Software Equity Report 2003

SOFTWARE EQUITY REPORT 2003

A COMPREHENSIVE ANALYSIS OF SOFTWARE INDUSTRY VENTURE CAPITAL, INITIAL PUBLIC OFFERINGS AND MERGERS AND ACQUISITIONS

Kenneth Bender Managing Director [email protected]

Bryan Warren Senior Vice President [email protected]

Larry Spelhaug Senior Vice President [email protected]

Allen Cinzori Vice President [email protected]

David Legacki Analyst [email protected]

Software Equity Group, L.L.C. 12220 El Camino Real, Suite 320 San Diego, CA 92130 www.softwareequity.com (858) 509-2800

Software Equity Group, L.L.C.

ECONOMY Figure 1: U.S. Gross Domestic Product 10% The U.S. economy gained considerable momentum 8.2% 8% in 2003. Most notable was a significant improvement in Gross Domestic Product (GDP), a 6% 4.7% leading economic indicator, which reached its 4.0% 4% 3.4% 3.1% highest level since 1984. While third quarter GDP 2.0% 1.9% 2.0% grew at the sizzling rate of 8.2%, the rate 2% 1.3% decelerated to a more sustainable 4.0% in Q4. For 0% -0.2% the year, GDP grew 3.1%, as compared to 2.2% in -0.6% 2002 and 0.5% in 2001 (Figure 1). Growth GDP Real -2% -1.3% -4% Key contributors to the upturn in GDP were a 20012002 2003 significant increase in business investments and Source: Commerce Department strong consumer spending, both of which surged in the third quarter. Business investments in PUBLIC MARKETS equipment and software jumped 17.6% in Q3 and 10.0% in Q4. A weaker dollar and an improving U.S. markets ended a torrid year on yet another global economy also drove the manufacturing upswing in Q4, with the Dow, Nasdaq and S&P 500 sector, as demand for U.S. exports grew 19.1%, a climbing 13%, 12% and 12%. For the year, these seven year high, offsetting a 11.3% rise in imports. same indices were up 25%, 49% and 26% (Figure Consumers, who single-handedly kept the economy 2). As a group, public software companies outpaced afloat in 2001 and 2002, continued to capitalize on the broader market. For the year, the average decade low interest rates. market value of the SEG-SEVENTY, our index of public software companies, climbed 57%. The The Conference Board's Composite Index of median market cap of the SEG-SEVENTY grew 78%. Leading Economic Indicators, an important short- Other Q4 market indices for the SEG- SEVENTY term forecasting tool, improved steadily the last compared to the prior quarter: three quarters of 2003, reaching the highest level in its history by year-end. Positive contributors • Median revenue multiple for the group grew included building permits, consumer optimism, new 11% to 2.8 times trailing-twelve-month (TTM) manufacturing orders for both non-defense and revenue. consumer goods, and stock market performance. • Median enterprise value (adding debt and deducting cash and cash equivalents) to While the economic indicators were largely positive, revenue multiple increased 26% to 2.1x TTM. there remained reason for caution. The number of • Median P/E ratio climbed 11% to 36.9x. unemployed was 8.4 million in December, 5.7% of • Median multiple of EBITDA was 25.2x, up 20%. the job force. While the number of jobless was down • Average operating profit margin before from the recent high in June 2003, the depreciation, interest and taxes declined to unemployment rate remained stubbornly high and 15.2% from 16.7% in Q3. reflected a drop-off in job seekers. The civilian labor • Average revenue multiple for the SEG-SEVENTY force fell by 309,000 in December to 146.9 million; was 3.6x (up from 3.1x in the prior period), and the labor force participation rate decreased over the the corresponding confidence interval at 80% month to 66.0%. was 3.3x to 3.9x.

Entering the new year, consensus estimates put As expected, the markets continued to 2004 GDP at a sustained economic expansion rate disproportionately reward the industry’s largest of 4.5%, with business investments leading players – those public software companies with the consumer spending. Consumer spending is greatest revenue. Similar to last quarter, the 20 expected to flatten or decline slightly as home sales software companies in the SEG-SEVENTY with weaken, interest rates rise and consumers begin to revenue between $200 million and $1 billion had a feel the impact of increased household debt and 2.8x median revenue multiple in Q4, as compared reduced savings. to 2.6x for companies with revenues below $200

Figure 2: Major Market Indices Year-to-Date 50%

40%

30%

20%

10% Percent Change Percent 0%

-10%

-20% Jan. Feb. Mar. Apr. May Jun. Jul. Aug. Sep. Oct. Nov. Dec.

S&P 500 Nasdaq Dow million. Similarly, companies with revenue in excess Figure 3: SEG-Seventy Annual Revenue Growth of $1 billion recorded the highest median revenue (Year-over-Year) multiple for the quarter, 5.0x. On an earnings basis, companies with revenue greater than $200 million 80% had a median P/E of more than 40x, compared with 60% 28x for those with revenue less than $200 million. 40%

Public software company performance, however, 20% Median: -2.6% did not keep track with escalating market caps and 0% higher PEs. Median revenue of the SEG-SEVENTY actually declined 2.6% in 2003 from 2002 (Figure -20% 3). Earnings of the group improved however, with -40% the median growing 6.8% (Figure 4). Given the belt tightening that has occurred over the past three -60%

years, top line growth will likely be required to % Change Growth Revenue YOY -80% generate earnings sufficient to justify current market valuations.

Prospects for software company revenue growth Figure 4: SEG-Seventy Annual Earnings Growth appear better in 2004 than anytime in the past three Year-over-Year years, but opinions vary. Both Gartner Group and 300% IDC project a 5.0% increase in IT spending, but Goldman Sachs’ December survey of IT executives 200% portends only a 1.5% increase in IT budgets (down from a 2.3% estimate in August, and a 3.5% 100% estimate in June). Gartner also projects that IT Median: 6.8% spending will be greatest in the government and 0% health care sectors during the next five years, each averaging in excess of 12% compounded annual -100% growth. The financial services, education, manufacturing and communications sectors are -200% each projected to increase IT spending by more

than 6.5% over the same five year period. YOY Earnings Growth % Change -300%

Figure 5: SEG- Seventy Median Multiples by Sector 5.00x

4.50x

4.00x

3.50x

3.00x Median Revenue Multiple Revenue Median 2.50x

2.00x

1.50x

1.00x Q1 2003 Q2 2003 Q3 2003 Q4 2003

Software Industry Business Intelligence CAD/CAE Customer Relationship Management Developer Tools EAI Enterprise Resource Planning Information Management Security Supply Chain Management

The market valuations of public software companies Figure 6: U.S. IPO Activity, Annual continued to vary widely according to principal 600 product focus, although virtually all categories saw 500 473 quarter-over-quarter and year-over-year increases 400 340 (Figure 5). SEG-SEVENTY median revenue multiples 245 by principal product category for Q4 were: 300 215 200 . 83 81 73 • Business Intelligence (BI): 4.2x (up from 3.4x in IPOs of No. 100 41 24 29 Q3) 0 • CAD/CAE: 2.8x (up from 2.2x) 1999 2000 2001 2002 2003 • Customer Relationship Management (CRM): U.S. IPOs U.S. VC Backed IPOs 2.0x (up from 1.5x) Source: Thomson Financial • Developer Tools (DT): 2.5x (down from 3.2x) • Enterprise Application Integration (EAI): 2.6x Figure 7: U.S. IPO Activity, 2003 (up from 2.5x) 60 • Enterprise Resource Planning (ERP): 3.4x (up 46 from 2.4x) 50 • Information / Data Management (IM): 3.0x (up 40 from 2.5x) 30 19 17 20 . • Security: 4.5x (up from 3.6x) 9 No.of IPOs • Supply Chain Management (SCM): 2.6x (up 10 3 1 5 2 from 1.8x) 0 Q1 2003 Q2 2003 Q3 2003 Q4 2003 As in Q3, publicly traded security software developers boasted the highest market values, with U.S. IPOs U.S. VC Backed IPOs Source: Thomson Financial median Q4 revenue multiples increasing an additional 24% over the prior quarter. Business aggregate $2.3 billion (15% of overall funds raised). intelligence software companies posted a 25% Perhaps signaling a trend, foreign issuers garnered increase in the quarter, even though Cognos guided more than 40% of 2003 IPO proceeds. The financial down next quarter expectations after beating services sector led the IPO market with the largest analyst expectations. Public software companies number of offerings at sixteen. focused primarily on enterprise resource planning (ERP) and customer relationship management Eight software companies went public in 2003, with (CRM) posted dramatic gains for the year of 227% seven coming to market in the second half of the and 87%, respectively. The developer tools year (Table 1). By year-end, these software segment, which has held much of its value in the companies were up a group average of 21% from past two years was hardest hit in the quarter, their initial offering price. This contrasts sharply with declining in market value 21.6% to 2.5x. 2002’s five software IPOs which declined an average 26% in price from date of offering to year- INITIAL PUBLIC OFFERINGS end.

The market for initial public offerings (IPOs) iPayment, a provider of credit/debit card-based declined in 2003 relative to 2002. Only 73 deals payment processing services to small merchants, priced, raising an aggregate $15 billion, making climbed 114% from its offering price. Not all 2003 2003 one of the slowest years on record (Figure 6). IPOs fared as well. By year-end, DVD software However 89% of these IPOs, and 92% of all developer Intervideo had declined 21% and online proceeds, came in the third and fourth quarters. 19 travel agency Orbitz was down 10%. Perhaps most companies made it to market in Q3 and 42 were curiously, Kintera, an ASP targeted at non-profit listed in Q4, suggesting there may finally be light at organizations, was up 58% from its offering price. the end of the IPO tunnel in 2004 (Figure 7). Kintera’s IPO supported more than a $225 million market cap for a company with less than $6 million Venture-backed IPOs accounted for 29 of the in revenue, in an underwriting that harkened back to offerings (40% of total activity) and raised an the “good old days” of 1999.

Table 1: 2003 U.S. Software IPO Activity Issue Offering Year-end Percent Company Date Price Stock Price* Change EV/Rev. EV/EBITDA iPayment 5/17/03 $16.00 $34.16 113.5% 2.7x 20.7x InterVideo 7/17/03 $14.00 $11.03 -21.2% 1.5x 6.9x DigitalNet Holdings 10/8/03 $17.00 $18.51 8.9% 1.5x 14.6x Callidus Software 11/19/03 $14.00 $17.12 22.3% 5.3x -150.1x Open Solutions 11/26/03 $17.00 $17.60 3.5% 5.1x 47.7x Webzen 12/16/03 $11.17 $10.31 -7.7% 9.4x 15.2x Orbitz 12/17/03 $26.00 $23.18 -10.8% 3.8x 61.3x Kintera 12/19/03 $7.00 $11.03 57.6% 41.5x -28.0x

* 5 day average (EV): Enterprise Value

Four of the eight “software” companies categorized Figure 8: U.S. Venture Capital Investment as 2003 IPOs primarily sell services rather than 800 $5B traditional “shrink-wrapped” or packaged software. $4.9B

$4.7B Dollar's Invested These “software as a service” providers, iPayment, $4.4B 750 $4.2B DigitalNet, Orbitz and Kintera, performed well as a group. Orbitz was the only company posting 701 700 685 $3B negative returns at year-end. Callidus, a provider of 679 incentive management software, and Open 650 Solutions, a provider of software and services for 650 financial institutions, were the only traditional Number of Investments of Number enterprise software companies to come to market in 600 $0B the period. Given the relatively strong level of Q1 Q2 Q3 Q4 activity in Q3 and Q4, and the continued strength of the overall equity markets, 2004 looks promising for Number of Deals Dollar's Invested software IPOs. Source: PWC Moneytree Communications ($45 million), Vonage ($35 PRIVATE EQUITY million), Alereon ($31.5 million) and Egenera ($30 million). Overall, U.S. venture capital investments continued to decline in 2003, but apparently found bottom. By comparison, two adjacent industry sectors, With $18.2 billion invested in 2,715 companies, the Biotechnology and Medical Device companies number of companies funded in 2003 dropped by attracted a combined $4.89 billion, or 27% of all 12% (from 3,035) and dollars invested fell 18% venture capital. 69% of that amount went to biotech, (from $21.4 billion) in 2002. The average investment with the balance invested primarily into medical also fell by 5%, to $6.7 million. On a positive note, devices. VC investments in telecommunications, Q4 showed some reason for optimism, with $4.9 networking, and semiconductors continued to billion invested in 679 entities. (Figure 8). decline in 2003, dropping to 11%, 9% and 6% of total investments. Software, once again, continued to lead all other industry sectors in attracting VC investment, with In terms of the life cycle stage on companies 718 companies funded in 2003 (20% of the total). funded, 2003 mirrored 2002 for much of the year, Relative to 2002, the number of software industry but hinted at change by year-end. VCs continued to VC investments declined 17%. In dollar terms, $3.6 flock to relative safety, investing $4.7 billion in later billion was invested in software businesses in 2003, stage companies (26% of total) in 2003, the highest compared to $4.5 billion in 2002 and $8.8 billion in percentage for that category in the past 20 years 2001. However Q4 showed a 13% improvement according to MoneyTree (Figure 9). The average over Q3, with 145 software companies financed. investment for later stage companies was $9.4 Notable IT fundings included Grande million. However, VC funding of less mature, expansion stage entities declined 22% in value from

Figure 9: VC Dollars Invested by Stage, 2003 On a bright note, VCs raised $5.2 billion from limited $354M partners in Q4, almost half the $10.8 billion raised $3,322M for all of 2003. According to industry tracker $4,656M VentureOne, nearly half the VCs surveyed said they expected to raise more money from limited partners in 2004.

MERGERS & ACQUISITIONS: THE TRENDS

What drove this deal? It’s a question we ask every day as we review the most recent software industry $9,854M transactions. To understand trends in software M&A, it’s essential to understand buyer motives, Startup/Seed Early Stage which shift over time to reflect fluctuations in the Expansion Later Stage economy, changes in IT spending and new technologies which presage widespread market Source: PWC Moneytree adoption. As those motives shift, so do the types of 2002, with $9.9 billion invested in 1,339 companies. companies buyers target, and the prices they’ll pay. Early stage company financing followed suit, What were the deal drivers in 2003, and how did declining 20% from 2002, to $3.3 billion. Funding they impact valuations and purchase prices? How for the youngest, seed stage entities leveled off at did buyer thinking evolve in 2003, and what does it $354 million for the year, after plummeting 800% portend for 2004? since 2000 (Figure 10). Viewed on a quarter-by- quarter basis, however, seed stage financing was A deal-by-deal analysis of transaction analyzed in erratic throughout the year, with Q4 declining 53% 1H03 reveals fully 65% were driven by buyers, from Q3’s surprising $126 million windfall. primarily public software companies, seeking small and mid-cap companies with strong financials, a Across all industries, 624 companies received first- suite of products, technology/market leadership and time funding totaling $3.4 billion, a decline of 27% a significant installed base. Most were unwilling to from 2002. However Q4 first-time financings were stray far from home. Buyers sought an almost 35% greater in amount than in Q3. Software was perfect strategic fit, acquiring companies which the leading sector for first-time financings, with 156 targeted the same market with highly companies receiving $691 million. The closest complementary products and compatible competing segment was biotech, with 71 companies technology. Examples abound, including JDA’s raising $462 million. purchase of Vista Software for 1.0 times trailing- twelve-month (TTM) revenue, Serena Software’s Figure 10: VC Dollars Invested by Stage Relative acquisition of TeamShare for 1.4x, and FileNet’s to 2000 acquisition of Shana for 1.1x. 0% Simply put, buyers in Q1 and Q2 sought incremental revenue at bargain basement prices. -200% Median revenue valuations for software deals in Q1 and Q2 were 1.1x and 1.2x, respectively. There -400% were few buyers, and most paid cash rather than use deflated stock as deal currency. Acquired companies had to have sufficient recurring revenue -600% Percent Change to pay for themselves in two or three years. Slightly higher prices were paid for companies which could -800% generate incremental revenue almost immediately 2000 2001 2002 2003 by cross-selling the buyer’s products into the seller’s Startup/Seed Early Stage installed base, and vice-versa. Expansion Later Stage

Source: PWC Moneytree

In Q3, however, we began to discern a shift in buyer Q4 saw the number of buyers seeking bargains thinking. While the majority of transactions reflected close to home decrease further, to about 40% of the safe bet / incremental revenue rationale of Q1 total transactions. The number of “strategic and Q2, buyers proved more adventurous and less technology” buys, however, ramped sharply in Q4 to risk adverse in some 25% of the transactions. 48% of total transactions. Increasingly, buyers Public software companies were buoyed by sharply sought to add incremental technologies to materially rebounding tech sector stock prices. The improving enhance their core products, improve the end-user economy suggested increased corporate IT experience, and compete more effectively. Buyers spending might follow shortly. For the first time in beefed up help desk offerings with e- two and a half years, public software companies felt communications management (Primus / Amacis pressed to respond to competition and changing Group), web-publishing products with e-learning market requirements by acquiring proven solutions (Macromedia / eHelp), and online content with which would enhance the buyers’ offerings. We call mobile media (InfoSpace / Moviso). these “strategic technology” buyers. Examples: Proprietary storage software vendor EMC Some of Q4 remained standard fare. We counted acknowledges it must offer open platform storage four rollups, which we define as combining technology and acquires Legato for $1.24 billion, a companies with functional components to comprise 4.4x TTM multiple; web content management a full-fledged, standard category offering (e.g., HR + provider Interwoven, losing deals to Documentum’s Accounting + Manufacturing +Supply chain + end-to-end knowledge management suite, pays Logistics = ERP). We also saw four software $136 million, a 3.2x TTM multiple, to pick up companies taken out by direct competitors, and four iManage, a leader in content collaboration and buyouts by private equity firms or their proxies. 10 document management to fill in the gaps. pure vertical software companies sold in Q4, down from 19 in Q3. Q3 also saw a sharp increase in vertical software acquisitions with more than 20 deals, particularly in But Q4 also revealed a marked change in the health care, financial services and legal acquisition strategy for a surprising number of markets. There were some 10 security software buyers. About one out of five buyers decided to company sales in Q3, and almost as many wireless venture well beyond their traditional space. In many software company M&A transactions. There was a cases, buyers acquired an entirely new software sharp decline, however, in financial buyouts, which category, as they sought to diversify their revenue is not surprising, given the median valuation base, and in some cases reinvent themselves. A multiple increased again, this time to 1.6x. leading enterprise systems management provider added help desk software for SMEs (BMC / Magic Figure 11: U.S. Merger & Acquisition Activity

15,000 $1,500 $1,426B 13,500 $1,326B $1,350 $1,283B 12,000 11,123 $1,200

10,500 $1,050 Value ($Billions) 9,278 9,000 8,545 $900 7,848 8,047 8,198 7,387 7,500 $750 5,862 $674B $683B 6,000 $600 $529B $469B Number of Deals Number of 4,500 $450 $441B 3,000 $300 1,500 $150 0 $0 1996 1997 1998 1999 2000 2001 2002 2003

Deals Value Source: Mergerstat

Solutions). The behemoth of storage management Objects / Crystal Decisions. In contrast, IBM / added the leading content management developer Rational and Microsoft / Navision were 2002’s only (EMC / Documentum), and the leading Linux billion dollar deals. provider added storage management to its product line (Red Hat / Sistina). A market leader in security Figure 13: U.S. Sector-Specific M&A Activity by Dollar software expanded into enterprise infrastructure $80B management (Symantec / ON Technology), and a healthcare ecommerce provider picked up a $60B developer of object-oriented infrastructure software (Quovadx / Rogue Wave). The median M&A $40B valuation multiple increased once again in Q4 to 2.1 $20B times TTM revenue, driven in large part by higher Value Equity multiples paid by these new software category $0B buyers, as well as strategic technology buyers. 2001 2002 2003 Software Life Science Comm. ERGERS AND CQUISITIONS HE UMBERS M A : T N Source: Mergerstat Software company exit valuations improved steadily verall, U.S. merger and acquisition activity O throughout 2003 (Figure 14). As noted above, the showed noticeable improvement in 2003, halting a median software company M&A valuation (based on steady two year decline (Figure 11). For the year, the equity purchase price) reached 2.1 times domestic M&A activity for all industry sectors trailing-twelve-month (TTM) revenue, almost two increased 10% to 8,198 transactions, and dollar times the M&A median valuation in Q1. For the value, at $529 billion, was up 20%. year, the median software company M&A valuation, measured as a multiple of TTM revenue, was 1.6x. Software mergers and acquisitions continued to lead all other industry sectors in number of Figure 14: Software Industry Median M&A transactions, with 1,325 deals, almost identical to Multiples 2002’s tally (Figure 12). After a very slow start in Q1, software M&A activity increased 10% in Q2 and 3.0x 27% in Q3, but was flat in Q4. In terms of M&A 2.5x dollar volume, software placed third behind banking 2.1x & finance and insurance, but the $44 billion spent 2.0x 1.6x on software company acquisitions was 52% greater 1.5x 1.1x 1.2x than 2002 (Figure 13). The sharp increase in 1.0x aggregate purchase price can be chalked up to both improved valuations and a greater number of 0.5x “mega” deals, including Peoplesoft / J.D. Edwards, 0.0x Median Revenue MultipleMedian Revenue EMC / Documentum, EMC / Legato and Business Q1 2003 Q2 2003 Q3 2003 Q4 2003 Figure 12: U.S. Sector-Specific M&A Activity As in prior years, software M&A valuations varied 2000 widely by product category (Figure 15). Categories which enterprise customers perceived as high 1500 investment / questionable return, such as ERP, CRM and supply chain software, lagged well behind 1000 lower investment / measurable return categories, such as storage management, systems 500 management and developer tools. Valuations were

Deals Announced also higher in categories where leaders played 0 catch-up with key competitors or redefined 2001 2002 2003

Software Life Science Comm. Source: Mergerstat

Figure 15: Software Industry Median Multiples*

s 6.0x 5.0x 5.0x 4.2x 4.0x 2.9x 3.0x 2.6x 2.5x

2.0x 1.5x 1.4x 1.2x 1.3x 1.0x 1.0x 0.7x

MedianM&A Multiple Revenue 0.0x

Security

Developer Tools Data Management Accounting/Finance Business Intelligence Storage Management

Supply Chain Management Enterprise Resource Planning Content/Document Management *Equity value Customer Relationship Management Systems/Infrastructure Management themselves by moving aggressively into a new Since early 2001, cash has been king in software category. Median revenue multiples by software M&A, and 2003 proved no exception. 54% of product category were as follows: transactions were all cash, 19% all stock and 27% a combination of cash and stock (Figure 16). The use • Accounting/Finance, 2.6x of stock as currency, however, ramped sharply as • Business Intelligence, 1.5x the year progressed, reflecting rapidly escalating • Content/Document management, 1.4x tech sector stock prices. In 1H03, 67% of • Customer relationship management, 1.2x transactions were all cash, while only 19% were all • Data management, 1.3x stock and 14% a combination of the two. As the • Developer tools, 2.9x market rebounded, both buyers and sellers saw • Enterprise resource planning, 1.0x more value in stock as currency. In 2H03, 45% of • Security, 2.5x software M&A transactions were all cash, 19% all • Storage management, 5.0x stock and 35% a combination of the two (Figure 17). • Supply chain management, 0.7x • Systems/Infrastructure management, 4.2x

Figure 16: Software M&A – Form of Payment, Figure 17: Software M&A – Form of Payment, Annual 2003 60% 80% 70% 50% 60% 40% 50% 30% 40% 30% 20% 20% 10%

Payment Percentage 10% Payment Percentage 0% 0% 2002 2003 1st Half 2003 2nd Half 2003 Cash Stock Cash & Stock Cash Stock Cash & Stock

In a period characterized by higher valuations and Epicor Software Corporation increased use of stock as currency, we’d expect to • ROI Systems see a predominance of public buyers and private • Scala Business Solutions sellers. And so it was. Of 575 major software • CompuNet (select assets) transactions we analyzed, 76% had public buyers • TDC Solutions and 86% private sellers. Hewlett-Packard Company MERGERS AND ACQUISITIONS: Most Active • Baltimore Technologies (select assets) Buyers • Extreme Logic • Persist Technologies • PipeBeach AB 2003 saw a significant increase over 2002 in multi- • Talking Blocks transaction buyers. It was not unusal to see the same buyer roll-up a competitor, beef up its core Hummingbird offering with a strategic technology buy, and acquire • Key Automation Nederland B.V. a leading player in an adjacent market or product • Kramer Lee & Associates category. Some of the year’s most active buyers: • LegalKEY Technologies • Valid Information Systems Agile Software • Eigner International Business Machines • MS2 • Aptrix • OneREV • Green Pasture Software Key Automation • ProductFactory • Productivity Solutions • Tradec • Sector7 (select assets) • Think Dynamics Amdocs Limited • Certain International Microcomputer Software • Exchange Applications • CADalog.com • XACCT Technologies • CADKEY • Upperspace Corp. (select assets) Cadence Design Systems • Get2Chip Lawson Software • K2 Technologies • Apexion Technologies • Verplex Systems • Closedloop Solutions • Numbercraft Chinadotcom • Industri-Matematik International Mercury Interactive Corp. • Pivotal • Allerez Corp. (select assets) • Ross Systems • Kintana • Performant Eastman Kodak • Algotec Systems Microsoft Corporation • MiraMedica • GeCAD Software • PracticeWorks • PlaceWare • Scitex Corp. (select assets) • Connectix Corp. (assets)

EMC Corporation Network Associates • Astrum Software Corporation • Deersoft • Documentum • Entercept Security Technologies • Legato Systems • IntruVert Networks • Vmware

Open Text Synopsys • Corechange • InnoLogic Systems • Eloquent • Numerical Technologies • Gauss Interprise • Qualis (select assets) • IXOS Software AG • SER eGovernment The Sage Group • ATW Computer Services Pumatech • Concept Group • Loudfire • Groupo SP • Spontaneous Technology • Softline • Starfish Software • Timberline Software • Synchrologic Our predictions for 2004? Should the economy Reynolds and Reynolds continue to improve, IT spending increase to • Incadea AG projected levels, and technology sector stock prices • MSN Auto Dealerpoint hold, we estimate the total number of North • Third Coast Media American software industry M&A transactions will increase 25% to 1,650 transactions. We believe Science Applications International strategic technology buys will comprise about 60% • Atlantic Coast Telesys of these deals and new category buys about 25%. • Computer Systems Technology Consolidations, roll-ups, financial buyouts will • Opta account for most of the balance. We see median • Predictive Systems Unit valuations improving further, in a range of 2.3x – • SCIENTECH 2.5x TTM revenue. • VGS To keep your finger on the pulse of the software Siebel Systems equity markets, subscribe to our Quarterly Reports • BoldFish at www.softwareequity.com/contact/register.html, • Motiva (select assets) and our new bi-weekly e-letter, M&A Online, at • UpShot www.softwaresuccess.com/smaonline/

SSA Global Technologies For questions or comments, please contact • Elevon Allen Cinzori, [email protected]. • EXE Technologies • Ironside Technologies

Sun Microsystems • CenterRun • Pixo • Waveset Technologies

SunGard Data Systems • FAME Information Services • HTE • Sherwood International PLC • Systems & Computer Technology

Symantec • Nexland • ON Technology • PowerQuest • Safeweb

MERGERS AND ACQUISITIONS: MOST ACTIVE SOFTWARE INDUSTRY CATEGORIES

Table 2: Select Accounting/Financial Transactions Acquirer Seller Purchase Seller Revenue Description Price* Revenue Multiple Best ACCPAC $110,000,000 $88,700,000 1.2x Provides end-to-end business Software International management applications Digital Insight Magnet $61,615,000 $17,000,000 3.6x Web-based business banking Corp. Comm. solutions for financial institutions Imaging Greenland $2,250,000 $334,000 6.7x Provides wide range of Technologies Corp. automated financial services Intuit Income $10,000,000 $3,500,000 2.9x Collector and provider of fair Dynamics (estimate) market values of donations

The Sage Concept $10,890,000 $16,250,000 0.7x Provides treasury, cash Group Group management and financial consolidation solutions The Sage Groupo SP $93,500,000 $38,300,000 2.4x Entry-level accounting Group software to the Spanish market

Table 3: Select Business Intelligence Transactions Acquirer Seller Purchase Seller Revenue Description Price* Revenue Multiple Acxiom Corp. Claritas $40,000,000 $100,000,000 0.4x Provide the largest source of Europe consumer lifestyle and behavioral information for effective marketing across Europe Business Crystal $820,000,000 $270,000,000 3.0x Software includes reporting, Objects Decisions analysis, and information delivery, as well as related services CheckFree HelioGraph $18,300,000 $8,000,000 2.3x Supplies Transaction Process Holdings Management (TPM) tools for Corp. the securities industry Geac Comshare, $52,000,000 $58,300,000 0.9x Develop, market and support Computer Inc. management planning and Corp. control application software Hyperion Brio Software $142,000,000 $101,800,000 1.4x Help companies extract, Solutions Inc. integrate, analyze and report Corp. information MapInfo Thompson $13,000,000 $13,000,000 1.0x Provide retail market analytics Corp. Associates Mercury Kintana, Inc. $225,000,000 $44,500,000 5.1x Software digitizes and Interactive integrates IT business Corp. processes from demand to production, enabling real-time decision-making and execution for both strategic projects and 'keep-the-lights-on' activities NetRatings RedSheriff $12,000,000 $7,500,000 1.6x Provides tools and services that help companies optimize their Web sites *Equity Value

MOST ACTIVE SOFTWARE INDUSTRY CATEGORIES, CONTINUED

Table 4: Select Content/Document Management Transactions Acquirer Seller Purchase Seller Revenue Description Price* Revenue Multiple Bottomline Create!form $7,375,000 $4,500,000 1.6x Provide solutions to financial Technologies International (estimate) transactions including invoicing, payments, and reporting Eastman Algotec $42,500,000 $1,250,000 34.0x Provides Healthcare facilities Kodak Co. Systems (estimate) with Web enabled, advanced solutions for Medical Imaging Electronics T/R Systems $21,000,000 $14,739,000 1.4x Provides the printing and for Imaging publishing industry with an integrated software suite that transforms digital copiers and printers into print-on-demand systems EMC Corp. Documentum $1,700,000,000 $274,724,000 6.2x Provides ECM solutions that enable organizations to unite teams, content and associated business processes FileNET Shana $8,500,000 $7,500,000 1.1x Provider of electronic forms Corp. Corporation (estimate) software Interwoven iManage $171,000,000 $41,326,000 4.1x Content management software that enables businesses to manage and collaborate on critical business content iXOS Obtree $5,000,000 $11,280,000 0.4x Supplier of content Software AG Technologies management solutions Open Text IXOS $226,000,000 $145,000,000 1.6x Software solutions for the Corp. Software management of business documents Primus Amacis Group $6,966,132 $6,250,000 1.1x Electronic communications Knowledge (estimate) management solutions to Solutions global enterprises Savvis Wam!Net’s $3,000,000 $30,000,000 0.1x Provider of digital content Comm. Corp. commercial management and distribution business unit services SERENA TeamShare $18,000,000 $12,500,000 1.4x Web-based enterprise Software (estimate) collaborative software SSA Global Elevon $20,280,000 $41,900,000 0.5x Collaborative commerce and Technologies knowledge management Vignette Intraspect $20,000,000 $17,500,000 1.1x Provider of enterprise solutions Corporation Software (estimate) that power complex business processes, manage content lifecycles and enhance internal and external collaboration VitalWorks AMICAS $30,000,000 $6,250,000 4.8x Provides Web-based medical (estimate) and diagnostic image management software for health care providers *Equity Value

MOST ACTIVE SOFTWARE INDUSTRY CATEGORIES, CONTINUED

Table 5: Select Customer Relationship Management Transactions Acquirer Seller Purchase Seller Revenue Description Price* Revenue Multiple 24/7 Media Real Media $21,000,000 $11,000,000 1.9x Provides interactive marketing Korea Co. in the Republic of South Korea Amdocs Ltd. Exchange $5,000,000 $24,400,000 0.2x Offer marketing campaign Applications management capabilities Chinadotcom Pivotal Corp. $56,239,200 $57,072,000 1.0x Software that enables medium- Corp. sized enterprises worldwide to acquire, serve and manage their customers Dendrite SYNAVANT $49,000,000 $156,200,000 0.3x Solutions provider servicing International the biopharmaceutical and healthcare industries Interwoven MediaBin $5,000,000 $1,750,000 2.9x Enables enterprises to (estimate) promote their products in multi- channel marketing programs Island Pacific Page Digital $7,000,000 $6,000,000 1.2x Provider of multi-channel (estimate) software applications designed to enable effective operational diversity Jaguar Firepond $10,112,000 $13,800,000 0.7x Provides enterprise software Technology that is used to manage Holdings customer interactions Open Text Eloquent $6,720,000 $2,490,000 2.7x Allows companies to create, Corp. distribute, and track rich media presentations Reynolds and Third Coast $8,000,000 $5,000,000 1.6x Software development Reynolds Co. Media company with a focus on providing web-based software solutions primarily for the automotive industry *Equity Value

MOST ACTIVE SOFTWARE INDUSTRY CATEGORIES, CONTINUED

Table 6: Select Data Management Transactions Acquirer Seller Purchase Seller Revenue Description Price* Revenue Multiple Ascential Mercator $106,000,000 $102,600,000 1.0x Business integration software Software Software solutions to global enterprises DataMirror PointBase $3,500,000 $2,750,000 1.3x Provider java based relational Corp. (estimate) database and synchronization solutions Group 1 Sagent $17,000,000 $37,900,000 0.5x Data flow server enables Software Technology business users to easily extend the structure of a data warehouse Infowave Sproqit $987,200 $2,000,000 0.5x Offers a mobile application Software Technologies (estimate) platform that enables users to obtain data via hand held personal digital assistant ("PDA") Kofax Image Mohomine $9,000,000 $1,500,000 6.0x Automated text classification Products (estimate) and extraction NVIDIA Corp. MediaQ $70,000,000 $12,500,000 5.6x Provides software to (estimate) manufacturers of mobile devices Progress DataDirect $88,000,000 $35,500,000 2.5x Provider of components for Software Tech. Ltd. (estimate) connecting software to relational and XML data Pumatech Synchrologic $60,000,000 $11,800,000 5.1x Mobilizes enterprise email and applications, automates the delivery of documents and Web sites, and provides mobile systems management tools Stellent, Inc. Ancept $2,826,000 $4,500,000 0.6x Provides digital asset (estimate) management applications

Table 7: Select Developer Tools Transactions Acquirer Seller Purchase Seller Revenue Description Price* Revenue Multiple Macromedia eHelp Corp. $65,000,000 $22,300,000 2.9x Assists developers in creating (estimate) and publishing help modules Novell SUSE Linux $210,000,000 $35,400,000 5.9x Provider of Linux software and services Pervasive Data Junction $51,700,000 $14,000,000 3.7x Data transformation tools Software Corp. Quovadx Rogue Wave $71,000,000 $32,900,000 2.2x Markets and supports object- Software oriented and infrastructure software technology. SCO Group Vultus $2,700,000 $1,250,000 2.2x Web service technology (estimate) *Equity Value

MOST ACTIVE SOFTWARE INDUSTRY CATEGORIES, CONTINUED

Table 8: Select Enterprise Resource Planning Transactions Acquirer Seller Purchase Seller Revenue Description Price* Revenue Multiple Battery Made 2 $30,000,000 $30,100,000 1.0x Enterprise business systems Ventures Manage designed for small and midsize Systems manufacturers and distributors Cerberus Baan $135,000,000 $265,000,000 0.5x Manufacturing enterprise Capital solutions Management Chinadotcom Ross Systems $68,900,000 $48,100,000 1.4x Enterprise solutions software Corp. designed for process manufacturing companies Epicor ROI Systems $21,433,000 $23,659,389 0.9x Extended enterprise resource Software Inc. planning solutions Epicor Scala $87,000,000 $71,240,000 1.2x Offers a collaborative ERP Software Business system to make business Solutions simple Indus SCT's GEUS $39,000,000 $74,200,000 0.5x Provides advanced software International business unit and services solutions for utilities and energy service companies PeopleSoft J.D. Edwards $1,750,000,000 $886,000,000 2.0x Develops and markets collaborative enterprise software and provides consulting, education and support services Primavera Evolve $13,000,000 $18,300,000 0.7x Enterprise software that Systems Software optimizes the way organizations deliver services to their customers and employees Reynolds and Incadea AG $7,000,000 $6,000,000 1.2x Developer of a software Reynolds Co. platform for automotive built on Microsoft Navision Speedware Enterprise $12,000,000 $20,200,000 0.6x Provides a wide range of Computer (estimate) technology to their building Systems materials distribution customers Tecnomatix USDATA $10,300,000 $10,900,000 0.9x Global provider of software Technologies Corp. and services The Sage Timberline $102,900,000 $63,100,000 1.6x Develops, markets and Group Software supports financial and Corp. operations software for the construction and real estate industries *Equity Value

MOST ACTIVE SOFTWARE INDUSTRY CATEGORIES, CONTINUED

Table 9: Select Security Transactions Acquirer Seller Purchase Seller Revenue Description Price* Revenue Multiple BeTRUSTed Baltimore $1,750,000 $1,500,000 1.2x Issues digital certificates from Tech. a secure hosting facility Managed Svcs Unit Blue Coat Ositis $7,529,020 $6,250,000 1.2x Develops, licenses, and Systems Software (estimate) markets software and hardware solutions that provide customers with a system to safeguard and connect networked PCs Check Point Zone Labs $205,000,000 $20,000,000 10.3x Endpoint security solutions Software (estimate) Technologies Ltd. Cisco Okena $154,000,000 $6,000,000 25.7x Network security software Systems (estimate) CyberGuard SnapGear $16,000,000 $8,750,000 1.8x Provides design, engineering Corp. (estimate) and fulfillment services for network appliances that ensure secure Internet communications for business Netegrity Business $42,500,000 $8,750,000 4.9x Global provider of provisioning Layers (estimate) software for identity management solutions NetScreen Neoteris $265,000,000 $30,000,000 8.8x SSL VPN and application Technologies security gateway products SafeNet Rainbow $457,000,000 $126,052,000 3.6x Global provider of information Technologies technology security solutions Science Predictive $1,927,400 $1,380,000 1.4x Perform analyses and Applications Systems Unit notification of both physical International and cyber threats, vulnerabilities, and warnings Secure N2H2 $19,900,000 $11,100,000 1.8x Content filtering and Computing monitoring solutions Corp. Symantec Safeweb $26,000,000 $2,500,000 10.4x Designs secure remote access Corp. (estimate) solutions Symantec Nexland $19,600,000 $7,740,000 2.5x Internet security company Corporation Tumbleweed Valicert $14,300,000 $12,200,000 1.2x Provider of secure Communicati communications and ons Corp. authentication software *Equity Value

MOST ACTIVE SOFTWARE INDUSTRY CATEGORIES, CONTINUED

Table 10: Select Storage Management Transactions Acquirer Seller Purchase Seller Revenue Description Price* Revenue Multiple Applied Micro JNI Corp. $190,000,000 $38,362,000 5.0x Designer and supplier of Fibre Circuits Corp. Channel enterprise storage connectivity products that connect servers and data storage devices EMC Corp. Legato $1,300,000,000 $280,300,000 4.6x Markets and supports storage Systems software products and services worldwide Network Spinnaker $300,000,000 $12,500,000 24.0x Provides next-generation Appliance Networks (estimate) networked storage solutions Red Hat Sistina $31,000,000 $2,250,000 13.8x Provider of storage Software (estimate) infrastructure software Symantec PowerQuest $150,000,000 $50,000,000 3.0x Allows enterprise customers to Corp. Corp. add new storage, reconfigure existing storage, monitor and manage storage devices

Table 11: Select Supply Chain Management Transactions Acquirer Seller Purchase Seller Revenue Description Price* Revenue Multiple Chinadotcom Industri- $25,000,000 $45,000,000 0.6x Supply chain solutions for the Corp. Matematik (estimate) midmarket International Corp Electronics Printcafe $27,560,000 $44,200,000 0.6x Software solutions designed for Imaging Software specifically for the printing industry JDA Software Vista Software $4,300,000 $4,300,000 1.0x Web-based trade funds Group Solutions' IP management solution Assets SSA Global EXE $47,357,000 $70,800,000 0.7x Provides software that helps Technologies Technologies drive customers' supply chain execution processes, including fulfillment, warehousing, distribution and inventory management *Equity Value

MOST ACTIVE SOFTWARE INDUSTRY CATEGORIES, CONTINUED

Table 12: Select Systems/Infrastructure Management Transactions Acquirer Seller Purchase Seller Revenue Description Price* Revenue Multiple BMC DGI $3,000,000 $1,500,000 2.0x Supplies performance Software (estimate) management tools for DB2 UDB on UNIX, Linux, and Windows operating system platforms BMC IT Masters $42,000,000 $10,000,000 4.2x Develops service management Software International (estimate) technology S.A. EMC Vmware $635,000,000 $50,000,000 12.7x Global provider of virtual Corporation infrastructure software for Intel- based systems Gores Resonate $54,000,000 $10,900,000 5.0x Develops application Technology performance management and Group traffic management solutions for business-critical environments Micromuse Network $23,000,000 $4,000,000 5.8x Develops intelligent software Harmoni (estimate) agents that gathers data on the health and performance of mission-critical business applications and systems NaviSite Interliant $7,000,000 $44,600,000 0.2x Infrastructure solutions, encompassing messaging, security and hosting Symantec ON $95,360,000 $35,700,000 2.7x Provider of enterprise Corp. Technology infrastructure management Corp. solutions *Equity Value

MERGERS AND ACQUISITIONS: SELECT 2003 SOFTWARE M&A TRANSACTIONS

Buyer Seller Price Revenue Multiple Currency ACD Systems Deneba Systems $5,500,000 $4,600,000 1.2x Cash & (TSX: ASA) Stock SEG’s Insight: ACD, a developer of digital imaging and management software, acquires Deneba, a provider of photo editing and desktop publishing applications. Deneba’s core products and small file “foot print” complement ACD’s products and Web distribution model. Deneba should also aid in diversifying ACD’s revenue, likely derived mostly from its ACDSee product. ACD will pay $4.5 million in cash and $1 million in stock, but seeking to preserve its cash balance, has offered Deneba shareholders a 20% premium on any cash amount under $1.5 million taken in ACD stock.

Buyer Seller Price Revenue Multiple Currency Agilysys Kyrus $31,000,000 $130,000,000 0.2x Cash (Nasdaq: AGYS) SEG’s Insight: Agilysys, a distributor/reseller of enterprise hardware and software, acquires Kyrus, a leading provider of retail solutions and IBM POS reseller. While both firms sell software, revenues reflect a significant amount of hardware pass-through. For $31 million in cash and the assumption of $20 million in Kyrus debt, Agilysys gains access to the retail sector, one of several verticals it has targeted to beef up hardware sales. Agilysis, which has cut 2002 operating losses substantially, expects the deal to be accretive in 2004.

Buyer Seller Price Revenue Multiple Currency Amdocs Exchange Applications $5,000,000 $24,400,000 0.2x Cash (NYSE: DOX) (Pink Sheet: EXAP) SEG’s Insight: Amdocs, a leader in CRM and billing solutions for the telecom market, acquires the assets of Enterprise Applications (Xchange), a provider of campaign management and marketing automation software. The acquisition follows Xchange’s rapid demise after raising $99 million in the public markets, and enables Amdocs to broaden its ClarifyCRM product line, acquired from Nortel in late 2001 for $200 million. Laden with debt, Xchange shut its doors in February 2003 after an unsuccessful attempt at taking the business private.

Buyer Seller Price Revenue Multiple Currency Ascential Software Mercator Software $97,900,000EV $111,900,000 0.9x Cash (Nasdaq:ASCL) (Nasdaq:MCTR) SEG’s Insight: Fending off a hostile bid from Strategic Software Holdings, enterprise application/data integration provider Mercator agrees to a $106 million cash offer from Ascential. Since spinning out from Informix, the acquisitive Ascential has bought Vality, Torent Systems and Metagenix to beef up its data warehousing suite. The deal represents a 22% premium to Mercator’s shareholders. Ascential has more than $500 million in cash remaining.

Buyer Seller Price Revenue Multiple Currency Battery Made2Manage Systems $13,516,000EV $30,100,000 0.5x Cash Ventures (Nasdaq:MTMS) SEG’s Insight: Battery Ventures, a first-tier VC firm, takes private Made2Manage, an ERP provider to small and midsize manufacturers. Here’s another example of a struggling, undervalued public company being acquired at a price that looks like a real bargain at a 1.0x multiple, but represents a healthy 40% premium to shareholders. Look for additional acquisitions by Made2Manage now that it has Battery’s financial backing and greater flexibility as a private company.

SELECT 2003 SOFTWARE M&A TRANSACTIONS, CONTINUED

Buyer Seller Price Revenue Multiple Currency BMC Software IT Masters Int’l $42,000,000 $10,000,000 4.2x Cash (NYSE: BMC) (estimate) SEG’s Insight: BMC, the leader in IT systems management solutions, needed to extend its offering to remain competitive with HP’s Open View and IBM’s Tivoli. By acquiring IT Masters, BMC adds powerful adaptive service management solutions that enable organizations to understand the real-time business impact of IT problems and prioritize support efforts. Despite the economic downturn, IT Masters’ revenue grew 15% in Q2 and 30% in Q3 of 2002. We estimate IT Masters’ trailing twelve-month revenue to be $10 million.

Buyer Seller Price Revenue Multiple Currency BMC Software Magic Software unit of $47,000,000 $63,558,000 0.8x Cash (NYSE: BMC) Network Associates SEG’s Insight: IT infrastructure leader BMC Software, which picked up the remnants of help desk provider Remedy from bankrupt Peregrine Systems in late 2002 for $350 million in cash, now adds Magic Solutions to beef up its service management offering in the SME (small/medium enterprise) space. Magic was a business unit of computer security software provider Network Associates, acquired in March 1998 for $110 million. After six years, Network Associates decided to focus closer to home and the selling price this time was $47 million. Although BMC claims Magic is highly profitable with positive cash flow, it does not expect the transaction to be accretive until its next fiscal year. Still, Magic has revenue of $63.5 million and gives BMC access to 4,000 new midmarket customers, a good deal by almost any measure.

Buyer Seller Price Revenue Multiple Currency Business Objects Crystal Decisions $820,000,000 $270,000,000 3.0x Cash / (Nasdaq:BOJB) stock SEG’s Insight: Business intelligence software provider Business Objects picks up the world’s leading report writer. BO covets the midmarket and Crystal boasts 14 million licenses as well as 350 OEMs. Incremental revenue through cross- licensing is the short-term goal, but BO will have to sell an awful lot of report writers to justify the multiple it paid. For Crystal Decisions, the sale scotches a planned IPO, but it’s doubtful the markets would have been as generous. BO also gets Crystal’s $95 million in cash and expects the acquisition to be immediately accretive.

Buyer Seller Price Revenue Multiple Currency Cerberus Capital Baan $135,000,000 $265,000,000 0.5x Cash Management / General Atlantic Partners SEG’s Insight: Once a real competitor in the ERP space before falling early victim to an accounting scandal and selling to Invnesys for $800 million, Baan fell victim again – this time to the stagnant ERP market and depressed corporate IT spending. Private investment firms Cerberus and General Atlantic are the beneficiaries, picking up Baan for a song. The investors will combine Baan with SSA Global, leveraging Baan’s strength in open systems and its European focus with SSA’s AS/400 strength and North American focus. The combined business will boast $600 million in revenue.

SELECT 2003 SOFTWARE M&A TRANSACTIONS, CONTINUED

Buyer Seller Price Revenue Multiple Currency Chinadotcom Industri-Matematik $25,000,000 $45,000,000 0.6x ND (Nasdaq:CHINA) (estimate)

SEG’s Insight: Five days after its Ross buy, Chinadotcom (CDC) acquired 51% of IMI from Symphony Technology Group, a financial investor that bought IMI in 4Q02 for $11 million, yielding a $14 million profit after just nine months. CDC needed a supply chain solution company to round out its enterprise suite – which now includes Ross. Look for CDC to cut costs by funneling IMI development to its China R&D center. This rollup should enable CDC to lengthen its lead in China and the Pac Rim. Symphony retains 49% of IMI.

Buyer Seller Price Revenue Multiple Currency Chinadotcom (Nasdaq: Pivotal Corp. $56,239,200EV $57,072,000 1.0x Stock, CHINA) (Nasdaq: PVTL) cash SEG’s Insight: In a case of better late than never, Chinadotcom wins the battle for Pivotal Corp., the Canadian mid-market CRM specialist in a deal valued at $57 million. Following a protracted public struggle involving private equity firm Oak Investment Partners and CRM rival Onyx, Pivotal agreed to merge with Chinadotcom under terms providing shareholders with up to $2.14 per share in cash and Chinadotcom shares. Oak, which bid $1.78 per share and sought to combine Pivotal with portfolio company Talisma, will receive a $1.5 million breakup fee from Pivotal. Chinadotcom effectively paid less than 1x revenue and now adds CRM to its suite after acquiring midtier ERP provider Ross Systems in September. The same month, acquisitive Chinadotcom bought controlling interest in Industri-Matematik to address the supply chain software needs for its more than 600 Chinese and other Pacific Asia customers.

Buyer Seller Price Revenue Multiple Currency Chinadotcom Ross Systems $66,110,000EV $46,050,000 1.4x Stock, (Nasdaq: CHINA) (Nasdaq: ROSS) cash SEG’s Insight: Hong Kong-based Chinadotcom (CDC), a pan-Asian enterprise software and services provider, acquires Ross Systems, a leading ERP vendor in the process manufacturing space. With a whopping 600 enterprise customers in Asia-Pacific, CDC aspires to dominate the region and preempt Tier 1 players, but lacked a comprehensive ERP offering. Ross was an obvious choice. After seeing revenue decline 50% over the past three years, Ross shareholders saw the writing on the wall and grabbed the 23% premium, but will receive only 26% of the purchase price in cash.

Buyer Seller Price Revenue Multiple Currency Cisco Systems Linksys Group $500,000,000 $429,000,000 1.2x Stock (NASDAQ: CSCO SEG’s Insight: Powerhouse Cisco decided to reenter the home and SOHO markets by acquiring Linksys, the acknowledged leader in home networking gear. Cisco is attempting to find additional revenue to offset a standstill in enterprise and carrier IT spending, and increased competitive pressure in its primary market from the likes of Dell and China’s Huawei. This is a risky move for Cisco, as it enters the “cutthroat” consumer market with considerably lower margins. Linksys’ net profit margin is between 5% to 10% versus Cisco’s 25%. This is an all stock deal and Cisco’s third acquisition in 2003.

SELECT 2003 SOFTWARE M&A TRANSACTIONS, CONTINUED

Buyer Seller Price Revenue Multiple Currency Cisco Systems SignalWorks $13,500,000 Unknown n/a Stock (NASDAQ: CSCO) SEG’s Insight: IP telephony is a Cisco priority, with 6,000 IP communications customers and 1.5 million IP phones shipped. By acquiring SignalWorks, a developer of advanced software that delivers high-performance audio capabilities for IP telephony systems, Cisco secures its technical lead and extends into new markets. This is an all stock deal - somewhat surprising since Cisco sees its stock as quite undervalued and has launched an aggressive $13 billion stock buyback initiative.

Buyer Seller Price Revenue Multiple Currency EMC Corp. Documentum $1,541,686,000EV $274,724,000 5.6x Stock (NYSE: EMC) (NASDAQ: DCTM) SEG’s Insight: Network storage behemoth EMC, hammered by three years of declining revenues and substantial losses, continues to reposition through acquisition. After buying Legato Systems, Astrum Software and Prisa Networks to provide a more open systems solution, EMC moves far beyond storage by acquiring Documentum, a leading enterprise content management company. EMC gets to redefine itself overnight and gains bidirectional cross-sell opportunities, which together account for the healthy 5.6 multiple.

Buyer Seller Price Revenue Multiple Currency EMC Legato Systems $1,239,420,000EV $280,300,000 4.4x Stock (NYSE: EMC) (Nasdaq: LGTO) SEG’s Insight: Information and storage leader EMC, hammered by IT budget cuts and resistance to its proprietary offering, continues its foray into open systems through acquisition. Its fourth software acquisition in the last 12 months, EMC acquires Legato, the number three seller of backup and recovery software. Expect EMC to also capitalize on Legato’s 500 strong sales force and customer base of some 31,000 businesses. Legato shareholders received a 16% premium, a nice outcome given the firm’s rocky road since its revenue recognition debacle in 2000.

Buyer Seller Price Revenue Multiple Currency EMC Corp. VMware $635,000,000 $50,000,000 12.7x Cash (NYSE: EMC) SEG’s Insight: EMC’s buying spree continues, as the world’s leading storage management software vendor moves further into the IT infrastructure. This time it’s VMware, a privately held software company that is the leader in virtual machines – software which enables multiple operating systems such as Windows, Linux and Netware to run simultaneously and independently on the same Intel server and move applications across platforms. EMC will operate VMware as a subsidiary, hoping to preserve its relationships with a wide array of server and storage vendors. We’ll see. Although EMC paid a whopping $635 million, all cash, it expects the deal to be dilutive by only $.01 in Q1 and accretive by 2005. The VMware acquisition follows closely on the heels of EMC’s December acquisition of Documentum for $1.5 billion and its October acquisition of Legato Software.

Buyer Seller Price Revenue Multiple Currency Epicor Software ROI Systems $20,700,000 $20,000,000 1.0x Cash (Nasdaq: PIC) SEG’s Insight: A provider of enterprise software to the mid-market, Epicor picks up ROI Systems, a privately held ERP vendor to multiple vertical sectors in manufacturing. This deal is typical of the current M&A market; Epicor looks to add immediate revenue and earnings by leveraging ROI’s complementary products and 6,500 customers. This is an all-cash deal of a business that has sustained 20 years of profitability for a price equivalent to one-time trailing 12 month revenue.

SELECT 2003 SOFTWARE M&A TRANSACTIONS, CONTINUED

Buyer Seller Price Revenue Multiple Currency FileNet Shana Corp. $8,500,000 $7,500,000 1.1x Cash (NASDAQ: FILE) (estimate) SEG’s Insight: With $160 million of cash on its books, cash rich FileNet, a provider of enterprise content and collaboration software, picks up Canadian based Shana, a privately held e-forms software vendor. A FileNet partner for the last twelve months, Shana complements FileNet’s offering and furthers its push to offer customers an end-to-end ECM solution. With 66 employees, Shana’s revenue is estimated to be $7.5 million.

Buyer Seller Price Revenue Multiple Currency Group 1 Software Sagent Technology $17,000,000 $37,900,000 0.5x Cash (Nasdaq: GSOF) (Nasdaq: SGNT) SEG’s Insight: After defaulting on a $7 million loan in late March, data extraction and analysis provider Sagent threw in the towel. Group 1, a CRM solutions vendor, is the beneficiary. Group 1 pays 0.5 times Sagent’s LTM revenue and in return picks up 1,500 global customers, powerful complementary technology and a product it can sell immediately into its installed base of 2,000 customers.

Buyer Seller Price Revenue Multiple Currency Hewitt Associates Cyborg Systems $43,000,000 $40,000,000 1.1x Cash (NYSE: HEW) SEG’s Insight: Global HR outsourcing and consulting firm Hewitt picks up Cyborg Worlwide, a provider of HR workforce management software. What really attracted Hewitt was Cyborg’s lucrative payroll services business, which Hewitt needs to round out its HR outsourcing business. Hewitt also gains access to 750 companies in 10 countries using Cyborg’s payroll service. At 1.1x, the multiple is in line with what we expect today from a strategic acquisition of a service provider.

Buyer Seller Price Revenue Multiple Currency Hyperion Solutions Brio Software $116,500,000EV $101,800,000 1.1x Stock, (Nasdaq: HYSL) (Nasdaq: BRIO) cash SEG’s Insight: Just days after the Business Objects-Crystal Decisions deal, Hyperion, a leader in business performance management, acquires Brio after former partner Crystal Decisions sells to Business Objects. Brio’s strong query and reporting tools are an excellent entre to Hyperion’s dynamic enterprise performance monitoring. Brio’s declining revenues and ongoing operating losses starkly contrast with Crystal Decisions’ growth and profitability and help explain the lower multiple. Hyperion adds Brio’s 3,000 customers, while beefing up its query and reporting offering. Brio shareholders get a 39% premium.

Buyer Seller Price Revenue Multiple Currency Indus Int’l SCT’s GEUS $39,000,000 $74,200,000 0.5x Cash (NASDAQ: IINT) Business Unit SEG’s Insight: Indus, an enterprise asset management provider to the utility and energy markets, picks up Systems and Computer Technology Corp’s Global Energy and Utility Solutions (GEUS) business unit. Here’s another example of a strategic acquisition in the same target market offering immediate incremental revenue opportunities. Considering GEUS’s revenue, net assets of $31.8 million and breakeven net income, it looks like Indus picked up GEUS for a song. GEUS gives Indus a CIS solution for its installed base, plus 200 new customers.

SELECT 2003 SOFTWARE M&A TRANSACTIONS, CONTINUED

Buyer Seller Price Revenue Multiple Currency Interwoven iManage $135,918,000EV $42,700,000 3.2x Stock, (Nasdaq: IWVN) (Nasdaq :IMAN) cash SEG’s Insight: After six months of partnering, Web content management leader Interwoven acquires iManage, a provider of content collaboration and document management solutions. Interwoven can now tout an end-to-end knowledge management suite to better compete against Documentum. iManage shareholders receive a 23.6% premium, but only about 18% in cash and the balance in stock. Could be risky. Interwoven lost $14.6 million on flat revenue of $52 million in 1H03. Its $2.40 market price fell on the announcement, but rebounded to $2.85.

Buyer Seller Price Revenue Multiple Currency Intuit Income Dynamics $10,000,000 $3,500,000 2.9x Stock (Nasdaq: INTU) (estimate) SEG’s Insight: Financial software behemoth Intuit reenters the acquisition fray, this time buying Income Dynamics, a maker of taxpayer tools that will strengthen market-leading TurboTax by giving it the power to easily estimate the value of items donated to charities. This is Intuit’s first acquisition since it bought IT resource and tracking firm Blue Ocean Software for $170 million in August 2002. Income Dynamics revenues are estimated to be $3.5 million.

Buyer Seller Price Revenue Multiple Currency Intuit Innovative Merchant $116,000,000 $25,000,000 4.6x Cash (Nasdaq: INTU) Solutions SEG’s Insight: Intuit’s buying continues, driven by its “beyond accounting” growth strategy. The latest addition is Innovative Merchant Solutions, a provider of merchant account services to small businesses. Intuit, which already has a modest merchant services operation, gains access to 85,000 IMS merchants and a much stronger presence in the highly profitable bankcard processor sector. Note the all cash purchase price has contingencies, most likely an earnout.

Buyer Seller Price Revenue Multiple Currency Itron Silicon Energy $71,200,000 EV $15,000,000 4.8x Cash (Nasdaq: ITRI) (estimate) SEG’s Insight: Itron, a leading technology provider to major utilities worldwide moves into the end-user market by announcing a bid for privately-held Silicon Energy, a provider of enterprise energy management solutions. Silicon Energy filed, then shelved an IPO back in 2001 at an implied market cap of $250 million. The $71.2 million price tag is a 4.8x multiple over Silicon Energy’s trailing revenue. Itron expects the deal to be mildly dilutive in 2003.

Buyer Seller Price Revenue Multiple Currency JDA Software Vista Software $4,300,000 $4,300,000 1.0x Cash (Nasdaq: JDAS) Solutions SEG’s Insight: Leading retail industry software provider JDA beefs up its planning, forecasting and supply chain solutions by acquiring the IP assets and staff of Vista Software, a provider of data synchronization and integration solutions linking retailers, distributors and manufacturers. This is an inexpensive acquisition that will enable JDA customers to better manage trade promotions and synchronize data throughout their supply and demand chains. Vista had $1.4 million in software revenue.

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Buyer Seller Price Revenue Multiple Currency Kofax Imaging Mohomine $9,000,000 $1,500,000 6.0x Cash Products (estimate) SEG’s Insight: Kofax, a provider of software and image-processing products for data and document capture, picks up Mohomine, a venture-backed developer of unstructured data capture. Mohomine’s patented classification and extraction technologies, which can classify up to 100 documents per second, further Kofax ’s pursuit of an end- to-end data capture solution. Kofax paid roughly 6x on LTM revenue between $1 million and $2 million, a relatively good return for Mohmine’s investors who received 80 cents on the dollar.

Buyer Seller Price Revenue Multiple Currency L-3 Communications Ship Analytics $11,400,000 EV $25,000,000 0.5x Cash (NYSE: LLL) (estimate) SEG’s Insight: Beefing up its homeland security offering, L-3 Communications picks up privately held Ship Analytics (SA), a provider of crisis management software. Having partnered together earlier, L-3 decided to tie the knot and target state governments and FEMA. The purchase price is largely contingent. L-3 will pay $6.7 million, assume $4.7 million of Ship Analytics’ debt, and provide up to an additional $20.2 million as an earnout, subject to financial performance, through 2005. Ship Analytics does not disclose its financials, but we estimate revenues in the range of $25 million.

Buyer Seller Price Revenue Multiple Currency Macromedia eHelp Corp. $65,000,000 $22,300,000 3.0x Stock, (Nasdaq: MACR) (estimate) cash SEG’s Insight: Macromedia, the leading rich media development tools company, acquires eHelp, the market leader in help authoring software. eHelp’s software will extend Macromedia’s product line, making it easier for developers to incorporate Flash-based help and tutorials into their offerings. eHelp extends Macromedia’s offering and provides access to a variety of Fortune 500 companies, but we’re not sure that justifies the healthy 3.0 multiple.

Buyer Seller Price Revenue Multiple Currency ManTech Int’l Corp. Integrated Data $62,700,000EV $40,000,000 1.6x Cash (Nasdaq: MANT) Systems SEG’s Insight: ManTech, an IT services provider to the Federal government, picks up software developer and systems integrator IDS in order to beef up its secure messaging and security network offering. IDS, with year-over-year growth exceeding 80%, derives the vast majority of its revenue from ManTech’s target market - the DoD and intelligence community. ManTech paid 12.2 times IDS’ CY 2002 EBITDA and expects to receive highly favorable tax treatment due to the structure of the deal. This is ManTech’s third acquisition following its IPO in 2002.

Buyer Seller Price Revenue Multiple Currency MASBC Acquisition Viador $1,080,000EV $4,940,000 0.2x Cash Corp. (Nasdaq: VIAD) SEG’s Insight: Following in the footsteps of Industri-Matematik, Prophet 21 and Riverdeep, Viador, an enterprise portal vendor, takes its business private. MASBC, the acquisition corporation formed to purchase Viador, is financially backed by Suma Ventures and an existing Viador shareholder. Like the others, Viador lists cost savings, better management focus and a desire to reduce executive liability imposed by the Sarbanes-Oxley Act as primary drivers. Viador raised $36 million in a 1999 IPO, but saw its revenue decline precipitously from $26.2 million in 2000 to its current run rate of $4.9 million. Viador had approximately $1.4 million of cash on its books and a market cap of $168 thousand.

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Buyer Seller Price Revenue Multiple Currency MICROS Systems Datavantage Corp. $52,000,000 $42,000,000 1.2x Stock, (Nasdaq: MCRS) cash SEG’s Insight: MICROS, a leader in IT services and solutions to the hospitality industry, acquires Datavantage, a provider of POS software to the likes of Starbucks, IKEA and Staples. MICROS rationalized the acquisition by pointing out hospitality businesses often have retail operations. Fact is, MICROS is bucking the current trend of staying “close to home” by moving into a new and different vertical market that is faring better than travel and hospitality. Saratoga Partners, Datavantage’s investors, earned a 43% IRR.

Buyer Seller Price Revenue Multiple Currency NaviSite Interliant $7,000,000 $44,600,000 0.2x Cash (Nasdaq: NAVI) (Nasdaq: INIT) SEG’s Insight: Navisite, a provider of application management and hosting services, acquires Interliant, a bankrupt competitor focused on corporate messaging and e-mail outsourcing. It’s fourth acquisition of a hosting business in recent months, NaviSite is taking advantage of depressed valuations and others’ misfortunes. While the market reacted favorably to the acquisition, driving NaviSite’s stock price upward 67%, we’re a little less enthusiastic. NaviSite has significant debt, a dwindling cash balance and negative operating income.

Buyer Seller Price Revenue Multiple Currency Open Text Corp. Corechange $4,200,000 $18,000,000 0.2x Cash (Nasdaq: OTEX) (estimate) SEG’s Insight: Knowledge management software provider Open Text follows up its recent acquisition of Eloquent by acquiring enterprise portal vendor Corechange. Open Text, hoping to beef up the front and back ends of its collaboration offering, will pay 0.2 times Corechange’s fiscal 2001 revenue, a multiple which clearly reflects the tough market environment for portal-only vendors. It’s likely Corechange was running out of cash. Another disappointment for VCs, who had $36 million invested.

Buyer Seller Price Revenue Multiple Currency Open Text Corp. Eloquent Corp. $6,720,000 $2,500,000 2.7x Cash (Nasdaq: OTEX) (Nasdaq: ELOQ) SEG’s Insight: Open Text, a leader in online collaboration, plans to acquire Eloquent, a niche CRM player whose technology will add video conferencing to Open Text’s Livelink offering. Eloquent, with sharply declining revenue, a negative $12.2 million twelve month EBITDA and $12.1 million cash balance has been buyer shopping for 6 months. Open Text’s offer of 34 cents per share ($6.7 million all cash) is quite a come down. Eloquent traded as high as $39 per share in March 2000. How times change.

Buyer Seller Price Revenue Multiple Currency Open Text IXOS Software $188,809,000EV $145,000,000 1.3x Stock, (Nasdaq: OTEX) (Nasdaq: XOSY) cash SEG’s Insight: Open Text, a market leader in collaboration and knowledge management software, buys German content management and archiving tools provider IXOS Software. Though positioned as complementary, Open Text eliminates a competitor in a deal that denotes continued consolidation in the content management arena. Open Text gains greater access to the SAP base and 2,700 new customers. But contrast the multiple here, typical for a consolidation play, with the multiple paid by strategic buyer EMC for Open Text rival Documentum. Open Text, which also recently purchased Germany’s Gauss Interprises, remains fair game for acquisition itself. Like collaboration software, document management is rapidly being subsumed into broader enterprise categories.

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Buyer Seller Price Revenue Multiple Currency Opsware Tangram Enterprise $10,000,000EV $10,435,000 1.0 x Stock (Nasdaq: OPSW) Solutions (TESI.OB) SEG’s Insight: Opsware, the data center automation innovator founded by Mark Andreessen, moves into IT asset management and IT security by acquiring Tangram Enterprise Solutions. Following a highly visible, ill-timed IPO in early 2001, Loudcloud (now Opsware) endured a $12 million per month cash burn and a threatened NASDAQ delisting before selling its managed services division to rival EDS last year for $64 million. Now Opsware seems to have finally found its niche and is cash-flow-positive. Tangram’s product line will leverage Opsware’s strategic relationships with EDS and HP. Tangram also brings more than 200 customers to Opsware, as well as the patent pending “Crosshair” technology embedded in its OverSight security product. Tangram was majority- owned by Safeguard Scientifics, which must believe in Opsware’s future prospects, since the $10 million all- stock deal was priced below recent Tangram trading levels. After paying off Tangram’s preferred shareholders, creditors and former employees, Tangram’s common shareholders’ receive roughly $5 million.

Buyer Seller Price Revenue Multiple Currency Oracle Corp. PeopleSoft $4,170,000,000EV $1,930,000,000 2.2x Cash (Nasdaq: ORCL) (Nasdaq: PSFT) SEG’s Insight: On the heels of the PeopleSoft/J.D. Edwards announcement, Oracle responded promptly by tendering a hostile bid for PeopleSoft in the amount of $5.1billion, or $16 per share. Viewed by many as a grossly inadequate offer, PeopleSoft’s stock price was bid up from $15 to $18 in anticipation of a higher offer by Oracle or a white knight. Less than two weeks later, Oracle revised its bid upward 22% to $19.50 per share, but many obstacles remain. Oracle, which has historically abstained from acquisitions, was sufficiently threatened by the prospect of a PeopleSoft/Edwards merger to act as spoiler offering most of its $6 billion of cash. As of January 2004, Oracle continues its pursuit, most recently offering $26 per share.

Buyer Seller Price Revenue Multiple Currency PeopleSoft J.D. Edwards $1,350,000,000EV $886,000,000 1.5x Stock, (Nasdaq: PSFT) (Nasdaq: JDEC) cash SEG’s Insight: Kicking off what was a very exciting week for software M&A, PeopleSoft announced it would acquire J.D. Edwards. With Edwards, PeopleSoft will greatly strengthen its position in the mid-market, as well as its presence in manufacturing and other key vertical industries such as real estate and construction. Though Edwards’ revenue declined 11% from its 2000 high, it has done reasonably well in the current economy. We’re a bit surprised at the price, which equates to a modest 1.5x multiple and only a 19% premium to Edwards’ shareholders.

Buyer Seller Price Revenue Multiple Currency Perot Systems Soza & Company $75,000,000 $137,000,000 0.6x Cash (NYSE: PER) SEG’s Insight: In the IT services arena, Perot Systems acquires Soza & Co. a professional services firm strongly focused on defense and homeland security, growth sectors which are clear priorities for Perot. Soza expands Perot’s Government Services Group, adding 900 employees and $137 million in revenue to the Perot Group’s 600 employees and $63 million of revenue. With an earnout in cash and stock of $32 million, the purchase price can approach a 0.8x revenue multiple, not bad for a services provider.

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Buyer Seller Price Revenue Multiple Currency Plato Learning Lightspan $32,970,000EV $50,000,000 0.7x Stock (Nasdaq: TUTR) (Nasdaq: LSPND) SEG’s Insight: After racking up substantial losses, ($33.5 million on $50 million revenue in fiscal year ’03) and with only enough cash to fund two more quarters, education software vendor Lightspan sells to Plato Learning, a financially challenged provider of e-courseware to community colleges. Plato, which lost $5.7 million of operating income on $78 million in revenue during the last twelve months, hopes to beef up its presence in Lightspan’s K-12 market.

Buyer Seller Price Revenue Multiple Currency Primavera Systems Evolve Software $13,000,000 $18,300,000 0.7x Cash (Nasdaq: EVLV) SEG’s Insight: Primavera, a leading provider of project management software solutions, acquires Evolve’s project management, IT portfolio management and resource utilization assets out of bankruptcy. Primavera picks up a competitor and several new products of interest to its 41,000 customers – all for a mere $10 million in cash and the assumption of $3 million in liabilities. Since July 1999, Evolve raised $138 million with $25 million coming in the last eighteen months. Primavera is private with $80 million in revenue.

Buyer Seller Price Revenue Multiple Currency Progress Software DataDirect $88,000,000 $35,500,000 2.5x Cash Corp. (Nasdaq: PRGS) Technologies Ltd. (estimate) SEG’s Insight: Progress Software acquires privately held Data Direct Technologies, the leading developer of data access and connectivity components for software developers, in a $88 million, all-cash deal. Data Direct’s products are embedded in the apps of more than 250 software companies and most of the Fortune 100. Progress, which grew 13% in its fiscal year-ending 11/30/03, has now moved well beyond its 4th GL development platform days and is considered a major software infrastructure player. Plans are for DataDirect to operate as a separate business unit to maintain an appearance of impartiality, similar to another highly successful Progress subsidiary, Sonic Software, its fully owned Internet middleware company. The transaction should be cash-flow-positive and slightly dilutive in year one and accretive thereafter.

Buyer Seller Price Revenue Multiple Currency Pumatech Synchrologic $60,000,000 $11,800,000 5.1x Stock (Nasdaq: PUMA) SEG’s Insight: Synchronization and mobile app solution provider Pumatech, with $25 million revenue and $27 million left in cash, pays a whopping $60 million (all stock) for competitor Synchrologic ($11.8 million rev). The two firms had been locked in patent litigation brought by Pumatech. For Pumatech, the deal eliminates that headache, as well as a competitor, and provides access to better synchronization and device management technology. Pumatech previously acquired Starfish, Loudfire and Spontaneous Technology.

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Buyer Seller Price Revenue Multiple Currency Red Hat Inc. Sistina Software $31,000,000 $2,250,000 13.8x Stock (Nasdaq: RHAT) (estimate) SEG’s Insight: Open Source Linux powerhouse Red Hat will acquire storage infrastructure software maker Sistina Software in an all-stock deal valued at $31 million. As evidenced by the 13.8x multiple, this is a highly strategic buy for Red Hat as it battles to replace proprietary systems in large corporation with open source Linux applications. Red Hat will retain Sistina's development team and plans to bring an open source version of Sistina's software out by mid-year. With this acquisition, Red Hat expands its applications offering beyond Web portals and content management. An application server is slated to join Red Hat’s line-up later this year. Sistina’s revenue is a D&B estimate.

Buyer Seller Price Revenue Multiple Currency Saratoga Partners Divine’s Managed $28,000,000 $60,000,000 0.5x Cash (NASDAQ: FILE) Services Unit SEG’s Insight: Fallout from the Divine debacle continues with the U.S. Bankruptcy Court’s approved sale of Divine’s managed services unit to Saratoga Partners, a New York private equity firm. Saratoga is one of the few private equity firms that saw opportunity in the current market and jumped headlong into the fray. This is Saratoga’s third acquisition since February and follows on the heels of its recent sale of Datavantage to MICROS Systems. The managed services unit was built through Divine’s acquisition of Data Return, Intira and Host One.

Buyer Seller Price Revenue Multiple Currency ScanSoft SpeechWorks Int’l $133,756,000EV $36,000,000 3.7x Stock (Nasdaq:SSFT) (Nasdaq: SPWX) SEG’s Insight: ScanSoft, a leading developer of digital imaging software, continues to redefine itself by picking up publicly traded SpeechWorks, a speech recognition and text-to-speech vendor. This is ScanSoft’s third acquisition in this sector. ScanSoft clearly considers SpeechWorks to be highly strategic, considering the 63% premium it paid for a company that has historically lost significant amounts of cash. ScanSoft expects the deal to be 5% accretive after eliminating $27 million through headcount cuts and office consolidations.

Buyer Seller Price Revenue Multiple Currency Secure Computing N2H2 $15,813,000EV $11,100,000 1.4x Stock (Nasdaq: SCUR) (NTWO.OB) SEG’s Insight: Network security provider Secure Computing acquires content-filtering competitor N2H2, seeking to boost its number-three position in content filtering. Secure also picks up 2,000 new customers. Secure paid 1.4 times TTM revenue after factoring in N2H2’s cash and debt. The deal gives N2H2’s shareholders a 38% return based on a five-day preceding average, not bad considering the quarter ended June 2003 was the first time N2H2 recorded a profit…of $48,000.

Buyer Seller Price Revenue Multiple Currency SCO Group Vultus $2,700,000 $1,250,000 2.2x Stock (Nasdaq: SCOX) (estimate) SEG’s Insight: SCO Group, a provider of tools and services for Linux developers that has seen its stock price rocket upward six fold since filing a $1 billion IP infringement suit against IBM, appears to be taking advantage of its new found wealth, with its all stock asset purchase of Vultus Technology, a developer of tools used to design Web app interfaces. This is the first of what SCO identifies as a string of $4 to $10 million strategic acquisitions. Sellers beware.

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Buyer Seller Price Revenue Multiple Currency SERENA Software TeamShare $18,000,000 $12,500,000 1.4x Cash (Nasdaq: SRNA) (estimate) SEG’s Insight: Serena, a provider of software solutions used to manage enterprise application code and Web content changes, picks-up TeamShare, a “SoftLetter 100” provider of developer-oriented collaboration and workflow management tools. TeamShare’s product, which is already integrated with Serena’s, provides a highly complementary product extension for Serena. Revenue is estimated to be $12.5 million.

Buyer Seller Price Revenue Multiple Currency SSA Global Elevon $20,280,000 $33,000,000 0.6x Cash Technologies (Nasdaq: ELVN) SEG’s Insight: SSA GT, an enterprise software provider whose strategy is growth through acquisition, acquires Elevon, a global provider of collaborative commerce solutions. Elevon reported LTM revenue of $33 million, but backing out revenue from its recently divested UK operation, actual revenue was about $21 million, and the future looked bleak. Revenue fell 33% in the first quarter to $4 million and the company had a net loss of $1.5 million. Although the offer represents a 20% premium over Elevon’s current market cap, it’s actually less than Elevon’s $21 million cash on its balance sheet.

Buyer Seller Price Revenue Multiple Currency SSA Global EXE Technologies $16,026,000EV $73,656,000 0.2x Cash Technologies (Nasdaq:EXEE) SEG’s Insight: Enterprise software provider SSA Global Technologies nabs struggling EXE, the latest in its series of acquisitions. EXE’s highly regarded warehouse management/supply chain execution software will extend SSA’s ERP offerings to the mid-market. While EXE’s revenues have been flat, it reigned in expenses to near breakeven and had $32 million in cash, making the 0.2x purchase price appear curiously low. SSA, which earlier acquired Baan, Infinium and interBiz, has a record of picking up deals on the cheap.

Buyer Seller Price Revenue Multiple Currency Stellent Ancept $2,770,000 $4,500,000 0.6x Stock, (Nasdaq: STEL) (estimate) cash SEG’s Insight: The content management sector consolidated further as Stellent picked up small, privately-held digital asset management vendor Ancept, an IBM partner. After Stellent competitors Documentum and Interwoven recently acquired digital asset management developers (Bulldog and MediaBin), Stellent had little choice but to embed the technology in its offering. Ancept shareholders receive $2 million in cash and 100,000 shares of Stellent stock.

Buyer Seller Price Revenue Multiple Currency SunGard Data Systems Caminus Corp. $119,000,000EV $84,000,000 1.4x Cash (NYSE: SDS) (Nasdaq: CAMZ) SEG’s Insight: Sungard, the leader in financial services software, moves aggressively into the energy vertical, acquiring Caminus, a developer of trading and risk-management systems for that sector. Sungard’s value has declined 9.1% since its $9 a share offer, a $6.50 premium over Caminus’ trading price. We disagree. Backing out Caminus’ estimated $40 million cash balance, Sungard paid only 1.4x trailing 12 month revenue for a company growing at almost 50% annually. Caminus’ net losses are largely due to amortization expenses relating to prior acquisitions.

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Buyer Seller Price Revenue Multiple Currency SunGard Data Systems HTE $96,900,000EV $70,000,000 1.4x Cash (NYSE: SDS) (Nasdaq: HTEI) SEG’s Insight: SunGard continues to ramp up its public services operating unit with the acquisition of HTE, a leader in IT and software solutions to the government sector, especially local agencies. Backing out HTE’s cash balance of $24.1 million, SunGard pays a 1.4x multiple, or $96.9 million. Although HTE’s revenue has hovered for the past two years around $65 million, it returned to profitability in 2002, attracting SunGard’s interest.

Buyer Seller Price Revenue Multiple Currency Sungard Data Systems Systems & Computer $491,200,000 $269,700,000 1.8x Cash (NYSE: SDS) Technology Corp. SEG’s Insight: Highly acquisitive Sungard Data Systems continues to expand its market focus beyond the financial services sector. Following its 2003 acquisitions of Caminus, HTE and Sherwood International, which leverage Sungard in the energy and public sectors, Sungard beefs up its education sector business with Systems & Computer Technology (SCT), a leading provider of technology solutions to higher education. SCT adds 8 million users and 1,300 customers to Sungard’s installed base, but for SCT’s shareholders, the deal doesn’t quite add up. We wonder why they would settle for a mere 10% premium after SCT successfully divested non-core assets and expanded its higher education business through a string of savvy acquisitions. The strategy was working. In the last twelve months, SCT’s revenue grew 15.2% and EBITDA grew 18.0% to $45.8 million. SCT also boasted a strong balance sheet, which saw its current ratio remain near 3.5 and long-term debt fall from $74.7 million to $32.0 million over the same period.

Buyer Seller Price Revenue Multiple Currency Symantec Corp. Nexland $20,100,000EV $7,740,000 2.6x Cash (Nasdaq:SYMC) (OTC:XLND) SEG’s Insight: Symantec continues to reposition as a security software provider by acquiring Nexland, a small public company whose patent-pending security applications and appliances enable secure virtual private networking between corporate and remote offices. Here’s another example of a strategic partnership evolving into an acquisition with a decent multiple. After backing out Nexland’s cash and adding debt, Symantec paid $20.1 million. Nexland’s compound annual revenue growth rate exceeded 129% over the last two years.

Buyer Seller Price Revenue Multiple Currency Symantec ON Technology $81,660,000EV $37,500,000 2.2x Cash (Nasdaq: SYMC) (Nasdaq: ONTC) SEG’s Insight: Symantec further expands its administration software line with the acquisition of ON Technology, a leading provider of software distribution and configuration management solutions. Symantec, which had focused primarily on enterprise security software, has been building out storage management and IT administration product lines through a series of strategic buys, including September’s purchase of PowerQuest. Through acquisitions, the company has successfully redefined itself as an enterprise infrastructure solution provider.

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Buyer Seller Price Revenue Multiple Currency Symantec PowerQuest $150,000,000 $50,000,000 3.0x Cash (Nasdaq: SYMC) SEG’s Insight: Symantec, which opted a few years ago to focus primarily on Internet and network security, beefs up its admin software offering by acquiring PowerQuest, a provider of storage management, configuration and disaster recovery solutions using imaging technology. If purchase price is any reflection of perceived strategic importance, security software remains paramount for Symantec. The respectable 3x multiple (all cash) it paid for PowerQuest pales in comparison to the 5.0x and 6.0x multiples it shelled out last summer for four software companies specializing in Internet and system security.

Buyer Seller Price Revenue Multiple Currency Symantec SafeWeb $26,000,000 $2,500,000** 10.4x Cash (Nasdaq: SYMC) SEG’s Insight: While extending its business into IT administration and storage management, Symantec continues to tout itself as the leader in enterprise security software, as evidenced by its purchase of SafeWeb, a VPN appliance provider enabling secure remote access to enterprise networks without VPN client software. Here’s a good example of today’s “technology buy”; the gee-whiz factor of SafeWeb’s IP helps justify the 10.4 multiple.

Buyer Seller Price Revenue Multiple Currency The Sage Group Timberline Software $91,850,000EV $63,100,000 1.5x Cash (Nasdaq:TMBS) SEG’s Insight: The Sage Group follows through on its promise to add vertical business tools for the midmarket with its acquisition of Timberline. Looks like Sage may be mimicking the vertical acquisition strategy Intuit began nearly two years ago. Sage paid Timberline shareholders a 33% premium to get the company’s integrated operations/financial tools for medium-sized construction and real estate outfits. The buy gives U.K-based Sage and U.S. subsidiary Best Software a shot at holding onto its current customers as they outgrow the pair’s entry- level offerings.

Buyer Seller Price Revenue Multiple Currency Vignette Intraspect Software $20,000,000 $17,500,000 1.1x Stock, (Nasdaq: VIGN) (estimate) cash SEG’s Insight: Struggling content management/portal provider Vignette buys Intraspect, a developer of enterprise collaboration software. Following Documentum/eRoom, Interwoven/iManage and Open Text/Corechange, it’s clear now that collaboration software will be subsumed into other offerings (e.g., supply chain, content management) rather than continue as a standalone solution. Intraspect’s Java-based offering was a key attraction to Vignette, which now touts the only all-Java suite of content, collaboration and portal apps. One-half the purchase price is in Vignette stock.

Software Equity Group, L.L.C. 12220 El Camino Real, Suite 320 San Diego, CA 92130 www.softwareequity.com p: (858) 509-2800 f: (858) 509-2818

This report was prepared by Software Equity Group, L.L.C. (SEG), a mergers and acquisitions advisory firm and equity investor serving the software, life science 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.