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Q3 2007 Software M&A Update

October 17, 2007
Middle Market Software M&A Specialists

Corum’s information is drawn from

Global M&A Engagements

Research in the U.S. and Europe

Newsletter feedback

Education and activities

The last 60 days

Selling Up Selling Out conference series
Boston, Houston, Philadelphia, Toronto, Ottawa, Buenos Aires, Helsinki, Prague

Merge Briefing

Software Business Conference – Santa Clara

Banff Venture Forum – Banff, Alberta

Security CEO Roundtable

Long Island Software CEO Roundtable

World Financial Symposiums – October 30 in London

Corum Group Presentation ■ 2

Agenda

1
Market Insights

2International Activity & Valuations

3Sector Analysis

4Discussion

Corum Group Presentation ■ 3

Headlines Tell the Story

“Wall Street Beat: M&A, VC Funding Stay “M&A – The Best Investment Game
Hot in Town”
InfoWorld, September 2007 Moneyextra.com UK, May 2007

“Dry-Up in Debt Won’t Deter Tech “Series of small tech IPOs defy
Deals” market turmoil”
Barron’s, September 2007 MSNBC, August 2007

“Dollar Declines on its Rivals” “Market Pressures Test Resilience

Wall Street Journal, September 2007 of Buyout Boom”
Wall Street Journal, June 2007

“Fear the Roller Coaster? Embrace it”

Wall Street Journal, September 2007

Corum Group Presentation ■ 4

Current Market is Mixed

Credit crunch

High oil prices / threat of inflation

Fed actions to provide liquidity

Demise of the dollar

Some earnings reports disappoint

First utterances of the “R word”

Slight softening in software peer group valuations

But, M&A activity levels for 2007 to set record highs

Corum Group Presentation ■ 5

Public Markets – Reaching New Heights

Dow Jones NASDAQ S&P AIM Stockholm

Corum Group Presentation ■ 6

M&A is the Primary Source of Liquidity

In Dollar Volume – U.S. dollar volume all industries

Source: Dealogic, IPO Central

Corum Group Presentation ■ 7
Current M&A Market

Broad Market Technology Market

Q3 2007 M&A up 17% or $884 Q3 2007 – $52 billion, a significant

billion worldwide drop from Q2’s $255 billion total

Private equity firms remain active,

YTD M&A worldwide to $3.38 trillion although debt freeze has slowed
(all industries) pace

2007 maintaining momentum Strategic buyers very active

although August and
September have slowed Consolidation continues across
most sectors

Companies of all sizes continue to

be aggressive buyers

Global buyer community expanding

– Eastern Europe, Asia

Corum Group Presentation ■ 8

Private Equity Resolving Credit Issues

Backlog of deals to fund

PE not involved in many smaller software deals

With or without debt, PE still sitting on 200+B in uncommitted

equity

Current fundraising efforts on track to set new record

Pressure – Need to invest or return capital

New investments and add-ons

Sovereign wealth funds will provide even more cash

Corum Group Presentation ■ 9

Strategic Buyers Still Very Active

Fill void left by private equity

Not impacted by credit

Strong cash reserves

Confident with strong stock market and outlook

Actively looking for strategic investments

Business as usual

Strength of non-U.S. buyers (dollar devaluation / public multiples)

Converging markets / new models spur M&A

Corum Group Presentation ■ 10

Missing a Market

History has taught us…

Many sellers missed 1999-2000 market

M&A market evaporated – for many never returned

For others, took until 2004-2005 to recover

Technology evolved – what was hot was now not

New competitors appeared

Things change – and opportunities lost

Current level of seller activity very high

Corum Group Presentation ■ 11

Buyer Activity High

Current Examples

Sector Interested Parties

Storage Management 17
Entertainment & Multimedia 15
EAI 14
Telecom 11
Knowledge Management 9

Interested parties range from billion dollar household names to

companies never heard of.

Corum Group Presentation ■ 12

Interest Translating into Deals

LOIs and Offers

Vertical market

IT services (2)

Graphic modeling

User interface technology

Business Process Outsourcing

Corum Group Presentation ■ 13

Agenda

1
Market Insights

2International Activity & Valuations

3Sector Analysis

4Discussion

Corum Group Presentation ■ 14

Global M&A Activity

Cross-border transaction levels remain strong

Quarterly activity ahead of U.S. for second straight quarter

European deal activity up 58% year on year in the EU

Britain continues to have the most aggressive European buyers, as they are in
nearly a quarter of current deal volume (all industries)

Corum Group Presentation ■ 15

 European IPO Market

Emerging and Less Regulated Equity Markets

Over 50 U.S. companies listed – and increasing, especially London’s AIM

Approximately 35 foreign companies have voluntarily de-listed from U.S. exchanges

Listings up in Q3, although funds raised are down

Q3 listing percentage by exchange

Other WSE Athens
Borsa Italiana
7% 3% 3% 1% 40
OMX The number of
2%
technology firms
that have listed
Deutsche Borse London on European
50%
19% exchanges over
the past 6 months

Euronext
15%

Source: Pricewaterhousecoppers IPO Watch Europe Survey Corum Group Presentation ■ 16

International Private Equity

Private Equity

PE acquisitions at all time high, leading to some uneasiness about how
U.S. credit issues will affect things going forward

Debt financing terms are still quite attractive

European PE community set to exceed last year’s total of funds raised of

€71.1 billion

UK led the European PE market with buy-outs increasing by 250% in Q2

Corum Group Presentation ■ 17

Global Marketplace

Currently almost 60% of Corum’s recent transactions are cross-border

Intra-Country
42%
Cross Border
58%

A trend we are seeing throughout the industry

Corum Group Presentation ■ 18

Corum Transactions 2007

Provider of payment Provider of estimating and

processing software earth measuring software
and service for contractors

Purepay – U.S. Glaston – Finland

Creditron – Canada Albat+ Wirsam – Germany

Leading provider of event-

driven business application
automation and batch Developer of 3D digital
integration technologies designs in the building,
plant and marine markets

UC4 – Austria backed by

Carlyle – U.K. Autodesk – U.S.
AppWorx – U.S. NavisWorks – U.K.

Provider of estimating Value-added distributor of voice,

and earth measuring data and converged
software for communications solutions
contractors

Datatec – South Africa

Maxwell – U.S. on behalf of Westcon – U.S.
Quest – U.S. CRANE – U.K.
Corum Group Presentation ■ 19
Corum Transactions 2007

IT services provider
Electronic invoicing
to government and
and legal spend
commercial
management solutions
organizations.

DataCert – U.S.
TechTeam – U.S.
CorpraSoft – U.S.
RL Phillips – U.S.

Networking and lobby

services for game
Human capital
publishers &
management solutions
developers

StepStone − Norway
Activision – U.S.
ExecuTRACK − Germany
DemonWare − Ireland

HR information systems
for middle market
enterprises

BPO – U.S.
HR Microsystems – U.S.
Corum Group Presentation ■ 20
International Buyers Remain Active

Need To Look Internationally

International Buyer U.S. Seller

Software AG WebMethods
UC4 Software AppWorx
SAP AG OutlookSoft Corp
Autonomy ZANTAZ
Norkom Technologies Digital Harbor
Sophos, Inc ENDFORCE, Inc.
Siemens AG UGS Corporation
Cegedim S.A. Dendrite International
WPP Group plc 24/7 Real Media, Inc.
Nokia Corporation Endpocket and Twango

Corum Group Presentation ■ 21

Latin America Spotlight

Brazil

A pioneer in the development of sophisticated real-time solutions

Banking systems and e-government

More than 10,000 software companies exist in Brazil

According to ABES and IDC, the IT market in Brazil in 2006 was approximately $16.2 billion

$3.26 billion in software

$5.83 billion in services

Brazil has emerged as a vibrant and globally recognized near-shore outsourcing destination

Brazil now supports almost 900,000 IT employees (end of 2006), 47% of Latin America’s

Mexico

According to AMITI, the IT market was 10.1 billion. USD$ in 2006

$910m USD in software and

$2,617 bn. US$ in services

The market is growing three times faster than the general economy

Mexico had 429,600 IT professionals, 23% of LAM’s resources, of which 70% in software in 2006

Due to its proximity to the U.S., Mexico is becoming a preferred near-shore outsourcing destination
Corum Group Presentation ■ 22
 Looking Back – Valuation Multiples

M&A Transaction Multiples – Software Industry

7.00
6.7
6.00

5.00
P/S Multiple

4.00
2.9 3.0 3.11
2.7 2.7
2.6 2.9 2.95
3.00 2.3 2.0 1.6 1.8 2.1 2.3 2.2 2.5
1.5 1.5
2.00

1.00

0.00
1H:98

2H:98

1H:99

2H:99

1H:00

2H:00

1H:01

2H:01

1H:02

2H:02

1H:03

2H:03

1H:04

2H:04

1H:05

2H:05

1H:06

2H:06

1H:07
Corum Group Presentation ■ 23
 Public Valuation Multiples
Sector Q3:06 Q4:06 Q1:07 Q2:07 Q3:07 Y on Y Q to Q
Digital Media 2.74 x 2.59 x 1.92 x 2.07 x 2.12 x

Enterprise Applications 4.35 x 4.43 x 3.87 x 3.98 x 4.14 x

Business Intelligence 2.87 x 3.03 x 3.13 x 3.25 x 2.98 x

Enterprise Content Management 1.89 x 2.15 x 2.07 x 2.37 x 2.40 x

Supply Chain Management 1.60 x 1.89 x 2.10 x 2.29 x 2.23 x

Enterprise Infrastructure 2.40 x 2.77 x 2.86 x 2.88 x 2.51 x

Legacy Extension / SOA 1.36 x 1.70 x 2.18 x 2.56 x 2.47 x

Software Development Tools 1.88 x 1.71 x 2.00 x 2.22 x 1.66 x

Storage 2.66 x 2.98 x 3.68 x 3.29 x 2.68 x

Gaming 2.25 x 2.47 x 2.54 x 2.24 x 2.20 x

Internet Infrastructure 4.03 x 3.63 x 3.83 x 3.91 x 4.60 x

Internet Pure Play 4.00 x 3.78 x 3.41 x 3.23 x 2.99 x

IT Services 0.84 x 0.80 x 0.80 x 0.89 x 0.96 x
TTM EV/S Multiples
Security 2.94 x 3.36 x 3.15 x 3.69 x 3.43 x
Wireless 2.07 x 2.34 x 1.46 x 1.75 x 1.55 x
Increased
Energy & Environment N/A N/A N/A N/A 4.94 x
Vertical Market - Engineering 2.69 x 3.06 x 3.40 x 3.29 x 3.73 x
Decreased
Vertical Market - Financial Services 3.53 x 3.17 x 3.28 x 3.12 x 3.05 x
Vertical Market - Government 1.24 x 1.13 x 1.16 x 1.15 x 1.21 x
N/A
Vertical Market - Healthcare 2.69 x 2.36 x 2.28 x 2.53 x 3.16 x

Vertical Market - Other 1.75 x 2.02 x 1.19 x 2.71 x 2.81 x

Vertical Market - Telecom 2.12 x 2.10 x 1.33 x 1.52 x 1.50 x
Corum Group Presentation ■ 24
Sector Consolidation & Evolution

Legacy Extension / EAI − Past and Present

Past Present:
Focus: Legacy extension, application Focus: Software Oriented Architecture,
integration, mainframe connectivity Web services

Players: Players:

Attachmate
Attachmate

Candle
BEA

Iona
Candle

Jacada
Iona

NEON
Jacada

NetManage
NEON

Seagull Software
NetManage

SeeBeyond
Seagull Software

Tarantella
SeeBeyond

Tibco
Software AG

Vitra
Tarantella

WRQ
Tibco

Vitra
EV/S Multiple Q2:05 − 1.15 x
Webmethods

WRQ

EV/S Multiple Q3:07 − 2.47 x

Corum Group Presentation ■ 25
Agenda

1
Market Insights

2International Activity & Valuations

3Sector Analysis

4Discussion

Corum Group Presentation ■ 26

 Sectors to Watch – Trending Up

Enterprise Infrastructure
Internet Infrastructure
Internet Pure Plays
IT Services
Financial Services
Q1:05

Q2:05

Q3:05

Q4:05

Q1:06

Q2:06

Q3:06

Q4:06

Q1:07

Q2:07

Q3:07
Positive momentum in sector deal volume underscores current
interest and viability of space.

Corum Group Presentation ■ 27

 Sectors to Watch – Trending Down

Enterprise Applications

Enterprise Content Management

Security

Engineering

Healthcare

Telecom
Q1:05

Q2:05

Q3:05

Q4:05

Q1:06

Q2:06

Q3:06

Q4:06

Q1:07

Q2:07

Q3:07
Deals are happening in these sectors, but slowing as many
buyers are “digesting” previous acquisitions.

Corum Group Presentation ■ 28

Software and IT M&A Activity

Number of Transactions by Sector

45.00%
40.00%
35.00% Q3:06

30.00% Q4:06
Q1:07
25.00%
Q2:07
20.00%
Q3:07
15.00%
10.00%
5.00%
0.00%

Corum Group Presentation ■ 29

 Top Buyers YTD 2007

Strategic Buyers Active Private Equity Firms*

Google 11 Bain Capital
Oracle 8 Battery Ventures
Cisco Systems 7 Carlyle Group
Sungard Data Systems 7 Court Square Capital Partners
CDC Software 6 Hellman & Friedman
Microsoft Corporation 6 Kohlberg Kravis Roberts & Co.
IBM 6 Francisco Partners
Bentley Systems 4 MBK Partners
First Data Corporation 4 Thoma Cressey Bravo
Nuance Communications 4 Vector Capital
SAP AG 4
*Partial List

80+ strategic buyers with 2 or 3 transactions

Corum Group Presentation ■ 30

Q3 Buyer Profile

Private Buyers and Foreign Buyers Remain Active

56% were private or financial buyers

Cash was the dominant form of consideration

Almost 50% of buyers have revenues under $25M

Acquirers from secondary markets active

Corum Group Presentation ■ 31

Transaction Highlights – Largest

Buyer Seller Value (Millions $) Sector

Fiserv, Inc. Checkfree Corporation $4,400.00 Financial Services

Bain Capital 3Com Corporation $2,200.00 Enterprise Infrastructure

Hewlett-Packard Opsware, Inc. $1,600.00 Enterprise Infrastructure

Royal KPN NV Getronics NV € 766.00 IT Services

Steria Xansa £475.00 IT Services

Observations

Increase scale

Strategic spending billions

Market convergence

Absence of private equity

Corum Group Presentation ■ 32

Transaction Highlights – Private Equity

Buyer Seller Value (Millions $) Sector

Bain Capital 3Com Corporation $2,200.00 Enterprise Infrastructure

MBK Partners Ltd Yayoi Co. $610.00 Enterprise Applications

Thoma Cressey Bravo Hyland Software $265.00 Enterprise Content Management

Amadeus Capital EPiServer AB $23.50 Internet Infrastructure

Partners
DC Capital Partners Technology Management Undisclosed Government
Systems and Omen Inc.

Observations

Current debt market has slowed this group

Fundraising at record highs

Strong focus on technology

PE firms looking at smaller opportunities, which may not require leverage

Substantial prior investment in tech, and many deals are synergistic adding to current portfolio

Look more like strategic buyers

Corum Group Presentation ■ 33

Transaction Highlights – Strategic

Buyer Seller Value (Millions $) Sector

Cognos Incorporated Applix, Inc. $339.00 Business Intelligence

Concur Technologies H-G Holdings $160.00 Enterprise Applications

Inc.
Intel Corporation Havok.com Undisclosed Gaming

LexisNexis Group Juris, Inc. Undisclosed Vertical Market

Facebook, Inc. Parakey Undisclosed Internet Infrastructure

Observations

Have more “breathing room” now that the PE community has slowed

Willing to pay high valuations, for the right deal

Product expansion through complementary technology acquisitions

Market convergence

Corum Group Presentation ■ 34

Transaction Highlights – International

Buyer Seller Value (Millions $) Sector

Autonomy Corporation ZANTAZ, Inc. $375.00 Enterprise Infrastructure

Norkom Technologies Digital Harbour $36.50 Financial Services

Digital River, Inc. Netgiro Systems AB $27.00 Internet Infrastructure

EMC Corporation X-Hive Corporation BV Undisclosed Enterprise Content Management

Thomson S.A. SyncCast Corp Undisclosed Digital Media

Observations

Global expansion

Desire to enter U.S. markets

Local domain expertise

Active international buyer community

Corum Group Presentation ■ 35

 Corum Q3 Briefing − Sample

Enterprise Content Management

Public Peer Group (In $U.S. millions – except share prices)

Stock Stock Market Enterprise Trailing Multiple Forward Multiple
Symbol Company Price Value Value P/E EV/EBITDA EV/S P/E EV/S
IWOV Interwoven Inc. $14.23 $620.2 $465.5 203.29 x 21.59 x 2.40 x 24.96 x 2.10 x
OTEX Open Text Corp. $25.97 $1,310.0 $1,500.0 60.40 x 10.83 x 2.52 x 13.05 x 2.11 x
VIGN Vignette Corporation $20.07 $554.4 $383.9 31.36 x 17.51 x 1.94 x 20.07 x 1.86 x
Median Valuation Multiples 60.40 x 17.51 x 2.40 x 20.07 x 2.10 x

Historical Peer Group Valuations:

Enterprise Content Management
3.00 x Market Headlines:
2.40 x
2.50 x “Is Time Finally Ripe for ECM?”
InformationWeek – August 2007
2.00 x
“The Changing Landscape of the ECM Market”
1.50 x ECM Connection – September 2007
1.00 x
“The Data Deluge: The Growth of Unstructured
0.50 x Data”
ComputerWorld Australia – September 2007
0.00 x
Q3:04
Q4:04
Q1:05
Q2:05
Q3:05
Q4:05
Q1:06
Q2:06
Q3:06

Q1:07
Q2:07
Q3:07
Q4.06

Corum Group Presentation ■ 36

Corum’s Q3 Briefing Sample (cont.)
Enterprise Content Management

Corum Group Presentation ■ 37

Looking Forward

Sectors To Watch

Enterprise Applications

Internet Infrastructure

IT Services

Gaming and Entertainment

SaaS Opportunities

Corum Group Presentation ■ 38

Contact Information

Corum Group Ltd.

10500 NE 8th Street, Suite 1500

Bellevue, WA 98004
USA

+1 425-455-8281 Corum Group International S.à.r.l

General Guisan – Quai 30

CH-8002 Zurich
Switzerland

+41 44 251 82 65

www.corumgroup.com

Corum Group Presentation ■ 39