Software Equity Group's 2012 M&A Survey

Software Equity Group, L.L.C. 12220 El Camino Real Suite 320 San Diego, CA 92130 [email protected] (858) 509-2800 Unmatched Expertise. Extraordinary Results

Overview Deal Team

Software Equity Group is an investment bank and M&A advisory firm serving the software and technology sectors. Founded in 1992, our firm has guided and advised companies on five continents, including Ken Bender privately-held software and technology companies in the United States, Canada, Europe, Asia Pacific, Managing Director Africa and Israel. We have represented public companies listed on the NASDAQ, NYSE, American, (858) 509-2800 ext. 222 Toronto, London and Euronext exchanges. Software Equity Group also advises several of the world's [email protected] leading private equity firms. We are ranked among the top ten investment banks worldwide for application software mergers and acquisitions. R. Allen Cinzori Managing Director Services (858) 509-2800 ext. 226 [email protected] Our value proposition is unique and compelling. We are skilled and accomplished investment bankers with extraordinary software, internet and technology domain expertise. Our industry knowledge and experience span virtually every software product category, technology, market and delivery model. We Dennis Clerke have profound understanding of software company finances, operations and valuation. We monitor and Executive Vice President analyze every publicly disclosed software M&A transaction, as well as the market, economy and (858) 509-2800 ext. 233 technology trends that impact these deals. We offer a full complement of M&A execution to our clients [email protected] worldwide. Our capabilities include:. Brad Weekes Sell-Side Advisory Services – leveraging our extensive industry contacts, skilled professionals and Vice President proven methodology, our practice is focused, primarily on guiding our client s wisely toward the (858) 509-2800 ext. 239 achievement of their exit objectives. [email protected] Buy-Side Advisory Services – utilizing a proven buy-side methodology, we help our clients acquire strategically, assess insightfully, value intelligently and structure transactions to better assure their desired outcome. Kris Beible Director, Business Development Management Buyouts & Recapitalization – assisting founders and owners of software and (858) 509-2800 ext. 227 technology com panies to gain full or ppqyygpartial liquidity by facilitating capital investments b ypqyy private equity [email protected] firms and other financial institutions. Private Equity & Debt Placement – facilitating private companies with leading institutional investors for financings that range from $5 million to $500 million. 12220 El Camino Real, Suite 320 Mentoring Program – providing guidance to software companies contemplating an exit to ensure San Diego, CA 92130 (858) 509-2800 (P) they’re doing everything now to better their odds and enhance their future exit valuation ahead. (858) 509-2818 (F) www.softwareequity.com

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We’ve enjoyed serving our software clients for 20 years and have highlighted a small subset of companies we’ve assisted:

Complimentary Executive Webcast Software Industry Dollars, Deals and Drivers

How Public Software/SaaS and Internet Companies Performed in 2011 M&A Deals, Drivers and Trends Knowing When to Leave: Intelligent Exit Timing

Please join us Wednesday, February 22nd at 1:00pm Eastern, for an extraordinary executive webcast.

Software Equity Group’s 2012 Software Industry Buyers Survey polled corporate development executives of the 200 largest software companies about their M&A plans, priorities, budgets and thinking for the year ahead. Learn what we learned. We’ll also recap the software industry’s financial performance in 2011 and look deeply and insightfully at 2011’s Software, SaaS and Internet M&A exit valuations, deal volumes and trends. We’ll forecast the year ahead. And we’ll share some provocative thinking and convincing data about what really drives exit valuations and how to intelligently prepare for and time an optimum software exit.

• Our 2012 Buyer Survey – We polled over 200 corporate development executives at the largest software companies about their M&A plan, budgets and thinking for the year ahead • Mergers & Acquisitions (2011 Explained, 2012 Forecasted) • Software/SaaS/Internet Public Company Performance: The Financial State of the Software Industry • Optimum Exit Timing: We’ve spent three years studying, documenting and analyzing software deal volumes and exit multiples and we have insights to share • Lions and Tigers and Bears: Due Diligence and Software M&A Contract Terms in 2012

Join us on Wednesday, February 22nd at 1:00 p.m.- 2:15 p.m. Eastern Time, as featured speaker Ken Bender, Founder and Managing Director of Software Equity Group, is joined by Eric Wechselblatt, Partner of Holland & Knight, to provide an in-depth look at the software industry’s Dollars, Deals and Drivers in 2011 and what lies ahead in 2012.

About Software Equity Group

Software Equity Group is an investment bank and M&A advisory serving the software and technology sectors. Founded in 1992, our firm has counseled, represented and guided some 2,000 public private software companies on five continents and has been ranked the #1 boutique investment bank in application software mergers and acquisitions. SEG has advised public companies listed on the NASDAQ, NYSE, American, Toronto, London and Euronext exchanges, and several of the world’s largest private equity firms. SEG’s research reports are distributed to an opt-in list of 47,500 software entrepreneurs, C level execs, private equity investors and venture capital partners in 76 countries around the globe.

About Holland & Knight

Holland & Knight is a global law firm with more than 1,000 lawyers and other professionals in 17 U.S. offices, as well as Abu Dhabi, Beijing and Mexico City. Our lawyers provide representation in litigation, business, real estate and governmental law. Interdisciplinary practice groups and industry-based teams provide clients with access to attorneys throughout the firm, regardless of location.

For additional information, please call 858-509-2800 or e-mail: [email protected]. Software Equity Group, L.L.C.

2012 Software Industry Financial Report Contents

U.S. ECONOMY: SOFTWARE INDUSTRY MACROECONOMICS ...... 2 IT SPENDING ...... 3 INTERNET RETAIL SPENDING AND ADVERTISING ...... 4 PUBLIC SOFTWARE/SAAS/INTERNET COMPANY STOCK PERFORMANCE ...... 4 PUBLIC SOFTWARE/SAAS/INTERNET COMPANY MARKET VALUATION TOP PERFORMERS ...... 5 PUBLIC SOFTWARE COMPANY MARKET VALUATIONS: OVERALL ...... 6 PUBLIC SOFTWARE COMPANY MARKET VALUATIONS: BY PRODUCT CATEGORY ...... 7 PUBLIC SOFTWARE AS A SERVICE (SAAS) COMPANY MARKET VALUATIONS ...... 9 PUBLIC SOFTWARE AS A SERVICE (SAAS) COMPANY MARKET VALUATIONS: BY PRODUCT CATEGORY ...... 10 PUBLIC INTERNET COMPANY MARKET VALUATIONS ...... 10 PUBLIC INTERNET COMPANY MARKET VALUATIONS: BY PRODUCT CATEGORY ...... 12 PUBLIC SOFTWARE COMPANY FINANCIAL PERFORMANCE: OVERALL ...... 12 PUBLIC SOFTWARE COMPANY FINANCIAL PERFORMANCE: BY PRODUCT CATEGORY ...... 13 PUBLIC SOFTWARE AS A SERVICE (SAAS) FINANCIAL PERFORMANCE ...... 13 PUBLIC INTERNET COMPANY FINANCIAL PERFORMANCE ...... 14 PUBLIC INTERNET COMPANY FINANCIAL PERFORMANCE: BY PRODUCT CATEGORY ...... 15 PUBLIC SOFTWARE, SAAS AND INTERNET FINANCIAL PERFORMANCE IN 2011: A RECAP ...... 15 INITIAL PUBLIC OFFERINGS ...... 15 VENTURE CAPITAL INVESTMENT ...... 18 THE BUYERS SPEAK: SOFTWARE EQUITY GROUP’S 2012 M&A SURVEY ...... 21 M&A DEAL VOLUME AND SPENDING: ALL INDUSTRY SECTORS ...... 24 SOFTWARE/SAAS M&A DEAL VOLUME AND SPENDING ...... 25 IMPORTANT CHANGE IN SOFTWARE AND SAAS M&A DATA ACCOUNTING...... 26 SOFTWARE M&A DEAL CURRENCY ...... 26 SOFTWARE M&A VALUATIONS ...... 27 SOFTWARE M&A VALUATIONS BY EQUITY STRUCTURE...... 28 SOFTWARE M&A VALUATIONS BY VERTICAL AND HORIZONTAL MARKETS ...... 29

This Report may not be reproduced in whole or in part without the expressed prior written authorization of Software Equity Group, L.L.C. Software Equity Group registers each Report with the U.S. Copyright Office and vigorously enforces its intellectual property rights. Copyright © 2012 Software Equity Group, L.L.C., All Rights Reserved Software Equity Group, L.L.C.

M&A VALUATIONS BY SOFTWARE PRODUCT CATEGORY ...... 30 SOFTWARE AS A SERVICE (SAAS) M&A DEAL VOLUME AND VALUATIONS ...... 32 INTERNET M&A DEAL VOLUME AND VALUATIONS ...... 33 APPENDIX A: 2011 PUBLIC SOFTWARE MARKET VALUATIONS AND STATISTICS BY PRODUCT CATEGORY ...... 36 APPENDIX B: 2011 INTERNET PUBLIC MARKET VALUATIONS AND STATISTICS BY PRODUCT CATEGORY ...... 39 APPENDIX C: 2011 MERGERS AND ACQUISITIONS, SELECT PUBLIC SELLER VALUATIONS...... 40 APPENDIX D: 2011 MERGERS AND ACQUISITIONS, MOST ACTIVE BUYERS ...... 41 APPENDIX E: 2011 MERGERS AND ACQUISITIONS, SELECT SOFTWARE INDUSTRY MEGA-DEALS ...... 50 APPENDIX F: 2011 MERGERS AND ACQUISITIONS, SELECT SOFTWARE-AS-A-SERVICE SELLERS ...... 51 APPENDIX G: 2011 MERGERS AND ACQUISITIONS – DEAL INSIGHT ...... 56

2012 Annual Software Industry Financial Report Index of Figures

Figure 1: U.S. Gross Domestic Product and Unemployment Rate Figure 2: Domestic IT Spending Figure 3: Major Market Indices Compared to the SEG Software, SaaS and Internet Indices Figure 4: High Flyers – 2011 Stock Market Return Figure 5: High Flyers – Enterprise Value/Revenue Figure 6: SEG Software Median EV/Revenue Multiple by Year Figures 7 and 8: SEG Software Index Median Metrics – Annually and Quarterly Figure 9: SEG Software Valuation by Size of Buyer (TTM Revenue) Figure 10: 4Q11 EV/Revenue Multiple vs. TTM Revenue Growth Rate Figure 11: 4Q11 EV/Revenue Multiple vs. EBITDA Margin Figure 12: SEG Software Index Median Metrics by Product Category Figure 13: Software Product Categories with EV/Revenue above Median in 4Q11 Figure 14: Software Product Categories with Positive YoY Change in Median EV/Revenue Figures 15 and 16: SEG SaaS Index Median Metrics - Annually and Quarterly Figure 17: Public SaaS Companies Figure 18: 4Q11 Public SaaS Company EV/Revenue Multiple vs. TTM Revenue Growth Rate Figure 19: 4Q11 Public SaaS Company EV/Revenue Multiple vs. TTM EBITDA Margin Figure 20: SEG SaaS EV/Revenue Multiples by Product Category Figures 21 and 22: SEG Internet Index Median Metrics – Annually and Quarterly Figure 23: Internet EV/Revenue Multiple Distribution Figure 24: EV/Revenue Comparison of Chinese and U.S. Based Internet Companies Figure 25: SEG Internet EV/Revenue Multiples by Size of Buyer Figure 26: SEG Internet Index Median Metrics by Product Category Figure 27: SEG Software Index Companies with over $1 billion of Cash & Cash Equivalents Figure 28: SEG SaaS Sales & Marketing Spend vs. TTM Revenue Growth Figure 29: SEG SaaS Spending as a % of Total Revenue Figure 30: SEG Internet Spending vs. SEG Software and SaaS Figure 31: SEG Software, SaaS and Internet Financial Performance vs. Median EV/Revenue Figure 32: U.S. Software, SaaS and Internet IPOs in 2011 Figure 33: U.S. Software, SaaS and Internet IPO Pipeline Figure 34: U.S. Venture Capital Investments and Total Dollars Invested Across all Industries Figures 35 and 36: Aggregate VC Investments and Total Dollars Invested by Company Stage Figures 37 and 38: Aggregate VC Investments and Total Dollars Invested by Product Category Figure 39: U.S. Mergers and Acquisition Activity Figures 40 and 41: Annual U.S. Software Sector M&A Activity and Dollars Spent Figure 42: Quarterly U.S. Software Sector M&A Activity and Dollars Spent Figure 43: TTM Average M&A Deal Size Figure 44: Software M&A Deal Currency Figure 45: Annual Software EV/Revenue Exit Multiple Figure 46: Quarterly Software EV/Revenue and EV/EBITDA Exit Multiples Figure 47: Median Software M&A EV/Revenue Multiple Distribution Figure 48: 2011 Median EV/Revenue Exit Multiple By Ownership Structure Figure 49: 2011 Horizontal vs. Vertical Sellers

2012 Software Industry Financial Report www.softwareequity.com

Figure 50: 2011 Horizontal vs. Vertical M&A Volume Figure 51: 2011 Horizontal vs. Vertical Median EV/Revenue Exit Multiple Figure 52: 2011 Software Median EV/Revenue Exit Multiple by Product Category Figure 53: 2011 Software M&A by Product Category Figure 54: SaaS M&A Volume as a % of Total Software M&A Volume Figure 55: Median SaaS M&A Valuation as a Multiple of Revenue Figure 56: 2011 SaaS M&A by Product Category Figure 57: Internet Deal Volume by Category Figure 58: Internet Median TTM EV/Revenue Exit Multiple Figure 59: 2011 Internet EV/Rev Exit Multiples by Size

2012 Software Industry Financial Report www.softwareequity.com

Software Equity Group, L.L.C. Investment Banking / Mergers & Acquisitions

Figure 1: U.S. Gross Domestic Product and Unemployment Rate

10%

GDP % Growth Unemployment Rate 8%

6% 4.8% 5.0%

3.6% 3.7% 4% 3.1% 3.2% 2.8% 2.7% 2.2% 2.6% 2.1% 2.1% 1.3% 1.5% 1.8% 2% 1.7% 1.3% 1.1% 1.2% 0.4%

-0.7% -0.7% -2%

-2.7% -4%

-6% -5.4% -6.4% -8% 4Q05 4Q06 4Q07 4Q08 4Q09 4Q10 4Q11

U.S. ECONOMY: SOFTWARE INDUSTRY MACROECONOMICS

We begin with a brief synopsis of U.S. Gross Instead, the last quarter of 2011 provided reason Domestic Product (GDP) performance in 2011 for guarded optimism. In late January, as we based upon the most recent data available. GDP went to press, the Bureau of Economic Analysis is best defined as the total market value of all final (BEA) estimated 4Q11 GDP grew 2.8%, a goods and services produced in a country in a modest, but steady, QoQ improvement over given year, equal to total consumer, investment 1Q11’s 0.4%, and the tenth consecutive quarter of and government spending, plus the value of GDP growth (Figure 1). exports, minus the value of imports. The Conference Board’s index of U.S. Leading When we published our 2011 Annual Report one Economic Indicators (LEI) rose 0.4% in year ago, the Bureau of Economic Analysis (BEA) December, following a 0.2% increase in was forecasting a modest rise in 4Q10 GDP of November and a 0.6% increase in October. 3.2%. The actual increase of 3.1%, encouraged Seven of the Board’s ten LEI indicators were many to believe GDP growth of 3% or better was positive: interest rate spread, average weekly sustainable in 2011 (Figure 1). They were quickly initial claims for unemployment insurance disappointed when GDP growth on an annualized (inverted), average weekly manufacturing hours, basis declined to 0.4% in 1Q11. Any remaining stock prices, ISM new orders index, optimism faded in the ensuing quarters, as the manufacturers’ new orders for nondefense capital economy registered 1.3% and 1.8% annualized goods excl. aircraft, and manufacturers’ new growth in 2Q11 and 3Q11, respectively. By that orders for consumer goods and materials. The time, some economic pundits began warning of a negative contributors, beginning with the largest double dip recession, citing stubbornly high negative contributor, average consumer unemployment, continuing housing woes, and a expectations for business and economic distinct lack of consumer confidence which conditions and Leading Credit Index™ (inverted). foreshadowed disappointing retail sales in the all- Building permits were steady in December. important fourth quarter. In fact, in September of 2011, one in three economists surveyed by the The recent employment report released by the Wall Street Journal predicted the U.S. economy U.S. Bureau of Labor Statistics provides more would slip into recession during the next twelve reason for optimism. The U.S. economy added months. 109,928 private sector workers in December, beating many forecasts. As encouraging, the 2| 2012 SOFTWARE INDUSTRY FINANCIAL REPORT www.softwareequity.com

U.S. unemployment rate dropped to 8.5%, Although IT spending is slowing, a more granular marking the first time the rate has been below 9% analysis reveals a few product categories, since January 2009. Employment in private including cloud computing and mobility, will likely service, such as professional and business receive a larger share of the IT budget. Gartner is services and education and health services, forecasting tablet spending will grow at a 52% accounted for nearly 40% of the new jobs created. CAGR from 2010 to 2015. Goldman Sachs estimates that revenues in the mobile sector, IT SPENDING including tablets, will increase at a CAGR of 75% from 2010 to 2014. Investments in public cloud For those who may be new to our reports, SEG computing and SaaS also continue to rapidly carefully monitors enterprise IT spending each outpace the broader IT market. Gartner forecasts quarter as a means of forecasting downstream that spending on public cloud computing and public software company financial performance SaaS will grow at a five year CAGR of 19.1% and and software M&A deal volume. Simply put, we 14.9%,respectively, from 2010 to 2015, while long ago determined that healthy IT spending Goldman Sachs forecasts SaaS spending will see drives public software companies to buy, not a 20.9% CAGR from 2010 to 2014, driving the build, in response to growing market demand. To percent of SaaS applications in the enterprise to provide some perspective, we estimate every 15% by 2014. percentage increase/decrease in IT spending equates to approximately $5 billion. Figure 2: Domestic IT Spending

10.0% 9.0% Our readers will recall large enterprises cut back 8.0% 6.0% sharply on spending for software, hardware and 5.5% 5.0% IT services in 2009 during the economic 2.5% downturn, when IT capital spending declined by

Spending 0.0%

IT * * more than 10%. The spending cut had an almost 2007 2008 2009 2010 2011 2012 in

immediate and traumatic impact on public ‐5.0% Change software company revenue, and software M&A YoY ‐10.0% activity and valuations declined. In 2010, -10.0% enterprise customers loosened their purse strings and domestic IT capital spending grew 8%, ‐15.0% according to IDC. Goldman’s aggressive projections for spending on cloud computing and SaaS are supported by its In 2011, worldwide IT spending is estimated to November 2011 survey of enterprise CIOs. Some have grown between 5% - 7%. Goldman Sachs 56% of CIOs who responded said their company characterized 2011’s level of IT spending as has already begun implementing cloud computing “normal.” After forecasting in Q3 that IT spending initiatives, and another 24% are in the planning for all of 2011 would grow 7.9%, Gartner lowered phase. Moreover, 68% of CIOs indicated they’re that forecast to 6.9% in the fourth quarter, citing already subscribing and deploying SaaS an increasingly cloudy economic outlook. applications from a third party provider, Goldman acknowledged similar concerns, but particularly E-mail (47%), CRM (44%) and HR chose not to lower its 2011 IT spending forecast (42%) solutions. However, mission critical (Figure 2). applications, such as financial and ERP, were cited as the least likely to migrate from on- In 2012, analysts are almost universally predicting premise to SaaS, receiving a thumbs up from only a slowdown in worldwide enterprise IT spending. 5% and 2%, respectively, of CIOs. Goldman predicts IT spending growth worldwide will grow only 3% this year, while Gartner is The growing adoption of SaaS by large projecting 3.7% growth. Goldman’s forecast was enterprises is consistent with SEG’s 2012 M&A weighted 80% in favor of developed countries Survey of public software companies in which where spending is expected to grow a tepid 2%, 81% stated SaaS would be a consideration when and 20% in favor of emerging economies where it evaluating a particular target, with 46% of that projects more robust growth of 8%. audience deeming SaaS “very important” or “essential.”

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INTERNET RETAIL SPENDING AND ADVERTISING PUBLIC SOFTWARE/SAAS/INTERNET COMPANY STOCK PERFORMANCE In the Internet sector, we believe online retail spending and Internet advertising spending each The major U.S. stock market indices were highly quarter presage the financial performance and volatile throughout most of 2011, as they have M&A activity of many public Internet companies. been for the past three years. But unlike 2010, Buoyed by a greater number of shoppers, online when the major U.S. stock market indices all retail sales reached $36.3 billion in 3Q11 finished with positive returns above 10%, the S&P according to comScore, up 13% from 3Q10. It and Nasdaq both finished 2011 down from the was the eighth consecutive quarter of growth for first trading day (.003% and 1.8%, respectively); online retail, which now accounts for nearly $1 in only the Dow Jones ended the year in positive every $10 of discretionary spending. Online retail territory (Figure 3). categories growing at least 15% in Q3 from the same period a year ago included digital content The SEG SaaS Index, comprised of 26 publicly and subscriptions, event tickets, and jewelry and traded SaaS companies, closed the year with a watches. Forrester projects online retail sales, as 9.7% gain in median stock price, outpacing SEG’s a percent of total retail sales, will reach 15% by Software and Internet Indexes and the major U.S. 2015. stock market indices. The median year-end stock return of the SEG SaaS Index was buoyed by two The Interactive Advertising Bureau (IAB) and major SaaS acquisitions in Q4 (see M&A section PricewaterhouseCoopers (PwC) reported Internet for additional details), inspiring investors to drive advertising soared to record levels in 3Q11, with SaaS company stock prices higher in hopes of Internet ad revenues reaching $7.88 billion, a similarly lucrative returns. 22% increase from the previous year. With retail spending totaling $23 billion in the first three The SEG Software Index, consisting of 144 public quarters, the final tally for all of 2011 is certain to on-premise software companies, did not fare as exceed 2010’s record spend of $26 billion. Digital well as SaaS in terms of stock performance. By media has become a central focus for brand year end, the median stock return of the SEG professionals who are investing a growing share Software Index had declined 6.9% from the first of their promotion dollars in digital advertising. day of trading. And despite impressive growth in

Figure 3: Major Market Indices Compared to the SEG Software, Internet and SaaS Indices

DOW S&P NASDAQ SEG SaaS SEG SW Index SEG Internet Index 20.0%

10.0%

0.0%

(10.0%)

(20.0%)

(30.0%)

(40.0%) Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

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some segments, the median year-end stock return a 22.1x median EV/Revenue multiple, 41% higher of the 90 publicly traded Internet companies than the second place finisher. Baidu reported comprising the SEG Internet Index was down year-over-year revenue growth of 85.5% (which is 25.9% by year end, largely due to sharp post-IPO extraordinary, considering its revenue is nearly declines among several newly listed Internet $2B), and a remarkable EBITDA margin of 56.7%. companies (please see the IPO section of this report for additional details). Across all three SEG tracking indices, 160 of the 260 (62%) public Figure 5: High Flyers – Enterprise Value / companies we track reported lower year-to-date Revenue Multiple 25.0x (YTD) stock prices. 22.1x

20.0x Some public software, SaaS and Internet

Multiple 15.7x

companies, however, managed to bring a smile to 15.0x 14.0x 13.6x 12.7x 12.5x 12.2x their investors’ faces, with ten such companies 11.9x 11.7x 11.4x 10.0x

achieving year end market returns at least 53% EV/Revenue greater than on their first trading day 2011 (Figure 5.0x

4). Majesco Entertainment Company, a provider of Median video games, took top honors, returning 217% in 0.0x 2011. Majesco’s stock price soared nearly 300% in the first quarter, following a stellar 4Q10 earnings report and its best holiday season ever. Three SaaS companies made the top ten list for best stock return of 2011: RightNow (81%), SPS

Commerce (64%) and Netsuite (62%). Notably Nine of the ten companies on our most valued list absent from the top ten list was LinkedIn, which were public Internet companies, five of which went raced to a 109% return on its first day of trading public this year: LinkedIn (15.7x), Jive Software (May 19), only to decline during the remainder of (12.5x), Zillow (12.2x), Yandex (11.9x) and the year and close Q4 with a 40% return – HomeAway (11.4x). NetSuite, a SaaS provider of respectable, but not high enough to make SEG’s ERP software, was the only non-Internet company top ten list of stock performers. to make the list, boasting a median EV/Revenue multiple of 11.7x at the close of 2011. Figure 4: High Flyers – 2011 Market Return Investors continued to demonstrate an appetite 250% 217% for international companies who offer access to

200% 174% 163% high growth in emerging markets. Four of the ten

Return 150% companies in our list have headquarters outside 97%

Stock of the U.S; Baidu (22.1x), Qihoo (14.0x), Youku 100% 81% 65% 64% 63% 62% 53% (13.6x) are located in China and Mercadolibre 2011 50% (12.7x) is located in Brazil. 0%

PUBLIC SOFTWARE/SAAS/INTERNET COMPANY

MARKET VALUATION TOP PERFORMERS

Ten high flying companies across the SEG Software, SaaS and Internet companies closed 2011 with median EV/Revenue multiples of 11.4x or higher (Figure 5). For the third consecutive year, Baidu earned top honors, closing 2011 with

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PUBLIC SOFTWARE COMPANY MARKET Figures 7 and 8: SEG Software Index Median Metrics – Annually and Quarterly VALUATIONS: OVERALL SEG - Software: Median Metrics The median enterprise value to revenue Measure 2009 2010 2011 (EV/Revenue) multiple for all public companies EV/Revenue 1.7x 2.2x 2.4x comprising the SEG Software Index was 2.4x in EV/EBITDA 10.6x 12.7x 13.4x 2011, up slightly from 2010’s 2.2x, and markedly EV/Earnings 20.7x 28.0x 24.2x better than 2009’s 1.7x. The 2.4x median Current Ratio 2.0 1.9 2.1 EV/Revenue multiple is the highest Software Index Cash & Eq ($M) $91.1 $105.0 $114.8 multiple since 2007’s 2.6x (Figure 6). The return to Gross Profit Margin 65.8% 67.0% 66.9% near pre-recession valuation levels reflects investor EBITDA Margin 17.4% 18.0% 18.4% confidence in the near term prospects of on-premise Net Income Margin 7.0% 7.0% 8.6% public software companies relative to other TTM Revenue Growth 5.2% 5.7% 14.4% industries and options. TTM Total Revenue ($M) $267.9 $285.4 $319.7 Figure 6: SEG Software Median EV/Revenue TTM Total EBITDA ($M) $39.1 $46.9 $46.6 Multiple by Year Debt / Equity Ratio 26.1% 25.5% 24.8%

3.0x 2.6x SEG - Software: Median Metrics 2.5x 2.4x 2.2x Measure 4Q10 1Q11 2Q11 3Q11 4Q11 Multiple

2.0x 1.8x EV/Revenue 2.6x 2.7x 2.7x 2.1x 2.2x 1.7x EV/EBITDA 13.7x 14.6x 13.4x 11.5x 11.8x 1.5x EV/Earnings 27.8x 27.1x 24.8x 21.5x 21.5x EV/Revenue 1.0x Current Ratio 2.0 2.1 2.1 2.0 2.0 Cash & Eq ($M) $109.1 $127.3 $118.5 $120.2 $111.5

Median 0.5x Gross Profit Margin 67.8% 67.7% 68.1% 67.1% 66.3% 0.0x EBITDA Margin 18.8% 18.5% 18.7% 18.2% 18.6% 2007 2008 2009 2010 2011 Net Income Margin 8.3% 7.7% 8.9% 8.9% 9.2% TTM Revenue Growth 9.6% 13.5% 14.1% 14.6% 15.1% TTM Total Revenue ($M) $289.1 $302.5 $305.3 $321.1 $339.3 On a quarterly basis, median EV/Revenue multiples TTM Total EBITDA ($M) $48.2 $49.0 $46.4 $45.9 $48.5 of on-premise software companies rose to 2.7x in Debt / Equity Ratio 27.3% 26.6% 23.9% 24.1% 23.2% the first and second quarters, before reversing course and ending Q4 with a modestly lower 2.2x median mulitple (Figures 7 and 8). Size (i.e., annual revenue) wasn’t the only important determinant of public software company At the end of 2010 and early 2011, when industry market valuation. We analyzed the median analysts and economic pundits were predicting a EV/Revenue multiples of SEG Software slow but steady economic recovery, smaller public companies based upon their 2011 TTM revenue software companies were viewed as well growth rates and EBITDA margins. positioned for accelerated growth. As testament, in 4Q10, the median EV/Revenue multiple of SEG Figure 9: SEG Software Valuation by Size of Software Index companies with TTM revenues Buyer (TTM Revenue)

between $100 million and $200 million was 3.5x, 4.5x compared to only 2.6x for companies with TTM 4.0x revenues greater than $1 billion. However, as 3.5x 3.0x Multiple economic sentiment soured in 3Q11 and 4Q11, smaller software companies, deemed too risky, 2.5x 2.0x EV/Revenue

were pummeled by investors. By the close of 1.5x Median 4Q11, SEG Index companies with TTM revenues 1.0x between $100 million and $200 million saw their 0.5x 0.0x median EV/Revenue multiple plunge to 1.9x, 4Q10 1Q11 2Q11 3Q11 4Q11 while the median TTM EV/Revenue of their larger Revenue => $1 billion Revenue => $200 million and < $ 1 billion Revenue >= $100 million and < $200 million Revenue < $100 million peers remained relatively steady at 2.5x (Figure 9).

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Companies that grew TTM revenue between 20% It should come as no surprise that many of these and 30% in 2011, and those that grew revenue fast growing and highly valued public software more than 30%, were awarded median companies provide enterprise solutions that EV/Revenue multiples of 3.3x and 3.5x, addressed the top IT spending priorities in 2011: respectively – significantly higher than the median mobility, analytics, virtualization and cloud 2.4x multiple of the SEG Software Index overall performance management. (Figure 10). Among the outperformers with TTM revenue growth above 30% and high median PUBLIC SOFTWARE COMPANY MARKET EV/Revenue multiples: Gree (101.5%, 6.8x), Qlik VALUATIONS: BY PRODUCT CATEGORY Technologies (42.0%, 7.1x), Ariba (38.5%, 6.1x), VMWare (34.7%, 10.2x) and F5 Networks (30.6%, While median financial performance metrics are 6.8x). useful for assessing the overall health of the Figure 10: 4Q11 EV/Revenue Multiple vs. TTM software industry and for comparisons to other Revenue Growth economic sectors, a deeper analysis of these key metrics by software product category provides 4.0x 3.5x greater insight about the software ecosystem. By 3.5x 3.3x analyzing how public software companies in 3.0x discrete product categories are performing, we Multiple

2.4x 2.5x enhance our understanding of market trends, Median: 2.2x 2.0x 1.8x sector health, product lifecycles, IT spending priorities and stock market biases. Perhaps most EV/Revenue 1.5x

1.0x 0.8x important, we track this data because the current

Median median valuation of companies comprising a 0.5x particular software category can weigh heavily 0.0x <= 0% > 0% > 10% > 20% > 30% when buyers value acquisition targets. <= 10% <= 20% <= 30% TTM Revenue Growth As we’ve noted in past reports, the median Similarly, highly profitable public software EV/Revenue multiples and financial results for a companies with EBITDA margins between 20% particular software category can be stagnant, or and 30%, and those with EBITDA margins greater can fluctuate wildly each quarter. As a result, than 30%, were awarded median EV/Revenue software category rankings, measured by relative multiples of 2.6x and 3.7x, respectively (Figure median valuations and financial performance, can 11). Notable examples included: CheckPoint also be consistent or volatile each quarter. That Software (55.0% EBITDA, 8.5x EV/Rev), Gree axiom held true, once again, in 2011 (Figure 12). (50.8%, 6.8x), ANSYS (49.0%, 7.7x), SolarWinds (47.4%, 10.6x), Rovi Corporation (39.8%, 5.4x) The SEG Software Index is comprised of 144 and F5 Networks (32.3%, 6.8x). public on-premise software companies sorted into 21 software product categories. Eleven product Figure 11: 4Q11 EV/Revenue Multiple vs. TTM EBITDA Margin categories achieved median EV/Revenue multiples in 4Q11 above the median SEG Software EV/Revenue of 2.2x (Figure 13).

4.0x 3.7x 3.5x Figure 13: Software Product Categories with EV/Revenue above Median in 4Q11 3.0x 2.6x 5.0x Multiple

4.5x 2.5x 4.5x Median: 2.2x 3.8x 1.9x 4.0x 2.0x 3.5x 3.3x 3.0x 2.9x 2.9x 3.0x 2.8x 2.8x 2.8x 1.5x 1.3x 2.4x

EV/Revenue 2.4x

2.5x EV/Revenue 1.0x Median: 2.2x 1.0x 2.0x 1.5x Median Median 0.5x 1.0x 0.5x 0.0x 0.0x <= 0% > 0% > 10% > 20% > 30% <= 10% <= 20% <= 30% TTM EBITDA Margin

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Figure 12: SEG Software Index Median Metrics by Product Category

Re ve nue EBIT DA EBIT DA YTD Stock EV/Revenue EV/EBITDA Category Grow th Grow th Margin Re tur n 4Q10 1Q11 2Q11 3Q11 4Q11 4Q10 1Q11 2Q11 3Q11 4Q11 4Q11 (TTM) 4Q11 (TTM) 4Q11 (TTM) 2011 Billing & Service Management 2.6x 2.0x 2.2x 1.3x 1.0x 16.1x 10.1x 8.6x 4.9x 4.4x 28.8% 52.4% 21.0% (16.4%) Business Intelligence 3.1x 3.7x 4.2x 3.9x 3.3x 29.4x 40.3x 46.2x 33.7x 31.2x 26.8% (15.0%) 9.7% (1.8%) Content/Document Management 2.6x 3.1x 3.1x 2.5x 2.4x 9.1x 10.9x 11.0x 8.7x 9.0x 19.1% 11.5% 24.8% (3.4%) Data Management & Integration 2.9x 3.3x 3.3x 2.9x 3.0x 11.0x 17.1x 14.3x 13.3x 16.8x 15.4% 24.4% 23.1% 1.3% Development Tools & Open Source 2.8x 3.0x 2.7x 2.2x 2.1x 9.9x 11.4x 10.3x 6.8x 8.7x 17.2% 27.5% 25.4% (17.2%) Electronic Design Automation 1.6x 2.1x 2.2x 1.6x 1.8x 21.5x 20.7x 20.5x 14.6x 14.3x 11.2% 44.1% 12.0% 13.0% Engineering, PLM & CAD/CAM 3.7x 3.9x 3.7x 2.6x 2.8x 16.5x 19.2x 16.4x 12.8x 13.4x 15.5% 38.4% 20.8% (6.8%) Enterprise Resource Planning 3.0x 3.2x 3.0x 2.5x 2.8x 11.2x 11.7x 11.3x 8.9x 9.5x 17.6% 25.6% 24.1% 15.4% Financial Services 2.1x 2.1x 2.3x 2.0x 2.1x 8.9x 9.2x 9.9x 9.0x 9.1x 6.1% 7.2% 23.3% 4.6% Healthcare 3.5x 3.8x 3.8x 3.2x 2.8x 15.9x 18.1x 19.1x 17.4x 15.8x 21.1% 31.0% 23.1% 7.5% IT Conglomerates 2.1x 2.1x 2.2x 2.1x 2.2x 7.7x 7.1x 5.9x 6.0x 6.2x 8.2% 1.0% 25.6% (10.6%) Mobile Solutions/Content 3.0x 2.8x 2.7x 2.0x 2.0x 13.4x 22.4x 19.9x 16.0x 12.3x 8.5% (39.3%) 6.4% (37.4%) Multimedia, Graphics & Digital Media 3.6x 4.0x 3.9x 2.8x 2.9x 17.1x 25.2x 26.5x 17.9x 12.6x 11.0% 34.5% 20.3% (17.8%) Netw orking & Netw ork Performance 3.1x 4.3x 4.8x 3.8x 4.5x 18.4x 28.0x 24.7x 18.6x 21.0x 20.5% 33.3% 22.8% (10.6%) Management Security 2.5x 2.4x 2.9x 2.2x 2.2x 14.0x 13.8x 13.9x 10.6x 8.9x 12.6% 10.4% 19.1% (7.5%) Storage & Systems Management 2.7x 3.1x 2.9x 2.1x 2.2x 12.0x 12.1x 11.8x 9.3x 9.8x 11.2% 20.0% 24.5% (17.3%) Supply Chain Management & Logistics 2.0x 1.8x 2.1x 1.8x 2.0x 11.7x 11.7x 11.6x 11.0x 12.0x 19.9% 27.3% 8.2% 17.6% Video Games 0.7x 0.9x 1.0x 1.1x 1.2x 9.2x 8.4x 10.7x 8.3x 7.4x 4.4% 31.7% 7.0% 10.5% Vertical - Finance 4.7x 4.9x 4.6x 3.8x 3.8x 15.5x 15.7x 15.8x 13.8x 13.1x 15.1% 7.1% 34.4% (13.7%) Vertical - Other 2.4x 2.4x 2.8x 2.8x 2.9x 13.6x 15.2x 14.0x 11.9x 13.9x 14.0% 11.6% 17.8% 6.9% Workforce & Service Management 2.2x 2.7x 2.7x 2.2x 2.4x 20.0x 17.4x 17.1x 13.6x 14.1x 15.7% 31.1% 16.9% 25.8% Median 2.6x 2.7x 2.7x 2.1x 2.2x 13.7x 14.6x 13.4x 11.5x 11.8x 15.1% 20.0% 18.6% (6.7%)

The Networking and Network Performance EV/Revenue multiple of software companies Management product category posted the highest comprising the Billing & Service Management median EV/Revenue multiple, 4.5x, up 44% YoY. category fell by a median 60% despite their 28.8% Companies comprising the Networking and growth in 4Q11. Network Performance Management product category benefited from strong demand for WAN Figure 14: Software Product Categories with optimization necessary to rapidly deliver software Positive YoY Change in Median EV/Revenue over cloud- based architectures, and from demands by mobile service providers for solutions 60% 55% 50% 44% to manage the explosion of mobile data. 40% SolarWinds recorded the highest median 30% 22% EV/Revenue 20% 15% EV/Revenue of the group at 10.6x, while Allot 8% 10% 5% 4% 4% Median Communications posted the highest year-over- 0% in year revenue growth of 37.5%. Change

Eight product categories improved their median YoY EV/Revenue in 2011 from a year earlier (Figure 14). The Video Game category showed signs of life in 2011, boasting the h highest YoY median EV/Revenue growth (55%) of the 21 product The Healthcare product category also declined in categories. Yet, even after its stellar YoY median EV/Revenue. In 4Q10, Healthcare performance, Video Games finished 4Q11 with boasted a 3.5x median market valuation, thanks the second lowest median EV/Revenue multiple to strong market demand for revenue cycle at 1.2x. But investors are beginning to resonate management, HIPAA compliance solutions and with video game developers who, after missing electronic medical records. By the close of 4Q11, the boat, are now launching high upside mobile Healthcare’s median EV/Revenue multiple and social gaming products. dropped to 2.8x due to concerns about delays in federal funding for hospitals to digitize patient Eleven product categories saw a YoY drop in their records. EV/Revenue multiple (Figure 12). The

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PUBLIC SOFTWARE AS A SERVICE (SAAS) revenue, but the Street was a bit more COMPANY MARKET VALUATIONS circumspect about SaaS than in years past. The six SaaS providers with highest EV/Rev In 2011, the median EV/Revenue multiple of the multiples had median TTM revenue growth in 26 pure-play public SaaS providers comprising 4Q11 of 37% compared to 25.4% median TTM our SEG SaaS Index rose markedly to 4.5x, up growth for all SaaS companies in the final quarter. from 3.6x in 2010 and 2.7x in 2009 (Figures 15 What’s interesting is that five of the six saw their and 16). The 4.5x median multiple was the EV/Rev multiples actually decline in 4Q11 from a highest since the heady, pre-Recession days of year earlier, even though each had grown its 2007, when public SaaS companies boasted a year-over-year TTM revenue growth. median 6.4x EV/Revenue multiple. Figures 15 and 16: SEG SaaS Index Median Even more surprising: of the five public SaaS Metrics – Annually and Quarterly companies that outperformed their peers in 2011 in both median TTM revenue growth and median SEG - SaaS: Median Metrics EBITDA margin, only RealPage achieved a Measure 2009 2010 2011 median EV/Revenue multiple above the overall EV/Revenue 2.7x 3.6x 4.5x EV/EBITDA 31.2x 28.5x 37.3x SEG SaaS median, finishing 4Q11 at 7.5x. EV/Earnings 66.3x 88.2x 81.6x Underperforming public SaaS companies, with Current Ratio 1.4 1.8 2.1 either TTM revenue growth rates or EBITDA Cash & Eq ($M) $58.8 $62.6 $75.1 margins below that median, drew the ire of Gross Profit Margin 66.7% 68.1% 69.2% investors and posted a median year end EBITDA Margin 7.1% 10.0% 9.2% EV/Revenue multiple of 2.8x (Figures 18 and 19). Net Income Margin -2.9% 1.2% 1.0% TTM Revenue Growth 22.1% 16.3% 23.4% TTM Total Revenue ($M) $123.7 $156.6 $184.7 Figure 18: 4Q11 Public SaaS Company TTM Total EBITDA ($M) $6.0 $12.0 $17.7 EV/Revenue Multiple vs. TTM Revenue Debt / Equity Ratio 1.8% 3.2% 3.2% Growth Rate

5.0x SEG - SaaS: Median Metrics 4.5x 4.3x Measure 4Q10 1Q11 2Q11 3Q11 4Q11 4.0x 3.5x Multiple EV/Revenue 4.2x 4.8x 5.2x 4.5x 4.3x 3.0x 2.8x EV/EBITDA 33.3x 38.2x 40.3x 29.7x 36.2x 2.5x EV/Earnings 79.7x 124.3x 86.0x 78.2x 81.2x 2.0x EV/Revenue Current Ratio 1.8 1.8 2.0 2.0 2.2 1.5x Cash & Eq ($M) $61.0 $64.4 $66.3 $83.6 $81.0 1.0x Median Gross Profit Margin 68.1% 68.3% 69.0% 69.3% 69.5% 0.5x EBITDA Margin 10.3% 10.1% 8.7% 9.5% 9.1% 0.0x Above Median TTM Revenue Below Median TTM Revenue Net Income Margin 1.7% 1.3% 0.7% 1.0% 1.3% Growth Growth TTM Revenue Growth 15.1% 20.5% 23.3% 24.9% 25.4% TTM Total Revenue ($M) $159.9 $170.3 $177.2 $187.1 $194.5 TTM Total EBITDA ($M) $13.1 $14.7 $14.7 $16.4 $19.5 Figure 19: 4Q11 Public SaaS Company Debt / Equity Ratio 4.1% 3.8% 3.0% 2.8% 2.8% EV/Revenue Multiple vs. TTM EBITDA Margin There were six SaaS overachievers that closed 5.0x 4.6x 2011 with a multiple equal to or greater than that 4.5x 2007 benchmark of 6.4x (Figure 17). NetSuite’s 4.0x 11.7x EV/Rev multiple led the pack, as investors 3.5x Multiple applauded its success in the upper tier of the mid- 3.0x 2.8x market and recent successful price increase. Not 2.5x 2.0x EV/Revenue far behind was Cornerstone OnDemand (10.7x), followed by Salesforce.com (8.0x), RealPage 1.5x 1.0x Median (7.5x), SuccessFactors (6.7x) and Concur (6.4x). 0.5x 0.0x It appears investors in 2011 rewarded those SaaS Above Median EBITDA Margin Below Median EBITDA Margin providers that outperformed their peers in growing

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Figure 17: Public SaaS Companies

SEG SaaS Index EV/Revenue EV/EBITDA TTM Revenue Grow th EBITDA Margin Company Category 4Q10 1Q11 2Q11 3Q11 4Q11 4Q10 1Q11 2Q11 3Q11 4Q11 4Q10 1Q11 2Q11 3Q11 4Q11 4Q10 1Q11 2Q11 3Q11 4Q11 Athenahealth (ATHN) Health Care Mgmt 5.6x 5.9x 5.5x 6.8x 6.2x 43.5x 42.3x 37.2x 40.1x 36.2x 33.9% 30.2% 29.2% 30.5% 30.5% 12.9% 13.8% 14.9% 16.9% 17.1% Concur (CNQR) Accounting & Finance 8.0x 7.9x 7.4x 5.6x 6.4x 36.2x 37.7x 44.4x 38.0x 48.6x 18.3% 19.0% 18.6% 18.4% 19.3% 22.2% 21.0% 16.7% 14.7% 13.1% Constant Contact (CTCT) CRM 3.4x 4.2x 3.6x 2.2x 2.6x 57.6x 58.9x 54.2x 28.0x 28.6x 38.2% 35.0% 31.6% 28.2% 25.2% 5.9% 7.2% 6.6% 7.8% 9.0% Convio (CNVO) CRM 1.5x 1.8x 2.2x 1.6x 1.8x 15.2x 18.5x 25.5x 18.0x 20.5x - 10.6% 9.5% 10.2% 12.2% 9.7% 9.9% 8.6% 8.7% 8.7% Cornerstone OnDemand (CSOD) Workforce Mgmt - 21.5x 17.3x 12.2x 10.7x ------49.1% - - 51.9% -19.2% -26.1% -27.1% -33.7% -30.9% DealerTrack (TRAK) Vertical - Automotive 2.6x 2.7x 3.1x 2.4x 3.0x 23.5x 22.2x 22.6x 15.4x 17.9x 3.5% 8.1% 16.6% 26.3% 37.9% 10.9% 12.1% 13.6% 15.7% 16.7% DemandTec (DMAN) SCM 3.2x 4.0x 3.0x 1.6x 2.2x - - - - - 1.2% 4.3% 12.0% 13.2% 11.8% -8.8% -8.7% -8.5% -9.5% -10.1% Ellie Mae (ELLI) Financial Services - - 4.3x 1.6x 1.8x - - 53.1x 15.7x 21.5x - 14.7% 23.3% - 25.5% -0.4% 6.6% 8.0% 10.5% 8.6% IntraLinks Holdings (IL) Financial Services 6.2x 7.3x 5.9x 2.5x 1.7x 52.9x 41.3x 36.6x 18.1x 15.4x - 31.0% 34.8% 30.6% 23.7% 11.6% 17.6% 16.1% 13.9% 11.2% Kenexa (KNXA) Workforce Mgmt 2.1x 2.8x 3.2x 2.2x 2.3x 25.9x 32.2x 40.3x 29.7x 29.9x 6.5% 24.5% 36.7% 46.9% 52.4% 8.2% 8.6% 7.9% 7.3% 7.8% LivePerson (LPSN) CRM 4.2x 4.7x 4.9x 4.5x 4.6x 20.6x 23.7x 23.5x 21.7x 22.8x 27.2% 25.6% 23.7% 21.9% 20.8% 20.3% 19.7% 20.6% 20.5% 20.4% Medidata Solutions (MDSO) Clinical Mgmt 2.5x 3.1x 2.8x 1.8x 2.0x 14.8x 16.1x 14.9x 8.3x 9.2x 16.8% 18.5% 17.4% 19.0% 17.9% 16.8% 19.5% 19.1% 21.4% 21.7% Netsuite (N) ERP 7.6x 9.0x 10.7x 9.8x 11.7x - - - - - 11.6% 16.0% 19.6% 21.1% 21.9% -6.8% -6.9% -7.1% -7.9% -7.3% RealPage (RP) Property Mgmt 10.0x 9.7x 9.2x 6.8x 7.5x 70.1x 70.3x 69.3x 51.4x 62.5x - 33.6% 36.6% 38.3% 39.8% 14.2% 13.8% 13.3% 13.1% 12.0% Responsys (MKTG) Digital Marketing - - 7.3x 5.3x 2.6x - - 40.6x 28.6x 13.9x - 41.2% - - 54.1% 17.9% 19.9% 18.0% 18.5% 19.0% RightNow (RNOW) CRM 4.0x 4.2x 5.0x 4.6x 6.3x 41.9x 39.8x 45.8x 44.5x 56.9x 19.4% 21.5% 23.3% 24.9% 23.0% 9.5% 10.6% 10.9% 10.3% 11.0% Salesforce.com (CRM) CRM 9.5x 10.5x 10.3x 9.1x 8.0x 83.2x 108.4x 132.8x 153.1x 183.3x 25.2% 26.9% 29.6% 33.0% 34.6% 11.5% 9.7% 7.8% 5.9% 4.3% SciQuest (SQI) SCM 5.6x 5.8x 6.6x 5.9x 5.4x 27.0x 29.2x 36.3x 38.7x 38.3x - 17.4% 19.0% 19.7% 22.0% 20.8% 19.7% 18.2% 15.3% 14.0% SoundBite Communications (SDBT) CRM 0.3x 0.3x 0.2x 0.2x 0.3x ------0.7% -1.7% -4.5% -5.2% -0.3% -4.9% -3.6% -5.1% -3.9% -0.7% SPS Commerce (SPSC) SCM 2.7x 3.2x 3.3x 3.6x 4.3x 24.0x 31.4x 37.4x 47.2x 64.3x 19.0% 18.2% 19.1% 22.5% 26.7% 11.4% 10.2% 8.7% 7.6% 6.7% SuccessFactors (SFSF) Workforce Mgmt 9.6x 11.2x 9.9x 6.9x 6.7x - - - - - 30.7% 34.5% 40.7% 44.0% 55.2% -5.7% -7.1% -8.3% -11.2% -9.3% Taleo (TLEO) Workforce Mgmt 4.3x 4.8x 5.2x 3.5x 4.2x 30.3x 38.8x 45.4x 26.5x 36.9x 12.6% 19.6% 23.5% 28.7% 35.0% 14.1% 12.4% 11.4% 13.1% 11.3% Tangoe (TNGO) Communication Mgmt - - - 5.2x 4.7x - - - 67.5x 58.8x - 22.5% 27.4% 36.0% 46.5% 7.5% 7.3% 7.3% 7.7% 8.0% The Ultimate Softw are Group (ULTI) Workforce Mgmt 4.7x 5.6x 5.7x 5.1x 6.3x 67.7x 67.6x 71.0x 59.4x 68.3x 13.3% 16.1% 16.5% 16.8% 17.0% 7.0% 8.3% 8.1% 8.6% 9.2% Vocus (VOCS) CRM 4.1x 4.2x 4.3x 3.1x 2.8x 536.7x 272.5x - 1604.5x 222.0x 11.6% 14.4% 17.4% 19.1% 18.9% 0.8% 1.6% -0.5% 0.2% 1.3% Zix Corporation (ZIXI) Security 8.1x 7.4x 6.0x 5.5x 4.2x 19.1x 36.8x 24.2x 20.1x 14.5x -4.9% 25.2% 30.9% 31.5% 31.7% 42.5% 20.2% 24.7% 27.2% 29.3% Median: 4.2x 4.8x 5.2x 4.5x 4.3x 33.3x 38.2x 40.3x 29.7x 36.2x 15.1% 20.5% 23.3% 24.9% 25.4% 10.3% 10.1% 8.7% 9.5% 9.1%

PUBLIC SOFTWARE AS A SERVICE (SAAS) The most highly valued companies (EV/Rev) in COMPANY MARKET VALUATIONS: BY PRODUCT the Workforce Management product category in CATEGORY 2011 were Cornerstone OnDemand (10.7x), SuccessFactors (6.7x) and Ultimate Software The SEG SaaS Index, consisting of 26 pure play (6.3x). SaaS providers, now includes two distinct subcategories, CRM and Workforce Management, SaaS providers of CRM solutions garnered less which together account for twelve of the 26 listed investor enthusiasm, and their median TTM SaaS providers. At the close of 4Q11, public EV/Revenue declined to 2.8x in 4Q11 from 4.0x a SaaS providers of Workforce Management year earlier. The standout exceptions were CRM solutions had a median EV/Revenue multiple of stars Salesorce.com (8.0x) and RightNow (6.3x). 6.3x, reflecting the importance in a difficult economy of recruiting, selecting, onboarding, PUBLIC INTERNET COMPANY MARKET compensating and managing a workforce (Figure VALUATIONS 20). The median EV/Revenue multiple for the 90 public companies comprising the SEG Internet Figure 20: SEG SaaS EV/Revenue Multiples Index rose to 2.9x in 2011, up 26% from 2010’s by Product Category 2.3x and 45% from 2009’s 2.0x. Indeed, the 2.9x median valuation was the highest SEG Internet CRM Workforce Mgmt Index multiple since 2007’s 3.0x. When analyzed 7.0x 6.3x quarterly, the median EV/Revenue Internet 6.0x 5.6x 5.7x multiple behaved similarly to the market 5.1x 5.0x 4.5x valuations of public software and SaaS Multiple 4.2x 4.3x 4.0x 4.0x companies in our tracking indexes – peaking in 3.1x 2.8x 3.0x 2Q11, then declining sequentially in 3Q11 and EV/Revenue 4Q11 (Figures 21 and 22). 2.0x

Median 1.0x The SEG Internet Index had the widest range of 0.0x 4Q10 1Q11 2Q11 3Q11 4Q11 median EV/Revenue multiples of the three SEG indices, ranging from a high of 22.1x (Baidu), to a low of 0.14x (Overstock.com) (Figure 23).

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Figures 21 and 22: SEG Internet Index Median Metrics – Annually and Quarterly Early in 2011, China-based Internet companies were the darlings of investors. But in 3Q11 and SEG - Internet: Median Metrics 4Q11, valuations of Chinese Internet companies Measure 2009 2010 2011 fell victim to reports of a slowing domestic EV/Revenue 2.0x 2.3x 2.9x economy and accounting irregularities. In 4Q11, EV/EBITDA 10.9x 12.5x 15.2x the eighteen companies in our SEG Internet Index EV/Earnings 20.5x 24.2x 30.7x with headquarters in China posted a median Current Ratio 2.3 2.4 2.4 EV/Revenue multiple of 3.7x, down more than Cash & Eq ($M) $80.5 $118.8 $127.0 50% from the median 7.5x valuation they posted Gross Profit Margin 62.3% 64.7% 65.4% in 2Q11 (Figure 24). EBITDA Margin 14.8% 17.6% 16.4% Net Income Margin 4.6% 6.6% 4.4% Figure 24: EV/Revenue Comparison of TTM Revenue Growth 15.6% 17.1% 22.0% Chinese and U.S. Based Internet Companies TTM Total Revenue ($M) $216.2 $278.1 $327.5 8.0x 7.5x China HQ US. HQ TTM Total EBITDA ($M) $28.0 $40.9 $37.7 7.0x Debt / Equity Ratio 12.4% 7.0% 11.7% 6.0x

Multiple 4.7x SEG - Internet: Median Metrics 5.0x Measure 4Q10 1Q11 2Q11 3Q11 4Q11 4.0x 3.7x EV/Revenue 2.9x 3.0x 3.3x 2.8x 2.6x 2.6x EV/Revenue 3.0x EV/EBITDA 14.8x 16.5x 17.7x 13.5x 12.4x 2.4x 2.4x EV/Earnings 29.4x 30.2x 32.9x 28.4x 23.7x 2.0x

Current Ratio 2.3 2.3 2.4 2.6 2.4 Median 1.0x Cash & Eq ($M) $87.7 $109.1 $104.2 $132.0 $139.0 Gross Profit Margin 64.3% 64.5% 65.0% 65.6% 65.6% 0.0x EBITDA Margin 15.2% 16.9% 16.4% 16.6% 15.8% 2Q11 3Q11 4Q11 Net Income Margin 4.6% 5.9% 4.9% 5.0% 4.0% TTM Revenue Growth 20.4% 24.0% 20.5% 21.5% 25.6% The median market multiple of North American TTM Total Revenue ($M) $241.4 $290.4 $302.2 $338.3 $344.3 Internet companies, however, exhibited modest TTM Total EBITDA ($M) $28.0 $36.0 $34.8 $34.8 $37.2 Debt / Equity Ratio 3.6% 4.8% 13.6% 9.4% 18.2% growth in EV/Revenue in 4Q11, advancing to 2.6x from 2.4x in 3Q11. And although the multiple Fourteen public Internet companies had differential narrowed, Chinese companies still EV/Revenue multiples of 8.0x or higher at the finished 4Q11 with a median EV/Revenue 42% close of 4Q11 – eight were foreign entities, and higher than their North American based peers. six were domestic. The median TTM revenue growth of these investor darlings was eight times Throughout most of 2011, Internet companies the growth rate of the 21 companies that closed with revenue greater than $1 billion received the 4Q11 with a median valuation below 1.0x, and the highest median EV/Revenue, benefiting from their median EBITDA margin of the market market dominance and investors preference for outperformers was 60% greater than the strong balance sheets and stability (Figure 25). underachievers. Figure 25: SEG Internet EV/Revenue Figure 23: Internet EV/Revenue Multiple Multiples by Size of Buyer Distribution

6.0x Median TTM Revenue Growth: 6.7% Median EBITDA Margin: 8.4% 25 5.0x

21 Median TTM Revenue Growth: 50.3% Median EBITDA Margin: 13.9% 20 4.0x Multiple

15 14 15 13 3.0x EV/Revenue 10 8 2.0x 6 Median 4 4 5 3 1.0x

0 <= 1x > 1.0x > 2.0x > 3.0x > 4.0x > 5.0x > 6.0x > 7.0x > 8.0x 0.0x & & & & & & & <= 8.0x 4Q10 1Q11 2Q11 3Q11 4Q11 <= 2.0x <= 3.0x <= 4.0x <= 5.0x <= 6.0x <= 7.0x Revenue => $1 billion Revenue => $200 million and < $ 1 billion Median EV/Revenue Multiple Revenue >= $100 million and < $200 million Revenue < $100 million

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That didn’t mean speculation was entirely abated. and online streaming businesses, the EV/Rev The smallest (as measured by annual revenue) multiple of Netflix went into free fall, nose diving Internet companies saw their median TTM from a 5.4x EV/Revenue multiple in 2Q11 to 1.4x EV/Revenue multiple jump 35% YoY in 4Q11, as at the close of 4Q11. Internet excitement mounted following LinkedIn’s successful IPO. PUBLIC SOFTWARE COMPANY FINANCIAL PERFORMANCE: OVERALL PUBLIC INTERNET COMPANY MARKET VALUATIONS: BY PRODUCT CATEGORY The 144 public companies in the SEG Software Index grew TTM revenue a median 14.4% in Enterprise valuations of companies comprising 2011, up markedly from 2010’s anemic 5.7%, and the SEG Internet Index varied widely by Internet 2009’s 5.2% (Figures 7 and 8). Top line growth in category in 4Q11 (Figure 26). Despite a 15% the mid-teens is historically considered to be solid drop YoY, Internet Travel companies closed 4Q11 performance by public software companies, and with the highest median EV/Revenue multiple, was particularly impressive in 2011 given the 5.5x. The category benefitted from the strength of tough economic backdrop. Indeed, 2011’s top HomeAway (11.4x), newly listed in 2011, and line growth rate improved every quarter, ending Ctrip (6.4x). 4Q11 at 15.1%, 57% higher than the year prior.

The Internet Services category was also favored However, with Gartner, Goldman Sachs and by investors, closing 4Q11 with a median 5.1x others projecting tepid IT spending in 2012, we EV/Revenue, a 59% YoY improvement. Five high expect top line growth to decelerate or flatten in flyers in the Internet Services category finished 2012. 4Q11 with median EV/Revenue multiples above 10x: Qihoo (14.0x), Jive Software (12.5x), Zillow 2011’s growth rate helped drive the median TTM (12.2x) and Angie’s List (11.3x). All but Qihoo revenue of the SEG Software Index above $300 went public in 2011. million for the first time ever (Figure 7). That milestone was reached less than three years after The Media category saw the largest YoY decline the median TTM revenue of the SEG Software in EV/Revenue, closing 4Q11 with a median Index surpassed $200 million in 2008 – further multiple of 1.8x, 36% lower than a year earlier. evidence that consolidation in the software sector The decline in median EV/Revenue of this is resulting in not only fewer, but considerably Internet category at the close of 4Q11 was in part larger, publicly traded software companies. attributable to the falling market values of DemandMedia (1.6x), AOL (0.5x) and Local.com As impressive, public software companies (0.7x). But the Internet stock with the largest continued to focus on profitability, even as their negative impact on the category’s median multiple revenue growth rates accelerated. In 2011, the in 2011 was Netflix. Following its confounding median EBITDA margin for the SEG Software decisions to raise prices and split its DVD mail Index was 18.4%, up from 18.0% in 2010 and

Figure 26: SEG Internet Index Median Metrics by Product Category

SEG - Internet Index Revenue EBITDA EBTIDA YTD EV/Revenue EV/EBITDA Gr ow th Gr ow th Margin Stock Category (TTM) (TTM) (TTM) Return 4Q10 1Q11 2Q11 3Q11 4Q11 4Q10 1Q11 2Q11 3Q11 4Q11 4Q11 4Q11 4Q11 2011 Ad Tech & Lead Gen 2.4x 2.8x 2.4x 2.2x 2.5x 12.8x 14.9x 9.6x 11.4x 24.6x 20.2% -18.2% 8.4% -36.8% Infrastructure 2.9x 3.2x 2.9x 2.8x 2.0x 14.9x 18.8x 17.5x 11.8x 10.9x 29.0% 30.0% 15.7% -2.3% Media 2.8x 3.0x 3.6x 2.7x 1.8x 14.8x 14.1x 13.1x 10.8x 9.3x 19.8% 18.2% 14.8% -31.4% Retail 2.1x 1.8x 1.7x 1.4x 1.4x 16.1x 12.8x 12.6x 14.4x 13.0x 19.2% 5.6% 9.3% -21.8% Search 1.3x 1.4x 1.5x 1.4x 1.4x 9.0x 9.6x 10.0x 11.2x 11.4x 27.7% 19.4% 12.6% -6.3% Services 3.2x 4.7x 5.0x 5.1x 5.1x 15.9x 18.6x 25.8x 31.8x 24.1x 27.9% 35.0% 14.9% -10.2% Travel 6.4x 6.8x 8.4x 5.9x 5.5x 25.0x 27.5x 35.1x 25.5x 17.2x 28.7% 55.8% 23.6% -32.7% Video Games 4.1x 4.1x 4.7x 4.0x 3.1x 7.3x 8.3x 8.7x 7.2x 7.3x 33.2% 34.8% 42.5% -13.3%

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17.4% in 2009 (Figure 7). The high levels of Networking & Network Performance Management profitability continued to strengthen public (21%) and Supply Chain Management (20%). software company balance sheets. Median cash & cash equivalents for the SEG Software Index At the other end of the spectrum, the five software reached $114.8 million in 2011, up from $105.0 product categories with lowest TTM revenue million in 2010 and $91.1 million in 2009. There growth rates at the close of 4Q11 were are now 21 public software companies with over Multimedia companies and Digital Media (- $1 billion in cash on their balance sheets, led by 11.0%), Mobile Solutions (-8.5%), IT Microsoft with more than $55 billion (Figure 27). Conglomerates (-8.2%), Financial Services (- 6.1%) and Video Games (-4.4%). Given the buzz The significant cash reserves and strong balance around Mobile, it’s hard to understand the sheets of most public software companies, backslide until one considers seventeen pure play particularly the industry’s largest players, bode Mobile companies were mostly blindsided when well for many small and mid-cap software OEMs, app developers content providers and company targets. consumers took control of their mobile destinies in 2011. Case in point: Motricity grew revenue Figure 27: SEG Software Index 193% in 2008 serving wireless carriers with Companies with over $1 billion of Cash & mobile portal solutions, but as the mobile market Cash Equivalents shifted, Motricity struggled to reinvent itself, and saw TTM revenue decline 8.5% in 4Q11 as a Microsoft Corporation Cisco Systems, Inc. result. Oracle Corporation IBM Hewlett Packard SAP EMC PUBLIC SOFTWARE AS A SERVICE (SAAS) Network Appliance, Inc. VMWare Adobe Systems Incorporated FINANCIAL PERFORMANCE Activision Blizzard CA, Inc. Symantec Corporation Dassault Systèmes In 2011, the median TTM revenue growth rate of Electronic Arts Inc. BMC Software, Inc. Trend Micro public SaaS companies was 23.4%, up nearly Autodesk, Inc. Check Point Software Tech Ltd. 50% from 2010’s 16.3% (Figure 15). The median Amdocs Limited Synopsys, Inc. TTM revenue growth rate has now increased six $0 $10 $20 $30 $40 $50 $60 Cash & Cash Equivalents ($ billions) consecutive quarters, from 12.1% in 2Q10 to 25.4% in 4Q11. Much of this growth has been bolstered by additional investment in sales and PUBLIC SOFTWARE COMPANY FINANCIAL marketing, which has grown from 23% of total PERFORMANCE: BY PRODUCT CATEGORY revenue spend in 2Q10, to 33% in 4Q11 (Figure 28). Only three SEG SaaS Index companies The median TTM revenue in five of our SEG reported TTM revenue growth below the 15.1% Software Index product categories grew 20% or median of their on-premise counterparts. more in 4Q11 (Figure 12). Business Intelligence, driven by demand for analytics in the era of Big Figure 28: SEG SaaS Sales & Marketing Data, achieved a 26.8% TTM revenue growth Spend vs. TTM Revenue Growth rate. Yet investors were indifferent, pushing the

median stock price of the product category down 30.0% 33% 33% 35% 1.8%. 28% 28% 25.0% 30% 25% 25% 23% 25% Pegasystems was hit hardest of this group, 20.0% Revenue

Growth watching its stock price decline 19.7% in 2011. 20% Total

15.0%

But BI provider Microstrategy, which grew of 24.9% 25.4% 15%

23.3% % Revenue revenue 28.4% in 2011, posted a year-end stock 10.0% 20.5% as 10%

TTM 15.1% price increase of 26.7%. Other software product 12.1% 13.0% categories that were successful growing their 5.0% 5% S&M median revenue above 20%: Billing & Service 0.0% 0%

Management (29%), Healthcare (21%), 2010 2010 2010 2011 2011 2011 2011

Q2 Q3 Q4 1Q 2Q 3Q 4Q

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For most public SaaS providers, however, Equally impressive, Internet companies achieved profitability posed more of a problem. In 2011, a median EBITDA margin of 16.4% in 2011, their median EBITDA margin declined to 9.2% modestly less than the 18.4% median EBITDA from 10.0% in 2010. The decline signals a margin of public on-premise software companies, reprioritization by public SaaS companies of but considerably greater than the 9.2% median growth over profitability, as reflected by their YoY EBITDA posted by public SaaS companies. The increased spending in 4Q11 on R&D, S&M and solid profitability of these Internet providers G&A as a percent of total revenue (Figure 29). contributed to very healthy balance sheets, with median cash and cash equivalent balances reaching $139 million in 4Q11, up 59% YoY Figure 29: SEG SaaS Spending as a % of (Figure 22). Total Revenue

4Q10 4Q11 The margins of public Internet companies are

35% 33% especially notable considering the mashup nature

30% of their business models which typically entail 25% considerable revenue sharing. The median gross 25% profit margin of Internet providers was 65.6% in 20% 15% 15% 4Q11, compared to a median fourth quarter Revenue 15%

of 12% 11% margin of 66.3% for public software companies, % 10% and a median 69.5% margin for public SaaS 5% companies. 0% R&D S&M G&A Given their more challenging revenue model, just how do public Internet companies compensate in

order achieve their EBITDA margins? Generally Profitability among the public SaaS providers by spending less on Research & Development varied widely, often reflecting the size of their and Sales & Marketing than their on-premise and subscriber base and their decision to invest in SaaS counterparts. In 4Q11, Internet companies infrastructure improvements and sales. Five of spent only 10.4% of revenues on R&D, whereas the twenty six public SaaS companies in our index their SaaS and on-premise peers spent 14.9% reported negative EBITDA margins in 4Q11, while and 13.8%, respectively. Similarly, Internet three exceeded 20% EBITDA margins (Figure companies spent only 21.7% of revenues on S&M 19). compared to 33.1% and 24.6% by SaaS and on- premise peers, respectively (Figure 30). PUBLIC INTERNET COMPANY FINANCIAL PERFORMANCE

Public companies comprising the SEG Internet Index grew TTM revenue a median 22.0% in Figure 30: SEG Internet Spending vs. SEG 2011, a noteworthy improvement from 2010’s Software and SaaS

median TTM growth of 17.1% and 2009’s 15.6% S&M R&D G&A (Figure 21). Viewed quarterly, the 4Q11 median 70.0%

TTM revenue growth rate was 25.6%, with 35 of 60.0% the 90 companies in the SEG Internet Index 50.0% posting greater than 30% TTM revenue growth 40.0% Revenue

(Figure 22). That growth rate is especially

Total 30.0% impressive considering the median TTM revenue of

% of public Internet companies was $344.3 million in 20.0% the fourth quarter, the highest median revenue 10.0% among our three tracking indexes. By 0.0% comparison, public SaaS companies had median SaaS Internet Software TTM revenue of $194.5 million in Q4, and a slightly lower TTM revenue growth rate of 25.4%.

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PUBLIC INTERNET COMPANY FINANCIAL Figure 31: SEG Software, SaaS and Internet PERFORMANCE: BY PRODUCT CATEGORY Financial Performance vs. Median EV/Revenue Among our eight Internet categories, Video 25.0% 5.0x Games recorded the strongest financial Revenue4.5x Growth EBITDA Margin EV/Revenue 4.5x

performance in 4Q11, achieving the highest TTM 20.0% 4.0x

revenue growth, 33.2% (Figure 20). While &

3.5x 2.9x Multiple traditional retail gaming has slowed markedly, 15.0% 3.0x Growth

2.4x Margin consumer driven social and mobile gaming has 2.5x

10.0% 2.0x EV/Revenue Revenue

EBITDA

surged. Reflecting a far less costly and much

more efficient distribution model, the EBITDA of TTM 1.5x Median these online gaming companies – 42.5% in the 5.0% 1.0x fourth quarter - made the 7.0% EBITDA of their 0.5x 0.0% 0.0x retail focused counterparts pale by comparison. SaaS Internet Software Look for the disparity among retail vs. online gaming developers to grow, given the burgeoning Nevertheless, the primary driver of market value popularity of social, mobile and smart phone continued to be revenue growth. The SEG gaming. Internet and SEG Software indices, both with relatively low levels of recurring revenue, paint a Retail turned in the worst Internet performance revealing picture of current investor bias. In 2011, among our eight categories, finishing 4Q11 with the SEG Internet Index achieved higher TTM TTM revenue growth of 19.2% and EBITDA revenue growth (22.0% vs. 14.4%), but lower margins of 9.3%. Relative to on-premise software EBITDA margins (16.4% vs. 18.4%), than the and SaaS, the financial performance of these e- SEG Software Index. In response, investors Retailers was respectable, thanks to ramping rewarded public Internet companies with a consumer spending online. Nevertheless, when median 2011 EV/Revenue multiple of 2.9x, a 21% compared to all other Internet categories of the premium over their public software company SEG Internet Index, Retail was at or very near peers with higher EBITDA margins. 4Q11 marked bottom in TTM revenue growth, EBITDA growth, the fifth consecutive quarter the median EBITDA margin and YTD stock return. EV/Revenue multiple of our Internet Index exceeded the median EV/Revenue multiple of the PUBLIC SOFTWARE, SAAS AND INTERNET SEG Software Index. We expect the trend to FINANCIAL PERFORMANCE IN 2011: A RECAP grow and the differential to widen in 2012.

On a median EV/Revenue basis, public SaaS INITIAL PUBLIC OFFERINGS companies continued to earn top honors, finishing 4Q11 with nearly double the median EV/Revenue Globally, $100 billion was raised by 495 IPOs on multiple of their on-premise counterparts. It’s all major exchanges in 2011, compared to $166.1 unsurprising investors continued to resonate with billion raised by 569 IPOs in 2010. The average these SaaS providers, given their higher levels of IPO was $203 million in 2011, a moderate decline recurring revenue, higher TTM growth rates, and from 2010’s $295 million average. Asia-Pacific extraordinary appeal to small-medium enterprises. accounted for 117 of the worldwide IPOs, with China winning the lion’s share (55). There were On a historical basis, the median EV/Revenue 150 IPOs on the Toronto Stock Exchange and the multiple of the SEG Internet Index in 2011 is TSX Venture market in 2011 that collectively took relatively high, but is still 35% lower than the in about $2.1 billion, down from 128 new offerings median EV/Revenue multiple of the SEG SaaS in 2010 that raised $6.1 billion. Index, despite a comparable TTM revenue growth rate (22.0% vs. 23.4% SaaS), and despite nearly Domestically, across all industry sectors, 215 twice the EBITDA margin (16.4% vs. 9.2% SaaS.) companies went public on the major U.S. stock The valuation gap speaks, once again, to the exchanges in 2011, compared to 182 in 2010, and perceived value of recurring revenue (Figure 31). 76 in 2009. Of these 215 newly public companies, 146 listed in the first calendar half of

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Copyright © 2012 Software Equity Group, L.L.C., All Rights Reserved Software Equity Group, L.L.C. Investment Banking / Mergers & Acquisitions the year, and Q2 was the strongest quarter, with on-premise software companies (Figure 32). 88 public company debuts. Together, 2011’s 215 IPOs raised $64.4 billion, a 40.9% increase from Collectively, these 22 newly listed companies 2010’s $45.7 billion. Glencore International’s touted a median TTM revenue growth rate of (LSE: GLEN) $10 billion offering was the largest 59.1%, and a median TTM EBITDA margin of at $3.8 billion, dwarfing the next largest offering 7.8%. In aggregate, they raised over $5.7 billion, by Hutchison Port Holdings Trust (SGX: NS8U). ranging individually from $20.0 million to $1.3 The median revenue for these 215 newly listed billion. Their median EV/Revenue multiple on the companies in 2011 was $104.8 million, and the first day of trading was a whopping 11.9x. Two median EBITDA was $16.6 million. Of the 215 that made their debuts in 2011 raised over $1 IPOs in 2011, 125 were headquartered in North billion each: Yandex ($1.3 billion), the leader in America, 15 in Europe, and 23 were based in Asia search engine services in Russia, and Zynga / Pacific, 18 less than a year ago. ($1.0 billion), the leading online and mobile game provider. Of the 22 freshly minted companies in The software IPO market in 2011, after a strong 2011, 15 were headquartered in North America, first half, slowed dramatically in the final six six in Asia/Pacific, and one in Russia. months in reaction to dizzying market volatility. Although not a single software, SaaS or Internet How did investors in these 22 newly listed company listed on a major U.S. exchange in Software, SaaS and Internet companies fare by September and October, 2011’s year-end tally of the last day of trading in 2011? The 13 22 software/SaaS/Internet IPOs still managed to companies that made their public debut in the first beat 2010’s total of 18. The breakdown of these half saw their stock prices decline by a median 22 new entrants: 17 Internet, three SaaS and two 37.4% by year end. The nine that listed in the

Figure 32: U.S. Software, SaaS and Internet IPOs in 2011

EV / Revenue EBITDA First Day Company (Ticker) Category IPO Date Net Proceeds Enterprise Value EV / Rev Revenue YTD Return EBITDA Growth Margin Return Zynga Internet - Gaming 12/16/11 $1,000,000,000 $5,718,134,830 5.6x 45.5x $1,024,622,000 391.9% 18.6% (5.0%) (5.9%) (NASDAQ: ZNGA) Jive Software Internet - Services - Social 12/13/11 $140,405,640 $849,261,450 12.2x n/a $69,443,000 54.3% (49.0%) 25.4% 33.3% (NASDAQ: JIVE) Angie's List Internet - Services 11/17/11 $114,314,304 $904,383,810 11.5x n/a $78,703,000 29.5% (56.5%) 25.1% 23.8% (NASDAQ: ANGI) Imperva Security 11/9/11 $61,800,000 $405,781,000 5.6x n/a $71,971,000 40.8% (14.0%) 4.3% 51.3% (NYSE: IMPV) Groupon Internet - Ad Tech & Lead 11/4/11 $478,800,000 $16,408,177,890 12.7x n/a $1,290,490,000 2052.3% (28.3%) (6.8%) (26.3%) (NASDAQ: GRPN) Generation Tudou Holdings Limited Internet - Media 8/17/11 $120,000,000 $676,946,250 13.2x n/a $51,294,280 221.1% (85.5%) 32.5% (59.3%) (NASDAQ: TUDO) Carbonite Internet - Services 8/11/11 $100,000,000 $280,158,300 5.7x n/a $49,120,000 101.8% (31.2%) 32.5% (58.9%) (NA SDA Q:CA RB) Tangoe SaaS - Communication 7/27/11 $87,700,000 $390,345,770 4.6x 78.6x $84,201,880 22.5% 7.7% 32.5% (43.0%) (NASDAQ: TNGO) Management Zillow Internet - Services 7/20/11 $69,240,000 $947,018,920 21.1x n/a $44,907,000 74.2% 2.8% 32.5% (16.7%) (NASDAQ:Z) HomeAway Internet - Travel 6/29/11 $216,000,000 $3,601,208,300 19.6x 121.2x $183,741,000 39.6% 17.1% 48.9% (13.9%) (NASDAQ:AWAY) Pandora Internet - Media 6/15/11 $234,940,000 $2,746,176,760 16.4x 609.4x $167,205,000 174.8% (0.3%) 8.9% (37.4%) ( NY SE:P) The Active Network Internet - Services - Event 5/25/11 $165,000,000 $1,225,649,700 4.2x 87.7x $289,090,000 15.1% 5.2% 6.0% (9.3%) (NYSE:ACTV) Management Yandex Internet - Search 5/24/11 $1,304,350,000 $12,242,319,710 24.8x 62.2x $493,891,010 43.2% 47.7% 56.0% (21.2%) (NA SDA Q:Y NDX) LinkedIn Internet - Services - Social 5/19/11 $175,000,000 $8,800,435,590 30.1x 247.4x $292,315,000 102.4% 13.0% 109.4% 40.0% (NYSE:LNKD) Network FriendFinder Networks Internet - Services 5/11/11 $50,000,000 $701,044,870 2.0x 6.6x $343,312,000 5.6% 32.3% (21.5%) (92.5%) (NA SDA Q:FFN) Jiayuan.com International Internet - Services 5/11/11 $78,000,000 $184,928,560 5.7x 43.7x $32,538,870 162.3% 21.5% (4.4%) (46.9%) (NA SDA Q:DA TE) Renren Internet - Services - Social 5/4/11 $743,000,000 $2,189,859,750 26.4x 149.2x $83,067,000 63.9% 13.4% 28.6% (74.6%) (NYSE:RENN) Network SaaS - Document and Ellie Mae Business Process 4/15/11 $86,250,000 $121,317,000 2.7x 42.4x $44,958,000 14.7% 8.0% 35.4% 13.0% (AMEX:ELLI) Management Qihoo 360 Technology Internet - Services - Security 3/30/11 $175,610,000 $3,936,371,720 68.3x 379.8x $57,665,000 78.5% 18.0% 25.9% (41.9%) (NYSE:QIHU) Cornerstone OnDemand SaaS - Workforce 3/17/11 $136,500,000 $975,737,520 22.3x n/a $43,731,000 49.1% (26.1%) 46.7% 40.3% (NASDAQ: CSOD) Management Demand Media Internet - Media 2/26/11 $151,300,000 $2,223,332,400 8.8x 43.7x $252,936,000 27.5% 20.1% 25.9% (75.4%) (NY SE: DMD) Trunkbow International Holdings Mobile 2/3/11 $20,000,000 $164,518,050 6.7x 11.9x $24,387,920 81.6% 56.8% (5.2%) (61.8%) (NASDAW: TBOW) Median $138,452,820 $961,378,220 11.9x 70.4x $80,885,000 59.1% 7.8% 25.9% (23.8%)

Financial data is the latest available from CapIQ on offering date. First day return compares listed offering price to first day close.

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second half fared better, managing to scratch out EBITDA margin), and its stock price declined a 0.7% median return. Again, revenue growth 26.3% by year end. Pandora, the clear leader in was the differentiator. The nine companies listing advertising based online music, with TTM revenue in 2H11 had revenue growth rates nearly double growth of 174.8%, was nevertheless unable to those that listed in the first half (74.2% vs. 49.1%), allay investor fears of emerging competition and but far worse EBITDA margins (-28.3% vs. its stock price posted a -37.4% return on 17.1%). December 31. Zynga went public in December and finished the year down 5.9% from its offering The Internet IPOs of 2011 included some highly price despite stellar TTM revenue growth notable companies such as Groupon, LinkedIn, (391.9%) and a solid EBITDA margin (18.6%). Pandora and Zynga. LinkedIn came out at $45, closed the first day of trading at $94.25, but ended Fourteen companies filed S-1 Registration the year 33% lower than its first day closing price. Statements in 2011, joining two already in the Pandora finished 2011 with the worst YTD return queue, for a current total of 16 U.S based of -37.4%. Groupon, despite unprecedented TTM Software, SaaS and Internet companies that plan revenue growth of 2,052%, was unable to to publicly list in 2012 (Figure 33). The group convince investors it could continue its torrid spans some of the hottest categories in the expansion while stemming its losses (-28.3% market today: Mobile, Healthcare, Security, Figure 33: U.S. Software, SaaS and Internet IPO Pipeline

Filing Expected Net Revenue EBITDA Company (Ticker) Category Revenue Date Proceeds Growth (YoY) Margin

Software Category

NDS Group Holdings Content 12/19/11 $100,000,000 $956,861,000 7.7% 28.6% (NY SE: NDSG) Guidewire Insurance Management 9/2/11 $100,000,000 $144,700,000 70.7% 15.7% (NYSE: GWRE) MobiTV Mobile Content 8/31/11 $75,000,000 $66,824,000 7.0% 1.1% (TBD) Exa Corporation Engineering 8/3/11 $86,250,000 $37,732,000 6.0% 11.8% (TBD) Tim w.e. SGPS, S.A. Mobile 7/28/11 $181,130,000 $309,900,000 30.1% 10.0% (NASDAQ: TMWE) Greenway Medical Technologies Healthcare 7/15/11 $100,000,000 $64,600,000 39.0% 7.1% (NYSE: GWAY) Tripwire, Inc. Security 5/28/10 $86,250,000 $74,006,000 18.6% 13.5% (NASDAQ: TPWR) Software Category Median: $100,000,000 $74,006,000 18.6% 11.8% SaaS Category Proofpoint Security 12/14/11 $50,000,000 $64,790,000 33.5% (13.9%) ( NA SDA Q: PFPT) Bazaarvoice Social Media 8/26/11 $86,250,000 $64,482,000 66.8% (20.7%) (TBD) BrightCove Video Publishing 8/24/11 $50,000,000 $43,716,000 20.8% (33.7%) (NASDAQ: BCOV) Demandware eCommerce 7/15/11 $100,000,000 $36,690,000 71.5% (7.6%) (NY SE: DWRE) TrustWave Holdings Security 4/21/11 $100,000,000 $111,503,000 52.5% 4.4% (TBD) SaaS Category Median: $86,250,000 $64,482,000 52.5% (13.9%) Internet Category Yelp Services - Social Media 11/17/11 $100,000,000 $73,700,000 84.9% (12.4%) (NASDAQ: YELP) CafePress Retail 6/10/11 $80,000,000 $127,900,000 23.6% 7.8% (TBD) Cloudary Coporation Media 5/24/11 $200,000,000 $60,018,000 201.9% (18.6%) (NYSE:READ) Kayak Software Corporation Travel 11/17/10 $50,000,000 $112,698,000 0.6% 14.4% (TBD) Internet Category Median: $90,000,000 $93,199,000 54.2% (2.3%)

Total Median: $93,125,000 $70,262,000 31.8% 5.7%

Financial data provided from fiscal numbers posted in S-1 or F-1 on date of filing EBITDA margin estimated when not stated explicitly in S-1 or F-1

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Social Media and Internet Travel. As financial pipeline contains only four Internet companies. performers, however, they’re not as impressive as Yelp, currently looking to raise $100 million from the Class of ’11. The software companies in the its public offering, is the most notable of the group current pipeline have lower median TTM revenue given the hoopla surrounding social media. Yelp growth rates (31.8% vs. 59.1%) and EBITDA had impressive Q4 TTM revenue growth 84.9% margins (5.7% vs. 7.8%). but remained unprofitable. Facebook, the god father of social media, has announced its intention There are seven on-premise software companies to go public in the first half of 2012. in the 2012 pipeline. Collectively, the group had median TTM revenue growth in Q4 above the Given the slow but steady signs of continuing SEG Software Index median (18.6% vs. 14.4%), economic recovery, growing investor demand for but lower EBITDA margins (11.8% vs. 18.4%). technology stocks with significant perceived Guidewire, a provider of system software to the upside, and what is sure to be a strong updraft property and casualty insurance industry, is the following Facebook’s multi-billion dollar coming only company in the group with TTM revenue out party this Spring, we expect 2012’s growth (70.7%) and EBITDA margins (15.7%) software/SaaS/Internet IPO tally to exceed above the 2011 IPO median. 2011’s, quite possibly reaching 30 by year end.

The five SaaS companies in the pipeline had VENTURE CAPITAL INVESTMENT median 52.5% TTM revenue growth at year end. Indeed, every company in the group posted Q4 Venture capital investments across all U.S. TTM revenue growth of 20.8% or higher. industry sectors grew in both number and size in However, profitability is still out of reach for most 2011. According to the PricewaterhouseCoopers in this group, as four of the five had negative / Thompson Venture Economics / National earnings. Venture Capital Association MoneyTree™ Survey, there were 3,673 VC equity financings in the U.S. After 17 Internet IPOs in 2011, the current IPO during 2011, a 4.2% increase over 2010 (Figure

Figure 34: U.S. Venture Capital Investments and Total Dollars Invested Across all Industries

4,500 $35 Total VC Investment Dollars Number of VC Investments 4,000 $30 3,500 billions)

$25 ($

3,000

2,500 $20 Investments

Invested VC 2,000 $31 $31

of $15 $28 $27 Dollars 1,500 $22 $23 $23 $21 $10

$20 VC

$19 Number 1,000

$5 Total 500

‐ $0 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

18| 2012 SOFTWARE INDUSTRY FINANCIAL REPORT www.softwareequity.com

34). Total dollars invested grew 22.2% to $28.4 million. Other industries attracting significant VC billion from $23.3 billion a year earlier, and the attention and investment in 2011 were IT Services average investment increased 17.3% to $7.7 and Biotechnology. million from $6.6 million in 2010.

From 2000 to 2009, VCs and private equity Figure 35 and 36: Aggregate VC investors managed their portfolios and rode the Investments and Total Dollars Invested by ups and downs of the economy, in many cases with little or no ROI to show for their efforts. In Aggregate VC Investments by Company Stage 2010, however, there were a good number of 396 liquidity events featuring VC backed companies, 864

including 75 IPOs worth $7.1 billion, and a record 1,414 breaking 437 M&A transactions. While 2011 was 999 not quite as robust, many equity investors were rewarded with successful liquidity events by portfolio companies. According to the NVCA, there were 52 IPOs worth $9.8 billion in 2011, and 429 M&A transactions. Seed Early Expansion Later

Across all industry sectors, the number of seed stage investments increased a scant 0.8% in Aggregate VC Dollars by Company Stage ($ billions) 2011 over the prior year but aggregate dollars $0.9 invested in seed companies declined sharply YoY $9.5 $8.3 by 47.7%, as VCs shifted their focus to investments that offered less risk or more upside. $9.7 The number of early stage companies receiving first round equity financing in 2011 increased 15.5% from the prior year, while the aggregate amount invested grew 47.2%. Expansion stage investments, where equity investors flocked Seed Early Expansion Later during the Great Recession, declined in number by 8% in 2011, although dollars invested increased 8.6%. Similarly, the number of later stage company financings increased 5.0% YoY in 2011, but the aggregate investment soared 37.1%. Together, expansion and late stage investments received 67.6% of equity investment dollars in 2011 (Figures 35 and 36).

Software led all other industry sectors in number of VC financings (27.3% of total) and aggregate dollars invested (23.6% of total) (Figure 37 and 38). In 2011, 1,004 software companies received VC financing, up 6.8% from 2010, and the $6.7 billion raised was a whopping 38.3% improvement over the prior year. Software companies receiving first time financing increased 18.7%, from 289 last year to 343 in 2011, and raised a total of $1.45 billion, equating to an average investment of $4.3 million.

A distant second to the Software industry was Media and Entertainment, attracting 212 VC equity investments in 2011 aggregating $568 19| 2012 SOFTWARE INDUSTRY FINANCIAL REPORT www.softwareequity.com

Figures 37 and 38: Aggregate VC Investments and Total Dollars Invested by Product Category

Software Software Biotechnology Biotechnology Media and Entertainment Industrial/Energy IT Services Medical Devices and Equipment Medical Devices and Equipment IT Services Industrial/Energy Media and Entertainment Telecommunications Consumer Products and Services Consumer Products and Services Semiconductors Semiconductors Electronics/Instrumentation Business Products and Services Telecommunications Electronics/Instrumentation Financial Services Financial Services Networking and Equipment Networking and Equipment Computers and Peripherals Retailing/Distribution Retailing/Distribution Computers and Peripherals Healthcare Services Healthcare Services Business Products and Services Other Other

0 100 200 300 400 500 600 700 800 900 1,000 1,100 $0 $1,000 $2,000 $3,000 $4,000 $5,000 $6,000 $7,000 Total VC Investments Total VC Investment Dollars ($ millions)

20| 2012 SOFTWARE INDUSTRY FINANCIAL REPORT www.softwareequity.com

THE BUYERS SPEAK: SOFTWARE EQUITY GROUP’S 2012 M&A SURVEY

In early January 2012, Software Equity Group conducted its fifth annual Survey of Software Company Buyers to provide our readers a better understanding of 2012’s software M&A ecosystem and buyer thinking. We polled over 200 of the largest software companies in the world, both public and private. Collectively, the respondents to our 2012 survey spent tens of billions on software acquisitions in 2011, and their plans and playbook will heavily influence the software M&A ecosystem in the year ahead.

While 68% of our respondents bought at least one software company in 2011, an unusually large number the buyers we surveyed (32%) made no acquisitions in 2011, most likely due to the uncertain economic climate and market volatility. Most of these software M&A holdouts will return to the table in 2012. Only 3% of respondents to our 2012 Survey indicated they had no plans to acquire this year, while nearly two-thirds stated they plan to purchase one to two companies in 2012, and a third indicated they’d be buying three or more.

What’s driving these buyers to acquire? Customer requirements and requests for technologies and solutions that are synergistic with the buyer’s offering are ranked among the top two M&A drivers by 70% of our respondents. Even in the absence of specific customer requests, ramping market adoption of a synergistic technology or solution was similarly ranked first or second by 64% of buyers.

And what’s most important to these buyers when sizing up a prospect and deciding how much to pay? Buyers are laser focused on the target’s products and technology, seeking to ensure they’re best of breed, highly synergistic, and can provide the desired strategic and market leverage. Fully 61% of respondents named that their most important acquisition focus; 86% said it was among their top two criteria when selecting and valuing an acquisition candidate.

Many software industry entrepreneurs, investors and pundits have long considered rapid growth to be the principal attraction for buyers. While that may have been the case pre-Great Recession, growth was identified as the most important target attribute by only 22% of buyers responding to our survey, and as the second most important characteristic by an additional 31%. Deep domain expertise and a great team of proven performers was named either the second or third most important target attribute by 62% of respondents, almost certainly because buyers today deem continuity, orderly transition and phased management withdrawal essential to the success of the transaction post-closing. Profitability was identified as most important by only 14% of respondents, but our readers should bear in mind we polled only corp dev heads of major software, SaaS and Internet companies, and not private equity investors to whom profit is often far more important.

Our Survey results also portend well for small, privately held software companies considering an exit in 2012. A whopping 61% of respondents revealed their intention to focus on transactions in the $10M - $99M range in 2012, while 14% stated they’d target very small deals of less than $10M.

Exit valuations in 2012 should be mostly unchanged from 2011, with 65% of respondents indicating they expected to pay the same this year for a company that was very similar to one they acquired in

(continued)

21| 2012 SOFTWARE INDUSTRY FINANCIAL REPORT www.softwareequity.com

THE BUYERS SPEAK: SOFTWARE EQUITY GROUP’S 2012 M&A SURVEY (CONTINUED)

2011. By contrast, 57% of respondents to last year’s Survey said they expected to pay 10% - 20% more than they did in 2010, and most did, accounting for the uptick in 2011’s median M&A exit multiples. In our 2010 Survey, only 13% of buyers indicated it was “very important” a target was all or substantially SaaS/subscription based. But that soon changed. In our 2011 Survey, 30% of buyers indicated it was “very important” a target be all or substantially SaaS/subscription based, a remarkable shift in attitude and priorities. Stated differently, 47% of buyers indicated SaaS was an unimportant target attribute in 2010, but only 17% believed that in 2011. In 2012, 46% of respondents indicated it was “very important” or “absolutely essential” the target be all or substantially SaaS/subscription based, while 19% of buyers deemed SaaS unimportant as the target attribute. We’ve spent three years studying, documenting and analyzing software deal volumes and exit multiples in an array of software product categories. We’ve plotted the ascents and declines, and overlaid other variables, and we’ve gained unique insight about what really drives exit valuations and timing. Our 2012 survey results provide resounding confirmation of what we concluded. Market adoption rates and customer requirements are the two principal drivers of buyer M&A activity. What concerns buyers most when evaluating a particular target? The two top concerns were a target’s revenue fluctuation (slowdown or decline), and mature technology requiring significant future investment. Each of these negative target attributes garnered a first place thumbs down from 28% of our Survey respondents. Targets with solutions written in an incompatible language or not easily interfaced with the buyer’s offering came in close behind, with 22% of buyers identifying that as their biggest concern. Given the current focus on highly synergistic products and solutions, it was no surprise buyers were least concerned with a target’s revenue concentration and low profitability.

What’s the bottom line for software M&A in 2012? It’s clear from the results of our latest Survey that buyers will be more acquisitive this year, will pay roughly the same as last year, and will be primarily targeting smaller transactions in the $10M - $99M range. Above all else, most will be seeking synergistic, leverageable products and technology where there’s ramping market or customer demand, and extra credit will be given to SaaS/subscription based targets. Thus far, as we go to press, that’s all holding true. We’ll detail that more in our 1Q12 Quarterly Report, scheduled for release April 2012.

22| 2012 SOFTWARE INDUSTRY FINANCIAL REPORT www.softwareequity.com

Approximately how many software companies did you acquire in 2011? Response % 0 32% 1-2 38% 3-5 11% 6-10 14% More than 10 5%

If you had to guess now, how many software companies do you anticipate acquiring in 2012? Response % 0 3% 1-2 64% 3-5 17% 6-10 8% More than 10 8%

What size transactions do you anticipate focusing on in 2012? Response % Under $10M 14% $10M - $99M 61% $100M - $499M 22% Greater than $500M 3%

What's your current view of valuations? How much would you expect to pay in 2012 for a company very Response % similar to the one you acquired in 2011? The same 65% Less 22% 10% to 20% more 11% 21% to 30% more 0% 31% to 40% more 3% Greater than 40% more 0%

When selecting and valuing acquisition targets in 2012, what's most/least important? (Rank order 1-4 in Ranking order of importance; 1 = most important, 4 = least important) 123 4 Products and technology: The target’s products/technology are w ell executed, a great fit w ith us, and provide the strategic 61% 25% 8% 6% leverage/competitive differentiation w e seek Grow th: The target is grow ing at a rate far greater than average, demonstrating strong market demand, and w e think it’s time to invest 22% 31% 39% 8% Profitability: The target is highly profitable, the deal w ill be accretive, the financial risk is low er 14% 14% 22% 50% Management and Operations: The target has deep domain expertise w e need to acquire, a great team, proven performers 3% 31% 31% 36%

How important is it for you in 2012 that the target be all or substantially SaaS/subscription based? Response % Unimportant 19% Somew hat 35% Very 41% Absolutely essential 5%

Do you anticipate focusing more on acquisition targets offering Business Process Outsourcing services via a Response % hosted SaaS platform? No 64% Somew hat - w e'll explore it 25% Yes, but modestly in 2012 6% Yes, it's a priority 6%

What events most impact your acquisition decision? (Rank order 1-5 in order of importance, 1 = most Ranking important, 5 = least important) 1234 5 Ramping market adoption of a technology or solution you deem synergistic 37% 27% 27% 7% 3% Your competitors acquire a technology or solution suite that could pose a significant threat 0% 7% 23% 47% 23% Your competitors acquire a technology or solution suite that signals entry into a new market or product category 0% 3% 10% 30% 57% Bottoms up feedback (i.e. customer requirements or sales force consistently losing to competitor 37% 33% 17% 7% 7% Top dow n strategic mandates by CEO, Board, or Executive Committee 27% 30% 23% 10% 10%

What concerns your company most when evaluating a potential acquisition target? (Rank order 1-5 in order Ranking of importance, 1 = most important, 5 = least important) 1234 5 Revenue concentration 11% 3% 22% 33% 31% Revenue fluctuation, slow dow n or decline 28% 22% 33% 14% 3% Mature technology requiring significant update 28% 39% 11% 17% 6% Solution w ritten in an incompatible language (Java vs. C#) or not easily interfaced/integrated w ith your offering 22% 19% 25% 19% 14% Little or no EBITDA 11% 17% 8% 17% 47%

In your past experience, how does the presence of an investment banker representing an acquisition target Response % alter the likelihood of a deal closing? Significantly more likely 22% Slightly more likely 32% No impact 24% Slightly less likely 19% Significantly less likely 3% * In some instances, the percentages listed in the responses for a particular question exceed 100% in aggregate due to rounding.

23| 2012 SOFTWARE INDUSTRY FINANCIAL REPORT www.softwareequity.com

Figure 39: U.S. Mergers and Acquisition Activity

18000 $1,800

$1,679 15,211 $1,550 15000 $1,500 13,610 12,586 $1,273 11,769 12000 11,254 $1,200 Value 9,941 10,130

Deals 9,296 $1,095 $1,148 (BIllions) of 9000 $900 7,762 $904 $877

Number $748 6000 $600

$550

3000 $300

0 $0 2003 2004 2005 2006 2007 2008 2009 2010 2011

Source: Capital IQ Deals Value M&A DEAL VOLUME AND SPENDING: ALL The slowdown in deal activity and moderation in INDUSTRY SECTORS spending in 4Q11 was most likely due to buyer concerns about the macro economy and the Globally, there were 48,110 M&A transactions in public markets’ volatility in the third and fourth 2011, 18% greater than 2010. In aggregate, quarters. We anticipate more of the same in 2012 these deals totaled approximately $2.5 trillion – continuing macroeconomic concerns, market dollars according to Capital IQ, a 25% year-over- volatility and periods of both robust and year increase from 2010’s total spend of $2.0 constrained deal activity and spending, making trillion. During the first half of 2011 buyers dug 2012 another strong, but not record breaking, deep, driving up total deal dollars 48% YoY in year for domestic M&A. each of the first two quarters. As the fragile economic recovery in Europe and North America There were 886 U.S. leveraged buyouts and showed stress fractures, buyers pulled back, and private equity backed transactions in 2011, a M&A spending increased a more modest 28% in modest retreat from 2010’s tally of 943 LBOs. 3Q11, before declining 14% in 4Q11. According to Capital IQ, aggregate U.S. LBO spending also declined in 2011 to $63 billion from In the United States there were 15,211 M&A $75 billion in 2010. Seventeen of 2011’s transactions across all industry sectors, 12% leveraged buyouts were greater than $1 billion, as greater than 2010’s 13,610 deals, and a compared to 20 such mega-LBOs in 2010. While remarkable 50% improvement upon 2009’s total economic uncertainty and market volatility played of 10,130 deals. Some $1.2 trillion was spent on a role here, as well, it was rising target valuations these domestic M&A deals in 2011, up 37% from that gave most pause to private equity investors. 2010’s $877.4 billion total M&A spend, and 61% Nevertheless, some ponied up, particularly in the more than the $747.8 billion paid in 2009 (Figure educational software arena, where private equity 39). M&A deal volume was consistently strong perceived strong growth potential due to growing throughout most of the year, but dipped in pressure on educational institutions to deliver Q4. M&A spending, tallied quarterly, peaked in learning more cost-effectively. In June, 2Q11 at $321.8 billion, before falling to $235.4 Providence Equity Partners acquired Blackboard billion in the fourth quarter. for $1.8 billion, which equates to 3.7x TTM

24| 2012 SOFTWARE INDUSTRY FINANCIAL REPORT www.softwareequity.com

revenue. In August, Permira Advisers acquired Figures 40 and 41: Annual U.S. Software Renaissance Learning for $475 million, a multiple Sector M&A Activity and Dollars Spent of 3.5x TTM revenue.

SOFTWARE/SAAS M&A DEAL VOLUME AND 2500 SPENDING 2000 1,743 1,642 1,684 There were 1,684 mergers and acquisitions in the 1500 U.S. software sector in 2011, aggregating $71.4 1,329 billion, compared to 1,642 transactions totaling 1000 $52.5 billion in 2010 (Figures 40 and 41). Deals # of 500 Software M&A transaction volume ramped each of the first three quarters, reaching a three year 0 quarterly high of 439 transactions in Q3 - the sixth 2008 2009 2010 2011 consecutive quarterly increase in software M&A deal volume. To date, 400 software company exits have been reported for 4Q11, but that will $100.0 $71.4 likely rise to 420 since some year-end $80.0 transactions have yet to be announced (Figure $54.5 $52.5 42). Even without that adjustment, 2011’s 1,695 $60.0 M&A deal count was the highest in three years, $40.0 $27.4 and only slightly below 2008’s tally. ($ billions) $20.0 Aggregate consideration paid in 2011 was $71.4 $0.0 billion, 32% higher than 2010’s total U.S. software 2008 2009 2010 2011 M&A spend of $52.5 billion. It would be wrong to conclude, however, that if deal volume increased some 3%, while deal dollars grew 36%, exit Figure 42: Quarterly U.S. Software Sector M&A Activity and Dollars Spent

500 $25 $23.8 439 450 431 435 421 410 407 400 400 383 $20 372 $17.9 $21.0 345 $17.3 350 330 316 311 $15.0 Value 300 $13.5 $15

Deals $12.7

(BIllions) of 250 $11.5

200 $10 Number $7.6 150 $6.3

100 $2.9 $3.3 $5

$4.6 50

0 $0 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11

Deals Value

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valuations or average deal size grew dramatically responding to our 2012 Buyers Survey indicated in 2011. Aggregate software M&A spending six or more; 17% said they’d likely buy three to fluctuates greatly each quarter and each year five companies, and 64% stated they planned to primarily because of the presence or absence of a acquire one to two software companies this year relatively small number of software industry (please see Survey results). And 61% of our mega-deals (transactions with enterprise values respondents indicated their target deal size for greater than $500 million). As examples, 2Q11’s 2012 is in the $10M - $99M range. aggregate deal spend of about $21 billion included Microsoft’s acquisition of Skype ($9.1 Based upon our 2012 Buyer Survey results, and billion, 10.6x TTM revenue) and 3Q11’s $24 our conversations with a broad array of public billion price tag reflected HP’s acquisition of software company corporate development heads Autonomy ($10.3 billion, 11.1x TTM revenue). and private equity managing directors, we Absent such mega-deals, the aggregate software anticipate software M&A transaction volume will M&A consideration paid in the first and fourth rise approximately 10% to 1,864 this year, driven quarters was $15 billion and $11.5 billion, primarily by buyers seeking products that will respectively. provide strategic leverage, competitive differentiation and new opportunities to grow What, then, was the average software M&A price revenue. We anticipate the median exit multiple tag in 2011, and why is it important? Average and average deal size will edge up only slightly in deal size serves as a barometer of buyers’ level of 2012. confidence in the economy and its target market, (i.e., bigger deals = more upside, more risk). It IMPORTANT CHANGE IN SOFTWARE AND SAAS may also serve as an indicator of rising or falling M&A DATA ACCOUNTING exit multiples. Given the significant quarterly fluctuation in software M&A spending each Historically, we have aggregated M&A data for quarter, we believe the most reliable way of both on-premise and SaaS software company tracking average software M&A deal size is to transactions because of the relative dearth of utilize YoY comparisons of TTM data; i.e., pure-play SaaS deals. However, the considerably aggregate TTM exits divided by aggregate TTM higher median multiple of these SaaS deals, spend. As such, the trend since 2Q10 is though fewer in number, tended to skew the noteworthy. The average software M&A price tag, median M&A multiple higher. Since SaaS is no measured on a TTM basis, increased each longer a nascent part of the overall software M&A quarter for six consecutive quarters, reaching $42 ecosystem, and SaaS transactions now constitute million in 3Q11, before retreating slightly to $41 a meaningful percentage of total software M&A, in million in 4Q11 (Figure 43). 3Q11 we began to analyze and separately report M&A data for SaaS and on-premise software Asked how many software companies they deals. To ensure our historical and current anticipate acquiring in 2012, 16% of the public comparisons are consistent, all historical M&A software company corporate development heads data referenced in our charts this issue has been recalculated to exclude SaaS M&A transactions. Figure 43: TTM Average M&A Deal Size SOFTWARE M&A DEAL CURRENCY $45.0 $42 $40 $41 $40.0 $37 As in years past, cash-only deals predominated in $35.0 $33 2011, comprising 77% of all M&A transactions, up $31 $31 (Millions) $30.0 $28 from 73% in 2010 (Figure 44). Indeed, 2011’s all-

Value cash percentage of total software M&A deal $25.0 $22 $20 $20 $20

Deal $20.0 consideration is the highest since we began $16 $15.0 tracking this data point in 2001. The record all-

Average $10.0 cash percentage is a direct and demonstrable

$5.0 result of 2011’s head-snapping market volatility, TTM $0.0 as well as the hordes of cash on most buyers’ balance sheets. 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 26| 2012 SOFTWARE INDUSTRY FINANCIAL REPORT www.softwareequity.com

Figure 44: Software M&A Deal Currency There were a few sellers, however, who chose to gamble, or who had no choice: Approximately 9% of 2011’s sellers were paid exclusively in buyer 12% 7% 8% 10% stock, the same as in 2010. In 2004, the percentage of all-stock deals was double. Without question, the prevalence of all cash vs. all 15% 12% 9% 21% stock reflects public market performance at the time a transaction closes.

Only 14% of sellers took a combination of cash and stock in 2011, down from 18% in both 2009 and 2010. Here, too, 2011 represents the lowest 79% 78% annual cash + stock percentage since our tracking 71% 78% began in 2001.

SOFTWARE M&A VALUATIONS

The median software industry exit multiple for all Q1 2011 Q2 2011 Q3 2011 Q4 2011 of 2011, measured as a multiple of trailing twelve months revenue, was 2.1x - just slightly above 9% 10% 9% 9% 2010’s median exit multiple of 2.0x and, for the Stock Cash & Stock Cash first time in four years, equal to 2007’s pre- recession median M&A exit multiple (Figure 45). 14% Viewed quarterly, the median exit multiple was 16% 18% 18% highly volatile in 2011, mirroring the volatility of the public markets, reaching 2.5x in 2Q11 before dropping to 1.8x in the final quarter (Figure 46).

Lest every software entrepreneur who reads this 77% report multiply his/her company’s TTM revenue by 75% 73% 2.1 to determine current fair market value, we 72% must emphasize that the 2011 median exit multiple is simply that - a median – the midpoint of a very broad range of exit valuations. Perhaps more useful is our calculation that in 2011, 21.8% of software M&A deals with an ascertainable exit 2008 2009 2010 2011 multiple were valued at a 1.0x EV/Revenue or less, while only 11.8% had a EV/Revenue multiple Stock Cash & Stock Cash of 6.0x or greater (Figure 47).

Figure 45: Annual Software EV/Revenue Exit Multiple

3.0x

2.1x 2.1x 2.0x 2.0x 2.0x 1.9x 2.0x 1.8x 1.6x 1.7x 1.4x 1.3x

1.0x

0.0x 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

27| 2012 SOFTWARE INDUSTRY FINANCIAL REPORT www.softwareequity.com

Figure 46: Quarterly Software EV/Revenue SOFTWARE M&A VALUATIONS BY EQUITY and EV/EBITDA Exit Multiples STRUCTURE

While a variety of factors impact exit valuation, one important driver is the seller’s ownership 2.5x 2.2x structure. As a result, we analyzed all 2011 year- 1.9x 1.8x to-date (YTD) M&A transactions with ascertainable revenue multiples to determine how exit valuations varied by type of equity ownership (private vs. public company). Q1 2011 Q2 2011 Q3 2011 Q4 2011 Public company sellers received a median 1.8x TTM revenue exit multiple, while privately held software company sellers commanded a median 14.7x 13.9x 13.4x 13.4x of 2.5 x TTM revenue multiple (Figure 48). The higher exit multiples paid to private sellers continued a trend that began about four years ago when larger software companies and private equity firms virtually exhausted the supply of Q1 2011 Q2 2011 Q3 2011 Q4 2011 highly leveragable public software company targets that had lots of cash and recurring revenue, and focused, instead, on private targets 2011 acquisitions with TTM revenue multiples that were often venture-backed, rapidly growing above 6.0x included HP’s acquisition of Autonomy and, consequently, expensive. ($10.3 billion, 11.1x TTM revenue); Riverbed Technology’s purchase of Zeus Technology ($140 Examples from 2011: Cisco’s acquisition of Inlet million, 7.5x TTM revenue); Electronic Arts’ Technologies ($95 million, 6.3x TTM revenue); acquisition of PopCap Games ($1.3 billion, 7.5x Electronic Arts acquisition of PopCap Games TTM revenue); Microsoft’s purchase of Skype ($1.3 billion, 7.5x TTM revenue); Riverbed’s ($9.0 billion, 10.6x TTM revenue); and Cisco’s acquisition of Zeus Technology ($140 million, 7.5x acquisition of Inlet Technologies ($95 million, 6.3x TTM revenue); and Compuware’s acquisition of TTM revenue). dynaTrace software GmbH ($231 million, 9.9x TTM revenue). The high multiples paid for Zeus Each of these sellers was a market leader in a Technology and dynaTrace, providers of rapidly growing sector of the software industry, application delivery and application performance including mobile and social gaming, unified management software, respectively, demonstrate communications, application performance how highly valued private companies competing management, big data analytics and multi-screen in rapidly growing and transformative software video delivery. categories can be – especially by a strategic acquirer that has lagged behind. Figure 47: Median Software M&A EV/Revenue Multiple Distribution As a next step, we separated public and private software company buyers to ascertain any equity 30% 26.1% ownership-based differential in median purchase 25% 21.8% 21.0% price paid in 2011. For historical context, in 2006 20% 2011

and 2007 public buyers shelled out a median of in 15% 2.7x and 2.5x TTM seller revenue, respectively, 10.9% 11.8% Deals 10% for their acquisitions, while private buyers paid a of 5.9% % median 1.9x and 2.0x TTM revenue, respectively. 5% 2.5% In 2008, we saw the historical variance narrow 0% considerably, with public buyers paying a median <= 1.0x > 1.0x > 2.0x > 3.0x > 4.0x > 5.0x > 6.0x & & & & & 2.0x TTM revenue vs. private buyers paying a <= 2.0x <= 3.0x <= 4.0x <= 5.0x <= 6.0x median 1.7x TTM revenue. In 2009, the TTM Revenue Exit Multiple Bins

28| 2012 SOFTWARE INDUSTRY FINANCIAL REPORT www.softwareequity.com

differential among public and private buyers SOFTWARE M&A VALUATIONS BY VERTICAL AND increased dramatically, with public buyers paying HORIZONTAL MARKETS a median 1.9x TTM revenue and private buyers, paying a miserly 1.2x. In 2010 public buyers Another important determinant of exit valuation is ponied up a median of 2.4x TTM revenue, while the seller’s target market focus and domain private buyers paid a median 1.8x. In 2011 the expertise. We analyzed 2011’s median software spread narrowed a bit, as public buyers once M&A multiple horizontally and vertically, again paid a median 2.4x TTM revenue exit segregating software company sellers with multiple, while private buyers stepped up to a vertical market solutions (e.g. retail, financial median 2.0x TTM revenue purchase price. services, telecom, manufacturing, etc.) from sellers with horizontal software solutions Figure 48: 2011 Median EV/Revenue (infrastructure, enterprise applications, etc.). Exit Multiple By Ownership Structure In 2011, providers of vertical software accounted for 36% of all software M&A transactions; horizontal solution providers represented the Public Sellers 1.8x Median Multiple remaining 64% (Figure 49). Vertical sellers received a median TTM revenue exit multiple of 1.9x, which was flat YoY, while their horizontal 27% counterparts achieved a median 2.2x, up 22% 73% from 2010’s 1.8x.

Figure 49: 2011 Horizontal vs. Vertical Private Sellers 2.5x Median Multiple Sellers

Private Buyers 2.0x Median Multiple

36% 37% 63% 64%

Public Buyers 2.4x Median Multiple Horizontal Vertical Buyer Greater Buyer Less Than On a quarterly basis, the number of horizontal Than $200 million $200 million transactions ramped in each of the first three 2.8x Median 1.8x Median Multiple Multiple quarters of 2011 before tapering off in the last quarter. Notwithstanding that modest decline in 42% number, horizontal software sellers accounted for 58% 70% of all M&A transactions in the final quarter (Figure 50). Horizontal exit multiples were more erratic, fluctuating greatly each quarter (Figure 51). While horizontal exit multiples trailed vertical exit multiples slightly in each of the first three quarters, the horizontal multiple soared to 3.0x in Seller Greater Seller Greater Q4 while the vertical multiple plummeted to 1.0x. Than $20 Than $20 million: 0.82.6x million: 1.51.7x Aside from Akamai’s acquisition of Contendo ($268 million, 9.0x TTM revenue), the majority of Seller Less Seller Less horizontal acquisition exit multiples were very Than $20 Than $20 million: 2.03.2x million: 2.41.8x close to the median. Notable horizontal M&A transactions in this group include Synopsys’s

29| 2012 SOFTWARE INDUSTRY FINANCIAL REPORT www.softwareequity.com

acquisition of Magma ($499 million, 3.4x TTM M&A VALUATIONS BY SOFTWARE PRODUCT revenue), and Velti’s acquisition of Mobile CATEGORY Interactive Group ($59 million, 3.0x TTM revenue). While a software company’s target market, revenue, equity structure and delivery model can Figures 50 and 51: 2011 Horizontal & Vertical demonstrably impact its exit valuation, the nature M&A Volume (top) and Median EV/Revenue of it product offering – its software product Exit Multiples (bottom) category - continued to be the single most important M&A valuation driver in 2011. For most software product categories, there is often an insufficient number of transactions each quarter 220 that publicly report both seller TTM revenue and 197 204 buyer purchase price, essential in determining the median exit value for the category. Consequently, 142 we aggregate the data each quarter for each 127 category on a TTM basis. As a result, it may take 105 113 88 several quarters to detect changing product category valuation trends, as certain outlier transactions consummated nine or twelve months ago may continue to have a residual impact on their product category multiples.

1Q11 2Q11 3Q11 4Q11 Among the 27 product categories we tracked in vertical horizontal 2011, ten had both sufficient deal activity and deal data to ascertain a TTM revenue multiple (Figure 3.0x 52). Software company sellers focused on Messaging, Conferencing & Communications 2.5x 2.3x garnered a median 3.2x TTM revenue exit 2.0x multiple in 2011, the highest of any category. 1.9x 1.8x 1.9x Particularly noteworthy here were Microsoft’s acquisition of Skype ($9.2 billion, 10.6 TTM revenue), and USA Mobility’s purchase of Amcom 1.0x Software ($163 million, 3.2x TTM revenue). Some industry analysts suggested Microsoft overpaid, but Skype offered Microsoft the ability to functionally enhance its Xbox, Windows Phone, 1Q11 2Q11 3Q11 4Q11 Kinect, Office 365 and other Live product lines. The ROI outcome will depend largely on Vertical Horizontal Microsoft’s ability to successfully integrate and

Figure 52: 2011 Software Median EV/Revenue Exit Multiple by Product Category 3.2x

2.4x 2.4x 2.4x 2.2x 2.0x 1.8x 1.8x 1.7x 1.3x Security Healthcare Media BI, Risk and Compliance Sales Retail, etc.) Retail, Asset Mgmt (A&D, Telco, Telco, (A&D, Multimedia, Multimedia, Messaging, Messaging, Enterprise Enterprise Other Verticals Dev Tools & IT & Tools Dev Conferencing & Graphics, Digital Communications CRM, Marketing & Financial Services Resource Planning Resource 30| 2012 SOFTWARE INDUSTRY FINANCIAL REPORT www.softwareequity.com

leverage Skype in these various arenas, as well among both enterprise and SMB customers at the as more successfully monetize Skype’s business expense of their behind-the firewall counterparts. model. The few remaining on-premise CRM software providers are being acquired for their customers Security software, last year’s top product category and cash flow, assets that yield far lower in terms of median exit multiple, sank to 2.4x in multiples. 2011 from 3.7x the year prior. In fairness, 2010 was characterized by an array of high profile, The HR & Workforce Management product strategic acquisitions addressing such hot arenas category was also an early migrator to SaaS, as cloud infrastructure security (e.g., Juniper effectively eliminating the category in the on- Networks’ acquisition of Altor Networks for $95 premise software sector. In 2010, the HR & million, an estimated 6.3x TTM revenue multiple), Workforce Management product category posted and smartphone security (e.g., Symantec’s a median TTM revenue exit multiple of 2.5x but acquisition of Gaurdian Edge for $73 million, a after applying our new methodology and 3.9x TTM revenue). excluding SaaS M&A transactions, there were an insufficient number of on-premise HR software Regular readers of our reports will note a drastic deals to produce a statistically credible change in the 2011 median TTM exit multiple for EV/Revenue multiple. the CRM, Marketing and Sales product category, which plunged to 1.7x from 3.1x in 2010. The As for the most active M&A product category in sharp drop occurred after we deleted and 2011, Mobile software led all others, accounting separately reported the median exit multiple for for 14% of 2011’s transactions (Figure 53). SaaS providers of hosted CRM/Sales/Marketing Mobile computing and mobile applications solutions (e.g., Salesforce.com), which have comprise a somewhat complex and evolving enjoyed increased acceptance and success ecosystem, which SEG tracks under seventeen

Figure 53: 2011 Software M&A by Product Category

Accounting & Finance Manufacturing & Asset Billing & Service Provisioning BI Risk & 2% Mgmt Content & Document 3% 1% Compliance 3% Management 3% CRM, Marketing & Sales Vertical ‐ Other Software 17% 4% Data & File Management 2% Dev. Tools & IT Mobile Asset Electronic 14% Management Commerce 5% 1% Web Analytics Education 1% 2% Middleware 1% Engineering, PLM & CAD Supply Chain Mgmt 4% & Logistics 3% EDA Storage & Systems 1% Security Management ERP 4% 1% 1% Networking & Connectivity 1% Entertainment Healthcare Financial Services Multimedia, Graphics, 2% Digital Media 7% 8% 4% Messaging, Conferencing & Communications HR & Workforce Mgmt 2% 3%

31| 2012 SOFTWARE INDUSTRY FINANCIAL REPORT www.softwareequity.com

discrete sub-categories. Of the seventeen, four SaaS exit valuations are also ramping. The categories accounted for 53% of the mobile M&A median EV/Revenue exit multiple for SaaS transactions: apps/app stores (16%), marketing providers in 2011 was 3.7x, up moderately from (15%), gaming (11%) and advertising (10%). 3.2x in 2010 and 2.7x in 2009. By comparison Given the rapid growth of the mobile market and with the median 2.1x TTM EV/Revenue exit the complexity of the ecosystem, many public multiple of on-premise software companies in software companies are buying into the space to 2011, the SaaS 2011 exit multiple represents a gain technology and domain competency. 76% exit valuation premium (Figure 55).

On-premise software providers focused on Figure 55: Median SaaS M&A Valuation Financial Services and Healthcare comprised 8% as a Multiple of Revenue and 7%, respectively, of 2011’s M&A transactions. These three most active software M&A 3.7x categories, Mobile, Financial Services and 3.2x Healthcare, were also the most active in 2010. 2.7x

SOFTWARE AS A SERVICE (SAAS) M&A DEAL VOLUME AND VALUATIONS

Last year at this time, after surveying the corp dev 2009 2010 2011 heads of public software, SaaS and Internet companies about their acquisition strategies in 3.7x 3.7x

2011, we reported a whopping 131% increase in 3.5x respondents stating SaaS would be a “very 3.4x important” acquisition prerequisite when assessing potential targets. They were true to their word: 200 SaaS companies were acquired in 1Q11 2Q11 3Q11 4Q11 2011, up 91% from the 105 SaaS providers that Ten SaaS acquisitions in 2011 had reported exited in 2010. By comparison, on-premise enterprise values greater than $100 million, software M&A volume increased only 7% in 2011. including two billion dollar mega deals in Q4:

SAP’s acquisition of SuccessFactors ($3.5 billion On a quarterly basis, SaaS M&A transactions EV, 12.1x TTM revenue) and Oracles’ acquisition ramped steadily, increasing from 39 in 1Q11 to 45 of Rightnow ($1.5 billion EV, 7.0x TTM revenue). in the second quarter, then to 48 in 3Q11 and Other notable deals with enterprise values greater finally to 68 4Q11. All told, SaaS acquisitions than $100 million were IBM’s acquisition of accounted for 17.0% of all software industry DemandTec ($427 million EV, 4.8x TTM acquisitions in 4Q11, compared to only 4.5% of all revenue); SuccessFactors acquisition of Plateau deals just two years ago (Figure 54). Systems ($290 million EV, 4.2x TTM revenue);

Oracle’s acquisition of InQuira ($230 million EV, Figure 54: SaaS M&A Volume as a % of 4.0x TTM revenue); and Fiserv’s acquisition of Total Software M&A Volume CashEdge ($465 million EV, 9.3x TTM revenue).

SaaS Transactions SaaS as % Software These large SaaS transactions underscore the transition of SaaS in buyers’ minds from “nice to

60 14.0% have” to “have to have.” Large public software 50 12.0% companies have unquestionably taken note of Software 10.0% growing enterprise adoption of SaaS applications, 40 Total

of and the demonstrated preference by the huge but

8.0% Transactions

Deals %

30 elusive SMB market for SaaS over on-premise as

M&A 6.0%

M&A software. 20 Deals SaaS

4.0% of

10 M&A 2.0% Among the discrete SaaS categories we track,

SaaS CRM earned top honors in 2011, accounting for 0 0.0% 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 17% of all SaaS M&A transactions (Figure 56).

32| 2012 SOFTWARE INDUSTRY FINANCIAL REPORT www.softwareequity.com

Figure 56: 2011 SaaS M&A by Product Category

Billing & Service Legal Manufacturing & Accounting & Provisioning 3% Asset Mgmt Finance 2% Insurance 1% 4% 4% BI Risk & Compliance Other Verticals 4% 18% Content & Document Management 2%

CRM, Marketing & Sales Software Mobile 17% 2%

Supply Chain Mgmt & Data & File Management Logistics 1% 5% Dev. Tools, IT Asset Mgmt & App. Testing Storage & Systems 4% Management Security 3% Electronic Commerce 2% Education 1% 4% Middleware Healthcare EDA 1% Multimedia, Graphics, 5% 1% Digital Media Financial Services 2% Messaging, Conferencing 4% HR & Workforce Mgmt & Communications 10% 4%

Most notable were Oracle’s acquisition of 10% to 25%, depending upon the economic Rightnow ($1.5 billion EV, 7.0X TTM Revenue); climate and the level of enterprise IT spending on Adobe’s purchase of Demdex; NeuStar’s hosted solutions. purchase of TARGUS ($650 million EV, 4.4x TTM Revenue); and Salesforce.com’s acquisition of INTERNET M&A DEAL VOLUME AND VALUATIONS Model Metrics ($58 million EV). After a record breaking 2010, Internet exits The HR & Workforce Management product jumped 27% in 2011, to 794 M&A transactions. category, in second place, accounted for 10% of On a quarterly basis, Internet deals accelerated all SaaS M&A transactions in 2011 and included from 1Q11 to 3Q11, then slowed in 4Q11 (Figure SAP’s acquisition of SuccessFactors ($3.5 billion 57). The number of Internet M&A transactions EV, 12.1x TTM Revenue), Callidus Software’s was nearly half the total number of on-premise acquisition of Rapid Intake (transaction details software M&A deals in 2011, compared to only undisclosed), SumTotal Systems’ acquisition of one third as many in 2010. GeoLearning (transaction details undisclosed); and ADP’s acquisition of Asparity Decision Internet TTM exit valuations rose in each quarter (transaction details undisclosed). of 2011. The median TTM EV/Revenue exit multiple for Internet providers in 4Q11 was 2.8x, With fully 46% of respondents to our 2012 up sharply from 1.8x in 4Q10 (Figure 58). There Software Company Buyers Survey indicating that were three mega deals in 2011: eBay’s it was “very important” or “essential” their targets acquisition of GSI Commerce ($2.1 billion EV, be “all or substantially SaaS/subscription based” 1.6x TTM revenue); Verizon’s acquisition of we anticipate SaaS deal volumes and median exit Terremark Worldwide ($1.8 billion EV, 5.4x TTM multiples will continue to grow in 2012, most likely

33| 2012 SOFTWARE INDUSTRY FINANCIAL REPORT www.softwareequity.com

Figure 57: Internet Deal Volume by Category

Category Q4 2011 Q3 2011 Q2 2011 Q1 2011 Total Social Tech. 16 35 25 36 112 Ad Tech & Svcs 56 62 34 33 185 eCommerce 38 36 56 32 162 Content 35 29 29 26 119 Video/Photos 9 12 5 18 44 Infrastructure 20 21 19 16 76 Gaming 14 6 15 7 42 Search 4 5 8 6 23 Communications 7 6 6 1 20 Mus ic 4 4 2 1 11 Total 203 216 199 176 794

revenue); and CenturyLink’s acquisition of Smaller Internet providers were clearly in demand SAVVIS ($3.0 billion EV, 3.0x TTM revenue). by acquirers in 2011. Targets with revenue less than $100 million received a median EV/Revenue The primary driver behind eBay’s acquisition of multiple of 2.8x, nearly 30% more than the GSI Commerce was its need to grow its large median 2.2x paid to those with revenue greater merchant business as its SMB business slows. than $100 million (Figure 59). Smaller, faster Following its acquisitions of mobile solution growing Internet companies with market traction providers CriticalPath, Milo and RedLaser, eBay and cutting edge technologies were deemed is investing heavily into multi-channel commerce, highly strategic and worthy of a premium by many seeking to leverage its PayPal asset as much as buyers. Case in point: DG FastChannel’s possible. acquisition of MediaMind. DG FastChannel needed online advertising expertise badly, as The Verizon and CenturyLink acquisitions were advertisers demanded solutions that could driven, in both cases, by a legacy telecom’s simultaneously manage multi-channel campaigns. strong need for cloud hosting infrastructure. A Another highly strategic Internet deal: AOL’s similar, but considerably smaller, deal was Time acquisition of HuffingtonPost, which came at a Warner’s purchase of NaviSite ($326 million EV, time when CEO Tim Armstrong aggressively 2.5x TTM revenue), in February. sought to remake AOL into an online content business, monetized through advertisements. Figure 58: Internet Median TTM EV/Revenue Exit Multiple Figure 59: Internet EV/Rev Exit Multiples 2.8x 2.6x by Size

TTM Rev > $100M TTM Rev < $100M 2.0x 1.8x 3.0x 2.8x

2.5x 2.2x

2.0x 1.6x 1.6x 1.5x

1.0x

0.5x

1Q11 2Q11 3Q11 4Q11 0.0x 2010 2011

34| 2012 SOFTWARE INDUSTRY FINANCIAL REPORT www.softwareequity.com

Four of the ten product categories we track in the extraordinary ability of social networks to promote Internet sector recorded over 100 M&A brand awareness and create consumer demand. transactions each in 2011: Ad Tech & Services Salesforce, after publicly declaring enterprise (185), eCommerce (162), Content (119) and social media as one of three key strategic Social Technologies (112). Ad Tech & Services objectives for their next generation cloud platform, transactions were up 107% from 2010’s tally, in acquired Radian6 ($350 million EV); Constant no small part due to considerable consolidation Contact bought Bantam Networks ($15 million among daily deal sites following the successes of EV) 13 days after stating on an earnings call it Groupon and Living Social. The consolidation would be moving aggressively into social media; was largely driven by the critical need to rapidly SuccessFactors acquired Jambok, following its achieve scale in an industry with low barriers to 2Q10 acquisition of enterprise social network entry. provider CubeTree ($49 million EV); Adobe purchased Demdex (transaction details Deal activity in the Ad Tech & Services category undisclosed) to add behavioral targeting was also driven by a shift in Internet advertising to capabilities to Adobe’s Online Marketing Suite, audience buying and demand side platforms acquired with Omniture in 3Q09; and Glam Media (DSPs), which require advanced tools to bought Ning ($150 million EV estimate), a social aggregate and analyze data in order to serve up networking platform that enabled consumers to the most personalized ad possible. Notable quickly create social media groups around any transactions in this product category include area of common interest. Google’s acquisition of AdMeld ($400 million EV); ValueClick’s acquisition of Dotomi ($278 million EV); Demand Media’s acquisition of IndieClick Media Group ($14 million EV); Google’s acquisition of Daily Deal GmbH (transaction details undisclosed); comScore’s purchase of AdXpose ($19 million EV); Local.com’s acquisition of Screaming Media Group ($33 million EV, 13.8x TTM revenue); and Yahoo’s purchase of Interclick ($251 million EV, 2.0x TTM revenue). Digital ad agencies, seeking to supplement creative services with technology enabled services, were active buyers of Ad-Tech Internet companies as well: VivaKi acquired Big Fuel Communications; WPP Digital bought Rockfish Interactive; and iCrossing acquired Wallaby Group.

The e-Commerce Internet category accounted for 162 M&A transactions in 2011, the second highest among all Internet categories, and 36% higher than its 2010 total of 119. Consolidation in this category was driven by bricks and mortar retailers and others seeking to capitalize on the growing consumer shift to online retail, and by acquirers seeking advanced technologies for retail personalization and supply chain optimization. Unsurprisingly, eBay was the most active buyer in this category, gobbling up 13 consumer retail Internet companies in 2011. Google and Groupon each made two e-Commerce acquisitions.

The third most active Internet category was Social Technology, which recorded 112 M&A transactions in 2011. Buyers sought to tap the 35| 2012 SOFTWARE INDUSTRY FINANCIAL REPORT www.softwareequity.com

APPENDIX A: 2011 PUBLIC SOFTWARE MARKET VALUATIONS AND STATISTICS BY PRODUCT CATEGORY

Billing & Service Management 4Q10 1Q11 2Q11 3Q11 4Q11 Electronic Design Automation 4Q10 1Q11 2Q11 3Q11 4Q11 EV/Revenue 2.6x 2.0x 2.2x 1.3x 1.0x EV/Revenue 1.6x 2.1x 2.2x 1.6x 1.8x EV/EBITDA 16.1x 10.1x 8.6x 4.9x 4.4x EV/EBITDA 21.5x 20.7x 20.5x 14.6x 14.3x EV/Earnings 16.6x 17.8x 16.7x 11.0x 8.3x EV/Earnings 44.4x 56.6x 55.3x 42.7x 40.5x Gross Profit Margin 50.7% 46.2% 42.0% 38.5% 51.6% Gross Profit Margin 82.3% 80.3% 77.2% 74.7% 81.4% EBITDA Margin 21.5% 22.7% 22.4% 20.4% 21.0% EBITDA Margin 6.9% 8.2% 10.3% 10.4% 12.0% Net Income Margin 15.9% 13.3% 12.4% 11.5% 14.0% Net Income Margin -1.7% -1.6% -1.6% -1.6% 3.8% TTM Revenue Growth (YoY) 10.3% 11.4% 13.1% 18.5% 28.8% TTM Revenue Growth (YoY) 4.5% 9.2% 13.2% 12.0% 11.2% TTM EBITDA Growth (YoY) 1.5% 12.5% 18.1% 19.0% 52.4% TTM EBITDA Growth (YoY) 43.0% 96.0% 129.0% 36.9% 44.1% TTM Earnings Growth (YoY) 44.0% 0.9% -0.5% -10.3% -12.0% TTM Earnings Growth (YoY) -316.9% -146.3% -229.5% -124.4% -23.6% Current Ratio 2.4 2.4 2.4 2.8 3.4 Current Ratio 1.4 1.5 1.5 1.6 1.6 Cash as Percent of Market Cap 24.1% 20.5% 20.9% 27.8% 33.8% Cash as Percent of Market Cap 23.3% 14.1% 15.0% 14.5% 14.2% Enterprise Value Growth (YoY) 17.4% 15.1% 22.0% 9.6% -9.0% Enterprise Value Growth (YoY) 25.8% 69.3% 43.5% 17.7% 16.4%

Business Intelligence 4Q10 1Q11 2Q11 3Q11 4Q11 Engineering, PLM & CAD/CAM Software 4Q10 1Q11 2Q11 3Q11 4Q11 EV/Revenue 3.1x 3.7x 4.2x 3.9x 3.3x EV/Revenue 3.7x 3.9x 3.7x 2.6x 2.8x EV/EBITDA 29.4x 40.3x 46.2x 33.7x 31.2x EV/EBITDA 16.5x 19.2x 16.4x 12.8x 13.4x EV/Earnings 46.4x 54.5x 68.1x 56.2x 56.9x EV/Earnings 31.6x 36.7x 37.4x 28.8x 24.6x Gross Profit Margin 80.8% 74.9% 70.9% 66.4% 79.3% Gross Profit Margin 82.9% 79.6% 70.9% 67.5% 86.0% EBITDA Margin 15.4% 12.8% 10.0% 9.2% 9.7% EBITDA Margin 19.8% 19.9% 20.2% 20.3% 20.8% Net Income Margin 8.8% 8.3% 7.9% 7.5% 5.2% Net Income Margin 6.5% 6.1% 5.8% 5.5% 12.8% TTM Revenue Growth (YoY) 14.8% 23.9% 26.6% 26.3% 26.8% TTM Revenue Growth (YoY) 10.1% 13.9% 12.2% 14.2% 15.5% TTM EBITDA Growth (YoY) -5.4% -6.8% 0.4% 0.7% -15.0% TTM EBITDA Growth (YoY) 10.6% 5.9% 19.3% 33.6% 38.4% TTM Earnings Growth (YoY) 42.6% 38.2% 76.4% -6.2% -5.8% TTM Earnings Growth (YoY) -17.7% -30.9% -35.0% -22.3% -51.1% Current Ratio 1.8 1.8 2.2 2.0 2.1 Current Ratio 2.0 2.2 2.2 2.2 2.1 Cash as Percent of Market Cap 15.1% 14.6% 11.4% 12.0% 13.1% Cash as Percent of Market Cap 12.3% 12.8% 12.7% 15.9% 18.4% Enterprise Value Growth (YoY) 22.1% 16.4% 84.7% 58.8% 19.7% Enterprise Value Growth (YoY) 41.4% 41.2% 38.8% 18.6% 3.0%

Content & Document Management 4Q10 1Q11 2Q11 3Q11 4Q11 Enterprise Resource Planning 4Q10 1Q11 2Q11 3Q11 4Q11 EV/Revenue 2.6x 3.1x 3.1x 2.5x 2.4x EV/Revenue 3.0x 3.2x 3.0x 2.5x 2.8x EV/EBITDA 9.1x 10.9x 11.0x 8.7x 9.0x EV/EBITDA 11.2x 11.7x 11.3x 8.9x 9.5x EV/Earnings 17.5x 20.6x 20.5x 15.6x 15.2x EV/Earnings 37.4x 41.4x 42.7x 39.2x 15.1x Gross Profit Margin 72.5% 55.6% 53.3% 51.0% 65.1% Gross Profit Margin 67.7% 63.8% 59.1% 55.4% 66.3% EBITDA Margin 24.7% 24.1% 21.8% 22.1% 24.1% EBITDA Margin 25.2% 25.1% 24.7% 24.7% 24.8% Net Income Margin 10.8% 10.2% 9.3% 8.8% 11.5% Net Income Margin 14.7% 14.4% 12.1% 10.6% 14.3% TTM Revenue Growth (YoY) 2.2% 11.0% 15.4% 21.1% 17.6% TTM Revenue Growth (YoY) 12.7% 21.3% 20.1% 14.7% 19.1% TTM EBITDA Growth (YoY) 17.8% 29.0% 40.1% 37.3% 25.6% TTM EBITDA Growth (YoY) 25.2% 36.7% 29.2% 21.9% 11.5% TTM Earnings Growth (YoY) -2.8% -5.1% -13.1% -24.4% -33.5% TTM Earnings Growth (YoY) -42.7% -59.5% -47.8% -48.9% -15.8% Current Ratio 1.3 1.2 1.2 1.3 1.5 Current Ratio 1.4 1.2 1.2 1.2 1.3 Cash as Percent of Market Cap 14.1% 12.7% 12.4% 13.5% 14.6% Cash as Percent of Market Cap 12.6% 11.0% 9.6% 9.7% 10.1% Enterprise Value Growth (YoY) 8.5% 29.7% 34.7% 15.0% 7.7% Enterprise Value Growth (YoY) 12.8% 18.6% 45.7% 27.2% 21.4%

Financial Services Software 4Q10 1Q11 2Q11 3Q11 4Q11 Data Management & Integration 4Q10 1Q11 2Q11 3Q11 4Q11 EV/Revenue 2.1x 2.1x 2.3x 2.0x 2.1x EV/Revenue 2.9x 3.3x 3.3x 2.9x 3.0x EV/EBITDA 8.9x 9.2x 9.9x 9.0x 9.1x EV/EBITDA 11.0x 17.1x 14.3x 13.3x 16.8x EV/Earnings 31.4x 35.9x 36.9x 32.4x 20.3x EV/Earnings 20.5x 23.0x 23.8x 20.4x 22.8x Gross Profit Margin 57.7% 55.4% 53.6% 51.0% 57.2% Gross Profit Margin 74.7% 70.6% 67.5% 66.1% 75.5% EBITDA Margin 21.9% 21.8% 21.7% 22.5% 23.3% EBITDA Margin 21.8% 22.0% 22.3% 22.5% 23.1% Net Income Margin 7.4% 7.1% 6.8% 7.2% 10.3% Net Income Margin 11.5% 10.9% 10.3% 9.8% 13.4% TTM Revenue Growth (YoY) 2.3% 3.3% 6.6% 2.6% 6.1% TTM Revenue Growth (YoY) 15.4% 22.3% 24.9% 20.9% 15.4% TTM EBITDA Growth (YoY) 4.8% 12.1% 5.8% 10.3% 7.2% TTM EBITDA Growth (YoY) 19.9% 28.1% 26.5% 14.7% 24.4% TTM Earnings Growth (YoY) -14.1% -11.9% 7.7% 6.4% -27.2% TTM Earnings Growth (YoY) -14.9% -15.6% -11.6% -17.4% -13.5% Current Ratio 1.7 1.8 1.8 1.7 2.1 Current Ratio 1.4 1.5 2.0 1.9 1.9 Cash as Percent of Market Cap 19.4% 18.0% 17.0% 16.4% 16.2% Cash as Percent of Market Cap 12.5% 14.0% 12.0% 13.0% 14.4% Enterprise Value Growth (YoY) 6.0% 13.5% 22.7% 32.3% 16.0% Enterprise Value Growth (YoY) 37.0% 46.2% 59.1% 61.5% 19.8%

Healthcare 4Q10 1Q11 2Q11 3Q11 4Q11 Development Tools & Open Source 4Q10 1Q11 2Q11 3Q11 4Q11 EV/Revenue 3.5x 3.8x 3.8x 3.2x 2.8x EV/Revenue 2.8x 3.0x 2.7x 2.2x 2.1x EV/EBITDA 15.9x 18.1x 19.1x 17.4x 15.8x EV/EBITDA 9.9x 11.4x 10.3x 6.8x 8.7x EV/Earnings 37.3x 42.2x 45.9x 45.6x 28.2x EV/Earnings 19.0x 21.8x 22.2x 17.1x 14.8x Gross Profit Margin 64.7% 59.5% 56.4% 53.7% 65.6% Gross Profit Margin 78.1% 74.9% 71.3% 68.3% 77.5% EBITDA Margin 18.4% 20.2% 21.7% 23.7% 23.1% EBITDA Margin 24.7% 25.2% 25.3% 24.2% 25.4% Net Income Margin 7.5% 6.8% 5.9% 5.2% 4.9% Net Income Margin 11.9% 10.9% 10.2% 9.6% 13.0% TTM Revenue Growth (YoY) 17.3% 15.6% 20.5% 20.4% 21.1% TTM Revenue Growth (YoY) 26.8% 36.8% 28.6% 25.0% 17.2% TTM EBITDA Growth (YoY) 13.9% 22.9% 29.7% 36.0% 31.0% TTM EBITDA Growth (YoY) 35.0% 43.6% 39.0% 35.6% 27.5% TTM Earnings Growth (YoY) 8.3% -7.5% -16.3% -20.6% -27.8% TTM Earnings Growth (YoY) -33.3% -46.3% -37.7% -32.4% -26.0% Current Ratio 2.4 2.4 2.1 2.8 2.4 Current Ratio 2.4 2.7 2.8 2.7 3.0 Cash as Percent of Market Cap 8.3% 10.0% 10.0% 8.6% 8.7% Cash as Percent of Market Cap 18.1% 17.4% 17.3% 21.6% 21.3% Enterprise Value Growth (YoY) 29.6% 39.5% 43.7% 46.4% 8.2% Enterprise Value Growth (YoY) 67.8% 58.8% 46.4% 18.5% -4.9%

36| 2012 SOFTWARE INDUSTRY FINANCIAL REPORT www.softwareequity.com

APPENDIX A: 2011 PUBLIC SOFTWARE MARKET VALUATIONS AND STATISTICS BY PRODUCT CATEGORY

IT Conglomerates 4Q10 1Q11 2Q11 3Q11 4Q11 Storage & Systems Management 4Q10 1Q11 2Q11 3Q11 4Q11 EV/Revenue 2.1x 2.1x 2.2x 2.1x 2.2x EV/Revenue 2.7x 3.1x 2.9x 2.1x 2.2x EV/EBITDA 7.7x 7.1x 5.9x 6.0x 6.2x EV/EBITDA 12.0x 12.1x 11.8x 9.3x 9.8x EV/Earnings 11.8x 12.6x 11.1x 8.8x 10.9x EV/Earnings 21.1x 23.3x 23.4x 17.9x 17.5x Gross Profit Margin 63.5% 62.6% 61.9% 61.3% 61.4% Gross Profit Margin 77.7% 75.9% 70.7% 68.6% 77.9% EBITDA Margin 27.7% 26.1% 26.0% 25.6% 25.6% EBITDA Margin 22.6% 21.7% 21.8% 23.1% 24.5% Net Income Margin 18.9% 18.7% 18.5% 18.3% 14.7% Net Income Margin 13.1% 12.8% 12.6% 12.2% 11.7% TTM Revenue Growth (YoY) 16.8% 13.6% 13.6% 7.9% 8.2% TTM Revenue Growth (YoY) 6.1% 10.3% 11.9% 10.8% 11.2% TTM EBITDA Growth (YoY) 26.2% 25.1% 17.1% 7.4% 1.0% TTM EBITDA Growth (YoY) 9.3% 6.2% 23.8% 20.6% 20.0% TTM Earnings Growth (YoY) -12.6% -11.6% -14.4% -7.9% -5.1% TTM Earnings Growth (YoY) -31.1% -23.3% -24.3% -26.4% -15.8% Current Ratio 2.3 2.5 2.8 2.6 2.9 Current Ratio 1.6 1.6 1.5 1.4 1.3 Cash as Percent of Market Cap 12.6% 15.3% 15.6% 21.4% 20.1% Cash as Percent of Market Cap 14.0% 12.1% 11.8% 14.8% 15.1% Enterprise Value Growth (YoY) -13.4% -11.3% -17.4% -1.9% -9.4% Enterprise Value Growth (YoY) 31.6% 44.8% 35.2% 15.0% 0.0%

Mobile Solutions/Content 4Q10 1Q11 2Q11 3Q11 4Q11 Supply Chain Management & Logistics 4Q10 1Q11 2Q11 3Q11 4Q11 EV/Revenue 3.0x 2.8x 2.7x 2.0x 2.0x EV/Revenue 2.0x 1.8x 2.1x 1.8x 2.0x EV/EBITDA 13.4x 22.4x 19.9x 16.0x 12.3x EV/EBITDA 11.7x 11.7x 11.6x 11.0x 12.0x EV/Earnings 43.0x 37.7x 35.9x 38.8x 22.2x EV/Earnings 37.0x 40.0x 38.3x 37.3x 19.1x Gross Profit Margin 66.2% 67.6% 64.6% 57.0% 66.3% Gross Profit Margin 57.5% 54.5% 52.6% 51.5% 57.0% EBITDA Margin 12.9% 12.0% 9.3% 7.0% 6.4% EBITDA Margin 9.6% 10.3% 8.7% 8.6% 8.2% Net Income Margin 4.6% 4.4% 4.3% 4.2% -0.4% Net Income Margin 3.7% 3.3% 3.1% 3.1% 7.5% TTM Revenue Growth (YoY) 10.1% 15.8% 16.7% 14.5% 8.5% TTM Revenue Growth (YoY) 8.2% 7.8% 13.5% 17.9% 19.9% TTM EBITDA Growth (YoY) 1.1% 12.0% -6.1% 15.6% -39.3% TTM EBITDA Growth (YoY) 13.1% 9.9% 11.9% 24.3% 27.3% TTM Earnings Growth (YoY) -29.7% -11.1% 3.9% 4.0% 16.3% TTM Earnings Growth (YoY) -46.3% -39.2% -25.7% -32.7% -31.3% Current Ratio 2.7 2.9 3.0 2.5 2.6 Current Ratio 2.1 2.2 2.2 2.1 1.9 Cash as Percent of Market Cap 15.4% 15.2% 14.7% 20.2% 30.1% Cash as Percent of Market Cap 22.8% 20.3% 19.3% 20.8% 20.7% Enterprise Value Growth (YoY) 20.4% 28.7% 16.7% 4.8% -18.4% Enterprise Value Growth (YoY) 17.2% 25.2% 19.3% 11.4% 12.4%

Multimedia, Graphics, Digital Media 4Q10 1Q11 2Q11 3Q11 4Q11 Vertical - Finance 4Q10 1Q11 2Q11 3Q11 4Q11 EV/Revenue 3.6x 4.0x 3.9x 2.8x 2.9x EV/Revenue 4.7x 4.9x 4.6x 3.8x 3.8x EV/EBITDA 17.1x 25.2x 26.5x 17.9x 12.6x EV/EBITDA 15.5x 15.7x 15.8x 13.8x 13.1x EV/Earnings 21.0x 24.3x 26.0x 20.9x 22.0x EV/Earnings 45.1x 49.1x 47.8x 41.0x 33.3x Gross Profit Margin 67.7% 71.0% 76.0% 68.9% 66.3% Gross Profit Margin 59.9% 58.7% 58.0% 57.3% 60.1% EBITDA Margin 21.3% 20.6% 20.1% 21.1% 20.3% EBITDA Margin 34.2% 34.0% 34.1% 34.2% 34.4% Net Income Margin 9.0% 8.6% 8.7% 8.8% 5.4% Net Income Margin 12.9% 12.5% 12.2% 11.8% 13.4% TTM Revenue Growth (YoY) 6.3% 12.7% 15.0% 14.7% 11.0% TTM Revenue Growth (YoY) 18.2% 20.9% 18.6% 16.2% 15.1% TTM EBITDA Growth (YoY) 8.6% 17.6% 23.9% 22.5% 34.5% TTM EBITDA Growth (YoY) 31.2% 18.1% 17.7% 12.4% 7.1% TTM Earnings Growth (YoY) -50.1% -59.5% -64.3% -48.9% -20.7% TTM Earnings Growth (YoY) -11.9% -13.4% -15.9% -11.6% -21.7% Current Ratio 2.3 2.3 2.4 2.7 2.4 Current Ratio 1.1 1.2 1.2 1.0 1.1 Cash as Percent of Market Cap 11.7% 12.1% 10.8% 11.6% 11.6% Cash as Percent of Market Cap 6.7% 5.2% 5.5% 4.7% 5.2% Enterprise Value Growth (YoY) 19.9% 23.5% 22.4% 7.6% -14.2% Enterprise Value Growth (YoY) 36.6% 44.0% 24.4% 11.2% -6.4%

Networking & Network Perf Mgmt 4Q10 1Q11 2Q11 3Q11 4Q11 Vertical - Other 4Q10 1Q11 2Q11 3Q11 4Q11 EV/Revenue 3.1x 4.3x 4.8x 3.8x 4.5x EV/Revenue 2.4x 2.4x 2.8x 2.8x 2.9x EV/EBITDA 18.4x 28.0x 24.7x 18.6x 21.0x EV/EBITDA 13.6x 15.2x 14.0x 11.9x 13.9x EV/Earnings 35.8x 47.6x 48.6x 40.6x 31.8x EV/Earnings 26.4x 27.1x 29.2x 24.4x 20.2x Gross Profit Margin 78.5% 74.2% 70.8% 66.7% 79.7% Gross Profit Margin 54.7% 53.5% 52.1% 50.8% 56.2% EBITDA Margin 23.0% 23.3% 24.7% 22.6% 22.8% EBITDA Margin 17.6% 18.0% 18.4% 17.9% 17.8% Net Income Margin 11.1% 10.9% 10.7% 10.8% 11.6% Net Income Margin 8.4% 8.5% 8.4% 8.3% 9.6% TTM Revenue Growth (YoY) 31.5% 30.9% 23.2% 21.2% 20.5% TTM Revenue Growth (YoY) 9.4% 10.8% 10.5% 12.7% 14.0% TTM EBITDA Growth (YoY) 50.9% 35.5% 26.3% 22.6% 33.3% TTM EBITDA Growth (YoY) 17.1% 13.8% 18.0% 12.9% 11.6% TTM Earnings Growth (YoY) -33.1% -41.7% -43.2% -41.5% -37.4% TTM Earnings Growth (YoY) -15.8% -21.6% -19.5% -16.1% -14.4% Current Ratio 2.2 2.6 2.5 2.7 2.4 Current Ratio 1.1 1.3 1.3 1.5 1.2 Cash as Percent of Market Cap 14.0% 15.6% 12.7% 16.8% 16.2% Cash as Percent of Market Cap 7.2% 7.3% 8.0% 7.9% 9.2% Enterprise Value Growth (YoY) 159.4% 118.8% 58.0% 20.1% -17.5% Enterprise Value Growth (YoY) 23.4% 38.6% 44.2% 22.3% 6.0%

Security 4Q10 1Q11 2Q11 3Q11 4Q11 Video Games 4Q10 1Q11 2Q11 3Q11 4Q11 EV/Revenue 2.6x 2.5x 2.9x 2.3x 2.4x EV/Revenue 0.7x 0.9x 1.0x 1.1x 1.2x EV/EBITDA 14.2x 15.2x 14.1x 11.6x 10.3x EV/EBITDA 9.2x 8.4x 10.7x 8.3x 7.4x EV/Earnings 18.0x 19.6x 21.1x 19.8x 17.8x EV/Earnings 19.1x 25.8x 26.5x 23.6x 15.0x Gross Profit Margin 82.0% 78.1% 77.2% 75.2% 80.9% Gross Profit Margin 44.9% 43.9% 45.3% 45.1% 48.4% EBITDA Margin 19.3% 19.9% 19.6% 18.0% 18.3% EBITDA Margin 6.0% 9.3% 9.3% 8.7% 7.0% Net Income Margin 12.1% 12.1% 12.1% 12.1% 8.7% Net Income Margin 1.2% 1.2% 1.5% 1.5% 1.8% TTM Revenue Growth (YoY) 12.0% 12.5% 16.4% 16.0% 15.0% TTM Revenue Growth (YoY) -5.8% -1.6% -1.0% 0.1% 4.4% TTM EBITDA Growth (YoY) 18.4% 25.4% 22.8% 8.4% 9.8% TTM EBITDA Growth (YoY) 81.2% 141.6% 173.7% 80.0% 31.7% TTM Earnings Growth (YoY) -38.3% -44.9% -40.3% -35.9% -6.6% TTM Earnings Growth (YoY) -251.4% -253.6% -231.0% -81.3% -45.1% Current Ratio 2.3 2.4 2.5 2.5 2.5 Current Ratio 2.2 2.3 2.3 2.6 2.4 Cash as Percent of Market Cap 19.0% 18.3% 18.6% 18.7% 16.5% Cash as Percent of Market Cap 29.2% 28.0% 22.4% 23.9% 20.1% Enterprise Value Growth (YoY) 9.1% 4.2% 22.4% 24.0% -12.0% Enterprise Value Growth (YoY) -3.1% 15.5% 25.6% 47.8% 48.6%

37| 2012 SOFTWARE INDUSTRY FINANCIAL REPORT www.softwareequity.com

APPENDIX A: 2011 PUBLIC SOFTWARE MARKET VALUATIONS AND STATISTICS BY PRODUCT CATEGORY

Workforce & Service Management 4Q10 1Q11 2Q11 3Q11 4Q11 EV/Revenue 2.2x 2.7x 2.7x 2.2x 2.4x EV/EBITDA 20.0x 17.4x 17.1x 13.6x 14.1x EV/Earnings 26.2x 29.4x 32.7x 27.9x 30.7x Gross Profit Margin 62.8% 61.6% 60.1% 57.7% 62.9% EBITDA Margin 11.8% 15.5% 16.1% 16.2% 16.9% Net Income Margin -0.9% -0.9% -0.9% -0.9% 4.4% TTM Revenue Growth (YoY) 7.7% 10.6% 6.5% 10.3% 15.7% TTM EBITDA Growth (YoY) -1.2% 1.5% 8.9% -0.8% 31.1% TTM Earnings Growth (YoY) -41.0% -24.7% -26.6% 2.9% -17.3% Current Ratio 1.2 1.3 1.2 1.4 1.4 Cash as Percent of Market Cap 18.9% 16.4% 15.6% 15.6% 14.5% Enterprise Value Growth (YoY) 42.0% 54.0% 64.2% 57.6% 32.4%

38| 2012 SOFTWARE INDUSTRY FINANCIAL REPORT www.softwareequity.com

APPENDIX B: 2011 INTERNET PUBLIC MARKET VALUATIONS AND STATISTICS BY PRODUCT CATEGORY

Ad Tech & Lead Generation 4Q10 1Q11 2Q11 3Q11 4Q11 Search 4Q10 1Q11 2Q11 3Q11 4Q11 EV/Revenue 2.4x 2.8x 2.4x 2.2x 2.5x EV/Revenue 1.3x 1.4x 1.5x 1.4x 1.4x EV/EBITDA 12.8x 14.9x 9.6x 11.4x 24.6x EV/EBITDA 9.0x 9.6x 10.0x 11.2x 11.4x EV/Earnings 17.3x 21.0x 22.8x 14.0x 19.3x EV/Earnings 20.4x 18.4x 21.1x 22.2x 14.7x Gross Profit Margin 57.7% 40.4% 44.3% 51.5% 56.2% Gross Profit Margin 64.1% 53.9% 44.6% 48.0% 62.5% EBITDA Margin 8.8% 8.5% 10.1% 10.2% 8.4% EBITDA Margin 11.7% 12.1% 11.3% 12.2% 12.6% Net Income Margin 0.3% 0.3% 0.3% 0.2% -1.7% Net Income Margin 5.8% 5.5% 5.7% 6.2% 11.1% TTM Revenue Growth (YoY) 20.6% 23.0% 19.9% 22.2% 20.2% TTM Revenue Growth (YoY) 21.5% 24.0% 24.6% 26.1% 27.7% TTM EBITDA Growth (YoY) 15.0% 32.8% 27.4% 12.1% -18.2% TTM EBITDA Growth (YoY) 27.5% 35.3% 22.5% 16.1% 19.4% TTM Earnings Growth (YoY) -7.7% -5.1% -20.1% 0.9% 24.2% TTM Earnings Growth (YoY) -46.6% -38.3% -22.6% -20.5% -17.4% Current Ratio 3.0 2.9 3.1 2.5 1.9 Current Ratio 3.6 4.0 3.9 3.7 3.3 Cash as Percent of Market Cap 15.5% 10.4% 10.4% 10.7% 13.0% Cash as Percent of Market Cap 23.7% 23.6% 23.0% 24.0% 25.3% Enterprise Value Growth (YoY) 51.5% 43.2% 65.7% 9.7% 2.4% Enterprise Value Growth (YoY) 1.6% 7.3% 56.4% 48.0% -12.9%

Infrastructure 4Q10 1Q11 2Q11 3Q11 4Q11 Services 4Q10 1Q11 2Q11 3Q11 4Q11 EV/Revenue 2.9x 3.2x 2.9x 2.8x 2.0x EV/Revenue 3.2x 4.7x 5.0x 5.1x 5.1x EV/EBITDA 14.9x 18.8x 17.5x 11.8x 10.9x EV/EBITDA 15.9x 18.6x 25.8x 31.8x 24.1x EV/Earnings 45.1x 45.7x 37.5x 48.3x 28.8x EV/Earnings 31.3x 43.5x 146.0x 116.1x 44.3x Gross Profit Margin 67.8% 63.9% 59.1% 51.3% 67.2% Gross Profit Margin 73.1% 62.0% 56.0% 47.9% 72.9% EBITDA Margin 13.2% 13.5% 16.3% 16.2% 15.7% EBITDA Margin 15.1% 17.4% 15.2% 15.1% 14.9% Net Income Margin 3.7% 3.3% 3.1% 2.8% 5.9% Net Income Margin 4.2% 3.3% 2.9% 2.6% 3.3% TTM Revenue Growth (YoY) 3.9% 10.5% 11.3% 21.5% 29.0% TTM Revenue Growth (YoY) 28.1% 37.1% 24.6% 31.8% 27.9% TTM EBITDA Growth (YoY) 8.3% 12.7% 11.2% 21.8% 30.0% TTM EBITDA Growth (YoY) 15.9% 28.9% 22.2% 26.4% 35.0% TTM Earnings Growth (YoY) -14.8% -19.9% -20.4% -17.9% -13.6% TTM Earnings Growth (YoY) -32.0% -20.2% -16.0% -16.4% -5.8% Current Ratio 2.0 2.1 2.1 2.2 2.0 Current Ratio 2.6 2.2 2.2 2.9 2.8 Cash as Percent of Market Cap 15.0% 11.4% 10.6% 19.1% 17.2% Cash as Percent of Market Cap 11.3% 8.4% 10.5% 13.8% 11.7% Enterprise Value Growth (YoY) 39.8% 61.2% 85.1% 34.5% 12.3% Enterprise Value Growth (YoY) 36.9% 43.6% 59.4% 52.1% -5.2%

Media 4Q10 1Q11 2Q11 3Q11 4Q11 Travel 4Q10 1Q11 2Q11 3Q11 4Q11 EV/Revenue 2.8x 3.0x 3.6x 2.7x 1.8x EV/Revenue 6.4x 6.8x 8.4x 5.9x 5.5x EV/EBITDA 14.8x 14.1x 13.1x 10.8x 9.3x EV/EBITDA 25.0x 27.5x 35.1x 25.5x 17.2x EV/Earnings 17.6x 18.4x 18.2x 15.9x 17.0x EV/Earnings 42.0x 46.1x 77.9x 52.8x 143.2x Gross Profit Margin 46.0% 47.2% 49.5% 50.6% 51.7% Gross Profit Margin 79.5% 71.0% 66.4% 62.7% 79.6% EBITDA Margin 14.8% 14.9% 15.3% 15.2% 14.8% EBITDA Margin 20.5% 22.6% 24.0% 23.8% 23.6% Net Income Margin 1.4% 1.1% 0.9% 0.8% 4.1% Net Income Margin 13.6% 13.0% 12.1% 11.3% 3.8% TTM Revenue Growth (YoY) 10.9% 21.9% 19.4% 16.3% 19.8% TTM Revenue Growth (YoY) 25.9% 20.0% 28.2% 25.7% 28.7% TTM EBITDA Growth (YoY) 7.5% 17.2% 22.5% 18.2% 18.2% TTM EBITDA Growth (YoY) 21.2% 29.2% 37.1% 24.0% 55.8% TTM Earnings Growth (YoY) -23.3% -16.9% -24.8% -8.2% -17.4% TTM Earnings Growth (YoY) -39.3% -10.4% -10.8% -4.4% -9.9% Current Ratio 2.3 2.2 3.1 2.6 2.8 Current Ratio 2.4 2.4 1.6 2.0 1.8 Cash as Percent of Market Cap 17.5% 19.9% 21.6% 26.0% 30.9% Cash as Percent of Market Cap 7.7% 8.8% 8.1% 8.3% 8.8% Enterprise Value Growth (YoY) -0.7% 20.1% 4.9% -5.8% -35.0% Enterprise Value Growth (YoY) 83.0% 67.0% 82.8% -2.7% -26.0%

Retail 4Q10 1Q11 2Q11 3Q11 4Q11 Video Games 4Q10 1Q11 2Q11 3Q11 4Q11 EV/Revenue 2.1x 1.8x 1.7x 1.4x 1.4x EV/Revenue 4.1x 4.1x 4.7x 4.0x 3.1x EV/EBITDA 16.1x 12.8x 12.6x 14.4x 13.0x EV/EBITDA 7.3x 8.3x 8.7x 7.2x 7.3x EV/Earnings 37.9x 41.0x 35.3x 42.5x 33.5x EV/Earnings 8.4x 9.3x 11.1x 9.2x 15.6x Gross Profit Margin 41.9% 39.5% 37.7% 37.0% 37.5% Gross Profit Margin 72.8% 71.7% 66.7% 61.7% 75.8% EBITDA Margin 9.1% 8.6% 9.0% 9.4% 9.3% EBITDA Margin 48.4% 45.9% 43.4% 43.9% 42.5% Net Income Margin 3.2% 3.0% 2.9% 2.8% 2.3% Net Income Margin 40.9% 37.2% 34.1% 31.3% 33.6% TTM Revenue Growth (YoY) 12.7% 23.1% 17.0% 12.6% 19.2% TTM Revenue Growth (YoY) 26.9% 18.7% 15.9% 29.7% 33.2% TTM EBITDA Growth (YoY) 6.7% 13.1% 6.4% 6.8% 5.6% TTM EBITDA Growth (YoY) 8.5% 7.1% 25.3% 24.4% 34.8% TTM Earnings Growth (YoY) -31.2% -4.7% -1.4% 12.2% 8.7% TTM Earnings Growth (YoY) -7.5% -12.3% 2.6% -14.2% -6.7% Current Ratio 1.5 2.1 2.3 2.3 2.0 Current Ratio 3.3 3.3 3.3 2.8 2.4 Cash as Percent of Market Cap 17.2% 10.8% 10.8% 10.0% 10.0% Cash as Percent of Market Cap 22.5% 30.0% 28.5% 23.1% 32.3% Enterprise Value Growth (YoY) 44.4% 33.2% 49.0% 27.8% 1.7% Enterprise Value Growth (YoY) -14.1% -5.0% 33.5% 18.4% -22.5%

39| 2012 SOFTWARE INDUSTRY FINANCIAL REPORT www.softwareequity.com

APPENDIX C: 2011 MERGERS AND ACQUISITIONS, SELECT PUBLIC SELLER VALUATIONS

TTM Rev Buyer Seller Purchase Price Enterprise Value EV/Rev EV/EBITDA Grow th Hew lett-Packard Company Autonomy Corp. plc (LSE:AU.) $11,036,800,000 $10,300,590,000 11.1x 25.2x 12.2% SAP AG SuccessFactors, Inc. (NYSE:SFSF) $3,764,380,000 $3,516,050,000 12.0x - 55.2% Infor Global Solutions Law son Softw are, Inc. (NasdaqGS:LWSN) $2,073,390,000 $1,771,210,000 2.4x 13.2x 4.1% Providence Equity Partners Blackboard Inc. (NasdaqGS:BBBB) $1,804,610,000 $1,751,880,000 3.8x 20.2x 18.7% Oracle Corporation Rightnow Technologies Inc. (NasdaqGS:RNOW) $1,762,900,000 $1,521,440,000 7.0x 63.8x 23.0% Synopsys Magma Design Automation Inc. (NasdaqGM:LAVA) $549,360,000 $498,550,000 3.4x 28.4x 11.7% PLATO Learning Renaissance Learning Inc. (NasdaqGS:RLRN) $493,880,000 $484,570,000 3.6x 12.3x 6.8% CSC iSOFT Group Limited (ASX:ISF) $474,840,000 $444,280,000 1.2x 161.5x -23.2% ACI Worldw ide S1 Corporation (NasdaqGS:SONE) $510,390,000 $438,670,000 1.9x 35.8x 2.1% International Business Machines DemandTec, Inc. (NasdaqGS:DMAN) $486,430,000 $426,900,000 4.8x - 11.8% Bserv Fundtech Ltd. (NasdaqGS:FNDT) $382,410,000 $308,260,000 2.0x 15.5x 15.1% CoreLogic RP Data Ltd. (ASX:RPX) $199,590,000 $293,560,000 4.7x 11.8x 20.9% Cidron Intressenter AB Orc Group AB (OM:ORC) $293,190,000 $250,700,000 1.8x 9.2x -5.5% S1 Corporation Fundtech Ltd. (NasdaqGS:FNDT) $309,360,000 $228,420,000 1.6x 10.8x 16.5% Visma ASA Mamut ASA (OB:MAMUT) $174,670,000 $161,790,000 1.8x 13.6x 1.0% Amdocs Bridgew ater Systems Corporation (TSX:BWC) $210,590,000 $125,940,000 1.4x 8.4x 14.0% McKesson Corporation System C Healthcare plc (AIM:SYS) $132,490,000 $104,910,000 1.9x 15.7x 11.2% SDL Alterian plc (LSE:ALN) $106,810,000 $103,770,000 1.8x - -14.5% Thoma Bravo InfoVista SA (ENXTPA:IFV) $71,610,000 $63,150,000 1.1x 8.7x -3.8% HarbourVest Partners; Nova Capital Parseq plc (AIM:PSQ) $43,170,000 $60,210,000 2.3x 9.0x n/a LDC Ltd. Workplace Systems International plc (AIM:WSI) $62,570,000 $60,170,000 4.0x 84.9x 4.1% Francisco Partners Management eFront SA (ENXTPA:ALEFT) $55,740,000 $57,240,000 1.5x 12.8x n/a Merge Healthcare Ophthalmic Imaging Systems (OTCBB:OISI) $39,020,000 $36,230,000 2.0x - 17.5% Symphony Technology Group IBS AB (OM:IBS B) $42,380,000 $28,270,000 0.1x - -19.4% Triple Point Technology Qmastor Ltd. (ASX:QML) $19,830,000 $16,540,000 1.8x 9.6x 19.9% Better Capital Limited Clarity Commerce Solutions plc (AIM:CCS) $14,710,000 $14,740,000 0.5x - 4.1%

40| 2012 SOFTWARE INDUSTRY FINANCIAL REPORT www.softwareequity.com

APPENDIX D: 2011 MERGERS AND ACQUISITIONS, MOST ACTIVE BUYERS

Purchase Price Enterprise Value TTM EV / Buye r Se lle r (mm) (mm) Revenue Re ve nue 24 Mobile Advertising Solutions Player One Ltd. - - - - Selatra Limited - - - - THQ Wireless, Inc. - - - - 3D Systems Alibre, Inc. $3.7 $3.7 - - Print3D Corporation - - - - SY CODE - - - - The3dStudio.com, Inc. - - - - Adobe Systems Auditude, Inc. - - - - Demdex , Inc . - - - - Demdex , Inc . - - - - Efficient Frontier, Inc. - - - - Iridas, Certain Assets - - - - Nitobi Softw are Ltd. - - - - Typekit, Inc. - - - - Allen Systems Group Atempo, Inc. - - - - PS’SOFT, Inc . - - - - RiverGlass, Inc. - - - - The Information Systems Manager Inc. - - - - TRILOGexpert Group - - - - visionapp AG - - - - AppTech Livecam Mobile - - - - Super Star Learning, Inc. - - - - Xplaneta Comunicacao Ltda. - - - - Autodesk Blue Ridge Numerics, Inc. $39.0 $39.0 - - Code Mine in Stockholm AB - - - - GRIP Entertainment - - - - Horizontal Systems, Inc. - - - - Instructables, Inc. $32.0 $32.0 - - Micro Application Packages Limited - - - - NUMENUS GmbH - - - - Scaleform Corporation $36.0 $36.0 - - T-Splines Inc., Certain Technology Related Assets - - - - Bentley Systems Engineering Dynamics, Inc. - - - - Formation Design Systems Pty Ltd. - - - - Pointools Ltd. - - - - Bitzio Bitzio Corp. $2.8 $2.8 - - Digispace Solutions, LLC $0.8 $0.8 $4.6 0.2x Thinking Drone, Inc. $2.6 $2.6 - - BMC Softw are BMC Mobility for IT Service Management - - - - Coradiant, Inc. $125.0 $125.0 - - NEON Enterprise Softw are, Inc., Certain Assets - - - - StreamStep, Inc. - - - -

41| 2012 SOFTWARE INDUSTRY FINANCIAL REPORT www.softwareequity.com

APPENDIX D: 2011 MERGERS AND ACQUISITIONS, MOST ACTIVE BUYERS (CONTINUED)

Purchase Price Enterprise Value TTM EV / Buye r Se lle r (mm) (mm) Revenue Re ve nue BuyWithMe Dealadayonline, LLC - - - - Groop Sw oop, LLC - - - - LocalTw ist - - - - Scoop St. - - - - Tow nHog.com - - - - Callidus Softw are iCentera Inc. $7.9 $7.9 - - Litmos Limited - - - - Rapid Intake, Inc. - - - - Webcom, Inc. $9.9 $9.9 - - Chegg Notehall, Inc. - - - - Student of Fortune Inc. - - - - Zinch Inc. - - - - Cisco Systems Axiom Systems Limited, Axioss Softw are $30.7 $30.7 - - BNI Video $99.0 - - - Inlet Technologies, Inc.* $95.0 $95.0 $15.0 6.3x new Scale, Inc. - - - - TaskDock, Inc. - - - - App-DNA Limited $92.0 $92.0 - - Kaviza, Inc. - - - - novel labs, Inc. - - - - RingCube Technologies, Inc. - - - - CommerceTel DigiMark, LLC - - - - Mobile Visions, Inc. $4.0 $4.0 - - Txtstation $9.0 $9.0 - - Constellation Softw are Efficient Workflow Solutions, LLC - - - - Fitronics Limited - - - - Logimax Inc. - - - - Markinson Business Solutions Pty Ltd. - - - - Northpointe Institute for Public Management, Inc. - - - - ProSoft Technologies, Inc. - - - - Youbill, Inc. - - - - Crow dGather DigiShopTalk.com - - - - Forumer $0.4 $0.4 - - Inform Technologies, Inc., Yuku.com $0.6 $0.6 - - PbNation, LLC $3.2 $3.2 - - Pocketables.net - - - - Crow dSavings.com Daily Deal Squad, Inc. - - - - DealDaddies, Inc. - - - - Maiplay Pte Ltd - - - - QponDay.com LLC - - - - Savvy Avenue, Inc. - - - - *revenue estimate

42| 2012 SOFTWARE INDUSTRY FINANCIAL REPORT www.softwareequity.com

APPENDIX D: 2011 MERGERS AND ACQUISITIONS, MOST ACTIVE BUYERS (CONTINUED)

Purchase Price Enterprise Value TTM EV / Buye r Se lle r (mm) (mm) Revenue Re ve nue Dassault Systemes Elsys sprl - - - - Enginuity PLM - - - - Intercim, LLC $36.5 $44.5 - - Simulayt Ltd. - - - - Demand Media Altcaster Inc. - - - - IndieClick Media Group, Inc. $14.0 $14.0 - - RSS Graffiti, LLC $17.7 $17.7 - - eBay Alamaula - - - - Appchee Applications Ltd. $20.0 $20.0 - - GittiGidiyor A.S. - - - - GSI Commerce Inc. (NasdaqGS:GSIC) $2,381.4 $2,139.3 $1,354.0 1.6x Hunc h Inc . - - - - Magento, Inc. - - - - Where, Inc. - - - - Electronic Arts Bight Interactive Inc. - - - - Firemint Pty Ltd. - - - - Mobile Post Production, Inc. - - - - PopCap Games, Inc. $1,250.0 $1,250.0 $166.7 7.5x Electronics for Imaging efi alphagraph team GmbH - - - - Prism Group Holdings Pty Ltd - - - - Streamline Solutions, Inc. $6.9 $6.9 - - Reed Elsevier Ariadne Genomics, Inc. - - - - Casitérides S.L. - - - - Shanghai Datong Medical Information Technology, Ltd. - - - - ESI Group Comet Technology, IP and Comet Acoustics Softw are - - - - Efield AB - - - - ICIDO GmbH - - - - Experian 192business Limited - - - - Medical Present Value, Inc. $185.0 $185.0 $45.0 4.1x Techlightenment Limited - - - - VIRID Interatividade Digital Ltda - - - - Facebook Beluga, Inc. - - - - Day tum Inc . - - - - Digital Staircase Inc. - - - - rel8tion, LLC - - - - Snaptu Ltd. $70.0 $70.0 - - Somo Enterprises, Inc. - - - - Strobe Inc. - - - - WhoGlue LLC - - - - GB Group Advanced Checking Services Limited $8.2 $8.2 - - Capscan Limited $26.0 $17.9 $10.8 1.7x Data Discoveries Limited $1.0 $1.0 - -

43| 2012 SOFTWARE INDUSTRY FINANCIAL REPORT www.softwareequity.com

APPENDIX D: 2011 MERGERS AND ACQUISITIONS, MOST ACTIVE BUYERS (CONTINUED)

Purchase Price Enterprise Value TTM EV / Buye r Se lle r (mm) (mm) Revenue Re ve nue General Electric CSense Systems (Pty) Ltd., Technology Assets - - - - Railcar Management, LLC - - - - Remote Energy Monitoring Limited - - - - SerphyDose SARL - - - - SmartSignal Corporation - - - - Steady State Imaging, LLC - - - - Google Admeld Inc. - - - - Apture, Inc. - - - - BeatThatQuote.com Ltd. $61.2 $61.2 $13.8 4.4x Center'd Corporation - - - - Clever Sense, Inc. - - - - Daily Deal GmbH - - - - eBook Technologies, Inc. - - - - Fflick, Inc. - - - - Inflatable Spaces Inc - - - - Katango, Inc. - - - - Pittsburgh Pattern Recognition, Inc. - - - - Pos tRank Inc . - - - - Punchd Labs Inc - - - - PushLife Inc. $25.0 $25.0 - - SageTV, LLC - - - - SocialGrapple - - - - Sparkbuy, Inc. - - - - TalkBin - - - - The DealMap - - - - Zagat Survery, LLC $151.0 $151.0 - - Zave Netw orks, Inc. - - - - zynamics GmbH - - - - Groupon Crow dmass Pty Ltd. - - - - Campfire Labs, Inc. - - - - Darberry-Groupon Russia - - - - GaoPeng.com - - - - Grouper - - - - Groupon Indonesia - - - - GroupsMore - - - - Integrated Global Trade - - - - Pelago, Inc . - - - - PT Lamuda Tenka - - - - Zappedy, Inc $10.3 $10.3 - -

44| 2012 SOFTWARE INDUSTRY FINANCIAL REPORT www.softwareequity.com

APPENDIX D: 2011 MERGERS AND ACQUISITIONS, MOST ACTIVE BUYERS (CONTINUED)

Purchase Price Enterprise Value TTM EV / Buye r Se lle r (mm) (mm) Revenue Re ve nue Hew lett-Packard Autonomy Corp. plc (LSE:AU.) $11,036.8 $10,300.6 $931.0 11.1x HIFLEX GmbH - - - - Vertica Systems, Inc. - - - - Hungry Machine Dealissime SAS - - - - Ensogo Company Limited - - - - GoNabit (HQ) FZ LLC - - - - Let's Bonus S.L. - - - - Social Media Netw orks, Inc. $3.0 $3.0 - - Ticket Monster Inc. - - - - IDOX Interactive Dialogues Ltd $3.0 $3.0 $3.3 0.9x LalPac Ltd. $4.2 $4.2 $2.4 1.7x Sw ord CTSpace UK $18.3 $18.3 $20.0 0.9x IHS Inc. Dyadem International, Ltd $52.0 $52.0 - - ODS-Petrodata, Inc. - - - - Seismic Micro-Technology, Inc. $500.0 $500.0 - - Infor Global Solutions ENXSuite, Inc. - - - - Law son Softw are, Inc. (NasdaqGS:LWSN) $2,073.4 $1,771.2 $754.0 2.4x RSVP Business Systems, Inc., New Product Lines - - - - Single Source Systems, Inc., certain products - - - - International Business Machines Algorithmics, Inc. $387.0 $387.0 $164.0 2.4x Cúram Softw are Ltd. - - - - DemandTec, Inc. (NasdaqGS:DMAN) $486.4 $426.9 $89.0 4.8x Emptoris, Inc. - - - - i2 Limited - - - - Platform Computing Inc. - - - - Q1 Labs, Inc. - - - - Tririga, Inc. - - - - Internet Brands 5series.net; CobaltSS.net; gtr.co.uk; - - - - DieselTruckResource.com; DieselBombers.com - - - - eHarmony, Inc., Weddingbee.com, JustMommies.com - - - - Inhabitat, LLC - - - - Just-Eat Limited GrubCanada Inc. - - - - Achindra Online Marketing Pvt. Ltd. - - - - ClickEat.it - - - - Urbanbite Ltd. - - - - KIT digital Decentral.tv Corp. $6.6 $6.6 $3.7 1.8x Kew ego SA $31.1 $31.1 $10.2 3.1x KickApps Corporation $43.2 $43.2 - - Lockerz AddToAny - - - - Lockerz Photos - - - - OffAndAw ay, Inc. - - - - Remixation, Inc., Vodpod.com - - - -

45| 2012 SOFTWARE INDUSTRY FINANCIAL REPORT www.softwareequity.com

APPENDIX D: 2011 MERGERS AND ACQUISITIONS, MOST ACTIVE BUYERS (CONTINUED)

Purchase Price Enterprise Value TTM EV / Buye r Se lle r (mm) (mm) Revenue Re ve nue Lyceum Capital Partners Access UK Ltd. $80.2 $80.2 $44.8 1.8x Adapt Services Limited - - - - Clearsw ift Limited - - - - McKesson Portico Systems, Inc. $90.0 $90.0 - - PrisMédiCa SAS - - - - System C Healthcare plc (AIM:SYS) $132.5 $104.9 $54.1 1.9x Mediabistro.com AllFacebook.de - - - - Semantic Overflow - - - - Tw ittercism.com - - - - Microsoft Corporation Prodiance Corp. - - - - Skype Global $9,224.0 $9,082.0 $856.8 10.6x Tw isted Pixel Games, LLC - - - - VideoSurf, Inc. - - - - Motorola Mobility Holdings Dreampark AB - - - - SetJam, Inc. - - - - SunUp Digital Systems, Inc. - - - - MRI Softw are Bostonpost Technology - - - - Realty DataTrust Corporation - - - - Workspeed Management, LLC - - - - Nextag FanSnap, Inc. - - - - Guenstiger.de GmbH - - - - Thingbuzz Inc. - - - - Nuance Communications Equitrac Corporation $157.0 $157.0 - - Loquendo S.p.A. - $75.5 - - SVOX AG $123.1 $123.1 - - Sw ype Inc. $119.2 $109.0 - - Vlingo Corporation - - - - Webmedx, Inc. - - - - Open Text Global 360, Inc. $260.0 $260.0 $90.0 2.9x Metastorm, Inc.* $182.0 $182.0 $75.8 2.4x Operitel Corporation - - - - Oracle Datanomic Limited - - - - FatWire Corporation - $160.0 $40.0 4.0x Endeca Technologies, Inc. - - - - GoAhead Softw are, Inc. - - - - InQuira, Inc.* - $230.0 $45.1 5.1x Ksplice, Inc. - - - - Rightnow Technologies Inc. (NasdaqGS:RNOW) $1,762.9 $1,521.4 $216.0 7.0x P2 Energy Solutions Beyond Compliance Inc. - - - - Explorer Softw are Solutions Ltd. - - - - Wellpoint Systems Inc. - - - - *revenue estimate

46| 2012 SOFTWARE INDUSTRY FINANCIAL REPORT www.softwareequity.com

APPENDIX D: 2011 MERGERS AND ACQUISITIONS, MOST ACTIVE BUYERS (CONTINUED)

Purchase Price Enterprise Value TTM EV / Buye r Se lle r (mm) (mm) Revenue Re ve nue PerkinElmer ArtusLabs, Inc. - - - - CambridgeSoft Corporation - - - - Geospiza, Inc. $13.3 $13.3 - - Labtronics, Inc. - - - - Playtech Ash Gaming Limited $35.7 $35.7 $6.5 5.5x Intelligent Gaming Solutions (UK) Limited $8.8 $8.8 - - Mobenga AB $33.8 $33.8 - - Quest Sof tw are BiTKOO, LLC - - - - ChangeBASE Limited - - - - e-DMZ Security, LLC - - - - RemoteScan Corporation - - - - VKernel Corporation - - - - RedPrairie Escalate, Inc. - - - - Shippers Commonw ealth LLC - - - - SofTechnics, Inc. - - - - Research In Motion Gist, Inc. - - - - New Bay Softw are Limited $100.0 $100.0 - - Scoreloop AG $71.0 $71.0 - - tinyHippos Inc. - - - - Tungle Corporation - - - - Ubitexx GmbH - - - - Salesforce.com 2Catalyze Inc. - - - - Assistly, Inc. $50.0 - - - Dimdim, Inc. $37.1 $37.1 - - Manymoon, Inc. - - - - Model Metrics, Inc. $57.6 $57.6 - - Nav ajo Sy s tems - - - - Radian6 Technologies, Inc. $350.0 $350.0 - - SAP Crossgate AG - - - - Right Hemisphere Limited - - - - SECUDE International, Application Security Business - - - - SuccessFactors, Inc. (NYSE:SFSF) $3,764.4 $3,516.1 $291.8 12.1x Schibsted Done Deal Limited - - - - Servicefinder AB - - - - Duplo Media AS - - - - Siemens Active SA - - - - eMeter, Inc. - - - - VISTAGY, Inc. - - - - SMA Alliance Dealer Drops - - - - Palw ow and Bizw rk - - - - USAutoplex.com $7.0 $7.3 - -

47| 2012 SOFTWARE INDUSTRY FINANCIAL REPORT www.softwareequity.com

APPENDIX D: 2011 MERGERS AND ACQUISITIONS, MOST ACTIVE BUYERS (CONTINUED)

Purchase Price Enterprise Value TTM EV / Buye r Se lle r (mm) (mm) Revenue Re ve nue Solera Holdings Inventory Technology Systems, Inc. - - - - K&S Beheer B.V. - - - - New Era Sof tw are LLC - - - - Sinexia Corp. Tecnológica, s.a. - - - - SuccessFactors Jambok, Inc. - - - - Jobs2Web $110.0 $110.0 - - Plateau Systems, LTD.* $290.0 $290.0 $70.0 4.2x SunGard PredictiveMetrics, Inc. - - - - SunGard's Ambit Asset Finance - - - - Sw isscom Workplace Services Ltd., FINACE - - - - Tagged hi5 Netw orks, Inc. - - - - WeGame.com, Inc. - - - - dotSyntax, LLC - - - - Telegraaf Media Nederland HuizenZoeker.nl - - - - InnoWeb BV, gaspedaal.nl - - - - Autowereld B.V. - - - - The Active Netw ork Fellow ship Technologies, LP $8.9 $8.9 - - RTP, LLC $21.5 $21.5 - - ServiceU Corporation $11.1 $11.1 - - StarCite, Inc. - - - - The Riverside Company Centiv Services, LLC - - - - CPA Site Solutions, Inc. - - - - TRANSPOREON GmbH - - - - Thoma Bravo InfoVista SA (ENXTPA:IFV) $71.6 $63.2 $60.1 1.1x Telestream, Inc. - - - - Tripw ire, Inc. - - - - Thomson Reuters Global Objectives Ltd. - - - - IGD Systems, LLC - - - - Lanw orth, Inc. - - - - Mastersaf Brazil S.A. - - - - Sistemas Bejerman SA - - - - Skyw ire Softw are, LLC - - - - Solcara Limited $4.0 $4.0 $1.2 3.3x Tedesco Tecnologia Ltda. - - - - Trimble Navigation Dynamic Survey Solutions Inc. - - - - Mesta Entreprenør As, Suite of Softw are Solutions - - - - Tekla Oyj (HLSE:TLA1V) $481.8 $426.8 $87.5 4.9x *revenue estimate

48| 2012 SOFTWARE INDUSTRY FINANCIAL REPORT www.softwareequity.com

APPENDIX D: 2011 MERGERS AND ACQUISITIONS, MOST ACTIVE BUYERS (CONTINUED)

Purchase Price Enterprise Value TTM EV / Buye r Se lle r (mm) (mm) Revenue Re ve nue Tw itter BackType, Inc. - - - - Bagcheck Inc. - - - - Julpan, Inc. - - - - Tw eetDeck Inc. - - - - Whisper Systems Inc.com - - - - Ubermedia Echofon, Inc. - - - - Recommended Reading, Inc. - - - - UberTw itter - - - - Verint Systems GMT Corporation $42.0 $42.0 - - Rontal Applications Ltd. - - - - Vovici Corporation $75.4 $75.4 - - Vista Equity Partners Mitratech Holdings, Inc. - - - - Sage Softw are Healthcare, Inc. $314.7 $314.7 $240.2 1.3x Thomson Reuters, Trade and Risk Management Unit - - - - Vmw are Digital Fuel Technologies, Inc. - - - - Event Robot, Inc. - - - - Mozy, Inc. $8.4 $8.4 - - NeoAccel, Inc. - - - - PacketMotion, Inc. - - - - SlideRocket, Inc. - - - - WaveMaker Softw are, Inc. - - - - Wolters Kluw er Legal Intelligence - - - - Sistemas de Información Empresarial, S.L. - - - - Toppow er NV - - - - Transics International, Transport Mgmt System $5.1 $5.1 - - Yahoo! 5to1 Holding Corp. $28.3 $26.4 - - interCLICK, Inc. $263.9 $250.9 $128.0 2.0x IntoNow Inc . - - - - Spreets Pty Ltd. $39.4 $39.4 - - Zynga Flock, Inc. - - - - Sapus Media - - - - Zynga Mobile UK - - - - Zynga Toronto, Inc. - - - -

49| 2012 SOFTWARE INDUSTRY FINANCIAL REPORT www.softwareequity.com

APPENDIX E: 2011 MERGERS AND ACQUISITIONS, SELECT SOFTWARE INDUSTRY MEGA-DEALS

TTM Rev Date Buyer Seller Purchase Price Enterprise Value EV/Rev EV/EBITDA Grow th 08/18/2011 Hew lett-Packard Company Autonomy Corp. plc (LSE:AU.) $11,036,800,000 $10,300,590,000 11.1x 25.2x 12.2% 05/10/2011 Microsoft Skype Global S.à r.l. $9,224,860,000 $9,082,400,000 10.6x 47.1x - 12/02/2011 SAP AG SuccessFactors, Inc. (NYSE:SFSF) $3,764,380,000 $3,516,050,000 12.0x - 55.2% 08/04/2011 Datatel, Inc. SunGard Higher Education, Inc. $1,775,000,000 $1,775,000,000 - - - 03/11/2011 Infor Global Solutions Law son Softw are, Inc. (NasdaqGS:LWSN) $2,073,390,000 $1,771,210,000 2.4x 13.2x 4.1% 06/30/2011 Providence Equity Partners Blackboard Inc. (NasdaqGS:BBBB) $1,804,610,000 $1,751,880,000 3.8x 20.2x 18.7% 10/23/2011 Oracle Corporation Rightnow Technologies Inc. (NasdaqGS:RNOW) $1,762,900,000 $1,521,440,000 7.0x 63.8x 23.0% 10/12/2011 Permira Advisers; TCV Genesys Telecommunications Laboratories, Inc. $1,500,000,000 $1,500,000,000 3.0x - 07/11/2011 Electronic Arts Inc. PopCap Games, Inc. $1,250,000,000 $1,250,000,000 7.5x - - 06/14/2011 LM Ericsson Telephone Telcordia Technologies, Inc. $1,150,000,000 $1,150,000,000 1.6x - - 07/11/2011 NCR Corp. Radiant Systems Inc. $1,241,720,000 $1,139,110,000 3.1x 20.7x - 07/05/2011 Western Union Co. Travelex Global Business Payments, Inc. $975,300,000 $975,300,000 4.3x 13.6x - 04/04/2011 Apax Partners Epicor Softw are Corporation $1,041,860,000 $951,450,000 2.1x 17.5x 10.5% 04/23/2011 Audatex North America Explore Information Services, L.L.C. $520,000,000 $520,000,000 6.8x 15.3x - 08/05/2011 Welsh, Carson, Anderson & Stow e Triple Point Technology, Inc. $500,000,000 $500,000,000 - - - 07/26/2011 IHS Inc. Seismic Micro-Technology, Inc. $500,000,000 $500,000,000 - - - 11/30/2011 Synopsys Magma Design Automation Inc. (NasdaqGM:LAVA) $549,360,000 $498,550,000 3.4x 28.4x 11.7%

50| 2012 SOFTWARE INDUSTRY FINANCIAL REPORT www.softwareequity.com

APPENDIX F: 2011 MERGERS AND ACQUISITIONS, SELECT SOFTWARE-AS-A-SERVICE SELLERS

Enterprise TTM Date Buye r Se lle r Value Revenue EV/Rev 12/30/2011 The Active Netw ork, Inc. (NYSE:ACTV) StarCite, Inc. - -- 12/27/2011 SS&C Technologies Holdings, Inc. (NasdaqGS:SSNC) Teledata Comm, Background and Credit Retrieval Suite - -- 12/27/2011 Stage 2 Netw orks, LLC Consolidated Technologies, Inc., Hosted VoIP Division - -- 12/23/2011 Epiq Systems Holdings, LLC De Novo Legal, LLC $106,500,000 - - 12/21/2011 Thoma Bravo, LLC Telestream, Inc. - -- 12/21/2011 MRI Softw are LLC Realty DataTrust Corporation - -- 12/20/2011 Gemalto NV (ENXTPA:GTO) SensorLogic, Inc. - -- 12/19/2011 Nightingale Informatix Corporation (TSXV:NGH) Medrium, Inc., Practice Management Softw are Business $1,750,000 $2,300,000 0.8x 12/19/2011 Kew ill plc (LSE:KWL) Pointandship Softw are, Inc. - -- 12/15/2011 Accruent, Inc. 360Facility LLC - -- 12/15/2011 Salesforce.com (NYSE:CRM) 2Catalyze Inc. - -- 12/15/2011 Virtustream, Inc. Enomaly, Inc. - -- 12/14/2011 TPG Grow th MarketTools, Inc. - -- 12/14/2011 Spectrum Equity Investors; Trident Capital, Inc. HealthMEDX, Inc. - -- 12/13/2011 Hobsons Inc. Intelliw orks, Inc. $13,000,000 $5,000,000 2.6x 12/12/2011 Solera Holdings Inc. (NYSE:SLH) Sinexia Corp. Tecnológica, s.a. - -- 12/08/2011 7215088 Canada Inc. Jobs People Do Inc. - -- 12/07/2011 P2 Energy Solutions, Inc. Beyond Compliance Inc. - -- 12/07/2011 International Business Machines Corp. (NYSE:IBM) DemandTec, Inc. (NasdaqGS:DMAN) $426,900,000 $89,000,000 4.8x 12/06/2011 AVM Softw are, Inc. Easy to Send LLC - -- 12/06/2011 Amw est Imaging Incorporated (OTCPK:AMWI) LokDrop - -- 12/05/2011 FlexiGroup Limited (ASX:FXL) Paymate Pty Ltd. - -- 12/05/2011 American Board Of Medical Specialties TMP Directional Marketing, LLC, TMP Medical Listings Business $3,950,000 - - 12/02/2011 SAP America, Inc. SuccessFactors, Inc. (NYSE:SFSF) $3,516,050,000 $292,000,000 12.1x 12/02/2011 Bitauto Holdings Limited (NYSE:BITA) Beijing Bitcar Interactive Information Technology Co., Ltd $9,920,000 - - 12/01/2011 Baker & Taylor, Inc. Bridgeall Libraries Limited - -- 11/30/2011 MicroEdge, Inc. AngelPoints, Inc. - -- 11/29/2011 Halyard Capital Datamyx - -- 11/28/2011 TheDirectory.com, Inc (OTCPK:SEEK) BusinessList.com - -- 11/17/2011 DriveCam, Inc. RAIR Technologies, LLC - -- 11/16/2011 Ebix Inc. (NasdaqGS:EBIX) HealthConnect Systems, Inc. - -- 11/15/2011 ASPire Financial Services, LLC InvestLink Technologies LLC - -- 11/14/2011 Salesforce.com (NYSE:CRM) Model Metrics, Inc. $57,600,000 - - 11/14/2011 IDOX plc (AIM:IDOX) Sw ord CTSpace UK $18,340,000 $20,100,000 0.9x 11/10/2011 CoBe Capital LLC Sendori, Inc. - -- 11/09/2011 Textura Corporation Submittal Exchange, LLC - -- 11/07/2011 IDOX plc (AIM:IDOX) Interactive Dialogues Ltd $3,020,000 $3,300,000 0.9x 11/04/2011 TravelCLICK, Inc. EZYield.com, Inc. - -- 11/02/2011 Descartes Systems Group Inc. (TSX:DSG) InterCommIT bv $13,910,000 - - 11/02/2011 Wave Accounting, Inc. Wave Payroll - -- 11/02/2011 - VeCommerce Inc. - -- 11/02/2011 New market International, Inc. Libra OnDemand LLC - -- 11/01/2011 New market International, Inc. Ruds, Inc. - -- 10/28/2011 The Charles Schw ab Corporation (NYSE:SCHW) Compliance11, Inc. - -- 10/27/2011 Telediffusion de France S.A. Qbrick AB - -- 10/25/2011 CoStar Group Inc. (NasdaqGS:CSGP) Virtual Premise, Inc. $17,000,000 - - 10/25/2011 Wolters Kluw er NV (ENXTAM:WKL) Legal Intelligence - -- 10/23/2011 Oracle Corporation (NasdaqGS:ORCL) Rightnow Technologies Inc. (NasdaqGS:RNOW) $1,521,440,000 $216,000,000 7.0x 10/20/2011 Kramer Healthcare Technologies, Inc. CareClarity, Inc. - -- 10/20/2011 Cisco Systems, Inc. (NasdaqGS:CSCO) BNI Video - --

51| 2012 SOFTWARE INDUSTRY FINANCIAL REPORT www.softwareequity.com

APPENDIX F: 2011 MERGERS AND ACQUISITIONS, SELECT SOFTWARE-AS-A-SERVICE SELLERS (CONT…)

Enterprise TTM Date Buye r Se lle r Value Revenue EV/Rev 10/19/2011 Infor Global Solutions, Inc. ENXSuite, Inc. - -- 10/19/2011 MSX International Inc. HCD Consultoria Empresarial Ltda.-ME - -- 10/19/2011 Textura Corporation Gradebeam LLC - -- 10/12/2011 SCIenergy, Inc. Impact Energy Solutions, Inc. - -- 10/11/2011 800 Commerce, Inc. Vesta Digital LLC - -- 10/11/2011 LinkedIn Corporation (NYSE:LNKD) IndexTank, Inc. - -- 10/07/2011 Keynote Systems Inc. (NasdaqGS:KEYN) Mobile Complete, Inc. $89,850,000 $20,000,000 4.5x 10/06/2011 Blackbaud Pacific Pty Ltd Everyday Hero Pty Ltd $7,370,000 - - 10/06/2011 Optimal Blue, LLC Sollen Technologies, LLC - -- 10/05/2011 Silverpop Systems, Inc. PlacePunch - -- 10/03/2011 Pegasus Imaging Corporation Adeptol LLC - -- 10/03/2011 Adobe Systems Inc. (NasdaqGS:ADBE) Typekit, Inc. - -- 10/03/2011 Lumesse Limited Edvantage Group AS - -- 10/03/2011 The Active Netw ork, Inc. (NYSE:ACTV) ServiceU Corporation $11,100,000 - - 10/03/2011 MRI Softw are LLC Bostonpost Technology - -- 10/02/2011 TALX Corporation eThority Inc. - -- 10/01/2011 Asure Softw are, Inc. (NasdaqCM:ASUR) ADI Time LLC $6,750,000 $4,600,000 1.5x 09/29/2011 Salesforce.com Navajo Systems - -- 09/28/2011 Vantage Media BrokersWeb - -- 09/26/2011 Automatic Data Processing Asparity Decision Solutions - -- 09/25/2011 AA DriveTech Intelligent Data Systems - -- 09/23/2011 Callidus Softw are Rapid Intake - -- 09/22/2011 Watchdog Dataview - -- 09/21/2011 Salesforce.com Assistly - -- 09/21/2011 Infomedia Different Aspect Softw are $5,150,000 - - 09/19/2011 NICE Systems The Fizzback Group* $80,000,000 $20,000,000 4.0x 09/19/2011 GTCR Bserv - -- 09/15/2011 Pearson Connections Education $400,000,000 - - 09/14/2011 Intech Hotel Solutions Magic Rooms Solutions India - -- 09/13/2011 ExactTarget Frontier Digital Business - -- 09/11/2011 8x8 Contactual $27,500,000 $8,300,000 3.3x 09/08/2011 VIP Tone EdPay - -- 09/08/2011 CVC Capital Partners Raet B.V. - -- 09/08/2011 CPA Global Ipendo - -- 09/08/2011 iControl ESI Firefly Dataw orks - -- 09/07/2011 ConnectEdu EducationDynamics, Enrollment/Retention Division - -- 09/07/2011 BroadSoft ilinc Communications $3,470,000 - - 09/02/2011 The Riverside Company Centiv Services - -- 08/26/2011 Connelly, Carlisle, Fields & Nichols Triton HR - -- 08/26/2011 GVA Acuity Acuity Management Solutions - -- 08/24/2011 Xero Limited Paycycle Australia $1,630,000 - - 08/23/2011 Engine Yard Orchestra Platform - -- 08/17/2011 R.R. Donnelley & Sons LibreDigital - -- 08/15/2011 Drake Enterprises Copanion - -- 08/12/2011 Premiere Global Services V-cube - -- 08/09/2011 Nielsen Holdings Marketing Analytics - -- 08/08/2011 Great Hill Partners Plimus $115,000,000 - - 08/03/2011 Augme Technologies HipCricket $57,420,000 $8,790,000 6.5x * revenue estimate

52| 2012 SOFTWARE INDUSTRY FINANCIAL REPORT www.softwareequity.com

APPENDIX F: 2011 MERGERS AND ACQUISITIONS, SELECT SOFTWARE-AS-A-SERVICE SELLERS (CONT…)

Enterprise TTM Date Buye r Se lle r Value Revenue EV/Rev 08/02/2011 Questback AS Globalpark - -- 07/29/2011 Transcend Services Salar $11,000,000 $4,000,000 2.8x 07/28/2011 Oracle InQuira* $230,000,000 $45,000,000 5.1x 07/28/2011 Arbitron Arbitron Mobile $23,700,000 $2,600,000 8.9x 07/27/2011 Act-On Softw are Marketbright - -- 07/27/2011 VIP Tone Global Grid for Learning - -- 07/26/2011 CCH SpeedTax - -- 07/26/2011 Retalix MTXEPS $24,950,000 - - 07/25/2011 Ivrnet Gymsmart - -- 07/21/2011 Oracle Ksplice - -- 07/19/2011 Verint Systems Vovici $75,400,000 - - 07/13/2011 The Riverside Company TRANSPOREON - -- 07/11/2011 WhatCounts Blue Sky Factory - -- 07/08/2011 Planon Site Alpha SA - -- 07/05/2011 Callidus Softw are iCentera $7,900,000 - - 07/04/2011 Thomson Reuters Solcara $4,020,000 $1,200,000 3.3x 07/01/2011 Thomson Reuters IGD Systems - -- 06/30/2011 Gary Jonas Computing Ltd. Youbill, Inc. - -- 06/30/2011 Dimension Data Holdings plc OpSource, Inc. - -- 06/29/2011 Fiserv, Inc. CashEdge, Inc.* $465,000,000 $50,000,000 9.3x 06/29/2011 Hidenet Secure Architectures Locate1Plus - -- 06/28/2011 Experian plc (LSE:EXPN) Medical Present Value, Inc. $185,000,000 $45,000,000 4.1x 06/27/2011 MRI Softw are LLC Workspeed Management, LLC - -- 06/24/2011 Archipelago Learning, Inc. Alloy Multimedia, Inc. $2,000,000 - - 06/21/2011 ECS Refining Texas, LLC ServoTerra, Inc - -- 06/21/2011 Taleo Corp. Jobpartners Plc $37,400,000 - - 06/20/2011 DST Systems Inc. DST Subserveo, Inc. - -- 06/15/2011 SDC Softw are, Inc. SUPERAntiSpyw are.com $8,500,000 $2,500,000 3.4x 06/14/2011 MartinJAY Digital, Inc. Social Blaze - -- 06/14/2011 ActiveState Softw are, Inc. Phenona - -- 06/14/2011 Intermedia.net, Inc. Zlago, LLC - -- 06/12/2011 Descartes Systems Group Inc. Telargo Inc. $9,600,000 - - 06/09/2011 Procura, LLC ContinuLink Health Technologies L.L.C. - -- 06/07/2011 Concur Technologies, Inc. GlobalExpense Limited $23,010,000 - - 06/03/2011 Cendyn Corporation RoundTableHQ, LLC - -- 06/01/2011 Centercode, Inc. Customer Feedback Solutions, Inc. - -- 05/31/2011 UNC Kenan-Flagler Private Equity Fund iContact Corporation - -- 05/31/2011 VMw are, Inc. Event Robot, Inc. - -- 05/26/2011 Oak Hill Capital Partners Intermedia.net, Inc. - -- 05/24/2011 DealerTrack/AAX, Inc. eCarList, LLC $45,330,000 $7,000,000 6.5x 05/23/2011 Citrix Systems, Inc. Kaviza, Inc. - -- 05/18/2011 Skybot Softw are, LLC Open Systems Management Limited - -- 05/17/2011 SPS Commerce, Inc. Direct EDI, Inc. $9,820,000 $4,530,000 2.2x 05/13/2011 Naxicap Partners Eudow eb - $8,920,000 - 05/12/2011 Advent Softw are, Inc. Black Diamond Performance Reporting $73,000,000 - - 05/12/2011 Document Security Systems, Inc. ExtraDev, Inc. $700,000 - - 05/09/2011 Deloitte Consulting Oco, Inc. - -- 05/09/2011 Ozitem SA Ow entis SAS - $8,570,000 - * revenue estimate

53| 2012 SOFTWARE INDUSTRY FINANCIAL REPORT www.softwareequity.com

APPENDIX F: 2011 MERGERS AND ACQUISITIONS, SELECT SOFTWARE-AS-A-SERVICE SELLERS (CONT…)

Enterprise TTM Date Buye r Se lle r Value Revenue EV/Rev 05/03/2011 Paychex Inc. ePlan Services, Inc $15,200,000 - - 05/02/2011 Limelight Netw orks, Inc. Clickability, Inc. $10,000,000 - - 04/29/2011 Identive Group, Inc. idOnDemand Inc. $27,270,000 - - 04/26/2011 Pearson plc SchoolNet, Inc. $230,000,000 - - 04/26/2011 SuccessFactors, Inc. Plateau Systems, LTD.* $290,000,000 $70,000,000 4.2x 04/26/2011 VMw are, Inc. SlideRocket, Inc. - -- 04/25/2011 SurveyMonkey.com, LLC Infinity Box, Inc. - -- 04/08/2011 MyTeam1, LLC Notification Technologies LLC - -- 04/06/2011 Micros-Fidelio UK Ltd. Snow Valley Ltd. - -- 04/05/2011 KANA Softw are, Inc. Overtone, Inc. - -- 04/05/2011 Evolution Benefits, Inc. Lighthouse1, LLC - -- 04/04/2011 Monsoon Commerce Solutions, Inc Stone Edge Technologies, Inc. - -- 04/04/2011 Peoplefluent, Inc. Aquire, Inc. - -- 04/04/2011 VMw are, Inc. Mozy, Inc. $8,400,000 - - 03/29/2011 Bottomline Technologies Allegient Systems, Inc.* $51,000,000 $15,000,000 3.4x 03/25/2011 Pytheas SiNETiS - -- 03/24/2011 Davis + Henderson Corporation Mortgagebot LLC $231,800,000 $37,700,000 6.2x 03/18/2011 Lender Processing Services PCLender.com, Inc. - -- 03/15/2011 Accentus Inc. MRecord, LLC - -- 03/15/2011 CoreLogic Dorado $51,600,000 - - 03/14/2011 Versata Inc. Ravenflow , Inc. - -- 03/11/2011 Craw ford & Company ClaimHub, Inc. - -- 03/09/2011 DemandTec M-Factor, Inc. $9,500,000 - - 03/04/2011 Sudinnova S.A.; CIC Vizille Capital Finance Antidot SAS - -- 03/03/2011 TOA Technologies, Inc. Aboutime Business Solutions Ltd - -- 03/03/2011 Lots Intermediate Co. eReinsure.com, Inc. $37,000,000 - - 03/02/2011 Accruent, Inc. Siterra Corporation - -- 03/02/2011 RouteMatch Softw are, Inc. DeepLocal Inc., RouteShout - -- 02/22/2011 SAS Institute, Inc. Assetlink Corporation - -- 02/16/2011 System One Holdings, LLC Link2Consult, Inc. - -- 02/15/2011 Movero, Inc. Movêro Technology, Inc. - -- 02/08/2011 Cint AB Thumbspeak LLC - -- 02/08/2011 The Active Netw ork, Inc. Fellow ship Technologies, LP - -- 02/07/2011 Elastic Couchbase CouchOne Inc. - -- * revenue estimate

54| 2012 SOFTWARE INDUSTRY FINANCIAL REPORT www.softwareequity.com

APPENDIX F: 2011 MERGERS AND ACQUISITIONS, SELECT SOFTWARE-AS-A-SERVICE SELLERS (CONT…)

Enterprise TTM Date Buye r Se lle r Value Revenue EV/Rev 01/25/2011 Ivrnet, Inc. (TSXV:IVI) Itology.com Ltd. - -- 01/24/2011 Azini Capital Partners LLP OneSpin Solutions GmbH - -- 01/19/2011 RedPrairie Corporation Shippers Commonw ealth LLC - -- 01/19/2011 Daiw a Computer Co. Fitness Communications, Inc. $1,800,000 - - 01/18/2011 Rightnow Technologies Q-go.com b.v. $34,000,000 $7,900,000 4.3x 01/18/2011 Adobe Systems Demdex, Inc. - -- 01/18/2011 Trubiquity, Inc. NexPrise, Inc., Substantially all Assets $2,000,000 - - 01/11/2011 International SOS Pte. Ltd. VIPdesk.com, Inc. - -- 01/11/2011 SHL Group Limited SHLPreVisor Inc. - -- 01/11/2011 O'Connor's Holdings Pte Ltd Puffersoft Labs Pte. Ltd. $2,200,000 - - 01/11/2011 Bluew ater Direct, Inc. Riverock Technologies, LLC - -- 01/11/2011 CoreLogic, Inc. RP Data $293,600,000 $62,700,000 4.7x 01/10/2011 Stonebranch, Inc. OpsWise Softw are Inc. - -- 01/10/2011 Internet Pipeline, Inc. GaleForce Solutions, Inc. - -- 01/10/2011 Wall Street Systems Delaw are, Inc. Thomson Reuters Corporate Treasury Manager - -- 01/07/2011 Wakefly, Inc. EditMe, LLC - -- 01/06/2011 ProQuest, LLC ebrary, Inc. - -- 01/05/2011 SumTotal Systems, Inc. GeoLearning, Inc. - -- 01/05/2011 eCarList, LLC DealerUps, Inc. - --

55| 2012 SOFTWARE INDUSTRY FINANCIAL REPORT www.softwareequity.com

APPENDIX G: 2011 MERGERS AND ACQUISITIONS – DEAL INSIGHT

Apax Partners acquires Epicor (NASDAQ:EPIC) Category: Enterprise Resource Planning Purchase Price: $951,450,000EV Seller Revenue (TTM): $453,290,000 Seller EBITDA (TTM): $54,350,000 Revenue Multiple (TTM): 2.1xEV EBITDA Multiple (TTM): 17.5xEV Payment Terms: Cash

SEG’s Perspective: Global private equity firm, Apax Partners, acquires Epicor, a leading provider of enterprise resource planning (ERP) applications to mid-market and enterprise organizations. Apax plans to merge Epicor with recently purchased Activant Solutions, a leading provider of mid-market retail POS and wholesale distribution applications. Activant brings Epicor significant revenue contribution as well as expertise in the distribution chain and a number of micro-verticals (automotive, hard goods retailers, building materials, etc.). Activant’s product technology innovation, however, has lagged since the company was purchased by private equity firm Hellman and Friedman in 2006 and will benefit from Epicor’s up-to-date development initiatives.

Hewlett-Packard (NYSE:HPQ) acquires Autonomy (LSE:AU) Category: Content Management Purchase Price: $10,300,590,000 EV Seller Revenue (TTM): $931,100,000 Seller EBITDA (TTM): $409,190,000 Revenue Multiple: (TTM): 11.1xEV EBITDA Multiple (TTM): 25.2xEV Payment terms: Cash

SEG’s Perspective: Technology giant Hewlett-Packard, acquires Autonomy, Britain’s highest publicly valued software provider. With Gartner estimating enterprise content growth at a CAGR of 50-60%, the acquisition brings HP market leading products to analyze structured and unstructured enterprise data, and continues HP’s desired shift away from increasingly commoditized hardware and towards higher margin software and services. Additionally, Autonomy’s SaaS e-discovery and content archiving solutions are highly complementary to HP’s infrastructure management products. HP’s $42.02 per share tender offer to acquire Autonomy represents a 59.3% premium over Autonomy’s pre-announcement average 30 days closing stock price.

56| 2012 SOFTWARE INDUSTRY FINANCIAL REPORT www.softwareequity.com

APPENDIX G: 2011 MERGERS AND ACQUISITIONS – DEAL INSIGHT (CONTINUED)

Microsoft (NASDAQ:MSFT) acquires Skype Category: Communications Purchase Price: $9,082,400,000EV Seller Revenue (TTM): $859,820,000 Seller EBITDA (TTM): $192,880,000 Revenue Multiple (TTM): 10.6xEV EBITDA Multiple (TTM): 47.1xEV Payment Terms: Cash

SEG’s Perspective: Microsoft acquires leading internet communications provider, Skype. The combination will enable Microsoft to integrate global communication channels into its many consumer offerings, including Live, Xbox and Bing; increase Skype’s VoIP and video presence via Microsoft channels and accelerate Skype functionality over mobile platforms. The acquisition also allows Microsoft to compete more effectively against major internet competitors Google, Facebook and Apple over internet turf, as Skype brings an enormous customer base of well over 100 million users per month. Founded in 2003, Skype was purchased by eBay in 2005 for $2.6 billion, which subsequently sold 70% interest (valued at $2.75 billion) in Skype back to Founders and an investor group led by SilverLake Partners and Andreessen Horowitz in late 2009. The roughly $9 billion purchase price paid by Microsoft represents a hefty return to recent investors.

NCR Corp. (NYSE:NCR) acquires Radiant Systems (NASDAQ:RADS) Category: Point-of-Sale Systems Purchase Price: $1,139,110,000EV Seller Revenue (TTM): $367,220,000 Seller EBITDA (TTM): $55,100,000 Revenue Multiple (TTM): 3.1xEV EBITDA Multiple (TTM): 20.7xEV Payment Terms: Cash

SEG’s Perspective: NCR, a provider of financial services oriented self-service technologies, acquires Radiant Systems, a leading provider of point-of-sale systems and ancillary solutions for the hospitality and retail sectors. The acquisition provides NCR a strong presence in the hospitality and specialty retail markets, provides down- market penetration via Radiant’s high growth SMB SaaS solution suite, and expands NCR’s addressable market by approximately $8 billion. Furthermore, Radiant will leverage NCR’s strong international channel presence for growth, as Radiant currently garners only 13% international revenue versus NCR’s international sales of 55%. NCR’s $28 per share tender offer to acquire Radiant Systems represents a 36.6 % premium over Radiant’s pre-announcement average 30 days closing stock price.

57| 2012 SOFTWARE INDUSTRY FINANCIAL REPORT www.softwareequity.com

APPENDIX G: 2011 MERGERS AND ACQUISITIONS – DEAL INSIGHT (CONTINUED)

NICE Systems (TASE:NICE) acquires The Fizzback Group Category: Customer Experience Management Purchase Price: $80,000,000 Seller Revenue (estimate): $20,000,000 Revenue Multiple (estimate): 4.0x Payment Terms: Cash

SEG’s Perspective: Nice Systems, a provider of enterprise customer service, risk and security software and hardware, acquires The Fizzback Group, a provider of SaaS-based multi-channel natural language analytics solutions for customer experience and engagement management. The acquisition bolsters NICE Systems’ customer experience management offering by adding natural language processing of unstructured customer data to enhance customer experiences and interactions at the point of engagement. The acquisition follows on the heels of NICE Systems’ competitor Verint announcing the purchase of customer experience management vendor, Vovici ($75 million), in July 2011, and continues a trend of strategic acquisitions in the social and CRM unstructured data analytics sectors in 2011.

Open Text (NASDAQ:OTEX) acquires Global 360 Category: Business Process Management Purchase Price: $260,000,000 Seller Revenue (estimate): $90,000,000 Revenue Multiple (estimate): 2.9x Payment Terms: Cash

SEG’s Perspective: Enterprise software provider, Open Text, acquires Global 360, a leading provider of business process management (BPM) applications. With the acquisition, Open Text strengthens its position as the dominant provider of Microsoft- based business process management suites, a highly fragmented market with many low-cost SharePoint providers, and shores up the Company’s position against IBM and EMC in the growing BPM segment. Global 360 also provides Open Text with a stronger public sector presence via its well-regarded case management products, an industry segment Open Text strengthened earlier this year via its acquisition of Metastorm. Global 360 marks Open Text’s third BPM acquisition in recent years, following purchases of Metastorm ($182 million, 2.4x TTM revenue estimate) in February 2011 and Captaris ($109.5EV million, 1.0xEV TTM revenue) in September 2008.

58| 2012 SOFTWARE INDUSTRY FINANCIAL REPORT www.softwareequity.com

APPENDIX G: 2011 MERGERS AND ACQUISITIONS – DEAL INSIGHT (CONTINUED)

Oracle (NASDAQ:ORCL) acquires Fatwire Category: Web Content Management Purchase Price (estimate): $160,000,000 Seller Revenue (estimate): $40,000,000 Revenue Multiple (estimate): 4.0x Payment Terms: Cash

SEG’s Perspective: Software behemoth, Oracle, acquires best-of-breed web content and experience management vendor, Fatwire. Fatwire’s technology complements Oracle’s 2010 purchase of e-commerce software provider Art Technology Group ($881EV million, 4.1xEV TTM revenue) and joins other Oracle applications (Fusion Middleware, Siebel CRM, ATG e-commerce) to create a seemingly powerful customer experience management offering. EMC was thought to be a likely acquirer after investing in the Fatwire in early 2010, only to later announce an expanding partnership with Fatwire competitor, SDL Tridion, in early 2011. Oracle’s purchase of Fatwire follows Adobe’s 2010 purchase of web content management vendor Day Software ($177EV million, 4.2xEV TTM revenue).

Oracle (NASDAQ:ORCL) acquires RightNow Technologies (NASDAQ:RNOW) Category: Customer Service and Experience Management Purchase Price: $1,521,440,000EV Seller Revenue (TTM): $216,190,000 Seller EBITDA (TTM): $23,860,000 Revenue Multiple (TTM): 7.0xEV EBITDA Multiple (TTM): 63.8xEV Payment Terms: Cash

SEG’s Perspective: Software behemoth, Oracle, acquires RightNow Technologies, the leading provider of SaaS-based CRM and customer service and experience management applications. The acquisition bolsters Oracle’s Fusion CRM Line and puts the company in a better position to compete against best-of-breed CRM vendor, Salesforce.com, which itself has recently come into more direct competition with RightNow via acquisitions in the chat, social, knowledge management, and customer service arenas. Oracle’s $43 per share tender offer to acquire RightNow represents a 22.1% premium over RightNow’s pre-announcement average 30 days closing stock price.

59| 2012 SOFTWARE INDUSTRY FINANCIAL REPORT www.softwareequity.com

APPENDIX G: 2011 MERGERS AND ACQUISITIONS – DEAL INSIGHT (CONTINUED)

SAP (DB:SAP) acquires SuccessFactors (NASDAQ:SFSF) Category: Talent Management Purchase Price: $3,516,050,000EV Seller Revenue (TTM): $292,000,000 Revenue Multiple (TTM): 12.1xEV Payment Terms: Cash

SEG’s Perspective: Leading enterprise software provider, SAP, acquires SuccessFactors, the largest SaaS-based talent management vendor. The acquisition strengthens SAP’s talent management portfolio and significantly expands the company’s SaaS footprint, two areas where SAP has played laggard. It also creates cross-sell opportunities between SAP’s HRMS offering and SuccessFactors’ talent management suite, and may help defend customers from leaving SAP’s HRMS offering for SaaS vendors such as Workday and Ultimate Software. SuccessFactors follows RightNow and DemandTec as the third major public SaaS company acquisition in 4Q11 and highlights the increasing importance of SaaS to enterprise strategic road maps. SAP’s $40 per share tender offer to acquire SuccessFactors represents a 53.6% premium over SuccessFactors’ pre-announcement average 30 days closing stock price.

SuccessFactors (NASDAQ:SFSF) acquires Plateau Systems Category: Employee Talent Management Purchase Price: $290,000,000 Seller Revenue (estimate): $70,000,000 Revenue Multiple (estimate): 4.2x Payment Terms: Cash

SEG’s Perspective: Leading talent management vendor, SuccessFactors, acquires Plateau Systems, a leading provider of employee learning and talent management systems. The acquisition plugs a hole in SuccessFactors’ talent management suite by adding strong corporate learning functionality, strengthens its presence in the public sector and pharmaceutical segments, and adds a significant recurring revenue stream. The acquisition follows Taleo’s purchase of Learn.com ($144EV million, 5.2xEV TTM revenue) in late 2010, as a number of leading talent management vendors have historically lacked strong learning management capabilities and are seeking to provide cradle-to-grave talent management offerings. After making no acquisitions from 2000 to 2009, SuccessFactors has made five acquisitions over the past 18 months.

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