Software Equity Group's 2011 M&A Survey

SOFTWARE INDUSTRY E QUITY REPORT 2010 Annual ABOUT OUR FIRM Software Equity Group is an investment bank and M&A advisory serving the software and technology sectors. Founded in 1992, our firm has guided and advised companies on five continents, including privately-held software and technology companies in the United States, Canada, Europe, Asia Pacific, Africa and Israel. We have represented public companies listed on the NASDAQ, NYSE, American, Toronto, London and Euronext exchanges. Software Equity Group also advises several of the world's leading private equity firms. We are ranked among the top ten investment banks worldwide for application software mergers and acquisitions. Our value proposition is unique and compelling. We are skilled and accomplished investment bankers with extraordinary software, internet and technology domain expertise. Our industry knowledge and experience span virtually every software product category, technology, market and delivery model, including Software-as-a Service (SaaS), software on-demand and perpetual license. We have profound understanding of software company finances, operations and valuation. We monitor and analyze every publicly disclosed software M&A transaction, as well as the market, economy and technology trends that impact these deals. We're formidable negotiators and savvy dealmakers who facilitate strategic combinations that enhance shareholder value. Perhaps most important are the relationships we've built and the industry reputation we enjoy. Software Equity Group is known and respected by publicly traded and privately owned software and technology companies worldwide, and we speak with them often. Our Quarterly and Annual Software Industry Equity Reports are read and relied upon by more than eighteen thousand industry executives, entrepreneurs and equity investors in sixty-one countries, and we have been quoted widely in such leading publications as The Wall Street Journal, Barrons, Information Week, The Daily Deal, The Street.com, U.S. News & World Report, Reuters, Mergers & Acquisitions, USA Today, Arizona Republic, Detroit Free Press, Entrepreneur Magazine, Softletter, Software Success, Software CEO Online and Software Business Magazine. Software Equity Group’s senior bankers have keynoted and spoken at more than one hundred software industry conferences and seminars, including Software Business, SoftExpo, Culpepper, VAR Conference, ACETECH, and the Arizona, Colorado, Chicago, Southern California, Denver, San Diego, Washington State and Boulder Software Associations. Software Equity Group, LLC 12220 El Camino Real, Suite 320 San Diego, CA 92130 www.softwareequity.com p: (858) 509-2800 f: (858) 509-2818 2010 Software Industry Equity Report Contents U.S. ECONOMY: SOFTWARE INDUSTRY MACROECONOMICS ........................................................................ 1 IT SPENDING ............................................................................................................................................................ 2 PUBLIC SOFTWARE COMPANY STOCK PERFORMANCE .................................................................................. 3 PUBLIC SOFTWARE COMPANY MARKET VALUATIONS ..................................................................................... 4 PUBLIC SOFTWARE COMPANY FINANCIAL PERFORMANCE ............................................................................ 7 PUBLIC SOFTWARE COMPANY PERFORMANCE BY PRODUCT CATEGORY .................................................. 8 PUBLIC SOFTWARE AS A SERVICE (SAAS) COMPANY MARKET VALUATIONS ............................................ 11 PUBLIC SOFTWARE AS A SERVICE (SAAS) FINANCIAL PERFORMANCE ...................................................... 12 PUBLIC INTERNET COMPANY MARKET VALUATIONS AND FINANCIAL PERFORMANCE ............................ 14 VENTURE CAPITAL INVESTMENT ....................................................................................................................... 18 THE BUYERS SPEAK: SOFTWARE EQUITY GROUP’S 2011 M&A SURVEY .................................................... 21 MERGERS AND ACQUISITIONS: THE NUMBERS ............................................................................................... 24 M&A DEAL VOLUME AND SPENDING: ALL INDUSTRY SECTORS ................................................................................. 24 SOFTWARE M&A DEAL VOLUME AND SPENDING ...................................................................................................... 25 SOFTWARE M&A DEAL CURRENCY ......................................................................................................................... 26 PRIVATE VS. PUBLIC BUYERS .................................................................................................................................. 27 SOFTWARE M&A VALUATIONS ................................................................................................................................ 28 M&A EXIT VALUATIONS BY SOFTWARE CATEGORY .................................................................................................. 30 SAAS M&A TRANSACTIONS .................................................................................................................................... 32 INTERNET M&A TRANSACTIONS ............................................................................................................................. 33 APPENDIX A: 2010 PUBLIC MARKET VALUATIONS AND STATISTICS BY PRODUCT CATEGORY .............. 35 APPENDIX B: 2010 MERGERS AND ACQUISITIONS, SELECT PUBLIC SELLER VALUATIONS ..................... 38 APPENDIX C: 2010 MERGERS AND ACQUISITIONS, MOST ACTIVE BUYERS ............................................... 39 APPENDIX D: 2010 MERGERS AND ACQUISITIONS, SELECT SOFTWARE INDUSTRY MEGA-DEALS ........ 46 APPENDIX E: 2010 MERGERS AND ACQUISITIONS, SELECT SOFTWARE-AS-A-SERVICE SELLERS ........ 47 APPENDIX F: 2010 MERGERS AND ACQUISITIONS – DEAL INSIGHT ............................................................. 50 APPENDIX G: SELECT 2010 SOFTWARE INDUSTRY MERGERS AND ACQUISITIONS .................................. 60 APPENDIX H: SELECT 2010 CORPORATE ANNOUNCEMENTS – SEEKING SOFTWARE ACQUISITIONS ... 76 This Report may not be reproduced in whole or in part without the expressed prior written authorization of Software Equity Group, L.L.C. Software Equity Group registers each Report with the U.S. Copyright Office and vigorously enforces its intellectual property rights. Copyright © 2011 Software Equity Group, L.L.C., All Rights Reserved 2010 Annual Software Industry Equity Report Index of Figures Figure 1: U.S. Gross Domestic Product and Unemployment Rate Figure 2: CTO Tech Spending Priorities (Highest Rankings at Top) Figure 3: Major Market Indices Compared to the SEG Software, Internet and SaaS Indices Figure 4: High Flyers – 2010 Stock Market Return Figures 5 and 6: SEG Software Index Key Statistics – Annually and Quarterly Figure 7: SEG Software Index Historical EV/EBITDA and Median EBITDA Figures 8 and 9: EV/Revenue Multiple vs. TTM Revenue Growth Rate and EBITDA Margin Figure 10: High Flyers – Enterprise Value/Revenue Figure 11: SEG Software Valuation and Financial Performance by Size of Buyer (TTM Revenue) Figure 12: SEG SW Index R&D Expense as % of Total Revenue Figure 13: Expected vs. Delivered Revenue and EPS Results (as of December 31) Figure 14: SEG Software Index Companies with over $1 billion of Cash (as of December 31) Figure 15: SEG Software Index Median Metrics by Product Category Figure 16: SEG Software Index Median Q410 EV/Revenue Multiple by Product Category Figures 17 and 18: SEG SaaS Index Key Statistics Annually and Quarterly Figure 19: 4Q10 SEG SaaS TTM Revenue vs. EV/Revenue Multiple Figure 20: SEG Software and SEG SaaS Historical EV/Revenue Multiples Figure 21: SEG SaaS Historical Financial Performance vs. EV/Revenue Figure 22: Public SaaS Companies Figure 23: Public SaaS 4Q10 Median Financial Performance vs. Median EV/Revenue Multiple Figures 24 and 25: SEG Internet Index Key Statistics Annually and Quarterly Figure 26: 2010 SEG Software, SaaS and Internet Median EV/Revenue Multiple Distributions Figure 27: SEG Software, SaaS and Internet Historical Gross Margins Figure 28: SEG Internet Index Median Metrics by Product Category Figure 29: 2010 U.S. Software and Internet IPOs Figure 30: U.S. Software and Internet IPO Pipeline Figure 31: U.S. Venture Capital Investments and Total Dollars Invested Across all Industries Figures 32 and 33: Aggregate VC Investments and Total Dollars Invested by Company Stage Figures 34 and 35: Aggregate VC Investments and Total Dollars Invested by Product Category Figure 36: U.S. Mergers and Acquisition Activity Figures 37 and 38: Annual U.S. Software Sector M&A Activity and Dollars Spent Figures 39 & 40: Quarterly U.S. Software Sector M&A Activity and Dollars Spent Figure 41: Software M&A Deal Currency Figure 42: Public vs. Private Software M&A Buyers and Sellers Figure 43: Annual Median Software M&A Valuation as a Multiple of Revenue Figure 44: Quarterly Software M&A Valuation as a Multiple of Revenue Figure 45: Median Public Software Company Seller Valuation as a Multiple of EBITDA Figure 46: 2010 Median Multiples – Segmentation (Enterprise Value/Revenue) Figure 47: 2010 Horizontal vs. Vertical Sellers Figure 48: Horizontal vs. Vertical M&A Multiples Figure 49: Software M&A by Product Category Figure 50: Software M&A by Product Category Figure 51: Quarterly Internet M&A by Category Figure 52: 2010 Internet M&A by

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