About Our Firm

ABOUT OUR FIRM

Software Equity Group is the nation’s leading investment bank and M&A advisory for privately- held software companies, e-businesses and IT service providers. Founded in 1992, our firm has provided advice and representation to hundreds of such firms throughout the United States and Canada, as well as Europe, Pacific-Asia, Africa and Israel. We primarily represent sellers – established, successful companies with revenues of $5 million to $50 million that seek to be acquired at a highly attractive valuation. We also provide M&A advisory services to public companies in search of strategic acquisitions.

Software Equity Group is known and respected worldwide by public software company CEOs, CFOs and Corporate Development executives, first tier U.S. venture capital and private equity firms and software entrepreneurs. Software Equity Group’s Quarterly Reports are read by decision makers in twenty-six countries and members of our firm are quoted widely in such leading publications as The Daily Deal, Barrons, Reuters, Mergers & Acquisitions, USA Today, 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, and the Arizona, Colorado, Chicago, Southern California, Denver, San Diego and Boulder Software Associations.

Our clients span virtually every software technology, including e-commerce, data analytics, development tools, call center management, digital rights management, embedded systems, wireless apps, supply chain, ERP, CRM, middleware, CAD, internet infrastructure, as well as some 57 different vertical markets. We know these technologies and these software subsectors intimately, and we track closely software market trends and directions. We also have intimate understanding of software company finances and operations, Though every member of our professional team is an experienced investment banker, several are experienced entrepreneurs, as well with strong operating backgrounds.

Our firm is highly strategic when positioning a client in the market, and when structuring transactions, but we’re also process driven. We have a database of software company buyers and software M&A transactions which is second to none, a carefully targeted and aggressive marketing and sales methodology, an extraordinary knowledge of software company finances, operations and valuations, and demonstrated skill at the negotiation table.

We are absolutely committed to both client satisfaction and results. Our values are clear and deeply embedded: Every client is highly valued. We listen carefully, talk straight and communicate often. We are committed to exceeding expectations. Integrity and professionalism characterize all that we do.

REPORT SUMMARY

ECONOMY A key barometer of the health of the U.S. business climate, 2005 capital spending grew 12.7% to $342 billion for S&P 500 companies. After three years of soaring profits, most U.S. public companies had no problem paying cash for these capital purchases. Non-financial companies in the Standard & Poor's 500 reported a combined $634 billion in cash by year- end, up from $352 billion in 2001. It’s the largest cash hoard for these S&P companies relative to their market value in 17 years.

IT capital expenditures will lay claim to a significant portion of 2006 capital investments. Security remains the top priority. High-buzz technologies and trends, such as virtualization, software-as-a-service and server/storage virtualization ranked low, with open source software in the spending basement. The analysis also provided the first sign the post-bubble pendulum may be shifting again – this time, from single vendor suites to best-of-breed point solutions, signaling better days for smaller, niche vendors.

PUBLIC MARKETS The software sector lagged the broader public market indexes much of the year. Although the financial performance of most public software companies continued to improve, the median enterprise market value of the SEG-100, our composite index of publicly traded software companies, finished 2005 down 2.6% relative to the beginning of the year. Two other key metrics were even more telling: Enterprise Value/EBITDA and Enterprise Value/Earnings declined 29.5% and 10.3%, respectively, from 4Q04 to 4Q05, as investors signaled that improved profitability without noteworthy growth was no longer attractive. We expect investor emphasis on revenue growth to intensify in 2006. Public software companies that continue to grow revenue at lackluster rates should see little if any increase in valuation, even as they continue to improve EBITDA margins. Investor insistence on top line growth will undoubtedly cause many public software companies to be even more acquisitive in 2006, particularly those not able to attain the requisite revenue growth organically.

IPO/VENTURE CAPITAL The IPO market, after collapsing in 2001, rebounded in 2004, but couldn’t sustain the momentum. Only a handful of software and internet related companies went public in 2005; of these, seven were in the second half of the year. SSA Global, a provider of enterprise software applications, and Kenexa, a provider of workforce management software, were the lone industry IPOs in 2Q05. Finding its offering under-subscribed, SSA Global reduced the number and price of its shares at the eleventh hour and scratched a $100 million special dividend payment to its controlling stockholders. Kenexta did little better, posting a 0.42% gain on the day of its initial offering. Four other IPO candidates that would have priced in 2005 chose not to, citing unreceptive investors and a highly favorable M&A market.

Venture capital firms remained cautious and conservative in 2005, allocating more than 80% of invested funds to expansion stage and later stage private companies. Software, once again, continued to lead all other industry sectors in attracting VC investment.

MERGERS AND ACQUISTIONS U.S. mergers and acquisitions (M&A) grew in both volume and value during the year. Software represented 15.7% of total M&A deal activity, leading all other industry sectors. The median valuation of software industry M&A transactions in 2005 grew every quarter. For the year, the median software company M&A valuation, measured as a multiple of TTM revenue, beat 2004’s median valuation of 2.4x, and was up sharply from 2003’s 1.6x multiple. Median software M&A valuations continued to vary widely by product category. Sellers with enterprise solutions that required significant but non-essential capital spending, and sellers in yesterday’s high spend categories that have not yielded the anticipated return, lagged well behind less expensive, readily deployable solutions offering measurable, near- term benefits. Not surprisingly, software company sellers in product categories with median revenue growth rates above 12% had significantly greater valuations than product companies in the low revenue growth categories. Product extension deals continued to lead all others, as buyers sought to enhance their current product suite by acquiring small and mid-cap companies targeting the same markets with highly complementary, best-of-breed, market proven products and technology.

Looking to 2006, the industry pundits and prognosticators continue to tout the benefits of software as a service (SaaS). By best count, there are some 40,000 privately-held software companies in the United States. We estimate more than 90% have annual revenue of less than $10 million, yet many provide essential and superb point solutions and product suites to the Fortune 1000. Is SaaS their pricing model of the future? Perhaps, but let’s not ignore basic economics. With little cash on hand, and virtually no professional money available to it, where will a private ISV that adopts a SaaS business model find the capital to rewrite its application suite in JAVA or .Net, add major functionality, and deploy on new platforms? Even if the recipe calls for periodic payments amortized over a two or three year initial license term, few bootstrapped private software companies will be able to stay afloat long enough for subscription model cash flows to equal cash flows from paid-up licenses, professional services and M&S.

CONTENTS

U.S. ECONOMY: SOFTWARE INDUSTRY MACROECONOMICS...... 1 PUBLIC MARKETS AND PUBLIC SOFTWARE COMPANY PERFORMANCE...... 2 INITIAL PUBLIC OFFERINGS (IPOS)...... 5 VENTURE CAPITAL AND PRIVATE EQUITY ...... 8 MERGERS AND ACQUISITIONS: THE NUMBERS...... 11 MERGERS AND ACQUISITIONS: THE DRIVERS ...... 16 MERGERS AND ACQUISITIONS: A LOOK AT THE YEAR AHEAD ...... 19 APPENDIX A: MERGERS AND ACQUISITIONS, MOST ACTIVE BUYERS...... 21 APPENDIX B: MERGERS AND ACQUISITIONS BY SOFTWARE INDUSTRY CATEGORIES ...... 24 - Accounting and Financial Software...... 24 - Business Intelligence / Business Process Management...... 27 - CAD/CAE/EDA...... 28 - Content/Document Management...... 30 - Customer Relationship Management...... 33 - Data Access Management/Middleware ...... 36 - Developer Tools and Related ...... 38 - Educational Software/Computer Based Training ...... 39 - Enterprise Resource Planning and Related Software...... 41 - Enterprise System Management/Networking...... 43 - Security Software...... 46 - Storage Management ...... 50 - Supply Chain Management...... 51 - Vertical Industry Software...... 53 - Wireless Software...... 58 - Miscellaneous Transactions...... 60 APPENDIX C: SEG-100 COMPANIES ...... 62

U.S. ECONOMY: SOFTWARE INDUSTRY MACROECONOMICS Figure 1: U.S. Gross Domestic Product 8% 7.2% 7% Despite soaring crude oil prices, Katrina, inflation concerns, a housing market slowdown, the war in 6% 5% 4.3% 4.1% Iraq and record trade deficits, the U.S. economy 4.0% 3.7% 3.8% continued to expand in 2005 for the fifth 4% 3.6% 3.5% 3.3% 3.3% 3.4% consecutive year. Gross Domestic Product 3% (GDP), a key economic indicator and broadest 1.7% measure of economic activity, is projected to grow 2% at an annualized rate of 3.4% when final 2005 1% numbers are posted. Third quarter GDP was Real Gross Domestic Product 0% revised downward to 4.1% but still demonstrated 2003 2004 2005 a reasonably strong economy (Figure 1). The Wall Street Journal’s consensus forecast of 56 economists predict the Fed will soon back off. At economist surveyed is for GDP to grow at a 3.5% 4.25%, many believe the federal funds rate is pace in the first half of 2006 and 3.1% in the close to a neutral level that will neither boost nor second half – above the U.S. economy’s long hobble economic growth. As for inflation term growth rate of 3.0%, but below the 4.1% concerns, the consumer price index (CPI) grew a average of the last two-and-a -half years. The modest 3.5% in the 12 month period ending anticipated GDP decline will likely result, in large November 2005, and is projected to rise only part, from reduced consumer spending, which has 2.3% in the 12 months ending November 2006. been fueled by real estate values that are now leveling off after rising for five years. Goldman However, economists are watching the Fed very Sachs’ chief U.S. economist estimates consumers closely due to the retirement of Chairman Alan will withdraw $552 billion from residential real Greenspan, who will step down in January 2006 estate in 2006, down 38% from $887 billion in after 18 years at the helm. Replacing Greenspan 2005, and $363 billion in 2007. will be Ben Bernanke, a former Princeton economics professor and strong advocate of On the business front, Standard & Poor's inflation targeting, by which central banks set a estimates 2005 capital spending grew 12.7% to target inflation rate f or the year and manage their $342.3 billion for S&P 500 companies, with the monetary policy accordingly. Greenspan opposed lion’s share occurring in the second half of the inflation targeting in favor of a more flexible year. By comparison, capital spending in 2004 approach that considered other key metrics, such was a lackluster $303.6 billion. This is the first as unemployment. double-digit annual increase since 2000 and could be seen as a bellwether for 2006. Equipment and Figure 2: U.S. Unemployment Rate 2003-2005 software spending (mostly IT related) increased 6.5 8.9% in 3Q05 over 2Q05, and 10.9% in 2Q05 over the first quarter. After three years of soaring profits, most U.S. public companies had no 6.0 problem paying cash for these capital purchases. Non-financial companies in the Standard & Poor's 500 reported a combined $634 billion in cash by 5.5 year-end, up from $352 billion in 2001. It’s the largest cash hoard for these S&P companies relative to their market value in 17 years. 5.0

Committed to keeping inflation at bay and Real Unemployment (Percentage) preventing the U.S. economy from overheating, 4.5 2003 2004 2005 the Federal Reserve continued to raise rates each Seasonally Adjusted quarter. After 13 consecutive quarterly increases, Source: Bureau of Labor Statistics

Figure 3: 2005 Major Market Indices Compared with the SEG-100 10%

5% of 2005 g innin

g 0%

e from Be e from -5% g

-10% Percent Chan

-15% JanuaryFebruary March AprilMay June July August September October November December

SEG 100 NASDAQ Dow S&P 500

and NASDAQ to close the year up 3% and 1.4%, During his reign as Fed Chairman, Greenspan respectively, but the Dow retreated from its was widely recognized for facilitating U.S. November and early December gains to finish the economic growth during the booming 90s, and for year down 0.61%. Since bottoming out in bringing the economy to a “soft landing” despite October 2002, all three indexes have posted the dot.com crash, 9/11 and the Irag war. Central stellar returns by year end 2005, with the Dow, to Greenspan’s success has been his masterful NASDAQ, and S&P 500 up 47%, 96%, and 59%, management of inflation and unemployment – two respectively. metrics that typically move in opposite directions. From 1990 through December 2005, the U.S. The software sector lagged the broader market inflation rate fell from 5.0% to 3.4%, after hitting a indexes much of the year. Although the financial low of 1.6% in 1998 and 2002. The average performance of most public software companies annual inflation rate for the U.S. economy since continued to improve, the median enterprise 1914 is 3.5%. During this same period, the U.S. market value of the SEG-100, our composite unemployment rate declined from 5.6% to 4.9% index of publicly traded software companies (Figure 2). At its current level of 4.9%, (Appendix C), finished 2005 down 2.6% relative to unemployment is at its lowest rate since late the beginning of the year (Figure 3). Key financial 2000. performance measures for the SEG-100 are enumerated in Figure 4. Looking ahead, analysts expect 2006 employment Figure 4: SEG-100 Key Statistics to grow by 168,000 jobs per month, a pace similar SEG - 100 to 2005. The unemployment rate should hold steady, or creep lower. This is corroborated by Median the forecast of increased capital spending, since Measure 4Q05 3Q05 2Q05 1Q05 EV/Revenue 2.3x 2.2x 1.9x 2.0x investment in new plant and equipment often go EV/EBITDA 13.7x 13.6x 17.1x 17.5x hand-in-hand with new employee hires. EV/Earnings 25.6x 23.8x 22.7x 27.3x Current Ratio 2.2 2.3 2.3 2.2 PUBLIC MARKETS AND PUBLIC SOFTWARE Gross Profit Margin 65.6% 65.0% 65.8% 65.6% COMPANY PERFORMANCE EBITDA Margin 18.5% 16.8% 18.1% 16.6% Net Income Margin 10.3% 12.0% 10.9% 10.6% Major market indexes gave up ground and yielded Enterprise Value (EV): A measure of w hat the negative returns during most of 2005 relative to market believes a company's ongoing operations 2004, but recovered in the fourth quarter (Figure are w orth (Market Cap + Debt - Cash). 3). The last minute surge enabled the S&P 500 Cur r ent Rat io: Measured as current assets divided by current liabilities (An indication of a company's liquidity). 2| 2005 SOFTWARE INDUSTRY EQUITY REPORT Copyright © 2006 Software Equity Group, L.L.C. Software Equity Group, L.L.C.

Median trailing-twelve-month (TTM) revenue for Figure 5: SEG-100 change in TTM Revenue, the SEG-100 increased 12.1% in 2005 over 2004, TTM Earnings and Cash & Cash Equivalents modestly bettering 2004’s 8.9% median revenue Relative to 1Q04 increase over 2003 (Figure 5). Profitability 90% continued to be a focal point for software 80% companies in 2005. The median EBITDA margin 70% of the SEG-100 grew from 16.3% in 4Q04 to 60% 18.5% by 4Q05. Likewise, the median net income 50% margin increased from 9.1% to 10.3% over the 40% same period. Median earnings for the SEG-100 30% between 4Q04 and 4Q05 increased 46.1% 20% (Figure 5). 10% 0% Despite the earnings improvement, investors -10% remained concerned about the longer term growth 1Q04 2Q04 3Q04 4Q04 1Q05 2Q05 3Q05 4Q05 prospects of many public software companies. An increasing number began to view software as a TTM Revenue Grow th TTM Earnings Growth maturing industry, no longer capable of generating the stellar returns of yesteryear. Other Cash & Equivalents investors simply bided their time, restrained by We expect investor emphasis on revenue growth relatively flat IT capital spending forecasts, a to intensify in 2006. Public software companies changing software business model, and that continue to grow revenue at lackluster rates uncertainty about the ultimate P&L impact of should see little if any increase in valuation, even trends such as open source, services oriented as they continue to improve EBITDA margins. architectures and web services. Consequently, Those that disappoint - even a little - will likely the median market cap (valuation) of the SEG- draw immediate retribution from investors. And 100 decreased 4.4% from 4Q04 to 4Q05. Two those that exceed expectations with compound other key metrics were even more telling: annual growth rates greatly surpassing their peers Enterprise Value/EBITDA and Enterprise will likely be well rewarded by investors. Investor Value/Earnings declined 29.5% and 10.3%, insistence on top line growth will undoubtedly respectively, from 4Q04 to 4Q05, as investors cause many public software companies to be signaled that improved profitability without even more acquisitive in 2006, particularly those noteworthy growth was no longer attractive. not be able to attain the requisite revenue growth organically. Figure 6: SEG-100 Valuation by TTM Revenue Revenue greater than $1 Revenue betw een $200 Revenue less than $200 million Composite SEG-100 billion million and $1 billion EV/Revenue EV/EBITDAEV/Revenue EV/EBITDA EV/Revenue EV/EBITDA EV/Revenue EV/EBITDA YTD 4Q05 YTD 4Q05 YTD 4Q05 YTD 4Q05 YTD 4Q05 YTD 4Q05 YTD 4Q05 YTD 4Q05 Average 4.1x 4.0x 17.0x 15.6x 2.9x 3.0x 17.8x 18.3x 2.5x 2.4x 26.1x 24.7x 3.0x 3.0x 19.5x 19.5x Median 3.6x 3.7x 15.6x 14.1x 2.1x 2.2x 14.4x 12.6x 1.5x 1.6x 19.8x 18.1x 2.2x 2.2x 15.6x 13.7x

Figure 7: SEG-100 Valuation by TTM Revenue (Profitable Companies Only) Revenue greater than $1 Revenue betw een $200 Revenue less than $200 million Composite SEG-100 billion million and $1 billion EV/Revenue EV/EBITDAEV/Revenue EV/EBITDA EV/Revenue EV/EBITDA EV/Revenue EV / EBITDA YTD 4Q05 YTD 4Q05 YTD 4Q05 YTD 4Q05 YTD 4Q05 YTD 4Q05 YTD 4Q05 YTD 4Q05 Average 4.1x 4.0x 15.9x 15.6x 3.3x 3.9x 17.0x 18.4x 3.7x 3.5x 22.3x 24.4x 3.6x 3.6x 17.7x 17.8x Median 3.6x 3.7x 15.4x 14.1x 2.3x 2.9x 13.5x 14.3x 2.3x 2.1x 18.7x 18.2x 2.8x 2.9x 14.6x 13.6x

Figure 8: SEG-100 Categories Figure 9: CTO Tech Spending Priorities SEG - 100 • Security 4Q05 TTM TTM TTM • Application integration Category Median Median Revenue Earnings (EV/Rev.) (EV/Rev.) Gr ow th* Gr ow th* • Compliance / risk management

Softw are Industry 2.2x 2.1x 12.1% 46.1% • Disaster recovery / business Business Intelligence 2.4x 2.6x 13.9% 49.6% continuance CAD/CAE 2.9x 2.6x 9.2% 46.1% • ERP Customer Relationship Mgt 1.4x 1.2x 7.7% 49.2% Developer Tools 3.0x 3.1x 13.0% 66.2% • Data Storage Document/Content Mgt 1.6x 1.4x 12.6% 89.6% • Business Process Enterprise Resource Planning 1.6x 1.4x 2.9% 10.4% Management / workflow Enterprise Sof tw are 4.8x 5.5x 8.8% 59.3% • Business Intelligence Enterprise System Mgt 2.6x 2.2x 5.7% 667.8% • Voice-over-IP Financial 3.4x 3.2x 10.6% 30.9% • Mobile Computing / remote HealthCare 2.3x 2.1x 13.5% 35.4% access Internet Tools 3.1x 2.8x 26.5% 94.3% • Identity and access Manufacturing 1.0x 0.9x 19.3% -17.2% management Middlew are 2.2x 2.0x 2.9% 31.3% Operating System 1.8x 1.8x 6.7% 43.6% 16%• Server consolidation8% Security 4.0x 3.8x 15.5% 44.8% • Custom Application Storage Mgt 4.5x 4.0x 25.9% 90.8% Development Supply Chain Mgt 1.5x 1.4x 1.5% 56.6% • Portal Development • Wireless Networking Also favoring acquisitions is the truism that size • Outsourced software matters in the software industry. For the quarter, development SEG-100 companies with revenues greater than • Customer relationship $1 billion posted a median EV/Revenue ratio of management 3.7x, compared to a median ratio of 1.9x for • SOA software companies with revenue less than $1 • Storage vitualization billion (Figure 6). And despite declines in the • Server virtualization SEG-100’s Enterprise Value/EBITDA and • Thin client computing Earnings, profitability remained important, as well

CTO Tech Spending Priorities HIGH Priorities Spending Tech CTO • Buying from fewer vendors (Figure 7). The median EV/Revenue multiple for • Hosted software/managed software companies posting a profit in 4Q05 was services

2.9x, but only 1.3x for those reporting losses. LOW • Open source software

As in past years, public software company Data Source: Goldman Sachs financial performance in 2005 varied widely by product category. Relative to 4Q04, internet tools IT spending remains one of the most important and storage management providers led all other bellwethers of software company financial software categories in 4Q05 revenue growth performance. According to Goldman Sachs’ (+26.5% and +25.9%, respectively), while January IT Spending Survey, IT spending growth software companies providing solutions for for 2006 will be slightly better then 2005. Specific supply chain management (1.5%), enterprise IT spending priorities for 2006 are enumerated in resource planning providers (2.9%) and Figure 9. Security remains the top priority in middleware (2.9%) continued to lag far behind 2006. The relatively low ranking of services (Figure 8). As for earnings, enterprise systems oriented architectures suggests that application management vendors led all other categories, integration, which ranked a close second, may reporting an average TTM earnings increase of adhere to the more traditional forms, such as EAI, 667.8%, while software companies targeting the APIs and web services. High-buzz technologies manufacturing vertical declined 17.2% in median and trends, such as virtualization, software-as-a- TTM earnings. service and server/storage virtualization ranked

Figure 10: Public Market Valuation vs. TTM Revenue Growth (1Q05 – 4Q05) by Category 5.0x Low Growh High Growh

R2 = 0.52

4.0x Security Storage Management

Developer Tools 3.0x Enterprise CAD/ CA E Systems Internet Tools Management Business Inteligence Mi ddl ew ar e 2.0x Operating System Document / Content Management Supply ERP 1.0x Chain Customer Relationship Median Enterprise to Value Revenue Management Management

0.0x 0.0% 5.0% 10.0% 15.0% 20.0% 25.0% 30.0% Median Revenue Growth by Category

low, with open source software in the spending Low Growth. High Growth category companies basement. Clearly, the hype around these had a median enterprise value to revenue multiple technologies and trends is way ahead of the of 2.9x. In stark contrast, slow growth category adoption curve. There also appears to be a companies, those with TTM revenue growth distinct disconnect between industry pundits and below 12.5% had a median enterprise value to enterprise CIOs when it comes to favoring fewer revenue multiple of only 1.8x. vendors. The very low ranking of this priority may be the first sign the post-bubble pendulum may be INITIAL PUBLIC OFFERINGS shifting again – this time, from single vendor suites to best-of-breed point solutions, signaling The IPO market, after collapsing in 2001, better days for smaller, niche vendors. rebounded in 2004, but couldn’t sustain the momentum. Investors eschewed new issues in Though it may be unwise to judge a book by its 2005 for a host of reasons, including mixed cover, the enterprise value of a public software economic indicators, skyrocketing energy costs, a company in 2005 was closely tied to its software strong bias for safe bet issues with virtually product category. We analyzed the revenue limitless upside, and growing concerns about growth and enterprise value of every company in world affairs and domestic politics. In turn, private each software product category comprising the companies and the VCs that back them, delayed SEG 100, then bifurcated the product categories their S-1 filings rather than suffer Sarbanes Oxley into two groups, low growth and high growth compliance and quarterly earnings calls without (Figure 10). Where the median TTM revenue significant IPO proceeds to compensate for the growth of the public software companies risk s and inconvenience. According to Dealogic, comprising a product category was greater than only 226 companies went public in the U.S. during our dividing point of 12.5% (i.e., developer tools, 2005, raising an aggregate $38.7 billion, security, storage management, internet tools, compared with 249 companies in 2004, and business intelligence, and document aggregate proceeds of $43 billion (Figure 11). management) the category was deemed High Growth; categories below 12.5% were deemed

Figure 11: 2005 U.S. IPO Activity 56 of the new offerings in 2005 were venture- 600 backed companies that raised a combined $4.5 billion, or 12% of total IPO proceeds, and 500 averaged $80 million. In rather stark contrast, 93 venture backed companies raised a combined 400 $11 billion in 2004, with average proceeds of 340 $118 million. 59% of the VC backed IPOs in 2005 300 249 were trading at or above their offering price by 215 226 . year-end, according to Thomson Venture 200 Economics and the National Venture Capital 81 93 Association. 100 83 73 56 41 24 29 Belying predictions that Google’s highly 0 successful IPO in 2004 would break the IPO 2000 2001 2002 2003 2004 2005 logjam, only ten software and internet related companies went public in 2005; of these, seven U.S. IPOs U.S. VC Backed IPOs were in the second half of the year (Figure 12). Source: Thomson Venture Economics & National Venture Capital Assocation 2005’s newly-listed software and internet companies raised an aggregate $872 million. In comparison, 2004’s 16 IPOs generated proceeds of $3.7 billion (Figure 13), but Google accounted

Figure 12: 2005 Software IPOs

Offering First Day Year-End EV / EV / Company Category Offer Date Amount Return Return Rev. EBITDA Enterprise Value Chinese Language Baidu.com Internet Search 8/5/2005 $109,100,000 353.85% 133.04% 66.6x - $1,391,049,200 Provider Automotive DealerTrack Dealership 12/12/2005 $170,000,000 13.24% 23.41% 5.4x 19.1x $570,713,000 Software Healthcare Vertical Emageon 2/9/2005 $65,000,000 15.00% 22.31% 4.1x 63.6x $266,663,000 Software Workforce Kenexa Management 6/24/2005 $60,000,000 0.42% 75.83% 5.4x 32.7x $329,545,000 Corporation Software SSA Global Enterprise Resource 5/26/2005 $99,000,000 0.00% 65.36% 1.9x 11.3x $1,363,986,500 Technologies Planning Software Workforce Taleo Management 10/4/2005 $93,800,000 -2.86% -5.14% 3.5x 40.2x $252,701,200 Corporation Software Airline Industry Transaction TRX 9/27/2005 $61,200,000 0.00% -13.00% 1.0x 15.5x $115,079,500 Processing and Data Management Marketing Unica Management 8/3/2005 $48,000,000 26.30% 17.10% 2.6x 21.1x $167,935,500 Corporation Software Public Relations Vocus 12/7/2005 $45,000,000 11.11% 15.44% 4.3x N/A $110,154,200 Software Online Health WebMD 9/29/2005 $120,750,000 39.43% 66.00% 9.2x 88.3x $1,466,402,500 Information MEDIAN: $65,000,000 12.18% 22.86% 4.2x 26.9x $298,104,000 Average: $84,750,000 45.65% 40.04% 10.4x 36.5x $603,422,960

Figure 13: Software IPO Activity and Year-end at $11 on May 26. SSA posted a first day return of return 0.00% and a 9% return by the end of the quarter, 100 100% and its travails encouraged others to bide their time or exit by acquisition. Kenexta did little better,

66% 75% Year-end Return posting a 0.42% gain on the day of its initial 73 71% 75 offering. However, both SSA and Kenexa 50% received some uplift from the market’s fourth quarter rally, posting solid gains of 65% and 76%, 40% 25% respectively, by year end. 50 21% 0% The third quarter’s most prominent IPOs were WebMD and Chinese Internet search provider

Number of Software IPOs of Software IPOs Number -25% 25 -31% -26% Baidu, the latter blasting off to a 354% gain on its 16 first day of trading. The third quarter also saw 10 7 5 8 -50% IPOs by Taleo (formerly Recruitsoft.com), a provider of enterprise workforce management 0 -75% software, Unica Corporation, a developer of 2000 2001 2002 2003 2004 2005 customer relationship management software, and TRX, a provider of airline industry transaction for more than 45% of the 2004 total. Europe’s 25 processing and data management software. Both information technology IPOs in 2005 raised a Taleo and TRX ended the year in the red, while combined EUR588.3 million. By comparison, only Baidu, Unica and WebMD were up 133%, 17% 18 European IT companies completed an IPO in and 66%, respectively. 2004, raising EUR367.7 million. SSA Global, a provider of enterprise software applications, and The fourth quarter saw increased IPO activity and Kenexa, a provider of workforce management mixed results. DealerTrack, a ~$120 million Web- software, were the lone industry IPOs in 2Q05. based provider of automotive dealership software Finding its offering under-subscribed, SSA Global priced above it’s expected range, raising $170 reduced the number and price of its shares at the million, ending the day up 13% and the year up eleventh hour and scratched a $100 million 23%. Vocus, a provider of public relations special dividend payment to its controlling software, raised $45 million and closed the year stockholders. SSA originally planned to sell 14.3 with a 15% gain. Overall, the 10 software and million shares at $13 to $15 each, but pulled in its internet IPOs of 2005 ended the year up by an belt at the eleventh hour, issuing 9 million shares average of 40%.

Figure 14: 2005 Software IPO Pipeline Offering Annual Company Category Filing Date Amount Revenue Net Income

Vertical Mid Market Activant Solutions 6/2/2005 $200,000,000 $225,800,000 $16,800,000 ERP Software Financial Industry Clayton Holdings 11/7/2005 $230,000,000 $156,100,000 $16,700,000 Solutions E-mail IncrediMail Custimization 10/25/2005 $17,500,000 $6,960,000 $1,620,000 Software Intensive Care Visicu Monitoring 11/29/2005 $65,000,000 $14,615,000 -$863,000 Software MEDIAN: $132,500,000 $85,357,500 $9,160,000 Average: $128,125,000 $100,868,750 $8,564,250

the prior twelve month period. Aggregate dollars Four other IPO candidates that would have priced invested increased only 2% to $21.9 billion from in 2005 chose not to, citing unreceptive investors $21.5 billion in 2004. The average investment and a highly favorable M&A market. ArcSoft, a during this period remained virtually the same, at provider of multimedia, graphics and publishing $7.3 million per entity. Across all industries, 885 software, and Watchdata Technologies, a companies received first-time funding that totaled Chinese developer of operating systems and $5.2 billion, a 12% dollar increase over the twelve utilities software, both withdrew their IPOs due to month period. Still, VC investments have unfavorable market conditions. Stentor and increased over time. Relative to a 2003 basis Sybari opted for liquidity through lucrative M&A year, VC dollars invested have grown 19%, while exits. Expecting to raise $50 million from its IPO, the number of recipient companies are up 7%. Sybari, an anti-virus provider, hitched itself to Microsoft in June 2005 for an undisclosed sum. Software, once again, continued to lead all other Stentor, a medical imaging software vendor, sold industry sectors in attracting VC investment, with for $280 million in cash to Philips Global PACS in 863 companies funded during the period (22% of July 2005. Stentor had planned to raise $69 the total). Relative to the prior year, the number million. of software industry VC investments remained flat at 868 deals, and total dollars invested declined How will the software IPO market fare in 2006? A (less than 1%) to $4.9 billion. Software also led all year ago we predicted the 16 software/internet industry sectors in first-time financings, with 228 IPOs of 2004 would double in 2005, citing pent up companies (23% of the first-time total) receiving demand and a significant improvement in 2004‘s $1.2 billion. Notable software fundings in 2005 are year-end IPO pipeline. We noted the overall IPO detailed in Table 1. pipeline grew from less than 60 S-1registrants at the beginning of 2004 to more than 120 entering Most other industry sectors fared little or no 2005, including a good number of software better. Biotechnology companies raised $3.9 registrants. We were wrong. The “IPO Express” billion (-2%) in 365 financings (+11%) during the was derailed by a host of negative economic and same period, and average investment per geopolitical factors. Overall, IPO activity in 2005 company declined. First time biotech financings fell 9.2%, with software IPOs declining 38% from increased 14% to 107 companies, but the a year earlier. With 2006’s IPO pipeline aggregate amount invested declined 10% to consisting of four relatively unknown software $566 million. In the medical device sector, companies, it appears 2005 will be another aggregate investments increased 8.5% to $1.9 lackluster year for software industry IPOs (Figure billion, although the number of device companies 14). Nevertheless, there are a host of factors funded (244) declined 4%. VC dollars invested in which could converge to restore investor telecommunications grew 6%, while dollars enthusiasm and resuscitate the software IPO invested in networking dropped 17%, and the market. The private equity markets are betting on number of networking companies funded declined it, after taking a record number of public 11%. Following strong growth in 2004, the companies private in the past four years and semiconductor industry presented a mixed story, investing in hundreds of others. attracting less investment ($1.9 billion, -5%), but reporting a greater number of transactions (231, VENTURE CAPITAL AND PRIVATE EQUITY +3%). Notable IT-related fundings outside the software sector included Alien Technologies Venture capital firms remained cautious and (RFID, $66 million), FiberTower (wireless conservative in 2005, allocating more than 80% of equipment, $150 million), Force 10 Networks invested funds to expansion stage and later stage (networking, $40 million), Visto (wireless data, private companies. According to the $70 million), and Vonage (VoIP, $200 million). PricewaterhouseCoopers / Thomson Venture Analyzed from the perspective of lifecycle stage, Economics / National Venture Capital Association (Figure 15), dollars invested in startup/seed stage MoneyTree™ Survey, on a trailing four quarter companies during the twelve month period basis through the end of Q3, 2,992 U.S. companies received funding, up a mere 3% from

Table 1: 2005 Software Venture Capital Financing Company Software Category Raise ($) Webroot Software Security – Anti Spyware 108,000,000 Visto Secure Mobile Push Email 70,000,000 Strategic Financial Solutions Software for Investment Professionals 63,000,000 Level 5 Networks Networking Hardware and Software 30,000,000 Lefthand Networks Storage Area Network Solutions 25,000,000 Revenue Science Behavioral Targeting Software 24,000,000 CaseStack Logistics 20,000,000 Local Matters Internet Local Search Software 20,000,000 SugarCRM Open Source CRM Software 19,000,000 Alteer Medical Software 17,000,000 XenSource Virtualization Software 17,000,000 Visiprise Manufacturing Management Software 16,000,000 Hillcrest Communications Digital Home Software 15,000,000 Kabira Technologies Switching Software for Financial Services 15,000,000 NetContinuum Security – Web-App Appliance 15,000,000 Traiana Trading Relationship Management Software 15,000,000 United Devices Grid Computing Software 15,000,000 Centrify Security Software 14,000,000 Kalido Data Warehousing/Mgt. Software 14,000,000 LogicalApps SOX Compliance Software 14,000,000 PacketMotion Enterprise Security Software 14,000,000 Roamware Global Roaming Software Solutions 14,000,000 Caymas Systems Communications Software 13,000,000 Inetcam Streaming Video Mobile Software 13,000,000 Nevis Networks Enterprise Network Security 13,000,000 Carefx Healthcare Software 12,000,000 Tizor Systems Security for Data Servers 12,000,000 Gracenote Content and Database Management Software 11,000,000 Intelliden Network Configuration Software 11,000,000 ActiveGrid Infrastructure Software 10,000,000 BitTorrent Cooperative Publishing Software 10,000,000 Forescout Technologies Security - Access Control 10,000,000 Impress Software Solutions Web enabled ERP Software 10,000,000 Mirapoint Appliance-based Secure Messaging 10,000,000 PacketHop Mobile Broadband Networking Software 10,000,000 PGP Security – Email 10,000,000 Sensory Networks Network Security Software 10,000,000 Olive Software XML Automation 9,000,000 Destinator Technologies Navigation Software 9,000,000 Teros Security – Web-App Appliance 8,000,000 Action Engine Wireless Software Platform 7,000,000 Date Source: PWC Moneytree

Figure 15: Overall VC Deals, Dollars Invested In the software sector, VC emphasis in 2005 by Company Stage remained focused on less risky, mature stage $776M entities seeking to capitalize on established $3,484M momentum (Figures 16 and 17). Of the aggregate $4.9 billion invested by VCs during 2005 in the software sector, less than 2% went to $9,454M startup/seed stage entities ($69 million), and only 18% was directed to early stage companies ($896 million). Expansion stage software entities drew 36% of the funds ($1.8 billion), down markedly from the prior 12 month period total of $2.3 billion. $8,176M Later stage companies raised $2.2 billion or 44% of the overall category’s invested funds, an Startup/Seed Early Stage increase of 29% in terms of both dollars and Expansion Later Stage fundings. Analyzed from the perspective of Source: PricewaterhouseCoopers/Thomson Venture Series A financings, 24% of the $4.9 billion Economics/National Venture Capital Association MoneyTree™ invested in software companies last year ($1.2 Survey billion) went to 228 software companies raising their first round of professional money. jumped 111% to $776 million, while the number of startup/seed stage companies funded decreased What does all this portend for 2006? VC funds (-3%). Early stage investments declined both in raised more than $22 billion in calendar 2005, up dollars invested (-11%) and transactions (-5%). 32% from 2004, so there’s plenty of money to be VC investments in expansion stage companies put to work. Nevertheless, we expect VCs and declined even more steeply, down 20% in dollars private equity firms will continue to be both invested to $8.2 billion, and down 10% in the cautious and conservative in their software sector number of companies funded, to 1,131. As in investing. The vast majority remain technology 2004, the lion’s share of the dollars was reserved risk adverse, and are highly reluctant to invest in for later stage companies, with 901 companies technologies, products, categories and markets (40% of total) receiving funding aggregating $9.4 that have not already gained widespread market billion in dollars (34% of total). acceptance and critical mass. We expect most early stage professional money will go to those

that seek to deploy proven technologies in new Figure 16: Number of Software Deals by Stage Figure 17: Software VC Dollars Invested by Relative to 2003 Stage Relative to 2003 75% 200%

50% 150% 25% 100% 0% 50% -25% 0% -50%

-75% -50%

-100% -100% 2003 2004 2005 2003 2004 2005 Startup/Seed Early Stage Startup/Seed Early Stage Expansion Later Stage Expansion Later Stage Source: PricewaterhouseCoopers/Thomson Venture Source: PricewaterhouseCoopers/Thomson Venture Economics/National Venture Capital Association Economics/National Venture Capital Association MoneyTree™ Survey MoneyTree™ Survey

Figure 18: U.S. Merger & Acquisition Activity 15,000 $1,500 $1,426B $1,223B $1,326B (Q4 - $246B) $1,283B 10,884 12,000 11,123 (Q4- 3,128) $1,200

10,198 Value ($Billions) 9,278 9,514 8,554 9,000 8,047 8,281 $900 $820B $654B 6,000 $600 $526B $452B Number of Deals Number 3,000 $300

0 $0 1998 1999 2000 2001 2002 2003 2004 2005

Deals Value Source: Mergerstat ways, and to those that bring innovative/disruptive taken public again sometime in the next 3 – 5 solutions to huge and recognized market years. In 2006, we fully expect to see a half- opportunities. Likely recipients include wireless dozen or more public-to-private transactions communications, AJAX (Asyncgronous Javascript resembling 2005’s Sungard Data Systems ($11.3 and XML) , Web 2.0, Search 2.0, and online billion) and Serena Software ($1.2 billion). advertising. Security continues to be a magnet for investment, as are home entertainment / MERGERS AND ACQUISITIONS: THE NUMBERS networking and supply chain / logistics ( a by- product of Katrina). VCs are actively exploring U.S. mergers and acquisitions grew in both volume and value in 2005, according to the huge Chinese and Indian markets, but most Mergerstat (Figure 18), outdistancing 2004 and are not yet ready to invest directly in local IT setting a fast pace for 2006. Across all industry companies, or indirectly in North American IT sectors, 2005 domestic M&A activity increased providers focused primarily on those markets. 6.7% to 10,884 transactions, and dollar value, at Vertical market software companies are attracting $1.2 trillion, was up 49%. greater VC attention, but for many VCs, SaaS / subsription-based pricing appears to be a Software represented 15.7% of total M&A deal condition for funding vertical providers. activity, leading all other industry sectors as in past years. There were 1,707 software With the IPO option foreclosed to all but a few transactions in 2005, a modest 4.7% increase hearty souls, and with little improvement likely in over 2004’s tally (Figure 19). After a slow start in 2006, we believe many VCs, including first-tier, long term investors, will entertain or encourage Figure 19: U.S. Sector-Specific M&A Activity certain portfolio companies to exit by sale. 500 472 410 454 400 We also believe software industry consolidation 371 will accelerate in 2006, with buyout firms at the 300 fore. Private equity/buyout funds raised $152 billion in 2005, up 65% from 2004, and most of it 200 115 110 102 is earmarked for public to private transactions. 77 93 64 100 101 Public software and IT services companies 30 deemed undervalued but viable are prime Announced Deals candidates to be taken private, restructured and 0 Q1 2005 Q2 2005 Q3 2005 Q4 2005 Sof tw are Life Science Comm. Source: Mergerstat 11| 2005 SOFTWARE INDUSTRY EQUITY REPORT Copyright © 2006 Software Equity Group, L.L.C. Software Equity Group, L.L.C.

Figure 20: U.S. Software M&A by Dollar Volume spending was attributable to higher valuations, a $30B greater number of transactions, and a far greater $26.5B number of “mega” deals, including 10 deals with $25B an aggregate purchase price in excess of $1 $22.8B $21.5B billion (Figure 21). $20B $15.7B The median valuation of software industry M&A $15B $13.8B transactions in 2005(based on TTM revenue and the seller equity value) grew every quarter (Figure $10B 22). For the year, the median software company M&A valuation, measured as a multiple of TTM $5B revenue, was 2.6x, beating 2004’s median valuation of 2.4x, and up sharply from 2003’s 1.6x $0B multiple. Q4 2004 Q1 2005 Q2 2005 Q3 2005 Q4 2005 Source: Mergerstat Median software M&A valuations continued to 1Q05, the number of software deals posted vary widely by product category. Sellers with quarter-over-quarter increases of 10.5% in 2Q05 enterprise solutions that required significant but and 15% in 3Q05, but declined 3.8% in Q4. In non-essential capital spending, and sellers in terms of total M&A dollars spent, the software yesterday’s high spend categories that have not sector placed sixth - well behind first place yielded the anticipated return, lagged well behind communications - but the aggregate $73.8 billion less expensive, readily deployable solutions purchase price for software company acquisitions offering measurable, near-term benefits. was 41.7% greater than 2004’s total purchase Valuations were highest in the more fiercely price (Figure 20). The hefty increase in 2005 competitive categories (e.g., security and storage

Figure 21: 2005 Software Mergers and Acquisitions Mega Deals (Equity Purchase Price Greater than $1 Billion)

Buyer Seller Purchase Price Enterprise Value Revenue EV/R EV/EBITDA Silver Lake SunGard $11,300,000,000 $11,179,000,000 $3,560,000,000 3.1x 10.7x Partners, et. al (NYSE:SDS) Oracle Siebel Systems $5,850,000,000 $3,610,000,000 $1,320,000,000 2.7x 20.5x (NASDAQ: ORCL) (NASDAQ: SEBL) Adobe Macromedia $3,400,000,000 $3,265,900,000 $436,170,000 7.5x 27.9x (NASDAQ: ADBE) (NASDAQ: MACR) eBay Skype $2,600,000,000 N/A $60,000,000** 43.3x* 2166.7x** (NASDAQ: EBAY) (Private) InterActiveCorp Ask Jeeves $1,850,000,000 $1,955,200,000 $261,330,000 7.5x 30.2x (NASDAQ: IACI) (Nasdaq:ASKJ) General IDX Systems $1,371,000,000 $1,146,770,000 $577,490,000 2.0x 15.8x Electric (NASDAQ: IDXC) (NYSE: GE) Silver Lake Serena $980,000,000 $1,056,000,000 $251,400,000 4.2x 11.7x Partners LP Software (NASDAQ:SRNA) Ascential IBM $1,100,000,000 $619,290,000 $271,880,000 2.3x 22.0x (NYSE: IBM) Software (NASDAQ: ASCL) Golden Gate Geac $1,000,000,000 $778,120,000 $441,200,000 1.8x 8.6x Capital (NASDAQ: GEAC) Concerto Aspect $1,000,000,000 $887,100,000 $364,200,000 2.4x 10.7x Software (NASDAQ: ASPT) Median: $1,610,500,000 $1,146,770,000 $400,185,000 2.9x 18.1x *: Equity Value Multiple **: Estimate 12| 2005 SOFTWARE INDUSTRY EQUITY REPORT Copyright © 2006 Software Equity Group, L.L.C. Software Equity Group, L.L.C.

Figure 22: U.S. Software M&A Valuation as Venture capitalists, private equity firms and Multiple of Revenue venture-backed private companies were all 4.0x extremely active, occasionally willing to pay public buyer strategic multiples to acquire private 2.9x software companies that satisfied their investment 3.0x 2.8x 2.7x criteria. Far more often, though, financial buyers 2.4x adhered to their value pricing models, insisting on 2.1x large, proven markets with huge potential and 2.0x offering at or below market valuations. Many sought “platform” software companies, usually with revenue of $10 million to $100 million, a 1.0x compounded annual growth rate of 25% or better, and the capacity to grow tenfold in five to seven (Purchase Price)/Revenue Price)/Revenue (Purchase years through rapid organic growth and smaller 0.0x strategic acquisitions. Others sought private Q4 2004 Q1 2005 Q2 2005 Q3 2005 Q4 2005 software companies that could add needed product functionality, technology, markets or management), as buyers jockeyed to keep up customers to an existing portfolio company, with or outgun their principal competitors. thereby bettering its IPO prospects or exit valuation. Median M&A valuations by software product category, measured as a multiple of TTM, were as The software industry has long used median follows in 2005: multiple of trailing twelve months (TTM) revenue to measure M&A valuations. We’ve been no • Accounting/Finance, 2.0x exception, but for years we’ve cautioned against • Business Intelligence, 2.9x using the median deal multiple as anything other • Content/Document management, 3.0x than a point of reference – and a misleading one, • Customer relationship management, 2.1x at that. In Figure 27, we dissect the median • Data management, 2.3x software company exit valuation for the past two • Enterprise resource planning, 1.8x calendar years (2.4x trailing twelve month • Security, 3.9x revenue) to provide greater insight into software • Storage management, 6.9x company valuation. Our analysis considers the • Supply chain management, 1.3x affect on valuation of equity structure (private vs. • Enterprise System Management, 4.7x public company), software product category, and • Wireless, 1.8x size of buyer and seller.

Cash continued to be the preferred deal currency As a first step, we separated public and private in 2005, with many buyers still considering their software company sellers to determine whether stock undervalued, and many sellers remaining there was any disparity in exit valuation. Indeed, risk averse (Figure 24). In 2005, 69.5% of all software transactions were all cash, 17% greater Figure 24: Software M&A – Form of Payment than in 2004. Only 9.3% of 2005 software 100% acquisitions were paid in stock, and only 21.3% used a combination of cash and stock as deal 76% 75% 74% consideration. 67% 61% The number of private software company buyers 50% in 2005, as in 2004, was noteworthy. During the past two years, 34% of all acquirers were private. In 4Q05, private buyers accounted for 35% of all 22% 25% 25% 19% 19% software M&A transactions, a decline from Q3’s 17% Payment Percentage Percentage Payment 8% unprecedented 42%, but still indicative of the 7% 5% market’s changed buyer mix (Figure 25 and 26). 0% Q1 2005 Q2 2005 Q3 2005 Q4 2005 Cas h Stock Cash & Stock 13| 2005 SOFTWARE INDUSTRY EQUITY REPORT Copyright © 2006 Software Equity Group, L.L.C. Software Equity Group, L.L.C.

Figure 25: U.S. Public vs. Private Software M&A It does, if one compares apples to apples. For Buyers both public and private sellers, the purchase price 100% sets the company’s equity value. When the exit valuation of a private seller is calculated, the 80% purchase price (equity value) is simply divided by 69% 71% 63% 65% its trailing twelve months revenue. It’s an 58% 60% accurate yardstick for privately-held sellers, since they typically have (or leave behind) little cash 42% 37% and must pay off any debt at closing. 40% 35% 31% 29% In the case of public company sellers, industry 20% analysts use the same yardstick – purchase price (equity value) divided by revenue – to measure

Percentage of Software Buyers Software Buyers of Percentage 0% the seller’s exit valuation. And there’s the rub. Q4 2004 Q1 2005 Q2 2005 Q3 2005 Q4 2005 Public companies often have both material debt Public Pr i v at e and significant cash on their balance sheets. Both Figure 26: U.S. Public vs. Private Software M&A are carefully taken into account by buyers when Sellers determining their offer prices, and both materially 100% impact the true return to the public company’s 95% shareholders. As a result, the appropriate 93% 92% 91% 91% yardstick for measuring exit valuations of public 80% software companies is not equity value, but enterprise value, defined as equity value less 60% cash and marketable securities plus debt.

40% With that in mind, we calculated the exit valuations of public software company sellers 20% over the past two years on an enterprise value 8% 7% 9% 9% basis (where relevant financial data was 5% available). The median M&A valuation for public

Percentage of Software Sellers Software Sellers of Percentage 0% Q4 2004 Q1 2005 Q2 2005 Q3 2005 Q4 2005 software companies on an enterprise basis was 2.2x TTM revenue (vs. 2.8x on an equity basis), Public Pr i v at e less than the 2.4x TTM median exit valuation of private sellers. The outcome demonstrates public software company sellers currently hold little or no there was. Public company sellers accounted for advantage over their privately-held counterparts in 24% of all software M&A transactions during the terms of median exit valuations. past two years and their median exit valuation was 2.8x TTM revenue. Private company sellers If public vs. private company status isn’t a major accounted for 76% of all transactions during the factor in determining exit value, what is? We same period and had a median selling price of examined a host of factors that could account for 2.4X TTM, revenue. Why the difference? the huge disparity in software industry exit valuations, and identified two that outweighed all First, public companies are generally awarded a others. higher valuation than their private counterparts because the shares are ordinarily liquid and freely We’ve long maintained that IT budgets and disposable; the public market has set their value; spending have a profound downstream impact on and their investors generally require an software industry M&A valuations, and the data appropriate premium to approve the sale. clearly supports the premise. The Public Markets Consequently, the higher valuation multiple for section of this Report delineated an array of public software company sellers over their private software product categories as either “high counterparts holds no surprise... or does it? growth” or “low growth”, based upon IT spending

Figure 27: Median Software M&A Valuations 2004 - 2005

Software M&A Median Multiple: 2.4x (Equity Value)

Public Sellers Private Seller 2.8x Median Multiple (Equity Value) 2.4x Median Multiple (Equity Value) 2.2xEV Median Multiple (Enterprise Value) 76% 24%

Low Growth Category High Growth Category Low Growth Category High Growth Category 2.3x Median Multiple 4.5x Median Multiple 2.1x Median Multiple 3.5x Median Multiple (Equity Value) (Equity Value) (Equity Value) (Equity Value) 2.0xEV Median Multiple 4.3xEV Median Multiple (Enterprise Value) (Enterprise Value)

48% 28% 16% 8%

Seller Greater Than Seller Greater Than Seller Greater Than Seller Greater Than $100 Million*: 2.9x1, $100 Million*: 7.1x1, $20 Million*: 2.3x1 $20 Million*: 3.7x1 2.3xEV 7.1EV

Seller Less Than Seller Less Than Seller Less Than $20 Seller Less Than $20 $100 Million*: 1.9x1, $100 Million*: 3.2x1, Million*: 2.0x1 Million*: 3.3x1 1.4EV 2.6EV

Buyer Greater Than Buyer Greater Than Buyer Greater Than Buyer Greater Than 1 $200 Million*: 2.9x1, $200 Million*: 4.7x1, $200 Million*: 2.7x1 $200 Million*: 6.5x 2.3EV 4.5EV

Buyer Less Than Buyer Less Than Buyer Less Than Buyer Less Than $200 Million*: 1.5x1, $200 Million*: 3.8x1, $200 Million*: 1.5x1 $200 Million*: 2.3x1 0.9EV 3.5EV * : Revenue ** : All Multiples are of trailing twelve month revenue 1 : Median Multiple (Equity Value) EV: Median Multiple (Enterprise Value)

15| 2005 SOFTWARE INDUSTRY EQUITY REPORT Copyright © 2006 Software Equity Group, L.L.C. Software Equity Group, L.L.C. Figure 28: 2005 High Growth/Low Growth Categories elements are essential to buyers of software companies in low growth categories. Those High Growth Low Growth companies that excel in each category may be able to attract an offer – but it will likely be at the Business Intelligence CAD/CAE low growth category multiple (which in virtually any other industry would be considered Customer extraordinary). In the current market, a software Developer Tools Relationship company in a low growth category with an Management impressive 40% EBIT and 500 enterprise customers is far less likely to achieve the exit Document/Content Enterprise Resource multiple of a high growth category seller that is Management Planning break-even with fewer than half the number of customers. Enterprise System Internet Tools Management Finally, Figure 27 looks at median exit valuations during the past two years based upon the relative Security Middleware size of the buyers and sellers. Simply put, size matters. A buyer with revenue greater than $200 Storage Management Operating Systems million is statistically likely to pay a significantly greater (possibly more than double) price than a Supply Chain buyer with revenues below that $200 million Wireless Management threshold.

The lesson of Figure 27 is for software industry and the CAGR of the software companies buyers and sellers to be highly circumspect when comprising the category. In Figure 27, we applying the industry median exit valuation. analyzed the median exit valuation multiples of Consider the following example: A private public and private sellers in high growth and low software company, looking at the median exit growth categories over the past two years (See multiple for the past two years might well estimate Figure 28 for high growth vs. low growth its selling price to be 2.4x TTM revenue. But categories). Not surprisingly, software company according to Figure 27, if the company is in a high sellers in product categories with an IT spending growth category, offering a superb network priority and median revenue growth rates above security or storage management solution and 12% (i.e., high growth) had significantly greater generating more than $20 million in annual median M&A valuations on an enterprise basis revenue, it could well fetch 3.7x TTM or better. than product companies in the low revenue Conversely, if the company has revenue of $15 growth categories. The significant premium for million and attracts a $100 million buyer with its sellers in the high growth categories applied computer aided design tools or e-supply chain whether the company was public or private. solutions, a multiple of 1.5x is far more likely in

the current market. We don’t anticipate this Note, though, there were almost twice as many scenario will change anytime soon. low growth category sellers as high growth

category sellers, indicating: a) refusal by many, MERGERS AND ACQUISITIONS: THE DRIVERS especially financial buyers, to pay the requisite

high growth category valuation; and b) a In order to discern trends in merger and reluctance by high growth category companies acquisition activity, it is essential to understand and their VCs to abandon the IPO dream for changes in buyer thinking. Precisely what anything less than a premium valuation only the motivated the buyer to acquire this particular most strategically driven buyers would entertain. company; to spend cash, dilute equity, allocate

precious resources and assume sometimes Private software companies typically believe their formidable risks? What were the deal drivers in exit valuations are inexorably tied to their product 2005, how were they different from 2004, and how functionality, technology, customers, EBIT and did they impact valuations and purchase prices? revenue - and indeed they are. These value

In 2Q05, Citrix Systems acquired NetScaler to Product Extension expand its platform into the high growth network A deal-by-deal analysis of the 688 software acceleration market. Trend Micro extended its transactions we analyzed in 2005 reveals 61% of security suite by acquiring anti-spyware developer the buyers sought to enhance their current InterMute and anti-spam provider Kelkea, while product suite by acquiring small and mid-cap Computer Associates purchased Niku, to add a companies targeting the same markets with highly best of breed IT governance and compliance complementary, best-of-breed, market proven automation application to its solution suite. products and technology (Figure 28). With suites in vogue, buyers were hard-pressed to keep up Product extension deals in 3Q05 included F5 with competitors that were continually adding and Networks’ acquisition of Swan Labs, which integrating new functions and capabilities in a expanded F5’s suite to include network quest to own their markets. Examples in this acceleration. Check Point, a leader in internet category abound: In 1Q05, IBM acquired data security acquired Sourcefire to beef up its network integration provider Ascential to beef up IBM’s intrusion prevention capabilities, and Business rapidly growing information integration business; Objects acquired SRC to enhance its business Oracle triumphed over SAP in purchasing Retek, performance management suite by adding a developer of best-of-breed point-of-sail and planning, budgeting, forecasting and reporting supply chain management solutions to the retail capabilities for such vertical markets as retail, vertical; and Verisign acquired Lightsurf, a health care, hospitality, insurance and solution provider in the growing and still immature manufacturing mobile content management market.

Rounding out the year, 4Q05 Cisco competitor Juniper acquired Funk Software to gain a Figure 28: Software Mergers & Acquisitions complete network access control product portfolio; Deal Drivers Symantec purchased Bindview, to add network 8% and Internet security policy management for large 4% Financial enterprises; Nokia’s acquired of Intellisync, a 4% 8% software company providing data synchronization across multiple devices; and IBM concluded its 15% 2005 buying spree with the acquisition of Mar ket 9% Micromuse in order to manage converged Expansion 22% networks carrying data, voice and video traffic and 16% gain a stronger presence among telecom carriers and service providers by. (Appendix B). 18% Vertical Markets 25% 15% Market Expansion 12% Since 2003, we’ve noted a surprising number of buyers (20% in 4Q03) that venture far from home, 9% acquiring software companies in new product Product Category 11% categories and new geographic and vertical Consolidation 11% markets in an effort to accelerate growth. The 18% trend moderated in 2004, with buyers seeking 50% new markets comprising about 16% of all Product 52% software M&A transactions. 2005 saw the same Enhancement 49% average percentage of market expansion deals 46% (15% in 4Q05). Sage, a leading provider of small business accounting software, acquired Adonix, 0% 10% 20% 30% 40% 50% 60% an accounting software provider serving France; product lifecycle management provider Agile 1Q05 2Q05 3Q05 4Q05 acquired Cimmetry to gain access to the manufacturing, electronics, architecture /

engineering / construction (A/E/C) and industrial (Chinadotcom) acquisition of Gametea, developer markets. of entertainment software with 10 million registered users, doubling CDC’s market share in Vertical Markets the Chinese online gaming market. Software companies serving vertical markets comprised about 18% of M&A transactions in Investment Acquisitions 2005, double the vertical market deals in 2004. More than one in three software company buyers Healthcare software company acquirers were in 2005 were private. Most were venture-backed among the few remaining bargain hunters, private software companies spending VC cash. seeking to capitalize on valuations that remained Venture capitalists and private equity firms also depressed due to stagnant healthcare IT acquired directly. First-party private equity deals spending and strong pressure to reduce costs. accounted for only 6% of all software M&A Nevertheless, the largest vertical market deal was transactions, but a significantly higher percentage in healthcare, where GE Healthcare acquired IDX, of aggregate M&A dollars spent. Private equity a provider of clinical and practice management buyout firms, awash in cash and under growing systems for hospitals and physicians. Under the pressure to invest it, sought large and relatively estimated $1.2 billion deal, IDX shareholders safe plays. A consortium led by Silver Lake received $44 cash per share, which amounted to Partners engineered the software industry’s a 25% premium over IDX’s share price and a 2.3x record breaking buyout of SunGard (NYSE: SDS) multiple based on TTM revenue. Other notable in March for a whopping $11.3 billion (3.2x TTM), software deals in the healthcare sector included and then took Serena (NASDAQ: SRNA) private The Trizetto Groups’ acquisition of CareKey, for $1.2 billion (4.9x TTM). Golden Gate Capital Matria’s acquisition of CorSolutions, and Spheris’ was notably active, leading the buyout of Blue acquisition of Vianeta. In the financial services Martini for $54 million (1.9x) in March, Attachmate vertical, SunGard acquired GetPaid, Pay by for $133 million in April, and Ontario-based Geac Touch acquired 7th Street Software, and (NASDAQ: GEAC) for $1 billion (2.3x TTM) in Clear2Pay acquired EFT. November. Not to be outdone, Francisco Partners acquired Web Trends for $94 million, FrontRange Product Category Consolidation for $200 million (2.5x) and Red Prairie for $72.7 Consolidation (the acquisition of a software million. The Carlyle Group bought SS&C company by a typically larger industry player to Technologies (NASDAQ: SSNC) for $941 million, gain market share and eliminate a competitor) and TA Associates acquired Intuit subsidiary ITS continued unabated in 2005. The second quarter for $200 million. saw several deals at uncharacteristically high consolidation valuations, including Adobe / At the other end of the 2005 financial investor Macromedia (7.8x), Dassault Systemes / acquisition continuum was Halo Technology ABAQUS (4.1x) and Scansoft / Nuance (3.9x). Holdings, an OTC-traded Massachusetts software company that aspires to be the next Gores or Consolidation plays were particularly prevalent in Platinum Equity. Once a money-losing, struggling the educational software and e-learning sectors. software company known as Warp Technology Blackboard, a June 2004 IPO and educational Holdings, Inc., Halo changed its name in May and software provider, acquired WebCT, a provider of secured a $50 million debt facility. Halo acquired e-learning software serving more than 2,000 Kenosia Inc. from Bristol Technology in June, colleges and universities. In 1Q05 HR software and took six software companies off the hands of leader Saba acquired competitor Thinq, and in Platinum Equity in 2005, including Gupta 4Q05 bought Centra Software, a provider of Technologies, Tesseract, DAVID Corporation, integrated web and voice interfaces used for Process Software, ProfitKey International and corporate training and education. Consolidation Foresight Software. deals in other sectors included Secure Computing’s acquisition of CyberGuard; Concerto Software’s merger with fellow call center management provider Aspect Communications in a deal valued in excess of $1 billion; and CDC’s

M&A: A LOOK AT THE YEAR AHEAD $10 million, yet many provide essential and superb point solutions and product suites to the Can you feel the ground shaking beneath your Fortune 1000. The typical private ISV business feet? According to the industry pundits and profile: Average revenue per employee prognosticators, the tsunami is almost upon us. It <$100,000; average CAGR 10% - 20%; average began two years ago as just another wave, the margin on software sales 93%, but average latest in an endless succession of new software EBITDA only 15% due to substantial software industry waves. We called it application service development expenses and high costs of sale. provider then, but it grew in size and intensity to Most have less than $500,000 in balance sheet become software as a service (SaaS) and it cash and cash equivalents. The paid-up license threatens to become a tsunami. Yet the fees from new licenses are usually the only staunchest software ships are confident they can source of capital to invest in their next major ride it. VCs and other private equity investors releases. And the maintenance and support fees insist upon it. Industry pundits thrill to it. The from existing licenses, priced at 20% of software Street loves it. list price, keep these ISVs alive For most private ISVs, M&S revenue comprises about 30% of total And why not? SaaS and subscription pricing take revenue, often yielding margins of 70% or better, much of the volatility out of the software game, particularly for later releases. M&S revenue is the especially in the enterprise software arena. private ISVs saving grace, the one revenue Revenue growth has long been the leading source it can rely upon to stay alive in tough indicator of software company success, and new times. license revenue has been its most critical component. Public software companies, GAAP- It’s not an especially pretty picture. Why, then, savvy and share price-conscious, have historically shouldn’t private ISVs enthusiastically embrace strived to make sure their new license revenue SaaS and subscription based pricing? Won’t the was significant and quickly recognizable. Market continuing and more level revenue stream ensure caps depended on it. Their customers a more stable future? Perhaps, but can the ISV understood that all too well, often deferring new survive long enough? It’s a matter of cash flow. buys to the very end of the quarter and extracting major discounts and concessions. And those SaaS and subscription based pricing currently enterprise customers felt entirely justified come in many flavors. If vanilla consists of an doing so, abhorring the huge up-front costs of enterprise application licensed on a pay-as-you- buying and deploying an enterprise suite, and the go, month-to-month or annual term, with little or virtual imprisonment that followed. no up-front payment and variable pricing based on number of users, many private ISVs will not In the face of so many overwhelming objections to survive. Even if the recipe calls for periodic the traditional software business model of payments amortized over a two or three year packaged applications sold on a perpetual license initial license term, few bootstrapped private basis for a significant up-front fee, the new software companies will be able to stay afloat long business model of services oriented applications enough for subscription model cash flows to equal delivered on a subscription basis is surely a good cash flows from paid-up licenses, professional thing. Right? It must be, otherwise why would services and M&S. there be such a groundswell of support? Right? With little cash on hand, and virtually no Not necessarily. Not for tens of thousands of professional money available to it, where will a privately-held software companies that serve the private ISV that adopts a SaaS business model enterprise and small-medium business markets. find the capital to rewrite its application suite in JAVA or .Net, add major functionality, and deploy Granted, the traditional model does not serves on new platforms? When chunks of cash from private ISVs especially well. By best count, there new paid-up licenses and annual M&S fees are are some 40,000 privately-held software replaced by smaller recurring payments, how will companies in the United States. We estimate the ISV endure year-long enterprise sales cycles more than 90% have annual revenue of less than and escalating operating costs? Many won’t.

For those that do survive long enough for new revenue model makes bootstrapping all but subscription / services revenue to ramp, solidify impossible. Will we miss them? and recur, EBITs should soar and prosperity should reign – at least in theory. It’s a theory we Enterprise customers certainly will. In their subscribed to, but which may no longer apply. current quest for flexibility, reduced cost of Subscription-based pricing used to ensure ownership and fewer vendors, CIOs take comfort revenue predictability and reliability. Customers in having lots of options, and the leverage those would quickly regard the smaller, recurring fees options provide. But if the current rate of industry no differently from their rent. After some initial belt consolidation continues or accelerates, and if the tightening by the software provider, the cash tsunami hits with full force, only a few very large would flow, and flow... enterprise software companies may be left standing. And those few will likely be an oligarchy, Problem is, in today’s environment, the slow to innovate, invested in the status quo, and subscription model may not be the long term able to dictate terms and prices as never before annuity many perceive it to be. Should (can you say oil industry?). technology trends such as open platforms, services oriented architectures and web services We suspect, over time, even the oligarchy be widely adopted in the future, it will become members will miss the departed privately-held much easier for customers to replace ISV software companies that couldn’t weather the applications, customize them using non-vendor tsunami. Gone will be many of the private ISVs resources, and eschew ISV-supplied add-ons and that could listen carefully and respond quickly with enhancements in favor of third party solutions best of breed solutions to fill the product suite from other vendors. We recognize that in such a gaps of larger software providers. Gone will be technology environment, the converse holds true, many of the small players that provided their as well. Some ISVs will be adroit enough to enterprise customers with viable alternatives and exploit these trends, providing product extensions vital leverage. And gone will be many of the and software services to enterprise customers of private software companies that enabled larger larger software providers. Those that can’t or software industry players to innovate by won’t adapt, perhaps numbering in the thousands, acquisition. will likely perish. Long live the privately-held, self-funded software Will that be a bad thing? Many don’t think so. In company. the past few weeks, the internet has been rife with articles from industry pundits and disgruntled enterprise CIOs, chiding software companies for their inefficiencies, touting the new software business models, and predicting a significant industry shakeout. Their post-tsunami vision resembles a brave new software world, with the role of Big Brother played by a mere handful of software providers (Microsoft, IBM, Oracle, SAP? Symantec, EMC).

Fear not, some of these pundits add, optimistically. There’s always room for start-ups that are truly innovators, citing Google. Perhaps, for the very few with truly disruptive technology that are able to attract the paltry VC dollars available to start-ups. What about the rest of the privately-held, bootstrapped software companies that won’t survive the tsunami? Where will they find the capital, or cash flow, to innovate? The

APPENDIX A: MERGERS AND ACQUISITIONS, MOST ACTIVE BUYERS

2005 saw an increase over 2004 in multi-transaction buyers. Some of the year’s most active buyers:

20-20 Technologies Autonomy Cisco • CMS Informatique • Verity • Topspin • DataOne • Ncorp • Sheer Networks • eTechLogix • Sipura Technology • MBI Software Company BEA Systems • NetSift • MindAvenue • Plumtree Software • Digital Fairway • Stiles (BuildRite Software) • Compoze Software • Nemo • ConnecTerra Activant Solutions • Incomit Citrix • Prophet 21 • M7 • NetScaler • Speedware • Teros • The Systems House Bentley Systems • Netguru (REI Division) Click Commerce Aegis Group • RAM International • Optum • InterWorld Holdings • Requisite • Modus Operandi BMC Software • ChannelWave • Calendra • Xelus Agilent Technologies • KMXperts • Eagleware-Elanix • OpenNetwork Compassoft • PASS Technologies (test • Spreadsheet Auditing data-exchange software) Business Objects • Wimmer • Scientific Software • SRC • Infommersion Computer Associates Altiris • Niku • Pedestal Software Cartesis • Concord Communications • Tonic Software • Advance Info Systems iLumin • INEA • InfoSec Amazing Technologies • Qurb • Clear Objective Cerner • Tiny Software • Versifi • Bridge Medical • Axya Corillian Andrew • InteliData • Xenicom CGI Holding • qbt Systems • Nortel (wireless location • Vintacom Media Group business) • KowaBunga! Marketing CSR • UbiNetics autobytel.com inc. Check Point Software • Clarity • iDriveonline • Sourcefire • Stoneage • Security Source DealerTrack • Chrome Systems Autodesk CheckFree Holdings • GO BIG! Software • Alias • Accurate Software • North American Advanced • c-plan • Aphelion Technology • COMPASS • Integrated Decision • Colorfront Systems Digi International • Solid Dynamics • Embebidos ChoicePoint • FS Forth-Systeme • EzGov (Certain assets) • Magnify

eBay Hewlett-Packard Jack Henry & Associates • Skype • Peregrine • RPM Intelligence • VeriSign (payment • AppIQ • Tangent Analytics gateway bus.) • RLX • Kurant • Trustgenix Juniper Networks • Peribit Networks EMC Horizon Wimba • Funk Software • Captiva • Connected Learning • Acartus • Silicon Chalk KeyCorp • Maranti Networks • Fox Tech • Rainfinity Infor Global Solutions • Payroll Online • MAPICS Enforsys • Formation Systems Knight Trading Group • Desk Sergeant • Mercia • ATTAIN ECN (Sub • Munipol Domestic Securities) Intel • Direct Trading Institutional Fiserv • Oplus • BillMatrix • Sarvega Macrovision • Emergis • Trymedia • Del Mar Database Intergraph • Zero G • VerticalPoint • EYECAD 3D (sub Asahi Kasei Engineering) Metavante Four Soft • POPPENHÄGER • GHR • Comex • Treev • MY Comex International Business • Link2Gov Machines Francisco Partners • Ascential Micromuse Management • Micromuse • Quallaby • FrontRange • Bowstreet • GuardedNet • WebTrends (sub NetIQ) • Collation • RedPrairie • DataPower Microsoft • DWL • Groove Networks GK Intelligent Systems • Gluecode • Alacris • GetData • iPhrase • ContentGuard • WhiteCanyon • Isogon • En'tegrate • Meiosys • FolderShare Golden Gate Capital • PureEdge • media-streams.com • Geac • SRD • Professional Advantage • Blue Martini • Sybari • Attachmate Intuit • Teleo • Teknowledge • UMT Halo Technology • Paytrust (customer base) • InfoNow National Instruments • DAVID J.L. Halsey • Electronics Workbench • Foresight • Lyris • Measurement Computing • Kenosia • Uptilt • Pro?tKey Neoware • Process J.P. Morgan • eSeSIX • Tesseract • Vastera • TeleVideo • Neovest • Mangrove • Qualystem

NetQoS Retalix Sybase • Pine Mountain Group • Integrated Distribution • Extended Systems • RedPoint Network Solutions • Avaki • TCI • ISDD NewMarket Technology • Vera Rocket Software Symantec • Classified Information • Servergraph • BindView • Gentia • Sygate Novell • NeoVision Hypersystems • WholeSecurity • Immunix • XtreamLok • Tally Systems Saba • Centra The Carlyle Group Open Solutions • THINQ • SS&C • SOSystems • Compusearch • COWWW SAP • DCS Automotive The Sage Group Openwave • iLytix • Adonix • Musiwave • Khimetrics • Logic Control • Cilys • Lighthammer • Symfonia • Triversity Oracle Thomson • Siebel SecureD • MediaSec • Retek • Allegent • NexCura • Oblix • Chameleon • Tax Partners • Global Logistics Technologies Semotus TIBCO • Innobase • Clickmarks • ObjectStar • OctetString • Expand Beyond • Velosel • ProfitLogic • Thor Siemens TietoEnator • TimesTen • Myrio • AttentiV • Shaw Power • CSC Austria (ERP Parametric Technology business) • Arbortext Silver Lake Partners • Waldbrenner • Polyplan • SunGard • Serena Trend Micro Progress • InterMute • NEON SS&C • Kelkea • Apama • Financial Models • EasyAsk • Financial Interactive update software • Achievement • Process4E Qpass • REGWARE • Encorus SSA Global • ucp morgen • Epiphany VeriSign • Boniva Software • LightSurf Quest • Retail Solutions • Imceda Sun Microsystems • Lightbridge • Vintela • SeeBeyond • Weblogs.com • Wingra • Tarantella

Sunbelt • Kerio • Prospect Smarter

APPENDIX B: MERGERS AND ACQUISITIONS BY SOFTWARE INDUSTRY CATEGORIES

ACCOUNTING & FINANCIAL SOFTWARE

CATEGORY LEADERS Cash & CF Enterprise Company Debt EV/R EV/EBITDA Equivalents Operations Value (EV) Fair Isaac $228,970,000 $ 214,080,000 $400,000,000 $3,030,718,000 3.8x 12.4x (NYSE: FIC) Intuit $697,300,000 $ 601,310,000 $0 $8,008,640,000 3.8x 12.5x (NASDAQ: INTU) Jack Henry $56,550,000 $ 128,510,000 $0 $1,676,287,500 3.1x 10.2x (NASDAQ: JKHY) Lawson Software $247,910,000 $ 66,890,000 $871,000 $607,616,000 1.8x 16.7x (NASDAQ: LWSN) Advent Software $146,510,000 $ 31,250,000 $0 $770,255,200 4.7x 35.8x (NASDAQ: ADVS) Median: $228,970,000 $128,510,000 $0 $1,676,287,500 3.8x 12.5x

REPRESENTATIVE CATEGORY TRANSACTIONS

Silver Lake, et. al acquires SunGard SS&C Technologies (NASDAQ: SSNC) (NYSE: SDS) acquires Financial Interactive Category: Financial Software Category: Financial Services Purchase Price $11,300,000,000 Purchase Price: $13,400,000 Seller Revenue $3,560,000,000 Seller Revenue: $5,000,000 (estimate) Revenue Multiple 3.2x Revenue Multiple: 2.7x Payment Terms: Cash Payment Terms: Stock

SEG’s Perspective: SEG’s Perspective: In the second largest leveraged buy-out ever, a Serial buyer SS&C Technologies, a financial consortium of investors led by Silver Lake management software and business process Partners acquires SunGard, developer of software outsourcing provider to the financial services and solutions primarily to financial institutions. industry, acquires Financial Interactive, a provider SunGard put itself in play several months ago of investor relationship management solutions to after announcing its plans to spin off its disaster the hedge fund industry. Financial Interactive backup unit which generates significant recurring complements SS&C’s product portfolio and revenue. The purchase price, an unimpressive strengthens the company’s offerings in the hedge 14% premium to SunGard’s pre-announcement fund market. Historically a cash buyer, this is closing price, is expected to be financed with $3.5 SS&C’s first stock deal in more than 18 months. billion in cash and the remainder debt. SunGard SS&C’s stock price has increased 10 fold since has grown consistently, and has trailing twelve bottoming out in January 2001. month revenue greater than $3.5 billion, with excellent operating margins (19.7%) Nevertheless, SunGard’s stock price has seen only modest increase, as the company has failed to generate much excitement among investors.

The Carlyle Group acquires SS&C $30 billion under management. At 8.5x and 24x Technologies (NASDAQ: SSNC) times trailing-twelve-month revenue and EBITDA, Category: Financial management software respectively, this is a very rich purchase price for Purchase Price: $1,024,000,000EV a private equity buyer. In contrast, Silver Lake, et. Seller Revenue: $120,400,000 al paid 3.1x times revenue and 11x times EBITDA Revenue Multiple: 8.5xEV for SunGard in the first quarter. Carlyle intends to EBITDA: $42,800,000 provide SS&C with the resources needed to EBITDA Multiple: 23.9xEV continue SS&C’s growth. We intend to watch Payment Terms: Cash closely. SS&C’s revenue grew nearly 50% in its most recent quarter, largely attributable to recent SEG’s Perspective: acquisitions. Since January 2005, SS&C spent Acquirer of four software companies in 2005, $188 million for approximately $70 million of SS&C, a provider of financial management revenue. Publicly traded, SS&C shareholders software to the financial industry, is itself acquired received a modest 16% premium for their shares. by The Carlyle Group, a private equity firm with

ACCOUNTING & FINANCIAL SOFTWARE M&A TRANSACTIONS

Acquirer Seller Purchase Price* Seller Revenue Description Revenue Multiple Corillian InteliData $19,980,000 $13,000,000 1.5x Electronic bill payment and Corporation Technologies presentation tools enabling (NASDAQ:CORI) Corporation payment warehousing, (NASDAQ: INTD) payment matching, and directory management EDB BanqIT $7,716,500 $5,401,500 1.4x Treasury management Business software Partners (Oslo: EDBASA ) INVESTools Prophet $7,900,000 $3,000,000 2.6x Technical analysis software for Inc. Financial stocks, options, futures and (AMEX: IED) Systems currencies Linedata Beauchamp $19,000,000 $19,000,000 1.0x Portfolio management software Services Financial tailored to hedge funds (Euronext Paris: LIN ) Open SOSystems $11,000,000 $9,000,000 1.2x Developer of credit union Solutions information systems (Nasdaq: OPEN) Open COWWW $8,000,000 $4,000,000 2.0x Web-based archiving, retrieval, Solutions Software and document distribution (Nasdaq: OPEN) solutions for the financial services industry with a primary emphasis on credit unions Orc Software Cameron $21,000,000 $8,500,000 2.5x Financial Information (SSE: ORC) Systems Exchange protocol (FIX) trading solutions provider Progress Apama $25,000,000 $2,500,000 10.0x Trading Strategy Management Software (estimate) platform Corporation (Nasdaq: PRGS) *Equity Value

ACCOUNTING & FINANCIAL SOFTWARE M&A TRANSACTIONS (CONTINUED)

Acquirer Seller Purchase Price* Seller Revenue Description Revenue Multiple Satama Quartal $6,800,000 $4,900,000 1.4x Multi-channel publishing Interactive Content applications for corporations (Public: Finland) Management and financial institutions across Europe Silver Lake SunGard $11,300,000,000 $3,560,000,000 3.2x Financial information systems Partners (NYSE: SDS) incorporating transaction processing, asset management, securities and commodities trading, and investment accounting SS&C Financial $160,000,000 $54,200,000 3.0x Portfolio modeling and Technologies Models analysis, trade order (Nasdaq: SSNC) (Toronto: FMC) management, electronic trade data communications Tata Financial $26,000,000 $22,000,000 1.2x Australian banking software Consultancy Network vendor Services Services The Carlyle SS&C $941,000,000 $120,340,000 7.8x Investment portfolio Group Technologies, management, asset and Inc. liability management, property (Nasdaq: SSNC) and casualty insurance company risk management, and trade ordering and modeling The Sage Symfonia $19,807,000 $8,461,200 2.3x Accounting solutions for small Group to mid-market businesses in (LSE: SGE) the Polish market The Sage Logic Control $96,474,000 $49,465,000 2.0x Accounting, payroll and Group industry-specific solutions for (LSE: SGE) accountants. TietoEnator AttentiV $101,966,000 $58,449,000 1.7x Retail banking solutions (Helsinki: TTEH) Systems (AIM: ATN) Unify Acuitrek $605,000 $800,000 0.8x Policy administration and (Nasdaq: UNFY) underwriting solutions *Equity Value

BUSINESS INTELLIGENCE / BUSINESS PROCESS MANAGEMENT

CATEGORY LEADERS Cash & CF Enterprise Company Debt EV/R EV/EBITDA Equivalents Operations Value (EV) Actuate $50,810,000 $7,810,000 $0 138,500,600 1.3x 8.8x (NASDAQ: ACTU) Business Objects $337,270,000 $176,970,000 $0 2,618,268,750 2.5x 13.8x (NASDAQ: BOBJ) Cognos $501,250,000 $159,440,000 $0 2,323,084,200 2.6x 12.5x (NASDAQ: COGN) Hyperion Solutions $436,470,000 $136,760,000 $0 961,874,550 1.3x 7.1x (NASDAQ: HYSL) Informatica $256,500,000 $39,220,000 $0 601,159,600 2.4x 17.2x (NASDAQ: INFA) Median: $337,270,000 $136,760,000 $0 961,874,550 2.4x 12.5x

BUSINESS INTELLIGENCE SOFTWARE M&A TRANSACTIONS

Acquirer Seller Purchase Seller Revenue Description Price* Revenue Multiple Activant Speedware $96,885,000 $36,650,000 2.5x Application development, Solutions Corporation business intelligence, and (NASDAQ: AVNT (Toronto: SPW) wireless Internet access Proposed) software Business SRC Software $100,000,000 $34,200,000 2.9x Corporate performance Objects management software (NASDAQ: BOBJ) CheckFree Accurate $56,000,000 $12,000,000 4.7x Risk management software Holdings (estimate) that includes reconciliation, (Nasdaq: CKFR) exception management, workflow and business intelligence *Equity Value

CAD/CAE/EDA

CATEGORY LEADERS Cash & CF Enterprise Company Debt EV/R EV/EBITDA Equivalents Operations Value (EV) Ansys $174,470,000 $58,730,000 $0 $1,161,359,500 7.6x 18.1x (NASDAQ: ANSS) Autodesk $547,940,000 $444,870,000 $0 $9,628,032,000 6.6x 23.4x (NASDAQ: ADSK) Cadence Design $649,350,000 $388,190,000 $420,000,000 $4,542,652,200 3.5x 12.2x (NASDAQ: CDNS) Intergraph $284,570,000 $181,010,000 $874,000 $1,111,082,600 2.0x 15.3x (NASDAQ: INGR) Mentor Graphics $102,100,000 $29,980,000 $289,790,000 $882,890,400 1.3x 12.5x (NASDAQ: MENT) Dassault Systèmes $782,460,000 $237,820,000 $0 $5,213,495,000 5.0x 17.1x (NASDAQ: DASTY) Parametric $204,420,000 $128,140,000 $0 $1,509,912,000 2.1x 13.6x (NASDAQ: PMTC) Synopsys $586,510,000 $269,190,000 $282,000 $2,187,602,400 2.2x 17.1x (NASDAQ: SNPS) Median: $416,255,000 $209,415,000 $141,000 $1,848,757,200 2.9x 16.2x

REPRESENTATIVE CATEGORY TRANSACTIONS

Bentley Systems acquires netGuru REI Dassault (NASDAQ: DASTY) acquires Division (NASDAQ: NGRU) ABAQUS Category: Engineering Software Category: Computer Aided Design Purchase Price: $23,500,000 Purchase Price: $413,000,000 Seller Revenue: $11,035,000 Seller Revenue: $100,000,000 (estimate) Revenue Multiple: 2.1x Revenue Multiple: 4.1x Payment Terms: Cash Payment Terms: Cash SEG’s Perspective: SEG’s Perspective: Bentley Systems, a leading privately-held provider Dassault Systemes, a leading provider of high- of architecture, engineering and construction end engineering design and product lifecycle (AEC) software, picks up the REI assets of management (PLM) products, acquires ABAQUS, netGuru. REI and the STAAD structural analysis a developer of engineering software for finite product line have a long history in the AEC market element analysis. Dassault, which estimates the and compliment Bentley’s AEC portfolio. netGuru simulation market will grow at a 12% CAGR, will relied on STAAD as a cash cow for years as it use ABAQUS to enhance its enterprise CAD flirted with businesses as diverse as travel offering and gain market share from large services and long distance telephony. Eventually competitors (UGS, Parametric), best-of-breed the family that holds effective control of netGuru competitors (Ansys, MSC Software), and custom- suffered enough and agreed to the asset sale. developed solutions. Dassault had been under With netGuru’s collaboration software business pressure by investors to utilize its $786 million in the only remaining asset of substance, look for cash and ABAQUS was a safe bet with an netGuru to divest that business, or liquidate estimated 90% of its revenue recurring. The altogether in the coming months. Paying over 2x purchase price is rich considering the revenue for a division growing at less than 5% CAD/CAM/CAE software category rarely has clearly indicates Bentley was pushed by multiples exceeding two times trailing twelve competing bidders. Bentley grew its revenue at months revenue for healthy, growing companies. better than a 16% rate last year, however, and they will look to pull REI along at a similar pace.

UGS PLM acquires Tecnomatix (NASDAQ: automotive, electronics and aerospace industries. TCNO) The Tecnomatix acquisition is UGS’ fourth since Category: Manufacturing Process Management being broken off from EMS last May, and will help Software provide a more holistic PLM offering. The two Purchase Price $228,000,000 companies have shared an alliance since 2002 Seller Revenue $98,730,000 and have seen increasing demand for MPM Revenue Multiple 2.3x solutions. The purchase price represents a 39% Payment Terms: Cash premium to Tecnomatix’s average closing share price over sixty days prior to the announcement. SEG’s Perspective: UGS, a leading provider of product lifecycle management (PLM) software, acquires Tecnomatix, provider of manufacturing process management (MPM) solutions primarily to the

CAD/CAE/EDA SOFTWARE M&A TRANSACTIONS

Acquirer Seller Purchase Seller Revenue Description Price* Revenue Multiple Autodesk Alias $182,000,000 $83,000,000 2.2x 3D graphics software for (NASDAQ: ADSK) industrial design, gaming, and film industries Bentley Netguru $23,500,000 $11,034,000 2.1x Structural analysis software Systems Cadence Verisity Ltd. $285,730,000 $58,030,000 4.9x Products used to verify (NYSE: CDN) (NASDAQ:VRST) designs of electronic systems and complex integrated circuits Dassault ABAQUS $ 413,000,000 $ 100,000,000 4.1x Engineering analysis software (NASDAQ: DASTY) Synopsys HPL $13,000,000 $9,800,000 1.3x Yield optimization software for (NASDAQ: SNPS) Technologies the semiconductor industry (OTC: HPLA.PK) Tata Group INCAT $98,000,000 $117,200,000 0.8x Provides product lifecycle (Public: India) International management software (London AIM: ICN) UGS PLM Tecnomatix $228,000,000 $98,730,000 2.3x Web-based collaboration Technologies software targeting designers, (NASDAQ: TCNO) engineers, shop floor workers, and suppliers *Equity Value

CONTENT/DOCUMENT MANAGEMENT

CATEGORY LEADERS Cash & CF Enterprise Company Debt EV/R EV/EBITDA Equivalents Operations Value (EV) Adobe $1,700,000,000 $698,000,000 $0 $14,546,994,400 7.4x 18.4x (NASDAQ: ADBE) FileNet $381,080,000 $69,250,000 $0 $767,902,800 1.9x 13.2x (NASDAQ: FILE) Hummingbird $85,000,000 $13,480,000 $0 $293,362,400 1.2x 11.7x (NASDAQ: HUMC) Interwoven $126,720,000 $2,270,000 $0 $266,587,400 1.6x 16.0x (NASDAQ: IWOV) Docucorp $9,260,000 $13,290,000 $9,550,000 $71,165,000 0.9x 6.3x (NASDAQ: DOCC) Stellent $61,140,000 $11,530,000 $549,000 $222,209,000 1.9x 29.2x (NASDAQ: STEL) Mobius $33,840,000 $2,540,000 $0 $81,349,500 1.0x N/A (NASDAQ: MOBI) Vignette $193,730,000 $2,910,000 $0 $298,201,700 1.6x 19.3x (NASDAQ: VIGN) Median: $105,860,000 $11,530,000 $0 $279,974,900 1.6x 16.0x

REPRESENTATIVE CATEGORY TRANSACTIONS

Autonomy Corporation plc (LSE: AU) acquires Captiva Software (NASDAQ: CPTV) acquires Verity (NASDAQ: VRTY) SWT SA Category: Enterprise Search/Content Category: Data Management Management Purchase Price $20,260,000 Purchase Price: $317,805,000EV Seller Revenue $9,000,000 Seller Revenue: $143,510,000 Revenue Multiple 2.3x Revenue Multiple: 2.2x Payment Terms: Cash, Stock Payment Terms: Cash SEG’s Perspective: SEG’s Perspective: Captiva, a provider of data capture and document In a deal that frightens some search customers, information processing software, picks up SWT Autonomy picks off prime rival Verity in a deal SA, a French provider of data extraction and funded through the combination of a $260 million document capture solutions. A Captiva partner rights offering and cash off of Verity’s Balance since 2002, this is a safe bet for Captiva, which Sheet. The nearly $500 million purchase price will leverage SWT to strengthen its product nets down to $318 million after accounting for offering and to solidify its foot print in France and Verity’s cash balances and the combined Spain, where SWT has a strong market presence. company will now attack the enterprise search No stranger to mergers and acquisitions, market with more than $200 million in combined Captiva’s revenue has doubled to $70 million pro forma revenue. The former Verity will now since merging with ActionPoint in 2002 and comprise Autonomy’s US market presence and acquiring ADP Context in 2004. Look for the company already anticipates some “efficiency additional acquisitions from Captiva as the layoffs” to ensure the deal proves accretive. company folds other high growth, strategic businesses into its operations. SWT’s revenue grew 25% between 2003 and 2004.

EMC (NYSE: EMC) acquires Captiva Software strategic deal actually puts Interwoven in the (NASDAQ: CPTV) middle of a $1 billion market that has experienced Category: Document Management/Business at 31% CAGR since 2001. Interwoven will now Process Management have a cross selling opportunity, offering its Purchase Price: $264,360, 000EV existing capital market customers like ABN Amro Seller Revenue: $79,280,000 and CS First Boston, a best of breed OTC Revenue Multiple: 3.3x derivatives solution, while marketing existing Payment Terms: Cash products to Scrittura’s customer base, which SEG’s Perspective: includes AIG, Bear Stearns and Royal Bank of Building on the acquisition of Documentum two Scotland. A 2.7x purchase price multiple is rich year’s earlier, information and storage when compared with Interwoven’s own 1.2x management leader EMC picks up Captiva, a San EV/Rev trading value, but expands their reach to Diego based innovator in the realm of input an important tangent market that they appear management solutions. Together with the poised to exploit. Documentum content management tools, Captiva will enable EMC to capture the early stages of the information lifecycle, a key to their future strategy. WebSideStory (NASDAQ: WSSI) acquires This is also an example of the creeping deal, Avivo Documentum and Captiva had a history of Category: Website Search & Content Purchase partnering for nearly a decade, which undoubtedly Price: $39,702,000 reduced acquisition angst. The deal reflected a Seller Revenue: $3,800,000 21.5% premium to Captiva’s pre-announcement Revenue Multiple: 10.5x stock price, but a price more than double where Payment Terms: Cash, Stock Captiva was at the beginning of 2005. Future deals are again probable here as the EMC SEG’s Perspective: information management strategy matures. Hot of its September 2004 IPO with the coffers full of acquisition currency, WebSideStory, a provider Interwoven (NASDAQ: IWOV) acquires of on-demand web analytics services used to Scrittura track online behavior, picks up Avivo (“Atomz”), a Category: Content Management leading provider of hosted site search and web Purchase Price: $16,300,000 content management applications used to Seller Revenue: $6,000,000 manage large websites. Combined, Atomz Revenue Multiple: 2.7x extends WebSideStory’s product set creating a Payment Terms: Cash suite of on-demand digital marketing apps which marketing professionals can use to manage all of SEG’s Perspective: their online marketing initiatives. The $39 million Interwoven, a leading provider of enterprise purchase price comprises $34.7 million of content management solutions, acquires Scrittura, restricted stock and $4.3 million of cash. a privately held provider of document automation Assuming certain revenue milestones are met for complex trading operations in the financial post closing, Atomz shareholders will receive an services sector. Through the acquisition, additional $4.1 million in 15 months. Atomz had Interwoven offers the first complete ECM solution $19 million of venture funding. to automate Over-the-Counter Derivatives trading. While the market sounds a bit esoteric, this

CONTENT/DOCUMENT MANAGEMENT M&A TRANSACTIONS

Acquirer Seller Purchase Seller Revenue Description Price* Revenue Multiple Autonomy Verity, Inc. $ 483,435,000 $ 143,510,000 3.4x Products that index, classify, (Pink Sheet: AUTNF) (NASDAQ: VRTY) search, and retrieve data for corporate intranets, extranets, and portals; online publishers; manufacturers; and software developers Captiva SWT $20,257,000 $9,000,000 2.3x European provider of data (NASDAQ:CPTV) extraction and electronic document management EMC Captiva $289,000,000 $73,130,000 4.0x Data capture and document (NYSE: EMC) (NASDAQ: CPTV) information processing software FileNET Yaletown $11,000,000 $4,800,000 2.3x Content compliance solutions (NASDAQ: FILE) Interwoven Scrittura $16,300,000 $6,000,000 2.7x Web-based workflow, (Nasdaq: IWOV) (estimate) document generation, and document management solutions Metavante Treev $19,500,000 $14,800,000 1.3x Electronic document (estimate) management software Parametric Arbortext $190,000,000 $40,000,000 4.8x Enterprise publishing software Technology Corporation (NASDAQ: PMTC) *Equity Value

CUSTOMER RELATIONSHIP MANAGEMENT

CATEGORY LEADERS Cash & CF Enterprise Company Debt EV/R EV/EBITDA Equivalents Operations Value (EV) Art Technology Group 29,920,000 $ (1,880,000) $334,000 $122,407,200 1.4x 16.3x (NASDAQ: ARTG) Pegasystems 108,630,000 $19,230,000 $190,000 $137,150,800 1.4x 30.3x (NASDAQ: PEGA) Chordiant Software 38,550,000 $(8,950,000) $309,000 $170,022,500 2.0x N/A (NASDAQ: CHRD) Salesforce.com 172,730,000 $77,680,000 $950,000 $2,805,387,000 10.3x 123.2x (NYSE: CRM) Lightbridge 78,430,000 $20,490,000 $0 $142,422,500 1.1x 10.7x (NASDAQ: LTBG) Onyx Software 21,370,000 $3,810,000 $264,000 $41,215,200 0.7x 15.7x (NASDAQ: ONXS) RightNow Technologies 60,480,000 $14,370,000 $154,000 $441,634,500 5.5x 52.6x (NASDAQ: RNOW) Median: $60,480,000 $14,370,000 $264,000 $142,422,500 1.4x 23.3x

REPRESENTATIVE CATEGORY TRANSACTIONS

Oracle (NASDAQ: ORCL) acquires Siebel purchase price. Oracle has spent $17.6 billion on Systems (NASDAQ: SEBL) five deals over the last nine months. Category: Customer Relationship Management Purchase Price: $3,610,000,000EV Siebel Systems (NASDAQ: SEBL) acquires Seller Revenue: $1,320,000,000 edocs Revenue Multiple: 2.7xEV Category: e-billing software EBITDA: $176,140,000 Purchase Price: $116,000,000 EBITDA Multiple: 20.5xEV Seller Revenue: $40,000,000 Payment Terms: Cash, Stock Revenue Multiple: 2.9 Payment Terms: Cash SEG’s Perspective: No surprise here. Continuing its aggressive SEG’s Perspective: acquisition spree, Oracle acquires Siebel In search of incremental revenue and new Systems, a best-of-breed, yet ailing provider of markets, Siebel Systems acquires edocs, a customer relationship management (CRM) provider of e-billing and self service software software founded by disgruntled Oracle executive applications. edocs’ software enables customers Tom Siebel. A good deal for Oracle, Siebel’s to submit and track electronic payments and CRM apps and domain expertise fill a gap in manage online bills and accounts. Siebel is Oracle’s product suite, while its sizable customer hoping vertical applications can help offset 17% base (3.4 million customers) represents a year-over-year decline in core CRM license significant cross-sell opportunity and recurring revenue, but the e-billing sector is fragmented and maintenance revenue stream. Siebel highly competitive. Siebel previously acquired shareholders, who had been turning the screws Motiva (Incentive compensation management) on Seibel’s executives and board to sell, receive a and Eontec (Multichannel retail banking software) 17% premium for their shares. Siebel’s significant 2003 as part of its revenue diversification/vertical cash hoard represented 38% of the gross market strategy.

consumer marketing and analytics software. Akin SSA Global (NASDAQ: SSAG) acquires to SSA’s other deals, Epiphany comes with a Epiphany (NASDAQ: EPNY) healthy maintenance and support revenue stream Category: Customer relationship management that accounts for 42% of the Company’s TTM Purchase Price: $78,768,000EV revenue. More strategically, Epiphany’s solutions Seller Revenue: $71,500,000 fill a hole in SSA’s offering and can be Revenue Multiple: 1.1xEV immediately sold into SSA’s base of 13,000 active EBITDA: -$21,900,000 customers. While SSA is paying $329 million EBITDA Multiple: N/A cash for Epiphany, SSA will inherit $250 million of Payment Terms: Cash cash and cash equivalents that reside on SEG’s Perspective: Epiphany’s balance sheet. Epiphany has no Continuing its strategy to acquire market share interest bearing debt. and customer share, SSA Global, an enterprise app provider melded together through a series of 10 acquisitions including Baan, Elevon, EXE Technologies, and Infinium, picks-up former dot com darling Epiphany, a provider of business-to-

CUSTOMER RELATIONSHIP MANAGEMENT M&A TRANSACTIONS

Acquirer Seller Purchase Seller Revenue Description Price* Revenue Multiple Alliance Data Bigfoot $120,000,000 $30,000,000 4.0x E-mail marketing software and Systems Interactive services (NYSE: ADD) Comverse CSG Systems $251,000,000 $167,200,000 1.5x Billing software Technology (NASDAQ: CMVT) Concerto Aspect $1,000,000,000 $364,200,000 2.7x Software and equipment for Software (NASDAQ: ASPT) handling customer service requests, optimizing workforces, and offering customer self-service functionality Ecometry Blue Martini $54,000,000 $28,300,000 1.9x CRM software Corporation Software, Inc. (NASDAQ: BLUE) Fiserv BillMatrix $350,000,000 $90,000,000 3.9x Billing software (NASDAQ: FISV) (estimate) Francisco FrontRange $200,000,000 $80,000,000 2.5x Sales, marketing, and Partners (estimate) customer support software Management Halo InfoNow $7,200,000 $9,170,000 0.8x Demand chain software Technology Corporation Holdings (Pink Sheets:INOW) (OTC: WARP) J.L. Halsey Lyris $23,900,000 $11,420,000 2.1x Software tools to build virtual Corp (estimate) representatives for automated (OTC: JLHY.OB) customer service, sales and support *Equity Value

CUSTOMER RELATIONSHIP MANAGEMENT M&A TRANSACTIONS (CONTINUED)

Acquirer Seller Purchase Seller Revenue Description Price* Revenue Multiple J.L. Halsey Uptilt $19,500,000 $8,500,000 2.3x Hosted software to manage e- Corp (estimate) mail marketing, sales force (OTC: JLHY.OB) automation, customer retention, forecasting, and contact management Oracle Siebel $5,850,000,000 $1,320,000,000 4.4x CRM software (NASDAQ: ORCL) Systems, Inc. (NASDAQ: SEBL) SSA Global Epiphany $329,000,000 $71,500,000 4.6x Tools for reporting and Technologies (NASDAQ: EPNY) analysis, marketing, sales (NASDAQ: SSAG) forecasting, and managing customer communications Vector BroadVision $28,820,000 $68,870,000 0.4x Customer self-service Capital (Nasdaq: BVSN) solutions *Equity Value

DATA ACCESS MANAGEMENT/MIDDLEWARE

CATEGORY LEADERS Cash & CF Enterprise Company Debt EV/R EV/EBITDA Equivalents Operations Value (EV) Quest Sotware $125,550,000 $96,320,000 $10,090,000 $1,341,383,200 3.0x 12.9x (NASDAQ: QSFT) Embarcadero Technologies $64,710,000 $10,430,000 $289,000 $128,900,000 2.3x 17.9x (NASDAQ: EMBT) $1,440,000,000 $3,361,992,800 2.9x 13.6x BEA Systems $256,070,000 $766,500,000 (NASDAQ: BEAS) $867,300,000 $487,000,000 $3,519,264,000 2.4x 11.0x BMC Software - (NYSE: BMC) $232,120,000 $269,842,000 1.3x Netiq $8,640,000 - N/A (NASDAQ: NTIQ) $1,660,000,000 $1,896,602,600 1.6x 19.1x Novell $ 500,410,000 $600,000,000 (NASDAQ: NOVL) $482,460,000 $1,208,194,100 2.8x 13.3x TIBCO Software $88,240,000 $50,580,000 (NASDAQ: TIBX) $65,250,000 $28,126,700 0.5x Vitria Technology $(15,580,000) - N/A (NASDAQ: VITR) $148,020,000 $255,099,000 1.2x 25.2x WebMethods $15,480,000 $519,000 (NASDAQ: WEBM) Informatica $256,500,000 $39,220,000 $0 $786,231,200 3.2x 22.5x (NASDAQ: INFA) Sybase $783,720,000 $199,540,000 $460,000,000 $1,698,050,000 2.1x 8.3x (NYSE: SY) Median: $256,500,000 $88,240,000 $30,335,000 $1,208,194,100 2.3x 13.6x

REPRESENTATIVE CATEGORY TRANSACTIONS

BEA Systems (NASDAQ: BEAS) acquires arget, this is a pure consolidation play that gives Plumtree Software (NASDAQ: PLUM) BEA access to Plumtree’s 700 customers and a Category: Enterprise Portal recurring maintenance and support base north of Purchase Price: $132,000,000EV $25 million. While Plumtree has not turned an Seller Revenue: $94,000,000 annual operating profit since 2002, look for BEA Revenue Multiple: 1.4xEV to remove redundant costs and excess fat from EBITDA: -$2,130,000 the business to quickly recoup its 5.3x EBITDA Multiple: N/A maintenance and support purchase price. BEA Payment Terms: Cash also acquired Compoze Software and M7 during the quarter. SEG’s Perspective:

Public since 2002, Plumtree, a developer of IBM (NYSE: IBM) acquires Ascential enterprise portal solutions, throws in the towel and (NASDAQ: ASCL) is acquired by BEA Systems, a provider of Category: Data Management enterprise infrastructure software. The last “pure- Purchase Price: $619,300,000EV play” portal provider, Plumtree struggled mightily Seller Revenue: $271,880,000 to compete in a market dominated by IBM Revenue Multiple: 2.3xEV WebSphere, Microsoft SharePoint and BEA Payment Terms: Cash WebLogic, experiencing only 1.2% revenue growth between 2002 and 2004. For BEA, which SEG’s Perspective: has also struggled with top line growth in recent The world’s largest information technology years and is routinely mentioned as a take-over company, IBM, plugs a hole between data

integration and warehousing in its database capabilities. Data integration has become product by acquiring Ascential Software, a increasingly competitive as larger vendors weave business intelligence provider focused on data more of these capabilities into their data integration. The acquisition stops short of giving management and application integration products. IBM core BI functionality such as query, reporting, IBM, Oracle, Microsoft, SAP, and Siebel continue analysis, and performance management which to look to new license revenue growth by building IBM’s ISVs such as Cognos supply. The 18% or buying a broader BI offering which puts premium IBM paid over Ascential’s prior day pressure on the likes of Ascential’s competitor closing stock price also represents a consensus Informatica to broaden its own footprint or look to estimated 2.0x EV/Consensus revenue for 2005. be acquired. IBM is already 10-15% of Ascential’s license revenues but should be able to broaden Ascential’s reach via its distribution and bundling

DATA ACCESS MANAGEMENT / MIDDLEWARE SOFTWARE M&A TRANSACTIONS

Acquirer Seller Purchase Seller Revenue Description Price* Revenue Multiple BEA Plumtree $200,000,000 $94,010,000 2.1x Applications for corporate Systems Software portals, content management, (NASAQ: BEAS) (NASAQ: PLUM) collaboration, search, and application integration functions IBM Ascential $1,100,000,000 $271,880,000 4.0x Data integration, analysis, and (NYSE: IBM) (NASDAQ:ASCL) management Quest Vintela $56,500,000 $12,000,000 4.7x Platform integration solutions Software (estimate) that enable non-Windows (NASAQ: QSFT) environments to integrate with Microsoft-centric environments NewMarket Vera $1,300,000 $500,000 2.6x Secure data exchange solution (OTCBB: IPVO) Technology enabling interoperability across all network configurations, on all computer systems Progress NEON $68,000,000 $20,460,000 3.3x Software to access and Software Systems integrate data and applications (NASDAQ: PRGS) (Nasdaq: NEON) stored on mainframe data sources Radvision First Virtual $7,150,000 $21,130,000 0.3x Products that enable (NASDAQ: RVSN) (Pink Sheet:: interactive voice, video and FVCCQ.PK) data collaboration over IP based networks Semotus Clickmarks $1,725,000 $1,750,000 1.0x Integration technology that Solutions refactors existing applications (AMEX: DLK) into re-usable components that can be used to create composite applications Sun SeeBeyond $387,000,000 $166,670,000 2.3x Enterprise application (NASDAQ: SUNW) Technology integration Corporation (NASDAQ: SBYN) Telelogic AB Popkin $45,000,000 $19,100,000 2.4x Software used to optimize and (Sweden: TLOG) Software manage a variety of enterprise applications *Equity Value

DEVELOPER TOOLS AND RELATED CATEGORIES

CATEGORY LEADERS Cash & CF Enterprise Company Debt EV/R EV/EBITDA Equivalents Operations Value (EV) BEA Systems $1,440,000,000 $256,070,000 $766,500,000 $3,361,992,800 2.9x 13.6x (NASDAQ: BEAS) Borland $189,120,000 $13,600,000 $0 $274,297,600 1.0x 12.4x (NASDAQ: BORL) Adobe $855,250,000 $284,670,000 $0 $2,383,832,000 1.9x 10.1x (NASDAQ: ADBE) Mercury Interactive $1,700,000,000 N/A $0 $14,546,994,400 7.4x 18.4x (NASDAQ: MERQ) Progress Software $891,070,000 $229,520,000 $801,100,000 $2,324,438,000 3.0x 13.4x (NASDAQ: PRGS) Serena Software $252,780,000 $80,610,000 $2,260,000 $959,840,800 2.4x 11.5x (NASDAQ: SRNA) Wind River Systems $55,830,000 $88,330,000 $220,000,000 $1,025,144,000 4.1x 11.4x (NASDAQ: WIND) Median: $80,140,000 $47,590,000 $22,205,000 $1,088,447,000 3.0x 12.9x

REPRESENTATIVE CATEGORY TRANSACTIONS

Adobe (NASDAQ: ADBE) acquires combined company can offer a fuller suite of Macromedia (NASDAQ: MACR) cross-platform products for building document- Category: Developer Tools/Utilities oriented applications and rich-media web Purchase Price: $3,021,720,000EV applications. Macromedia’s successful Seller Revenue: $436,170,000 penetration into the high growth non-PC market Revenue Multiple: 6.9xEV attracted Adobe which has struggled to do the Payment Terms: Stock same. The task at hand for the combined company will be to offer a differentiable solution to SEG’s Perspective: Microsoft which is expected to have much of Content and document management leader, Adobe/Macromedia’s legacy tools baked into its Adobe, acquires Macromedia, provider of new operating system. software solutions for the design, delivery, and display of websites and internet applications. Adobe paid a 25% premium in the hopes that the

DEVELOPER TOOLS SOFTWARE M&A TRANSACTIONS

Acquirer Seller Purchase Seller Revenue Description Price* Revenue Multiple Adobe Macromedia $3,400,000,000 $436,170,000 7.8x Software tools for design, Systems (NASDAQ: MACR) delivery, and display of Web (NASDAQ: ADBE) sites and Internet applications. *Equity Value

EDUCATIONAL SOFTWARE/COMPUTER BASED TRAINING

CATEGORY LEADERS Cash & CF Enterprise Company Debt EV/R EV/EBITDA Equivalents Operations Value (EV) Blackboard $122,620,000 $35,470,000 $338,000 $617,030,000 4.8x 20.8x (NASDAQ: BBBB) Saba $13,710,000 ($812,000,000) $4,560,000 $75,580,000 1.4x - (NASDAQ: SABA) Skillsoft $69,710,000 $36,520,000 $0 $503,980,000 2.3x 12.2x (NASDAQ: SKIL) SumTotal $33,160,000 $605,000 $0 $86,920,000 1.3x - (NASDAQ: SUMT) Futuremedia $2,700,000 $(5,270,000) $2,370,000 $22,820,000 0.7x - (NASDAQ: FMDAY) Median: $33,160,000 $605,000 $338,000 $86,920,000 1.4x -

REPRESENTATIVE CATEGORY TRANSACTIONS

SumTotal Systems (NASDAQ: SUMT) acquires Blackboard (NASDAQ: BBBB) acquires Pathlore WebCT Category: e-Learning Software Category: Education Purchase Price: $48,000,000 Purchase Price: $154,000,000EV Seller Revenue: $26,600,000 estimate Seller Revenue: $43,000,000 Revenue Multiple: 1.8x Revenue Multiple: 3.6xEV Payment Terms: Cash, Stock EBITDA: n/a EBITDA Multiple: n/a SEG’s Perspective: Payment Terms: Cash SumTotal, a leading provider of corporate e- learning software formed through the 2004 SEG’s Perspective: merger of Click2learn and Docent, acquires Blackboard, a leading provider of enterprise competitor Pathlore. The acquisition expands software to the education industry, acquires its SumTotal’s customer base to include state largest competitor and strengthens its foothold government, health care, and the rapidly growing within the education market with the acquisition of middle-market. With considerable product WebCT, a provider of course management overlap, don’t expect significant revenue solutions to colleges and universities. At 3.6 synergies. Operating synergies, however, are times revenue, this is a rich deal for a competitive expected to drive $10 million in operating cash buyout. However, the 1,430 unique higher- flow on an annualized basis. SumTotal lost $16 education customers Blackboard gains should million in 2004. Look for additional deals from offer some solace, especially since Blackboard is SumTotal within human resource management, pushing products outside course management. recruitment, and performance management as it WebCT’s international success was also a major broadens its offering and staves off competition motivator. Industry insiders speculate that there from major software vendors (i.e., IBM, Oracle was other interest in WebCT, which may have and SAP) that are quickly adding e-learning sparked Blackboard’s fears that WebCT could fall functionality to their products. in the hands of a better capitalized entity. Blackboard intends to finance the transaction with $70 million in senior secured debt and $84 million in cash. This deal follows other 2005 eLearning deals: Saba/Centra, Saba/THINQ, WebEx/Intranets.com, SumTotal/Pathlore, and Kaplan/STT.

EDUCATIONAL SOFTWARE AND COMPUTER BASED TRAINING M&A TRANSACTIONS

Acquirer Seller Purchase Seller Revenue Description Price* Revenue Multiple Blackboard, WebCT $180,000,000 $54,000,000 3.3x E-learning software for more (NASDAQ: BBBB) (estimate) than colleges and universities BTS Group Learning $4,000,000 $8,000,000 0.5x E-Learning software (Stockholm: BTS ) Solutions (estimate) Saba Centra $60,000,000 $39,160,000 1.5x Software offerings integrate (NASDAQ: SABA) Software, Inc. Web and voice interfaces and (NASDAQ: CTRA) are used for corporate training sessions, educational purposes, team meetings, product development, and customer sales and services Saba THINQ $9,816,000 $17,200,000 0.6x Enterprise software for (NASDAQ: SABA) Learning (estimate) learning management, with Solutions deployment options for organizations ranging in size from 1,000 to over 100,000 employees SAI Global Easy i $22,030,000 $12,000,000 1.8x Training and internal (ASX: SAI) Holdings communication solutions SDL TRADOS $60,000,000 $26,000,000 2.3x Language translation software (Pink Sheets: (estimate) geared toward company SDLLF) manuals, Web sites, and other forms of business documentation SumTotal Pathlore $48,000,000 $26,400,000 1.8x Learning-management Systems (estimate) software (NASDAQ: SUMT) *Equity Value

ENTERPRISE RESOURCE PLANNING AND RELATED SOFTWARE

CATEGORY LEADERS Cash & CF Enterprise Company Debt EV/R EV/EBITDA Equivalents Operations Value (EV) Aspen Technolgy $47,700,000 $19,260,000 $1,060,000 $235,468,200 0.9x 86.6x (NASDAQ: AZPN) Epicor Software $56,380,000 $37,150,000 $5,030,000 $682,878,000 2.4x 12.2x (NASDAQ: EPIC) Geac $226,450,000 $84,590,000 $4,570,000 $696,711,700 1.6x 7.7x (NASDAQ: GEAC) AXS-One $4,810,000 $(10,570,000) $1,500,000 $58,340,000 1.7x N/A (AMEX: AXO) QAD $52,800,000 $31,970,000 $7,840,000 $221,237,000 1.0x 7.8x (NASDAQ: QADI) SAP $3,770,000,000 $1,810,000,000 $0 $50,157,600,000 5.1x 17.4x (NYSE: SAP) Chinadotcom $214,490,000 N/A $26,370,000 $183,121,000 0.8x 13.3x (NASDAQ: CHINA) Median: $56,380,000 $34,560,000 $4,570,000 $235,468,200 1.6x 12.8x

Infor Global Solutions acquires Mapics Lawson Software (NASDAQ: LWSN) acquires (NASDAQ: MAPX) Intentia (Stockholm: INTB) Category: Enterprise Resource Planning Category: Enterprise Resource Planning Purchase Price: $347,000,000 Purchase Price: $480,000,000 Seller Revenue: $172,800,000 Seller Revenue: $406,000,000 Revenue Multiple: 2.0x Revenue Multiple: 1.2x Payment Terms: Cash Payment Terms: Stock

SEG’s Perspective: SEG’s Perspective: With U.S. manufacturers struggling to retain Lawson, feeling the heat from Oracle and clearly customers and compete globally, their IT solution uncomfortable as one of the only remaining mid providers are sharing the pain, making cap ERP vendors, acquires Intentia, a public consolidation inevitable. Infor Global Solutions (Swedish Stock Exchange) ERP provider with (formerly Agilisys), a provider of manufacturing 3000 customer in 40 countries. Billed as a and distributed software to select industries, merger of equals, the combined company will acquires Mapics, a competing developer of focus on the opportune mid-tier market, software for discrete and batch processes attempting to fend off Oracle and SAP as they manufacturers. The purchase price represents a move down market, and Microsoft and Sage 10% premium to Mapics’ pre-announcement Group as they seek to move up market. Although closing share price. The combined company will the purchase price represents a 36% premium boast more than 17,500 customers in 70 over Intentia’s closing stock price prior to countries. Mapics had increased trailing-twelve- announcement, on a revenue basis the 1.2x is a month (TTM) revenue 10.4% and TTM EBITDA modest multiple when compared to 131% year-over-year (YOY) but was unable to Oracle/Peoplesoft (3.9x) and Infor/Mapics (2.0x). excite investors, as demonstrated by a 15.4% Lawson, whose stock price closed at $5.95 prior decrease in enterprise value from 4Q03 to 4Q04. to announcement and $5.26 post announcement, has struggled to excite investors since going public in 2001 at $14 per share.

ENTERPRISE RESOURCE PLANNING M&A TRANSACTIONS

Acquirer Seller Purchase Seller Revenue Description Price* Revenue Multiple Bond eEmpACT $2,831,000 $3,714,000 0.8x Integrated front- and back- International office human-capital (London AIM: BDI) management solution Golden Gate Geac $1,000,000,000 $441,200,000 2.3x Software for analyzing, Capital (NASDAQ: GEAC) managing, and automating business processes Infor Global MAPICS, Inc. $347,000,000 $172,800,000 2.0x Business application software Solutions (NASDAQ: MAPX) solutions designed specifically for use by manufacturers The Sage Adonix $134,590,000 $73,130,000 1.8x Business management Group solutions for mid-market (London: SGE) businesses *Equity Value

ENTERPRISE SYSTEM MANAGEMENT/ NETWORKING

CATEGORY LEADERS Cash & CF Enterprise Company Debt EV/R EV/EBITDA Equivalents Operations Value (EV) Cisco Systems $13,490,000,000 $7,510,000,000 - $98,060,000,000 3.9x 11.8X (NASDAQ: CSCO) Computer Associates 1,640,000,000 $1,500,000,000 $1,810,000,000 $16,695,182,500 4.5x 17.1x (NYSE: CA) Compuware $855,250,000 $284,670,000 $0 $2,350,000,000 1.9x 10.0x (NASDAQ: CPWR) Micromuse $141,080,000 $27,250,000 $0 $449,422,900 2.8x 26.7x (NASDAQ: MUSE) Novell $1,660,000,000 $500,410,000 $600,000,000 $1,896,602,600 1.6x 19.1x (NASDAQ: NOVL) BMC Software $867,300,000 $487,000,000 $0 $3,519,264,000 2.4x 11.0x (NYSE: BMC) Median: $867,300,000 $487,000,000 $0 $2,350,000,000 2.4x 14.5x

REPRESENTATIVE CATEGORY TRANSACTIONS

Citrix Software (NASDAQ: CTXS) acquires NetScaler EMC (NYSE: EMC) acquires SMARTS Category: Networking Software Category: Systems Management Purchase Price: $300,000,000 Purchase Price: $260,000,000 Seller Revenue: $25,000,000 (Estimate) Seller Revenue: $60,000,000 Revenue Multiple: 12.0x Revenue Multiple: 4.3x Payment Terms: Cash, Stock Payment Terms: Cash SEG’s Perspective: SEG’s Perspective: Citrix, a leading provider of networking and EMC continues its acquisition-driven evolution access infrastructure solutions, acquires from world leader in storage management to NetScaler, a privately held company that provides leading provider of IT infrastructure and systems specialized networking hardware for secure management solutions, by acquiring SMARTS, a distribution of applications across the network. provider of network systems management According to NetScaler, 75% of all daily Internet software. The acquisition puts EMC in usage is routed through a NetScaler system. competition with the likes of BMC, IBM (Tivoli), HP NetScaler customers include Google, Yahoo, (Open View), and Computer Associates MSN and more than 500 enterprise customers. (Unicenter). EMC was attracted to SMARTS’ 85% Citrix, which has typically focused on facilitating gross margins (EMC’s 60% gross margins due to secure access in the low growth client/server 47% of sales from hardware). EMC has made market, will rely on NetScaler to grow sales in the significant investments outside of the storage high growth web application market. The time arena by acquiring VMWare, Documentum, and was right for NetScaler, the fourth independent now SMARTS. In the past 18 months, EMC has web application acceleration technology company spent $4 billion to acquire nine software to be acquired in the last two months1. companies.

1 Cisco/FineGround (10.6x Est), Juniper/Peribit (12.0x Est), Juniper/Redline (11.0x Est)

IBM (NYSE: IBM) acquires Micromuse squeezing Quest from that direction as well. The (NASDAQ; MUSE) purchase price is a nice return for Imceda Category: Network Management Software investors who invested $9 million in 2004. Purchase Price: $723,920,000EV Seller Revenue: $160,760,000 Silver Lake Partners acquires Serena Software Revenue Multiple: 4.5xEV (NASDAQ: SRNA) Category: Enterprise Systems Management EBITDA: $16,810,000 Purchase Price: $1,056,000,000EV EBITDA Multiple: 43.1xEV Seller Revenue: $251,400,000 Payment Terms: Cash Revenue Multiple: 4.2xEV SEG’s Perspective: EBITDA: $90,260,000 Its fifteenth acquisition, IBM continues its 2005 EBITDA Multiple: 11.7xEV buying spree acquiring Micromuse, a provider of Payment Terms: Cash network management software to manage SEG’s Perspective: converged networks carrying data, voice and Having “reportedly” performed a thorough market video traffic. This is a pure product extension play evaluation considering strategic and private equity for IBM, which will integrate Micromuse’s network buyer alternatives, Serna Software, a leading management solutions with its rapidly growing provider of enterprise systems management, opts Tivoli unit, strengthening Tivoli’s IT service for private equity selling to Silver Lake Partners, management capabilities. IBM also picks up nice an aggressive private equity shop that recently led security and performance management stemming the $11B acquisition of Sungard, and before that, from Micromuse’s recent $16.2 million acquisition the $2B acquisition of UGS. Silver Lake will lever of GuardedNet and $33 million acquisition of up Serena with approximately $675 million of Quallaby. Micromuse’s 1,800 customers, which secured and unsecured debt, yielding a mere include only 500 joint customers, should also $350 million cash cost to Silver Lake. Serena provide a nice cross sell opportunity. IBM’s $10 shareholders are quite suspect, questioning per share offer represents a 33% premium above management’s justification for going private and the valuation. While the $24 per share purchase Micromuse’s 5-day trading average. price represents a paltry 5% premium over the

five day trading average, it is highly likely this was Quest Software (NASDAQ: QSFT) acquires due to speculation about the deal by investors Imceda which caused a run in the stock. The purchase Category: Developer Tools/Utilities price represents a 21% premium over the 60 day Purchase Price: $61,000,000 average. Seller Revenue: $8,000,000 (estimate) Revenue Multiple: 7.6x Payment Terms: Cash, Stock SEG’s Perspective: Quest, provider of heterogeneous database management tools for Oracle, IBM, and Microsoft, acquires Imceda, a vendor of SQL Server database management solutions. According to IDC, SQL Server’s market grew 22% in 2004 compared to Oracle’s 15% and IBM’s 8% market expansion. Imceda will help Quest reduce its risk of losing database business to Oracle, which is enhancing its database management capabilities. Imceda will also help Quest position more effectively as a solution provider in the heterogeneous database environment. The risk, of course, is Microsoft will be beefing up its own SQL Server management tools offering,

ENTERPRISE SYSTEM MANAGEMENT AND NETWORKING M&A TRANSACTIONS

Acquirer Seller Purchase Seller Revenue Description Price* Revenue Multiple ACE*COMM 2helix $8,300,000 $9,500,000 0.9x Network asset assurance, data (NASDAQ: ACEC) migration and quality assurance Citrix NetScaler $300,000,000 $25,000,000 12.0x Networking solutions for the Systems (estimate) secure and efficient distribution (NASDAQ: CTRX) of applications across networks Computer Concord $330,000,000 $111,450,000 3.0x Network monitoring and Associates (NASDAQ: CCRD) management (NYSE: CA) Concord Aprisma $93,000,000 $43,000,000 2.2x Applications for service level (NASAQ: CCRD) Management assurance, fault analysis, and security monitoring F5 Networks Swan Labs $43,000,000 $4,000,000 10.8x Enterprise application shaping (Nasdaq:FFIV) products that combine WAN optimization with application acceleration for enterprise applications deployed over wide-area networks Fluke Visual $75,000,000 $46,740,000 1.6x Service management systems Corporation Networks, Inc. that communication providers (NASDAQ: VNWK) use to boost the reliability and efficiency of networks, including WANs and VPNs International Micromuse $865,000,000 $160,760,000 5.4x Software that monitors and Business (Nasdaq: MUSE) manages the elements of Machines information technology (NYSE: IBM) infrastructures Quest Imceda $61,000,000 $8,000,000 7.6x SQL Server database Software (estimate) management solutions (NASDAQ: QSFT) Silver Lake Serena $980,000,000 $243,000,000 4.0x Change management software Partners Software, Inc. (NASDAQ:SRNA) Juniper Peribit $337,000,000 $28,000,000 12.0x Pattern identification solutions Networks Networks (estimate) for wide area networks (NASDAQ: JNPR) Sun Tarantella, $25,000,000 $12,560,000 2.0x Network infrastructure Microsystems Inc. management software (NASDAQ: SUNW) (OTC: TTLA.OB) *Equity Value

SECURITY SOFTWARE

CATEGORY LEADERS Cash & CF Enterprise Company Debt EV/R EV/EBITDA Equivalents Operations Value (EV) Check Point $1,060,000,000 $356,490,000 $0 $4,198,917,800. 7.4x 12.6x (NASDAQ: CHKP) Entrust $83,970,000 $2,460,000 $0 $209,430,000 2.1x 19.7x (NASDAQ: ENTU) Internet Security Systems $218,530,000 $63,460,000 $0 $824,729,300 2.6x 11.6x (NASDAQ: ISSX) Trend Micro $619,150,000 N/A $0 $3,892,861,000 6.4x 15.7x (NASDAQ: TMIC) McAfee $926,110,000 $379,810,000 $0 $3,915,732,200 4.0x 14.8x (NYSE: MFE) RSA Security $302,690,000 $54,880,000 $0 $552,498,500 1.8x 11.1x (NASDAQ: RSAS) Symantec $4,430,000,000 $1,410,000,000 $ 502,000,000 $16,224,800,000 5.1x 14.6x (NASDAQ: SYMC) Verisign $748,180,000 $474,460,000 $0 $4,198,917,800 7.4x 12.6x (NASDAQ: VRSN) Median: $683,665,000 $356,490,000 $0 $3,892,861,000 4.0x 14.6x

REPRESENTATIVE CATEGORY TRANSACTIONS

Check Point Software Technologies (NASDAQ: growth to justify its own market multiple (EV/Sales CHKP) acquires SourceFire currently 7.6x) and they made a success of the Category: Security – Intrusion Prevention ZoneLabs acquisition where they paid a 10.25x Purchase Price: $225,000, 000 multiple. While their stock price dropped 9% the Seller Revenue: $25,000,000 (est.) day the deal was announced, we attribute that to Revenue Multiple: 9.0x Check Point’s simultaneous projection of a 3Q Payment Terms: Cash and Stock revenue shortfall, rather than to the deal.

SEG’s Perspective:

Hoping to replicate the success found with its Symantec (NASDAQ: SYMC) acquires acquisition of ZoneLabs two years earlier, security BindView Development (NASDAQ: BVEW) leader Check Point acquires SourceFire, an Category: Security - Network innovative provider of intrusion prevention and Management/Compliance real-time network awareness solutions. Purchase Price: $180,390, 000EV SourceFire built a reputation around Snort, an Seller Revenue: $72,770,000 open source product created by the company’s Revenue Multiple: 2.5x founder Marty Roesch, and has since built a Payment Terms: Cash series of proprietary tools as supplements. While 9x looks like a steep multiple, this is the security SEG’s Perspective: space and Check Point had to outbid competitors In a bid to expand upon its dominant position in for the attractive asset. SourceFire is projected to the security market, Symantec picks up BindView contribute $44m in revenue to CheckPoint in to supplement its networking security portfolio. 2006, a 70%+ growth rate on SourceFire’s BindView provides a leading agent-less policy estimated 2005 revenue. The sizeable Snort compliance solution, appropriate for many mid- following will provie Check Point significant cross- market environments, while Symantec’s agent- selling opportunities. Check Point needs topline based architecture addresses the needs of

complex heterogeneous environments. The 2.5x Trend Micro (NASDAQ: TMIC) acquires multiple paid appears reasonable relative to InterMute comparable deals in the security space and is far Category: Security lower than the multiples Symantec paid for Purchase Price: $15,000,000 Turntide (16.5x), Brightmail (14x) and Sygate Seller Revenue: $4,000,000 (8.5x). Perhaps most importantly, Symantec will Revenue Multiple: 3.8x immediately benefit from this technology add-on Payment Terms: Cash by pushing BindView’s products through its SEG’s Perspective: powerful distribution channel. At the end of the Anti-virus software vendor Trend Micro acquires day, Symantec is now powerfully positioned InterMute, a developer of anti-spyware products. against McAfee and Internet Security Systems, An increasing security threat, spyware has the other leading players in the vulnerability attracted the attention of leading software vendors management market. as evidenced by Microsoft’s December purchase

of Giant Software, and Symantec’s April release

of its consumer spyware solution. Trend Micro is Symantec (NASDAQ: SYMC) acquires Sygate reacting to market pressure and playing catch-up Technologies with this acquisition. Look for Trend Micro to Category: Security rollout a stand-alone solution in the near-term and Purchase Price: $175,000,000 (Estimate) an integrated solution shortly thereafter. Seller Revenue: $20,000,000 (Estimate)

Revenue Multiple: 8.8x

Payment Terms: Cash SEG’s Perspective: Security market leader Symantec extends its reach to include end point security through the cash acquisition of Sygate. Analysts readily concluded that the acquisition, which handsomely rewarded Sygate’s venture investors, positions Symantec with best of breed technology to go on the offensive against rival Check Point. Two years ago, Check Point paid over 10x to establish its position in the market by acquiring Zone Labs. The deal was immaterial to Symantec’s financials, but it plugs a significant gap and responds to the Network Access Control segment that is also targeted by Cisco. As with its acquisition of Brightmail, Symantec looks to leverage a unique product extension to drive sales in the competitive enterprise antivirus segment.

SECURITY M&A TRANSACTIONS

Table 13: Select Security Transaction Acquirer Seller Purchase Seller Revenue Description Price* Revenue Multiple ActivCard Protocom $29,035,000 $16,000,000 1.8x Credential management (NASDAQ: ACTI) Development (estimate) solutions for governments and Systems enterprises worldwide Altiris Pedestal Software $65,000,000 $17,500,000 3.7x Vulnerability management (NASDAQ: ATRS) solutions American NetBotz $31,000,000 $6,100,000 5.1x Web-based monitoring Power (estimate) solutions Conversion (NASDAQ: APCC) Check Point Sourcefire $225,000,000 $25,000,000 9.0x Network security and Software information management (NASDAQ: CHKP) systems

Juniper Funk Software $122,000,000 $24,000,000 5.1x Network access security Networks solutions (NASDAQ: JNPR) Micromuse GuardedNet $16,200,000 $4,200,000 3.9x Enterprise security (NASDAQ: MUSE) (estimate) management and incident response solutions

nCipher Abridean $6,900,000 $2,194,000 3.1x Identity management software (London: NCH) (estimate) used to securely manage user access to networks and enterprise systems Oracle Oblix $75,000,000 $20,000,000 3.7x Identity management software (NASDAQ: ORCL) (estimate) used to grant and restrict access to enterprise data and software applications RSA Security Cyota $145,000,000 $7,500,000 19.3x Anti-fraud software and (NASDAQ: RSAS) (estimate) services to financial institutions

Secure CyberGuard $295,000,000 $66,100,000 4.5x Network access control, Computing Corporation remote monitoring, packet (NASDAQ: SCUR) (NASDAQ: CGFW) filtering, security auditing, and alarm notification Symantec BindView $209,000,000 $72,350,000 2.9x Systems management and Corporation Development security software for complex (NASDAQ: SYMC) Corporation computer networks (NASDAQ: BVEW)

*Equity Value

SECURITY M&A TRANSACTIONS (CONTINUED)

Acquirer Seller Purchase Seller Revenue Description Price* Revenue Multiple Symantec Sygate $175,000,000 $20,000,000 8.8x Network security management, Corporation (estimate) (estimate) software (NASDAQ: SYMC)

Trend Micro InterMute $15,000,000 $4,000,000 3.8x Internet security and content (NASDAQ: TMIC) filtering solutions for enterprises and consumers

*Equity Value

STORAGE MANAGEMENT

CATEGORY LEADERS Cash & CF Enterprise Company Debt EV/R EV/EBITDA Equivalents Operations Value (EV) Quest Software $125,550,000 $96,320,000 $10,090,000 $1,341,383,200 3.0x 12.9x (NASDAQ: QSFT) EMC $4,460,000,000 $2,270,000,000 $127,530,000 $28,553,930,000 3.1x 13.7x (NYSE: EMC) Computer Associates $1,640,000,000 $1,500,000,000 $1,810,000,000 $16,695,182,500 4.5x 17.1x (NYSE: CA) Network Appliance $1,110,000,000 $507,010,000 $0 $9,309,080,000 5.2x 25.9x (NASDAQ: NTAP) Falcon Star $35,180,000 $5,480,000 $0 $296,951,200 7.9x 82.0x (NASDAQ: FALC) Median: $1,110,000,000 $507,010,000 $10,090,000 $9,309,080,000 4.5x 17.1x

STORAGE MANAGEMENT M&A TRANSACTIONS

Acquirer Seller Purchase Seller Revenue Description Price* Revenue Multiple BakBone Constant Data $5,000,000 $4,000,000 1.3x Storage software for data Software (estimate) replication, server clustering, (Pink Sheets: and data synchronization BKBOF) Finisar I-TECH $12,100,000 $6,000,000 2.0x Products for storage and Corporation network applications (NASDAQ: FNSR) Iron Mountain LiveVault $50,000,000 $5,000,000 10.0x Managed storage services for (NASDAQ: IMTN) tasks such as data backup and disaster recovery McDATA Computer $367,260,000 $374,570,000 1.0x Provider of switches, (NASDAQ: Network gateways, multiplexers, and MCDTA) Technology storage management software (Nasdaq: CMNT) designed for extending and connecting SANs over metropolitan and wide-area networks Sun Procom $50,000,000 $17,710,000 2.8x Network storage products Microsystems Technology using RAID and CD-ROM (NASDAQ: SUNW) (Pink Sheets: technologies PRCM) Sun Storage $4,100,000,000 $2,100,000,000 1.9x Develops tape drives and Microsystems Technology automated cartridge libraries, (NASDAQ: SUNW) Corporation disk arrays, and network (NYSE: STK) management and backup software Xyratex nStor $21,200,000 $13,300,000 1.6x Turnkey storage solutions that Group Technologies support Microsoft Windows, (NASDAQ: XRTX) (AMEX: NSO) Linux, UNIX and Macintosh operating environments *Equity Value

SUPPLY CHAIN MANAGEMENT

CATEGORY LEADERS Cash & CF Free Cash Enterprise Company EV/R EV/EBITDA Equivalents Operations Flow Value (EV) Agile Software $182,700,000 $6,220,000 $0 $157,737,500 1.2x N/A (NASDAQ: AGIL) Descartes Systems $31,190,000 $7,760,000 $0 $65,292,700 1.4x 5.6x (NASDAQ: DSGX) JDA Software $96,690,000 $12,810,000 $0 $358,247,400 1.6x 11.1x (NASDAQ: JDAS) Manhattan Associates $64,930,000 $42,390,000 $183,000 $546,150,600 2.3x 12.3x (NASDAQ: MANH) Manugistics $133,160,000 $8,120,000 $176,760,000 $196,116,000 1.1x 12.4x (NASDAQ: MANU) Retalix $65,200,000 $12,450,000 $7,710,000 $415,834,000 2.4x 18.2x (NASDAQ: RTLX) Median: $80,945,000 $10,285,000 $91,500 $277,181,700 1.5x 12.3x

REPRESENTATIVE CATEGORY TRANSACTIONS

International Business Systems (XSSE IBS B) Manhattan Associates (NASDAQ: MANH) acquires IDS Enterprise Systems acquires Evant Category: Supply Chain Management Category: Demand Chain Management Purchase Price: $14,600,000 Purchase Price: $50,000,000 Seller Revenue: $14,600,000 Seller Revenue: $22,000,000 estimate Revenue Multiple: 1.0x Revenue Multiple: 2.3x Payment Terms: Cash Payment Terms: Cash

SEG’s Perspective: SEG’s Perspective: International Business Systems (IBS), a Swedish Manhattan Associates, a provider of supply chain provider of supply chain management solutions to management solutions picks-up Evant, a the mid-market, acquires IDS Enterprise Systems, developer of demand chain management an Australian developer of end-to-end supply software. With customer demand for integration chain solutions to the automotive industry. With of supply and demand networks, this is a natural offices in the UK, Netherlands, Australia and evolution for Manhattan Associates. Thailand, IDS stands to benefit from IBS’s large Complementing its extension into demand distribution network and focus on select vertical planning and replenishment, Manhattan markets. At 1.0 times TTM revenue, the purchase Associates inherits more than 60 retailers, price is consistent with the overall supply chain manufacturers and wholesale distributors. Evant industry – and for mature businesses with dated received funding from Kleiner Perkins Caufield & technology. IDS share holders stand to earn an Byers, J.P. Morgan Chase & Co., Lehman additional $2.4 million assuming certain profit Brothers, GRP Partners, and 3i. based milestones are achieved.

SUPPLY CHAIN MANAGEMENT M&A TRANSACTIONS

Acquirer Seller Purchase Seller Revenue Description Price* Revenue Multiple Avantcé Robocom $3,170,000 $3,570,000 0.9x Warehouse management Systems software International (OTC: RIMS) Click Optum $32,025,000 $40,000,000 0.8x Supply chain and warehouse Commerce (estimate) management software (NASDAQ: CKCM) IBS AG IDS $14,619,000 $14,619,000 1.0x Supply chain management and e-business solutions for the automotive and durable goods import and distribution industries J.P. Morgan Vastera $129,000,000 $85,000,000 1.5x Solutions for Global Trade (NYSE: JPM) (Nasdaq: VAST) Management to manage the information flows associated with the cross border components of importing and exporting goods Manhattan Evant $50,000,000 $22,000,000 2.3x Demand chain management Associates (estimate) software that manufacturers, (NASDAQ: MANH) wholesalers, and retailers use to optimize purchasing, replenishment, and distribution Sun New Focus $61,686,000 $21,830,000 2.8x Internet-based channel Media Channel management software (OTCBB:SNMD) solutions to Safeguard Acsis $26,000,000 $22,666,000 1.1x Supply chain execution Scientifics technologies and services (NYSE: SFE) designed to help large manufacturers make the most of their SAP-based supply chain systems Visma Edium $1,824,000 $927,500 2.0x Norwegian provider of Services procuring products and Infocon services for small and medium- (Oslo Stock sized enterprises Exchange) *Equity Value

VERTICAL SOFTWARE

CATEGORY LEADERS (HEALTHCARE) Cash & CF Enterprise Company Debt EV/R EV/EBITDA Equivalents Operations Value (EV) QuadraMed $33,990,000 $13,510,000 $0 $25,809,600 0.2x 4.4x (AMEX: QD) VitalWorks $85,990,000 $(3,470,000) $0 $156,713,000 3.1x 95.0x (NASDAQ: VWKS) NDCHealth $14,270,000 $55,520,000 $254,700,000 $923,191,600 2.3x 9.8x (NYSE: NDC) IDX Systems $224,080,000 $8,300,000 $0 $1,143,318,400 1.9x 7.2x (NASDAQ: IDXC) Eclipsys $107,080,000 $11,040,000 $0 $727,984,400 2.0x 30.1x (NASDAQ: ECLP) WebMD $685,410,000 $109,940,000 $650,000,000 $2,830,625,900 2.2x 19.3x (NASDAQ: HLTH) Cerner $134,190,000 $191,270,000 $131,970,000 $3,399,360,000 3.1x 13.2x (NASDAQ: CERN) Median: $107,080,000 $13,510,000 $0 $923,191,600 2.3x 11.5x

CATEGORY LEADERS (MANUFACTURING) Cash & CF Enterprise Company Debt EV/R EV/EBITDA Equivalents Operations Value (EV) Epicor Software $56,380,000 $37,150,000 $15,030,000 $682,878,000 2.4x 12.2x (NASDAQ: EPIC) Moldflow $62,630,000 $6,640,000 $0 $97,244,000 1.5x 14.8x (NASDAQ: MFLO) QAD $52,800,000 $ 31,970,000 $ 17,840,000 $221,237,000 1.0x 7.8x (NASDAQ: QADI) Aspen Technolgy (NASDAQ: $47,700,000 $ 19,260,000 $ 1,060,000 $235,468,200 0.9x 86.6x AZPN) Chinadotcom (NASDAQ: $214,490,000 N/A $ 26,370,000 $183,121,000 0.8x 13.3x CHINA) Median: $56,380,000 $25,615,000 $15,030,000 $221,237,000 1.0x 14.1x

REPRESENTATIVE CATEGORY TRANSACTIONS

Elekta AB (SSE: EKTAb) acquires IMPAC cancer care facilities. Combined, the companies (NASDAQ: IMPC) will serve more than 3,000 hospitals and cancer Category: Healthcare Software centers. Elekta and IMPAC plan to deploy IMPAC Purchase Price: $190,000,000EV technologies in Europe and Asia while offering Seller Revenue: $69,160,000 IMPAC's US customers treatment solutions from Revenue Multiple: 2.7xEV Elekta. The purchase price is a 22% premium Payment Terms: Cash over IMPAC’s closing share price prior to announcement. SEG’s Perspective: Elekta, developer of solutions primarily for cancer treatment facilities, acquires IMPAC, a provider of clinical and financial information systems for

Epicor (NASDAQ: EPIC) acquires CRS Retail perspective – quite refreshing. Oracle and SAP Systems take note. GE will leverage IDX with the intent of Category: Retail Management Software dominating the industry as the industry prepares Purchase Price: $121,000,000 to meet an executive mandate requiring electronic Seller Revenue: $60,000,000 (estimate) health records throughout all practices by 2014. Revenue Multiple: 2.0x IDX shareholders received a 25% premium to the EBITDA: n/a company’s pre-deal closing price. EBITDA Multiple: n/a Payment Terms: Cash Infor Global Solutions acquires Mapics (NASDAQ: MAPX) SEG’s Perspective: Category: Manufacturing Solutions Epicor, a leading provider of enterprise solutions Purchase Price: $347,000,000 to the midmarket, picks-up CRS Retail, a premier Seller Revenue: $172,800,000 provider of merchandising and point-of-sale Revenue Multiple: 2.0x software to the retail industry. CRS’s POS Payment Terms: Cash platform strengthens Epicor’s back office and retail supply chain offering, giving the ISV a SEG’s Perspective: complete end-to-end retail solution. Additionally, With U.S. manufacturers struggling to retain Epicor inherits a strong customer base of customers and compete globally, their IT solution approximately 140 customers worldwide. Key to providers are sharing the pain, with consolidation this acquisition is CRS’s .NET technology predictable. Infor Global Solutions (formerly strategy, which fits nicely within .NET centric Agilisys), a provider of manufacturing and Epicor. Had CRS written in JAVA, a deal would distributed software to select industries acquires have been unlikely. Epicor acquired CRS from Mapics, a competing developer of software for Accel-KKR, a private equity firm that purchased a discrete and batch processes manufacturers. The majority interest in CRS in October 2002 for $45 purchase price represents a 10% premium to million. Accel-KKR has been busy of late. In Mapics’ pre-announcement closing share price. October 2005, the firm announced the sale of The combined company will boast more than Alias to Autodesk for $182 million. Accel-KKR 17,500 customers in 70 countries. Mapics had bought Alias from Silicon Graphics in April 2005 increased trailing-twelve-month (TTM) revenue for $57.5 million. 10.4% and TTM EBITDA 131% year-over-year

(YOY) but was unable to excite investors, as General Electric Company (NYSE: GE) demonstrated by a 15.4% decrease in enterprise acquires IDX Systems Corporation (NASDAQ: value from 4Q03 to 4Q04. IDXC)

Category: Healthcare Software Oracle (NYSE: ORCL) acquires Retek Purchase Price: $1,147,000,000EV (NASDAQ: RETK) Seller Revenue: $577,490,000 Category: Retail software Revenue Multiple: 2.0xEV Purchase Price: $552,040,000EV EBITDA: $72,800,000 Seller Revenue: $174,240,000 EBITDA Multiple: 15.8xEV Revenue Multiple: 3.2xEV Payment Terms: Cash Payment Terms: Cash

SEG’s Perspective: SEG’s Perspective: Flying under the radar of the third quarters more Database powerhouse Oracle won the bidding high profile deals, GE’s $15 billion healthcare unit war for Retek, a best of breed provider of made a very bold statement picking up IDX operational applications for the retail industry, Systems, a leading provider of enterprise clinical beating out archrival SAP. Both SAP and Oracle information software. This deal immediately are in the process of building out next generation extends GE Healthcare’s offering beyond imaging applications that incorporate a service oriented and positions the business unit as a "one-stop- architecture as well as important business shop" for every hospital, clinic and doctor’s office. process expertise built directly into the platform. It is an incredibly aggressive move by non- Oracle hopes that it can leverage its infrastructure traditional software company, and from our to offer a more architecturally elegant solution,

while SAP’s comparative advantage comes from Revenue Multiple: 1.6x its vertically specific processes developed over Payment Terms: Cash, Stock more than 30 years in the application business. Retek helps Oracle rapidly expand its time to SEG’s Perspective: market in the retail industry, which is one of the Retalix, a provider of point of sale and back office fastest growing and least penetrated (It is solutions to the retail industry, acquires Integrated estimated that 60% of retailers are using their own Distribution Solutions (IDS), a leading developer custom applications) by the packaged software of ERP solutions for the food service distribution vendors. With Retek written in Java and 80% of industry. This is an interesting strategic move by Retek’s customers using Oracle’s database, the Retalix, which allows the company to grow their deal made more strategic sense for Oracle. The addressable market by moving up the supply final purchase price of $11.50 represents an 88% chain versus the more traditional route of premium to the shares’ close the day before migrating into a parallel market. Look for Retalix SAP’s original offer. to integrate the products and to push a vision of improved demand replenishment and forecasting. Retalix (NASDAQ: RTLX) acquires Integrated IDS shareholders will receive $37.4 million in Distribution Solutions cash, $7.0 million in Retalix stock and an earn-out Category: Enterprise Resource Planning of $5 million in Retalix shares contingent on Purchase Price: $44,400,000 certain performance criteria. Seller Revenue: $27,400,000

VERTICAL MARKET M&A TRANSACTIONS

Acquirer Seller Purchase Seller Revenue Description Price* Revenue Multiple Aetna ActiveHealth $400,000,000 $40,000,000 10.0x Care management utilizing (NYSE: AET) evidence-based software to identify and stratify patient risk based upon claims, laboratory, pharmacy and other medical data Agfa-Gevaert Heartlab, Inc. $132,500,000 $38,300,000 3.5x Medical imaging software with (Euronext:AGFB) a focus on cardiology Constellation United $5,618,000 $3,660,000 1.5x Software for county and local Software Systems governments throughout North Technology America. Software keeps track (OTC: USTI) of bills, records, and licenses Elekta AB IMPAC $250,000,000 $69,160,000 3.6x Products provide electronic Medical medical record, imaging, Systems decision support, scheduling (NASDAQ: IMPC) and billing applications in an integrated platform to manage the information-related cancer care, from detection and diagnosis through treatment and follow-up Epicor CRS Retail $121,000,000 $50,000,000 2.4x Provides retail management Software Systems software, hardware, and (NASDAQ: EPIC) services Epiq Systems nMatrix, Inc. $125,000,000 $20,000,000 6.3x Case management and (NASDAQ: EPIQ) document management products and services for electronic discovery and litigation support *Equity Value

VERTICAL MARKET M&A TRANSACTIONS (CONTINUED)

Acquirer Seller Purchase Seller Revenue Description Price* Revenue Multiple General IDX Systems $1,371,000,000 $577,490,000 2.4x Web access solutions to Electric Corporation patient records and clinical (NYSE: GE) (NASDAQ: IDXC) information; manages radiology departments and medical imaging systems; and automates administrative functions Kongsberg Gallium $25,663,000 $10,265,200 2.5x Mapping and object tracking Gruppen Software software systems used by (OSLO: KOG) government agencies for air traffic control, strategic command, air surveillance, and other applications Matria CorSolutions $445,000,000 $120,000,000 3.7x Disease and patient Healthcare Medical management information (NASDAQ: MATR) software McKesson Medcon $105,000,000 $17,000,000 6.2x Cardiac image and information HBOC management solutions (NYSE: MCK) Merge Cedara $390,000,000 $43,550,000 9.0x Products present, analyze, and Technologies Software store medical images that have (NASDAQ: MRGE) (NASDAQ: CDSW) been created through magnetic resonance imaging, digital X- rays, and nuclear scanning Oracle Retek $669,000,000 $174,240,000 3.8x Supply chain management and Corporation (NASDAQ: RETK) related software for retailers (NASDAQ: ORCL) Per-Se NDCHealth $935,000,000 $387,560,000 2.4x Software for pharmacies, Technologies (NYSE: NDC) hospitals, physicians, payers, (NASDAQ: PSTI) and pharmaceutical manufacturers Phase Lincoln $11,000,000 $4,500,000 2.4x Software focused on Forward Technologies pharmacovigilance, data (NASDAQ: PFWD) standardization, and safety signal detection and monitoring Retalix Integrated $44,400,000 $27,400,000 1.6x Enterprise software solutions (NASDAQ: RTLX) Distribution for the wholesale grocery, Solutions convenience store and food service distribution industries Retalix TCI Solutions $34,350,000 $21,900,000 1.6x Retail management software (NASDAQ: RTLX) for the grocery industry Royal Philips Stentor $280,000,000 $25,000,000 11.2x Develops digital picture archive Electronics and communications system (NYSE: PHG) software for managing medical images and information across an enterprise Safeguard Acsis $26,000,000 $22,666,000 1.1x Supply chain execution Scientifics technologies and services (NYSE: SFE) designed to help large manufacturers make the most of their SAP-based supply chain systems *Equity Value

VERTICAL MARKET M&A TRANSACTIONS (CONTINUED)

Acquirer Seller Purchase Seller Revenue Description Price* Revenue Multiple TANDBERG GoldPocket $78,500,000 $12,000,000 6.5x Software used by broadcasters (OSLO: TAA) Interactive and cable system operators to create and deliver interactive television (iTV) programming Torex Retail Anker $176,500,000 $188,667,472 0.9x POS management software (London AIM: TRX) (LSE AIM: ANK.L) VeriSign Retail $24,000,000 $7,500,000 3.2x Demand data management (NASDAQ: VRSN) Solutions tools and services for retailers and consumer goods companies *Equity Value

WIRELESS SOFTWARE

CATEGORY LEADERS Cash & CF Free Cash Enterprise Company EV/R EV/EBITDA Equivalents Operations Flow Value (EV) @Road $95,580,000 $(9,920,000) $0 $228,205,000 2.7x N/A (NASDAQ: ARDI) Intellisync Corp. $35,690,000 $(6,090,000) $57,290,000 $371,550,000 5.6x N/A (NASDAQ: SYNC) Openwave Systems $248,230,000 $3,840,000 $147,570,000 $1,320,000,000 3.3x 36.6x (NASDAQ: OPWV) Median: $95,580,000 $(6,090,000) $57,290,000 $371,550,000 3.3x N/A

REPRESENTATIVE CATEGORY TRANSACTIONS

Nokia (NYSE: NOK) acquires Intellisync Verisign (NASDAQ: VRSN) acquires LightSurf (NASDAQ: SYNC) Category: Mobile Messaging Software Category: Wireless Messaging/Applications Purchase Price: $270,000,000 Purchase Price: $452,000, 000EV Seller Revenue: $12,000,000 (estimate) Seller Revenue: $63,540,000 Revenue Multiple: 22.5x Revenue Multiple: 7.1x Payment Terms: Stock Payment Terms: Cash SEG’s Perspective: SEG’s Perspective: Verisign beefs up its Communications Services Nokia, the giant manufacturer of mobile Group, which serves wireline and wireless communication devices, acquires Intellisync, a telecom carriers, by placing another heavy bet on platform-independent wireless messaging and mobile content delivery. This time its Lightsurf, a mobile software innovator that provides carrier- provider of picture mail and video mail solutions grade email and enterprise applications. With for wireless operators. The deal follows closely more than $13 billion in cash on its Balance on the heals of Verisign’s acquisition of mobile Sheet, the cash purchase price will not set Nokia content aggregator Jamba! for $273 million. back. Extending from the device market into the Together the two acquisitions will enable Verisign enterprise solution realm gives Nokia a ripe to provide telecoms with solutions to satisfy the growth opportunity that they have only begun to growing demand for both third-party and user mine. Intellisync used acquisitions as a means to generated content. It’s estimated Jamba! alone achieve critical mass, having acquired Starfish, will contribute $500 million to CY2005 revenues. Spontaneous Software, Loudfire, Synchrologic and Search Software America, over the past three years. While Intellisync’s stock fell 8% on the day of the deal’s announcement, that primarily reflected pre-announcement hype around the impending deal announcement and we see the 7.1x multiple as a considerable premium for Intellisync shareholders. As Nokia grows its enterprise solution business, we anticipate more deals will follow.

WIRELESS M&A TRANSACTIONS

Acquirer Seller Purchase Seller Revenue Description Price* Revenue Multiple Andrew Xenicom $11,500,000 $11,000,000 1.0x Products addressing business (NASDAQ: ANDW) (estimate) issues facing mobile operators in the planning, rollout and management of 2G, 2.5G and 3G networks Nokia Intellisync $430,000,000 $63,540,000 6.8x Software that lets users (NYSE: NOK) (NASDAQ: SYNC) access, exchange, and synchronize data stored on computers, handheld devices, personal organizers, and mobile phones Sybase Extended $71,300,000 $40,070,000 1.8x Software that lets users (NYSE: SY) Systems access, transfer, and (Nasdaq:XTND) synchronize information using wireless devices such as PDAs, mobile phones, and pagers *Equity Value

MISCELLANEOUS TRANSACTIONS

Autodesk (NASDAQ: ADSK) acquires Alias “must” for CA, following 2004 ITG acquisitions by (private) CA archrivals IBM (SystemCorp) and Compuware Category: 3D Graphics (ChangePoint, at 5.0x). Purchase Price: $197,000,000 Seller Revenue: $83,000,000 Revenue Multiple: 2.4x eBay (NASDAQ: EBAY) acquires Skype Payment Terms: Cash Category: VOIP / Internet Telephony Purchase Price: $2,600,000,000 SEG’s Perspective: Seller Revenue: $60,000,000 Estimate1 What a difference a year makes. Accel-KKR Revenue Multiple: 43.3x Estimate purchased Alias, the developer of 3D graphics Payment Terms: Cash, Stock technology for $57.5 million in June of 2004 and 1: An estimate from press release for the end of 2005 persuaded Autodesk that the company was worth $197 million just 16 months later. Clearly, SEG’s Perspective: Autodesk sees this as a strategic move to extend eBay, the gold standard in online auctions, takes its presence in the 3D entertainment and an expensive, bold step into a new market by manufacturing world and the 2.4x multiple paid is acquiring Skype, a three-year-old internet not excessive. For years Autodesk has sought to telephone company. A surprising combination, lessen its dependence on the powerful AutoCAD eBay plans to use Skype to supplement its core platform for incremental revenue and profits. To ecommerce business, to penetrate less mature date, the revenue diversification has begun but markets where Skype is stronger, and to monetize the company’s profitability remains Skype’s solution within its installed base. With overwhelmingly tied to AutoCAD. Alias counts revenue less than $60 million and negative among its existing customers some of the most operating income, Skype’s valuation is exorbitant, identifiable names in the 3D entertainment and eBay could pay an additional $1.5 billion to market, including Industrial Lignt & Magic, Skype shareholders as a performance based DreamWorks SKG and Nintendo, but it also earnout. Considering the competitive nature of developed relationships with General Motors and this market, it is unlikely Skype shareholders BMW to push the same technology to the could have timed their exit better. Before the deal manufacturing realm. With Autodesk’s ability to was announced, Skype was rumored to be in fund additional R&D spending, Alias may provide discussions with News Corp., Microsoft, Google the innovative offerings necessary to truly and Yahoo. diversify Autodesk’s business. InterActiveCorp. (NASDAQ: IACI) acquires Ask Computer Associates (NYSE: CA) acquires Jeeves (NASDAQ: ASKJ) Niku (NASDAQ: NIKU) Category: Internet Search Category: IT Governance Purchase Price $1,856,470,000EV Purchase Price: $283,340,000EV Seller Revenue $261,330,000 Seller Revenue: $70,820,000 Revenue Multiple 7.1x EV Revenue Multiple: 4.0xEV Payment Terms: Stock Payment Terms: Cash SEG’s Perspective: SEG’s Perspective: IAC/InterActiveCorp, an entity that operates Enterprise software conglomerate Computer multiple businesses, including CitySearch, Associates acquires Niku, a developer of IT Expedia, and Ticketmaster, acquires Ask Jeeves, governance (ITG) software which quantifies and the fourth-largest internet search engine with 7% measures the business value of IT investments. market share. The all-stock acquisition fills a hole The deal represents a 27% premium over Niku’s in IAC's diverse lineup of more than 40 Web sites closing stock price prior to announcement and while Ask Jeeves will have access to a significant gives Computer Associates a competitive solution increase in resources ($4.1 billion in cash) to in the fast growing ITG space where Niku was compete against Google and Yahoo! in the able to grow revenue 45% in the last year. The fiercely competitive paid search market. Ask acquisition, CA’s fourth since September, was a

Jeeves earned an impressive $52.4 million on TA Associates acquires Intuit’s Information revenue of $261 million last year. Technology Category: IT Asset Management RealNetworks (NASDAQ: RNWK) acquires Purchase Price: $190,000,000EV Mr.Goodliving Seller Revenue: $56,974,000 Category: Entertainment Software Revenue Multiple: 3.3xEV Purchase Price: $15,000,000 EBITDA: $23,000,000 (estimate) Seller Revenue: $5,000,000 (estimate) EBITDA Multiple: 8.2xEV Revenue Multiple: 3.0x Payment Terms: Cash Payment Terms: Cash SEG’s Perspective: SEG’s Perspective: Intuit continues to clean house. Four years, and RealNetworks, a provider of network-delivered seven acquisitions into its “right for my business” digital media content and services, acquires strategy, Intuit sells its Information Technology Helsinki based Mr.Goodliving, a developer and Solutions (ITS) unit (formerly Blue Ocean publisher of high-quality mobile games in Europe. Software), a leading provider of IT help desk and Real, which acquired mobile gaming developer asset management software to small and and distributor GameHouse Studios for $36 medium-sized business, to TA Associates, a million in 2004, is aggressively expanding its PC reputable private equity firm. Ten months earlier, games business onto mobile devices – one of Intuit sold its Public Sector Solutions division Real’s fastest growing business segments. This (formerly American Fundware) and Intuit’s third deal provides Real with a library of game titles, a “right for my business” acquisition, to Kintera. proprietary development platform and immediate Intuit management believed ITS would require access to more than 100 distributors and carriers greater focus and investment to be accretive. in Europe. We estimate Mr.Goodliving’s TTM ITS’s trailing-twelve-month revenue grew 28% in revenue to be $5 million. For 2006, Real expects 2004, but only 8% in 2005. Pretax profit margins the acquisition to generate $8 million of declined from 42% to 36% during the same incremental revenue. period. TA’s purchase price of 8x times EBITDA is no surprise as private equity buyers typically Retalix (NASDAQ: RTLX) acquires TCI offer 6x to 8x times. Intuit paid $170 million for Solutions Blue Ocean in 2002. Category: Retail Merchandising Purchase Price: $34,400,000 Transaction Systems Architects (NASDAQ: Seller Revenue: $21,900,000 TSAI) acquires S2 Systems Revenue Multiple: 1.6x Category: Entertainment Software Payment Terms: Cash, Stock Purchase Price: $35,000,000 Seller Revenue: $14,000,000 (estimate) SEG’s Perspective: Revenue Multiple: 2.5x In concert with its acquisition of Integrated Payment Terms: Cash Distribution Solutions, Retalix, a provider of point of sale and back office solutions to the retail SEG’s Perspective: industry, picks up TCI Solutions, a provider of A provider of e-payment and electronic funds strategic pricing, merchandising and inventory transfer (EFT) software, Transaction Systems management solutions for the grocery industry. Architects (TSA) acquires S2 Systems, a leader in TCI’s merchandising and store operations open-architecture payment transaction software solutions will complement Retalix’s POS and solutions. While management asserts that S2’s warehouse management solutions, and further vertical presence within retail, telecommunications the company’s pursuit of a single integrated and hospitality was a key driver for the deal, it solution. Retalix also picks up 400 customers that does not justify a 2.5x revenue multiple. The real represent 30% of North America’s top 75 driver for this deal is TSA’s desire for S2’s open- supermarket chains. Retalix paid $17.1 million in architecture application and open systems cash and $17.3 million in Retaix stock. TCI had a expertise. TSA is paying $35 million in cash plus net loss of $2.9 million in 2004. earn-out payments tied to incremental performance criteria. TSA expects the deal to be immediately accretive.

APPENDIX C: SEG-100 COMPANIES

Actuate NASDAQ: ACTU Chinadotcom IDX Systems NASDAQ: CHINA NASDAQ: IDXC Adobe NASDAQ: ADBE Chordiant Software Informatica NASDAQ: CHRD NASDAQ: INFA Advent Software NASDAQ: ADVS Cognos InfoSpace NASDAQ: COGN NASDAQ: INSP Agile Software NASDAQ: AGIL Computer Associates Intergraph NYSE: CA NASDAQ: INGR Ansys Dassault Systemes NASDAQ: ANSS NASDAQ: DASTY Internet Security Systems NASDAQ: ISSX Art Technology Group Descartes Systems NASDAQ: ARTG NASDAQ: DSGX Interwoven NASDAQ: IWOV Ascential Software Docucorp International NASDAQ: ASCL NASDAQ: DOCC Intuit NASDAQ: INTU Aspect Communications E.piphany NASDAQ: ASPT NASDAQ: EPNY Jack Henry NASDAQ: JKHY Aspen Technolgy Eclipsys JDA Software Group NASDAQ: AZPN NASDAQ: ECLP NASDAQ: JDAS

Autodesk EMC Lawson Software NASDAQ: ADSK NYSE: EMC NASDAQ: LWSN Lightbridge, Inc. AXS-One Entrust NASDAQ: LTBG AMEX: AXO NASDAQ: ENTU Macromedia BEA Systems Epicor Software NASDAQ: MACR NASDAQ: BEAS NASDAQ: EPIC Manhattan Associates BMC Software Fair Isaac NASDAQ: MANH NYSE: BMC NYSE: FIC Manugistics Borland Falcon Star NASDAQ: MANU NASDAQ: BORL NASDAQ: FALC MAPICS Business Objects FileNet NASDAQ: MAPX NASDAQ: BOBJ NASDAQ: FILE MCAFEE Cadence Design Geac NASDAQ: MFE NYSE: CDNS NASDAQ: GEAC Mentor Graphics Cerner Hummingbird Ltd. NASDAQ: MENT NASDAQ: CERN NASDAQ: HUMC Mercury Interactive Check Point Hyperion Solutions NASDAQ: MERQ NASDAQ: CHKP NASDAQ: HYSL

Micromuse NASDAQ: MUSE QAD Symantec NASDAQ: QADI NASDAQ: SYMC Microsoft NASDAQ: MSFT QuadraMed Synopsys AMEX: QD NASDAQ: SNPS Mobius Management Systems NASDAQ: MOBI Quest Software TIBCO Software NASDAQ: QSFT NASDAQ: TIBX Moldflow NASDAQ: MFLO Red Hat Trend Micro NASDAQ: RHAT NASDAQ: TMIC Mro Software NASDAQ: MROI Rightnow Technologies VA Software Corp. NASDAQ: RNOW NASDAQ: LNUX NDCHealth Rsa Sec Inc NYSE: NDC NASDAQ: RSAS Verisign NASDAQ: VRSN Netiq Retalix Ltd. NASDAQ: NTIQ NASDAQ: RTLX Vignette NASDAQ: VIGN Network Appliance Salesforce.com NASDAQ: NTAP NYSE: CRM VitalWorks NASDAQ: VWKS Novell SAP NASDAQ: NOVL NYSE: SAP Vitria Technology NASDAQ: VITR Onyx Software SCO Group NASDAQ: ONXS NASDAQ: SCOX Watchguard Tech. NASDAQ: WGRD Oracle Secure Computing WebMD NASDAQ: ORCL NASDAQ: SCUR NASDAQ: HLTH

Parametric Serena Software WebMethods NASDAQ: PMTC NASDAQ: SRNA NASDAQ: WEBM

Pegasystems Inc. Stellent Websense NASDAQ: PEGA NASDAQ: STEL NASDAQ: WBSN

Progress Software Sybase Wind River Systems NASDAQ: PRGS NYSE: SY NASDAQ: WIND

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