Corum Webinar Jan 19 2006

THE PREMIER PROVIDER OF M&A SERVICES TO SOFTWARE / IT COMPANIES
Technology M&A
2005 Review & 2006 Forecast
Corum Group Ltd.

www.corumgroup.com
Agenda
• Opening Remarks
• M&A Review
• 2005 Baker’s Dozen
• 2006 Fast Start
• M&A Drivers
• Stock Market & IPO
• Venture Capital / Private Equity
• Private Equity Case Study
• Sector Analysis
• M&A Valuation Trends
• What Will Drive Deals in 2006
• Questions & Answers
2
Corum Group
• M&A specialists since 1985
• Software and IT experts – mostly former CEO’s
• Offices throughout North America, and Europe – soon Asia
• Nearly 200 transactions completed
• $6 billion in wealth created
• 35% 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
3
Corum Transaction Analysis

A Baker’s Dozen of Recent Deals
NICE Systems / 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 $21 million cash plus earnout
FileNET Corporation / Yaletown Technology Group

• Yaletown (YTG) develops products for managing documents in electronic form,
specifically email
• FileNET, a leader in the ECM space, acquired YTG to strengthen their position in
the emerging content compliance market and provide a more comprehensive
solution
• The transaction was valued at approximately $11 million, net of cash
4
Corum Transaction Analysis (continued)
Open Solutions Inc. / COWWW

• COWWW provides web-based archiving, retrieval and document distribution for
financial institutions and other regulated industries
• Open Solutions (OSI) is a rapidly growing and acquisitive provider of enabling

solutions for banks and credit unions
• OSI had OEM’d similar technology and wanted to control development
• Terms were not disclosed, but this was an all cash transaction
J.L. Halsey / Lyris

• Lyris provides email marketing software
• J.L. Halsey, a public company with large private equity interests and proven
management, was in the process of reinventing themselves as a software and
Internet company
• Lyris brought Halsey profits, growth, customers and a combination of software

products and SaaS
• The valuation was approximately $30 million cash

5
Trader Publishing Company / Best Image

• Best Image is a leading provider of real estate agent Internet marketing and lead
generation services
• Trader Publishing is the nation’s leading producer of specialty offline and online
classified advertising publications specific to real estate, vehicles, and others
• Acquisition allows Trader Publishing to expand its real estate focus by leveraging
Best Image’s solid business model, brand name, tools and prestigious client base
• Terms were not disclosed, but it was a strategic valuation
Blue Cross Blue Shield / Optical Image

• Optical Image offered document management software for various industries
• Blue Cross Blue Shield (BCBS) is known for their technology outsourcing and has
a number of technology based subsidiaries
• BCBS was large customer of Optical Image and felt the business model was
sound, so BCBS brought the technology in-house
• Terms were undisclosed, but in line with strategic valuations
6
ANSYS / Century Dynamics

• Century Dynamics is a leading supplier of engineering simulation software for the mechanical computer aided
engineering market
• ANSYS designs, develops, markets and supports engineering simulation solutions and was looking to
broaden their offerings into new vertical markets
• Industry consolidation continues as larger vendors seek to be the sole technology source to customers
• Terms were not disclosed, but this transaction consisted of both cash and earnout components
RainMaker Software / Computer Law Systems (CLS)

• CLS is a leading vertical market provider of legal automation software for corporate, government and private
practice law offices
• RainMaker is also focused exclusively on the legal market, but serving a different market segment than CLS
• The acquisition allowed RainMaker to address law offices of all sizes across multiple sectors, while the
combined organization is able to take advantage of scale
• Terms were not disclosed, but this was an all cash transaction
7
BMC Software / Calendra

• Calendra, a French vendor of identity management solutions
• BMC was rebuilding their Control SA security and saw Calendra as good foundation
for their next generation technology
• Calendra quickly became a major player in the identity management space after a
couple of key sales
• Valuation was in line with other related identity management transactions
Vertex / Cape Systems

• Cape is a UK based SCM vendor with specific solutions developed for pallet and
packing optimization
• Vertex is a small public company also in the SCM space with specific WMS solutions
• Vertex acquired Cape for their strong brand, niche technology and management team
• Terms were in line with current valuations
8
National Instruments / Electronics Workbench

• Electronics Workbench develops and markets desktop electronic design
automation software used by educators and design engineers
• National Instruments (NI) is a technology pioneer in virtual instrumentation
• The acquisition enables NI to take a leadership position in the integration of
design, simulation and test tools by creating a graphical system design platform
BVRP / V-COM
• V-COM provided proprietary and third party software utilities
• BVRP, a French software utilities vendor, saw an opportunity to bolster their
product suite and expand their US presence
9
Torex PLC / Hoffman Datentechnik GmbH

• Hoffmann is a German based HR scheduling and deployment software provider
• Torex is a European retail systems solutions provider operating in over 15

countries.
• Torex had developed a growth strategy which included acquisitions and felt that
Hoffmann’s strong focus in the retail market was a good fit with their strategy
• Hoffmann was acquired for EUR4.25 million
10
Quick Start – 2006 Transactions

MDA / Mindbox
• Mindbox provides sophisticated decisioning software to automate knowledge
intensive business processes. Mindbox is especially strong in the financial
services industry, specifically mortgage banking
• MDA 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
8+ companies currently under LOI or negotiating term sheets

• Vertical Markets
– Oil and Gas
– Insurance Related
– Financial Services
• Enterprise Infrastructure
• Supply Chain Management
• Storage Management
• Online Gaming
11 • Bioinformatics
Historical Prospective: M&A Climate Evolution
1999 - Holding your breath – Y2K

2000 - dot-com / Pent up demand – explosive
2001 - Denial and desperation
2002 - Back to business basics
2003 - Tempered recovery
2004 - Stability returns
2005 - Rational exuberance
2006 - Stable and positive
12
Technology M&A Activity
We are back to 1998/99 levels
2,800
2,400
Number of Tech Deals
2,000
1,600
1,200
800
400
0
1997 1998 1999 2000 2001 2002 2003 2004 2005
13
Why Is M&A the Dominant Exit Strategy?
The need to acquire is stronger than ever
• Acquisitions add more growth faster

• Speed up time to market
• Consolidation – “The World Is Flat”
• Counter takeover attempts
• Buy talent and domain expertise
• Fill product gaps
• Get ahead of a technology curve
• Tap into emerging consumer markets
• Cost of being public and complying with SOX
14
M&A Active in All Industries

Large strategic acquisitions in all industries
• Bank of America / MBNA
• Sprint / Nextel
• P&G / Gillette
• eBay / Skype
• Oracle / Siebel
Today, the deal making climate is optimal
• Liquidity in equity & debt markets
• Relatively low interest rates
• Wall Street is receptive to smart, strategic deals
• Stable stock market
15
M&A Dollar Volume – All Industries (US Only)
$1,500
$1,250
$1,000
In Billions
$750
$500
$250
$0
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
16
M&A Activity – Technology Sector

Deal activity is now accelerating in the technology
industry
• IT spending has stabilized and is growing 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
17
2005 - Increase in Mega Deals

Buyer / Seller Deal Value (millions)
Silver Lake / SunGard $11,130 *
Cisco / Scientific Atlanta $6,900
Silver Lake / Agilent $6,060 *
Oracle / Siebel $5,850
Sun / Storage Technology $4,100
Adobe / Macromedia $3,400
eBay / Skype $2,600
Nasdaq Stock Market / Instinet Group $1,878
InterActiveCorp / Ask Jeeves $1,850
NewsCorp / IGN and Myspace $1,300
Eastman Kodak / Creo $1,200
Silver Lake / Serena $1,200 *
IBM / Ascential $1,001
Yahoo / Alibaba $1,000
Concerto / Aspect Communications $1,000
Golden Gate / GEAC $1,000 *
Carlyle / SS&C $982 *
* Financial Buyers
18
Active Buyers in 2005
Strategic Financial
Oracle Corp. - 15 Francisco Partners
IBM Corp.- 15 Golden Gate Capital
Cisco Systems - 12 Halo Holdings
Microsoft Corporation - 9 Silver Lake Partners
JupiterMedia Corp. - 7 Carlyle Group
Think Partnership - 6
Yahoo! Inc. - 6
Computer Associates - 6
eBay Inc. - 5
SAP AG- 5
Bentley Systems Inc - 5
Fiserv, Inc - 5
Over ten companies have done 4 transactions
19
Active Sectors in 2006
Current Sectors in Active Consolidation

• Internet Pure Plays
• Internet Infrastructure
• Vertical Market Specialists
• Enterprise Applications
• Financial Services
• Wireless
20
Is the M&A Market Momentum Sustainable?
Yes, as long as:

• Corporate IT spending levels continue to rise
• Tempered IPO market – M&A remains the most liquid exit strategy
• Buyers continue to seek out strategic M&A opportunities
• Private Equity firms continue to drive consolidation
• Economy remains steady – a healthy stock market will continue to drive
M&A
– Public company earnings have grown over 10% per quarter for 13
consecutive quarters
– The average P/E ratio for the S&P 500 was 14.6 as of December 20,
2005, which is a reasonable valuation that leaves room for companies to
drive their stock prices up through strategic M&A
21
Slow IPO Market Continues to Push M&A
2003 2004 2005

# of IPO Pricings 68 216 194
IPO Volume $15B $43B $34B
New IPO Filings 105 315 252
Q4:04 Q4:05
# of IPO Pricings 79 46
IPO Volume $15.4B $6.9B
New IPO Filings 45 50
Number of Software IPO’s in 2005 - 7
22
IPO Drawbacks
Why companies aren’t going public
• High compliance cost
• Greater management liability
• Intense market scrutiny
• Less flexibility regarding corporate structure
• Higher liquidity in M&A vs. IPO
• 30% of all IPO’s in 2005 were priced below original range
• 2005 average IPO opening day gain: 1.17%
23
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
$1,000
In Billions
$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
M&A Dollar Volume IPO Amount Raised
24
Venture Capital / Private Equity
2005 Facts:
• VC’s have been averaging approximately 700 investments in the US
per quarter – These numbers are rising
• Up rounds are outpacing down rounds for the 5th consecutive quarter
• Ratio of VC backed M&A exits vs. IPO’s – 5:1
Going Forward:
• VC’s are actively seeking investments in Asia and Israel
• VC’s are looking for a smaller quantity of higher quality investments
• VC’s are more technology savvy – strong desire for emerging
technologies
25
VC’s Are Actively Backing the Next Generation

of Tech Companies
Total Investment in Software Industry

$1,700
$1,500
$1,300
In Millions
$1,100
$900
$700
$500
*
02
03
03
04
04
5
02
03
03
04
04
05
5
20
30
40
3Q
4Q
1Q
2Q
3Q
4Q
1Q
2Q
3Q
4Q
1Q
Q
Source: PricewaterhouseCoopers/Venture Economics/NVCA/MoneyTree survey
26 * Estimate
Consolidation – The Role of Private Equity

Golden Gate Capital - Invest in high growth business in
change intensive industries
• In 2002 Golden Gate provided Infor (then Agilisys) access to their
$700 million fund to enable strategic consolidation through
acquisition
• Since December 2002 Infor has completed 12 acquisitions in the
enterprise software marketplace
• Four of their transactions have been international
27
Consolidation – The Role of Private Equity
Golden Gate Capital / Infor’s acquisition history:
Acquired Company Country

Formation Systems USA
Mapics, Inc. USA
Mercia Software USA
Finmatica S.p.A Italy
Aperum USA
NxTrend Technology, Inc USA
Varial Software AG Germany
daily.commerce, inc USA
INFOR Business Solutions AG Germany
Future Three Software USA
Brian International Germany
GEAC Computer Corp USA
28
Software Sector Coverage

21 Markets Covered by Corum
Business Intelligence Software Development Tools

Connectivity/Legacy Extension/Web Security
Services Storage
Digital Media Supply Chain Management
Engineering
Vertical Market –
Enterprise Applications • Financial Services Industry
Enterprise Content Management
• Government/DoD/Homeland Security
Enterprise Infrastructure
• Healthcare Industry
Gaming
• Telecom
Internet Infrastructure
• Other
Internet Pure Plays
Wireless
IT Services
29
Sector Statistics
Transactions by sector
• Fairly even distribution across sector
• Sectors with most activity
– Financial Services
– Internet
– Vertical market applications
Median transaction value

• $40 million
Approximately 50% of technology transaction terms

were not disclosed
30
Sector Valuations
Software Sectors TTM EV/S Multiple
Business Intelligence 3.16 x
Connectivity 1.40 x
Digital Media 3.50 x
Engineering 3.00 x
Enterprise Applications 3.19 x
Enterprise Infrastructure 2.20 x
Enterprise Content Management 1.52 x
Gaming 2.19 x
Internet Infrastructure 4.10 x
Internet Pure Plays 4.10 x
IT Services 0.74 x
Security 3.76 x
Software Development Tools 2.34 x
Storage 3.17 x
Supply Chain Management 1.70 x
Wireless 2.85 x
Vertical Market Software Applications

Financial Services 2.88 x
Government/DoD/Homeland Security 1.07 x
Healthcare 2.37 x
Telecom 2.37 x
Other 2.51 x
31
Sector Analysis - Digital Media

Overview
•Creation
•Publishing
•Distribution
Active buyer profile – Jupitermedia

•2005 transaction history
•Active 4th quarter
•Cross border emphasis
•More acquisitions in 2006
32
Sector Analysis - Enterprise Applications

Active market
• Long history
• Catalyst for consolidation
Acquisition Drivers – specific to sector

• Emerging / New markets
• Private Equity
• Verticalization
33
Sector Analysis - Internet Pure Plays

How did we get here?
2006
• Online businesses are up 25%
• 30% of households made online purchases
Active Internet sub sectors

• Online Advertising
• Paid Search
• eCommerce
• Niche / Specialized content sites
34
Valuation Multiples
M&A Transaction Multiples - Software Industry
4.00
3.50
3.00
2.50
2.00
1.50
1.00
0.50
0.00
1H '01 2H '01 1H '02 2H '02 1H '03 2H '03 1H '04 2H '04 1H '05 2H '05
35 Source: Corum Group Research

Key Factors Driving High Valuations

• Rapid growth
• High profitability
• Recurring revenue
• Attractive business models
• Current technology
• Strong customer base
• Specialized domain expertise
• Distribution / channel strength
• Brand recognition
• Strong management and technology team(s)
36
2006 Technology M&A Drivers
• Strong economy: Russell 2000 all time high

• Heavy investment in IT
• Emerging markets: Asia, India, Israel
• Heightened strategic buyer activity
• Private equity enabling consolidation
• Competitive M&A environment
• 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
• Flattened interest rates
37
Question & Answer Session
38
Contact Information
Presenters:
Bruce Milne, Chairman and CEO
Ward Carter, President
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.a.r.l

Glärnischstrasse 36
CH-8022 Zurich
Switzerland
+41 44 251 82 65
www.corumgroup.com
39
Corum Links
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THE PREMIER PROVIDER OF M&A SERVICES TO SOFTWARE / IT COMPANIES

2005 Review & 2006 Forecast

Corum Group Ltd.

Corum Transaction Analysis

NICE Systems / FAST Video

FileNET Corporation / Yaletown Technology Group

Corum Transaction Analysis (continued)

Open Solutions Inc. / COWWW

• Open Solutions (OSI) is a rapidly growing and acquisitive provider of enabling

• OSI had OEM’d similar technology and wanted to control development

J.L. Halsey / Lyris

• Lyris brought Halsey profits, growth, customers and a combination of software

• The valuation was approximately $30 million cash

Corum Transaction Analysis (continued)

Trader Publishing Company / Best Image

Blue Cross Blue Shield / Optical Image

Corum Transaction Analysis (continued)

ANSYS / Century Dynamics

RainMaker Software / Computer Law Systems (CLS)

Corum Transaction Analysis (continued)

BMC Software / Calendra

• Valuation was in line with other related identity management transactions

Vertex / Cape Systems

• Terms were in line with current valuations

Corum Transaction Analysis (continued)

National Instruments / Electronics Workbench

Corum Transaction Analysis (continued)

Torex PLC / Hoffman Datentechnik GmbH

• Torex is a European retail systems solutions provider operating in over 15

• Hoffmann was acquired for EUR4.25 million

Quick Start – 2006 Transactions

8+ companies currently under LOI or negotiating term sheets

Historical Prospective: M&A Climate Evolution

1999 - Holding your breath – Y2K

Technology M&A Activity

We are back to 1998/99 levels

Why Is M&A the Dominant Exit Strategy?

The need to acquire is stronger than ever

• Acquisitions add more growth faster

M&A Active in All Industries

M&A Dollar Volume – All Industries (US Only)

M&A Activity – Technology Sector

2005 - Increase in Mega Deals

Active Buyers in 2005

Over ten companies have done 4 transactions

Active Sectors in 2006

Current Sectors in Active Consolidation

Is the M&A Market Momentum Sustainable?

Yes, as long as:

Slow IPO Market Continues to Push M&A

2003 2004 2005

Number of Software IPO’s in 2005 - 7

M&A Is the Primary Source of Liquidity

M&A Dollar Volume IPO Amount Raised

Venture Capital / Private Equity

VC’s Are Actively Backing the Next Generation

Total Investment in Software Industry

Consolidation – The Role of Private Equity

Consolidation – The Role of Private Equity

Golden Gate Capital / Infor’s acquisition history: