></ul><ul><ul><li>Opportunity for steady revenue growth in core franchises </li></ul></ul><ul><ul><li>Organic growth opportunities in upgrades, emerging markets and product cross-selling </li></ul></ul><ul><ul><li>Established direct, reseller, OEM and retail channels and growing service provider channel </li></ul></ul>10/20/05 12/5/05 1/20/06 3/7/06 4/21/06 6/7/06 7/21/06 9/7/06 10/23/06 $10 $15 $20 $25 $30 $35 $40 VistaPrint Daily Closing Price 20-Oct-2005 through 20-Oct-2006 4/26/06 5/18/06 6/9/06 6/30/06 7/25/06 8/16/06 9/8/06 9/29/06 10/23/06 $9 $10 $11 $12 $13 $14 $15 $16 $17 Corel Daily Closing Price 20-Oct-2005 through 20-Oct-2006
  7. 7. Observations From Our Equity Research Analysts <ul><li>M&A activity in the small and medium cap space has created demand for IPOs as mutual funds look to redeploy capital to fulfill sector allocation requirements </li></ul><ul><ul><ul><ul><ul><li>Katherine Egbert, Jefferies’ Infrastructure Software Analyst </li></ul></ul></ul></ul></ul><ul><li>Because the markets open and close so quickly, companies that are looking to go public should go as far as they can in the IPO preparation process, then be nimble about when to go on the roadshow </li></ul><ul><ul><ul><ul><ul><li>Katherine Egbert, Jefferies’ Infrastructure Software Analyst </li></ul></ul></ul></ul></ul><ul><li>Underlying market trends and dynamics are the most important considerations for IPO investors. This is why there is an incredible amount of interest in Online Marketing companies – the fundamental shift of advertising dollars from traditional venues to online continues to transform the industry </li></ul><ul><ul><ul><ul><ul><li>Youssef Squali , Jefferies’ Internet and New Media Analyst </li></ul></ul></ul></ul></ul>
  8. 8. Venture-Backed Private Company Exits Are On The Rebound (1) Source: Jefferies Broadview's Global Mergers & Acquisitions database. Venture capital-backed companies out of total North American Private Seller Transactions > $50MM (1) #
  9. 9. There Continues To Be Many Hot Segments Grabbing The Mindshare Of Both Strategics And Investors <ul><ul><li>Value continues to be driven by market and company specific factors </li></ul></ul>Security Software-as-a-Service Mobility Internet & Digital Media
  10. 10. High-Multiple Exits Are Becoming Increasingly Frequent Representative Transactions Since 2004 with Price/Revenue Multiples > 10x Between 2003-2004, there were 17 transactions with > 10x price/revenue multiples. In 2004-2005, this number more than doubled to 36 (1) (1) North American transactions > $50MM. 12x 10/06 15x 5/04 > 10x 8/06 15x 6/06 11x 5/06 > 10x 4/06 3/04 3/05 4/05 6/05 8/05 9/05 9/05 9/05 11/05 12/05 4/06 Date > 25x > 400x 12x 26x 28x > 20x > 10x 33x 11x 17x 13x Price/Revenue Buyer Seller
  11. 11. Although The M&A Markets Have Been Strong, We Are In A Fundamentally Different Environment Technology Bubble 1998-2000 “ Promise” Post-Technology Bubble 2000-2006 “ Proven” <ul><li>Potential for high growth </li></ul><ul><li>A few “business development” relationships </li></ul><ul><li>Maybe 1-2 referenceable customers </li></ul><ul><li>The higher the cash burn the better </li></ul><ul><li>Real Customers </li></ul><ul><li>Real Revenue </li></ul><ul><li>Real Relationships </li></ul><ul><li>Real Growth </li></ul><ul><li>Real Metrics: </li></ul><ul><li>CPM x Page Views x # of Ads x STR = Advertising Potential </li></ul>
  12. 12. Recent Transactions Validate The Importance Of Key Market And Company Specific Factors <ul><ul><li>Pr oven leader in the open source application server technology market </li></ul></ul><ul><ul><li>Innovative, standards-based middleware solutions enabling customers to develop and deploy next-generation, service-enabled applications at a low cost </li></ul></ul><ul><ul><li>Revenue growth in excess of 100% </li></ul></ul><ul><ul><li>Projected to turn corner on profitability in near future </li></ul></ul><ul><ul><li>Proven leader in the storage area network management and storage resource management market </li></ul></ul><ul><ul><li>Key relationships with leading OEMs including Hitachi, Sun, HP, Engenio and SGI </li></ul></ul><ul><ul><li>Revenue growth of approximately 150% per year </li></ul></ul><ul><ul><li>Unique assets in its robust shopping search engine, a strong brand name and a loyal customer base </li></ul></ul><ul><ul><li>Over 2,500 merchants, 23 million unique users and 22 million leads delivered per month </li></ul></ul><ul><ul><li>Revenue growth in excess of 150% </li></ul></ul><ul><ul><li>Highly profitable with 30% EBITDA margins </li></ul></ul>Deal Value: $420MM Revenue Multiple: > 20x Deal Value: $ 280 MM Revenue Multiple: > 2 5 x Deal Value: $ 600 MM Revenue Multiple: > 10 x
  13. 13. An IT Buyout “Binge” Is Occurring Within The More Mature And Cash-Flow Rich Segments <ul><li>Representative Transactions: </li></ul><ul><li>Onyx Software / Battery Ventures </li></ul><ul><li>SSA Global / Golden Gate Capital </li></ul><ul><li>Systems Union / Golden Gate Capital </li></ul><ul><li>NetIQ / Francisco Partners, Golden Gate Capital and TCEP </li></ul><ul><li>SunGard / Silver Lake Partners, Bain Capital and The Blackstone Group </li></ul><ul><li>Serena Software / Silver Lake Partners </li></ul><ul><li>FrontRange / Francisco Partners </li></ul>Implications <ul><li>Large private equity capital pools interested in technology </li></ul><ul><li>Hedge funds entering the private market </li></ul><ul><li>Acceptance of sponsors selling companies to other sponsors </li></ul><ul><li>Historically low borrowing costs </li></ul><ul><li>Reduced required rate of return / IRR driving pricing higher </li></ul><ul><li>Sponsors more comfortable about ultimate exit as other sponsors provide safety net </li></ul><ul><li>Profitable companies valued between $50 and $300MM have an attractive alternative to an IPO </li></ul>Secular Changes
  14. 14. While Still Dominated By Large Public IT Buyers, Private Equity Firms Have Become Increasingly Active In Technology M&A Buyer Profiles for Enterprise Software Transactions (Transactions > $50MM) In 2005, large public buyers represented approximately 60% of all buyers in the Enterprise Software market Private Equity firms represented nearly 20% of all buyers, up from 5% in 2001
  15. 15. Answers to Common Questions? <ul><li>When should your Company start courting Acquirers? </li></ul><ul><ul><li>Industry dependent: varies; better to ask; review M&A/IPO comps </li></ul></ul><ul><ul><li>Metrics: IPO: $50MM+ revenues; M&A: no rule of thumb, market timing </li></ul></ul><ul><li>When should you look for a Banker? </li></ul><ul><ul><li>Need: Liquidity, negotiation (price, terms); provide CEO/Board advocacy </li></ul></ul><ul><ul><li>Cost: Typically US$1MM+; success based; 1-year tail </li></ul></ul><ul><ul><li>Selection: Industry expert, confidant, personality, reputation, access </li></ul></ul><ul><li>What are the best ways to move towards a Smart Transaction? </li></ul><ul><ul><li>Aligned interests: Board, C-level execs, employees </li></ul></ul><ul><ul><li>Tactics: Bought not sold </li></ul></ul><ul><ul><li>Publicity: Raise profile when ready </li></ul></ul>
  16. 16. Additional Q&A has been acquired by June 2006 Financial Advisor to the Seller $420,000,000 has agreed to be acquired Pending Financial Advisor to the Buyer Confidential has acquired August 2006 Financial Advisor to the Buyer $375,000,000
  17. 17. Who is Jefferies? <ul><li>#1 Investment Bank Catering to High Growth, Middle Market </li></ul><ul><ul><li>#1 fastest growing Wall Street firm last 10 yrs </li></ul></ul><ul><ul><li>IDD 2005 Middle Market Bank of the Year </li></ul></ul><ul><ul><li>#1 Technology M&A firm last 4 years </li></ul></ul><ul><ul><li>Top 3 NASDAQ Trader </li></ul></ul><ul><ul><li>50%+ employee owned, listed on the NYSE (TICKER:JEF) </li></ul></ul><ul><ul><li>Global with offices in US, Europe, China, Japan, India, Israel, Dubai </li></ul></ul><ul><ul><li>Sector Coverage: Practically every sector of the global economy </li></ul></ul><ul><li>Contact: </li></ul><ul><ul><li>David A. Liu Managing Director Technology Investment Banking T: (650) 573-4803 Email: </li></ul></ul>