THE PREMIER PROVIDER OF M&A SERVICES TO SOFTWARE / IT COMPANIES

Software Mergers & Acquisitions

Mid Year Update
July 2006

Corum Group Ltd.

Corum Group International S.à.r.l
www.corumgroup.com
 THE PREMIER PROVIDER OF M&A SERVICES TO SOFTWARE / IT COMPANIES

Agenda
• Opening Remarks
• M&A Review
• Corum Transactions 1H:06
• 2H:06 Outlook
• IPOs, Venture Capital and Private Equity
• Sector Analysis
• Valuations
• What Will Drive Deals in 2006
• Guest Speakers
• Questions & Answers

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 THE PREMIER PROVIDER OF M&A SERVICES TO SOFTWARE / IT COMPANIES

Corum Group
• M&A specialists since 1985
• Software and IT experts – mostly former CEOs
• Dominant North American and European presence
• 200+ transactions completed
• $6 billion in wealth created
• 40% Cross border transactions
• Recognized industry leaders/experts
• Sponsor of Selling Up Selling Out conferences
• Sponsor of World Financial Symposiums Conferences
• Publisher of industry leading M&A research

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 THE PREMIER PROVIDER OF M&A SERVICES TO SOFTWARE / IT COMPANIES

Corum Transaction Analysis - Recent Deals

MacDonald, Dettwiler & Associates / Mindbox
• Mindbox provides sophisticated decisioning software to automate knowledge intensive
business processes. Mindbox is especially strong in the financial services industry,
specifically mortgage banking. Mindbox is based in Greenbrae, CA.
• MDA, headquartered in Richmond, BC Canada, provides advanced information solutions to
capture and process vast amounts of data, produce essential information and improve
decision making.
• MDA acquired Mindbox to expand their offerings to include advanced decision making and
their presence in the US lender market.
• Terms were not disclosed.

NICE / FAST Video

• FAST Video is a Swiss developer of video systems for security and surveillance purposes.

• NICE is an Israel-based provider of advanced content analytics for most forms of

communication – video, web, radio, telephony, and offers security related systems.

• NICE acquired FAST to strengthen their digital video product suite and complement their
current security offering.

• The transaction was valued at $33 million plus earnout.

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Corum Transaction Analysis (continued)

Harland Financial Solutions / Financialware, Inc.

• Financialware, based Indianapolis, Indiana, is a leading provider of Enterprise Content
Management solutions specific to the financial services industry.
• Atlanta based Harland Financial Solutions, a subsidiary of John H. Harland Company, supplies
software and services to financial institutions of all sizes.
• Harland will integrate the Financialware ECM product into their core, lending, mortgage, item and
payment processing systems, providing a single view into all of a customer’s financial data.
• Terms were not disclosed.

The Carlyle Group / UC4 Software

• UC4 is an Austrian software vendor in the enterprise job scheduling and workload automation
space.

• The Carlyle Group is a global private equity firm with investments across multiple industries
including technology and business services.

• Terms were not disclosed.

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 THE PREMIER PROVIDER OF M&A SERVICES TO SOFTWARE / IT COMPANIES

Corum Transaction Analysis (continued)

Wellpoint Systems Inc. / IDEAS International Inc.

• IDEAS International, a New Jersey-based company, develops sophisticated international financial
management software and professional services to the oil and gas industry.
• Wellpoint Systems provides critical management software related services within the energy
industry. Wellpoint is based in Calgary, Alberta, Canada.
• IDEAS brings a large install base, growing revenues and international operations to Wellpoint.
• The transaction was valued at $6.15 million cash, including $1.4 million in common shares and
$1.5 million in performance-based consideration.

NCR Corporation / IDVelocity, LLC

• IDVelocity, located in Greensboro, North Carolina, develops end-to-end RFID solutions.

• NCR, out of Dayton, Ohio, is a global technology company operating in a number of customer
centric industries like retail, data warehousing and banking.

• NCR saw IDVelocity as an opportunity to extend their RFID solution portfolio and complementary
with other NCR technologies.

• Terms were not disclosed.

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Corum Transaction Analysis (continued)

Apax Partners / Plexus Systems (Investment)

• Plexus, out of Auburn Hills, Michigan, offers “on-demand” (SaaS) manufacturing performance
system which automates business processes for discrete manufacturers.
• Apax Partners is a leading global private equity investment group.
• Terms were not disclosed.

Microsoft / iView
• iView is a UK developer of professional level digital asset management and cataloging software
for photographers and creative professionals.

• Microsoft will expand their Digital Asset Management offering and continue to develop and support
the iView product line for both the Mac and Windows operating systems.

• Terms were not disclosed.

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 THE PREMIER PROVIDER OF M&A SERVICES TO SOFTWARE / IT COMPANIES

Corum Transaction Analysis (continued)

Blue Cross Blue Shield of SC / REDmedic, Inc.

• REDmedic, out of Santa Clara, California, is a provider of online personal health information
services.
• Blue Cross Blue Shield of South Carolina, an independent licensee of the Blue Cross Blue Shield
Association, has a number of technology subsidiaries which they are building through acquisitions.
• Terms were not disclosed.

Confidential
• Legal software provider acquired by large multi-national software and services company.

• Terms were not disclosed.

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 THE PREMIER PROVIDER OF M&A SERVICES TO SOFTWARE / IT COMPANIES

Momentum Continues
With an exceptionally strong first half complete, we look
forward to a similar close to 2006.

7+ companies currently under LOI or term sheets

• Mining Software (Announced - Gemcom / Surpac Minex Group)
• Compliance
• Storage Management
• Gaming
• Services
• Vertical Markets
• Insurance
• Government

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M&A Environment – Macro View

Billion dollar+ strategic acquisitions are happening

• Disney / Pixar
• EMC / RSA Security
• Infor Global / SSA Global

Currently, the deal making climate is optimal

• Liquidity in equity & debt markets
• Wall Street is receptive to smart, strategic deals
• Fairly stable stock market
• Competitive bids from the private equity community
• SOX compliance is better understood

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 THE PREMIER PROVIDER OF M&A SERVICES TO SOFTWARE / IT COMPANIES

M&A Environment – Technology Sector

Deal activity continues to accelerate in the
technology industry
• IT spending has stabilized and continues to grow in
many market segments
• Executives are confident / support strategic acquisitions
• Companies are in growth mode vs. survival mentality of
past years
• Elevated M&A activity puts pressure on all companies to
be in the M&A market in order to remain competitive and
not miss opportunities

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 THE PREMIER PROVIDER OF M&A SERVICES TO SOFTWARE / IT COMPANIES

Is it 1998?
• M&A levels are strong, but justified
• Valuations are strategic, while sensible
• New technology is pervasive, but real
• Sellers are optimistic, but rational
• Buyers are opportunistic, yet cautious

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 THE PREMIER PROVIDER OF M&A SERVICES TO SOFTWARE / IT COMPANIES

M&A Is the Primary Source of Liquidity

In Dollar Volume – US dollar volume all industries

$1,700
$1,600
$1,500
$1,400
$1,300
$1,200
$1,100
In Billions

$1,000
$900
$800
$700
$600
$500
$400
$300
$200
$100
$0
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 1H:06

M&A Dollar Volume IPO Amount Raised

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 THE PREMIER PROVIDER OF M&A SERVICES TO SOFTWARE / IT COMPANIES

IPO Market

Number of IPOs increasing

• IPO candidates have gained financial stability
• Positive perception of technology IPOs again

Drawbacks of being publicly held

• High compliance cost
• Greater management liability
• Intense market scrutiny
• Less flexibility regarding corporate structure
• Higher liquidity in M&A vs. IPO

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Venture Capital
Currently:
• 8 venture backed technology companies went public in Q2
• 74 venture backed technology companies exited via M&A in Q2
• Ratio of VC backed M&A exits vs. IPOs – 9:1
• Investments in software companies rising
• Post money valuations up, mainly due to slow IPO market
• Overall the VC market is very stable

Going Forward:
• VCs are actively seeking investments abroad
• VCs are looking for a smaller quantity of higher quality
investments

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Technology Investment Steady

Total VC Investment in Software Industry

$1,700

$1,500
In Millions

$1,300

$1,100

$900

$700

$500
02

02

03

03

03

03

04

04

04

04

05

05

05

05

06
3:

4:

1:

2:

3:

4;

1:

2:

3:

4:

1:

2:

3:

4:

1:
Q

Q
Source: PricewaterhouseCoopers/Venture Economics/NVCA/MoneyTree survey
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 THE PREMIER PROVIDER OF M&A SERVICES TO SOFTWARE / IT COMPANIES

Private Equity
Currently:
• Buyouts continue to be a major driver of software M&A
• Q2 was the third most active (All industries)
• Private equity funds raised $24+ billion in Q1
• Persistent interest in technology

Going Forward:
• Continue to play a major roll in the consolidation of mature
markets
• Renewed confidence in resurgent IPO market
• In an effort to differentiate, PEs are taking a more hands on
approach

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 THE PREMIER PROVIDER OF M&A SERVICES TO SOFTWARE / IT COMPANIES

Active Buyers in 2006

Strategic Buyers Private Equity (Active)
Microsoft - 12 Apax Partners
L-3 Communications - 8 Carlyle Group
IBM - 6 Francisco Partners
Oracle - 6 Golden Gate Capital
EMC - 6 Halo Technology Holdings
NeoMedia - 6 Thoma Cressey
Jupitermedia - 5
Sage Group - 4
Think Partnership - 4

Numerous others with 3 transactions

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 THE PREMIER PROVIDER OF M&A SERVICES TO SOFTWARE / IT COMPANIES

Software Sector Coverage

21 Markets Covered by Corum

Business Intelligence Security

Connectivity/Legacy Extension/Web
Services
Digital Media
Engineering
Enterprise Applications
Enterprise Content Management
Enterprise Infrastructure
Gaming
Internet Infrastructure
Internet Pure Plays
IT Services
Software Development Tools
Storage
Supply Chain Management
Wireless
Vertical Market –
• Financial Services Industry
• Government/DoD/Homeland Security
• Healthcare Industry
• Other
• Telecom

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Sector Statistics
Transaction volume by sector
Most Active Sectors
• Vertical Market Applications
• Internet Infrastructure
• Enterprise Applications
Slow Sectors
• Software Development Tools
• Financial Services

Median transaction value all sectors

• 2005 – $40 million
• 1H:06 – $44.5 million

Approximately 60+ percent of technology transactions terms were not disclosed

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 THE PREMIER PROVIDER OF M&A SERVICES TO SOFTWARE / IT COMPANIES

Sector Valuations
Software Sectors TTM EV/S Multiple
Business Intelligence 2.15 x
Connectivity/Legacy Extension/Web Services 2.59 x
Digital Media 2.82 x
Engineering 2.71 x
Enterprise Applications 4.27 x
Enterprise Content Management 1.46 x
Enterprise Infrastructure 2.36 x
Gaming/Entertainment 1.44 x
Internet Infrastructure 3.57 x
Internet Pure Plays 3.34 x
IT Services 0.78 x
Security 3.00 x
Software Development Tools 1.44 x
Storage 2.43 x
Supply Chain Management 1.58 x
Wireless 2.28 x

Vertical Market Software Sectors

Financial Services Industry 3.26 x
Government/DOD/Homeland Security 1.21 x
Healthcare Industry 1.98 x
Other 2.63 x
Telecom Industry 2.02 x

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Sector Analysis

Enterprise Applications
• Vital to the operation of the enterprise
• Mature market, forcing companies to grow inorganically
• Rising cost of acquiring new market share

M&A Activity
• Cross-border transactions
• Compliance related solutions

Private Equity reshaping sector

• Numerous PE firms active in Q2
• Building on previous investments

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Sector Analysis

Internet Infrastructure
Driving forces
• Strong public peer group valuations
• Surge of new players to the market
• Continued acceptance of new technology
• Diminished concerns over the Internet model failing again

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Sector Analysis

Vertical Market Applications

Lead all sectors in deal volume
• Interest in niche market technology

Micro Verticals with multiple transactions

• Education/eLearning
• Natural Resources
• Retail Solutions
• Legal Solutions

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Valuation

Software valuations – ttm

• Transaction multiples have increased, but not at the same
pace as deal volume
• Transaction value differs from company to company and
market to market
• High value strategic valuations do exist
• Although many deals are in the 1x to 2x range

Financial metrics are elusive

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 THE PREMIER PROVIDER OF M&A SERVICES TO SOFTWARE / IT COMPANIES

Key Factors Driving High Valuations

• Rapid growth
• High profitability
• Track record of sustainability
• Recurring revenue
• Attractive business models
• Current and robust technology
• Strong customer base
• Specialized domain expertise
• Distribution / channel strength
• Brand recognition
• Geographic position of power – Localized solutions
• Strong management and technology team(s)

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 THE PREMIER PROVIDER OF M&A SERVICES TO SOFTWARE / IT COMPANIES

2006 Technology M&A Drivers

• Strong economy
• Heavy investment in IT
• Emerging markets: Asia, India, Israel
• Heightened strategic buyer activity
• Industry stalwarts expand scope of business
• Private equity enabling consolidation
• Competitive M&A environment – multiple offers
• Development and adoption of new technology
• Re-invention and acceptance of old business models
• Convergence of once disparate technology silos
• Greater acquisition interest in “smaller” firms

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Guest Speakers

Jason Wright, Principal Apax Partners

Mr. Wright joined Apax in 2000 and is currently a member of the Financial
Business Services Group, focusing primarily on investments in the area of
software as a service and technology.

Ken Hamlin, CEO IDVelocity

Mr. Hamlin is the Founder, CEO and corporate visionary for IDVelocity and has
been actively involved in the manufacturing software space with a number of
firms throughout his career.

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Question & Answer Session

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Contact Information
Presenters:
Bruce Milne, Chairman and CEO
Ryan Blakely, Director of Research

Corum Group Ltd.

10500 NE 8th Street
Suite 1500
Bellevue, WA 98004
USA
+1 425 455 8281

Corum Group International S.à.r.l

Glärnischstrasse 36
CH-8022 Zurich
Switzerland
+41 44 251 82 65

www.corumgroup.com

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Corum Links
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