2012 Better Acquisitions Gathering

Better Acquisitions Gathering 2012

M&A - Context and Trends
Kelly Porter
Managing Director and Partner
Co-Head of Software and Internet Services
kelly.porter@woodsidecap.com
January 18, 2012


Welcome.


We believe that this is
the most important conference
of the year.


Global Acquisitions Are Trending Up
In Dollar Volume (Billions – All Industries)

2011
Source: Capital IQ


The IPO Market: Still Tepid
Performance Since Offering: Selected 2011 IPO’s

• High bar to IPO Imperva 67%
LinkedIn 56%

• 52 venture-backed tech Bankrate 55%

companies raised $9.9 billion Fusion-io 48%

in IPO’s Zillow 36%

• Four companies raised Jive Software 22%

about half of the capital Angie's List 21%
GroupOn -2%

• Two thirds of 2011 IPO’s HomeAway -7%

trading below their offering Zynga -8%

prices. Pandora -25%
Yandex -27%

• Significant IPO backlog Boingo -39%
entering 2012: 216 Demand Media -59%
companies; 57 are tech Renren -71%
companies 21Vianet -83%
Friendfinder
-92%
• Market generally supportive -100% -80% -60% -40% -20% 0% 20% 40% 60% 80%
of IPO’s
Source: NVCA, WSJ


Global Software and Internet Acquisition Activity – Last Ten Years

4,000 3,758 $140

3,500
3,429 3,436
3,240 3,158 $120

# of
3,000 2,814
$100 Transactions
2,524
2,500 2,281
2,038 1,951 $80
$ Value of
2,000
Announced
$60 Transactions
1,500
($B)
$40
1,000

500 $20

- $-

Source: Capital IQ


Top-25 Acquirers in Software – Announced Acquisitions, Last Five Years
200+

• Importance of Google

• Otherwise relatively few consumer
internet acquirers

• However, new up & comers:
Facebook, Zynga

• Importance of cloud / enterprise
acquirers

• Embracing acquisitions: Autodesk
($2B revs); Nuance ($1.3B revs);
Citrix ($1.9B revs)

• Noteworthy who is not on the list:
Apple, Amazon

Source: Capital IQ


A Look At Google

Select 2011 Acquisitions
Financials Company Acquired Description Segment
$36B revs LTM Sept 2011 AdMeld Display ad optimization Advertising
eBook Technologies e-reader technology Content
+30% growth YOY BeatThatQuote.com Financial product comparison site E-Commerce
Sparkbuy Comparison shopping for electronic devices E-Commerce
Revenues doubled last five years Punchd Digital loyalty-discounts E-Commerce
Dealmap Daily deals mapping E-Commerce
$13B EBITDA Zave Networks Digital coupons and loyalty programs E-Commerce
Zagat Restaurant guides Local
$43B Cash (~25% of EV) Clever Sense Recommendation app: bars, restaurants, etc Local
TalkBin Real-time customer feedback via mobile phones Mobile
$167B Enterprise Value SayNow Voice messaging Mobile
Motorola Mobility Patents Mobile
PushLife Music service provider for mobile Music
Apture In-Page Search Search
Observations Zynamics Security Security

• Mostly smaller acquisitions PostRank
SocialGrapple
Social media analytics
Twitter analytics
Social
Social

• Portfolio approach - diversified Katango
fflick
Automated online social contacts organization
Friend-based movie recommendation
Social
Video

• Outstanding use of innovation Next New Networks
Green Parrot Pictures
Producer of online TV networks
Video editing tools
Video
Video
ecosystem to build company SageTV
PittPatt
TV management software
Facial recognition software
Video
Video
• Venture-like approach Rightsflow Music Rights Management Video

Source: Capital IQ


36 Key Software Companies: Cash + STI As a Percentage of Assets
• $228 billion held by the companies below
• What is the right amount of cash?
• Issue / opportunity: cash stuck overseas

priceline 63% Apple 22%
Google 62% SAP 21%
Trend Micro 53% CA Technologies 20%
Microsoft 52% Citrix Systems 20%
Autodesk 45% Symantec 19%
Informatica 43% Netflix 19%
Oracle 43% Salesforce.com 18%
BMC Software 36% eBay 16%
Red Hat 34% EMC Corporation 15%
Amazon.com 33% Yahoo! 15%
Check Point Software 33% Nuance 12%
Adobe Systems 32% Software AG 11%
Akamai Technologies 30% IBM 10%
Synopsys 30% Visa 10%
Electronic Arts 28% RIM 9%
IAC/InterActiveCorp 24% Computer Sciences Corp 7%
TIBCO Software 23% H-P 6%
Intuit 22% Open Text 6%

Source: Capital IQ


Breakdown of Software-Internet Transactions by Transaction size – Last five years

$500M - $1 Billion:
$1 Billion or More 141 $100M - $500M
127 1% 884
0% 3%

$100M or less
9,227
32%

Undisclosed:
18,250
64%

Source: Capital IQ


Valuations in M&A – Avg Multiples of Revenue– Public Software Companies

9

8

7

6

5

4

3

2

1

0
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Source: Capital IQ


Notable Transactions in 2011

• Patents:
• Google buys Motorola Mobility for $12B
• Consortium buys Nortel Patent Portfolio for $4.5B

• Interesting companies purchased at a premium, but actually a discount:
• H-P buys Autonomy for $12B
• Microsoft buys Skype for $9B

• Bigger footprint in cloud:
• SAP buys SuccessFactors for $3.8B

• Stronger market presence in core markets:
• eBay buys GSI Commerce for $2.4B
• Electronic Arts buys PopCap Games for $1.3B


Five Key Market Drivers for the M&A Market in 2012

• CEO Confidence / Visibility

• Other Economic Factors

• Equity Markets

• Health of Venture Industry

• Key Market / Growth Opportunities


M&A Market Drivers 2012: CEO Confidence

Source: Vistage CEO Survey


M&A Market Drivers 2012: CEO Confidence

Survey of 1,600 U.S. CEOs - Forecast 2012 (Dec 2011) 10%
Better
40%
“Do you expect overall economic conditions in the About the same
U.S. will be better, about the same, or worse than 49%
Worse
now?” No opinion

6% Increase
21%
About the same
“Do you expect your firm’s sales revenues will Decrease
increase, remain about the same, or decrease?” 73% No opinion

9%
Improve
About the same
“Do you expect your firm’s profitability to 35%
56% Worsen
improve, remain about the same, or worsen?”
No opinion

Source: Vistage CEO Survey


M&A Market Drivers 2012: Broader Economic Factors

Outlook Generally Positive: However:

• Moderate growth expected by economists • Europe is still a concern
• Inflation below 2% • “Near paralysis in policy and creeping
• Fed expected to keep rates near zero austerity” – The Economist
• Profit margins highest since 1960’s

Source: The Economist


M&A Market Drivers 2012: Public Markets – S&P 500

Source: Yahoo Finance


M&A Market Drivers 2012: Health of the Venture Industry

% of VC-backed Company Financings That Were Up-Rounds
100

79 81 79
72 73
68 70
67 67
64
61
54 55
52
47 49
41
32
25

0
2Q07 4Q07 2Q08 4Q08 2Q09 4Q09 2Q10 4Q10 2Q11

Source: Fenwick & West


M&A Market Drivers 2012: Health of the Venture Industry

Average % Price Change Compared to Prior Funding

90
79
75 74
71 69
61
55 53 55 52
49
50

30 28
25
19 21
11
10

-3
-6
2Q07 4Q07 2Q08 4Q08 2Q09 4Q09 2Q10 4Q10 2Q11

-30

Source: Fenwick & West


M&A Market Drivers 2012: Key Market / Growth Opportunities

Games Security
Optimization
Analytics Virtualization

Reshaping
Stuff we
the Data
haven’t
Center Big Data Social Advertising thought of

Mobile Payments
Tablets TV Content
Everywhere


Summary – Expecting an Active Year For M&A

Positive Trends: Mitigators:

• CEO confidence is high • High valuations of private companies

• Overall moderate economic recovery • Policymakers

• Huge market opportunities still nascent

• Competition
(Apple/Google/Facebook/Amazon)

• Plentiful currency:
- Rising equity markets
- Debt is at lowest cost ever
- Over $500B private equity available

• Presence of foreign buyers:
- US companies inexpensive to foreign
buyers

2012 Better Acquisitions Gathering

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