The SftSoftware I Idndust ry Financial Report Software Equity Group, L.L.C. 12220 El Camino Real Suite 320 San Diego, CA 92130 [email protected] (858) 509-2800 Unmatched Expertise. Extraordinary Results Overview Deal Team Software Equity Group is an investment bank and M&A advisory firm serving the software and technology sectors. Founded in 1992, our firm has guided and advised companies on five continents, including Ken Bender privately-held software and technology companies in the United States, Canada, Europe, Asia Pacific, Managing Director Africa and Israel. We have represented public companies listed on the NASDAQ, NYSE, American, (858) 509-2800 ext. 222 Toronto, London and Euronext exchanges. Software Equity Group also advises several of the world's [email protected] leading private equity firms. We are ranked among the top ten investment banks worldwide for application software mergers and acquisitions. R. Allen Cinzori Managing Director Services (858) 509-2800 ext. 226 [email protected] Our value proposition is unique and compelling. We are skilled and accomplished investment bankers with extraordinary software, internet and technology domain expertise. Our industry knowledge and experience span virtually every software product category, technology, market and delivery model. We Dennis Clerke have profound understanding of software company finances, operations and valuation. We monitor and Executive Vice President analyze every publicly disclosed software M&A transaction, as well as the market, economy and (858) 509-2800 ext. 233 technology trends that impact these deals. We offer a full complement of M&A execution to our clients [email protected] worldwide. Our capabilities include:. Brad Weekes Sell-Side Advisory Services – leveraging our extensive industry contacts, skilled professionals and Vice President proven methodology, our practice is focused, primarily on guiding our client s wisely toward the (858) 509-2800 ext. 239 achievement of their exit objectives. [email protected] Buy-Side Advisory Services – utilizing a proven buy-side methodology, we help our clients acquire strategically, assess insightfully, value intelligently and structure transactions to better assure their desired outcome. Kris Beible Director, Business Development Management Buyouts & Recapitalization – assisting founders and owners of software and (858) 509-2800 ext. 227 technology comp anies to gain full or ppqyygpartial liquidity by facilitating capital investments b ypqyy private equity [email protected] firms and other financial institutions. Private Equity & Debt Placement – facilitating private companies with leading institutional investors for financings that range from $5 million to $500 million. 12220 El Camino Real, Suite 320 Mentoring Program – providing guidance to software companies contemplating an exit to ensure San Diego, CA 92130 (858) 509-2800 (P) they’re doing everything now to better their odds and enhance their future exit valuation ahead. (858) 509-2818 (F) www.softwareequity.com Transactions We’ve enjoyed serving our software clients for 20 years and have highlighted a small subset of companies we’ve assisted: Software Equity Group, L.L.C. 2013 Software Industry Financial Report Contents GLOBAL AND U.S. ECONOMY: SOFTWARE INDUSTRY MACROECONOMICS .............................................. 2 IT SPENDING ............................................................................................................................................................ 3 INTERNET RETAIL SPENDING AND ADVERTISING ............................................................................................ 4 PUBLIC SOFTWARE/SAAS/INTERNET COMPANY STOCK PERFORMANCE ................................................... 4 PUBLIC SOFTWARE COMPANY FINANCIAL PERFORMANCE .......................................................................... 5 PUBLIC SOFTWARE COMPANY MARKET VALUATIONS: OVERALL ................................................................ 7 PUBLIC SOFTWARE COMPANY FINANCIAL PERFORMANCE: BY PRODUCT CATEGORY .......................... 8 PUBLIC SOFTWARE COMPANY MARKET VALUATIONS: BY PRODUCT CATEGORY ................................... 9 PUBLIC SOFTWARE AS A SERVICE (SAAS) FINANCIAL PERFORMANCE .................................................... 10 PUBLIC SOFTWARE AS A SERVICE (SAAS) COMPANY MARKET VALUATIONS ......................................... 11 PUBLIC SOFTWARE AS A SERVICE (SAAS) FINANCIAL PERFORMANCE: BY PRODUCT CATEGORY .... 12 PUBLIC SOFTWARE AS A SERVICE (SAAS) COMPANY MARKET VALUATIONS: BY PRODUCT CATEGORY ............................................................................................................................................................ 13 PUBLIC INTERNET COMPANY FINANCIAL PERFORMANCE ........................................................................... 13 PUBLIC INTERNET COMPANY MARKET VALUATIONS .................................................................................... 15 PUBLIC INTERNET COMPANY FINANCIAL PERFORMANCE: BY PRODUCT CATEGORY ........................... 16 PUBLIC INTERNET COMPANY MARKET VALUATIONS: BY PRODUCT CATEGORY .................................... 16 INITIAL PUBLIC OFFERINGS ................................................................................................................................ 17 VENTURE CAPITAL INVESTMENT ....................................................................................................................... 18 THE BUYERS SPEAK: SOFTWARE EQUITY GROUP’S 2013 M&A SURVEY ................................................... 20 SOFTWARE/SAAS M&A DEAL VOLUME AND SPENDING ............................................................................... 24 IMPORTANT CHANGE IN SOFTWARE AND SAAS M&A DATA ACCOUNTING............................................... 25 SOFTWARE M&A VALUATIONS .......................................................................................................................... 26 SOFTWARE M&A VALUATIONS BY TARGET’S EQUITY STRUCTURE ........................................................... 27 SOFTWARE M&A VALUATIONS BY VERTICAL AND HORIZONTAL MARKETS ............................................. 27 M&A VALUATIONS BY SOFTWARE PRODUCT CATEGORY ............................................................................ 28 SOFTWARE AS A SERVICE (SAAS) M&A DEAL VOLUME AND VALUATIONS .............................................. 30 INTERNET M&A DEAL VOLUME AND VALUATIONS ......................................................................................... 32 This Report may not be reproduced in whole or in part without the expressed prior written authorization of Software Equity Group, L.L.C. Software Equity Group registers each Report with the U.S. Copyright Office and vigorously enforces its intellectual property rights. Copyright © 2013 Software Equity Group, L.L.C., All Rights Reserved Software Equity Group, L.L.C. APPENDIX A: 2012 PUBLIC SOFTWARE MARKET VALUATIONS AND STATISTICS BY PRODUCT CATEGORY ............................................................................................................................................................ 34 APPENDIX B: 2012 SAAS PUBLIC MARKET VALUATIONS AND STATISTICS BY PRODUCT CATEGORY 36 APPENDIX C: 2012 INTERNET PUBLIC MARKET VALUATIONS AND STATISTICS BY PRODUCT CATEGORY ............................................................................................................................................................ 37 APPENDIX D: 2012 MERGERS AND ACQUISITIONS, SELECT PUBLIC SELLER VALUATIONS................... 38 APPENDIX E: 2012 MERGERS AND ACQUISITIONS, MOST ACTIVE BUYERS............................................... 39 APPENDIX F: 2012 MERGERS AND ACQUISITIONS, SELECT SOFTWARE INDUSTRY MEGA-DEALS ....... 46 APPENDIX G: 2012 MERGERS AND ACQUISITIONS, SELECT SOFTWARE-AS-A-SERVICE SELLERS ...... 47 This Report may not be reproduced in whole or in part without the expressed prior written authorization of Software Equity Group, L.L.C. Software Equity Group registers each Report with the U.S. Copyright Office and vigorously enforces its intellectual property rights. Copyright © 2013 Software Equity Group, L.L.C., All Rights Reserved 2013 Annual Software Industry Financial Report Index of Figures Figure 1: U.S. Gross Domestic Product and Unemployment Rate Figure 2: Worldwide IT Spending Figure 3: Major Market Indices Compared to the SEG Software, SaaS and Internet Indices Figures 4 and 5: SEG Software Index Key Statistics – Annually and Quarterly Figure 6: SEG Software Index Historical TTM Revenue Growth and EBITDA Margins Figure 7: SEG Software Index Companies with over $1 billion Cash & Cash Equivalents Figure 8: SEG Software Index Median EV/Revenue Multiple by Year Figure 9: SEG Software Index Median EV/Revenue Multiples by Size (TTM Revenue) Figure 10: EV/Revenue Multiple vs. TTM Revenue Growth Rate Figure 11: EV/Revenue Multiple vs. EBITDA Margin Figure 12: SEG Software Index Median Metrics by Product Category Figure 13 and 14: SEG SaaS Index Key Statistics – Annually and Quarterly Figure 15: SEG SaaS Index Median Operating Metrics Figure 16: Public SaaS Companies Figure 17: EV/Revenue Multiple vs. TTM Revenue Growth Rate Figure 18: EV/Revenue Multiple vs. EBITDA Margin Figure 19: Public SaaS Companies by Product Category Figures 20 and 21: SEG Internet Index Key Statistics – Annually and Quarterly Figure 22: SEG Internet Index Historical Profitability Figure