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U.S. Technology, Media & Telecom Industry Update

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U.S. Technology, Media & Telecom Industry Update Technology, Telecom & Digital Media Industry Update February 2011 This report has been prepared by Harris Williams & Co. Ltd and approved by Sturgeon Ventures LLP in accordance with Conduct Of Business rules COBS 4 of the FSA Handbook. Harris Williams & Co. Ltd is an authorized representative of Sturgeon Ventures LLP which is Authorized and Regulated by the Financial Services Authority. This report is being made by Harris Williams & Co Ltd. Investment banking services are provided by Harris Williams LLC, a registered broker-dealer and member of FINRA and SIPC, and Harris Williams & Co. Lt. Harris www.harriswilliams.com Williams & Co. is a trade name under which Harris Williams LLC and Harris Williams & Co. Ltd conduct business in the U.S. and Europe, respectively. Table of Contents Technology, Telecom & Digital Media What We've Been Reading…………………………………………………………………………………………1 Bellwethers……………………………………………………………………………………………2 TTDM Public Market Trading Statistics………………………………………………………………………..…………………..3 TTDM M&A Activity…………………………………………………………………………………………….4 Recent U.S. TTDM Initial Public Offerings………………………………………………………………………….………………...………..5 Public and M&A Market Overview by Sector Application Software…………………………………………………….…………………..6 Digital Media and Informatics………………………………………………..…………………..9 Infrastructure Software……………………………………………………..…………………..12 IT and Tech-Enabled Services………………………………………………………………..14 SaaS……………………………………………………………………………………………………..17 Tech Hardware……………………………………………………………………..…………………..19 Telecom………………………………………………………………………………………………..22 Selected HW&Co. TTDM Transactions…………………………………………………………………………………………..25 TTDM Group Overview and Disclosures…………………………………………………………………………………………..26 What We’ve Been Reading 2010 A Good Year for M&A in Financial Technology FierceFinanceIT 01/29/11 Coming off strong merger and acquisition growth in 2010 (30% and 27% year-over-year increase in transaction volume and transaction value, respectively), the financial technology industry is still expected to be ripe for consolidation. With more than a third of financial technology transactions in 2010 having values below $55 million, the middle market will likely continue to be consolidated by larger entities, especially in the active segments such as investment research. Read the full article herehere. Private Clouds Top List of IT Investment Priorities: Survey eWeek.com 01/26/11 here. Results for two recent online polls on Unisys’s website indicate IT organizations expect to invest heavily in cloud computing projects, especially private clouds, in 2011. These polls echo similar sentiments from a number of other sources, providing greater credibility to the projected growth in cloud spending, which Merrill Lynch estimates will likely continue to be a $160 billion market in 2011. The debate in cloud computing has shifted from whether cloud computing makes sense to what is the best cloud to fit an internal strategy, resulting in cloud spending being the top priority for IT organizations this year. Read the full articleherehere. Greentech Generated 4 of 5 Largest VC Deals in 2010 GigaOm 01/21/11 Greentech venture capital equity investments in the United States accounted for $3.7 billion in 2010, representing a 76% increase over 2009 invested capital, which was the second highest year-over-year growth for any sector (telecommunications increased 77%). Greentech startups comprised four of the five largest capital raises during the year, and this cohort raised $715 million and included the largest raise of the year (Better Place, Inc. – $350 million). The only non-greentech investment to break the top five was the highly publicized $200 million investment in Twitter. Read the full articleherehere. Survey: IT Confidence Surging, Fueled by Healthcare Healthcare IT News 01/20/11 Driven primarily by increases in healthcare confidence, the CompTIA IT Industry Business Confidence Index indicates renewed optimism and a strengthening economy. Jumping seven points in the month of December to 60, the index is at its highest point since its inception, and IT company executives forecast an additional five-point increase over the next six months. Pent-up demand for IT products and services and robust sales in emerging markets and healthcare are the primary drivers of the projected 4% growth in IT spending in 2011. Read the full article herehere. Analysis: Software M&A Heats Up As Firms Battle Budget Squeeze Reuters 12/17/10 In an attempt to address the needs of recession-hit clients demanding a broader range of services, blue-chip technology companies are expected to acquire niche software providers to round out their solution portfolios. With improving revenue growth and greater profitability as a result of headcount cuts in 2008 and 2009, large technology companies are flush with cash, as evidenced by the $290 billion of idle cash sitting on the top 10 global technology companies’ balance sheets after June 2010. These companies are expected to deploy these assets on strategic investments that will enable them to increase their “wallet share” of current customers. Read the full article herehere. 1 Public Market Trading Statistics Bellwethers Stock Last Twelve Months Last 30 Days Performance 140% 120% 130% 115% 120% 110% 110% 105% 100% 100% 90% 95% 80% 90% 10 10 11 10 10 10 10 10 10 10 10 10 10 10 - - - - - - - - - - - - - - Jul Jan Jan Jun Oct Feb Sep Apr Dec Aug Mar Nov Nov May 12/30/10 01/01/11 01/17/11 01/19/11 01/21/11 01/23/11 01/25/11 01/03/11 01/05/11 01/07/11 01/09/11 01/11/11 01/13/11 01/15/11 01/27/11 01/29/11 01/31/11 Nasdaq Bellwethers Nasdaq Bellwethers Stock Price CY 2011P Multiples Summary LTM Comparable Market As % of 52- Annual Growth Rates Enterprise Value/Revenue Enterprise Value/EBITDA Trading Company Capitalization Current Week High Revenue EBITDA LTM CY 2011P LTM CY 2011P Bellwethers Summary Apple Inc. $ 312,608.1 $ 339.32 97.3% 41.2% 43.5% 3.3x 2.4x 11.2x 8.1x Microsoft Corporation 232,956.0 27.73 87.8% 9.0% 7.6% 2.9x 2.7x 6.5x 6.3x International Business Machines Corporation 201,262.5 162.00 98.6% 5.4% 10.4% 2.1x 2.0x 8.8x 8.1x Google Inc. 191,980.2 600.36 93.4% 22.7% 18.8% 5.5x 4.5x 13.6x 10.3x Oracle Corporation 161,829.0 32.03 96.2% 14.0% 26.0% 4.8x 4.2x 12.2x 8.7x Intel Corporation 119,703.9 21.46 88.1% 11.2% 5.5% 2.2x 2.0x 4.7x 4.6x Cisco Systems, Inc. 117,229.4 21.15 76.2% 9.3% 3.7% 2.2x 2.0x 8.0x 6.8x Samsung Electronics Co. Ltd. 113,534.0 876.05 96.7% NA NA 0.7x NA 3.7x NA Hewlett-Packard Company 99,355.0 45.69 83.5% 5.1% 7.4% 0.9x 0.8x 6.2x 5.3x QUALCOMM Inc. 88,976.0 54.13 98.4% 24.8% 19.8% 6.1x 4.9x 16.6x 11.7x Amazon.com Inc. 76,508.3 169.64 88.5% 32.2% 21.4% 2.0x 1.5x 38.2x 22.5x SAP AG 68,849.6 57.96 99.2% 12.6% 18.5% 4.2x 3.7x 11.8x 10.7x EMC Corporation 51,283.3 24.89 99.4% 15.9% 8.6% 2.7x 2.3x 11.7x 8.9x eBay Inc. 39,418.5 30.36 96.0% 14.1% 12.5% 3.5x 3.1x 11.3x 8.7x Median $115,381.7 96.1% 14.0% 12.5% 2.8x 2.4x 11.3x 8.7x 2 TTDM Public Market Trading Statistics by Vertical Stock Price % Change LTM Revenue LTM EBITDA TEV / Revenue Multiple TEV / EBITDA Multiple Comparable Industry Segment 1 Month 12 Month Growth Margin LTM 2011P 2012P LTM 2011P 2012P Trading Bellwethers 4.7% 21.5% 17.9% 30.3% 2.8 x 2.4 x 2.1 x 11.3 x 8.7 x 7.9 x Summary Application Software 2.7% 32.2% 12.6% 20.8% 4.0 x 3.2 x 2.9 x 16.0 x 11.6 x 10.6 x Enterprise Resource Planning 3.8% 29.8% 4.0% 24.0% 2.5 x 2.8 x 2.6 x 11.9 x 9.6 x 9.7 x Supply/Demand Chain Management 6.8% 61.7% 20.5% 17.2% 2.3 x 2.1 x 2.0 x 10.1 x 8.3 x 12.7 x Product Lifecycle Management/Technical Design 2.0% 45.2% 5.5% 16.3% 2.4 x 2.1 x 2.0 x 18.2 x 10.1 x 8.4 x CRM/Call Center Management 3.2% 35.6% 17.7% 13.4% 2.8 x 2.6 x 2.7 x 25.4 x 11.6 x 11.7 x Human Capital Management (0.9%) 46.7% 16.3% 12.7% 6.5 x 5.3 x 4.4 x 35.9 x 24.0 x 17.1 x Content Management 6.9% 9.7% 19.4% 32.8% 3.5 x 3.3 x 3.0 x 10.8 x 9.0 x 8.2 x Business Intelligence/Analytics 7.2% 39.3% 19.0% 23.1% 4.9 x 3.1 x 2.9 x 15.1 x 13.9 x 11.5 x Vertical Focused - Education/Government/Non-Profit (3.5%) 15.4% 10.7% 18.7% 2.8 x 2.4 x 2.2 x 16.6 x 11.5 x 8.6 x Vertically Focused - Energy and Industrial 4.5% 28.7% 4.6% 33.7% 6.9 x 6.2 x 4.9 x 16.0 x 12.2 x 11.6 x Vertically Focused - Financial Technology (4.2%) 32.1% 12.6% 31.2% 4.8 x 4.3 x 3.9 x 13.1 x 11.0 x 10.2 x Vertical Focused - Healthcare IT 5.2% 15.2% 19.9% 25.2% 4.8 x 3.4 x 3.1 x 19.7 x 13.4 x 10.8 x Digital Media and Informatics (0.1% ) 37.8% 11.0% 23.6% 2.7 x 2.7 x 2.3 x 12.2 x 9.8 x 8.1 x Informatics and Data Services 2.6% 25.5% 4.4% 23.5% 2.9 x 2.7 x 2.3 x 11.3 x 8.5 x 7.8 x e-Commerce 1.9% 64.8% 23.4% 17.8% 2.6 x 2.2 x 1.9 x 21.3 x 14.2 x 11.5 x Internet Software and Services (6.6%) 39.9% 17.4% 27.8% 2.3 x 2.1 x 1.8 x 19.4 x 9.7 x 7.9 x Online Content and Search (3.6%) 32.9% 23.4% 24.6% 3.4 x 3.8 x 3.4 x 12.0 x 10.3 x 8.4 x Infrastructure Software (0.1% ) 34.4% 10.4% 22.7% 3.1 x 2.8 x 2.6 x 11.7 x 9.0 x 8.5 x Enterprise IT Management (2.2%) 41.1% 10.3% 22.7% 2.9 x 2.7 x 2.5 x 11.3 x 8.2 x 7.3 x Security 0.5% 24.3% 9.1% 25.1% 3.7 x 3.4 x 2.8 x 12.6 x 9.6 x 8.8 x Enterprise Storage 3.7% 33.6% 14.1% 21.2% 3.1 x 2.7 x 2.4 x 13.4 x 10.3 x 9.7 x IT and Tech-Enabled Services 3.0% 17.2% 6.6% 18.6% 1.7 x 1.6 x 1.6 x 9.1 x 8.1 x 7.4 x Data & Transaction Processing 4.1% 18.4% 6.6% 26.6% 2.0 x 1.9 x 1.8 x 9.5 x 8.1 x 7.0 x IT Services 4.1% 13.3% (11.1%) 10.5% 0.7 x 1.2 x 1.2 x 7.9 x 7.6 x 8.5 x Government IT Services 5.1% 14.6% 9.7% 9.5% 0.7 x 0.7 x 0.6 x 7.9 x 7.1 x 6.5 x Onshore BPOs 5.8% 15.2% 3.1% 21.3% 1.6 x 1.3 x 1.3 x 8.2 x 7.3 x 7.0 x Offshore BPOs (2.0%) 21.8% 23.3%
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