Strategic Review of NIBC 2015 First Round Case – Internal Solution for Grading Only

Part I: Business Analysis & Valuation Part II: Transaction Analysis

November 2014 – Strictly Confidential Disclaimer & Table of Contents

Part I: Business Analysis & Valuation

Company Overview

Industry Overview

Valuation Analysis

Part II: Transaction Analysis

Sale to Financial Sponsor Analysis

Review of M&A Opportunities

Model Outputs

nibc.ca

Disclaimer: This presentation is being provided solely for the purpose of offering training opportunities to competitors looking to compete in the National Investment Banking Competition and may not be distributed without express written permission. The information contained herein is copyrighted, proprietary and has not been reviewed for external publication or audited and therefore should not be relied on or used for any other purpose than for training as stated here.

National Investment Banking Competition 2015 – Strictly Confidential | Not for Public Distribution | Preliminary Draft 2 Executive Summary

Electronic Arts (EA) is the 3rd largest video game manufacturer in North America and could benefit from strategic acquisitions to counteract competitive pressures and shift exposure to growing digital segments

Company • Traditional market leadership in sophisticated games for console platforms but has increasing focus on growing mobile, social, casual and free-to-play digital segments • Revenues and EBITDA forecasted to grow at ~5% and ~10% CAGR, respectively, mainly from expanding digital segments and margin expansion • Despite strong 2014 financial performance, EA has experienced some challenges in bringing AAA blockbusters to market as well as customer satisfaction and product development

Industry • Industry comprises $68bn in sales and is projected to grow at 6.7% CAGR over next 5 years through increasing penetration of developing markets and growth in mobile gaming market (50% YoY) • Industry consists of independent developers (Bethesda Softworks), integrated publishers (EA, Activision-Blizzard) and console publishers (Sony, Nintendo, Microsoft) with 40.7% of market share held by 5 largest players

Valuation • Share price has recovered since financial crisis at healthy EV/EBITDA multiple of 9.7x as EBITDA has dramatically improved ̶ However, valuation remains at ~50% of pre-crisis peak given competitive pressures, low share of growing digital segment and lack of AAA product successes

M&A Analysis • Market has exhibited growing M&A activity in conventional console game segments as well as mobile game segment with Activision / Blizzard combining to become largest video game manufacturer in North America • Given healthy valuation and low leverage, EA possesses significant financial capacity to undertake acquisitions to promote its strategic objectives including: ̶ Acquisition of Take Two or Ubisoft to acquire content and compete with merged Activision-Blizzard rival ̶ Acquisition of independent mobile game developers to extend market leadership in rapidly growing segment • LBO would be challenging given size and relatively rich valuation with base case assumptions of 6.0x pro forma leverage, 20% premium, and 10.0x exit multiple resulting in only 12.7% IRR

National Investment Banking Competition 2015 – Strictly Confidential | Not for Public Distribution | Preliminary Draft 3 Company Overview Company Overview

EA is the 3rd largest video game manufacturer in North America and has experienced strong share price performance on the back of favorable 2014 results

Company Highlights Valuation and Share Performance ▪ History: Founded in 1982, taken public in 1989, and had the leading sales during both 6th and 7th Key Valuation Statistics ($m) generations for consoles; today EA is the 3rd largest video game developer ◼ Click to edit Master text styles ▪ Valuation: 2011 through 2012 had EA faced with end of console cycle and poor free cash flow due to EV* $9,511 Revenue $4,021 increased operating expenses,— Second but valuation level improved after 2012 with higher digital sales Market Cap* $11,241 EBITDA $944 ▪ Strategy: Historically focused— Third on “packaged level goods” products that are sold through retailers but P/E* 19.6x EBITDA Margin 23.5% shifting business model to delivering games via online platforms and reducing number of titles —Fourth level EV/EBITDA* 9.7x Debt / EV 6% ▪ 2014 Success: EA had a very successful year in FY 2014 (EBITDA +49.6% YoY), primarily due to success in its FIFA 14 and Battlefield— Fifth franchises, level and increasing margins via cost reductions and a Cash $2,365 Total Debt $580 higher digital mix in its revenue stream *As of September 26th, 2014 ▪ Major Corporate Finance Transactions: $1.3bn acquisition of PopCap Games (2011), $391m **All other figures as of FY14 (year end March 31st, 2014) acquisition of Playfish (2009), $620m acquisition of VG Holdings (2008)

US Video Game Publishing High / Low: Publisher Revenue Mix % Gross ($mm) Share Price Current: $35.96 $20.47 / $38.64 1 Activision $2,172 Packaged Goods 53% $2,149 2 Microsoft $1,577 Electronic Arts NASDAQ Digital 45% $1,793 3 Electronic Arts $1,359 $40.00 $5000 $4500 4 Nintendo $865 Distribution 2% $79 $32.00 $4000 5 Sony $680 $3500 6 Take Two $648 Key Franchises Platform $24.00 $3000 7 Ubisoft $451 FIFA Console/PC/Mobile $2500 $16.00 $2000 Madden NFL Console $1500 * All revenues are for 2013 and in $m NBA Live Console $8.00 $1000 Console/PC $500 Other Notable Global Publishers SimCity PC - - Sep-09 Sep-10 Sep-11 Sep-12 Sep-13 Konami, THQ, Square Enix, Sega Battlefield Console/PC *Share price as of September 26th, 2014

National Investment Banking Competition 2015 – Strictly Confidential | Not for Public Distribution | Preliminary Draft 5 Strategic Objectives

EA is focused on growing EBITDA through expanding margins from focusing on more AAA but fewer titles and achieving revenue growth from increased sales in digital segment

Strategic Objectives Operational Objectives

▪ Maintain market leadership in core segment of games for dedicated video ▪ Maintain high cash balance ($2,365m as of YE FY2014) to remain flexible game players for future M&A possibilities ▪ Grow segment that appeals to casual gamers through mobile and Internet ▪ Continue cost cutting initiatives in operating expenses to improve platforms operating margins; FY2014 non-GAAP EBITDA margin at 23.5% ▪ Aggressively reduce the number of significant title releases ▪ Provide games to consumers via digital platforms to improve margins and enhance user functionality ▪ Create steady revenue stream by building additional content and online features

Corporate Finance Transactions

Acquisition of Criterion Software Acquisition of Chillingo ($20m)

Acquisition of PopCap Games ($1.3bn) Stock Buyback ($500m)

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Stock Buyback ($750m)

Acquisition of KlickNation

Acquisition of Playfish ($391m) Acquisition of VG Holdings ($620m)

Acquisition of Jamdat Mobile ($682m)

National Investment Banking Competition 2015 – Strictly Confidential | Not for Public Distribution | Preliminary Draft 6 Business Model

Historical performance has been volatile but packaged goods sales are expected to be replaced by strong digital sales which are forecasted to drive revenue growth at improved margins

Revenue and Cost Drivers Expected Pipeline Packaged Goods Revenues: Games sold through packaged and physical distribution have been in long-term decline as distribution shifts to digital Digital Revenues: Games capable of digital download and access over Internet have increased 24% YoY as market grows rapidly ▪ Full game downloads: Can be purchased through digital game portals ▪ Free to play downloads (F2P): Players must pay to access additional content ▪ Mobile/Social Network/Casual games: Less sophisticated games for new platforms ▪ Extra content: Micro-transactions as bonuses/upgrades to original content Cost Structure: Overall cost structure is higher than for peer group but forecasted to improve as focus shifts to more blockbusters and digital segments ▪ Production costs (30%-33%) ▪ Fixed Costs: ̶ Product development (13%-30%) ̶ Sales and Marketing (13%-21%) ̶ General and Admin (5%-7%) ▪ Fixed costs per blockbuster title are typically +$100m with sales between $30-$300m

- Segmented non-GAAP revenues exclude Distribution revenue - Fiscal years ended March 31st

National Investment Banking Competition 2015 – Strictly Confidential | Not for Public Distribution | Preliminary Draft 7 Operating Analysis

Positive drivers including focus on AAA titles and expansion of digital is expected to outweigh headwinds from growing competition and increased royalty expenses

Total and Segmented Revenues Trajectory (In billions) ▪ Significant growth in digital revenues while packaged goods are in decline ▪ Uplift in 2014 EBITDA due to significant margin expansion from higher digital mix

Positive Drivers ▪ Management is focused on introducing cost cutting initiatives to improve margins, such as an increasingly focused marketing program ▪ Focus on producing less titles and directing a larger percentage of the budget to AAA releases ▪ Majority of growth in mobile / online gaming which accounts for less of EA’s core business ▪ Tighter integration of Gen 8 consoles with PlayStation Network and Total Non-GAAP EBITDA and Margin Xbox LIVE should support 2015 revenue growth in the digital (In billions) segment ▪ FY 2015 revenue could see high growth due to 3rd year of console Total EBITDA EBITDA Margin cycle historically being very profitable for game developers & 1.5 publishers 27% 27% 27% 25% 26% 23% Negative Drivers 1.0 17% ▪ Growing competition and consolidation in the industry is putting 15% pressure on margins and ability of companies to differentiate 13% ▪ Dependency on AAA releases makes revenue and cash flow stream 0.5 9% more volatile and difficult for management to forecast where to allocate budget ▪ Royalty expenses are likely to weigh on revenues for the next 2 years - 2010 2011 2012 2013 2014 2015E 2016E 2017E 2018E 2019E ▪ Headwinds will surface for packaged goods revenue due to from transition to game development higher margin PC and mobile - Revenue forecast based on analyst reports platforms - Fiscal years end March 31st

National Investment Banking Competition 2015 – Strictly Confidential | Not for Public Distribution | Preliminary Draft 8 Liquidity Analysis

EA currently in significant net cash position with room to take on more debt although capacity may be limited by limited track record and changing market conditions

Sources: Bloomberg, CapIQ 1. Historical numbers & projected EBITDA are Non-GAAP 2. Historical EV and current EV for forecasts

Liquidity Credit Forecast

▪ No substantial change in credit unless a strategic acquisition opportunity rises which needs debt financing ▪ Risks include: Volatility of the , volatility of the mobile and free to play segments, investments in games that may underperform, lower visibility of revenue beyond fiscal 2018 ▪ Credit facility’s undrawn amount based on company’s disclosure of available unused credit facility ▪ Common trend throughout video game industry is to maintain high leverage and high cash balances for deal flexibility ▪ Average Total Debt/EV is around 10% and average Total Debt/EBITDA is 3.9x in the industry

* Based on 2x Debt / EBITDA National Investment Banking Competition 2015 – Strictly Confidential | Not for Public Distribution | Preliminary Draft 9 Capital Requirements

Capital requirements and development expenditures can comfortably be served from internal cashflows although EA retains significant cash on hand to opportunistically pursue acquisitions

Capital Requirements ▪ Massive, multi-player online games (MMOGs) require significant server capacity and need to be maintained frequently to create high quality experience ▪ Deal flexibility is critical in industry with major players holding significant cash on hand to compete to acquire the best game developers ▪ Game development costs can be fairly intensive depending on type of game but are typically funded from internal cashflows ̶ Upfront development costs comprise around 35% of sales and are typically incurred between 24 and 36 months ̶ New open-word game "Destiny" developed by Activision-Blizzard is reported to cost $500m in development plus marketing costs

2010 2011 2012 2013 2014E 2015E 2016E 2017E 2018E 2019E

Historical & Forecasted Capex ($m) $305 $59 $172 $106 $97 $103 $113 $119 $125 $132

Capex /Sales 7.3% 1.5% 4.1% 2.8% 2.4% 2.5% 2.5% 2.5% 2.5% 2.5%

Debt repayment ($m) ------$633 - - -

$800 Debt Outs. Avail. Issued Interest Notes Debt repayment Facility ($m) ($m) Maturity rate Capex Convertible $633 $0 2011 / 2016 0.75% $633mm $600 Senior outstanding; Unsecured converts at Notes $31.74/sh; used $400 for acquisition of PopCap Revolving $0 $500 2012 Adjusted $500m available; $200 Credit LIBOR used for general Facility corporate purposes $0 2010 2011 2012 2013 2014E 2015E 2016E 2017E 2018E 2019E

National Investment Banking Competition 2015 – Strictly Confidential | Not for Public Distribution | Preliminary Draft 10 Ownership

Shareholder base is stable with mostly institutional long-term investors which are expected to be open to EA pursuing further strategic acquisitions

Shareholder Characteristics ▪ The majority of EA ownership is held by institutional investors with the Top 10 Investors holding 39.96% of total shares ▪ EA’s major shareholders are mostly long-term investors and no hedge funds ▪ Relatively insignificant insiders positions ▪ Most investors have done well recently and see EA as growth stock

Ownership (Top 10 Shareholders) Value % Ownership Acquired and Average Cost Institutional Investors Shares % ($m) between Sep 2011 and Mar 2014 Vanguard Group Inc. 23,162,510 7.41 837.09 1.40% $25.60 Blackrock 22,868,722 7.32 826.47 NA NA American Century Companies 14,650,110 4.69 529.45 1.96% $18.80 Alliance Bernstein LP 13,865,577 4.44 501.01 4.41% $17.30 PRIMECAP Management Companies 12,525,669 4.01 452.67 (3.71)% $38.00 State Street Corp. 12,025,129 3.85 434.58 0.35% $18.20 FMR LLC 11,641,670 3.72 420.72 (5.37)% $39.00 Columbia Management Invest. 9,899,719 3.17 357.77 0.37% $26.50 JP Morgan Chase & Co. 9,616,494 3.08 347.54 2.63% $14.50 Fidelity International 9,466,209 3.03 342.10 2.07% $28.60 Share Price (at Sep 26h, 2014) $35.96

▪ Institutional Ownership: 98.53% (739 Institutional Owners) ▪ Insider Ownership: 0.43% ▪ Fund Ownership: 58.48% (1,316 Fund Owners) ▪ Basic Shares Outstanding: 312.61m (as of September 26th, 2014)

National Investment Banking Competition 2015 – Strictly Confidential | Not for Public Distribution | Preliminary Draft 11 Industry Overview Industry Overview

$68bn global industry projected to grow at 6.7% CAGR over next 5 years with market roughly split between Asia Pacific and North America plus EMEA

Industry Overview North America Video Game Software Industry by Segment ($bn)

North America Revenue by Major Segment (2014) $18 Console/handheld games Online games Mobile games Physical games and software $16.9bn

Consoles $13.3bn $15

Online games and software $7.0bn $12 Total revenue $40.9bn

5-year revenue growth 6.1% $9

EBITDA margins 19.7% - 36.8% $6 North America Industry Characteristics

Total Debt/EBITDA 3.5x $3

Total Debt/EV 0.1x - EBITDA margin 16.3% 2007 2008 2009 2010 2011 2012 2013 2014E 2015E 2016E

EV/EBITDA 8.0 – 10.4x Other 3% Asia Pacific Cash Ratio 1.1x 7%

Market share held by 5 majors 40.7% North Global Industry America 24% Total revenues $68bn North Asia America Forecasted 5-year revenue growth 6.7% Pacific EMEA 45% 43% 47% Revenue Profile EMEA 30% Market declined in 2008 onwards due to dependency on discretionary spending but has been relatively resilient

Market has picked up in since 2012 due to improved confidence and growth in mobile/online segment Global industry sales by region Average distribution of sales for video game (2012) publishers in 2014 (EA, ATVI, TTWO, UBI)

National Investment Banking Competition 2015 – Strictly Confidential | Not for Public Distribution | Preliminary Draft 13 Key Stakeholders

Key stakeholders include developers, publishers, distributors and retailers; EA is involved in all stages of the value chain except for physical retail

Development Retail

Outsourced to Publishing Distribution In-house studios Independents Physical Retail Digital Retail

Develop video games Perform financing, manufacturing Distribute games to major Deliver games and software to and related content and marketing functionalities to retailers via physical or digital customers prepare games for launch channels

▪ Majors have multiple in- ▪ Major publishers and banks ▪ Major publishers often ▪ Physical retailers generate house game development finance game development distribute their own games more sales from used rather studios Activision Blizzard, Electronic Activision Blizzard, Electronic than new software EA Studios (Electronic Arts), 2K Arts Arts GameStop, (Take Two) ▪ Ancillary services are ▪ Digital distribution is ▪ Digital retailers include mobile ▪ Independents receive provided growing through multiple storefronts and web retail advances from Majors for Market research and digital marketplaces App Store, Amazon game development costs and technology assistance Xbox Live Arcade, PlayStation royalties for sales Network, Wii Ware, ▪ Console manufacturers Arkane Studios (Call of Duty), (Electronic Arts) charge publishers a royalty Bethesda Softworks (Fallout), for each game ▪ Independent publishers rely Mojang (Minecraft) manufactured on third party distributors Nintendo, Sony, Microsoft Synnex, Ingram Micro

National Investment Banking Competition 2015 – Strictly Confidential | Not for Public Distribution | Preliminary Draft 14 Industry Size and Trends

Industry trends include focus on blockbuster releases as well as rise of mobile, online social media, casual and free- to-play games as well as digital distribution of conventional console games

Industry ◼ Blockbuster releases: Emphasis by large companies on fewer game releases and significant marketing campaigns, which lead to Trends revenue fluctuation and lower operating costs if successful ◼ Mobile and online gaming: ̶ Sales by independent developers are up 37.2% from 2013 to $29.5bn in 2014 ̶ Online platforms create lower barriers to entry for game developers ◼ Digital Distribution: Improved online games stores and increased access to broadband is driving digital distribution of console games, which has lead closures in physical video manufacturing facilities

◼ Social and casual gaming: Recent innovations in new platforms allow companies to appeal to broader demographics with more accessible and less complex casual and social games

◼ Console games: Sophisticated console games continue to be in high demand with Play Station 4 selling more units than any predecessor model and the open-world game Destiny (ATVI) being the most expensive game ever developed

◼ Platforms: Console platforms are likely to remain highly relevant platforms since mobile and tablet devices have limited capabilities, although PC platforms are becoming more powerful

◼ Genres: Multi-player first-person shooter games have become most successful genre (Counter-Strike, Halo) but open-world role playing games (ability to use and access everything like in GTA) have become very popular as well; sports games continue to exhibit steady demand while arcade games have decreased in popularity

Total Global Consumer Spending on Video Games by Platform Total Consumer Spending on Video Games

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National Investment Banking Competition 2015 – Strictly Confidential | Not for Public Distribution | Preliminary Draft 15 Financial Aspects

Performance of industry players is somewhat volatile, driving trend towards M&A activity to gain economies of scale and mitigate risk

Financial ◼ Hit-driven profit: Profit is fairly volatile and margins are expected to grow based on lower cost of online distribution and increased Aspects sales due to intensive marketing for fewer Blockbuster releases

◼ Labor costs: Talented software developers are in high demand, resulting in high spending on labor costs reaching approximately $0.08 spent in capital for every $1 spent in wages

◼ Technological advances: The industry is transitioning into a generation of new consoles, the anticipation of which generally stalls new games and present-generation console sales in the two years leading up to the release

◼ Console cycle: Video game sales have historically ramped up in the 3rd year of a console cycle (will be 2016 in the current cycle) as price points become more manageable for consumers

◼ Cyclicality based on disposable income: Video game revenue is dependent on consumer discretionary spending

Corporate ◼ Content Acquisition: Difficult to develop blockbuster titles in-house Finance ̶ Vertical integration: With lower barriers to entry created by online gaming development, quality developers with attractive Activity games are in strong demand as larger publishers want exclusive access to their game pipeline ◼ Expansion Into Market Segment: Easier to expand into new segment like mobile / online gaming via acquisition

◼ Consolidation: Trend towards creating a competitive advantage via gaining market share ̶ Horizontal mergers: Major players look to become fully-functional companies that publish, develop and market directly to customers instead of operating as pure-plays ◼ Expansion of Distribution Channels: Growing increasingly important to have distribution channels expanding into new markets ◼ LBOs: The industry has not seen much activity in LBOs, with only two deals making recent headlines

Regional ◼ International Markets: Expected to be grow at a faster rate than North America

Characteristics ◼ Japanese Game Developers: Have fallen behind Western manufacturers and lack the ability to developer first-person shooter games

◼ Western Game Developers: Derive most revenues from North America and Europe with Japan and the broader Asia Pacific region accounting for relatively small share

Key Players ◼ GameStop (16.2% - retail)

(% US Video ◼ Microsoft (11.6% - console platform) Game Market, ◼ Activision Blizzard (5.5% - publishing) CY 2013) ◼ Nintendo (4.1% - console platform)

◼ Electronic Arts (3.3% - publishing)

◼ Sony (3.1% - console platform)

National Investment Banking Competition 2015 – Strictly Confidential | Not for Public Distribution | Preliminary Draft 16 Major Industry Players

Activision Blizzard and Ubisoft’s operating and stock price performance have lagged, while Take-Two had the strongest stock price performance and Zynga leading with highest revenue growth

Business Model FY2013 Regional Revenue Revenue Segments N. America Europe Asia 5-Year Share Price Performance

ATVI ▪ Franchise console games and MMORPGs $2,436 $1,968 $452 Activision Blizzard (ATVI) Take-Two (TTWO)

TTWO ▪ Two major franchises for console games $565 $649 $25 5,000 TTWO NASDAQ 4,500 ZNGA ▪ Multiple social gaming hits $520 $353 $20 4,000 UBI ▪ Few popular franchises for console games $687 $915 $113 3,500 $15 3,000 Nintendo ▪ Console hardware and software developer $2,512 $1,803 $2,218 2,500 $10 2,000 EA ▪ Known for sports and simulation franchises $1,701 $2,096 1,500 $5 1,000 500

Operating Performance Aug-09 Aug-10 Aug-11 Aug-12 Aug-13 Revenue CAGR (5yr) CAGR (2yr) EBITDA CAGR (5yr) CAGR (3-5yr) Margin Zynga (ZNGA) Ubisoft (FP: UBI)

(US$m) LTM* Historic Forecast LTM* Historic Forecast FY 2013 $16 5,000 ZNGA NASDAQ $14 4,500 ATVI $4,290 9.9% 1.6% $1,368 19.8% 0.5% 36.8% 4,000 $12 3,500 TTWO $2,333 (11.6)% 69.8% $254 (342.2)% (20.2)% 20.9% $10 3,000 ZNGA $700 131.1% (23.1)% $(55) (0.7)% 44.3% 8.4% $8 2,500 $6 2,000 1,500 UBI $1,350 2.1% -2.4% $607 4.6% (1.2)% 37.5% $4 1,000 Nintendo $5,592 (10.9)% (16)% $(288) (138.2)% NA (3.7)% $2 500 Aug-09 Aug-10 Aug-11 Aug-12 Aug-13 EA $4,090 79.7% 55.0% $995 51.7% 66.3% 9.2%

Nintendo (JP: 7974) Electronic Arts (EA)

Capital Structure and Valuation* ¥35,000 5,000 Nintendo NASDAQ 4,500 ¥30,000 (US$m) EV Market Cap Debt Cash Net Debt/EV EV/EBITDA P/E 4,000 ATVI $15,364 $15,247 $4,321 $4,199 0.8% 11.2x 14.7x ¥25,000 3,500 ¥20,000 3,000 2,500 TTWO $1,573 $1,955 $459 $822 (23.1)% 2.3x 21.9x ¥15,000 2,000 ZNGA $1,808 $2,535 $0 $136 (7.5)% ned neg ¥10,000 1,500 1,000 ¥5,000 UBI $1,794 $1,779 $253 $229 1.3% 4.0x neg 500 Nintendo $8,600 $15,607 $22,645 $4,390 (51)% neg neg Aug-09 Aug-10 Aug-11 Aug-12 Aug-13 EA $9,512 $11,242 $586 $1,554 (10.2)% 9.6x 19.9x

Sources: Bloomberg, CapIQ *LTM as of Sep 26th 2014

National Investment Banking Competition 2015 – Strictly Confidential | Not for Public Distribution | Preliminary Draft 17 Corporate Finance Activity

Most prevalent transactions consist of conglomerates acquiring small developers although consolidation in traditional console and growing digital segments have become more common

Sony launches PS2 (new console cycle)

Microsoft acquires Bungie (conglomerate / developer)

Launch of Xbox and GameCube (new entrant) SquareSoft merges with Enix (consolidation, mid-size) Sammy merges with SEGA (consolidation, large-scale)

EB Games merges with GameStop ($1.4bn) (consolidation, distribution) Microsoft launches 7th gen console cycle with Xbox 360 (new console cycle) 2000 2001 2002 2003 2004 2005 2006

2007 2008 2009 2010 2011 2012 2013 (consolidation, large-scale)

Softbank and GungHo acquire 51% stake in Softcell ($1.5bn) (new console cycle) Nintendo launches 8th gen console cycle with Wii U

Tencent Holdings acquires majority stake in Riot Games ($350m) (conglomerate / developer)

EA acquires PopCap Games ($1.3bn) (conglomerate / developer)

Walt Disney acquires Playdom ($763m) (conglomerate / developer)

EA acquires Playfish ($391m) (conglomerate / developer) Activision merges with Vivendi Games ($18.9bn) (consolidation, large -scale) EA rumored to make a $2bn bid for Take-Two Interactive (consolidation, mid-size) EA acquires BioWare and Pandemic Studio (conglomerate / developer)

National Investment Banking Competition 2015 – Strictly Confidential | Not for Public Distribution | Preliminary Draft 18 Valuation Analysis Historic Share Price Performance

EA’s valuation is currently only half of pre-crisis level despite good run in financial performance and share price last year, partially due to competitive pressures, low share of new digital markets and failed AAA product launches

▪ Jan 2005 – EA signed a 15-year licensing deal with ESPN, which provided EA with exclusive access to its programming and personalities ▪ Feb 2008 – EA made an all-cash bid of $26/share, approximately $2bn, for Take-Two Interactive, representing a 64% premium over closing price of $15.83 on Feb 15th. Take-Two refused and the offer expired in Sep 2008 ▪ Dec 2011 – With estimated costs totaling $200m, Star Wars: The Old Republic ranked as one of most expensive games ever developed. As revenue from subscription decreased in 2012, EA dropped the subscription fee for a free-to-play model ▪ Mar 2013 – Riccitiello steps down as EA’s CEO over the company’s poor financial performance in the quarter. He was credited for diversifying EA’s business model, but was unable to boost earnings and stock price in response to trends in the industry ▪ Apr 2013 – EA voted as the second worst company by consumers for rushing through game development, poor game releases and forcing players to purchase extra content through microtransactions despite the already expensive flat price ▪ Sep 2013 – Andrew Wilson appointed new CEO with a focus on continued transition into a more digital future, instilling a culture of execution and a greater level of operational detail

National Investment Banking Competition 2015 – Strictly Confidential | Not for Public Distribution | Preliminary Draft 20 Valuation Overview (1 of 2)

Stock price has rallied over past two years and valuation analysis indicates potential further upside relative to peer group especially in digital segment

Valuation Summary Share Price Current: $35.96 High / Low: $20.47 / $38.64

▪ EA’s stock experienced a strong rally in past two years on higher Electronic Arts NASDAQ operating margins and overall performance $40.00 $5000 ▪ Analyst reports: Views on EA generally range from neutral to $4500 positive with very few underperform ratings $32.00 $4000 $3500 ▪ Comps: EA appears to be fairly valued looking at trading $24.00 $3000 comparables $2500 ▪ Precedents: Undervalued in comparison to precedent transactions $16.00 $2000 (premium and more digital segment) $1500 $8.00 $1000 ▪ DCF: Slightly undervalued in comparison to discounted cash flow $500 valuation methodology - - Sep-09 Sep-10 Sep-11 Sep-12 Sep-13

Key Metrics / Applicable Valuation Multiples Electronic Arts Comparables Precedents EBITDA Margin 23.5% 16.4 – 38.3% 34.3 – 42.8% Net Income Margin 11.3% 3.2 – 22% 13.8 – 41.7% EV/EBITDA 9.7x 9.1x – 24.0x 6.0x – 35.4x EV/Revenue 2.3x 1.1x – 3.2x 2.0x – 5.8x

Revenues EBITDA EBITDA EV/EBITDA EV/EBITDA Broker Estimates Results Period P/E ($m) ($m) Margin (FY15) (FY14) High Target Price $46.00 2015E $4,152 $1,053 25.4% 7.0x 9.1x 20.4x - BMO (7/23/2014) EV ($m) $7,371 Consensus Target Price $42.00 2014E $4,233 $1,066 25.2% 8.0x 9.0x 19.6x - Credit Suisse (7/23/2014) EV ($m) $12,049 Low Target Price $40.00 2015E $4,187 $1,119 26.7% 9.5x 8.56x 18.5x - UBS (7/22/2014) EV ($m) $9,474

National Investment Banking Competition 2015 – Strictly Confidential | Not for Public Distribution | Preliminary Draft 21 Valuation Overview (2 of 2)

Combination of DCF, precedents and trading comps analysis shows EA is fairly valued relative to peers and cash flow projections although analysts see significant upside due to growing industry

EV/Revenue: 1.1x - 2.5x 52 Week Trading 52 Week Trading Range $20.47 $38.64 EV/EBITDA: 4.6x - 10.7x

Current Analyst Forecast $36 $46 EV/Revenue: 2.3x - 3.1x Current Analyst EV/EBITDA: 9.8x - 13.1x

Trading Comparables Valuation $39.15 $51.73 EV/Revenue: 2.4x - 3.3x Trading Comparables EV/EBITDA: 9.5x - 13.1x Valuation

Precedents Valuation $44.10 $54.44 EV/Revenue: 2.9x - 3.7x Precedents EV/EBITDA: 12.1x - 15.4x

EV/Revenue: 2.7x - 3x EV/EBITDA: 11.4x - 12.7x DCF Valuation $40.79 $44.64 DCF Valuation Revenue CAGR: 4.0% - 6.0% EBITDA CAGR: 7.2% - 9.3% 15 20 25 30 35 40 45 50 55 60 Share Price

National Investment Banking Competition 2015 – Strictly Confidential | Not for Public Distribution | Preliminary Draft 22 Valuation Analysis

EA’s valuation is justifiable based on an increase in digital revenues, additional content and continued cost cutting but relies on achieving an attractive forecast and repeat franchise successes

Valuation Analysis Key Valuation Statistics ($m)

▪ Valuation: 10.1x EV / 2014 EBITDA is relatively strong but comes EV* $9,511 Revenue $4,021 down to 9.2x for 2015E as EBITDA grows at ~9.9% Market Cap* $11,241 EBITDA $944 ▪ Forecast: Seems achievable on back of strong FY 2014 EBITDA of P/E 21.0x EBITDA Margin 23.5% $944m despite lower historical EBITDA of ~$500m in 2010-2013 EV / EBITDA 10.1x Debt / EV 6% ̶ Revenues are expected to increase by 2.8% in 2015E, 8.9% in Cash $2,316 Total Debt $580 2016E and 5.3% thereon due to growing digital market as well * As of September 26h, 2014 as mature stage of console cycle (2016) ** All other figures as of FY14 (year end March 31st, 2014) ̶ EBITDA margin is forecasted to improve from 25.1% in 2015E to 27.3% in 2019, due to games being delivered online, fewer Positive Valuation Drivers titles and cost saving initiatives ▪ Larger revenue mix attributable to digital goods and delivery should ▪ WACC: Relatively low at 10.4% with moderate beta of 1.15 given contribute to higher margins uncorrelated hit-driven business but dependency on disposable ▪ High industry growth in mobile, social and casual gaming income ▪ Continued cost cutting initiatives should boost free cash flows ▪ Business: Stable as 3rd largest games publisher (10.7% of global market) and long-standing franchises (FIFA Soccer, Battlefield, Sims) Valuation Concerns ▪ Focus on more AAA but fewer titles overall increases revenue volatility (Star Wars franchise was very expensive but not FY EV / EBITDA* EBITDA* ($m) %∆ Revenues * ($m) %∆ successful) 2011 9.3x 493 27.1% 3,828 8.0% ▪ Increased competitive threat from successful franchises of merged Activision-Blizzard 2012 7.2x 613 24.3% 4,184 9.4% ▪ Higher growth in mobile, social and casual gaming segment versus 2013 7.0x 631 2.9% 3,793 (9.4)% console were EA has market leadership 2014 10.1x 944 49.6% 4,021 6.0% ▪ Customers unsatisfied about rushed development and customer 2015E 9.2x 1,037 9.9% 4,132 2.8% service 2016E 8.2x 1,156 11.5% 4,501 8.9%

* Based on Non-GAAP. 2011-2013 multiples based on historic figures; 2014-2016 multiples based on current EV.

National Investment Banking Competition 2015 – Strictly Confidential | Not for Public Distribution | Preliminary Draft 23 Discounted Cashflows Model

Reasonable average revenue growth combined with significant EBITDA margin expansion drives robust long-term free cashflows relative to historical levels

DCF Cashflow Summary Cashflow Forecast *All dollar amounts in millions 2010 2011 2012 2013 2014 2015E 2016E 2017E 2018E 2019E Packaged Goods Non-GAAP Revenues 2,983 2,781 2,736 2,028 2,149 1,977 2,076 2,034 1,994 1,954 Digital Goods Non-GAAP Revenues 570 833 1,227 1,663 1,793 2,080 2,350 2,632 2,948 3,272 Distribution Non-GAAP Revenues 606 214 223 102 79 75 75 75 75 75 Total Non-GAAP Revenues 4,159 3,828 4,186 3,793 4,021 4,132 4,501 4,742 5,017 5,301 Revenue Growth - (8.0%) 9.4% (9.4%) 6.0% 2.8% 8.9% 5.3% 5.8% 5.7% Cost of Revenues (1,857) (1,486) (1,544) (1,293) (1,285) (1,306) (1,418) (1,470) (1,545) (1,627) Marketing and Sales (714) (726) (856) (758) (654) (674) (729) (763) (803) (843) Research and Development (1,119) (1,042) (1,077) (1,059) (1,035) (1,012) (1,089) (1,138) (1,199) (1,267) Total Operating Costs (3,690) (3,254) (3,477) (3,110) (2,974) (2,992) (3,236) (3,371) (3,547) (3,737) General, Administrative and Other (81) (81) (96) (52) (103) (103) (108) (109) (110) (117) Total EBITDA 388 493 613 631 944 1,037 1,157 1,261 1,360 1,447 EBITDA Growth - 27.1% 24.3% 2.9% 49.6% 9.9% 11.5% 9.0% 7.8% 6.4% EBITDA Margin 9.3% 12.9% 14.6% 16.6% 23.5% 25.1% 25.7% 26.6% 27.1% 27.3% Capex (305) (59) (172) (106) (97) (103) (113) (119) (125) (133) Tax (57) (90) (110) (102) (178) (199) (226) (251) (271) (289) Working Capital and Other Adjustments (135) 221 (575) 104 (173) 39 67 24 28 32 Stock-Based Compensation 187 176 170 164 150 150 150 150 150 150 Free Cashflows (109) 565 (244) 527 496 924 1,035 1,066 1,141 1,207 Unlevered Free Cashflows (296) 389 (414) 363 346 764 872 900 971 1,034

Cashflow for Debt Service (109) 565 (244) 527 496 924 1,035 1,066 1,141 1,207 Interest Expense 6 10 (3) (1) (5) (39) (55) (63) (83) (96) Debt Repayment - - 485 (30) (1) 404 120 104 98 88 Interest Income and Other Items 19 24 (14) (12) (10) - - - - - Cashflow for Equity Distributions (84) 599 224 484 480 1,288 1,100 1,107 1,157 1,199 Equity Issuance / Repurchase and Equity Items 53 (23) (345) (315) 90 - - - - - Dividends - - - - - (1,978) (928) (1,006) (1,042) (1,067) Net Cashflows (31) 576 (121) 169 570 (690) 172 101 115 132

Ending Cash Balance 1,590 2,166 2,045 2,214 2,784 2,094 2,266 2,367 2,482 2,614 Ending Debt Balance - - 539 559 580 1,006 1,148 1,261 1,360 1,447

* FCF numbers net of slight adjustments compare to FCF for DCF valuation

National Investment Banking Competition 2015 – Strictly Confidential | Not for Public Distribution | Preliminary Draft 24 Trading Comparables Overview

EA trades at mid-to-upper end of range of console comps but discount to mobile and free-to-play

Trading Comparables Dataset (NTM Forward Multiples) MULTIPLES FOR VALUATION (NTM) Combined Entity 35.0x EV/EBITDA Console, Mobile, Platform Average EV/Revenue Console, Mobile, Platform Average • EV/EBITDA: 3.9x – 24.0x (avg. 13.1x)*

30.0x 28.8x EV/EBITDA Other Comparables Average • EV/Revenue: 0.3x – 3.2x (avg. 2.5x)* EV/Revenue Other Comparables Average • P/E: 7.1x – 44.1x (28.4x) 25.0x 23.1x Segmented Entity (Console) 21.7x 21.2x 20.0x • EV/Revenue: 0.9x – 3.2x (avg. 2x)* • P/E: 12.8x – 24.4x (avg. 19.1x) 15.0x 12.3x Segmented Entity (Mobile and F2P) 10.9x 11.6x 10.9x 9.7x 9.4x 9.1x 9.4x • EV/Revenue: 1x – 7.8x (avg. 2.9x)* 10.0x 8.4x 8.7x 8.3x 7.9x 7.9x 6.4x 7.0x • P/E: 7.1x – 176.9x (avg. 44.7) 5.5x 5.0x 4.6x 4.2x 3.9x 3.2x 3.2x 2.9x 3.0x 3.0x 2.3x 2.8x 2.3x 2.3x 1.8x 1.8x 1.7x 1.7x 1.5x 1.6x 1.8x Ranges exclude outliers 1.1x 0.9x 1.0x 0.5x 0.3x * used for EA valuation 0.0x

VALUATION OF ELECTRONIC ARTS Current Market Valuation: $35.96 • EV/EBITDA: 10.1x ($0.9bn EBITDA) • EV/Revenue: 2.3x ($4.0bn Revenue) ▪ Console: Established integrated publishers are comparables to EA’s packaged goods segment • P/E: 21.2x ($534m Earnings) ▪ Mobile/F2P: Game developers and publishers in the high growth mobile and F2P segment with higher multiples are comparables for EA’s digital segment Trading Comparables Valuation ▪ Integrated Platform Publisher: Platform Providers with lower multiples ([Nintendo]) • EV/Revenue (Combined): $40.28 ▪ Other Comparables: • EV/EBITDA (Combined): $51.73 ▪ GameStop: low valuation since physical distribution in decline • EV/Revenue (Segmented): $39.15 • Multiples applied to NTM Console Revenue ▪ Lions Gate/Warner: strong valuation since market likes content producers ($2.6bn) and NTM Mobile/F2P Revenue ▪ Adobe: high multiple for software leaders given scalable business with high ROA ($1.7bn)

National Investment Banking Competition 2015 – Strictly Confidential | Not for Public Distribution | Preliminary Draft 25 Precedents Transactions Overview

Precedents transactions of mobile companies have been completed at a higher valuation than console due to high growth potential and large user bases paid for mobile and online game developers

Precedent Transactions Dataset (LTM) MULTIPLES FOR VALUATION (LTM) Combined Entity • EV/EBITDA: 4.9.x – 35.4x (avg. 12.1x)* Segmented Entity (Console): • EV/Revenue: 0.3x – 5.8x (avg. 2.2x)* Segmented Entity (Mobile / F2P): • EV/Revenue: 1.6x – 13.0x (avg. 6.1x)*

Ranges exclude outliers * used for EA valuation

VALUATION OF ELECTRONIC ARTS (2014A) Current Market Valuation: $35.96 • EV/EBITDA: 10.1x ($0.9bn EBITDA) ▪ Console: Established integrated publishers comparable to EA’s packaged goods segment • EV/Revenue: 2.3x ($4.0bn Revenue) ▪ Mobile/F2P: Game developers and publishers in the high growth mobile and F2P segment • P/E: 21.2x ($534m Earnings) comparable to EA’s digital segment Precedent Transactions Valuation ▪ Other: • EV/EBITDA (Combined): $44.10 ▪ Console manufacturers characterized by lower multiples due to steady growth and stable revenues • EV/Revenue (Segmented): $54.44 • Multiples applied to LTM Console ▪ Mobile/F2P game developers characterized by higher multiples due to high growth Revenue ($2.4bn) and LTM Mobile/F2P potential and large user bases, as well as competition for acquiring a particularly Revenue ($1.6bn) attractive company

National Investment Banking Competition 2015 – Strictly Confidential | Not for Public Distribution | Preliminary Draft 26