1Q09 Software Industry Equity Report.Pdf
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ABOUT OUR FIRM Software Equity Group is an investment bank and M&A advisory serving the software and technology sectors. Founded in 1992, our firm has represented and guided private companies throughout the United States and Canada, as well as Europe, Asia Pacific, Africa and Israel. We have advised public companies listed on the NASDAQ, NYSE, American, Toronto, London and Euronext exchanges. Software Equity Group also represents several of the world's leading private equity firms. We are ranked among the top ten investment banks worldwide for application software mergers and acquisitions. 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, including Software-as-a-Service (Saas), software on-demand and perpetual license. We have profound understanding of software company finances, operations and valuation. We monitor and analyze every publicly disclosed software M&A transaction, as well as the market, economy and technology trends that impact these deals. We're formidable negotiators and savvy dealmakers who facilitate strategic combinations that enhance shareholder value. Perhaps most important are the relationships we've built, and the industry reputation we enjoy. Software Equity Group is known and respected by publicly traded and privately owned software and technology companies worldwide, and we speak with them often. Our Quarterly and Annual Software Industry Equity Reports are read and relied upon by more than fifteen thousand industry executives, entrepreneurs and equity investors in 61 countries, and we have been quoted widely in such leading publications as The Wall Street Journal, Barrons, Information Week, The Daily Deal, The Street.com, U.S. News & World Report, Reuters, Mergers & Acquisitions, USA Today, Arizona Republic, Detroit Free Press, Entrepreneur Magazine, Softletter, Software Success, Software CEO Online and Software Business Magazine. Software Equity Group’s senior bankers have keynoted and spoken at more than one hundred software industry conferences and seminars, including Software Business, SoftExpo, Culpepper, VAR Conference, ACETECH, and the Arizona, Colorado, Chicago, Southern California, Denver, San Diego, Washington State and Boulder Software Associations. If you have any questions or comments about a data point, any content, or calculation in this research report, please contact Jeff Walker at [email protected]. Software Equity Group, LLC 12220 El Camino Real, Suite 320 San Diego, CA 92130 www.softwareequity.com p: (858) 509-2800 f: (858) 509-2818 Software Equity Group, L.L.C. 1Q 2009 Software Industry Equity Report Contents U.S. ECONOMY: SOFTWARE INDUSTRY MACROECONOMICS ........................................................................ 1 SOFTWARE IT SPENDING PROJECTIONS .................................................................................................................... 1 PUBLIC SOFTWARE COMPANY PERFORMANCE................................................................................................ 2 PUBLIC SOFTWARE COMPANY PERFORMANCE: BY CATEGORY ................................................................................... 5 PUBLIC SOFTWARE AS A SERVICE COMPANY PERFORMANCE ..................................................................................... 6 PUBLIC INTERNET COMPANY PERFORMANCE ............................................................................................................. 8 INITIAL PUBLIC OFFERINGS .................................................................................................................................. 9 MERGERS AND ACQUISITIONS: THE NUMBERS............................................................................................... 10 M&A DEAL VOLUME AND SPENDING: ALL INDUSTRY SECTORS ................................................................................. 10 SOFTWARE M&A DEAL VOLUME AND SPENDING ...................................................................................................... 10 DEAL CURRENCY ................................................................................................................................................... 11 PRIVATE VS. PUBLIC BUYERS.................................................................................................................................. 12 M&A VALUATIONS.................................................................................................................................................. 12 M&A EXIT VALUATIONS BY SOFTWARE CATEGORY .................................................................................................. 14 SAAS..................................................................................................................................................................... 15 APPENDIX A: 1Q09 PUBLIC MARKET VALUATIONS AND STATISTICS BY PRODUCT CATEGORY ............. 16 APPENDIX B: 1Q09 MERGERS AND ACQUISITIONS, SELECT PUBLIC SELLER VALUATIONS .................... 19 APPENDIX C: 1Q09 MERGERS AND ACQUISITIONS, MOST ACTIVE BUYERS............................................... 20 APPENDIX D: 1Q09 MERGERS AND ACQUISITIONS, SOFTWARE INDUSTRY MEGA-DEALS ...................... 21 APPENDIX E: 1Q09 MERGERS AND ACQUISITIONS, SELECT SOFTWARE-AS-A-SERVICE SELLERS........ 22 APPENDIX F: 1Q09 MERGERS AND ACQUISITIONS – DEAL INSIGHT ............................................................ 23 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 © 2009 Software Equity Group, L.L.C., All Rights Reserved Software Equity Group, L.L.C. Investment Banking / Mergers & Acquisitions U.S. ECONOMY: SOFTWARE INDUSTRY MACROECONOMICS Figure 1: U.S. Gross Domestic Product 10% 8% 7.5% 6% 4.8% 4.8% 3.6% 3.9% 4% 3.5% 3.5% 3.8% 3.0% 3.0% 2.7% 2.7% 2.7% 2.8% 2.4% 2.5% 2.6% 2.2% 2.1% 2% 1.3% 1.1% 0.6% 0.9% 0.2% 0% 1Q 1 1Q04 1Q05 1Q06 1Q 1 1Q09 Q -0.2% Q 0 03 07 08 -0.5% 2 -2% -4% -6% -6.0% -6.3% -8% GDP % Growth Unemployment Rate As of publication, the 1Q09 GDP growth rate is year earlier (Figure 1). Nonfarm payroll forecast to contract 6.0%, according to the Bureau employment declined by a staggering 2,055,000 of Economic Analysis (BEA) (Figure 1). The jobs in 1Q09, with the most job losses coming pessimistic forecast seems credible in light of from the construction and manufacturing sectors. recently released economic data. The The healthcare sector and Federal government Conference Board’s April report noted a 0.3% bucked the trend by continuing to add jobs. decrease in the Index of U.S. Leading Economic Indicators. While that’s on the heels of a 0.4% Software IT Spending Projections surprise increase reported in February, the six- month change in the leading index has fallen to - CIO’s appear to be reining back hard on spending 2.5% through March. Only three of the ten for software, hardware and IT services. Despite indicators that make up the leading index IT spending increases of 9% in 2007 and 6% in increased in March. The positive contributors, 2008, most IT spending forecasts now project beginning with the largest positive contributor, domestic IT capital spending will slow markedly in were real money supply, interest rate spread, and 2009, resulting in an estimated 9% year-over-year the index of consumer expectations. The decrease. By some estimates, that translates to negative contributors, beginning with the largest an astounding $12 billion decline in IT spending. negative contributor, were building permits, stock Extrapolating from three different IT spending prices, index of supplier deliveries (vendor surveys we’ve analyzed, we expect these fewer IT performance), average weekly manufacturing dollars will be spent preserving and leveraging hours, average weekly initial claims for current enterprise systems and software. Server unemployment insurance (inverted), and and storage virtualization, data center manufacturers' new orders for nondefense capital consolidation, security and compliance will be goods. Manufacturers' new orders for consumer spending priorities, while outsourcing will goods and materials held steady in March. unquestionably suffer. According to Goldman Sachs’ March 2009 IT Spending Survey (Figure The U.S. Labor Department estimates the 2), cost reduction is the highest priority by a unemployment rate increased to 8.1% during significant margin. Disaster recovery, server 1Q09, up sharply from 6.9% in 4Q08 and 4.9% a virtualization and server consolidation remain high 1| 1Q09 SOFTWARE INDUSTRY EQUITY REPORT www.softwareequity.com Copyright © 2008 Software Equity Group, L.L.C., All Rights Reserved Software Equity Group, L.L.C. Investment Banking / Mergers & Acquisitions priorities in 2009, while outsourcing, storage thin management - the jury is still out as to whether provisioning, and Microsoft Vista upgrades are the large numbers of enterprises will entrust mission lowest priorities. critical tasks to third party hosts. The current economic decline seems to favor increased In several of our previous reports, we have enterprise adoption of SaaS, which promises observed the mixed and erratic reception large