2006 Software Industry Equity Report Summary

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2006 SOFTWARE INDUSTRY EQUITY REPORT SUMMARY

Economy 2006 demonstrated unexpected resiliency in the U.S. economy and showed improved prospects for a soft landing. Gross Domestic Product (GDP), a key economic indicator and broadest measure of economic performance, is projected to grow at an annualized rate of 2.2% when final 2006 numbers are posted. Despite much publicized fears, U.S. technology job outsourcing to developing countries has declined steadily over the past five years. There were 131,181 tech sector job cuts during 2006, the lowest since 2000 according to Challenger, Gray & Christmas, Inc.

Public Markets The software sector tracked the NASDAQ closely during most of 2006, but leveling off in 4Q06 for no discernable reason as the NASDAQ continued to climb. The median market value of the SEG Software Index, our composite index of publicly traded software companies, closed 2006 up 5.6% after reaching bottom (-11.8%) in July.

Median trailing-twelve-month (TTM) revenue of SEG Software Index companies grew 9.3% from 1Q06 to 4Q06. Measured on a quarter-over-same-quarter basis, 4Q06 Software Index median revenue increased 13.8%, and median TTM EBITDA grew 13.1% over 4Q05. As for earning, from 1Q06 to Q406, the median TTM net income of SEG Software Index companies increased a modest 3.2%. In 4Q06, SaaS providers continued to outperform the balance of the software industry, reporting median revenue growth of 34.6% over the same quarter a year ago, markedly outpacing the overall software industry (+13.8%). Despite generally higher infrastructure costs and more deferred revenue than their perpetual license counterparts, the median EBITDA margin for SaaS Index companies was 4.1% greater than that of the SEG Software Index. Similarly, SaaS providers significantly outperformed the software industry in general on an enterprise value to revenue basis (4.5x vs. 2.2x) and enterprise value to EBITDA basis (29.8x vs. 14.6x).

Initial Public Offerings & Venture Capital Thirteen of the year’s IPOs were software and/or internet related companies that together raised an aggregate $1.21 billion, a notable improvement over 2005’s 10 software and internet IPOs that generated a combined $872 million. Perhaps more impressively, these 13 newly public software/internet companies posted a healthy 58% year-end return, with only two posting year-end stock losses (Allot Communications and Corel). Corel posted the only negative first day return of any software IPO in 2006.

Of $4.9 billion invested by VCs in the software sector, $175 million, or 4%, went to 61 startup/seed stage entities. While the absolute number is very small, it represents a 146% increase in the funding of start-ups over 2005. Early stage software companies found the going far more difficult, with VC investments declining for the third consecutive year in terms of both dollars invested ($592 million, -35%) and companies funded (169, -32%). Reflecting a continuing VC bias toward established companies with brand identity, customer loyalty and recurring revenue, expansion stage software companies attracted 38% of VC funds invested

in software ($1.9 billion), while later stage companies garnered $2.3 billion or 46% of the total. Analyzed from the perspective of Series A financings, $1.2 billion or 24% of the $4.9 billion invested in software companies went to entities raising their first round of professional capital.

Mergers and Acquisitions 2006 established new benchmarks for domestic M&A activity across all industry sectors, beating the aggregate M&A purchase price and M&A deal volume records set in 1999 and 2000, respectively. 4Q06 chalked up 3,116 transactions, aggregating $471.7 billion, bringing the tally for domestic M&A activity across all industry sectors to a remarkable 11,701 transactions totaling $1.47 trillion. It wasn’t merely a national phenomenon. According to Dealogic, the total value of announced acquisitions worldwide reached $3.46 trillion for the year, beating 2000’s record of $3.33 trillion. Dow Jones estimates technology mergers and acquisitions worldwide were $215 billion in 2006.

In North America, there were 1,726 mergers and acquisitions in the software and IT services sector, up slightly from 1,707 transactions in 2005. Although the sector remained a major contributor to overall domestic deal volume, software and IT services comprised a smaller percentage (14%) of total transactions in 2006 than in prior years. However, the modest increase in year-over-year software M&A transactions was overshadowed by an impressive 11% increase in aggregate software M&A spending. Software deals fetched $81.9 billion in 2006, compared to an aggregate of $73.8 billion in 2005.

Software industry M&A valuations in 2006 presented few surprises. The median valuation of software industry M&A transactions (based on TTM revenue and the seller’s equity value) in 2006 was 2.5x, on par with 2005 (2.6x) and 2004 (2.4x). However, 4Q06 marked the first time since 3Q04 the median software M&A valuation dipped below 2.0x.

Contents

U.S. Economy: Software Industry Macroeconomics...... 2

Public Markets And Public Software & Internet Company Performance ...... 3 Public Software Company Performance ...... 3 Public Internet Company Performance ...... 6 Initial Public Offerings ...... 8

Venture Capital and Private Equity...... 9

Mergers and Acquisitions: The Numbers ...... 12

Mergers and Acquisitions: Buyer Motives...... 19 Product Enhancement ...... 19 Market Expansion ...... 20 Vertical Markets ...... 20 Product Category Consolidation ...... 20 Investment Acquisitions ...... 21 Appendix A: 2006 Mergers and Acquisitions, Select Public Seller Valuations...... 22

Appendix B: Mergers and Acquisitions, Most Active Buyers ...... 23

Appendix C: Selected Mergers and Acquisitions by Software Industry Categories ...... 29 Business Intelligence ...... 29 CAD/CAM/CAE/PLM...... 30 Content & Document Management Software...... 31 Customer Relationship Management & Related Software ...... 32 Developer Tools, Application Testing & Related Software...... 33 Enterprise Systems Management, EAI & Related Software ...... 35 ERP, Manufacturing, Asset Management & Related Software ...... 38 Human Resource & Workforce Management ...... 40 Security Software...... 41 Supply Chain Management Software...... 44 Financial Services Software...... 45 Healthcare Software ...... 46 Miscellaneous Transactions...... 48

Figure 1: U.S. Gross Domestic Product U.S. ECONOMY: SOFTWARE INDUSTRY MACROECONOMICS 6% 5.6%

5% The U.S. economy showed surprising resiliency in 4.3% 4.0% 4.1% 2006, suggesting improved prospects for a soft 3.8% 4% 3.5% landing. At mid-year, economists predicted the 3.3% 3.3% economy would slow or stall in the fourth quarter 3% 2.5% 2.2% due to manufacturing sector weakness and a 2.0% significant downturn in the housing market. oss Domestic Product 2% 1.7% Instead, a particularly robust services sector

buoyed the economy in 4Q06 and led to better Real Gr 1% than expected year-end growth. Gross Domestic Product (GDP), a key economic indicator and 0% broadest measure of economic performance, is 2004 2005 2006 projected to grow at an annualized rate of 2.2% years. There were 77% fewer U.S. tech sector when final 2006 numbers are posted (Figure 1). job cuts in 4Q06 compared to 3Q06. For the Third quarter GDP was revised downward to year, a total of 131,181 tech sector jobs were lost, 2.0%, a far cry from the 4.1% growth the same making 2006 the best year for job retention since quarter a year ago, but nonetheless calming. With 2000, according to Challenger, Gray & Christmas, the 2H06 slowdown in consumer spending Inc. (Figure 2). expected to continue in 2007, the consensus forecast of 60 economists surveyed by the Wall Also contributing to U.S. job growth and economic Street Journal is for GDP to grow at a modest growth was the record number of new business 2.3% pace in the first half of 2007and 2.8% in the startups. According to Small Business second half. Administration estimates, nearly 672,000 new companies with employees were created in 2005, The Conference Board’s Index of Leading the biggest business birthrate in U.S. history. To Economic Indicators, an important short-term put that statistic in perspective, it’s 30,000 more forecasting guide, increased 0.3% in December. startups than 2004, and the trend shows no sign Six of the ten indicators that make up the leading of abating. The Bureau of Labor Statistics index increased in December. The positive determined more businesses were created in the contributors, beginning with the largest positive, first quarter of 2006 than during the same period were building permits, average weekly initial the previous year. The groundswell of startups claims for unemployment insurance (inverted), bodes well for software and other IT providers. real money supply, stock prices, vendor Forrester Research found U.S. small businesses performance and manufacturers' new orders for spent $138 billion on technology products and nondefense capital goods. The negative services in 2006, accounting for 19% of all IT contributors, beginning with the largest negative, spending. were interest rate spreads and the index of consumer expectations. Average weekly Figure 2: U.S. Tech Sector Job Cuts manufacturing hours, and manufacturers' new 695,581 orders for consumer goods and materials, both held steady in December. 468,161 The economy added 168,000 jobs in December and averaged 160,000 in each of the six months

prior. It was an encouraging sign, particularly 228,325 176,113 174,744 since normal job growth has declined to 100,000 131,181 per month, in large part due to slower U.S. 99,782 100,901 population growth. Despite well publicized fears,

U.S. technology job outsourcing to developing 1999 2000 2001 2002 2003 2004 2005 2006 countries has declined steadily over the past five Source: Challenger, Gray & Christmas, Inc.

Figure 3: 2006 Major Market Indices Compared with SEG-Software and SEG-Internet Indices 20.0% 15.0% 2006 f 10.0% 5.0% 0.0%

from Beginning o -5.0% e -10.0% -15.0% -20.0% Percent Chang -25.0% Jan. Feb. March April May June July Aug. Sept. Oct. Nov. Dec.

S&P 500 Nasdaq Dow SEG Sofware Index SEG Internet Index

PUBLIC MARKETS AND PUBLIC SOFTWARE & Historically, NASDAQ investors have tended to be INTERNET COMPANY PERFORMANCE hypersensitive to both macroeconomic changes and the quarterly performance of category The major market indexes advanced before leaders, and 2006 was archetypal. Take April, for retreating in the first-half of 2006, but rallied and example, when the NASDAQ approached a five surged in the closing months of the year (Figure year high before plummeting at month end on a 3), propelling the Dow, S&P 500 and NASDAQ to disappointing outlook from Microsoft and several close the year up 16.3%, 13.6% and 9.5%, other earnings reports. The gyrations continued respectively. It was the best showing since 2003, for the remainder of the year, often weekly, as when the Dow rose 25%, the NADAQ skyrocketed tech investors responded negatively to inflation 50% and the S&P closed up 26%. The S&P 500 worries, dollar weakness, geopolitical uncertainty and NASDAQ have grown 82.6% and 116.8%, and weak results from Dell, Yahoo, and Amazon, respectively, since bottoming out in October 2002. but quite positively to the cease-fire in Lebanon, positive Fed signals, encouraging inflation reports Many on Wall Street fear the rally will fizzle in and good earnings from Apple, Motorola, Google 2007, falling victim to housing market woes, and IBM. inflation pressures and lower bond yields. Others predict a soft landing, pointing to declining oil Public Software Company Performance prices, solid corporate earnings and a presidential The software sector proved even more volatile, election year. According to the Stock Trader’s tracking the NASDAQ closely during most of Almanac, the Dow has gained ground every 2006, but leveling off in Q4 for no discernable presidential election year in the past 68 years. reason as the NASDAQ continued to climb. The median market value of the 245 publicly traded Figure 4: SEG Software Key Statistics software companies comprising the SEG SEG - Software Software Index closed 2006 up 5.6% after Measure 1Q06 2Q06 3Q06 4Q06 reaching bottom (-11.8%) in July (Figure 3). 2006 EV/Revenue 2.2x 2.1x 1.9x 2.2x financial performance data for the composite SEG EV/EBITDA 15.2x 13.7x 12.8x 14.6x Software Index, as well as performance data EV/Earnings 25.4x 28.1x 25.7x 28.4x relating to the size (revenue) of Software Index Current Ratio 2.1 2.1 2.0 1.9 companies, are enumerated in Figure 4. Gross Profit Margin 62.9% 63.4% 62.1% 61.6% EBITDA Margin 12.8% 13.5% 14.3% 13.7% Median trailing-twelve-month (TTM) revenue of Net Income Margin 5.0% 4.7% 4.2% 4.3% SEG Software Index companies grew 9.3% from Revenue Growth 10.4% 12.5% 13.4% 13.8% Earnings Growth 25.3% 8.7% 2.8% 11.5% 1Q06 to 4Q06. Measured on a quarter-over- Note: Earnings and revenue growth are calculated using quarterly numbers (year-over-year) 3| 2006 SOFTWARE INDUSTRY EQUITY REPORT Copyright © 2007 Software Equity Group, L.L.C. Software Equity Group, L.L.C.

Figure 5: SEG-100 change in TTM Revenue, TTM Earnings, TTM EBITDA, Enterprise expectations, with compound annual growth rates Value and Cash & Cash Equivalents Relative surpassing their peers, will likely be well rewarded to 1Q06 by investors. Investor insistence on top line 15% growth will undoubtedly cause public software companies to be even more acquisitive in 2007, 10% particularly those not able to attain the requisite revenue growth organically. 5% Also favoring acquisitions is the truism that size 0% matters in the software industry. Investors find comfort in hordes of balance sheet cash and -5% recurring revenue aggregating hundreds of millions. For the quarter, SEG Software Index -10% companies with revenues greater than $1 billion posted a median EV/Revenue ratio of 3.5x in Q4, -15% compared to a median ratio of 2.3x for software 1Q06 2Q06 3Q06 4Q06 companies with revenue between $200 million Cash & Equivalents TTM Revenue and $1 billion (Figure 6). Similarly, investors TTM EBITDA TTM Net Income rewarded profitability. The median EV/Revenue Enterprise Value multiple for software companies posting a profit in 4Q05 was 2.6x, but only 1.2x for those reporting same-quarter basis, 4Q06 Software Index median losses. revenue increased 13.8%, and median TTM

EBITDA grew 13.1% over 4Q05 (Figure 5). As for While software industry multiples are interesting, earnings, from 1Q06 to 4Q06 the median TTM net median multiples for specific software product income of SEG Software Index companies grew categories provide far more insight about only 3.2%. Investors were not impressed with valuation, market opportunity and future growth of either the revenue or earnings performance and public software companies. In years past, median became highly selective, ignoring or punishing revenue and earnings varied widely by product low/slow growth public software companies. category, and 2006 was no exception. Year-over- Predictably, the enterprise value (valuation) of the year (4Q05 to 4Q06), public software company SEG Software Index increased only 2.6% from providers of eCommerce enablement tools and 1Q06 to 4Q06. web analytics apps led all other software

categories in public software company revenue We expect investor scrutiny and schizophrenia growth (+38.6% and +28.6%, respectively), while will intensify in 2007. Public software companies public software companies providing solutions for with tepid revenue growth should see little if any wireless (4.2%), networking and connectivity increase in valuation, even as they continue to (4.8%) and database and file management (6.0%) improve EBITDA margins. Those that disappoint - lagged far behind (Figure 7). As for earnings, even a little - will likely draw immediate retribution over the same time period electronic design from investors. And those that exceed Figure 6: SEG Software Valuation by TTM Revenue Composite SEG Technology Index Composite SEG Technology Index (Profitable Companies Only) EV/Revenue EV/EBITDA EV/Revenue EV/EBITDA 1Q06 2Q06 3Q06 4Q06 1Q06 2Q06 3Q06 4Q06 1Q06 2Q06 3Q06 4Q06 1Q06 2Q06 3Q06 4Q06 Composite SEG- 2.2x 2.1x 1.9x 2.2x 15.5x 13.7x 12.8x 14.6x 2.6x 2.6x 2.3x 2.6x 14.3x 13.7x 12.6x 14.4x Technology Index Revenue Greater Than $1 3.2x 2.9x 3.0x 3.5x 13.1x 12.9x 12.6x 14.2x 3.2x 3.0x 3.1x 3.6x 13.0x 12.5x 12.6x 14.1x billion Revenue between $200 2.2x 2.1x 2.0x 2.3x 14.5x 13.1x 11.7x 13.3x 2.4x 2.4x 2.2x 2.4x 12.3x 12.8x 11.7x 13.2x million and $1 billion Revenue between $100 2.1x 1.9x 1.7x 2.5x 14.2x 13.4x 11.8x 16.6x 2.6x 2.8x 2.1x 2.9x 15.9x 15.2x 12.2x 16.3x million and $200 million Revenue Less Than $100 2.1x 1.8x 1.6x 1.8x 18.9x 19.0x 18.2x 18.8x 2.4x 2.4x 1.9x 2.2x 15.7x 16.6x 18.2x 16.3x million

4| 2006 SOFTWARE INDUSTRY EQUITY REPORT Copyright © 2007 Software Equity Group, L.L.C. Software Equity Group, L.L.C. Figure 7: SEG Software Categories SEG - Software Index Category EV/Rev. EV/EBITDA Revenue Growth Year over Year Earnings Growth Year over Year 1Q06 2Q06 3Q06 4Q06 1Q06 2Q06 3Q06 4Q06 1Q06 2Q06 3Q06 4Q06 1Q06 2Q06 3Q06 4Q06 Infrastructure Software Database & File Management 2.5x 2.3x 2.0x 2.3x 12.5x 9.9x 9.5x 10.6x 4.8% 13.9% 8.0% 6.0% 19.7% 22.3% 47.6% 21.2% Development Tools, Operating Systems & 1.8x 2.1x 1.6x 1.2x 27.8x 26.7x 14.0x 22.8x 3.7% 6.3% 6.0% 11.0% 44.9% 60.4% -34.0% -40.0% Application Testing Software eCommerce Enablement Software 1.3x 0.9x 0.7x 1.1x 16.6x 14.8x 11.4x 9.4x 43.5% 39.6% 37.7% 38.6% 94.3% 87.6% -20.0% -39.4% Enterprise Application Integration 1.5x 1.7x 1.4x 1.8x 11.5x 15.7x 13.9x 16.6x 4.1% 11.1% 9.6% 11.1% 22.9% 15.9% 40.0% 13.5% Messaging, Conferencing & Communications 1.5x 1.3x 1.3x 1.8x 11.2x 15.9x 14.1x 15.8x 6.6% 13.5% 15.8% 15.8% -13.8% 20.0% -16.4% 29.5% Networking & Connectivity 2.2x 2.0x 1.8x 1.5x 22.6x 18.7x 18.1x 17.3x 13.0% 18.3% 14.2% 4.8% 52.3% 15.9% 16.5% 23.3% Security 3.0x 3.0x 2.4x 3.1x 13.8x 13.9x 11.7x 13.2x 10.1% 15.4% 10.0% 18.2% 37.0% -7.5% -7.2% 12.3% Storage & Systems Management Software 3.1x 3.2x 3.5x 3.6x 14.6x 13.1x 13.0x 14.7x 14.9% 9.7% 9.8% 19.0% 30.5% 90.3% -1.2% 15.2% Wireless 2.0x 2.0x 1.7x 1.4x 9.9x 14.1x 7.2x 7.9x 13.9% 11.4% 17.3% 4.3% 35.6% -12.8% 49.9% 30.5% Application Software Accounting & Finance 4.6x 3.5x 4.0x 4.4x 14.2x 17.3x 17.7x 19.3x 18.3% 16.9% 13.9% 19.1% 27.3% -3.3% 63.4% 10.1% Billing & Service Provisioning 2.4x 2.2x 1.2x 1.6x 11.5x 11.1x 9.0x 9.1x 0.5% 1.4% 4.3% 13.0% 8.5% -13.3% 60.3% 12.0% Business Intelligence 2.2x 2.1x 1.8x 2.3x 11.7x 11.7x 10.8x 14.4x 5.7% 10.1% 12.7% 17.4% -0.2% -7.7% -11.7% -7.7% Content/Document Management 1.3x 1.3x 1.4x 1.3x 11.6x 13.2x 15.9x 16.4x 10.5% 9.4% 6.9% 13.1% 12.7% 14.5% 27.4% 40.1% Customer Relationship Management, Marketing & 2.7x 2.4x 2.1x 2.3x 16.6x 18.6x 18.3x 21.2x 28.1% 23.0% 26.4% 26.4% 40.2% 43.0% -79.9% -83.0% Sales Software Education & Computer Based Training 2.0x 2.6x 1.9x 2.0x 13.3x 24.0x 24.5x 34.1x 18.9% 15.2% 22.7% 16.0% 15.8% -46.2% -36.3% -31.5% Electronic Design Automation 2.4x 2.7x 2.5x 2.8x 17.6x 14.2x 11.3x 12.8x 7.9% 12.1% 11.0% 9.9% 51.6% 74.7% 94.1% 44.2% Engineering, PLM & CAD/CAM Software 2.2x 2.2x 1.9x 2.4x 17.3x 14.6x 12.5x 13.4x 9.6% 13.7% 10.6% 11.2% 40.3% -4.2% -0.3% -25.1% Enterprise Resource Planning 1.6x 1.6x 1.4x 2.3x 13.1x 9.4x 15.4x 16.1x 6.5% 7.0% 8.9% 11.5% -4.1% -20.5% 43.2% -38.4% Entertainment 1.5x 1.4x 1.6x 1.8x 12.0x 11.7x 11.5x 14.6x -10.9% -0.5% 0.6% 6.6% -27.3% -110.2% -50.3% 19.7% Financial Services Software 2.5x 2.4x 2.4x 2.5x 13.8x 14.3x 10.8x 13.6x 7.9% 10.3% 14.6% 13.9% 2.6% 20.7% -0.7% -9.0% Healthcare 3.0x 2.6x 2.7x 2.8x 18.4x 15.8x 12.3x 15.2x 14.8% 18.8% 21.0% 17.3% 6.1% 59.1% 40.0% 33.4% HR & Workforce Management 3.1x 2.3x 2.0x 2.2x 19.2x 15.0x 10.8x 13.0x 18.1% 20.6% 24.9% 19.5% 36.6% -4.8% 10.4% 13.5% Multimedia, Graphics, Digital Media 2.3x 2.7x 2.3x 2.7x 26.9x 20.7x 18.1x 24.2x 31.9% 31.4% 8.1% 13.5% 9.8% -30.8% 21.0% 16.4% Supply Chain Management & Logistics 1.6x 1.7x 1.5x 1.5x 17.6x 12.3x 12.6x 13.6x 11.4% 9.8% 12.2% 6.3% 75.0% 10.9% 10.8% 5.6% Web Analytics 4.4x 5.0x 4.5x 4.5x 19.7x 16.5x 14.2x 16.1x 26.6% 24.1% 22.5% 28.6% 63.2% 18.8% -6.3% 43.8% Note: Earnings and revenue growth are calculated using quarterly numbers (year-over-year)

Figure 8: CTO Tech Spending Priorities IT spending remains one of the most important • Application integration • Security bellwethers of software company financial • Cost cutting performance. According to IDC’s December IT • Business intelligence Spending Survey, IT budgets in 2007 will grow • ERP 6.6%, up from 6.3% in 2006. Of the three major • Web-based applications • Data center consolidation product/service areas (software, hardware, • Disaster recovery / business services), IDC predicts software will lead with 8% continuance spending growth in 2007, compared to 6.5% for • Compliance / risk management hardware and 6% for services. IDC predicts GH • Identity and access management • VOIP worldwide software spending will reach $327 • Business process management / billion in 2010, yielding a five year CAGR of 7.7%.

HI workflow

• Collaboration applications According to Goldman Sachs’ January 2007 IT • Server consolidation Spending Survey, application integration and rities • Customer relationship management o • Outsourced software development security continue to be the foremost priorities for • Server virtualization CIOs and CTOs of large companies (Figure 8). • Storage management software

ding Pri Applications continue to rank high, with business

n • IT operations management software • Thin client computing intelligence and ERP in fourth and fifth place,

Spe • LAN equipment or network upgrades respectively. It should be noted software-as-a- h st • Service-oriented architecture service ranked low on the Spending Survey (31 ), Tec • Content management demonstrating SaaS has yet to gain traction at the • New PCs or PC upgrades (including CTO notebooks high end of the market. • Remote managed services

• Wireless networking Market focus has had a material impact on • Utility/grid/on-demand computing software company financial performance. In the • Software-as-a-service Y2K era, large public software companies were • Open source software

LOW • Tape storage resolutely focused on large enterprise sales, and Data Source: Goldman Sachs January 2007 IT Spending Survey were rewarded by the public markets for doing so. When IT spending by large enterprises automation vendors led all other categories, plummeted in 2002, in part because billions spent reporting an average earnings increase of 44.2%, on ERP and CRM often failed to yield the while software companies in customer anticipated ROI, these public software companies relationship management posted a median adopted vertical market strategies. Many also decline in earnings of 83.0%. espoused down market strategies, but the small-

Figure 9: SaaS and SMB/Consumer Software Index companies (Figure 9). SME Valuations compared to SEG Software Index focused companies posted an impressive 3.5x EV/TTM revenue multiple, while the balance of our composite Index chalked up a 2.2x multiple. 5.5x 4.9x venue 4.5x

e Going forward, we will continue to track public 4.5x software company financial performance by market segment focus. / TTM R 3.5x 3.5x 3.5x 3.3x To enable our clients and subscribers to better 2.2x assess SaaS market adoption and SaaS provider 2.2x 2.1x 1.9x financial performance, we began our 1Q06 Report to separately track the financial performance of Enterprise Value pure play, enterprise focused SaaS providers. 1Q06 2Q06 3Q06 4Q06 The SEG SaaS Index is comprised of 11 public SaaS SMB/Consumer SEG-Software Index companies (Figure 10), but will expand as additional SaaS pure plays enter the public market. In 4Q06, SaaS providers continued to medium enterprise (SME) market eluded nearly outperform the balance of the software industry, all large software providers for years. Selling reporting median revenue growth of 34.6% over software into the SME market is extremely the same quarter a year ago, markedly outpacing problematic, and requires an approach and the overall software industry (+13.8%). Despite business model fundamentally different from generally higher infrastructure costs and more enterprise selling. Nevertheless, the SME market deferred revenue than their perpetual license is squarely and unabashedly in the cross-hairs of counterparts, the median EBITDA margin for most public software companies today for obvious SaaS Index companies was 4.1% greater than reason. Gartner forecasts IT spending by that of the SEG Software Index. Similarly, SaaS enterprises with revenue greater than $1 billion providers significantly outperformed the software will increase only 2.8% in 2007, while IDC industry in general on an enterprise value to predicts SMEs will increase IT spending 8.5% this revenue basis (4.5x vs. 2.2x) and enterprise value year. And the availability of an efficient, lower to EBITDA basis (29.8x vs. 14.6x). cost delivery model (SaaS) makes a SME

penetration strategy more practical for big Public Internet Company Performance software companies. Investors have caught on. Though the worlds of software and internet / We checked to see if SME vs. large enterprise ecomerce / Web 2.0 are rapidly converging, clear market focus had an impact on valuation. We distinctions remain between the two in terms of grouped and analyzed 25 companies with a business model, revenue model, solution significant SME/Consumer market focus (e.g., deployment and end user requirements. We've Intuit, Blackbaud, Salesforce.com, Blackboard, opted for the time being to track these major Imergent, Avid Technology, American Software) categories separately to enable a more granular and compared them to the remainder of our SEG analysis of each.

Figure 10: Pure Play Software as a Service (SaaS) Public Software Revenue Growth Companies EV/Rev. EV/EBITDA EBITDA Margin Year over Year Company Category Company Sector Company Sector Company Sector Company Sector

4Q06 4Q06 4Q06 4Q06 Concur (NASDAQ: CNQR) Accounting & Finance 5.7x 4.4x 19.3x 19.3x 40.1% 19.1% 20.2% 25.2% DealerTrack (NASDAQ: TRAK)* Vertical - Automotive 6.1x 2.4x 19.6x 12.4x 34.6% 17.8% 31.0% 15.4% Digital Insight (NASDAQ: DGIN) Financial Services Software 4.0x 2.5x 13.6x 13.6x 16.3% 13.9% 31.8% 20.5% Kenexa (NASDAQ: KNXA) Human Resource Management 6.2x 2.2x 30.7x 13.0x 62.5% 19.5% 20.4% 7.6% Kintera (NASDAQ: KNTA) Accounting & Finance 0.7x 4.4x - 19.3x -3.0% 19.1% - 25.2% RightNow (NASDAQ: RNOW) CRM, Sales & Marketing Software 4.4x 2.3x 72.1x 21.2x 29.9% 26.4% 6.1% 9.8% Salesforce.com (NYSE: CRM) CRM, Sales & Marketing Software 9.7x 2.3x 99.0x 21.2x 57.3% 26.4% 9.8% 9.8% Taleo (NASDAQ: TLEO) Human Resource Management 2.3x 2.2x 53.9x 13.0x 25.0% 19.5% 4.2% 7.6% Vocus (NASDAQ: VOCS) CRM, Sales & Marketing Software 6.6x 2.3x 99.4x 21.2x 47.4% 26.4% 6.7% 9.8% WebEx (NASDAQ: WEBX) Messaging, Conferencing & Communications 4.2x 1.8x 13.5x 15.8x 23.2% 15.8% 31.1% 4.7% WebSideStory (NASDAQ: WSSI) Web Analytics 4.5x 4.5x 28.9x 16.1x 53.9% 28.6% 15.4% 22.2% Median: 4.5x 29.8x 34.6% 17.8% Revenue Growth compares quarterly growth (year-over-year)

Figure 11: SEG Internet Key Statistics Figure 12: SEG Internet Quarterly Revenue SEG - Internet Growth (Year-Over-Year) Measure 1Q06 2Q06 3Q06 4Q06 120% EV/Revenue 1.8x 1.6x 2.2x 2.2x EV/EBITDA 17.9x 20.0x 17.6x 17.8x EV/Earnings 23.7x 28.9x 26.7x 30.3x Current Ratio 2.7x 2.5x 2.6x 2.2 MEDIAN: 21.6% Gross Profit Margin 43.4% 40.8% 48.3% 42.9% 40% EBITDA Margin 16.8% 14.2% 14.6% 15.2% Net Income Margin 43.4% 8.3% 10.4% 5.9% Revenue Growth 29.1% 28.4% 22.0% 21.6% Earnings Growth 27.4% -31.8% 1.1% 10.2% -40%

Broadly defined, internet companies are primarily internet based and their solutions are primarily – often exclusively – web deployed. Our Internet -120% Index is comprised of companies whose principal business models fall within one or more of the Figure 13: SEG Internet Quarterly Earnings Growth following categories: (Year-Over-Year) 120% • Advertisers – Companies that provide key elements in the internet advertising arena such as search marketing services, software to host and manage ads and a 40% network of websites that run ads. MEDIAN: 10.2% Representative companies include 24/7 Real Media, aQuantive and SINA. • New media – Companies that provide online information and content. -40% Representative companies include CNET, Jupiter Media, Napster and WebMD. • Search engines – Companies include Baidu.com, Google, Infospace, LookSmart, MIVA, Sohu.com and Yahoo! -120% • eCommerce & portals – Companies 17.8x and 30.3x, respectively. The median current whose main line of business is conducted ratio, measured as current assets divided by over the web. Representative companies current liabilities, an indication of a company’s include 1-800 FLOWERS.COM, liquidity, was a healthy 2.2x. Median fourth Amazon.com, Bluefly, eBay and Expedia. quarter revenue for SEG Internet Index companies increased 21.6% from 4Q05, while The 26 companies comprising the SEG Internet median earnings increased 10.2% over the same Index have had a much more volatile 2006 than period (Figure 12 and 13). Enterprise valuations the NASDAQ, S&P 500 and SEG Software Index of companies comprising the SEG Internet Index companies (Figure 3). Composite financial varied widely by internet category in 4Q06 (Figure performance measures for the companies 14). Internet Search Engine companies posted an comprising the SEG Internet Index are impressive 5.8x EV/Revenue median valuation, enumerated in Figure 11. while eCommerce & Portals companies posted a rather anemic 1.5x. Internet Advertising The median trailing-twelve-month revenue companies posted the highest year-over-same multiple for public internet companies was 2.2x, quarter revenue growth in 4Q06 (+32.6%). while median EV/EBITDA and EV/Earnings were

7| 2006 SOFTWARE INDUSTRY EQUITY REPORT Copyright © 2007 Software Equity Group, L.L.C. Software Equity Group, L.L.C. Figure 14: SEG Internet Categories SEG - Internet Index Category EV/Rev. EV/EBITDA Revenue Growth Earnings Growth 1Q06 2Q06 3Q06 4Q06 1Q06 2Q06 3Q06 4Q06 1Q06 2Q06 3Q06 4Q06 1Q06 2Q06 3Q06 4Q06 Advertising 5.3x 5.1x 4.5x 4.2x 21.0x 22.8x 20.2x 22.6x 33.0% 33.5% 36.1% 32.6% 50.4% -4.7% 32.0% 43.8% eCommerce & Portals 1.8x 1.4x 1.3x 1.5x 27.8x 18.7x 15.9x 17.4x 27.1% 20.1% 17.3% 21.4% 17.8% -61.2% -18.7% 7.9% New Media 5.5x 4.3x 3.2x 3.4x 26.5x 22.7x 19.4x 18.6x 34.2% 40.9% 23.2% 15.5% 62.3% 65.7% -65.6% -56.7% Search Engine 4.2x 7.6x 6.1x 5.8x 16.1x 25.2x 20.7x 29.2x 26.6% 32.6% 31.0% 30.9% 60.0% 0.5% 55.7% 37.3% Revenue & Earnings growth compares quarterly growth (year-over-year) Street later reacted favorably to Corel’s INITIAL PUBLIC OFFERINGS acquisition of Intervideo, a digital video and audio software company, but only after Corel’s stock Solid corporate earnings, continued economic price had fallen to $9.40 from its initial offering growth, abundant cash and pent-up demand for price of $16.00. While the stock has rebounded to higher returns made investors more receptive to $13.51, IPO investors need not yet worry about IPOs in 2006. Worldwide, some 1,000 new public capital gains. companies raised a record $213.9 billion. The third quarter’s three software IPOs were all Regionally, Europe took the lead, raising $86 winners by year-end. The most noteworthy, billion on 651 IPOs. China took individual country Riverbed Technology, posted a solid first day honors, spawning 155 new companies and raising return of 57%, and racked up a year-end return of $53.5 billion. In the U.S., 198 IPOs generated an 215%, nearly double that of any other 2006 aggregate $43 billion in 2006, compared with 194 software IPO (Figure 17). The quarter also IPOs in 2005 that raised only $34 billion (Figure featured IPOs from storage management software 15). Fifty-six of the domestic IPOs were venture- provider, CommVault Systems, and video backed companies that generated an aggregate compression-decompression software developer $3.7 billion, or an average $66 million per IPO. DivX. Although not quite as impressive as While 2006 represented a notable improvement Riverbed, both CommVault and DivX posted year- over 2005’s 42 venture-backed IPOs that end stock price gains of 38% and 44%, produced a paltry $2.3 billion, it trailed 2004’s 67 respectively. venture-backed IPOs that raised nearly $5 billion. Encouraged by the success of 3Q06’s software Thirteen of the IPOs in 2006 were software and/or IPOs, six software/internet companies went public internet related companies. Together they raised in the fourth quarter, raising $483 million and an aggregate $1.21 billion, a notable improvement making 4Q06 the most active IPO quarter in 2006. over 2005’s 10 software and internet IPOs that Acme Packet, a $78 million networking hardware generated a combined $872 million. Perhaps and software provider, ended its first market day more impressive, these 13 newly public up 67% and the year up 117%. Isilon Systems, a software/internet companies posted a healthy file management hardware and software provider, 58% year-end return, with only two posting year- raised $108 million and closed the year with a end stock losses (Allot Communications and 111% gain. Corel) (Figure 16). Corel posted the only negative first day return of any software IPO in 2006. The Figure 15: 2005 U.S. IPO Activity Figure 16: Software IPO Activity and Year-end return 400 $43B 100 75%

T $41B $43B s 71% 66% o t a 300 58% Y l e

U 75 $34B a . r S. IPOs S 40% 25% 216 -

21% e 194 198 .

$25B

$24B n I P 200 d

O 50 R

e V

$15B t a u

l -25%

83 r u er of Software IPO 100 70 68 -26% n e 25 16

Number of U. 10 13 7 5 8 0 $0B Numb 0 -75% 2001 2002 2003 2004 2005 2006 2001 2002 2003 2004 2005 2006 Source: Renaissance Capital’s IPOhome.com

Figure 17: 2006 Software IPOs Offering First Day Year-End EV / EV / Enterprise Value Company Category Offer Date Amount Return Return Rev. EBITDA Acme Packet Networking Hardware & 11/13/06 $109,000,000 67.47% 117.26% 14.1x 43.8x $1,030,000,000 Software Allot Communications Networking Hardware & 11/16/06 $78,000,000 15.08% -2.42% 6.7x 88.4x $212,070,000 Software Storage Management CommVault Systems 9/22/06 $161,110,000 17.24% 38.00% 5.9x 35.9x $772,500,000 Software Multimedia, Graphics, Corel Corporation 4/26/06 $184,000,000 -0.94% -15.56% 2.2x 7.2x $384,840,000 Digital Media Multimedia, Graphics, DivX 9/22/06 $145,600,000 16.88% 44.19% 12.2x 41.1x $650,640,000 Digital Media Storage Management Double-Take Software 12/15/06 $82,500,000 15.09% 17.09% 4.1x 22.3x $217,780,000 Software

Financial Services, Legal Guidance Software 12/13/06 $57,500,000 32.00% 35.39% 6.3x 779.7x $323,590,000 & Government Software

Email Customization Incredimail 1/31/06 $17,500,000 13.47% 10.13% 5.9x 24.6x $52,990,000 Software File Management Isilon Systems 12/15/06 $108,550,000 77.69% 110.54% 30.7x N/A $1,545,119,500 Hardware & Software Vertical - Healthcare MEDecision 12/13/06 $47,000,000 0.00% 0.00% 2.1x 17.8x $99,790,000 Software Customer Relationship Omniture 6/28/06 $69,550,000 0.46% 116.62% 8.9x 300.1x $621,120,000 Management Software Networking Hardware & Riverbed Technology 9/21/06 $85,800,000 56.92% 214.87% 27.9x N/A $1,870,000,000 Software Synchronoss Telecommunications 6/15/06 $60,800,000 10.63% 71.50% 5.4x 24.3x $362,190,000 Technologies Hardware & Software MEDIAN: $82,500,000 15.09% 38.00% 6.3x 35.9x $384,840,000 Average: $92,839,231 24.77% 58.28% 10.2x 125.9x $626,356,115

How will the software IPO market fare in 2007? VENTURE CAPITAL AND PRIVATE EQUITY Last year, we noted a relatively small number of unknown companies were in the pipe and IPO Venture capitalists continued to invest cautiously market prospects for 1H06 appeared bleak. and conservatively in 2006. According to the Market conditions have greatly improved, investor PricewaterhouseCoopers / Thomson Venture confidence and appetite have both grown, and Economics / National Venture Capital Association 2007 appears to bode well for IPO candidates, MoneyTree™ Survey, 3,416 U.S. companies underwriters and investment bankers. There were received funding during the trailing four quarters 12 software and Internet related companies in the through 3Q06, a modest 7% increase over the IPO pipeline as of year-end, compared with four a prior 12 month period. While total dollars invested year ago (Figure 18). There’s significant pent-up during this period grew 9% to $25.5 billion from demand for access to the public markets, $22.8 billion a year earlier, the average primarily from post-bubble VC portfolio companies investment remained virtually the same ($7.5 that survived and eventually prospered. A growing million). Some 1,085 companies received first- number of VCs are anxious to cash in and boost time funding totaling $5.6 billion, an their IRRs with an IPO windfall. Private equity underwhelming 5% increase over the prior twelve firms are similarly motivated, having toiled to month period. While the post-bubble funding make their portfolio buyouts leaner, larger and recovery has been slower than many ready, once again, for prime time. The Street, entrepreneurs hoped, it has been steady. Relative however, will remain circumspect, and except for to a 2002 basis year, VC dollars invested have an occasional burst of irrational exuberance in grown 17%, while the number of recipient anticipation of the next Google, will insist upon companies is up 11%. demonstrated growth, profitability, innovation and market leadership/differentiation. Analyzed from the perspective of lifecycle stage, startup/seed stage companies received a bit more attention, with VC dollars invested during the

9| 2006 SOFTWARE INDUSTRY EQUITY REPORT Copyright © 2007 Software Equity Group, L.L.C. Software Equity Group, L.L.C. Figure 18: 2007 Software IPO Pipeline Company Category Filing Date Offering Annual Net Income Amount Revenue Applied Precision Engineering Hardware & 6/30/06 $57,500,000 $49,143,000 $356,000 Software Aruba Networks Wireless Hardware & 12/15/06 $100,000,000 $72,503,000 -$12,075,000 Software Bridgeline Software Content Management 12/13/06 $16,500,000 $3,659,000 $499,000 Software Comverge Vertical - Utilities Software 10/5/06 $90,000,000 $23,351,000 -$7,981,000

GenuTec Business Messaging Software 8/14/06 $25,000,000 $14,650,000 -$1,467,000 Solutions Glu Mobile Wireless Software 12/19/06 $92,000,000 $38,643,000 -$16,793

Local Matters Content Management 3/22/06 $49,990,000 $8,477,000 -$18,568,000 Software Paradigm Engineering Software 9/20/06 $200,000,000 $113,132,000 -$13,556,000

Picis Vertical - Healthcare 8/18/06 $86,250,000 $65,255,000 -$18,273,000 Software Salary.com Human Resources 11/13/06 $50,000,000 $15,300,000 -$3,100,000 Information & Software Sourcefire Intrusion Detection 10/25/06 $75,000,000 $40,589,000 -$3,304,000 Software Veraz Networks Networking Software 10/20/06 $115,000,000 $84,438,000 $17,372,000 MEDIAN: $80,625,000 $39,616,000 -$3,202,000 Average: $79,770,000 $44,095,000 -$5,009,483

twelve month period increasing 17% to $950 later stage companies held steady with $9.8 million, while the number of startup/seed stage billion (+1%) invested in 1,013 deals (+5%). companies funded increased 37%. For the Together, expansion and later stage companies second consecutive year, early stage investments garnered a whopping 82% of all VC investments declined both in dollars invested (-8%) and (Figure 19 and 20). companies funded (-6%). VC investments in expansion stage companies increased 25% over The law of supply and demand helped to push up 2005 to $10.8 billion, and the number of average pre- and post-money valuations of companies funded grew 13% to 1,254. While only modestly ahead of 2005 totals, investments in Figure 20: Overall VC Dollars Invested by Company Stage Figure 19: Overall VC Deals Invested by $1,159,054,400

Company Stage 312

$3,824,663,40

$9,313,205,50 957

864

$11,207,914,40

1,283

Startup/Seed Early Stage Expansion Later Stage Startup/Seed Early Stage Expansion Later Stage Source: PricewaterhouseCoopers/Thomson Venture Source: PricewaterhouseCoopers/Thomson Venture Economics/National Venture Capital Association MoneyTree™ Economics/National Venture Capital Association MoneyTree™ Survey Survey

Figure 21: Early Stage TTM Average Valuation consecutive year. First time biotech financings were Data flat at 118 companies, but the aggregate amount invested in those entities increased significantly $30.00 (+22%) to $774 million. In the medical device sector, aggregate investments increased a record

$20.00 35% to $2.6 billion, while the number of device companies funded (312) increased by 21%. VC dollars invested in telecommunications also grew a $10.00 notable 27% to $2.8 billion, while dollars invested in networking dropped for the sixth consecutive year to $1.1 billion (-30%), and the number of networking $0.00 companies funded declined 23%. The 2002 2003 2004 2005 2006 semiconductor industry saw a second consecutive Average Pre-Money Valuation Average Investment Amount funding decline, with investment down 2% to $2.0 Average Post-Money Valuation billion and transactions down 13% to 210. Figure 22: Expansion Stage TTM Average Valuation Data Software, once again, continued to lead all other $80.00 industry sectors in attracting VC investment, with 861 companies funded during the period (26% of $60.00 total). Relative to the prior 12 month period, the number of software industry VC investments remained flat, while total dollars invested declined $40.00 3% to $4.9 billion. Software also led all industry sectors in first-time financings, with 249 companies $20.00 (23% of first-time total) receiving $1.2 billion, virtually identical to the prior 12 month period. $0.00 Notable software fundings in 2006 are detailed in 2002 2003 2004 2005 2006 Average Pre-Money Valuation Average Investment Amount Figure 26. Average Post-Money Valuation Figure 23: Later Stage TTM Average Valuation Software investments in 2006 reflected the same Data VC preferences, in terms of company lifecycle stage, that applied generally, as noted above $120.00 (Figures 24 and 25). Of $4.9 billion invested by VCs in the software sector, $175 million, or 4%, $90.00 went to 61 startup/seed stage entities. While the absolute number is very small, it represents a $60.00 146% increase in the funding of start-ups over 2005. Early stage software companies found the $30.00 going far more difficult, with VC investments declining for the third consecutive year in terms of both dollars invested ($592 million, -35%) and $0.00 2002 2003 2004 2005 2006 companies funded (169, -32%). Reflecting a Average Pre-Money Valuation Average Investment Amount continuing VC bias toward established companies Average Post-Money Valuation with brand identity, customer loyalty and recurring Source: MoneyTree Report (Figures 21, 22 and 23) revenue, expansion stage software companies expansion and later stage companies, while attracted 38% of VC software investments ($1.9 valuations have trended downward for early stage billion), while later stage companies garnered companies (Figures 21, 22 and 23). $2.3 billion, or 46% of the total. Analyzed from the perspective of Series A financings, $1.2 billion VCs were clearly enamored with some industry (24% of the $4.9 billion invested in software sectors in 2006 and disenchanted with others. companies) went to entities raising their first Biotechnology companies raised $4.3 billion (+3%) round of professional capital. across 404 financings (+6%), and average investment per company declined for the second

Figure 24: Number of Software Deals by Stage Figure 25: Software VC Dollars Invested by Relative to 2002 Stage Relative to 2002 100% 200%

50% 125%

0% 50%

-50% -25%

-100% -100% 2002 2003 2004 2005 2006 2002 2003 2004 2005 2006 Startup/Seed Early Stage Startup/Seed Early Stage Expansion Later Stage Expansion Later Stage Source: PricewaterhouseCoopers/Thomson Venture Source: PricewaterhouseCoopers/Thomson Venture Economics/National Venture Capital Association Economics/National Venture Capital Association MoneyTree™ Survey MoneyTree™ Survey

What can we expect from the VC community in exited in 2006 for an aggregate $31.1 billion. VCs 2007? Two hundred venture capital funds raised are sharply divided about the viability of IPOs in nearly $29 billion in calendar 2006, a slight 2007, with 53% expecting the IPO market to increase over the amount raised the prior year. become a viable liquidity option, and the According to the NVCA Annual Predictions remainder forecasting continued sluggishness. Survey, VCs expect 2007 investments to exceed MERGERS AND ACQUISITIONS: THE NUMBERS $27 billion, a 10% increase over 2006. From a 2006 established new benchmarks for geographic perspective, the survey also predicted increased VC investments in India and China, at domestic M&A activity across all industry sectors, the expense of Israel, Canada and Western beating the aggregate M&A purchase price and Europe. Energy is the hottest sector, with some M&A deal volume records set in 1999 and 2000, 91% of VC’s predicting they’ll participate in the respectively (Figure 27). 4Q06 chalked up 3,116 sector in 2007. Through the end of 3Q 2006, transactions, aggregating $471.7 billion, bringing VentureOne reported $586 million had been the tally for domestic M&A activity across all invested in 60 energy-related companies, a 30% industry sectors to a remarkable 11,701 increase over the prior year. By contrast, only transactions totaling $1.47 trillion. It wasn’t merely 23% of VCs are predicting aggregate dollar a national phenomenon. According to Dealogic, growth in software company investments. the total value of announced acquisitions worldwide reached $3.46 trillion for the year, Two of 2006’s biggest success stories, YouTube beating 2000’s record of $3.33 trillion. Dow Jones and MySpace, will undoubtedly pave the way for estimates technology mergers and acquisitions increased funding of Internet communities and worldwide were $215 billion in 2006. social networking sites that hold the elusive promise of quick exits at astronomical multiples. In North America, there were 1,726 mergers and VCs will also remain enamored with “Web 2.0” acquisitions in the software and IT services technology companies in 2007, after doubling sector, up slightly from 1,707 transactions in 2005 their investments in that category last year. (Figure 28). Although the sector remained a major contributor to overall domestic deal volume, VCs continue to view M&A as their most likely software and IT services comprised a smaller path to liquidity, with 78% predicting 2007 will percentage (14%) of total transactions in 2006 beat the 404 venture-backed companies that than in prior years. However, the modest increase

Figure 26: 2006 Software Venture Capital Financing Company Description Received ($)

ITA Software Airfare pricing and shopping system 100,000,000 MobiTV, Inc. Bandwidth acceleration and wireless network management 70,000,000 Claria Web personalization product 40,000,000 Renew Data Corporation Electronic evidence and data recovery 30,546,000 Linux NetworX, Inc. Applications for clustered computers running Linux 27,000,000 Air2Web, Inc. Software infrastructure services 24,999,900 DATAllegro, Inc. Provides price/performance data warehouse appliance 22,500,000 Kazeon Systems, Inc. Server-based information management solutions 21,000,000 BIAP Systems, Inc. Smartware applications 20,000,100 3Leaf Networks, Inc. Systems software and IC's for enterprise server market 20,000,000 Zend Technologies, Inc. PHP technology for open-source web scripting language. 20,000,000 SchoolNet, Inc. Instructional management solutions for K-12 schools 19,000,000 PortAuthority Technologies Software that protects private and confidential data 18,000,000 Netli Network acceleration for online applications 18,000,000 Wrenchead, Inc. Distribution management solutions 17,875,000 eFashion Solutions, LLC Outsourced e-commerce services to fashion apparel market 17,400,000 PeakStream, Inc. Next-generation software platform 17,000,000 Command Information, Inc. Develops Internet protocol version 6 (IPv6). 16,000,100 RevCube Media, Inc. Online customer acquisition technology and services 14,000,100 IBRIX, Inc. Application performance management for enterprise 14,000,000 Atrenta, Inc. Collaborative software for electronic product design 13,648,100 Enforsys, Inc. Suite of Public Safety solutions 12,500,000 KnowNow, Inc. Application internetworking for real-time info exchange 12,500,000 Exeros, Inc. Developer of data integration technology 12,000,000 VideoEgg, Inc. Technology and products for uploading digital media 12,000,000 Demandware Software as a service e-commerce platform 12,000,000 IGA Worldwide Video game embedded advertising 12,000,000 ITM Software, Inc. Business management software 11,000,000 Linden Lab Online virtual world games 11,000,000 MarketLive, Inc. E-commerce technology and Website development 10,025,100 Intelliworks, Inc. CRM tools for higher education 10,000,000 Mitrix, Inc. On-demand supply chain management 10,000,000 Nexaweb Technologies, Inc. Development tools for Internet Applications. 10,000,000 Signiant, Inc. Software solutions and professional services products 10,000,000 Mavent, Inc. Compliance management for mortgage industry 9,999,900 Bitfone Corporation Firmware over-the-air (FOTA) upgrade technology 9,999,800 Xactly Incentive management systems 8,000,000 Source: PricewaterhouseCoopers/Thomson Venture Economics/National Venture Capital Association MoneyTree™ Survey

Figure 27: U.S. Merger & Acquisition Activity

15,000 $1,470B $1,500 $1,426B Q4: $471.7B $1,326B $1,283B $1,223B 11,701

12,000 11,123 Q4: 3,116 $1,200 Value ($Billions) 10,884 10,198 9,278 9,514 8,554 9,000 8,047 8,281 $900 $820B $654B 6,000 $600 $526B

$452B Number of Deals Number 3,000 $300

0 $0 1998 1999 2000 2001 2002 2003 2004 2005 2006

Deals Value Source: Mergerstat

in year-over-year software M&A transactions was overshadowed by an impressive 11% increase in Figure 29 U.S. Software M&A by Dollar Volume aggregate software M&A spending. Software & 2006 mega deals (Equity value greater than deals fetched $81.9 billion in 2006, compared to $1Billion) an aggregate of $73.8 billion in 2005 (Figure 29). Helping to boost the year’s spending total were $11 . 1 B eleven mega-deals, each with an equity value $5.5B price tag of $1 billion or more, accounting for 24% of total software M&A spending. Several factors combined to fuel the spate of larger deals in 2006, $3.5B $19 . 4 B $20.0B including a plethora of undervalued small and $13.7B $8.7B mid-cap public software companies (see the Public Markets section), abundant cash available Q1 2006 Q2 2006 Q 3 2006 Q4 2006 to both strategic and private-equity buyers (see Public Market and Private Equity Sections), and Equity Value Greater Than 1$B Equity Value Less Than 1B$ the ready availability of relatively cheap debt as further leverage for buyouts. Source: Mergerstat, Software Equity Group in the past four years, 4Q06 was more These same factors ensured cash would continue characteristic, with all-cash deals comprising 67% to be strongly favored over stock as deal currency of 4Q06 software and technology sector M&A in 2006 (Figure 30). While 3Q06 saw the highest transactions. Buoyed by a surge in tech sector percentage of all-cash deals (82%) for any quarter market prices, all-stock transactions rebounded from a mere 2% of all such transactions in 3Q06 Figure 28: U.S. Software Sector-Specific M&A to a more typical 20% of total in 4Q06. Only 13% Activity of software M&A transactions in 4Q06 featured a 426 431 438 431 combination of cash and stock, down 3% from 3Q06 and 6% from 4Q05.

Since 2001, software industry consolidation has reduced the number of public software companies by almost 350, resulting in a substantial 102 95 92 101 74 68 61 diminution in the number of software company Deals Announced 54 buyers. Nevertheless, M&A deal volume has increased steadily, albeit modestly, in large part Q1 2006 Q2 2006 Q3 2006 Q4 2006 Software Life Science Comm. because private buyers took up the slack. Over Source: Mergerstat

Figure 30: Software M&A – Form of Payment Further complicating the buyout game is the entry 11% 4% 2% 20% of a potentially disruptive wildcard. Hedge funds 16% are viewing the buyout market with growing 24% interest, and their entry will undoubtedly push up

age 32% 13% acquisition prices. And as prices increase, buyers are justifying ever-increasing amounts of debt to leverage their buyouts. According to the Standard 82% and Poor’s Leveraged Commentary and Data 71% 67% Group, the average ratio of debt to cash flow for 57% Payment Percent buyouts was 4.0x in 2002, 5.3x in 2005, and 5.7x in 4Q06. It would seem leveraged buyers are approaching the ceiling. Q1 2006 Q2 2006 Q3 2006 Q4 2006 While most private equity LBOs are premised 19% 18% 9% 9% upon the operating and financial efficiencies of going private (e.g. no SEC/SOX compliance headaches, elimination of quarterly earnings 21% 21% mentality, etc.) and a horizon of five years or age 30% 24% longer, hedge funds have a short term orientation and would likely seize the first opportunity to flip a restructured entity or quickly take it public again. 69% Should hedge funds opt to aggressively compete 69% 56% for software buyouts, there will likely be significant Payment Percent 53% perturbation in the marketplace for some time to come.

2003 2004 2005 2006 Software industry M&A activity varied widely by product category in 2006, as in past years. Figure Cash Cash & Stock Stock 32 depicts M&A transaction volume by software product category, based upon our detailed the past three years, more than 30% of all analysis of more than 700 software transactions. software industry acquisitions were by privately In the infrastructure and enterprise application held software companies and private equity firms software arena, security has long been one of the (Figure 31). Although the percentage of private most active software M&A categories, accounting buyer transactions dipped to 28% in 3Q06 as for approximately 7% of software industry M&A more public buyers went shopping, private buyers transactions in the past two years. Large rebounded in 4Q06, accounting for 35% of all enterprise software vendors (IBM/Internet software M&A transactions. We are confident Security Systems), private equity firms private buyer transactions in 2007, led by private (Francisco/WatchGuard), networking and storage equity/buyout firms, will sustain or surpass their vendors (Cisco/Meetinghouse and EMC/RSA) 2006 level. and other security software vendors (Secure Computing/CipherTrust, Sonicwall/MailFrontier), In 2006, private equity firms announced buyouts have all scurried to acquire vital security functions aggregating a whopping $738 billion, a three-fold and features to enhance their product offerings. increase over 2005. Estimates are that these Another software category, CAD/CAM/CAE, ran a buyout firms have more than $400 billion of close second, comprising 6% of software M&A combined equity, and borrowing power to raise an deals in 2006. Fueling these acquisitions is the additional $1.2 trillion in debt financing. Relatively metamorphosis of CAD/CAM/CAE from Product low interest rates, consistent public company Data Management (PDM) point solutions into earnings growth, modest P/E levels and cradle-to-grave Product Lifecycle Management continuing investor appetite for high yield debt, suites. While Parametric, UGS, Autodesk, combine to make 2007 look like another big year Dassault and Bentley are category leaders, there for buyouts. David Rubenstein, co-founder of are a host of other acquirers, including smaller Carlyle, has even predicted a $100 billion companies and private equity firms, seeking to leveraged buyout in the next two years.

Figure 31: U.S. Public vs. Private Software M&A Buyers & Sellers

rs 24% 31% 33% 28% 32% 35% 35% 34% ftware Buye o

76% 69% 72% 67% 65% 66% 66% 68% Percentage of S Q1 2006 Q2 2006 Q3 2006 Q4 2006 2003 2004 2005 2006 Public Private Public Private

86% 96% 91% 89% 92% ftware Sellers 89% 92% 91% o

11% 11% 14% 9% 8% 9% 4% 8% Percentage of S Q1 2006 Q2 2006 Q3 2006 Q4 2006 2003 2004 2005 2006 Public Private Public Private compete in the PLM arena by aggregating the signaling a trend, since an unusually large necessary PLM components. number of low growth software companies were acquired in Q4. We expect no valuation surprises Vertical market software transactions comprised in 2007, and predict median software industry an astounding 34.6% of all software deals last M&A valuations will be on par with the past two year (denoted by dark green in Figure 32), years. Once again, though, we caution our shattering the previous record. Healthcare and readers about using the median deal multiple to financial services remained the most active M&A assess the fair market or prospective exit vertical markets in 2006, as in the past three valuation of a particular software company. The years, but there was also significant activity in software industry median exit value is merely a manufacturing, aerospace and defense, point of reference, and a potentially misleading telecommunications, retail and education. We one, at that. expect vertical transactions as a percentage of total deal activity to increase again in 2007, as Size, status and subsector continue to be key both larger vertical and horizontal buyers continue determinants of software company exit valuations to be attracted to the valuations, market leverage, (Figure 34 and 35). For software M&A domain expertise and growth potential of smaller transactions with ascertainable revenue multiples, vertical solution providers. we separately analyzed the effect on valuation of equity structure (private vs. public company), size Software industry M&A valuations in 2006 (revenue) of buyer and seller, and software presented few surprises. The median valuation of product category. The exercise proved highly software industry M&A transactions (based on instructive. TTM revenue and the seller equity value) was 2.5x, on par with 2005 (2.6x) and 2004 (2.4x) As a first step, we separated public and private (Figure 33 and 34). However, 4Q06 marked the software company sellers to ascertain any first quarter since 3Q04 the median software M&A difference in selling price. As in past years, the valuation dipped below 2.0x. We don’t see that as disparity between the two was significant. Public

Figure 32: TTM U.S. Software M&A Total Deal Activity by Category Customer Relationship Management, Marketing & Sales Software Business Intelligence Content/Document Database & File Management Billing & Service Provisioning Management Development Tools, IT Asset Management & Application Accounting & Finance Testing Software eCommerce Enablement Software Electronic Design Automation Healthcare Engineering, PLM & Financial Services Software CAD/CAM Software Enterprise Application Vertically focused Manufacturing & Asset Integration sellers were 35% of Management total software M&A Enterprise Resource Planning Education & Computer Based Entertainment Training HR & Workforce Management Other Verticals (A&D, Telco, Retail, etc.) Messaging, Conferencing & Communications

Multimedia, Graphics, Digital Media Networking & Connectivity Security Wireless Storage & Systems Web Analytics Management Software Supply Chain Management & Logistics

company sellers accounted for 27% of all attracted private equity firms and other value software M&A transactions in 2006 and had a buyers who were able to pay a modest premium median exit valuation of 2.1x TTM revenue. (See Appendix A). During the same time period, private company sellers accounted for 73% of all transactions and As a next step, we separated public and private commanded a substantially higher median selling software company buyers to ascertain any price of 2.7x TTM revenue. difference in exit valuation paid. In transactions where an exit valuation multiple was We attribute this disparity to a number of factors. ascertainable, private buyers (both strategic and Many of the private sellers were VC backed, private equity), comprised 18% of all software rapidly growing, best of breed solution providers company acquirers and paid a median M&A price that commanded a significant premium from a of 1.9x TTM. By contrast, public companies strategic buyer. By contrast, many of the public comprised 82% of all software company buyers sellers were slower growing, undervalued and paid a median purchase price of 2.7x TTM. companies with substantial recurring revenue that While the disparity was notable, it was

Figure 33: U.S. Software M&A Valuation as Figure 34: U.S. Software M&A Valuation as Multiple of Revenue (Quarterly) Multiple of Revenue (Annual)

2.9x 2.8x 2.7x 2.6x 2.5x 2.3x 2.4x

/Revenue 1.9x /Revenue 2.0x 1.4x (Purchase Price) (Purchase Price) Q4 2005 Q1 2006 Q2 2006 Q3 2006 Q4 2006 2002 2003 2004 2005 2006

17| 2006 SOFTWARE INDUSTRY EQUITY REPORT Copyright © 2007 Software Equity Group, L.L.C. Software Equity Group, L.L.C. Figure 35: 2006 Median Software M&A Valuations Figure 36: TTM U.S. Software M&A Valuation (As a multiple of revenue) by Category Public Sellers 2.1x Median Multiple (Equity Value) Networking & Connectivity 6.0x

27%

Security 5.2x

73% Web Analytics 4.5x

Private Sellers Enterprise Application Integration 4.5x 2.7x Median Multiple (Equity Value) Billing & Service Provisioning 4.1x Vertical Seller 2.3x Median Multiple (Equity Value) Database & File Management 3.9x

27% Messaging, Conferencing & 3.8x Communications

73% Content/Document Management 3.3x

Healthcare 2.8x Horizontal Seller 2.7x Median Multiple (Equity Value) Electronic Design Automation 2.7x

Private Buyers 1.9x Median Multiple Other Verticals (A&D, Telco, Retail, etc.) 2.6x (Equity Value)

Financial Services Software 2.6x 18%

Multimedia, Graphics, Digital Media 2.6x 82%

Wireless 2.5x

Public Buyers Development Tools, IT Asset Management 2.7x Median Multiple 2.5x & Application Testing Software (Equity Value)

Buyer Less Than Buyer Greater Accounting & Finance 2.4x $200 million Than $200 million 1.6x Median 3.0x Median Multiple (Equity Multiple (Equity Engineering, PLM & CAD/CAM Software 2.3x Value) Value)

Education & Computer Based Training 2.2x

44% 56% Business Intelligence 2.1x

Manufacturing & Asset Management 1.8x

Seller Greater Seller Greater HR & Workforce Management 1.6x Than $20 Than $20 Million*: 1.5x Million*: 2.9x Customer Relationship Management, 1.6x Seller Less Seller Less Marketing & Sales Software Than $20 Than $20 Million*: 1.7x Million*: 3.5x Supply Chain Management & Logistics 1.3x *: Revenue 18| 2006 SOFTWARE INDUSTRY EQUITY REPORT Copyright © 2007 Software Equity Group, L.L.C. Software Equity Group, L.L.C.

nonetheless unsurprising. Public buyers today Figure 36 reminds us that while size and status are seeking strategic advantage and have the had an impact, product category was the single cash reserves to pay for it, while private acquirers most important software M&A valuation driver in remain, understandably, ROI and IRR focused. 2006. Valuations ranged from 6.0x for networking & systems management software sellers We continued our analysis of 2006 exit valuations (CA/Wily, Citrix/Orbital) to 1.2x for supply chain by comparing exit multiples with the size management sellers (JDA/Manugistics, Illinois (revenue) of buyer and seller. As in prior years, Tool Works/Click Commerce). Enterprise size continued to weigh heavily on purchase Application Integration (EAI) sellers (BEA/Fuego, price. Buyers with revenue greater than $200 Progress/NEON, RedHat/JBoss) received a million paid a median purchase price of 3.0x healthy premium compared to the rest of the seller’s TTM revenue in 2006; buyers with less software M&A universe, thanks in large part to than $200 million revenue paid a median 1.6x growing emphasis on the growing demand for TTM revenue. services oriented architecture (SOA) development and migration tools. Additionally, we sliced the 2006 median software M&A multiple horizontally and vertically, In today’s software M&A market, no discussion of segregating vertical market software company exit valuation would be complete without an sellers (e.g. retail, financial services, telecom, analysis of pure play SaaS company exits. Buyers manufacturing, etc.) from sellers with horizontal today are placing inordinately high value on the software solutions (infrastructure, enterprise recurring revenue streams, bookings, and applications, etc.). In 2006, vertical market profitability potential of SaaS providers. Strategic solution providers received a median 2.3x TTM acquirers of SaaS provider typically paid five to revenue exit valuation, while horizontal solution seven times TTM revenue in 2006 (Figure 37). providers commanded a median 2.7x TTM revenue valuation, a variance of only 15%. MERGERS AND ACQUISITIONS: BUYER MOTIVES Historically, median horizontal software company exit valuations have ranged from 33% to 50% Product Enhancement greater than median vertical exit valuations. The majority of buyers in 2006 sought to broaden Clearly 2006 was a banner M&A year for verticals, and deepen their product offerings by acquiring a trend we expect to continue in 2007. companies with complementary solutions and enabling technologies targeting the same Figure 37: 2006 Select SaaS M&A Transactions

Seller Revenue Buyer Seller Purchase Price Revenue Multiple Vebnet Holdings 4th Contact* $1,240,000 $1,929,100 0.6x Kronos Unicru* $150,000,000 $50,000,000 3.0x Autodesk Constructware* $46,000,000 $15,000,000 3.1x SurfControl BlackSpider* $37,879,003 $7,597,000 5.0x Concur Outtask* $67,000,000 $12,500,000 5.4x Intuit Digital Insight $1,350,000,000 $238,110,000 5.7x Websidestory Visual Sciences* $57,300,000 $8,000,000 7.2x Blue Coat Systems Permeo Technologies* $60,800,000 $4,100,000 14.8x Click Commerce Elance $15,000,000 - - AT&T Corp. Usinternetworking $300,000,000 - - Alterian Nvigorate* - $1,130,000 - AttachmateWRQ OnDemand Software* - $2,600,000 - Chinadotcom JRG Software* - $2,800,000 - Microsoft Colloquis* - $5,500,000 - CCH Taxwise* - $53,000,000 - Citadon Buildonline - - - Commerce Planet Interaccurate - - - St. Bernard Software Singlefin - - - The Thomson Corporation ScholarOne - - - Wizzard Software Libsyn - - - *: Estimate 19| 2006 SOFTWARE INDUSTRY EQUITY REPORT Copyright © 2007 Software Equity Group, L.L.C. Software Equity Group, L.L.C.

markets. These transactions, which we Figure 38: U.S. Software M&A Drivers characterize as “Product Enhancements,” are also known as tuck-ins or bolt-ons. In 2002 and 2003 7% they were popular as the means to grow an otherwise flat top line. Today, most buyers deem these acquisitions highly strategic, enabling 25% competitive differentiation, customer retention and 56% greater market share.

Product Enhancement deals, as a percentage of total software M&A transactions, have grown steadily over the past two years, comprising 51% 4% of software deals in 2H05 and 56% for 2H06 8%

(Figure 38). Software company sellers in this Product Enhancement Market Expansion driver category commanded a 2.9x TTM revenue Product Category Consolidation Vertical Consolidation multiple in 2H06, indicative of their perceived Investment Opportunity strategic value. A classic example is Websense’s acquisition of PortAuthority, announced in the Commerce for $292 million, a 3.9x TTM revenue closing hours of 2006. Criticized for being too multiple. Other market expansion buyers included narrowly focused and not putting its balance sheet Neotel, a Toronto Stock Exchange security cash to good use, Websense paid approximately identification company that acquired CO3 to 6.0x TTM revenue to add information leak strengthen its position in healthcare; Trimble, a protection to its existing content filtering solutions. leading provider of GPS navigation technology Other Product Enhancement transactions in 2H06 acquired construction project management include McAfee’s acquisition of Citadel Security software provider Meridian; and The Thomson (4.2x), a security compliance and vulnerability Corporation’s acquisitions of LiveNote and remediation solution; Google’s blockbuster ScholarOne to gain presence and domain acquisition of YouTube for an estimated 16.5x expertise in the legal and scientific publishing TTM revenue, and webMethods purchase of verticals. Infravio, a SOA registry and governance solution provider, enabling essential functionality to Vertical Markets webMethods’ business integration platform. The buyers in this category are vertical software companies that acquire other vertical software We fully expect Product Extension deals will developers serving the same vertical markets. continue to dominate the software M&A landscape Seeking to gain market share and cross-sell in 2007. opportunities, these vertical buyers accounted for 25% of all software M&A transactions in 2H06, a Market Expansion new record. Healthcare has historically been the The buyers in transactions we characterize as most active M&A vertical market category, and Q4 “Market Expansion” are primarily motivated by a was no exception (WebMD/Subimo, perceived need to enter an entirely new product McKesson/Per-Se). However, vertical market category or geographical territory. Market software deals in 2H06 spanned multiple vertical expansion transactions also include horizontal categories, including financial services enterprise software company buyers seeking to (CheckFree/Cerreker), telecommunications (Sony enter a vertical market or bolster their vertical Ericsson/UIQ), aerospace and defense (Lockheed domain expertise through vertical acquisition. This Martin/MSD) and non-profit M&A driver category is still a minor contributor to (BlackBaud/Campaign Associates). overall software M&A activity, accounting for 8% of transactions in 2H06. A good example: Illinois Product Category Consolidation Tool Works (ITL), a $13.5 billion provider of tools While certain industry pundits continue to hype (nail guns, industrial adhesives, etc.), made its the consolidation wave sweeping the software foray into software by acquiring supply chain and sector, acquisitions of competitors by their collaboration management software provider Click software company rivals to gain market share and eliminate direct competition accounted for only

4% of 2H06 software deals, down from an 11% 2H06, VCs and private equity firms, awash in average for 2004 and 2005. The two most notable cash and under growing pressure to invest it, consolidation plays in 4Q06 were Trimble’s acquired directly. The most notable deals within acquisition of @Road, and Kenexa’s acquisition of this deal driver category for 2006 were Francisco BrassRing. Partners’ acquisition of WatchGuard; The Carlyle Group’s acquisition of Open Solutions, a leading Investment Acquisitions provider of software for small and midsized banks Although some 32% of 2H06’s total software M&A and credit unions; Insight Venture Partners’ transactions were by private buyers, most were purchase of NetSmart; Vista Equity Partners’ venture-backed private software companies acquisition of Indus; and Marlin Equity Partners’ spending VC and private equity investor cash. acquisition of XKO Software. However, in 7% of software M&A transactions in

APPENDIX A: 2006 MERGERS AND ACQUISITIONS, SELECT PUBLIC SELLER VALUATIONS

Quarterly Revenue Buyer Seller Purchase Price Enterprise Value EV/R EV/EBITDA Growth (YoY) Action Products International [NASDAQ:APII] NewMarket Technology [OTC:NMKT] $100,000,000 $110,360,000 1.6x 21.5x 61.90% AttachmateWRQ NETIQ [NASDAQ:NTIQ] $495,000,000 $309,960,000 1.6x N/A -17.20% Borland Software [NASDAQ:BORL] Segue Software [NASDAQ: SEGU] $100,000,000 $85,510,000 2.3x 25.5x 18.20% Corel Corporation [NASDAQ:CREL] InterVideo [NASDAQ: IVII] $196,000,000 $91,120,000 0.8x 7.3x 7.70% Dassault Systemes S.A. MatrixOne [NASDAQ: MONE] $408,000,000 $309,440,000 2.6x N/A -5.60% EMC [NYSE:EMC] RSA Security [NASDAQ:RSAS] $2,100,000,000 $1,881,900,000 5.5x 32.8x 15.70% Francisco Partners Management WatchGuard Technologies [NASDAQ:WGRD] $151,000,000 $82,870,000 1.1x N/A 11.90% Hellman & Friedman LLC Intergraph [NASDAQ:INGR] $1,300,000,000 $1,052,465,000 1.8x 12.5x 5.10% Hewlett-Packard [NYSE:HPQ] Mercury Interactive [OTC:MERQ] $4,512,000,000 $4,422,030,000 5.7x 25.5x 30.20% IBM [NYSE:IBM] FileNet [NASDAQ: FILE] $1,524,203,800 $1,073,833,800 2.4x 16.6x 11.90% IBM [NYSE:IBM] Internet Security Systems [NASDAQ: ISSX] $1,226,960,000 $1,007,160,000 3.0x 12.9x 4.60% IBM [NYSE:IBM] MRO Software [NASDAQ:MROI] $740,000,000 $585,910,000 2.6x 17.4x 13.40% Illinois Tool Works [NYSE: ITW] Click Commerce [NASDAQ: CKCM] $292,000,000 $285,720,000 3.9x 11.6x 47.90% Infor Global Solutions Datastream Systems [Pink Sheets: DSTM] $205,097,000 $147,037,000 1.4x 11.8x 6.20% Infor Global Solutions SSA Global [NASDAQ:SSAG] $1,356,000,000 $1,436,000,000 1.9x 11.3x 5.60% Insight Venture Partners Netsmart Technologies [NASDAQ: NTST] $115,000,000 $108,750,000 1.9x 11.9x 80.70% Intuit [NASDAQ: INTU] Digital Insight [NASDAQ:DGIN] $1,350,000,000 $1,261,360,000 5.3x 18.1x 16.30% Intuit [NASDAQ: INTU] Electronic Clearing House [NASDAQ: ECHO] $142,000,000 $131,139,000 1.7x 14.5x 27.00% JDA Software [NASDAQ:JDAS] Manugistics [NASDAQ: MANU] $210,250,000 $248,380,000 1.4x 10.0x N/A Made2Manage Systems KNOVA Software Inc. [OTC: KNVS] $47,000,000 $39,670,000 1.5x N/A 1.30% Made2Manage Systems Onyx Software [Nasdaq:ONXS] $92,000,000 $72,630,000 1.2x 35.1x -14.60% McAfee [NASDAQ: MFE] Citadel Security Software Inc. [OTC:CDSS] $60,000,000 $64,203,190 4.5x N/A 9.80% McKesson [NYSE: MCK] Per-Se Technologies [NASDAQ:PSTI] $1,098,440,000 $1,556,610,000 2.9x 14.6x 63.60% NAVTEQ [NYSE: NVT] Traffic.com [NASDAQ:TRFC] $179,000,000 $156,980,000 3.2x N/A 18.40% Open Text [NASDAQ:OTEX] Hummingbird [NASDAQ:HUMC] $490,717,000 $396,417,000 1.6x 10.9x 18.30% Oracle [NASDAQ:ORCL] MetaSolv Software [NASDAQ:MSLV] $219,200,000 $161,240,000 1.7x 28.5x 8.40% Oracle [NASDAQ:ORCL] Portal Software [OTCBB: PRSF.PK] $220,000,000 $177,280,000 1.7x N/A -24.40% Oracle [NASDAQ:ORCL] Stellent [NASDAQ:STEL] $440,000,000 $370,835,000 2.9x 28.7x 13.20% RealNetworks [NASDAQ:RNWK] WiderThan [NASDAQ:WTHN] $350,000,000 $256,900,000 2.2x 10.2x N/A Skywire Software Docucorp International [NASDAQ:DOCC] $127,000,000 $123,610,000 1.4x 8.1x 4.20% The Carlyle Group Open Solutions [NASDAQ:OPEN] $1,300,000,000 $1,731,870,000 5.1x 20.6x 127.50% Thoma Cressey Equity Partners Embarcadero Technologies [NASDAQ:EMBT] $234,000,000 $166,282,000 2.8x 17.2x 7.10% Trilogy Software Artemis [OTC: AMSI] $27,000,000 $29,760,000 0.6x N/A -8.50% Trimble Navigation [NASDAQ: TRMB] @Road, Inc. [NASDAQ: ARDI] $496,000,000 $401,530,000 4.0x 265.9x 0.70% Universal Computer Systems Reynolds and Reynolds [NYSE:REY] $2,630,400,000 $2,786,200,000 2.9x 11.2x 1.60% VCampus [NASDAQ: VCMP] Prosoft Learning Corporation [OTC: POSO] $2,300,000 $6,060,000 0.9x N/A -10.90% Vista Equity Partners Indus International [NASDAQ: IINT] $240,000,000 $216,140,000 1.7x 17.9x -17.40% Median: 1.9x 15.6x 8.40% Sellers Revenue Greater Than $150 Million: 2.8x 14.6x Sellers Revenue Less Than $150 Million: 1.7x 17.2x

APPENDIX B: MERGERS AND ACQUISITIONS, MOST ACTIVE BUYERS

Company Seller Purchase Price

20-20 Technologies Pattern Systems $4,800,000 Virtual Systems 3M Company Archon Technologies SBG Ac cellos Headwater Technology Radio Beacon Ac centure Advantium NaviSys Random Walk Computing Savista Ado be Systems Actimagine Navisware (DRM Division) Pixmantec aPs Serious Magic

Trade and Technologies France

Vector Graphics Technology

Amdocs Cramer Systems $375,000,000

Qpass $275,000,000

Stibo Graphic Software App le Computer Proximity Silicon Color Atta chmateWRQ NETIQ $495,000,000 OnDemand Software Autodes k Constructware $46,000,000 Robobat $33,000,000 Rocad $1,000,000 Autom atic Data Processing Taxware $125,000,000 CMGI VirtualEdge BE A Systems Fuego $87,500,000 Flashline Blu e Coat Systems Permeo Technologies $60,800,000 NetCache Borland Software Segue Software $100,000,000 Gauntlet Systems Bottom line Technologies FormScape Group $22,000,000 Visibillity $11,500,000 Br avura Solutions Rufus Software $79,000,000 AB Prodata Busines s Objects Armstrong Laing Limited $56,000,000 Firstlogic $69,000,000 nSite Software C CH ATX/Kleinrock Taxwise CE GID SA GTI Industrie PMI Soft Che ck Point Software NFR Security $20,000,000 Protect Data AB $582,530,000

Comp any Seller Purchase Price

Chi nadotcom 17game Network Technology c360 JRG Software MVI Technology Cisco Systems Arroyo Video Solutions $92,000,000

Audium $19,800,000

Meetinghouse Data Comm. $43,700,000

Metreos Corporation $28,000,000

Orative $31,000,000

SyPixx Networks $51,000,000 Ashley Laurent Tivella Citrix Systems Orbital Data $50,000,000 Ardence Com puter Associates Control-F1 $14,100,000 Cybermation $75,000,000 Wily Technology $375,000,000 MDY Group Xosoft Com verse Technology Netcentrex S.A. $164,000,000 Netonomy $19,000,000 Corel Corporation InterVideo $182,390,000 WinZip Computing Del tek Systems C/S Solutions, Inc. Welcom Dom in-8 LOGICBUILT PMAS ebi x.com Finetre Corporation $13,000,000 Infinity Systems Consulting $2,900,000 Em blaze SenseStream $2,000,000 Smart Content EM C Avamar Technologies $165,000,000 Kashya $153,000,000 nLayers $50,000,000 RSA Security $2,100,000,000 Authentica Neartek Network Intelligence ProActivity Software Solutions Er icsson Distocraft UIQ Technology AB F ireStream WorldWide Symbology Systems TMI Services F our Soft Transaxiom Holding $10,000,000 FWL Technologies F rancisco Partners WatchGuard Technologies $146,497,400 Endeavor Information Systems Ex Libris FSBO Media Holdings Voyage Media LLC

TOTALtrak

Comp any Seller Purchase Price

G oogle YouTube $1,650,000,000 @Last Software Endoxon JotSpot Neven Vision Upstartle Halo Technology Holdings Unify $21,000,000

Tenebril

Hellman & Friedman Intergraph $1,300,000,000

Activant Solutions

Hewlett-Packard Mercury Interactive $4,512,000,000

Bitfone Corp. OuterBay Silverwire IBM FileNet $1,524,203,800 Internet Security Systems $1,226,960,000 MRO Software $740,000,000 Buildforge CIMS Lab Consul risk management INFICON (semiconductor software) Language Analysis Systems Rembo Technology Vallent Webify Inf or Global Solutions Datastream Systems $205,097,000 SSA Global $1,356,000,000 Inf ormatica Itemfield $55,000,000 Similarity Systems $55,000,000 Ing enix Claredi Corporation $54,000,000 NWH Inc. $60,962,293 Intu it Digital Insight $1,350,000,000 Electronic Clearing House $142,000,000 StepUp Commerce Intu itive Manufacturing Relevant Business Systems SupplyWorks Ken exa BrassRing $115,000,000 Psychometric Services $7,600,000 Kr onos SmartTime $2,200,000 Unicru $150,000,000 Ma de2Manage Systems KNOVA $47,000,000 Onyx Software $92,000,000 Encompix McAf ee Associates Citadel Security $60,000,000 Onigma $20,000,000 Preventsys SiteAdvisor Me rcury Interactive Systinet $105,000,000 VSI PowerHelp Software $18,500,000

Comp any Seller Purchase Price

Micr osoft Apptimum AssetMetrix Azyxxi Software Colloquis DesktopStandard iView Media Lionhead studios

MotionBridge

Onfolio

ProClarity

Seadragon Software

Softricity String Bean Software Vexcel Whale Communications Winternals Software Mo torola TTP Communications $192,000,000 Good Technology Kreatel Communications Vertasent Neo Media Technologies HipCricket $4,500,000 Mobot $10,000,000 Sponge $17,400,000 NICE Systems IEX Corporation $200,000,000 Performix Technologies $13,200,000 Nua nce Communications Dictaphone $357,000,000 MobileVoiceControl O racle Corporation MetaSolv Software $219,200,000 Portal Software $220,000,000 SPL WorldGroup $49,500,000 Stellent $440,000,000 360Commerce Demantra HotSip AB Net4Call Sigma Dynamics Sleepycat Sunopsis Telephony@Work Parallax Capital Partners Computron Software $12,000,000 MultiGen-Paradigm Param etric Technology ITEDO $17,000,000 Mathsoft $63,250,000 Pea rson Blueprint Technologies Chancery Software Pitn ey Bowes Emtex $41,000,000 Advertising Audit Service Pr imavera Systems PERTMASTER Prosight

Comp any Seller Purchase Price

Q AD FBO Systems $2,800,000 Precision Software $14,500,000 Q UALCOMM QualPhone $18,000,000 nPhase Q uest Software AfterMail $14,700,000 REVEALNET RedPrairie Alta A/S

BlueCube Software

MARC Global Holdings

StorePerform Technologies

Research In Motion Ascendent Systems

Epoch Integration Rock et Software Seagull Software $42,094,760 Mainstar Software Sal esforce.com Sendia $15,000,000 Kieden SA P AG Frictionless Commerce Praxis Software Solutions Virsa Systems Sie rra On-Line Secret Lair Studios Studio Ch'in Spi rent QuadTex Systems $7,500,000 SwissQual Holding AG $47,078,000 Ste llent Bitform $1,200,000 SealedMedia $10,000,000 Ste rling Commerce Comergent Technologies $155,000,000 Nistevo Corporation Sub ex Systems Mantas $2,000,000 Azure Solutions Su n Microsystems Aduva Neogent Sun Gard Data Systems Automated Financial Systems Carnot, AG Integrated Business Systems Shanghai Fudan Kingstar Computer Signix System Access Limited Trax NV Sy base Mobile 365 $425,000,000 Solonde AG Sy mantec Imlogic Relicore Sy nopsys Sigma C $20,500,000 Virtio Corporation T he Carlyle Group Open Solutions $1,300,000,000 FRS Global UC4 Software GmbH

Comp any Seller Purchase Price

T he Sage Group Baurer $8,528,000 Emdeon Practice Services $565,000,000 Verus Financial Management $325,680,000 Visma ASA $582,262,000 Contractor Anywhere Corum Mobile [Division] Intuit (Master Builder Division)

Thomson LiveNote Technologies

Quantitative Analytics

ScholarOne

Solucient

TriZetto Group QCSI $133,000,000 Plan Data Management T homa Cressey Equity Embarcadero Technologies $234,000,000 Vision Solutions $63,000,000 T rimble Navigation @Road, Inc. $496,000,000 Eleven Technology Meridian Project Systems Quantm International The XYZs of GPS Visual Statement XYZ Solutions VeriSign CallVision $30,000,000 GeoTrust $125,000,000 Kontiki $62,000,000 m-Qube $250,000,000 Snapcentric $12,000,000 VI Group Camtek $5,437,780 Plastics & Computer Intl $1,001,741 W AVECOM Sony (M2M Comm. Business Unit) $39,121,800 Nexgen Software, S.A. W ellPoint Bolo Systems $24,000,000 IDEAS International $4,650,000 W itness Systems Demos Solutions Exametric X erox Amici LLC $174,000,000 XMPie $54,000,000 Y ahoo! AdInterax Jumpcut Meedio

APPENDIX C: SELECTED MERGERS AND ACQUISITIONS BY SOFTWARE INDUSTRY CATEGORIES

Business Intelligence

BUSINESS INTELLIGENCE SOFTWARE M&A TRANSACTIONS

Revenue Acquirer Seller Purchase Price Seller Revenue Multiple Description Actuate Performancesoft* $16,500,000 $9,300,000 1.8x Corporate Performance Management Affecto-Genimap ZenPark Oy $3,061,919 $4,082,559 0.7x Business intelligence solutions Business Objects Firstlogic* $69,000,000 $50,000,000 1.4x Data analysis software Business Objects Armstrong Laing Limited $56,000,000 $19,000,000 2.9x Corporate Performance Management Informatica Itemfield* $55,000,000 $7,000,000 7.9x Unstructured data analysis Informatica Similarity Systems* $55,000,000 $11,000,000 5.0x Business process management Marlin Equity Partners XKO Software $27,900,000 $37,386,000 0.7x Business management software TA Associates Global 360* $200,000,000 $80,000,000 2.5x Business process management * Revenue Estimate

REPRESENTATIVE CATEGORY TRANSACTIONS Business Objects (NASDAQ: BOBJ) acquires database information. The deal is yet another in Firstlogic the increasingly competitive BI category, as BI Category: Data Management Software vendors look to capitalize on anticipated IT Purchase Price: $69,000,000 spending increases in this area. Infromatica Seller Revenue: $50,000,000 (estimate) acquired Firstlogic competitor Similarity Systems Revenue Multiple: 1.4x (estimate) two weeks before this acquisition and both BI Payment Terms: Cash providers will compete with IBM’s newly acquired Ascential subsidiary (which acquired Vality in SEG’s Perspective: 2002). Business Objects is paying approximately Business Objects, a leading provider of business 1.4x trailing-twelve-month revenue for Firstlogic, intelligence (BI) and business productivity versus the more than 5.0x Informatica paid for management solutions, acquires Firstlogic, a Similarity. The disconnect between the two provider of data quality solutions. Founded in valuations may have to do with Firstlogic’s 1984, Firstlogic’s initially focused on postal data reported slower growth rate compared to but has since broadened its offering to include Similarity. Still, the $69 million Firstlogic will software that cleanses and standardizes data receive is a nice premium to the $50 million the while monitoring and analyzing the quality of company was offered by Pitney Bowes in 2005.

CAD/CAM/CAE/PLM

CAD/CAM/CAE/PLM SOFTWARE M&A TRANSACTIONS Revenue Acquirer Seller Purchase Price Seller Revenue Multiple Description ANSYS Aavid Thermal $565,000,000 $121,900,000 4.6x Fluid dynamics software Dassault Systemes MatrixOne $408,000,000 $118,780,000 3.4x PLM software Hellman & Friedman Intergraph $1,300,000,000 $586,770,000 2.2x CAD software Parametric Mathsoft $63,250,000 $20,000,000 3.2x Engineering software Planit Holdings Pathtrace $8,683,254 $10,346,049 0.8x Software for metal cutting tools Roper Industries Dynisco $243,000,000 $100,000,000 2.4x Test, measurement and control software Trilogy Software Artemis $27,000,000 $48,810,000 0.6x Project software VI Group Camtek $5,437,780 $3,729,885 1.5x Production engineering software * Revenue Estimate

REPRESENTATIVE CATEGORY TRANSACTIONS

Dassault (NASDAQ: DASTY) acquires Category: Engineering Software MatrixOne (NASDAQ: MONE) Purchase Price: $63,250,000 Category: Product Lifecycle Management (PLM) Seller Revenue: $20,000,000 (estimate) Purchase Price: $309,400,000EV Revenue Multiple: 3.2x (estimate) Seller Revenue: $118,780,000 Payment Terms: Cash EBITDA: ($24,280,000) Revenue Multiple: 2.6xEV SEG’s Perspective: Payment Terms: Cash Parametric Technology (PTC), developer of computer aided design, manufacturing and SEG’s Perspective: engineering software, acquires Mathsoft, provider Dassault, a billion dollar revenue CAD/PLM of engineering software (CAE) that helps create, automate, document and reuse engineering software developer, acquires MatrixOne, a calculations throughout a product lifecycle. CAE is provider of PLM solutions. MatrixOne primarily one of the fastest growing segments within addresses Dassault’s relative weakness in the product lifecycle management and Mathsoft had product data management and collaboration been growing between 15% and 20% annually. segment of the PLM category. The acquisition Along with its growth, Mathsoft also brings 90% of also brings significant cross sell opportunities with the Fortune 1000, 500 government agencies, and only 40% customer overlap. Where Dassault has 2000 colleges and universities as customers. traditionally focused on automotive, aerospace & Founded in 1984 Mathsoft split into two entities in defense, and industrials/capital goods, MatrixOne 2001, with the current CEO leading a $7 million brings expertise in high tech (49% of software buyout of the Mathcad product line and the revenues), apparel, life sciences and medical remaining company becoming Insightful (Nasdaq: devices. MatrixOne, along with Dassault’s 2005 IFUL), a provider of data analytics software whose acquisition of Abaqus (in the simulation category current market capitalization is $37 million. of PLM), provide Dassault with more revenue from higher growth segments of the broader PLM market. Dassault will now generate 50% of its revenues from businesses that have end market growth of approximately 15% with the remaining 50% of its revenue generated from its traditional CAD business, where the market is growing at approximately 5%.

Parametric (NASDAQ: PMTC) acquires Mathsoft

Content & Document Management Software

CONTENT AND DOCUMENT MANAGEMENT SOFTWARE M&A TRANSACTIONS Acquirer Seller Purchase Price Seller Revenue Revenue Description Multiple Bottomline Technologies FormScape Group* $22,000,000 $24,900,000 0.9x Document management software IBM Corporation FileNet $1,524,203,800 $443,170,000 3.4x Content management software Open Text Hummingbird $490,717,000 $254,240,000 1.9x Content management software Oracle Stellent $440,000,000 $127,170,000 3.5x Web-based content management tools Parascript Mitek Systems $144,480,000 $6,500,000 22.2x Content management software Parascript Mitek Systems $144,480,000 $6,500,000 22.2x Automated document recognition software Pitney Bowes Emtex* $41,000,000 $15,000,000 2.7x Document management Skywire Docucorp $127,000,000 $89,220,000 1.4x Document management software * Revenue Estimate REPRESENTATIVE CATEGORY TRANSACTIONS

Pitney Bowes (NYSE: PBI) acquires Emtex Open Text (NASDAQ: OTEX) acquires Category: Document Management Software Hummingbird (NASDAQ: HUMC) Purchase Price: $41,000,000 Category: Content Management Software EV Seller Revenue: $15,000,000 Purchase Price: $389,397,000 Revenue Multiple: 2.7x Revenue: $258,490,000 Payment Terms: Cash EBITDA: $36,900,000 EV Revenue Multiple: 1.5x EV SEG’s Perspective: EBITDA Multiple: 10.6x Pitney Bowes, provider of mail automation and Payment Terms: Cash document management technology, acquires Emtex, developer of document management SEG’s Perspective: technologies to large volume mail handlers. Open Text, a leading provider of enterprise Pitney Bowes will use Emtex to extend further content management (ECM) software solutions, beyond mail meters to encompass electronic acquires Hummingbird, a Canadian based communication, online commerce, document provider of content and document management management, mail tracking software, and related software. By acquiring Hummingbird, Open Text sorting services. Content and document better positions itself to compete against content management software has garnered significant management behemoths EMC/Documentum and EV M&A attention (20 deals1, 3.0x2) since 2005, most the recently formed IBM/FileNet (2.4x TTM). notably Autonomy/Verity ($483 million), According to Gartner, Open Text picks up a EMC/Captiva ($289 million), PTC/Arbortext ($190 company with top five market share and one of million) and Macrovision/eMeta ($35 million). This the highest growth rates among leading vendors would have been Pitney Bowes third software at 20.4%, nearly double the rate of the content acquisition since December 2004 had it not management software market1. Open Text dropped its $55 million bid for Firstlogic, a trumped Symphony’s May 2006 bid of $26.75 per provider of data management software recently share by offering a 21% premium over acquired by Business Objects. Hummingbird’s pre-announcement closing stock 1: Data Source: Software Equity Group price (4.1% over Symphony’s bid), thus, requiring 2: Content & document management software median M&A multiple Hummingbird to pay Symphony an $11.7 million break-up fee. 1. Gartner Dataquest, “Market Share: Enterprise Content Management Software, Worldwide, 2003-2005,” by Tom Eid, May 18, 2006

Customer Relationship Management & Related Software

CUSTOMER RELATIONSHIP MANAGEMENT SOFTWARE M&A TRANSACTIONS

Acquirer Seller Purchase Price Seller Revenue Description Revenue Multiple Access Commerce Exsyde* $1,895,000 $1,895,000 1.0x Product information management aQuantive Accipiter* $30,300,000 $10,000,000 3.0x Advertising software and services Made2Manage KNOVA Software $47,000,000 $27,120,000 1.7x Product information management Made2Manage Onyx $92,000,000 $58,350,000 1.6x Customer relationship management Pilat Technologies ML Software* $4,266,000 $2,730,000 1.6x Marketing software Sentica Partners Oy PlanMill* $734,333 $1,085,535 0.7x Service automation software * Revenue Estimate REPRESENTATIVE CATEGORY TRANSACTIONS

Made2Manage acquires KNOVA (OTC: KNVS) strategy perfectly; mainly it was cheap due to its Category: Customer Relationship Management poor financial performance including its lack of Software (CRM) profitability over the last 3 years. M2M is taking a Purchase Price: $39,670,000EV page out of its main competitor’s (Infor) playbook Revenue: $27,120,000 by acquiring a breadth of products to sell into its EBITDA: ($974,300) large installed base of SMB manufacturers. With Revenue Multiple: 1.5x EV high retention rates and stable recurring revenue, Payment Terms: Cash SMB manufacturing customers have been highly coveted. M2M paid a 22% premium to KNOVA’s SEG’s Perspective: closing stock price prior to announcement. The Made2Manage (M2M), a private equity backed acquisition is M2M’s second 2006 acquisition provider of ERP software to small and midsized within CRM after it paid 1.6x TTM revenue for manufacturers, acquires KNOVA, developer of Onyx Software in June. CRM software. KNOVA fit M2M’s acquisition

Developer Tools, Application Testing & Related Software

DEVELOPER TOOLS AND APPLICATION TESTING M&A TRANSACTIONS

Revenue Acquirer Seller Purchase Price Seller Revenue Multiple Description BMC Software Inc. Identify Software* $150,000,000 $25,000,000 6.0x Developer tools Hewlett-Packard Mercury Interactive $4,512,000,000 $775,520,000 5.8x IT Asset Management Pender Financial Group Sophos* $2,250,000 $2,800,000 0.8x Developer tools Borland Software Segue Software $100,000,000 $36,440,000 2.7x Software quality and testing solutions Avocent LANDesk Software* $416,000,000 $83,700,000 5.0x IT Asset Management AttachmateWRQ NETIQ $495,000,000 $194,520,000 2.5x IT Asset Management Thoma Cressey Equity Partners Vision Solutions* $63,000,000 $33,300,000 1.9x IT Asset Management Mandriva Linbox* $1,739,000 $844,000 2.1x IT Asset Management * Revenue Estimate REPRESENTATIVE CATEGORY TRANSACTIONS

Borland Software (NASDAQ: BORL) acquires Avocent (NASDAQ: AVCT) acquires LANDesk Segue Software (NASDAQ: SEGU) Category: Desktop and Device Management Category: Developer Tools/Utilities Software Purchase Price: $85,510,000EV Purchase Price: $416,000,000 Seller Revenue: $36,440,000 Seller Revenue: $83,700,000 (estimate) Seller EBITDA: $3,350,000 Seller EBITDA: $7,000,000 (estimate) Revenue Multiple: 2.3x EV Revenue Multiple: 5.0x (estimate) EBITDA Multiple: 25.5x EV EBITDA Multiple: 59.4x (estimate) Payment Terms: Cash, Stock Payment Terms: Cash

SEG’s Perspective: SEG’s Perspective: Avocent, provider of KVM (keyboard, video, Amid mounting financial losses, Borland Software, mouse) switching systems used primarily by small a provider of application lifecycle management, and medium sized enterprises (SME), acquires acquires Segue Software, developer of software LANDesk, developer of desktop and device quality and testing solutions. With its integrated management software to the SME market. With development environment (IDE) facing growing growth hard to come by in the KVM market, competition from open source software tools Avocent has used acquisitions (eight since 2004) (Eclipse Foundation), Borland decided to divest its to expand its hardware management tools. IDE product line (estimated to be worth between LANDesk will help, adding PC lifecycle $60 and $100 million) and focus on IT lifecycle management to Avocent’s offering. Since its management. Segue will help both functionally spinout from Intel in 2002, LANDesk has and financially. For 2005, Borland posted a $28.4 increased revenue an average 25% per year million net loss (down from an $11.3 million profit) while being cash flow positive over the same time on a 10.3% decline in revenue while Segue period. LANDesk shareholders stand to earn an posted a $2.9 million net profit on a 10.0% additional $60 million assuming certain financial increase in revenue. The purchase price targets are met. represents a 25% premium to Segue’s pre- announced closing share price. With $175 million in cash and no debt, Borland has the resources to make strategic acquisitions while it competes against the likes of Mercury Interactive, Compuware, IBM and Serena.

AttachmateWRQ acquires NetIQ (NASDAQ: Hewlett-Packard (NYSE: HPQ) acquires NTIQ) Mercury Interactive (OTC: MERQ.PK) Category: IT Asset Management Category: IT Asset Management Purchase Price: $309,960,000EV Purchase Price: $4,422,030,000 EV Seller Revenue: $194,520,000 Seller Revenue: $775,520,000 Seller EBITDA: ($14,850,000) Seller EBITDA: $173,170,000 Revenue Multiple: 1.6x EV Revenue Multiple: 5.7x EV Payment Terms: Cash EBITDA Multiple: 25.5x EV Payment Terms: Cash SEG’s Perspective: Privately held AttachmateWRQ, provider of SEG’s Perspective: access management to enterprise applications, In a defining acquisition that almost doubles its databases and information, acquires NetIQ, annual software revenue to $2 billion, Hewlett- developer of software used to test, migrate and Packard aggressively expands its OpenView analyze distributed computer systems. The software suite by acquiring Mercury Interactive, a combined company, with 40,000 customers, 16 best of breed business technology optimization million users and $400 million in revenue, will (BTO) company. Mercury, coupled with its 2006 have the scale and resources to compete against acquisition of Systinet ($105 million, 4.6x est.), will its larger competitors CA, Compuware, IBM and help HP stay relevant in systems management HP. AttachmateWRQ is no stranger to software and SOA governance where competition consolidation due to its experience in 2005 when from the likes of IBM, CA and BMC is fierce. With Attachmate and WRQ merged with the help of its multiple bidders at the table (rumored to include private equity financiers. AttachmateWRQ paid a Symantec, EMC and CA), HP won the contest by 14% premium to NetIQ’s closing stock price prior paying a 33% premium to Mercury’s pre- to announcement despite NetIQ’s revenue decline announcement closing stock price, and a higher of 31% since FY2003. In 2000, NetIQ traded at multiple than the median M&A valuation in the IT seven times AttachmateWRQ’s purchase price. asset management category (3.4x TTM revenue). The cash on NetIQ’s balance sheet represented Still, the price tag is reasonable considering 45% of the gross purchase price. Mercury’s dominance in BTO and its severely depressed stock price, reflecting troubles over Sarbanes Oxley non-compliance. HP is no stranger to distressed assets after acquiring Peregrine ($425 million, 2.2x) in September 2005.

Enterprise Systems Management, EAI & Related Software

ENTERPRISE SYSTEMS MANAGEMENT M&A TRANSACTIONS Revenue Acquirer Seller Purchase Price Seller Revenue Multiple Description BEA Systems, Inc. Fuego* $87,500,000 $12,500,000 7.0x EAI Citrix Systems Orbital Data* $50,000,000 $4,000,000 12.5x Networking software Computer Associates Cybermation* $75,000,000 $30,000,000 2.5x Change management Computer Associates Wily Technology* $375,000,000 $53,000,000 7.1x Enterprise System Management DataPath Industrial Logic* $21,000,000 $12,000,000 1.8x Networking software Halo Technology Unify $21,000,000 $10,580,000 2.0x EAI Mercury Interactive Systinet* $105,000,000 $25,000,000 4.2x Enterprise System Management Progress Software Actional* $32,000,000 $7,100,000 4.5x Enterprise System Management Red Hat Jboss* $350,000,000 $16,000,000 21.9x Open source application server Rocket Software Seagull Software $42,094,760 $27,700,000 1.5x Enterprise System Management * Revenue Estimate REPRESENTATIVE CATEGORY TRANSACTIONS

CA (NYSE: CA) acquires Wily Technology Progress Software (NASDAQ: PRGS) acquires Category: Application Performance Management Actional Purchase Price: $375,000,000 Category: Web Services Management Software Seller Revenue: $53,000,000 (estimate) Purchase Price: $29,000,000EV Revenue Multiple: 7.1x (estimate) Seller Revenue: $7,100,000 (estimate) Payment Terms: Cash Revenue Multiple: 4.1xEV (estimate) Payment Terms: Cash, Stock SEG’s Perspective: Continuing its growth strategy through acquisition, SEG’s Perspective: CA, one of the largest IT management software Progress Software, supplier of application companies, acquires Wily, a provider of enterprise infrastructure software, acquires Actional, provider application performance management (APM) of web services management software for solutions. Wily’s focus on enterprise web distributed IT systems in a service-oriented application management is an important architecture (SOA) environment. Progress, and complement to CA’s IT management vision of the software industry at large are hoping that SOA integrating the management of systems, security, and Web 2.0 will accelerate industry growth and storage, applications and the like. CA’s leverage improve public software company valuations. With and resources will better enable Wily to compete high growth rates hard to come by in the software against larger rivals Mercury, Quest and sector, well-positioned companies such as Symantec (via Veritas). Not that Wily needed Actional command very high premiums. Mercury help. The company was growing at 75% before Interactive (Systinet; 4.6x TTM revenue) and BEA the acquisition, which is estimated to be three (Fuego; 7.0x) paid well above the software times as fast as the overall growth of its market. In industry’s median valuation to gain SOA 2005, CA acquired six companies with combined expertise. While the 4.1x revenue multiple is a revenue of $203 million* for $745 million*. premium to the software industry, Actional’s *: Amounts are estimates investors might not be pleased. Actional had raised an estimated $78 million since its inception in 2000.

Computer Associates (NYSE: CA) acquires Red Hat (NASDAQ: RHAT) acquires JBoss Cybermation Category: Open Source Middleware Category: Workload Automation Software Purchase Price: $350,000,000 Purchase Price: $75,000,000 Seller Revenue: $16,000,000 (estimate) Seller Revenue: $30,000,000 Revenue Multiple: 21.9x (estimate) Revenue Multiple: 2.5x Payment Terms: Cash, Stock, Earnout Payment Terms: Cash SEG’s Perspective: SEG’s Perspective: Red Hat, a leading provider of open source In its third acquisition of 2006, enterprise software infrastructure software built on the Linux operating conglomerate CA acquires Cybermation, provider system, acquires open source application server of IT job scheduling, workload management and vendor, JBoss. For Red Hat, an application server application change management. With this was a necessary addition to its infrastructure acquisition, CA takes out a rival in the fiercely software stack as the company’s size and market competitive job scheduling market where CA is position increasingly put it in direct competition the dominant vendor (20.2% market share1) and with larger vendors BEA, Oracle, IBM and where total addressable market is expected to Microsoft. Faced with competition from IBM1 and reach $1.8 billion in 20102. CA is desperately Oracle2 after they acquired open source seeking growth opportunities, having grown only infrastructure vendors, the possibility of losing 7% over the last 12 months and 6.7% over the JBoss to either of them or to an IPO, and JBoss’ last 36 months. With this acquisition CA has spent 68% projected CAGR from 2005 to 2007, $464 million in 2006 for approximately $87 million normally cautious Red Hat ponied up almost 22 of TTM revenue. times JBoss’ trailing twelve month revenue (1) IDC, Worldwide Systems Operations Software 2006–2010 Forecast, (before earnout). Considering the competitive Stephen Elliot, March 2006 (2) IDC, Worldwide Systems Operations Software 2004 Vendor Shares, nature of this market, it is unlikely JBoss’ Stephen Elliot, August 2005 shareholders, who invested $10 million in 2004, could have timed a better exit. Mercury Interactive (NASDAQ: MERQ) 1 IBM acquired open source application server vendor Gluecode acquires Systinet 2 Oracle acquired open source database vendors Innobase and Sleepycat

Category: Enterprise Application Integration Citrix (NASDAQ: CTXS) acquires Orbital Data Purchase Price: $105,000,000 Corporation Seller Revenue: $23,000,000 (estimate) Category: WAN Optimization Software Revenue Multiple: 4.6x (estimate) Purchase Price: $50,000,000 Payment Terms: Cash Revenue: $4,000,000 (estimate) Revenue Multiple: 12.5x (estimate) SEG’s Perspective: Payment Terms: Cash Mercury Interactive, a leader in business technology optimization, acquires Systinet, SEG’s Perspective: provider of governance and lifecycle management In its fourth acquisition of the year, Citrix Systems, solutions for service-oriented architectures (SOA). a network infrastructure and access company, Systinet’s core product is a registry that manages acquires Orbital Data, a developer of WAN the lifecycle of an SOA-based service, specifying optimization solutions. Orbital’s products who can publish and when, and what policies accelerate the movement of application data govern the service. Industry pundits anticipate between corporate data centers and SOA architectures will receive an increasing remote/branch offices over wide area networks, share of IT spending and Systinet will help functionality vital to the continued growth of Citrix. Mercury capitalize on this trend. If it can move on IDC forecasts the WAN optimization market will from its troubling accounting issues, Mercury’s grow from $315 million in 2005 to $610 million in leverage and resources will differentiate Systinet 2009 making it one of the faster growing from its main rivals, privately held SOA Software categories within software. Still, the opportunity and Infravio. Founded in 2000, Systinet raised an does not come without competition as Cisco, estimated $27.4 million in VC financing; investors Juniper, Packateer, Riverbed and Expand should be pleased at the outcome. Networks are all intently focused on the space.

While the 12.5x purchase price may seem DataPath acquires Industrial Logic exorbitant, Citrix is expecting Orbital to generate Corporation revenue of approximately $12 million in CY2007, Category: Network Management Software a multiple of 4.2x which is in line with similar high Purchase Price: $21,000,000 growth companies. Revenue: $13,000,000 (estimate) Revenue Multiple: 1.6x (estimate) BEA Systems (NASDAQ: BEAS) acquires Payment Terms: Cash Fuego Category: Business Process Management SEG’s Perspective: Purchase Price: $87,500,000 Privately held DataPath, a systems integrator of Seller Revenue: $12,500,000 (estimate) satellite and wireless communications networks, Revenue Multiple: 7.0x (estimate) acquires ILC, developer of network management Payment Terms: Cash software. DataPath will use ILC’s software solutions to differentiate DataPath in their primary SEG’s Perspective: market of Aerospace and Defense. Equally The service oriented architecture (SOA) platform important to ILC’s strong relationships with the continues to fuel software M&A activity. This time Army, Navy and FEMA, is ILC’s high margin it’s BEA, a leading provider of application server software portfolio. On top of the purchase price, software, acquiring Fuego, a profitable and DataPath has agreed to retire $5 million in ILC growing business process management provider debt, bringing the enterprise value of ILC to for SOA environments. The acquisition will approximately $26 million. provide key SOA technology for BEA in its fight against key competitors Oracle, IBM and Rocket Software acquires Seagull Software Microsoft to win large distributed computing (Euronext: SEAGU) Category: IT Asset Management Software contracts while Fuego will leverage BEA’s EV resources against its main rivals Lombardi, Purchase Price: $53,400,000 Revenue: $29,846,000 Pegasystems and Savvion. This is BEA’s sixth EV acquisition since 2005, three of which aimed at Revenue Multiple: 1.8x bolstering its SOA offering. Companies with a Payment Terms: Cash stated focus on SOA management, governance or integration have commanded a premium valuation SEG’s Perspective: in 1Q06. While BEA’s valuation for Fuego is Privately held Rocket Software, developer of steep, both Mercury Interactive (Systinet 4.6x* enterprise software including network TTM revenue) and Progress Software (Actional management and security solutions, acquires for 4.5x*) paid well above the software industry’s Seagull, developer of technology that transforms median valuation to gain SOA expertise. legacy applications into SOA-compliant web *: Estimates services. The deal helps Rocket expand its TTM: Trailing Twelve Month breadth of products while providing better penetration into Europe. Seagull had been performing well, increasing license revenue 15% in the six months ending in October compared to the same period a year ago. Seagull will be Rocket’s third acquisition in 2006 and follows its $35 million acquisition of ASTRAC in June 2005. The purchase price represents a 110% premium to Seagull’s closing stock price prior to acquisition.

ERP, Manufacturing, Asset Management & Related Software

ERP, MANUFACTURING & ASSET MANAGEMENT M&A TRANSACTIONS

Revenue Acquirer Seller Purchase Price Seller Revenue Multiple Description IBM Corporation MRO Software $740,000,000 $222,100,000 3.3x Asset Management Infor Global Solutions Datastream Systems $205,097,000 $96,800,000 2.1x Asset Management Infor Global Solutions SSA Global $1,356,000,000 $746,900,000 1.8x ERP The Sage Group plc Baurer $8,528,000 $8,528,000 1.0x ERP Vista Equity Partners Indus International $240,000,000 $127,300,000 1.9x Asset Management * Revenue Estimate REPRESENTATIVE CATEGORY TRANSACTIONS

Infor Global Solutions acquires Datastream Infor Global Solutions acquires SSA Global (Pink Sheets: DSTM) (NASDAQ: SSAG) Category: Asset Mangagement Software Category: Manufacturing Enterprise Resource Purchase Price: $147,037,000EV Planning Software EV Seller Revenue: $101,620,000 Purchase Price: $1,436,000,000 EBITDA: $12,460,000 Seller Revenue: $746,900,000 EV Seller EBITDA: $126,600,000 Revenue Multiple: 1.4x EV EV Revenue Multiple: 1.9x EBITDA Multiple: 11.8x EV Payment Terms: Cash EBITDA Multiple: 11.3x Payment Terms: Cash SEG’s Perspective: Venture capital backed Infor (formerly Agilisys), SEG’s Perspective: provider of enterprise software primarily to the Infor continues its consolidation of the manufacturing vertical, acquires Datastream, a manufacturing vertical, this time acquiring rival developer of software that helps manage capital SSA Global, provider of enterprise resource assets such as factories, truck fleets and planning software. The combined company will machinery. Infor and its primary investor Golden boast $1.6 billion in revenue, 37,000 customers Gate Capital have been on an acquisition spree in and be the third largest ERP provider behind SAP the manufacturing vertical where software and Oracle. For SSA, the acquisition marks the consolidation has been most visible. With public end to a tumultuous existence that started with its market valuations for manufacturing software founding in 1981, a peak public market providers well below the overall industry, Infor has capitalization of $1.4 billion in 1995, a delisting been able to acquire customers on a relatively and bankruptcy in 1999, a private equity buyout cheap basis. Since 2005, Infor and Golden Gate for $52 million and subsequent reorganization in have acquired five profitable software businesses, 2000, a reentrance into the public markets at a most notably Mapics (1.9x EV) and GEAC (1.8x EV), valuation of $716 million in 2005 and finally a to gain customers and scale. As for Datastream, purchase price which represents a 25% premium the purchase price represents a modest 14% to its closing stock price prior to announcement. premium to its pre-announced closing share price. SSA is the fourth public company Infor has taken Datastream’s long-term investors should be private since 2004. pleased. In December of 2001 the company was offered $96.6 million EV from competitor MRO Software at a valuation of 1.1x EV TTM revenue.

Vista Equity Partners acquires Indus IBM (NYSE: IBM) acquires MRO (NASDAQ: (NASDAQ: IINT) MROI) Category: Enterprise Asset Management Software Category: Asset Management Software Purchase Price: $216,140,000EV Purchase Price: $585,900,000EV Seller Revenue: $127,300,000 Revenue: $222,100,000 Seller EBITDA: $12,070,000 EBITDA: $33,680,000 Revenue Multiple: 1.7xEV Revenue Multiple: 2.6xEV EBITDA Multiple: 17.9xEV EBITDA Multiple: 17.4xEV Payment Terms: Cash Payment Terms: Cash

SEG’s Perspective: SEG’s Perspective: Vista Equity Partners, a $1 billion private equity Serial shopper IBM acquires MRO, a leading firm, acquires Indus, one of the last remaining provider of physical and IT asset management large pure play enterprise asset management software. The acquisition of MRO, an applications (EAM) vendors. Vista will merge Indus with mobile company, represents a noteworthy departure by workforce management provider MDSI, a Vista IBM from its stated preference for infrastructure portfolio company acquired for $70 million in software companies. While MRO is best known 2005. According to AMR Research, Indus, for its physical asset management software, IBM Datastream1 (1.4x*) and MRO2 (2.6x*), all was attracted by MRO’s recent push into IT asset acquired in 2006, represented 50% of the total management and MRO’s fit with IBM’s Tivoli EAM market based on revenue. With EAM being product line. With large enterprise migrating rolled into larger software vendor’s suites (IBM, toward SOA, IT asset management has become a SAP, Oracle, Infor), the time was right for Indus to must have for many of the large software exit. Indus shareholders received a 53% premium companies. IBM rival HP has acquired heavily in over Indus’ closing share price prior to acquisition. this product category, acquiring Peregrine and Mercury Interactive to complement its OpenView platform. IBM’s purchase price represents a 19% premium to MRO’s closing stock price prior to announcement.

Human Resource & Workforce Management

HUMAN RESOURCE & WORKFORCE MANAGEMENT M&A TRANSACTIONS Revenue Acquirer Seller Purchase Price Seller Revenue Multiple Description Bond International Gowi Group* $17,436,000 $16,652,000 1.0x Human resource management Kenexa BrassRing* $115,000,000 $33,800,000 3.4x Recruitment and workforce management Kenexa Psychometric* $7,600,000 $5,000,000 1.5x Workforce assessment Kronos SmartTime $2,200,000 $3,000,000 0.7x Time and attendance Kronos Unicru* $150,000,000 $50,000,000 3.0x Hiring and workforce management SumTotal Systems MindSolve* $11,462,250 $7,000,000 1.6x Employee assessment * Revenue Estimate REPRESENTATIVE CATEGORY TRANSACTIONS

Kronos (NASDAQ: KRON) acquires Unicru SaaS providers Kenexa (NASDAQ: KNXA) and Category: Human Resources & Workforce Taleo (NASDAQ: TLEO). Management Purchase Price: $150,000,000 Bond International Software (London AIM: Revenue: $42,500,000 (estimate) BDI) acquires Gowi Group Revenue Multiple: 3.5x (estimate) Category: Human Resource Management Payment Terms: Cash Purchase Price: $17,436,000 Revenue: $16,652,000 SEG’s Perspective: Revenue Multiple: 1.0x Kronos, provider of workforce time and Payment Terms: Cash, Stock attendance solutions, acquires Unicru, developer of on-demand (SaaS) hiring management and SEG’s Perspective: workforce analytic solutions. While Kronos has In its largest acquisition to date, Bond Software, traditionally focused on labor budgeting, provider of human resource management forecasting, scheduling, and time and attendance, software, acquires Gowi, provider of HR, payroll Unicru will add new functionality for the front end and content management solutions primarily to of the workforce management lifecycle, which the public, publishing and education verticals. includes application selection and hiring. M&A in With fierce competition among HR software Human Resource and Workforce Management companies, Bond will be able to leverage Gowi’s over the last twelve months has been robust, domain expertise in key verticals. Gowi was garnering a 2.8x multiple of revenue. The profitable and had grown significantly through premium attributed to Unicru could be the result of acquisitions, two of which were made in 2006 its historical double digit revenue growth, prior to being acquired by Bond. The HR and combined with its SaaS delivery model, which has workforce management software sector was a garnered a premium across all software industry high flying M&A category in 2005 but cooled off in sectors. Unicru, combined with Kronos’ resources, 2006, posting a median M&A multiple of 1.6x. puts pressure on competing hiring management

Security Software

SECURITY M&A TRANSACTIONS

Revenue Acquirer Seller Purchase Price Seller Revenue Multiple Description Blue Coat Systems Permeo Technologies* $60,800,000 $3,600,000 16.9x Network security Check Point Software Protect Data* $582,530,000 $69,900,000 8.3x Mobile device security EMC RSA Security $2,100,000,000 $339,890,000 6.2x Identity management Entrust Technologies Business Signatures* $55,000,000 $7,000,000 7.9x Fraud detection Francisco Partners Management WatchGuard Technologies $146,497,500 $77,170,000 1.9x Network security IBM Internet Security Systems $1,226,960,000 $337,350,000 3.6x Network security McAfee Associates Citadel Security Software $60,000,000 $14,240,000 4.2x Network security Novell e-Security* $72,000,000 $15,000,000 4.8x Network security Protect Data Reflex Software* $23,720,606 $5,882,710 4.0x Network security Secure Computing CipherTrust* $273,600,000 $65,000,000 4.2x Network security SurfControl BlackSpider $37,879,003 $7,597,803 5.0x Email and content security VeriSign GeoTrust* $125,000,000 $31,250,000 4.0x Digital certificates Viisage Technology Iridian* $35,000,000 $8,100,000 4.3x Biometric software Websense PortAuthority* $90,000,000 $15,000,000 6.0x Information leak prevention * Revenue Estimate

REPRESENTATIVE CATEGORY TRANSACTIONS

Blue Coat (NASDAQ: BCSI) acquires Permeo Verisign (NASDAQ: VRSN) acquires GeoTrust Technlogies Category: Security Software Category: Security Software Purchase Price: $125,000,000 Purchase Price: $60,800,000 Seller Revenue: $31,250,000 (estimate) Seller Revenue: $4,100,000 (estimate) Revenue Multiple: 4.0x (estimate) Revenue Multiple: 15.0x (estimate) Payment Terms: Cash Payment Terms: Cash, Stock SEG’s Perspective: SEG’s Perspective: With its sixth acquisition in 2006, Verisign, Blue Coat, a fast growing network security provider of infrastructure security and services for appliance provider, acquires Perrmeo, an NEC the Internet and telecommunications networks, spinoff and provider of On Demand remote acquires GeoTrust, provider of digital certificates access and information security solutions. While for e-commerce transactions and internet identity Blue Coat has a strong presence at the gateway, verification. While most of Verisign’s 2006 it hasn’t had an endpoint solution capable of acquisitions had been product extensions to protecting enterprises with a large number of bolster its wireless market presence, GeoTrust mobile/remote workers outside the firewall. With was acquired to take out a competitor in the Permeo, Blue Coat has extended into endpoint enterprise SSL market where Verisign holds security and SSL VPN, enabling it to compete approximately 60% market share by revenue. In against Symantec after its recent acquisition of the first five months of 2006, Verisign has spent 1 Sygate and Whole Security and Cisco with its $561 million in cash on seven acquisitions ; a NAC initiative. Permeo may be having some significant amount even for a company generating seller’s remorse. After accepting Blue Coat stock $416 million in TTM EBITDA and with $769 million as the predominant deal consideration, investors on its balance sheet. brutally punished Blue Coat a month after the 1: GeoTrust ($125 million), m-Qube ($250 million), Kontiki ($62 million), 3united ($66 million), Snapcentric ($12 million), transaction for missing its revenue and earnings CallVision ($30 million), Affiliate ($16 million) projections. The original deal, valued upon announcement at $60.8 million, was worth $43.2 million at closing.

EMC (NYSE: EMC) acquires RSA Security WatchGuard has lagged far behind, posting (NASDAQ: RSAS) declines in revenue of 2.5% and 12.7%, Category: Security Software respectively, over the same period. Despite $73 Purchase Price: $1,881,900,000EV million in cash on its balance sheet, no debt, and Seller Revenue: $339,890,000 an array of acquisition targets in the security Seller EBITDA: $57,370,000 sector, WatchGuard opted to leave the public Revenue Multiple: 5.5x EV spotlight and chose Francisco as its white knight. EBITDA Multiple: 32.8x EV Francisco essentially funded 47% of the Payment Terms: Cash acquisition with cash from WatchGuard’s balance sheet, resulting in an effective valuation of 1.0x SEG’s Perspective: TTM on an enterprise value basis. WatchGuard EMC, the leading developer of storage and data passed on a 24% premium offered by Vector management hardware and software, acquires Capital to accept Francisco’s 14% premium. RSA Security, a well-known identity and access Francisco then shared the acquisition 50-50 with management security provider. With growing its bidding rival Vector Capital, a chain of events competition in EMC’s core storage hardware that likely befuddled WatchGuard’s shareholders. market from HP, Hitachi and CA, and the threat of a fully integrated Symantec/Veritas, EMC has Secure Computing (NASDAQ: SCUR) acquires relied on non-array based software (Vmware and CipherTrust content management) for both top line and bottom Category: Messaging Security Software line growth. RSA helps shore up EMC by adding Purchase Price: $263,600,000 state of the art authentication, access control and Seller Revenue: $65,000,000 (estimate) encryption solutions to EMC’s storage and Revenue Multiple: 4.2x (estimate) information management product suite. Goldman Payment Terms: Cash, Stock Sachs predicts 12% IT spending growth in the security sector in 2006, with identity and access SEG’s Perspective: management as the priority. With multiple bidders The security sector continues to consolidate, as at the table, RSA was not cheap, garnering 4.9x Secure Computing acquires CipherTrust, the CY07 revenue and 6.2x TTM revenue (equity leading provider of messaging security gateway value) - a premium even in the high flying security appliances. According to IDC, the secure content software sector where the median TTM revenue management appliance market, where multiple is 5.2x. RSA is EMC’s sixth acquisition in CipherTrust holds approximately 20% market 2006 and is the largest security software share1, is expected to grow to $1.7 billion by transaction since Juniper’s $4 billion (13.2x EV 2009, a 47% CAGR from 2004-20092. The TTM revenue) acquisition of Netscreen in 2004. addition of CipherTrust plugs a hole in Secure Computing’s unified threat management suite, Francisco Partners acquires WatchGuard enabling Secure to compete head-on in the Technologies (NASDAQ: WGRD) messaging security submarket against the likes of Category: Security Software Symantec and McAfee. CipherTrust shareholders Purchase Price: $82,870,000 EV received $185 million in cash, 10 million shares of Seller Revenue: $77,170,000 Secure stock (giving them 14% ownership of Seller EBITDA: $(5,900,000) Secure) and a $10 million seller note. Secure’s Revenue Multiple: 1.1x EV notable miss in achieving its 2Q06 financial Payment Terms: Cash targets, compounded with its dilutive CipherTrust acquisition, was enough to drive Secure’s stock SEG’s Perspective: price down 38%, reducing the purchase price by Francisco Partners, a technology-focused private $28.7 million. For CipherTrust investors ($42 equity firm with $5 billion under management, million in invested venture capital), the deal acquires WatchGuard Technologies, a provider of includes $10 million if certain financial targets are unified threat management software. Although met. 1. Based of 2004 Revenue CTOs and CIOs are clamoring for security IDC: Worldwide Secure Content Management 2005-2009 Forecast Update and 2004 solutions and WatchGuard’s publicly traded peers vendor shares: Spyware, Spam have grown revenue 12.4% over the last twelve months and 73.0% over the last thirty six months,

SurfControl (LSE: SRF) acquires BlackSpider McAfee (NYSE: MFE) acquires Citadel Security Category: Email and Content Filtering Software (OTC: CDSS) Purchase Price: $37,880,000 Category: Security Risk Management Software Revenue: $7,600,000 Purchase Price: $64,203,190EV Revenue Multiple: 5.0x Revenue: $14,240,000 Payment Terms: Cash Revenue Multiple: 4.5xEV Payment Terms: Cash SEG’s Perspective: SurfControl, provider of web filtering and policy SEG’s Perspective: management software, acquirers BlackSpider, an Security software behemoth McAfee acquires on-demand (SaaS) developer of email security Citadel Security Software, provider of security and content filtering software. BlackSpider brings compliance and vulnerability remediation 1,200 subscription based customers, 500,000 solutions. The acquisition falls in line with users and a 122% revenue growth rate over the McAfee’s goal of bolstering its regulatory last twelve months. Despite the impressive compliance, remediation and vulnerability recurring revenue growth rate, BlackSpider has assessment suite, a goal it has been working failed to post a pre-tax profit over the last two towards with acquisitions of Foundation and years. According to Gartner, the SaaS email Preventsys. Additionally, clients within the security market is one of the fastest growing healthcare and government verticals make-up a security segments and reached $200 million in significant portion of Citadel’s customer base, two 2005. With over $300 million in cash and no debt sectors that McAfee has targeted for growth. on its balance sheet, look for SurfControl’s main Citadel follows RSA Security (acquired by EMC, rival, Websense, to make a similar market 5.5x TTM(EV)) and Internet Security Systems extension acquisition. (acquired by IBM, 3.0x TTM(EV)) as the third publicly listed security company to be acquired in Viisage (NASDAQ: VSAQ) acquires Iridian the past three months. Technologies Category: Biometric Software Websense (NASDAQ: WBSN) acquires Purchase Price: $35,000,000 PortAuthority Seller Revenue: $8,100,000 (estimate) Category: Risk Management Software Revenue Multiple: 4.3x (estimate) Purchase Price: $90,000,000 Payment Terms: Cash Revenue: $15,000,000 (estimate) Revenue Multiple: 6.0x (estimate) SEG’s Perspective: Payment Terms: Cash In its third acquisition of 2006, Viisage Technologies, provider of biometric hardware and SEG’s Perspective: software identity solutions, acquires Iridian In its first acquisition as a public company, Technologies, developer of iris recognition Websense, provider of content filtering solutions, technology. With Iridian, Viisage adds iris acquires information leak prevention provider, recognition to its existing finger and face biometric PortAuthority. The 6.0x Websense paid is a offerings. Thus far in 2006, Viisage has used cash premium to overall software industry M&A (2.6x) and stock to acquire main rival Identix ($770 but provides Websense quick access to one of million, 9.2x) and SecuriMetrix ($30 million, 4.5x) the fastest growing segments of the IT security in order to compete against high flying Cogent, a market which IDC estimates will grow to $435 company with almost twice Viisage’s revenue and million in 2009, representing a 2007-2009 CAGR three times its market capitalization. The of 50%. This acquisition marks the first time acquisition was funded with proceeds from a $100 Websense has used its significant cash hoard, million investment made by L-1 Investment Management which includes over $300 million in cash and (L-1 owns 28% of Viisage) in late 2005. almost $90 million in operating cash flow, for M&A. The acquisition comes on the heals of Websense’s main rival’s, SurfControl, acquisition of BlackSpider (5.0x TTM Revenue) in the email filtering space.

Supply Chain Management Software

SUPPLY CHAIN MANAGEMENT M&A TRANSACTIONS

Revenue Acquirer Seller Purchase Price Seller Revenue Multiple Description Four Soft Transaxiom Holding* $10,000,000 $7,700,000 1.3x Transportation and logistics Illinois Tool Works Click Commerce $292,000,000 $74,000,000 3.9x Supply chain management JDA Software Group Manugistics $210,250,000 $176,200,000 1.2x Supply chain management Kewill Systems CSF* $5,506,594 $8,008,318 0.7x Freight logistics * Revenue Estimate REPRESENTATIVE CATEGORY TRANSACTIONS

JDA Software (NASDAQ: JDAS) acquires Illinois Tool Works (NYSE: ITW) acquires Click Manugistics Group (NASDAQ: MANU) Commerce (NASDAQ: CKCM) Category: Supply Chain Management Category: Supply Chain Management & Logisitcs Purchase Price: $248,380,000EV Software Seller Revenue: $176,192,000 Purchase Price: $285,720,000EV Seller EBITDA: $24,840,000 Revenue: $73,870,000 Revenue Multiple: 1.4x EV EBITDA: $24,640,000 EBITDA Multiple: 10.0x EV Revenue Multiple: 3.9xEV Payment Terms: Cash EBITDA Multiple: 11.6xEV Payment Terms: Cash SEG’s Perspective: JDA Software, provider of point of sale and supply SEG’s Perspective: chain management solutions primarily to the retail Illinois Tool Works (ITW), a Fortune 200 vertical, acquires Manugistics, developer of diversified manufacturing company with over $13 supply chain management and logistics software. billion in revenue, thinks way outside the box and Manugistics will help JDA expand out of the acquires its first software company, Click increasingly competitive retail vertical, where both Commerce, developer of supply and demand Oracle and SAP have made significant chain management software. ITW had to deviate investments, and into the manufacturing and from the valuation model1 it has used in the past government vertical. Manugistics does not come to acquire Click Commerce for 4.0x TTM revenue without problems. The company had a 63% and (Equity value). ITW is no stranger to acquisitions 27% decrease in license and total revenue, (ITW owns 700 companies and acquires 30 to 40 respectively, from FY2004 to FY2006 while losing companies a year) and is hoping to sell Click an aggregate $86.5 million from operations over Commerce’s products into its significant the same time period. Still, Manugistics was able manufacturing and warehousing installed base. to keep its recurring maintenance and support The supply chain management software category stable at around $86 million per year which should had the lowest M&A multiple over the last twelve help justify the small 4% premium JDA paid over months (1.2x equity value to revenue) making the Manugistics’ closing stock price prior to 27% premium ITW paid over Click Commerce’s announcement. JDA was rumored to be in closing stock price prior to announcement a competition with Oracle, SAP, Lawson, and a welcome outcome for Click Commerce private equity firm for Manugistics. shareholders. 1: Over the last twelve months ITW has spent $802 million on acquisitions for $786 million of revenue.

Financial Services Software

FINANCIAL SERVICES M&A TRANSACTIONS Revenue Acquirer Seller Purchase Price Seller Revenue Multiple Description BasWare Analyste* $32,687,000 $11,702,000 2.8x Online banking software Bloomberg Brainpower* $41,815,000 $8,363,000 5.0x Investment management software Bravura Solutions Rufus* $79,000,000 $71,000,000 1.1x Transfer management software CheckFree Carreker $206,000,000 $114,420,000 1.8x Transaction processing Financial Objects The Raft Group* $6,974,000 $14,069,000 0.5x Credit risk management Intuit Digital Insight $1,350,000,000 $238,110,000 5.7x Online banking software Intuit Electronic Clearing House $142,000,000 $75,310,000 1.9x Transaction processing The Carlyle Group Open Solutions $1,300,000,000 $282,780,000 4.6x Online banking software United Utilities 1st Group* $43,670,000 $17,400,000 2.5x Investment management software * Revenue Estimate REPRESENTATIVE CATEGORY TRANSACTIONS

Bloomberg acquires Brainpower (Frankfurt Intuit (NASDAQ: INTU) acquires Digital Insight Prime Standard: BPW) (NASDAQ: DGIN) Category: Financial Software Category: Customer Relationship Management Purchase Price: $40,382,000 Software (CRM) Seller Revenue: $8,208,000 Purchase Price: $1,261,000,000EV Seller EBITDA: ($1,062,000) Revenue: $238,110,000 Revenue Multiple: 4.9x EBITDA: $69,660,000 Payment Terms: Cash Revenue Multiple: 5.3x EV EBITDA Multiple: 18.1x EV SEG’s Perspective: Payment Terms: Cash In its very first acquisition, Bloomberg, a leading financial news and information company, acquires SEG’s Perspective: Switzerland based Brainpower, a provider of Intuit, a leader in accounting and finance solutions decision support software to investment to consumers and SME customers, acquires managers. Bloomberg will add Brainpower’s Digital Insight, a SaaS developer of financial technology to its existing analytic platform which software to small and medium sized banks and will help Bloomberg compete for international credit unions. Digital Insight is Intuit’s largest deal customers. Brainpower increased revenue 11% in to date and brings 1,800 credit unions and mid- FY2005 over FY2004 but lost $1.2 million in net sized banks into its fold. Combined, the financial income. Bloomberg paid a 20% premium to institutions served by Digital Insight have Brainpower’s closing stock price prior to approximately 38 million customers, of which only announcement. 20% bank online, providing significant growth opportunities, especially for its low cost SaaS based offering. Digital Insight had grown its trailing twelve months revenue 15.5% and had analyst projecting 11.3% growth for CY07 compared to CY06. Intuit, with $1 billion of cash on its balance sheet, no debt and approximately $556.6 million in TTM operating cash flow, will take on $1 billion in debt to finance the deal. Digital Insight shareholders will receive an 18% premium to their closing stock price prior to announcement.

Healthcare Software

HEALTHCARE M&A TRANSACTIONS Revenue Acquirer Seller Purchase Price Seller Revenue Multiple Description Allscript Healthcare Solutions A4 Health Systems* $272,000,000 $75,000,000 3.6x Practice management software Ascribe Barwick Systems* $3,492,000 $1,233,785 2.8x Medical equipment management Insight Venture Partners Netsmart Technologies $115,000,000 $57,810,000 2.0x Behavioral and public health software McKesson Per-Se Technologies $1,800,000,000 $486,300,000 3.7x Practice management software Nightingale Informatix Integrated Healthware* $6,000,000 $4,000,000 1.5x Practice management software Nuance Communications Dictaphone* $357,000,000 $75,000,000 4.8x Dictation and speech recognition software The Sage Group plc Emdeon Practice Services $565,000,000 $304,500,000 1.9x Practice management software The TriZetto Group QCSI* $133,000,000 $56,600,000 2.3x Healthcare insurance software WebMD Subimo* $60,000,000 $8,000,000 7.5x Online information management * Revenue Estimate REPRESENTATIVE CATEGORY TRANSACTIONS

Allscripts Healthcare Solutions (NASDAQ: The Sage Group (London: SGE) acquires MDRX) acquires A4 Health Systems Emdeon Practice Services (EPS) Category: Vertical Software (Healthcare) Category: Healthcare Management Software EV Purchase Price: $290,900,000 Purchase Price: $566,973,000 Seller Revenue: $74,500,000 (estimate) Revenue: $305,539,000 Seller EBITDA: $15,900,000 (estimate) EBITDA: $39,090,000 Revenue Multiple: 1.9x EV Revenue Multiple: 3.9x (estimate) EV EBITDA Multiple: 18.3x (estimate) EBITDA Multiple: 14.5x Payment Terms: Cash Payment Terms: Cash, Stock

SEG’s Perspective: SEG’s Perspective: The Sage Group, a global provider of accounting Allscripts, a provider of software and information and payroll software for small and mid-size solutions for physicians, acquires A4 Health, a businesses, acquires Emdeon Practice Services developer of practice management and electronic (formerly WebMD), a leading provider of health record solutions for small and medium size administrative and financial management software physician groups. Allscripts picks up a company for the healthcare market. With its third acquisition with a 27% CAGR (organic and acquisition) since in 2006, Sage significantly enhances its market 2001 and a 21% EBITDA margin. A4 penetration in the practice management arena, shareholders are likely thrilled. After being valued which is expected to grow to $8.9 billion by 2008, at approximately $12 million in 1999, the a 5.4% CAGR from 2005-2008. The acquisition struggling 30 year old A4 brought in new fits into Sage’s strategy of consolidating small to management that engineered its current success. mid-size enterprises (SME) by bringing over Since the beginning of 2005, more than 50 200,000 doctor practices, 96% of which have less healthcare software companies have been than 10 doctors. Equally important, Sage gains acquired, 11 of them for more than $100 million. domain expertise needed to compete against Among the more notable healthcare transactions larger players; GE, 3M, and Cerner; all laser were GE/IDX ($1.4 billion), Aetna/ActiveHealth focused on the SME practice management sector. ($400 million), Wolters Kluwer/NDC ($382 million) With 90% renewal rates and 35% recurring and Nuance/Dictaphone ($357 million). maintenance revenue, EPS provides reliable cash

flow and up-sell opportunities. Earlier this year, Sage sought to acquire Visma, a developer of ERP systems for small and mid-size businesses, but was outbid by private equity firm HG Capital.

Trizetto (NASDAQ: TZIX) acquires QCSI healthcare, Netsmart quietly produced stellar Category: Insurance Vertical Software financials. The company had been profitable for Purchase Price: $134,200,000EV 33 consecutive quarters, grew TTM revenue 85% Revenue: $56,600,000 with the help of four acquisitions over the last two EBITDA: $9,600,000 years and had analysts predicting 16% revenue Revenue Multiple: 2.4xEV growth along with 10% EPS growth for CY07 EBITDA Multiple: 14.0xEV compared to CY06. Still, the company failed to Payment Terms: Cash excite investors as a public company making it a prime leveraged buyout opportunity. Insight and SEG’s Perspective: Bessemer paid a modest 12% premium to Trizetto, developer of information technology Netsmart’s closing stock price prior to solutions to healthcare insurance payers, acquires announcement. QCSI, a twelve year old provider of SOA healthcare insurance claims management McKesson (NYSE: MCK) acquires Per-Se software. Together the combined company will (NASDAQ: PSTI) touch the claims of 115 million health plan Category: Healthcare Vertical Software members. According to Frost & Sullivan, the Purchase Price: $1,800,000,000EV healthcare insurance market is consolidating with Revenue: $541,170,000 six companies responsible for 80% of the U.S. EBITDA: $106,730,000 billing and claims management systems market Revenue Multiple: 3.3xEV (payers only) which is supposed to reach $1.8 EBITDA Multiple: 16.9xEV billion in 2006 and grow at a 4.0% CAGR (2005- Payment Terms: Cash 2011). In 2005, QCSI acquired CDHC1 specialist MyHealthBank, a growing market that Trizetto SEG’s Perspective: sites as a major growth opportunity. QCSI could McKesson, one of the largest healthcare services earn an extra $12 million provided certain companies, acquires Per-Se, developer of financial milestones are met. financial and administrative healthcare solutions 1: Consumer Directed Healthcare for hospitals (29% of revenue), physicians (51% of revenue) and retail pharmacies (20% of Insight Venture Partners acquires Netsmart revenue). Attractive to McKesson was Per-Se’s (NASDAQ: NTST) customer base which includes approximately Category: Vertical – Healthcare Software EV 100,000 physicians in small practices, 17,000 Purchase Price: $108,750,000 hospital-affiliated physicians, 3,000 hospitals and Revenue: $57,810,000 50,000 retail pharmacies. Per-Se’s virtual EBITDA: $9,130,000 monopoly on pharmacy claims clearing (90% of Revenue Multiple: 1.9x EV EV U.S. retail pharmacies are connected) will be an EBITDA Multiple: 11.9x attractive tool in managing McKesson’s drug Payment Terms: Cash distribution customers. Per-Se had grown TTM revenue 46.8%, in large part due to its pharmacy SEG’s Perspective: business acquired from NDC Health in January, Insight Venture Partners, an investment firm with and was expected to grow revenue 9.2% in CY07 a $2 billion technology fund, along with Bessemer compared to CY06. The deal represents a 14.5% Venture partners, acquires Netsmart, developer of premium to Per-Se’s last closing stock price. solutions for the behavioral and public health care fields. While serving a niche market within

MISCELLANEOUS TRANSACTIONS

Verisign (NASDAQ: VRSN) acquires CallVision WebSideStory (NASDAQ: WSSI) acquires Category: Billing & Service Provisioning Software Visual Sciences Purchase Price: $30,000,000 Category: Data Analysis & Visualization Software Seller Revenue: $6,600,000 (estimate) Purchase Price: $54,300,000EV Revenue Multiple: 4.6x (estimate) Seller Revenue: $8,784,160 Payment Terms: Cash Net (loss) Income: $(131,951) Revenue Multiple: 6.2xEV SEG’s Perspective: Payment Terms: Cash, Stock Verisign, a provider of security and infrastructure services for internet and telecommunications SEG’s Perspective: networks, acquires CallVision, a provider of online WebSideStory (WSSI), a web analytics and digital analysis applications. CallVision clients (T-Mobile, marketing vendor, acquires Visual Sciences, Qwest, TelstraClear) use its applications to derive provider of streaming data analysis and business and customer intelligence from billing visualization software. Where WSSI is focused on information. CallVision’s applications will be web analytics, Visual Sciences provides multi- incorporated into Verisign’s Wireless Commerce channel data analytics which extracts data from Suite. Verisign’s communications and commerce such sources as call centers, IVR systems and group, as opposed to its high flying Internet electronic mail systems. Expanding beyond the Services Group (28% growth YOY), had roughly Web will help WSSI assuage investor fears that flat revenue growth in 2005 (down 5% YOY). Google’s free web analytic software (Urchin CallVision had been an active acquirer itself, acquisition in 1Q05) will preempt WSSI’s core buying competitor OneLink in 2003 and in 2004 offering. With little product overlap and an OmniChoice, a provider of analytic applications. average sale of $200 thousand to mostly large customers (compared to WSSI’s approximate Amdocs Limited (NYSE: DOX) acquires QPass average sale of $70 thousand), WSSI will benefit Category: Billing & Service Provisioning Software from lucrative cross-sell opportunities. These Purchase Price: $275,000,000 factors, combined with Visual Sciences 40% Seller Revenue: $15,100,000 (estimate) trailing revenue growth, made Visual Sciences a Revenue Multiple: 18.2x (estimate) compelling acquisition candidate. Since its IPO in Payment Terms: Cash September of 2004, WSSI has used $97 million of cash and stock to acquire two companies (Atomz SEG’s Perspective: in 1Q05). Amdocs, a leading provider of operation support software to telecom providers, acquires QPass, a Oracle (NASDAQ: ORCL) acquires MetaSolv provider of mobile commerce solutions to content (NASDAQ: MSLV) and service providers. QPass’ software facilitates Category: Telecommunications Vertical Software the sale of mobile content (ring tones, games, Purchase Price: $161,240,000EV graphics and video) from providers to end users, Revenue: $95,030,000 via carriers, and is Amdocs’ initial foray into the EBITDA: $5,650,000 high growth wireless content management and Revenue Multiple: 1.7xEV delivery market. Amdocs paid approximately 4.5x EBITDA Multiple: 28.5xEV forward twelve months revenues to stay relevant Payment Terms: Cash with its large installed base of carrier customers (Cingular, Sprint, etc.) that need solutions to SEG’s Perspective: manage the burgeoning demand for new media Database and applications software behemoth products. In March, Verisign, which has made Oracle continues its strategy of obtaining vertical significant investments in its mobile content market expertise by acquiring MetaSolv Software, platform, acquired QPass competitor, m-Cube, for a provider of operations support systems (OSS) $250 million (estimated 3.0x TTM Revenue). software for the telecommunications and media industry. Oracle can now offer end-to-end telecommunications software incorporating OSS,

CRM, ERP and revenue management. OSS is the VoIP lines in commercial service. Netcentrex, fastest growing IT domain in the communications which was expecting revenue of $60 million in industry, and represented a $1.6 billion market in 2006, grew revenue 54% in FY2005 compared to 2006. Oracle paid a 23% premium to MetaSolv’s FY2004 and had been profitable over the same pre-announcement closing stock price. MetaSolv time period. Netcentrex opted for a $164 million follows HotSip AB, Portal Software and Net4Call, purchase1 by Comverse in lieu of a planned IPO as Oracle’s 4th telecommunications acquisition in after its main competitor, Cirpak, had been 2006. acquired by Thomson for approximately $118 million in 2005. Netcentrex had received $34 SkillSoft (NASDAQ: SKIL) acquires Thomson million in venture capital since its inception in NETg 1998. Category: e-Learning Software 1: Purchase price does not include a potential $16 million earnout which is Purchase Price: $285,000,000 subject to certain financial targets being met. Revenue: $161,000,000 (estimate) Revenue Multiple: 1.8x (estimate) Corel (NASDAQ: CREL) acquires Intervideo Payment Terms: Cash (NASDAQ: IVII) Category: Digital Video & Audio Software EV SEG’s Perspective: Purchase Price: $91,120,000 SkillSoft, developer of e-learning software for Revenue: $120,760,000 business and information technology EBITDA: $12,500,000 Revenue Multiple: 0.8x EV professionals, acquires NETg, one of its main EV competitors and a subsidiary of The Thomson EBITDA Multiple: 7.3x Corporation. Skillsoft will finance approximately Payment Terms: Cash $180 million of the purchase price with debt, a significant amount considering Skillsoft has $103 SEG’s Perspective: million in cash and generates less than $50 Fresh off its April IPO, Corel, provider of graphics million in TTM EBITDA. For Thomson, NETg was and publishing software, acquires Intervideo, part of its $2.3 billion revenue generating learning developer of digital video and audio software. business segment, which the company put up for Financially, the deal was too sweet for Corel to sale in October and is Thomson’s worst pass up. Intervideo was generating positive performing segment from both an EBITDA margin EBITDA and had grown revenue 37% over the perspective and revenue growth perspective. last twelve months (partly due to its Ulead Considering Thomson purchased NETg from acquisition) and was expected to grow another Prometric for $775 million in 2000, the $285 17% from FY06 to FY07. Additionally, 54% of million sale to Skillsoft must be disappointing. Corel’s purchase price was funded with cash on Intervideo’s balance sheet. Strategically, Comverse (NASDAQ: CMVT) acquires Intervideo diversifies Corel’s product set into the Netcentrex highly opportune digital media software market Category: VoIP Software Purchase Price: $164,000,000 and away from its core office software market, Seller Revenue: $50,000,000 (estimate) where Microsoft Office and Apple’s iWork have Revenue Multiple: 3.3x (estimate) left Corel far behind. Corel is looking to excite Payment Terms: Cash investors after a lackluster re-entry into the public markets. Prior to its Intervideo acquisition, Corel’s SEG’s Perspective: stock price was trading 38% below that of its IPO Comverse Technology, provider of price. communications systems and software used by phone carriers for network-based communication and billing services, acquires Paris based Netcentrex, developer of software based voice- video-data-over IP solutions to the consumer and enterprise markets. With the acquisition, Comverse gains exposure into the high growth VoIP market where Netcentrex boasts 2.8 million

Miranda Technologies (TSX: MT) acquires size. Mercom shareholders stand to earn an VertigoXmedia (broadcast division) additional $17.5 million in future earnout Category: Graphics Software assuming certain financial targets are met. Purchase Price: $9,900,000 Seller Revenue: $4,800,000 (estimate) Oracle (NASDAQ: ORCL) acquires Portal Revenue Multiple: 2.1x (estimate) Software (OTCBB: PRSF.PK) Payment Terms: Cash Category: Billing & Service Provisioning Software Purchase Price: $220,000,000 SEG’s Perspective: Seller Revenue: $104,720,000 Miranda Technologies, developer of hardware Seller EBITDA: ($58,360,000) and software for the television broadcast industry, Revenue Multiple: 2.1x acquires VertigoXmedia’s broadcast division Payment Terms: Cash (VXM) which provides graphic automation solutions enabling broadcasters to automatically SEG’s Perspective: capture and control live data and create real-time, In its fourth acquisition of 2006, Oracle acquires Portal Software, provider of billing systems for the data-driven graphics. Over the last three years, communications and media vertical. Portal VXM has experienced a 20% annual growth rate Software supplies packaged applications that can as high definition television, the web and Mobile be used by media companies to bill for services TV allow broadcasters to create graphics across such as broadband, standard and VOIP calls and multiple platforms. VXM will enable Miranda to wireless connectivity. The acquisition is consistent deliver a more complete graphics workflow with Oracle’s strategy of acquiring vertical market solution to broadcasters that are taking advantage expertise (Retek, ProfitLogic, i-flex, g-log) to of the large-scale HD upgrade cycle. enhance its application business and complement VertigoXMedia’s digital signage division will be its database business. Despite some Portal 1 spun-off into a new entity independent of Miranda, shareholder dissent the 17% premium Oracle prior to acquisition. VXM is Miranda’s first paid is a good outcome for a company that hasn’t posted an operating profit in five years. acquisition since it raised approximately $39 1: 17% premium is calculated using Portal Software’s closing stock price prior to million in a December 2005 IPO. acquisition announcement

Verint Systems (NASDAQ: VRNT) acquires Trimble Navigation (NASDAQ: TRMB) acquires Mercom Systems @Road (NASDAQ: ARDI) Category: Contact Center Software Category: Mobile Resource Management (MRM) Purchase Price: $35,000,000 Purchase Price: $401,530,000EV Seller Revenue: $15,800,000 (estimate) Revenue: $100,370,000 Revenue Multiple: 2.2x (estimate) EBITDA: $1,510,000 Payment Terms: Cash Revenue Multiple: 4.0x EV EBITDA Multiple: 265.9x EV SEG’s Perspective: Payment Terms: Cash, Stock Verint Systems, a provider of analytic software for security and business intelligence, acquires SEG’s Perspective: Mercom systems, a developer of interaction Trimble, developer of GPS navigation systems recording and performance evaluation solutions and software, acquires @Road, provider of fleet for small and mid-size call centers. The software tracking, field service management, and field market for large call centers has matured, leading asset management solutions. @Road was highly vendors to the relatively unpenetrated, highly strategic to Trimble, complementing Trimble’s opportune mid-market. Mercom brings Verint existing GPS technology platform with best of 6,000 worldwide installations and a stable of well breed MRM solutions and expanding Trimble’s established VARs and channel partners. Verint, vertical presence from construction, supply, direct and its key rivals Nice and Witness, together store delivery, public safety and utilities into account for approximately 82% of the $1.03 billion telecommunications, cable, field service, call center software market, which made Mercom transportation, facilities management and public one of the few remaining players of significant works where @Road is strong. According to Frost & Sullivan the MRM market is projected to grow at

a four year CAGR of 21% to $2.6 billion by 2010. @Road had increased TTM revenue 17% and had analysts projecting 26% revenue growth for CY07 compared to CY06. Trimble paid a 12% premium over @Road’s closing stock price prior to announcement.

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This report was prepared by Software Equity Group, L.L.C. (SEG), a mergers and acquisitions advisory firm and equity investor serving the software and technology sectors. SEG is solely responsible for its content. This material is based on data obtained from sources we deem to be reliable; it is not guaranteed as to its accuracy and does not purport to be complete. This information is not to be used as the primary basis of investment decisions. For more, please visit www.softwareequity.com, or phone (858) 509-2800.