Software Industry Equity Report

SOFTWARE INDUSTRY EQUITY REPORT

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

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

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3Q 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 ...... 3 PUBLIC SOFTWARE COMPANY FINANCIAL PERFORMANCE ...... 4 PUBLIC SOFTWARE COMPANY PERFORMANCE BY PRODUCT CATEGORY ...... 5 PUBLIC SOFTWARE AS A SERVICE (SAAS) COMPANY MARKET VALUATIONS ...... 6 PUBLIC SOFTWARE AS A SERVICE (SAAS) FINANCIAL PERFORMANCE...... 7 PUBLIC INTERNET COMPANY MARKET VALUATIONS AND FINANCIAL PERFORMANCE ...... 8 INITIAL PUBLIC OFFERINGS...... 9 THE SOFTWARE BUYER MINDSET HAS CHANGED ...... 10 MERGERS AND ACQUISITIONS: THE NUMBERS...... 13

M&A DEAL VOLUME AND SPENDING: ALL INDUSTRY SECTORS ...... 13

SOFTWARE M&A DEAL VOLUME AND SPENDING...... 13

SOFTWARE M&A DEAL CURRENCY ...... 15

PRIVATE VS. PUBLIC BUYERS ...... 15

SOFTWARE M&A VALUATIONS ...... 16

M&A EXIT VALUATIONS BY SOFTWARE CATEGORY...... 18

SAAS M&A TRANSACTIONS ...... 20

INTERNET M&A TRANSACTIONS ...... 20 APPENDIX A: 3Q10 PUBLIC MARKET VALUATIONS AND STATISTICS BY PRODUCT CATEGORY...... 22 APPENDIX B: 3Q10 MERGERS AND ACQUISITIONS, SELECT PUBLIC SELLER VALUATIONS...... 25 APPENDIX C: 3Q10 MERGERS AND ACQUISITIONS, MOST ACTIVE BUYERS ...... 26 APPENDIX D: 3Q10 MERGERS AND ACQUISITIONS, SOFTWARE INDUSTRY MEGA-DEALS...... 27 APPENDIX E: 3Q10 MERGERS AND ACQUISITIONS, SELECT SOFTWARE-AS-A-SERVICE SELLERS...... 28 APPENDIX F: 3Q10 MERGERS AND ACQUISITIONS – DEAL INSIGHT ...... 29 APPENDIX G: SELECT 3Q10 SOFTWARE INDUSTRY MERGERS AND ACQUISITIONS...... 32

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 © 2010 Software Equity Group, L.L.C., All Rights Reserved Software Equity Group, L.L.C. Investment Banking / Mergers & Acquisitions

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

10%

GDP % Growth 8% Unemployment Rate

6% 4.8% 5.0% 3.9% 3.7% 4% 3.5% 3.6% 3.6% 3.2% 3.0% 2.7% 2.5% 2.6% 2.1% 2.1% 2.2% 1.7% 1.7% 2% 1.5% 1.3% 1.1% 1.2%

0% 2004 2005 2006 2007 2008 2009 2010 -0.7% -0.7% -2%

-2.7%

-4%

-5.4% -6% -6.4%

-8%

U.S. ECONOMY: SOFTWARE INDUSTRY MACROECONOMICS

U.S. Gross Domestic Product (GDP) is forecast to performance), and manufacturers’ new orders for grow 1.7% in Q3, after expanding 5% in 4Q09, consumer goods and materials. 3.7% in 1Q10 and 1.7% in 2Q10. Although 3Q10 will likely mark the fifth consecutive quarter of New jobs remained in relatively scarce supply and economic expansion (Figure 1), there is a good the U.S. unemployment rate remained stubbornly deal of consternation among the Federal Reserve, high in 3Q10 at 9.6% (Figure 1). Total private Wall Street and the Administration about the trend employment decreased by 39,000 jobs in line. September, following increases of 42,000 in July and 10,000 in August. However, service sector There is also some basis for guarded optimism. employment rose by 6,000 in September, the According to the U.S. Bureau of Economic eighth consecutive month of net gain. By Analysis, consumer spending, which accounts for contrast, construction industry employment some 70% of the economy, increased at a rate of declined by 28,000, and manufacturing lost 2.2% in 2Q10, the fastest since 1Q07. 17,000 jobs in Q3.

As important, the Conference Board’s index of Current sentiments about the pace and trajectory U.S. Leading Economic Indicators (LEI) rose of a sustained economic recovery continued to be 0.3% in August, following a 0.1% increase in July mixed. Economists and the Fed appear almost and a 0.2% decrease in June. Seven of the equally divided, with some forecasting continued Board’s ten LEI indicators increased in August. growth, restored consumer confidence and a The positive contributors, beginning with the housing market recovery, while others talk of a largest positive contributor, were the interest rate “double dip” recession and deflation. spread, real money supply, average weekly manufacturing hours, building permits, stock According to the latest Blue Chip Economic prices, index of consumer expectations, and Indicators report, real GDP for all of 2010 is now manufacturers’ new orders for nondefense capital forecast to increase 2.7% on a year-to-year basis. goods. The negative contributors, beginning with Its consensus forecast for real GDP growth in the largest negative contributor, were average 2011 is now 2.5%. That forecast is at odds with weekly initial claims for unemployment insurance the U.S. Federal Reserve's, which anticipates "a (inverted), the index of supplier deliveries (vendor moderate strengthening of the expansion in

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2011." In June, the Fed estimated that 2011 U.S. optimistic surveys point to marked increase in IT GDP growth will be 3.5% to 4.2%, after a 3.0% to spending by state and local governments in 4Q10. 3.5% growth rate in 2010. Given the current economy and record deficits, that’s not likely to occur. Time will tell, but for the time being, economic uncertainty continues to reign. As for 2011, Goldman Sachs’ September Survey projects enterprise IT spending will grow 4%, IT SPENDING while Garter uncharacteristically projects a more modest 3.1% increase and “timid” growth over the As a reminder, SEG considers IT spending to be next five years. an important bellwether of downstream public software company financial performance and There is a bright spot, however, that’s of particular M&A activity. Our readers will recall that large importance for our readers. Gartner’s head of enterprises cut back sharply on spending for research, Peter Sondergaard, said in a recent software, hardware and IT services in 2009. statement, “Emerging economies continue to be Following IT spending increases of 9% in 2007 the locomotive of enterprise IT spending, and 6% in 2008, IT capital spending declined by substantially outpacing developed economies.” more than 10% in 2009. To provide some perspective, we estimate every percentage What does that mean for private software increase/decrease in IT spending equates to company sellers that may be contemplating exit in approximately $5 billion. the next three to five years? Smaller (<$50 million revenue) companies that have been very cautious Historically we’ve found the Goldman Sachs IT about aggressively pursuing international Spending Survey to be the most reliable among of business, setting up overseas sales offices and the many spending surveys we track, but not this signing foreign distributors because of risk, cost quarter. In its September 2010 Survey, Goldman and distraction may now be well advised to look maintained its 2010 spending forecast of +7%, beyond North America for incremental growth. while Gartner, in an October 18, 2010 report Those that do so successfully may represent indicated enterprise IT spending is expected to more compelling acquisition candidates to buyers rise 2.4% to $2.4 trillion. Most of the more in the next few years.

Figure 2: Major Market Indices Compared to the SEG Software, Internet and SaaS Indices

DOW S&P 500 NASDAQ SEG SaaS Index SEG S/W Index SEG Internet Index

20.0%

15.0%

10.0%

5.0%

0.0%

-5.0%

-10.0%

-15.0% Jan Feb Mar Apr May Jun Jul Aug Sep

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PUBLIC SOFTWARE COMPANY STOCK The median enterprise value to revenue PERFORMANCE (EV/Revenue) multiple of public companies in our SEG Software Index was 2.1x in 3Q10, down a tick The major U.S. stock market indices waxed and from the prior two quarters (Figure 4). The median waned through the first three quarters of 2010, EV/Revenue multiple for the SEG Software Index moving in and out of negative territory three times. has now remained at or above 2.0x for four Although 3Q’s fluctuations were tame compared consecutive quarters for the first since 2Q07- 1Q08. to 1Q and 2Q, market performance in the third In large part these rather respectable enterprise quarter continued to reflect investor fear and valuations reflect investor acknowledgement that uncertainty about the economy, the housing despite the deep recession and slow comeback, market, the federal deficit, unemployment, and public software companies have been able to continuing economic woes in the European Union. maintain strong balance sheets and even improve their operating margins (Figure 4). At the close of the third quarter, the Dow, S&P 500 and NASDAQ were up 3.5%, 2.3% and 4.4%, Figure 4: SEG Software Index Key Statistics respectively, from the first trading day of 2010 (Figure 2). Public software company stock prices SEG - Software: Median Metrics have closely shadowed the major stock market Measure 3Q094Q091Q102Q103Q10 EV/Revenue 1.8x 2.0x 2.2x 2.2x 2.1x indices throughout 2010 year-to-date. As of EV/EBITDA 11.2x 12.8x 13.3x 12.3x 11.6x September 30, the SEG Software Index, our EV/Earnings 24.3x 28.2x 27.8x 25.8x 24.8x tracking survey of 166 publicly traded software Current Ratio 1.9 2.0 2.0 2.0 2.0 companies, was up 4.6% from its January 2 Cash & Eq ($M) $86.0 $91.6 $95.2 $103.0 $102.5 opening value. Gross Profit Margin 67.6% 68.2% 68.6% 69.0% 69.3% EBITDA Margin 16.2% 15.5% 16.7% 16.1% 17.3% Net Income Margin 4.7% 5.9% 7.2% 8.5% 8.1% At the close of 3Q10, 158 out of the 244 (64.8%) TTM Revenue Growth 1.3% -1.6% 0.1% 0.4% 4.4% public companies comprising our Software, SaaS TTM Total Revenue ($M) $232.0 $224.3 $220.1 $213.2 $212.5 and Internet indices reported higher year-to-date TTM Total EBITDA ($M) $30.0 $28.7 $32.6 $35.0 $33.7 (YTD) stock prices. Six achieved YTD market Debt / Equity Ratio 27.2% 25.3% 25.3% 20.8% 23.1% returns greater than 100% (Figure 3). As in prior quarters, the Street favored the largest Figure 3: High Flyers – YTD Stock Market Return (annual revenue) public software companies in

3Q10 High Flyers - Stock Market Return 3Q10, believing they are far better positioned to 2010 weather tough times and adeptly capitalize on a Company Ticker Category Stock recovery. SEG Software Index companies with Return revenues greater than $1 billion posted a median Internet - eCommerce & OpenTable OPEN 167% Portals EV/Revenue multiple of 2.9x in 3Q10, compared Baidu, Inc. BIDU Internet - Search Engine 150% to a median EV/Revenue multiple of 1.2x for Radware Ltd. RDWR Networking & Connectivity 127% software companies with revenue less than $100 Internet - eCommerce & million (Figure 5). In this case, investors seem to Travelzoo, Inc. TZOO 110% Portals have gotten it right, with sub-$100 million software Simulations Plus, Inc. SLP Healthcare 107% providers reporting a 0.1% decline in TTM Storage & Systems VMWare VMW 100% revenue, compared with a 8.2% increase in TTM Management Software revenue of their $1 billion plus counterparts. F5 Networks, Inc. FFIV Networking & Connectivity 96% Enterprise Application TIBCO Software Inc. TIBX 84% Integration / Middleware While most of the listed companies comprising Internet - Networking & our three tracking indices saw improved LogMeIn, Inc. LOGM 80% Connectivity EV/Revenue multiples year-over-year, ten public Sapiens International SPNS Financial Services Software 79% software, SaaS and Internet companies excelled at boosting their market valuations in 3Q10 PUBLIC SOFTWARE COMPANY MARKET (Figure 6). Overall, these overachievers reported VALUATIONS a TTM median revenue growth rate of 25.8% and an impressive TTM median EBITDA margin of 28.8%.

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Figure 5: SEG Software Valuation and Financial Performance by Size of Buyer (TTM Revenue)

SEG Software Index Companies EV/Revenue EV/EBITDA 3Q10 3Q10 TTM EBITDA Rev Growth 3Q09 4Q09 1Q10 2Q10 3Q10 3Q09 4Q09 1Q10 2Q10 3Q10 Margin Revenue Greater Than $1 billion 2.6x 2.8x 2.9x 3.0x 2.9x 11.0x 12.4x 11.9x 10.2x 10.5x 8.2% 24.4% Revenue Between $200 million and $1 billion 2.0x 2.1x 2.3x 2.2x 2.1x 11.7x 12.4x 12.1x 12.7x 10.5x 4.6% 19.5% Revenue Between $100 million and $200 million 2.0x 2.3x 2.3x 2.7x 2.3x 13.3x 15.4x 17.1x 17.6x 16.7x 8.0% 13.7% Revenue Less Than $100 million 0.8x 1.1x 1.3x 1.1x 1.2x 11.2x 12.8x 13.4x 10.8x 11.5x -0.1% 7.0%

The ultimate overachiever was still Baidu, often 16.7x EV/EBITDA (Figure 5). The smallest public referred to as “China’s Google”. Baidu’s median companies (<$100 million revenue) in the SEG 3Q10 EV/Revenue of 32.8x was more than Software Index could muster neither revenue double its nearest competitor and assured the growth (-0.1%) or significant profitability (7%), company, once again, the top spot on our setting the stage for further industry consolidation EV/Revenue ranking. Baidu reported year-over- in 2011. year (YoY) revenue growth of 54.1% and a rather remarkable EBITDA margin of 49.1%. With PUBLIC SOFTWARE COMPANY FINANCIAL almost $1 billion in annual revenue, Baidu is now PERFORMANCE the third largest search site in the world, and is rapidly closing on Yahoo! for the number two spot. There’s no doubt the current level of enterprise Rumors have even begun to circulate recently spending, albeit less than forecast, is helping to that Baidu, with financial backing from the improve top line growth. Among their most Chinese Government, is poised to make a bid for noteworthy achievements in Q3, public software Yahoo!, which would likely cause Google companies grew TTM revenue by a median considerable consternation. 4.4%, in contrast to 0.4% in Q2 and 0.1% in the first quarter. It was a pleasant surprise for many Figure 6: High Flyers – Enterprise Value/Revenue that had pared their revenue forecasts earlier in the year. According to our random sample of 3Q10 High Flyers - Enterprise Value/Revenue recent earnings calls of 28 public software Company Ticker Category EV/R companies, 21 (75.0%) exceeded their most Baidu, Inc. BIDU Internet - Search Engine 32.8x Internet - eCommerce & recent revenue projections (Figure 7). Should the Mercadolibre, Inc. MELI 14.5x Portals IT spending forecasts for 2011 prove accurate, Internet - eCommerce & OpenTable OPEN 13.7x look for similarly modest public software company Portals revenue growth rates in 4Q10 and 1H2011. Storage & Systems VMWare VMW 12.5x Management Software Engineering, PLM & For more than two years, public software AutoNavi Holdings AMAP 10.8x CAD/CAM Software companies have remained squarely focused on Content/Document Rovi Corporation ROVI 8.8x profitability and we don’t expect that to change in Management 4Q2010 or 1H2011 (Figure 4). Though many CRM, Sales & Marketing Salesforce.com CRM 8.7x Software have begun to rehire, it has not been at the Longtop Financial expense of operating profit. The median TTM LFT Financial Services Software 8.7x Technologies EBITDA margin of SEG Software Index F5 Networks, Inc. FFIV Networking & Connectivity 8.3x companies increased to 17.3% in 3Q10, but it Concur CNQR Accounting & Finance 7.7x wasn’t easy. Of the 28 public software companies in our random sample, only six (21.4%) beat their

EPS guidance to the Street (Figure 7). Among Public software company valuations measured by the industry’s largest players, Microsoft was the median EV/EBITDA also ebbed in 3Q10 from the only $500+ milion revenue company in our prior three quarters, declining to 11.6x from 12.3x random sample to exceed its Q3 earnings target. the prior quarter (Figure 4). In 3Q10, software companies with revenue greater than $1 billion Public software balance sheets remained healthy posted a median EV/EBITDA multiple of 10.5x, in 3Q10. While median cash and equivalents while software companies with revenue between decreased slightly from the prior quarter, on a $100 million and $200 million were valued at

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Figure 7: Expected vs. Delivered Revenue and market trends, sector health, product lifecycles, EPS Results (as of Sep 30) M&A valuations, IT spending priorities and stock market biases. Company Revenue EPS Microsoft Corporation Cisco Systems, Inc. As we’ve noted in past reports, the median Oracle Corporation Company Revenues: EV/Revenue valuations and financial results for a Google Inc. Greater than particular software category can be stagnant or Adobe Systems Incorporated $1 billion Electronic Arts Inc. can fluctuate wildly each quarter. As a result, BMC Software, Inc. software category rankings, measured by relative Mentor Graphics Corporation median valuations and financial performance can Lawson Software, Inc. also be consistent or volatile quarter-to-quarter. MSCI Inc. Company Revenues: TIBCO Software Inc. That axiom held true, once again, in 3Q10 (Figure $500 million Avid Technology Inc. to $1 billion 8). We track this data because the current Open Text Corporation median valuation of companies comprising a NICE Systems Ltd. particular software category often weighs heavily CSG Systems International, Inc. when buyers value acquisition targets. QAD Inc. TeleCommunication Systems, Inc. Company Revenues: MicroStrategy Incorporated $100 - $500 For the third consecutive quarter, Security Quest Software Inc. million software providers boasted the highest median Blackboard Inc. Rovi Corporation EV/Revenue valuations among all categories we American Software, Inc. track. The median 3.3x EV/Revenue multiple of PCTEL, Inc. publicly listed security software companies in Q3 PDF Solutions, Inc. Company Revenues: was buoyed by stellar valuations for Check Point Scientific Learning Corp. Less than Software (5.6x), Cogent (4.5x), Zix Corp. (4.1x) Geeknet, Inc. $100 million Pervasive Software Inc. and Commtouch (4.1x). By contrast, perpetual NetSol Technologies Inc. license, (non-SaaS) CRM companies and

: Exceeded or Met Expectations Entertainment software providers each bore the : Did Not Meet Expectations stigma of the lowest EV/Revenue multiple (1.0x) in the third quarter. The median valuations of year-over-year basis SEG Software Index these on-premise CRM and Entertainment companies increased their cash and cash providers have been well below the software equivalents by a median 19.2% in 3Q10, while industry median EV/Revenue for more than two maintaining a healthy median current ratio of 2.0 years, signaling a distinct lack of investor (Figure 4). The significant cash reserves and enthusiasm for providers in these categories. strong balance sheets of most public software companies, particularly the industry’s largest On an EV/EBITDA basis, Electronic Design players, bode well for small and mid-cap software Automation public software companies led all company targets, especially those that enable other product categories in 3Q10 with an buyers to extend their product offerings and impressive 23.0x EV/EBITDA median multiple. capture new turf. Publicly listed Entertainment software providers had the lowest EV/EBITDA median multiple, 6.9x, PUBLIC SOFTWARE COMPANY PERFORMANCE BY as a consequence of the category’s median PRODUCT CATEGORY revenue decline and EBITDA erosion.

While median financial performance metrics are Stock returns at the close of Q3 varied widely by useful for assessing the overall health of the software product category, largely reflecting the software industry and making comparisons to median revenue and EBITDA growth, or lack other economic sectors, a deeper analysis of thereof, of the companies comprising the these key metrics by software product category category. Publicly listed Networking & provides greater insight about the software Connectivity software companies grew median ecosystem. By analyzing how public software TTM revenue (+10.1%) and EBITDA (+24.5%) companies in discrete product categories are aggressively, and reported a median YTD stock performing, we increase our understanding of gain of +46.4% over their January 2 opening

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Figure 8: SEG Software Categories

SEG - Software: Median Metrics by Category YTD Re ve nue EBIT DA EBIT DA EV /Re ve n u e EV /EBIT DA Stock Grow th Grow th Margin Category Re tur n 3Q10 3Q10 3Q10 3Q09 4Q09 1Q10 2Q10 3Q10 3Q09 4Q09 1Q10 2Q10 3Q10 2010 (TTM) (TTM) (TTM) Infrastructure Software Database & File Management 1.6x 2.1x 1.9x 1.9x 1.8x 8.1x 8.7x 9.1x 9.0x 8.7x 0.5% 2.8% 22.8% 9.5% Development Tools, Operating Systems & 1.4x 1.3x 1.6x 1.7x 1.7x 9.6x 12.8x 9.4x 9.4x 8.5x 15.9% 23.9% 18.5% 23.0% Application Testing Softw are Enterprise Application Integration 1.4x 1.4x 1.4x 1.5x 1.4x 12.9x 10.0x 9.8x 11.2x 10.5x 5.3% 23.9% 14.4% 26.5% Messaging, Conferencing & Communications 1.7x 1.8x 1.8x 1.9x 1.8x 11.0x 10.9x 14.1x 13.6x 12.6x 10.6% 59.3% 12.9% 13.0% Netw orking & Connectivity 2.0x 2.2x 2.4x 2.4x 2.3x 10.8x 13.7x 19.9x 17.1x 16.2x 10.1% 24.5% 23.1% 46.4% Security 3.7x 3.5x 3.7x 3.6x 3.3x 13.0x 13.4x 15.1x 14.5x 15.9x 11.8% 33.7% 18.5% 4.7% Storage & Systems Management Softw are 2.1x 2.4x 2.5x 2.5x 2.3x 11.1x 13.8x 11.8x 11.5x 10.8x 7.0% 4.8% 18.4% 13.0% Wireless 1.2x 1.3x 1.7x 1.6x 1.5x 13.0x 14.8x 11.2x 15.8x 13.7x 13.6% 24.0% 7.9% -2.8% Application Software Billing & Service Management 1.3x 1.5x 2.2x 1.7x 1.5x 6.6x 7.4x 10.9x 8.4x 7.2x 7.9% 19.3% 20.5% -4.5% Business Intelligence 1.9x 2.4x 2.3x 1.9x 2.0x 10.6x 12.9x 13.7x 13.8x 20.9x 5.8% -8.5% 13.1% 9.4% Content/Document Management 1.7x 1.7x 2.0x 1.9x 1.8x 6.8x 7.4x 8.2x 8.2x 7.1x -7.3% -3.4% 23.2% 9.4% Customer Relationship Management, Marketing & 0.4x 0.6x 0.8x 1.0x 1.0x 11.1x 11.8x 11.4x 8.3x 15.7x -6.6% -7.8% 0.3% -12.8% Sales Softw are Education & eLearning 2.1x 2.2x 2.0x 1.6x 1.6x 18.1x 16.3x 14.0x 14.9x 14.1x 17.5% 32.5% 16.4% -10.3% Electronic Design Automation 1.1x 1.4x 1.5x 1.6x 1.6x 9.5x 9.6x 21.3x 22.8x 23.0x -1.1% 113.6% 8.0% 19.7% Engineering, PLM & CAD/CAM Softw are 1.6x 1.7x 1.8x 1.9x 1.9x 11.1x 12.4x 14.9x 14.5x 16.5x -0.7% 3.2% 18.5% 25.8% Enterprise Resource Planning 1.6x 1.8x 1.9x 1.9x 1.9x 9.6x 9.7x 10.6x 10.7x 10.8x -0.7% 3.7% 17.2% 3.6% Entertainment 1.0x 1.0x 1.0x 1.0x 1.0x 7.3x 7.2x 8.8x 6.0x 6.9x -14.0% -1.9% 5.3% -20.2% Financial Services Softw are 2.2x 2.3x 2.5x 2.6x 2.5x 9.6x 10.1x 13.4x 8.8x 8.6x 7.8% 16.2% 23.1% 8.2% Healthcare 3.1x 3.7x 2.8x 3.4x 3.2x 15.1x 15.6x 15.9x 15.5x 15.0x 11.7% 0.5% 21.9% 3.1% Multimedia, Graphics, Digital Media 1.9x 2.5x 2.8x 2.7x 2.7x 13.1x 17.8x 18.2x 18.4x 15.5x 3.4% 7.1% 17.4% -0.4% Supply Chain Management & Logistics 1.3x 1.6x 1.6x 1.8x 1.7x 9.9x 13.1x 13.1x 11.9x 10.8x 0.2% 1.9% 11.2% -1.0%

prices. Conversely, public software companies revenue growth was still king and profitability a comprising the Entertainment category saw side note. median TTM revenue and EBITDA decline by - 14.0% and -1.9%, respectively, and witnessed However, in 3Q10, SaaS companies with EBITDA their median YTD stock return decrease -20.2% margins higher than the group median traded at a from January 2. median EV/Revenue multiple of 3.9x, while their counterparts traded at a median 2.6x EV/Revenue PUBLIC SOFTWARE AS A SERVICE (SAAS) (Figure 10). Similar to traditional software COMPANY MARKET VALUATIONS companies, SaaS providers need to make conscious choices about whether to drive their While the median valuations of on-premise companies for profitability or growth. software companies held relatively steady in 3Q10, the median EV/Revenue multiple of public Figure 9: SEG SaaS Index Key Statistics SaaS providers fell to 3.1x in Q3 from 3.6x the prior quarter (Figure 9). Indeed, 15 of 21 public SEG - SaaS: Median Metrics SaaS companies saw their third quarter Measure 3Q094Q091Q102Q103Q10 EV/Revenue multiple decline or remain virtually EV/Revenue 2.8x 3.2x 3.4x 3.6x 3.1x unchanged over the prior quarter. It was quite EV/EBITDA 36.9x 38.8x 33.1x 32.3x 30.8x EV/Earnings 83.4x 95.2x 74.7x 81.6x 70.4x different only a year ago. Current Ratio 1.4 1.4 1.9 1.5 1.9 Cash & Eq ($M) $68.5 $76.5 $76.0 $79.1 $84.1 In 3Q09, SaaS companies with EBITDA margins Gross Profit Margin 66.9% 67.2% 66.7% 66.9% 67.0% EBITDA Margin 7.1% 7.2% 9.5% 9.5% 10.2% higher than the group median traded at a median Net Income Margin -3.1%-2.1%-0.6%2.0%1.4% 2.6x EV/Revenue multiple vs. a median 3.1x TTM Revenue Growth 23.0% 16.2% 14.2% 12.1% 13.0% EV/Revenue multiple for SaaS companies with TTM Total Revenue ($M) $134.9 $143.4 $140.9 $149.6 $160.0 EBITDA margins lower than the group median TTM Total EBITDA ($M) $6.7 $9.9 $11.8 $11.5 $11.9 (Figure 10). These metrics appear somewhat Debt / Equity Ratio 1.3% 1.4% 1.6% 9.1% 2.1% counterintuitive, but just one year ago, SaaS

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PUBLIC SOFTWARE AS A SERVICE (SAAS) Figure 10: 3Q09 and 3Q10 Public SaaS Company FINANCIAL PERFORMANCE EBITDA Margin vs. Revenue Multiple 4.0x The economic downturn had a devastating impact 3.9x on SMBs, the market segment most responsible 3.5x for the stellar growth rates of many SaaS 3.1x 3Q10 EBITDA providers during the preceding three years. The 3.0x Margin > resulting pullback in SMB spending on IT, 2.6x 2.6x SEG SaaS combined with slower than anticipated enterprise 2.5x Index adoption of SaaS, continued to take their toll on 3Q09 EBITDA Median public SaaS providers in 3Q10. By the close of 2.0x Margin < the quarter, the annual median TTM revenue SEG SaaS 3Q09 3Q10 growth rate of public SaaS companies had Index 1.5x EBITDA EBITDA Median EV/Revenue Median plummeted to 13.0% from 23.0% a year earlier Margin > Margin < (Figure 9) and 46.5% two years earlier. 1.0x SEG SaaS SEG SaaS Index Index Median Median Even though 3Q10’s TTM revenue growth uptick 0.5x ended eleven consecutive quarters of SaaS revenue growth decline, it’s likely to be a long, 0.0x slow comeback for many. Only 2 of 21 public SaaS companies (Athenahealth and Constant As a result, the median TTM EBITDA margin for Contact) achieved greater than 30% TTM revenue the SEG SaaS Index finally broke double-digits, growth in 3Q10 (Figure 11). growing to 10.2% in 3Q10 from 7.1% in 3Q09. While five profitable SaaS companies saw their As SaaS revenue growth rates have slowed, TTM EBITDA margin decline from 3Q09, the there’s been growing pressure on SaaS providers group median was boosted by impressive results to improve profitability. Although there are a from Convio, LivePerson and SPS Commerce, as handful of exceptions, most public SaaS well as new public SaaS entrants RealPage and companies have been reasonably successful in SciQuest (Figure 11). growing their bottom lines by reaping the benefits of subscription renewals, operational Historically, the median SaaS TTM EBITDA improvements and reduced infrastructure margin has been a small fraction of the median spending. Software Index TTM EBITDA margin, but that has clearly changed. Just one year ago, the median

Figure 11: Public SaaS Companies

SEG SaaS Index EV/Revenue EV/EBITDA TTM Revenue Growth EBITDA Margin Company Category 3Q09 4Q09 1Q10 2Q10 3Q10 3Q09 4Q09 1Q10 2Q10 3Q10 3Q09 4Q09 1Q10 2Q10 3Q10 3Q09 4Q09 1Q10 2Q10 3Q10 Athenahealth (ATHN) Health Care Mgmt 7.4x 7.6x 6.7x 4.2x 4.0x 79.6x 79.8x 52.4x 35.7x 36.0x 36.9% 37.3% 38.3% 36.9% 34.1% 9.3% 9.6% 12.9% 11.7% 11.2% Concur (CNQR) Accounting & Finance 6.2x 6.6x 6.9x 7.5x 7.7x 25.0x 26.3x 27.6x 31.0x 33.4x 24.1% 14.9% 14.2% 14.8% 16.6% 24.7% 25.0% 25.1% 24.3% 23.2% Constant Contact (CTCT) CRM 4.6x 3.3x 3.3x 3.9x 3.1x 177.8x 66.8x 70.4x 75.6x 65.9x 57.2% 52.0% 47.9% 44.4% 41.5% 2.6% 4.9% 4.7% 5.1% 4.7% Convio (CNVO) CRM - - - 2.6x 1.6x - - - 27.9x 17.2x 32.3% 32.3% 10.7% - - 2.2% 2.2% 6.3% 9.2% 9.1% DealerTrack (TRAK) Vertical - Automotive 2.6x 2.5x 2.3x 2.2x 2.0x 17.9x 18.2x 21.0x 21.6x 19.9x -8.9% -8.7% -7.0% -3.2% 0.9% 14.2% 13.5% 10.9% 10.1%10.2% DemandTec (DMAN) SCM 2.4x 2.3x 1.7x 1.6x 2.0x -----10.9%7.8%5.4%1.4%0.6%-4.8%-5.3%-5.8%-9.1%-8.8% IntraLinks Holdings (IL)Financial Services----7.0x----119.6x16.9%16.9%-1.9%--9.0%9.0%12.3%7.9%5.8% Kenexa (KNXA) Workforce Mgmt 1.4x 1.4x 1.3x 1.6x 1.3x 10.7x 13.0x 13.9x 17.3x 12.6x -11.0% -20.7% -22.6% -18.4% -7.6% 12.6% 10.6% 9.5% 9.5% 10.5% LivePerson (LPSN) CRM 2.2x 3.1x 3.5x 3.4x 3.1x 15.3x 17.3x 17.0x 16.6x 15.2x 21.7% 14.6% 17.2% 19.9% 24.3% 14.3% 17.8% 20.7% 20.5% 20.3% Medidata Solutions (MDSO) Clinical Mgmt 2.5x 2.1x 2.0x 1.9x 2.1x 32.1x 16.8x 14.4x 13.6x 13.3x - 76.6% 32.8% 22.0% 19.0% 7.9% 12.6% 13.8% 13.9% 15.5% Netsuite (N) ERP 4.4x5.1x4.8x4.8x5.9x-----25.5%15.5%9.2%5.6%7.5%-6.9%-6.4%-6.6%-7.6%-7.8% RealPage (RP)ERP ----7.1x----52.2x34.7%34.7%25.2%--8.7%8.7%14.5%13.8%13.5% RightNow (RNOW) CRM 2.1x 2.6x 2.9x 2.5x 2.6x 49.7x 38.8x 37.0x 33.6x 29.6x 13.0% 9.0% 8.7% 10.6% 14.6% 4.3% 6.7% 7.8% 7.4% 8.6% Salesforce.com (CRM) CRM 4.5x 6.0x 6.2x 7.5x 8.7x 41.7x 51.3x 51.4x 63.3x 75.7x 29.0% 23.6% 21.3% 21.5% 22.6% 10.7% 11.8% 12.1% 11.8% 11.5% SciQuest (SQI)SCM ----6.6x----30.8x48.1%48.1%21.5%--7.1%7.1%18.8%19.7%21.5% SoundBite Communications CRM 0.3x 0.3x 0.2x 0.3x 0.3x - 63.1x - - - -6.8% -8.3% -7.0% -3.3% 0.8% -1.0% 0.5% -3.4% -3.9% -3.2% (SDBT) SPS Commerce (SPSC) SCM - - - 5.2x 2.4x - - - 46.8x 22.0x 21.8% - 23.0% - - 1.8% 7.2% 8.8% 11.0% 10.7% SuccessFactors (SFSF)Workforce Mgmt3.9x7.0x7.0x7.6x7.0x-----58.5%46.7%36.8%30.7%27.1%-23.6%-10.4%-5.3%-4.1%-4.6% Taleo (TLEO) Workforce Mgmt 2.7x 3.6x 3.8x 3.8x 3.7x 30.9x 31.5x 29.2x 28.1x 28.3x 35.0% 26.0% 17.8% 13.7% 10.8% 8.6% 11.3% 13.1% 13.4% 12.9% The Ultimate Software Group Workforce Mgmt 3.3x 3.4x 3.7x 4.1x 3.9x 91.6x 62.2x 73.2x 74.6x 68.6x 14.9% 13.3% 10.1% 10.6% 11.3% 3.6% 5.5% 5.0% 5.4% 5.7% (ULTI) Vocus (VOCS) CRM 2.9x 3.0x 2.6x 2.4x 2.3x 48.2x 50.0x 54.8x 69.0x 111.7x 20.1% 13.5% 9.1% 8.0% 8.6% 6.1% 6.1% 4.7% 3.5% 2.0% Median: 2.8x 3.2x 3.4x 3.6x 3.1x 36.9x 38.8x 33.1x 32.3x 30.8x 23.0% 16.2% 14.2% 12.1% 13.0% 7.1% 7.2% 9.5% 9.5% 10.2%

7| 3Q10 SOFTWARE INDUSTRY EQUITY REPORT www.softwareequity.com

SEG Software Index TTM EBITDA margin was • New Media – Companies that provide online more than double median SEG SaaS Index TTM information and content. Representative EBITDA margin. As of 3Q10, the differential has companies include TheStreet.com, WebMD shrunk to 69.6%, thanks to the marked and TechTarget. improvement in SaaS company operating profits. • Search Engine – Companies include Baidu.com, LookSmart, Sohu.com and Yahoo! PUBLIC INTERNET COMPANY MARKET VALUATIONS AND FINANCIAL PERFORMANCE The SEG Internet Index fared much better than the SEG Software Index in 3Q10, closing out the Though the software and Internet / eCommerce / quarter 16.8% higher than its January 2 opening Web 2.0 sectors are rapidly converging, clear value (Figure 2). The median 3Q10 EV/Revenue distinctions remain between the two in terms of multiple for 57 public companies comprising the business model, revenue model, solution SEG Internet Index was 1.4x, while the median deployment and end user requirements. We've 3Q10 Internet company EV/EBITDA multiple was opted to track these major categories separately 12.2x (Figure 12). to enable a more granular analysis of each. Figure 12: SEG Internet Index Key Statistics Broadly defined, Internet companies are primarily internet based and their solutions are primarily – SEG - Internet: Median Metrics Measure 3Q09 4Q09 1Q10 2Q10 3Q10 often exclusively – web deployed. Our Internet EV/Revenue 1.5x 1.4x 1.6x 1.5x 1.4x Index is comprised of companies whose principal EV/EBITDA 12.4x 12.4x 13.4x 10.9x 12.2x business models fall within one or more of the EV/Earnings 18.4x 25.0x 25.1x 25.5x 22.2x Current Ratio 2.4 2.6 2.7 2.9 2.9 following categories: Cash & Eq ($M) $69.5 $75.0 $84.5 $85.0 $76.0 Gross Profit Margin 62.7% 62.2% 62.8% 60.9% 62.9% • Advertising – Companies that provide key EBITDA Margin 11.7% 12.1% 13.1% 13.6% 13.7% Net Income Margin 3.2% 3.4% 3.4% 3.8% 2.5% elements in the Internet advertising arena TTM Revenue Growth 2.5% -0.5% 0.6% 1.5% 6.6% such as search marketing services, software TTM Total Revenue ($M) $146.9 $150.8 $151.9 $152.2 $152.2 to host and manage ads and a network of TTM Total EBITDA ($M) $15.5 $15.4 $15.8 $18.6 $19.7 websites that run ads. Representative Debt / Equity Ratio 14.5% 12.4% 10.4% 12.0% 8.5% companies include InfoSpace, SINA, and The median current ratio, measured as current ValueClick. assets divided by current liabilities, a measure of • Communications – Companies that provide a company’s liquidity, was 2.9 in 3Q10, up from web-based communications, products, and 2.4 in 3Q09, suggesting many Internet/ services. Representative companies include eCommerce providers increased cash reserves Spark Networks, j2 Global Communications, while controlling spending and avoiding additional and EarthLink. debt. Indeed, the median cash and equivalents of • eCommerce & Portals – Companies whose these Internet providers increased four main line of business is conducted over the consecutive quarters until 3Q10, when many web. Representative companies include 1- Internet providers used cash to pay off and pay 800 FLOWERS.COM, Amazon.com, Bluefly, down debt. eBay and Expedia. • Financial – Companies that provide online Internet providers, among the IT providers hardest financial services, content, and financial hit by the Great Recession, have begun to information resources. Representative recover in similar fashion. After watching median companies include Banks.com, China Finance TTM revenue growth decline to -0.5% in 4Q09 as Online and Online Resources. a result of sharply reduced consumer spending, • Networking & Connectivity – Companies the median 3Q10 SEG Internet Index TTM which provide content sharing, testing, revenue growth rate surged to 6.6%. measurement, and other related services via the Internet. Representative companies Enterprise valuations of companies comprising include Internap Network Services, iPass, the SEG Internet Index varied widely by Internet Keynote Systems, and Sify Technologies. category in 3Q10 (Figure 13). Internet Search Engine companies led all other categories in

8| 3Q10 SOFTWARE INDUSTRY EQUITY REPORT www.softwareequity.com

Figure 13: SEG Internet Index Median Metrics by Category

SEG - Internet Index

Revenue EBTIDA YTD EV/Revenue EV/EBITDA Gr ow th Gr ow th Stock Category (TTM) (TTM) Return

3Q09 4Q09 1Q10 2Q10 3Q10 3Q09 4Q09 1Q10 2Q10 3Q10 3Q10 3Q10 2010 Advertising 1.1x 0.9x 1.2x 1.0x 0.9x 15.4x 14.0x 21.5x 14.6x 15.6x 2.8% 34.7% 4.2% eCommerce & Portals 1.9x 1.5x 1.6x 1.7x 1.9x 13.8x 13.6x 14.4x 15.4x 12.3x 9.0% 20.2% 19.2% Networking & Connectivity 2.2x 1.8x 1.5x 1.6x 0.7x 9.7x 9.4x 6.1x 7.1x 11.7x -2.1% 24.9% 31.9% New Media 1.1x 1.2x 1.2x 1.3x 1.7x 9.3x 21.9x 22.9x 16.9x 28.2x 2.4% -7.1% 1.1% Search Engine 2.4x 2.1x 1.8x 1.7x 2.4x 12.5x 14.1x 15.3x 14.3x 11.8x 2.6% 74.8% 25.2%

3Q10, posting a 2.4x EV/Revenue median Collectively, 3Q10’s six IPOs raised $643.3 million valuation. Far less impressive were Internet and garnered a median 6.4x EV/Revenue multiple Networking and Connectivity companies, which on their offering dates, as compared to $438.4 posted a median 0.7x EV/Revenue. million and a median 3.8x EV/Revenue multiple for the first half’s six IPOs. The companies newly INITIAL PUBLIC OFFERINGS listed in Q3 also fared considerably better than the 1H10 entrants in terms of their median stock Six software companies were newly listed on returns: +29.9% for the most recent publicly listed major U.S. exchanges in 3Q10, as many as in software companies vs. -0.9% for the earlier 1H10, bringing the YTD software IPO total to entrants. Q3’s six software IPOs also brought the twelve (Figure 14). The new public market year’s aggregate raise to $1.1 billion, an amount entrants were AutoNavi Holdings, Qlik unseen since 2007. Technologies, IntraLinks Holdings, MediaMind Technologies, RealPage and SciQuest, and Despite the market success of these twelve IPOs, virtually all were well received. only two software companies filed S-1’s in 3Q10, bringing the U.S. software IPO pipeline’s total to

Figure 14: 2010 Year-to-Date U.S. Software IPO’s

Offering Enterprise EV / EV / First Day YTD Company Category IPO Date Amount Value Rev EBITDA Return Return SS&C Technologies Holdings, Financial Services Software 3/31/10 $160,880,000 $1,431,221,000 5.3x 13.9x 1.4% 3.9% Inc. (NA SDA Q: SSNC) SPS Commerce, Inc. Supply Chain Management 4/22/10 $49,160,000 $177,634,000 4.7x 53.4x 13.3% -5.7% (NASDAQ: SPSC) Convio, Inc. Customer Relationship 4/29/10 $46,200,000 $125,347,000 2.0x 31.5x 13.8% -10.0% (NASDAQ: CNVO) Management TeleNav, Inc. Mobile Resource management 5/13/10 $56,000,000 $352,261,000 2.3x 5.2x 22.5% -46.0% (NASDAQ:TNAV) BroadSoft, Inc. Messaging, Conferencing, & 6/16/10 $67,500,000 $163,394,000 2.8x n/a -7.8% 4.3% (NASDAQ: BSFT) Communications Motricity, Inc. Wireless 6/18/10 $58,700,000 $788,884,000 6.6x 59.1x -7.4% 29.7% (NASDAQ: MOTR) AutoNavi Holdings Ltd Engineering, PLM & CAD/CAM 7/1/10 $107,810,000 $577,980,000 9.3x 30.1x 8.0% 29.6% (NASDAQ:AMAP) Software Qlik Technologies, Inc. Business Intelligence 7/16/10 $112,000,000 $951,971,000 5.5x 41.9x 28.0% 72.3% (NASDAQ:QLIK) IntraLinks Holdings, Inc. Financial Services Software 8/6/10 $143,000,000 $1,095,040,000 7.5x 95.4x 0.0% 30.1% (NYSE:IL) MediaMind Technologies Inc. Multimedia, Graphics, Digital 8/11/10 $75,000,000 $164,429,000 2.2x 10.5x -4.3% 25.5% (NA SDA Q:MDMD) Media RealPage, Inc. Enterprise Resource Planning 8/12/10 $148,500,000 $964,280,000 6.0x 44.6x 32.0% 31.4% (NASDAQ:RP) SciQuest, Inc. Supply Chain Management 9/24/10 $57,000,000 $264,721,000 6.7x 31.2x 29.2% -1.5% (NASDAQ:SQI) Median: $71,250,000 $465,120,500 5.4x 31.5x 10.7% 14.9% *Enterprise Value and associated multiples as of offering date. *First day return compares listed offering price to first day close. *Bold denotes SaaS companies. 9| 3Q10 SOFTWARE INDUSTRY EQUITY REPORT www.softwareequity.com

seven. Both 3Q10 filers, Skype and Cornerstone additional software companies will list in Q4, OnDemand, are rapidly growing, unprofitable bringing the year’s total to approximately 16. And SaaS providers (Figure 15). Given the that’s not bad for a year of economic uncertainty vicissitudes of SaaS investors these days, it’s and mixed market returns. impossible to conjecture how they’ll be received.

Skype was acquired by eBay for $3.8 billion in October 2005 and sold to an investor group led by Silver Lake Partners for $3.1 billion in November 2009. Skype’s latest S-1 reports a whopping $368.8 million net income loss on $718.9 million THE SOFTWARE BUYER MINDSET HAS revenue in 2009. Although the company claims CHANGED to be turning the corner on profitability in 2010, it derives revenue from only 6.1% of its subscribers (8.1 million paying, out of 132.1 million total). Given Skype’s continuing difficulties monetizing its business model, investors are unlikely to bet heavily on the come.

The current pipeline presents a single profitable IPO aspirant: Tripwire. Given its impressive mix of profitability and revenue growth, we believe Tripwire will be well received (Figure 15). The remaining six companies in the pipeline will test whether investors will continue to insist upon historical growth and profitability for new entrants – their IPO hedge during times of uncertainty.

How will the software IPO market fare in 4Q10 and 2011? Pretty hard to tell. There’s a decent pipeline, lots of pent up demand, and a good track record thus far this year. We suspect four to six

Figure 15: U.S. Software IPO Pipeline

TTM Filing Offering Annual Net Company Category Revenue Date Amount Revenue Income Growth Content/Document Syngence Corporation (TBD) 11/15/07 $12,000,000 $2,703,000 -$2,253,000 -26.6% Management Multimedia, Graphics, Digital Domain (NA SDA Q: DTWO) 12/11/07 $78,000,000 $77,800,000 -$19,910,000 16.1% Digital Media Communications Lifecycle Tangoe, Inc. (NASDAQ: TNGO) 4/16/10 $75,000,000 $61,890,000 -$1,930,000 49.0% Management Customer Relationship Ellie Mae, Inc. (NYSE: ELLI) 4/30/10 $86,250,000 $36,475,000 -$1,295,000 12.3% Management

Tripwire, Inc. (NASDAQ: TPWR) Networking & Connectivity 5/28/10 $86,250,000 $81,640,000 $18,090,000 18.6%

Messaging, Conferencing, Skype S.à r.l. (TBD) 8/9/10 $100,000,000 $718,900,000 -$368,800,000 30.4% & Communications Cornerstone OnDemand, Inc. Education & eLearning 9/29/10 $115,000,000 $29,300,000 -$8,400,000 49.4% (TBD) *Bold denotes SaaS companies. Median: $86,250,000 $61,890,000 -$2,253,000 18.6%

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THE SOFTWARE BUYER MINDSET HAS CHANGED

Ken Bender, Founder & Managing Director Software Equity Group, L.L.C.

We’re told the reason many of our readers consistently download our monthly and quarterly reports is they’re the one place – we’d like to think the best place – to find virtually all they need to know about the highly dynamic, ever-changing financial state of the software industry. And so our 3Q10 Report includes all of our many standard tables, charts and graphs, several new charts, and some occasionally provocative observations and forecasts about the balance of 2010 and the year ahead. Exit valuations are up sharply, deal activity is fairly robust, public software companies are growing their top lines and improving their operating margins…

It’s not the whole picture, though, which is why we thought it important to add some qualitative insights and personal observations about the current deal environment, as well.

It was estimated several years ago that some 65% of software acquisitions over the past 20 years did not come close to yielding the benefits or returns acquirers anticipated. As such, they were viewed as failures due to a plethora of contributing factors, including misguided strategy, grossly inadequate integration planning, poor due diligence, culture clashes… it’s a long list. Whether the percentage is accurate or not, few will dispute that trillions of dollars spent on mergers and acquisitions have, in many cases, yielded very disappointing returns.

Of course, there have been many thousands of software transactions in the past decade that have met or exceeded expectations, and a good number have proven to be enormously successful. Those wins helped assuage the disappointing returns and write-offs of prior deals, and motivate public software companies and private equity/growth equity firms to continue buying. In the go-go days of the last decade, particularly 1999 – 2001 and 2006 – 2007, it was easier to focus on the wins, and write-off the losses.

But a long, brutal and scary recession has chastened buyers, and has made the historically acceptable mortality rate unacceptable going forward. Software buyers are still buying, but M&A thinking and approach has changed.

Software company buyers – primarily public software companies and private equity firms, either directly or through portfolio companies – are highly motivated, but far more circumspect and disciplined than we’ve ever seen them. Most have spent time and resources creating a shopping list that’s closely tied to the latest strategic plan. New M&A ideas are not vetoed automatically, but are assessed in terms of how much they reflect and leverage the strategic plan, rather than their individual sex appeal.

As important, public software company buyers today are consensus driven to a degree beyond anything we’ve seen in the past. Very few CEOs are ramming deals through their organization’s M&A pipeline because they unilaterally deem them essential to future success. Boards are far more hands on, insisting upon multiple reviews and discussions about a proposed deal – even a very small one. Key functions – product management, development, finance, corporate strategy, business unit head – are involved early on and usually stay involved. Not only do these stakeholders meet periodically and collaborate on a proposed acquisition, each often has a veto.

(continued)

THE SOFTWARE BUYER MINDSET HAS CHANGED

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THE SOFTWARE BUYER MINDSET HAS CHANGED

How has this consensus driven approach of most public software company buyers affected the M&A process? A sell-side candidate today needs to be painstakingly positioned and carefully profiled when presented to a potential acquirer. The prospective buyer – and that means most of the key stakeholders who are initially polled about the opportunity – must immediately get it, and resonate with it. If they don’t, it’s over before you begin.

The vast majority of buyers today prefer a two or three hour introductory phone call over an in-person meeting. These days, there may be a half-dozen people in the room at the buyer’s end, and a few calling in from the road. We find these stakeholders are considerably more prepared today than in the past. It’s likely they’ve had more internal discussions, read more market analyst reports, queried more consultants, and spent more time assessing the market, than at anytime in the past. Each will filter the seller’s presentation based on this research and his/her corporate function and agenda, seeking to qualify the target as a worthy candidate, hoping it provides the right answers to open questions and addresses key concerns. It’s rapid, it’s rigorous and it can be nerve racking.

And the focus of this first meeting today? It’s the same today as in the past, your business model. But there may well be more probing questions about your go-to-market strategy, typical sale, revenue breakdown, customer concentration, pricing methodology, and implementation effort and timing.

But expect your products to be in the limelight for much of the meeting. You’ll present a detailed overview of your product suite, its key functions and features and its underlying technology platform. You’ll want to do so proudly and with conviction. Be aware, though, you’re often walking a minefield of product and technology biases, prejudices and predispositions.

If you survive the first meeting, there will be a follow-up meeting, but usually not for several weeks to allow internal debriefing, analysis and consensus building. The second meeting will drill more deeply into your products, seeking to determine how closely your product suite’s functionality, architecture, technology and API satisfy the buyer’s wish list. Here is your opportunity to educate, to shine and to build value.

There will be more meetings, several more than in past years, as the buyer enhances its understanding of your business, seeks to secure a consensus, further vets the market and revenue opportunities, thinks about valuation, and starts to build a business case for the CEO and Board. You’ll need to be patient. It’s a longer, slower and more deliberate process than it used to be. But it provides you with much improved opportunity to build value and foster buyer buy-in and inertia along the way. If you’re the right candidate and if you’ve managed this process well, you will, in all likelihood, get to a mutually acceptable LOI.

But you’re not quite to the finish line yet. Pre-closing due diligence takes a bit longer these days. There’s a greater likelihood buyers will involve their auditors and outside accountants. Be prepared, be patient, and understand that in the current economy and software M&A environment today’s buyer, chastened by past experience, is more circumspect and considered, more risk adverse, and more insistent upon consensus. But remember, although buyers today are typically more circumspect and consensus driven, they are highly motivated to do deals, and for the “right” deals, they clearly have the requisite money, mandate and mindset.

12| 3Q10 SOFTWARE INDUSTRY EQUITY REPORT www.softwareequity.com

Figure 16: U.S. Mergers & Acquisition Activity

16,000 $1,800 $1,679B $1,550B 13,228 $1,500 12,586 $1,273B 11,769 12,000 11,254

$1,200 Value ($ billions) 9,941 9,585 9,296

7,762 $1,094B 8,000 7,219 $900

$905B $844B Number of Deals $550B $776B $525B $600

4,000

$300

0 $0 2002 2003 2004 2005 2006 2007 2008 2009 2010 Deals Value Source: Capital IQ Note: 2010 data is annualized

MERGERS AND ACQUISITIONS: THE NUMBERS The number of U.S. LBOs dropped to 225 in 3Q10 from 272 in 2Q10, but year-over-year was M&A Deal Volume and Spending: All Industry notably higher than 3Q09’s 208 LBOs. The total Sectors price tag followed a similar trend, with U.S. LBOs fetching an aggregate $16.0 billion in 3Q10, Globally, there were 9,164 M&A transactions in compared with $19.9 billion in 2Q10 and a 3Q10 aggregating $410 billion. By comparison, relatively paltry $5.7 billion in 3Q09. there were 10,051 deals worldwide in Q2 totaling $434 billion. Year-over-year, 3Q10’s tally was The third quarter’s largest LBOs included The markedly higher in both deal volume and total Carlyle Group’s acquisition of NBTY for $3.5 spend than 3Q09’s 7,554 acquisitions that tallied billion and 3G Capital Management’s purchase of $294 billion. Burger King for $3.3 billion. With the continued easing of the credit markets and billions in dry Domestically, 3,143 M&A transactions were powder, look for LBO activity and spending to announced across all industry sectors in the third remain healthy in 2011. quarter of 2010 (Figure 16). The Q3 U.S. deal total is 9.3% lower than Q2’s 3,465 transactions, Software M&A Deal Volume and Spending marking the first decline following six consecutive quarters of M&A deal volume growth. Still, There were 392 software M&A transactions in the 3Q10’s deal tally was 28.0% greater than 3Q09’s third quarter totaling $19.1 billion, compared to 2,456 transactions. As important, buyers 372 transactions in 2Q10 aggregating $16.6 loosened their purse strings a bit over the past billion, and 330 transactions in 3Q09 totaling year. 3Q10’s total spend for 3,143 transactions $13.5 billion (Figures 17 and 18). Software deals was a healthy $195 billion, 43.5% greater than accounted for 12.5% of all U.S. M&A activity in 3Q09’s aggregate price tag of $136 billion. 3Q10, a solid improvement over 2Q10’s 10.7% share, yet down from software’s 13.4% slice in As for leveraged buyouts, there were 617 3Q09 worldwide in the third quarter, worth $29.2 billion, compared to 697 deals worth $24.7 billion in Q3’s aggregate software M&A spend was buoyed 2Q10 and 555 transactions aggregating only by six mega-deals (transactions with enterprise $10.1 billion in 3Q09. value greater than $500 million), including Intel’s

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Figures 17 and 18: U.S. Software Sector M&A Activity and Dollars Spent 600

500 518 478 420 470 456 372 372 392 400 402 345 330 316 311 300 # of Deals 200

100

0 3Q07 4Q07 1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10

$35.0

$32.0 $30.0

$25.0 $23.5 $22.4 $19.1 $20.0 $16.6 $15.0 ($ billions) ($ $14.9 $13.5 $10.0 $9.8 $6.3 $7.6 $5.0 $3.3 $4.0 $2.9 $0.0 3Q07 4Q07 1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10

Q3’s aggregate software M&A spend was buoyed announced a year ago in 3Q09: Adobe’s by six mega-deals (transactions with enterprise acquisition of Omniture ($1.6EV billion, 4.7x EV value greater than $500 million), including Intel’s TTM revenue) and IBM’s acquisition of SPSS announced acquisition of McAfee ($6.9EV billion, ($784EV million, 2.7x EV TTM revenue). 3.5xEV TTM revenue); Hexagon AB’s announced acquisition of Intergraph ($2.1 billion, 2.8xEV TTM After bottoming out at 311 reported transactions in revenue); and HP’s acquisition of ArcSight ($1.5EV 2Q09, software deal volumes have clearly billion, 7.7xEV TTM revenue). rebounded. 3Q10’s 392 deals indicate a return to historically healthy norms and presage a fourth Q3’s six mega deals follow closely on the heels of quarter tally in excess of 400 deals and similar six mega-deals announced in 2Q10, indicating the quarterly M&A transaction volumes in 2011, big boys are once again interested in placing big assuming the economy doesn’t backslide. bets that can really move the needle. By comparison, there were only two mega-deals Note: Each quarter, we recast prior quarters’ software M&A activity to ensure the most accurate

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deal volume and spending metrics. As such, data usually connote lower valuations. Conversely, from prior quarters often fluctuates and may not higher deal volume and 40%+ public buyers mean be the same from report to report. increased deal competition and more strategic valuations. Software M&A Deal Currency Public buyers accounted for 42% of all acquirers The percentage of all-cash software M&A in 3Q10, up from 40% in 2Q10 and on par with transactions decreased to 74% in 3Q10 (Figure 3Q09 (Figure 20). This encouraging trend 19), compared to 77% in 2Q10. Sellers, it seems, confirms the return of public software companies were slightly less reticent to accept some portion to the deal table, most in search of strategic of consideration in stock, given the improved acquisitions, and has contributed significantly to performance of the major stock indices. As a the rise in median software exit valuations during result, the percentage of sellers receiving stock or the past four quarters. a combination of cash and stock increased to 26% from 23% in 2Q10. Nevertheless, as long as The rebounding credit markets are also helping to the market performance remains volatile and make more public software companies unpredictable, we fully expect all-cash acquisitive. Although most are sitting on healthy transactions to remain at or above 72% of total for the forseeable future, given founders’ strong Figure 20: Public vs. Private Software M&A prefence for security, and investors’ desire for Buyers and Sellers liquidity.

Figure 19: Software M&A Deal Currency

6% 10% 12% 10% 60% 58% 62% 62%

23% 13% 23% 14%

42% 38% 40% Percentage of Software Buyers Software of Percentage 38%

77% 74% 71% 67% Q4 2009 Q1 2010 Q2 2010 Q3 2010 Public Pr iv ate

Q4 2009 Q1 2010 Q2 2010 Q3 2010

Cas h Cash & Stock Stock

96% 95% 92% Private vs. Public Buyers 96%

In assessing each quarter’s M&A activity, we continue to track the mix of public and private buyers because it provides useful insight about

Percentage of SoftwareSellers 5% 4% 8% the current software M&A ecosystem and the 4% level of interest and likely valuation range a potential sell-side candidate might attract. Low Q4 2009 Q1 2010 Q2 2010 Q3 2010 M&A deal volumes and fewer public buyers Public Pr iv ate

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amounts of balance sheet cash, we are seeing a must emphasize that the Q3 median TTM surprising number of public companies exploring revenue multiple includes software, Internet and debt financed leveraged acquisitions. Still, the SaaS deals; ten transactions with exit multiples public-private software buyer ratio shouldn’t greater than 3.0x TTM revenue, including seven change much more during 4Q10 and 2011, as exceeding 4.0x TTM revenue (Figure 22). private equity firms are also being lured by the same low cost debt and lender willingness to Since very few software transactions publicly tolerate more leverage than anytime in the past identify a private software seller’s TTM EBITDA, two years. we did not have sufficient data to ascertain the median EBITDA exit multiple paid them in 3Q10. Software M&A Valuations We did, however, determine Q3’s median exit multiple for public software company sellers was The software industry’s benchmark median exit 13.0x TTM EBITDA, up slightly from 12.0x in valuation was an impressive 2.5x TTM revenue in 2Q10, and considerably better than 3Q09’s 8.7x 3Q10, well above the second quarter’s 2.1x TTM TTM EBITDA exit multiple (Figure 23). revenue median exit multiple. Following seven consecutive quarters of sub-2x median exit Figure 23: Median Public Software Company multiples in 2008 and 2009, 3Q10 marked the Seller Valuation as a Multiple of EBITDA third successive quarter the median multiple was 13.0x higher than 2.0x TTM revenue. Indeed, Q3’s 11.8x 12.0x 13.0x median exit multiple represents the highest we’ve seen since 3Q06’s median exit multiple of 2.7x TTM revenue (Figure 21).

Figure 21: Median Software M&A Valuation as a Multiple of Revenue Q4 2009 Q1 2010 Q2 2010 Q3 2010 2.2x 2.5x 1.9x 2.1x While a variety of factors drive an exit multiple, three of the most important determinants of exit valuation are the seller’s equity structure, financial performance and product category (Figure 24). As a result, we analyzed all 2010 year-to-date Q4 2009 Q1 2010 Q2 2010 Q3 2010 (YTD) M&A transactions with ascertainable revenue multiples to determine how exit Lest every software entrepreneur who reads this valuations varied by equity ownership (private vs. report multiply his/her company’s TTM revenue by public company), size (revenue) of buyer and 2.5 to determine current fair market value, we seller, and the seller’s software product category.

Figure 22: Select 3Q10 Software M&A Transactions

SaaS Enterprise Seller Revenue Buyer Seller Acquisition? Value ($ millions) EV/Rev Walt Disney Co. (NYSE:DIS) Playdom, Inc. No $763.2 $75.0 10.2x Hewlett-Packard Company ArcSight, Inc. (NASDAQ:ARST) No $1,499.5 $195.0 7.7x (NYSE:HPQ) Roper Industries Inc. (NYSE:ROP) iTradeNetwork, Inc. Yes $525.0 $80.0 6.6x Google Inc. (NASDAQ:GOOG) ITA Software, Inc. Yes $700.0 $125.0 5.6x Datalogic Scanning Holdings, Inc. Evolution Robotics Retail, Inc. No $25.5 $5.1 5.0x Taleo Corp. (NASDAQ:TLEO) Learn.com, Inc. Yes $125.0 $30.0 4.2x International Business Machines Corp. Unica Corporation (NASDAQ:UNCA) No $446.8 $109.2 4.1x (NYSE:IBM) SDL plc (LSE:SDL) Language Weaver, Inc. Yes $42.5 $12.2 3.5x Intel Corporation (NASDAQ:INTC) McAfee, Inc. (NYSE:MFE) No $6,906.9 $2,002.9 3.5x Kohlberg Kravis Roberts & Co. Visma ASA No $1,898.6 $608.8 3.1x (NYSE:KKR)

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Figure 24: YTD Median Multiples – and many of the best performing and most Segmentation (Enterprise Value/Revenue) valuable public companies were acquired.

Public Sellers The trend abated somewhat in 3Q10, as only two 1.8x Median Multiple devalued, underperforming public companies 35% were acquired: Intec Telecom Systems was 65% purchased by CSG Systems ($251.3EV million, 1.0x EV TTM revenue) and Phoenix Technologies was acquired by Marlin Equity Partners ($98.3EV Private Sellers million, 1.6 EV x TTM revenue). Please see 2.7x Median Multiple Appendix B for additional public seller exit Private Buyers valuations in 3Q10. 1.8x Median Multiple 29% Conversely, most of the highest exit multiples in 3Q10 were paid to private software companies 71% deemed by their large public suitors to be highly strategic and worthy of an acquisition premium. Public Buyers Many of these private targets were venture- 2.5x Median Multiple backed entities that were well-funded, growing and, consequently, expensive. Noteworthy Buyer Greater Buyer Less Than examples include Disney’s acquisition of Playdom Than $200 million $200 million 2.7x Median 1.7x Median ($763.2 million, 10.2x TTM revenue estimate); Multiple Multiple Roper Industries’ acquisition of iTradeNetwork ($525.0 million, 6.6x TTM revenue estimate); 48% Google’s acquisition of ITA Software ($700.0 52% million, 5.6x TTM revenue estimate); and Datalogic Scanning Holdings’ acquisition of Evolution Robotics Retail ($25.5 million, 5.0x TTM revenue). Seller Greater Seller Greater Than $20 Than $20 As a next step, we separated public and private million: 0.8x2.7x million: 1.5x1.7x software company buyers to ascertain any Seller Less Seller Less difference in median purchase price paid in 1Q – Than $20 Than $20 3Q 2010. Historically, public buyers have paid million: 2.0x3.7x million: 2.4x1.6x higher exit multiples than private buyers: 2.5x vs. 2.0x TTM revenue in 2007; 2.0x vs.1.7x in 2008; and 1.9x vs.1.2x in 2009. First, we sorted YTD transactions by ownership type, separating public from private software The disparity in exit valuations paid by public vs. company sellers to ascertain any difference in private software company buyers continued in the median TTM revenue multiple. Public company first three quarters of 2010. Public buyers paid a sellers received a median 1.8x TTM revenue exit median 2.5x TTM revenue multiple, while private valuation, while privately held software companies buyers paid a median 1.8x TTM revenue multiple. commanded a median 2.7x TTM revenue multiple. We slice and dice software M&A transactions this way in part to remind our readers that the median The wide variance between public and private software industry TTM revenue and EBITDA exit seller exit multiples in each of the first three multiples we report each quarter have little quarters of 2010 continues the reversal of a well- bearing on the prospective exit valuation of a established trend. Over the past few years, we’ve particular software company. Examples abound noted a shrinking variance between public and of companies selling for modest multiples in private seller exit valuations. Historically higher strong economies and eyebrow-raising multiples public company exit premiums have declined over in tough economic times. In every economy, the time as public stock market valuations dropped 17| 3Q10 SOFTWARE INDUSTRY EQUITY REPORT www.softwareequity.com

software company valuation range is wide and the category continued to be the single most valuation drivers are many and varied. important M&A valuation driver in 3Q10. For most software product categories, there is often an Finally, we analyzed 3Q10’s median software insufficient number of transactions that publicly M&A multiple horizontally and vertically, report both seller TTM revenue and buyer segregating vertical market software company purchase price, essential data in ascertaining the sellers (e.g. retail, financial services, telecom, applicable median exit value for the product manufacturing, etc.) from sellers with horizontal category. Consequently, we aggregate the data software solutions (infrastructure, enterprise each quarter on a TTM basis. As a result, it may applications, etc.). In 3Q10, providers of vertical take several quarters to detect changing product software accounted for 36% of all software M&A, category valuation trends, and certain outlier confirming vertical providers remain attractive transactions consummated nine or twelve months acquisition targets, primarily because of their ago may have a residual impact on their product predictable and substantial recurring revenue, category multiples. domain expertise and highly defensible market positions (Figure 25). Horizontal solution Figure 27: Software M&A by Product Category providers accounted for the remaining 64% of sellers. Security 3.7x Figure 25: 3Q10 Horizontal vs. Vertical Sellers

Dev Tools & IT 3.1x 36% Asset Management 64% CRM, Marketing & 2.7x Sales

Healthcare 2.7x Vertical Horizontal

Figure 26: Horizontal vs. Vertical Software M&A Multiples Wireless 2.6x

Horizontal Vertical Database & File 2.1x 3Q10 2.7x 2.2x Management

2Q10 2.3x 2.0x Other Verticals 1Q10 2.2x 1.8x (A&D, Telco, 2.0x Retail, etc.) 4Q09 1.7x 2.3x HR & Workforce 3Q09 2.3x 1.5x 2.0x Management During the third quarter, vertical market sellers Engineering, PLM received a median 2.2x TTM revenue multiple, 1.5x while their horizontal market counterparts were & CAD/CAM paid a median exit multiple of 2.7x TTM revenue. The differential exit multiple paid to horizontal and Financial Services 1.4x vertical software company sellers in 3Q10 is historically consistent (Figure 26). Content/Document 1.2x M&A Exit Valuations by Software Category Management

While company size and software delivery model Supply Chain Management & 1.1x demonstrably impact valuation, software product Logistics

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Among the twelve product categories we tracked Logistics software providers. Software M&A in 3Q10 (Figure 27), security software providers valuations in the content and document garnered the highest median TTM revenue management sector fluctuated most widely over multiple (3.7x TTM revenue), mostly due to a the past two quarters, declining rather significant number of high profile transactions in dramatically from 2.2x TTM revenue in 2Q10 to recent quarters. Deals in this category included 1.2x in 3Q10 due to several earlier VC-backed HP’s acquisition of ArcSight ($1.5EV billion, 7.7xEV successful exits falling out of the TTM calculation. TTM revenue) in 3Q10; Intel’s acquisition of McAfee ($6.9EV billion, 3.5xEV TTM revenue) in From a deal activity standpoint, Messaging, 3Q10; and Symantec’s acquisitions of PGP Conferencing & Communications and Healthcare Corporation ($300 million, 4.0x TTM revenue) and applications led all other product categories in GuardianEdge Technologies ($70 million, 3.9x 3Q10 with 20 deals each (Figure 28), followed by TTM revenue) in 2Q10. Wireless and Development Tools/IT Asset Management with 18 deals each. Web Analytics, Exit valuations for other software product Electronic Design Automation and Networking & categories ranged from a median 3.1x TTM Connectivity software companies were in least revenue for providers of Development Tools/IT demand by acquirers in 3Q10, with only one deal Asset Management applications, to 1.1x TTM in each category. revenue for Supply Chain Management &

Figure 28: Software M&A by Product Category

Storage & Systems Mgmt Supply Chain Mgmt & Logistics

Security Web Analytics Telecommunications Wireless Manufacturing & Asset Mgmt

Retail Accounting Billing & Service Provisioning

Business Intelligence

Content/Document Mgmt

CRM, Marketing & Sales Software

Other Verticals

Database & File Mgmt

Dev. Tools, IT Asset Mgmt & App. Testing

Healthcare Education & Computer Based Training

Electronic Commerce Gov't / A&D Electronic Design Automation

Engineering, PLM & CAD/CAM Financial Services

Networking & Connectivity Enterprise Application Integration

Enterprise Resource Planning Multimedia, Graphics, Digital Media

Messaging, Conferencing & Communications Entertainment

HR & Workforce Mgmt

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SaaS M&A Transactions Figure 29: Internet M&A by Category 2% 2% 3% Thirty-six SaaS companies were acquired in 22% 3Q10, compared to 30 SaaS acquisitions in 2Q10 7% and thirteen during the same quarter a year ago. Content e-Commerce 7% Seven of Q3’s exits belonged to one of the Ad-Tech and Services earliest and most popular SaaS categories, Social Networking workforce management, signaling rapid Video/Photos Infrastructure consolidation. That may give many of those left 8% Mobile standing - smaller, privately held WFM players - Gaming reason to reevaluate their exit timing 17% Search assumptions. Communications 8% Music

Q2’s SaaS exits garnered a median 3.8x TTM revenue multiple, well above the software 12% 12% industry’s median 2.5x. Leading the pack was Roper Industries’ acquisition of iTradeNetwork the past five quarters (3Q09 – 3Q10) 62% of all ($525.0 million, 6.6x TTM revenue estimate). Internet transactions were in the Content, e-

Commerce, Ad-Tech and Social Networking Although public SaaS company valuations have categories (Figure 29). retreated some from their 2006 and 2007 highs

(Figure 9), we fully expect SaaS M&A activity and However, a careful analysis of these transactions median exit multiples will improve over the next across the 11 Internet categories we track yields four quarters. Public SaaS and public on-premise little meaningful trend data (Figure 30). Internet software companies today have healthy appetites M&A is amorphous, with acquirers in one or more for growing, profitable on-demand providers. subcategories seeking to monetize, extend,

expand and leverage their existing offerings and Additional details on 3Q10’s SaaS M&A users by moving aggressively into adjacent transactions can be found in Appendix E. categories.

Internet M&A Transactions Regrettably, we’re also unable to report valuation

multiples within each Internet category as only 35 Acquisition activity within the large and highly out of 680 transactions dating back to Q309 diversified Internet sector has continued at a brisk disclosed financial terms. pace, averaging 141 transactions per quarter

year-to-date in 2010. 147 companies were Year-to-date, five Internet acquirers (Google, acquired in the third quarter, as compared to 139 AOL, Facebook, Local.com and Yahoo!) have in 2Q10 and only 116 a year ago in 3Q09. During

Figure 30: Internet M&A Deal Volume by Category Category Q3 2010 Q2 2010 Q1 2010 Q4 2009 Q3 2009 Content 26 31 37 23 30 eCommerce 22 26 22 20 23 Ad Tech & Svcs 22 13 17 16 17 Social Networking 14 23 16 18 14 Videos/Photos 15 8 16 10 7 Infrastructure 14 13 8 10 9 Mobile 8 3 10 7 12 Gaming 1052073 Search 6 5 8 4 0 Communications 4 8 4 1 0 Music 6 4 2 2 1

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announced and completed more than five Internet transactions each (Figure 31). Google leads by a significant margin with 13. As important, well capitalized private companies, including Facebook, Groupon, Twitter, Zynga, Wikio, and Glam Media, have been active Internet acquirers, helping to drive 2010 Internet transaction volume.

Figure 31: Most Active Internet Company Acquirers (YTD 2010) 14 12 10 8 6 4

YTD Deals 2010 2 0 e k ! e n s e t a n a l L o l io r e i o m o g m g o d g O o o p k n tu g n o o p p i i m r z e A b .c h u d a a y a o l a A W l o r M e o T Z G c a Y r o C e m c n it h a G H I c A m o L a F L e e l t a T a d G D n a y h s a S E

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APPENDIX A: 3Q10 PUBLIC MARKET VALUATIONS AND STATISTICS BY PRODUCT CATEGORY

Billing & Service Management 3Q09 4Q09 1Q10 2Q10 3Q10 Dev. Tools, Op Systems & App Testing 3Q09 4Q09 1Q10 2Q10 3Q10 Current Ratio 3.0 3.1 3.0 2.8 2.8 Current Ratio 2.1 2.0 1.9 2.0 2.1 EBITDA Margin 20.2% 20.5% 20.5% 20.6% 20.5% EBITDA Margin 15.6% 16.3% 18.1% 18.5% 18.5% Gross Profit Margin 52.0% 52.8% 54.1% 55.9% 58.3% Gross Profit Margin 70.4% 70.2% 71.2% 71.6% 71.9% Net Income Margin 10.6% 11.4% 14.4% 15.4% 17.4% Net Income Margin 6.2% 6.7% 8.4% 9.9% 9.6% TTM Earnings Growth (YoY) -3.1% -13.9% -4.8% -8.3% 3.6% TTM Earnings Growth (YoY) -3.0% -7.5% 4.9% 49.0% 45.3% TTM Revenue Growth (YoY) 7.5% 6.1% 5.3% 20.5% 7.9% TTM Revenue Growth (YoY) 3.1% -2.7% -0.1% 14.8% 15.9% TTM EBITDA Growth (YoY) 9.3% 10.7% 49.2% 19.3% 19.3% TTM EBITDA Growth (YoY) 20.1% 13.6% 12.2% 26.3% 23.9% Cash as Percent of Market Cap 27.7% 23.8% 23.0% 23.2% 24.3% Cash as Percent of Market Cap 19.3% 28.8% 21.4% 21.6% 26.7% Enterprise Value Growth (YoY) -10.9% 26.6% 67.5% 44.9% 24.2% Enterprise Value Growth (YoY) -21.0% 46.4% 75.2% 45.8% 23.3% EV/Revenue 1.3x 1.5x 2.2x 1.7x 1.5x EV/Revenue 1.4x 1.3x 1.6x 1.7x 1.7x EV/EBITDA 6.6x 7.4x 10.9x 8.4x 7.2x EV/EBITDA 9.6x 12.8x 9.4x 9.4x 8.5x EV/Earnings 12.1x 13.4x 17.1x 14.5x 13.0x EV/Earnings 25.3x 24.2x 21.7x 18.5x 18.0x

Business Intelligence 3Q09 4Q09 1Q10 2Q10 3Q10 Education & eLearning 3Q09 4Q09 1Q10 2Q10 3Q10 Current Ratio 2.0 2.0 2.0 1.6 1.6 Current Ratio 0.9 1.1 1.2 1.2 1.2 EBITDA Margin 17.0% 16.2% 16.9% 15.4% 13.1% EBITDA Margin 9.5% 12.5% 13.2% 14.7% 16.4% Gross Profit Margin 82.1% 82.8% 82.4% 81.2% 80.0% Gross Profit Margin 75.0% 78.1% 79.1% 78.8% 79.0% Net Income Margin 10.6% 11.1% 10.2% 9.2% 6.3% Net Income Margin 0.9% 2.6% 5.3% 5.7% 7.4% TTM Earnings Growth (YoY) 27.9% 78.9% 10.2% -55.9% 3.5% TTM Earnings Growth (YoY) 15.3% -15.5% -125.9% -167.9% 167.9% TTM Revenue Growth (YoY) -0.5% 4.8% 0.7% 5.8% 5.8% TTM Revenue Growth (YoY) 18.2% 20.5% 18.6% 17.5% 17.5% TTM EBITDA Growth (YoY) 12.0% 26.6% 21.7% -7.2% -8.5% TTM EBITDA Growth (YoY) -1.6% 50.5% 39.1% 32.5% 32.5% Cash as Percent of Market Cap 27.5% 24.9% 24.1% 25.1% 22.2% Cash as Percent of Market Cap 16.0% 22.2% 15.7% 15.3% 15.5% Enterprise Value Growth (YoY) 2.4% 121.2% 147.8% 71.8% 14.3% Enterprise Value Growth (YoY) -13.8% 49.1% 66.6% 50.1% 23.4% EV/Revenue 1.9x 2.4x 2.3x 1.9x 2.0x EV/Revenue 2.1x 2.2x 2.0x 1.6x 1.6x EV/EBITDA 10.6x 12.9x 13.7x 13.8x 20.9x EV/EBITDA 18.1x 16.3x 14.0x 14.9x 14.1x EV/Earnings 18.9x 28.7x 31.5x 36.6x 52.6x EV/Earnings 79.7x 23.8x 48.8x 39.8x 41.6x

Content & Document Management 3Q09 4Q09 1Q10 2Q10 3Q10 Electronic Design Automation 3Q09 4Q09 1Q10 2Q10 3Q10 Current Ratio 1.4 1.4 1.4 1.5 1.6 Current Ratio 1.8 1.8 1.9 1.9 1.7 EBITDA Margin 26.1% 25.9% 22.5% 23.2% 23.2% EBITDA Margin -9.7% -2.3% 3.9% 5.0% 8.0% Gross Profit Margin 74.0% 73.6% 71.5% 71.0% 71.0% Gross Profit Margin 78.2% 79.3% 80.2% 81.9% 82.3% Net Income Margin -13.1% -6.6% 1.4% 1.7% 1.7% Net Income Margin -90.9% -69.9% -8.9% -4.0% -1.8% TTM Earnings Growth (YoY) 34.4% 7.4% 56.4% -47.3% 101.0% TTM Earnings Growth (YoY) -514.0% 81.7% 92.2% -42.2% 96.7% TTM Revenue Growth (YoY) -0.7% -10.3% -12.4% -3.0% -7.3% TTM Revenue Growth (YoY) -32.3% -17.9% -9.0% -0.3% -1.1% TTM EBITDA Growth (YoY) 4.8% 11.0% -3.6% -5.9% -3.4% TTM EBITDA Growth (YoY) 16.5% -3.0% -27.1% -70.0% 113.6% Cash as Percent of Market Cap 18.8% 25.1% 20.8% 21.1% 22.6% Cash as Percent of Market Cap 35.6% 32.7% 31.3% 26.4% 26.2% Enterprise Value Growth (YoY) -4.9% 44.8% 43.6% 31.9% 13.3% Enterprise Value Growth (YoY) -31.0% 37.3% 54.6% 55.4% 26.0% EV/Revenue 1.7x 1.7x 2.0x 1.9x 1.8x EV/Revenue 1.1x 1.4x 1.5x 1.6x 1.6x EV/EBITDA 6.8x 7.4x 8.2x 8.2x 7.1x EV/EBITDA 9.5x 9.6x 21.3x 22.8x 23.0x EV/Earnings 31.8x 41.1x 53.6x 42.1x 42.8x EV/Earnings 10.3x 12.9x 8.6x 38.1x 38.2x

Customer Relationship Management 3Q09 4Q09 1Q10 2Q10 3Q10 Engineering, PLM & CAD/CAM Software 3Q09 4Q09 1Q10 2Q10 3Q10 Current Ratio 1.1 1.5 1.1 1.1 0.9 Current Ratio 1.9 2.1 2.0 2.0 1.8 EBITDA Margin -3.4% -4.8% -1.8% 4.0% 0.3% EBITDA Margin 16.6% 13.4% 14.4% 16.2% 18.5% Gross Profit Margin 44.4% 43.1% 44.8% 49.3% 48.2% Gross Profit Margin 81.0% 80.3% 81.2% 82.1% 82.3% Net Income Margin -7.4% -4.6% -4.5% -6.3% -11.6% Net Income Margin 4.8% 3.4% 4.2% 4.8% 5.4% TTM Earnings Growth (YoY) -30.7% -4.8% 63.2% 24.6% 24.6% TTM Earnings Growth (YoY) -23.8% -11.9% 5.6% 14.3% 69.7% TTM Revenue Growth (YoY) -14.4% -15.7% -12.0% -6.6% -6.6% TTM Revenue Growth (YoY) -4.4% -10.3% -7.0% -1.5% -0.7% TTM EBITDA Growth (YoY) -13.1% 44.3% 8.8% -9.9% -7.8% TTM EBITDA Growth (YoY) 0.0% -3.0% -10.6% -13.5% 3.2% Cash as Percent of Market Cap 31.0% 29.4% 28.2% 28.6% 26.1% Cash as Percent of Market Cap 18.3% 20.8% 16.7% 13.6% 16.2% Enterprise Value Growth (YoY) -41.7% 43.9% 77.4% 47.5% 15.7% Enterprise Value Growth (YoY) -31.0% 37.3% 65.8% 59.9% 34.7% EV/Revenue 0.4x 0.6x 0.8x 1.0x 1.0x EV/Revenue 1.6x 1.7x 1.8x 1.9x 1.9x EV/EBITDA 11.1x 11.8x 11.4x 8.3x 15.7x EV/EBITDA 11.1x 12.4x 14.9x 14.5x 16.5x EV/Earnings 26.6x 23.0x 23.2x 23.3x 22.6x EV/Earnings 22.8x 29.0x 32.3x 34.2x 34.0x

Database & File Management 3Q09 4Q09 1Q10 2Q10 3Q10 Enterprise Application Integration 3Q09 4Q09 1Q10 2Q10 3Q10 Current Ratio 2.4 2.4 1.7 1.4 1.4 Current Ratio 1.8 2.0 1.9 1.8 1.8 EBITDA Margin 22.4% 22.9% 22.9% 22.0% 22.8% EBITDA Margin 12.5% 14.9% 14.7% 13.9% 14.4% Gross Profit Margin 83.0% 83.7% 84.1% 84.0% 83.8% Gross Profit Margin 59.6% 60.1% 58.4% 57.7% 57.4% Net Income Margin 12.1% 12.5% 12.8% 12.3% 12.5% Net Income Margin -10.0% -8.1% -4.8% -5.5% -5.4% TTM Earnings Growth (YoY) -2.6% 1.3% 17.6% 21.3% 12.8% TTM Earnings Growth (YoY) 15.9% 32.2% 38.7% 42.2% 42.2% TTM Revenue Growth (YoY) 6.5% 3.7% -1.1% 0.5% 0.5% TTM Revenue Growth (YoY) -5.8% -9.4% -6.7% 4.6% 5.3% TTM EBITDA Growth (YoY) 23.4% 11.8% 8.7% 20.3% 2.8% TTM EBITDA Growth (YoY) 16.4% -0.2% 6.3% 21.6% 23.9% Cash as Percent of Market Cap 25.4% 24.4% 26.1% 19.4% 21.2% Cash as Percent of Market Cap 28.8% 27.8% 22.9% 30.5% 31.1% Enterprise Value Growth (YoY) -2.9% 49.6% 38.6% 22.3% 8.8% Enterprise Value Growth (YoY) -15.7% 82.2% 92.6% 48.6% 31.2% EV/Revenue 1.6x 2.1x 1.9x 1.9x 1.8x EV/Revenue 1.4x 1.4x 1.4x 1.5x 1.4x EV/EBITDA 8.1x 8.7x 9.1x 9.0x 8.7x EV/EBITDA 12.9x 10.0x 9.8x 11.2x 10.5x EV/Earnings 18.5x 18.6x 18.0x 17.6x 16.0x EV/Earnings 27.8x 28.0x 26.6x 28.5x 28.1x

22| 3Q10 SOFTWARE INDUSTRY EQUITY REPORT www.softwareequity.com

APPENDIX A: 3Q10 PUBLIC MARKET VALUATIONS AND STATISTICS BY PRODUCT CATEGORY (CONTINUED)

Enterprise Resource Planning 3Q09 4Q09 1Q10 2Q10 3Q10 Multimedia, Graphics, Digital Media 3Q09 4Q09 1Q10 2Q10 3Q10 Current Ratio 1.2 1.5 1.4 1.5 1.5 Current Ratio 2.1 2.1 2.2 2.4 2.2 EBITDA Margin 17.4% 17.3% 18.4% 17.9% 17.2% EBITDA Margin 14.8% 14.2% 17.9% 17.3% 17.4% Gross Profit Margin 54.6% 56.5% 57.5% 56.4% 57.5% Gross Profit Margin 68.9% 68.7% 68.7% 68.3% 68.6% Net Income Margin 4.7% 5.9% 8.0% 8.6% 8.2% Net Income Margin 6.5% 7.2% 5.6% 4.6% 2.9% TTM Earnings Growth (YoY) -2.4% -2.9% 3.4% 10.8% 20.6% TTM Earnings Growth (YoY) -36.2% -1.3% -17.3% -16.0% -17.1% TTM Revenue Growth (YoY) -3.2% -8.1% -8.1% -4.5% -0.7% TTM Revenue Growth (YoY) -11.1% -8.4% -6.1% 0.6% 3.4% TTM EBITDA Growth (YoY) 6.8% 1.8% 2.7% 0.6% 3.7% TTM EBITDA Growth (YoY) -13.0% -1.8% 16.9% -1.5% 7.1% Cash as Percent of Market Cap 25.5% 19.6% 19.7% 18.4% 21.1% Cash as Percent of Market Cap 19.5% 13.1% 14.7% 11.5% 14.7% Enterprise Value Growth (YoY) -8.5% 41.7% 51.1% 37.3% 15.6% Enterprise Value Growth (YoY) -23.4% 43.8% 65.0% 42.1% 33.6% EV/Revenue 1.6x 1.8x 1.9x 1.9x 1.9x EV/Revenue 1.9x 2.5x 2.8x 2.7x 2.7x EV/EBITDA 9.6x 9.7x 10.6x 10.7x 10.8x EV/EBITDA 13.1x 17.8x 18.2x 18.4x 15.5x EV/Earnings 22.8x 22.4x 25.4x 23.8x 22.3x EV/Earnings 24.5x 35.9x 45.3x 41.4x 34.3x

Entertainment 3Q09 4Q09 1Q10 2Q10 3Q10 Networking & Connectivity 3Q09 4Q09 1Q10 2Q10 3Q10 Current Ratio 1.9 1.7 2.3 2.7 2.5 Current Ratio 2.1 2.2 2.2 2.2 2.1 EBITDA Margin 24.0% 22.4% 14.7% 1.9% 5.3% EBITDA Margin 20.3% 21.7% 22.1% 22.6% 23.1% Gross Profit Margin 59.7% 61.1% 62.3% 63.5% 61.7% Gross Profit Margin 77.8% 78.2% 78.4% 78.7% 78.7% Net Income Margin -2.7% -7.6% -8.3% -1.0% -5.1% Net Income Margin 9.5% 10.2% 11.1% 12.3% 12.4% TTM Earnings Growth (YoY) 31.1% -21.9% -19.2% -13.1% 33.3% TTM Earnings Growth (YoY) 38.3% 27.7% 22.8% 5.0% 29.3% TTM Revenue Growth (YoY) 14.0% -11.6% -12.0% -12.1% -14.0% TTM Revenue Growth (YoY) 6.0% 7.2% 8.4% 7.8% 10.1% TTM EBITDA Growth (YoY) 57.7% -11.2% 56.5% 26.1% -1.9% TTM EBITDA Growth (YoY) 45.1% 19.4% 25.6% 10.8% 24.5% Cash as Percent of Market Cap 31.4% 31.4% 36.1% 34.9% 32.9% Cash as Percent of Market Cap 24.3% 23.8% 22.6% 23.1% 24.2% Enterprise Value Growth (YoY) -44.1% 24.1% 64.8% -8.4% -17.1% Enterprise Value Growth (YoY) -14.1% 40.4% 112.2% 90.3% 46.9% EV/Revenue 1.0x 1.0x 1.0x 1.0x 1.0x EV/Revenue 2.0x 2.2x 2.4x 2.4x 2.3x EV/EBITDA 7.3x 7.2x 8.8x 6.0x 6.9x EV/EBITDA 10.8x 13.7x 19.9x 17.1x 16.2x EV/Earnings 13.1x 13.2x 10.6x 8.5x 8.1x EV/Earnings 28.4x 29.5x 36.1x 35.4x 32.0x

Financial Services Software 3Q09 4Q09 1Q10 2Q10 3Q10 Security 3Q09 4Q09 1Q10 2Q10 3Q10 Current Ratio 1.2 1.3 1.1 1.3 1.4 Current Ratio 2.3 2.3 2.1 2.3 2.4 EBITDA Margin 18.9% 19.3% 19.8% 22.1% 23.1% EBITDA Margin 19.6% 19.9% 19.1% 19.0% 18.5% Gross Profit Margin 55.7% 56.1% 56.5% 59.2% 59.8% Gross Profit Margin 75.6% 76.1% 77.4% 77.7% 78.0% Net Income Margin 9.2% 10.0% 11.2% 10.3% 10.1% Net Income Margin 0.2% 6.0% 8.8% 9.3% 13.4% TTM Earnings Growth (YoY) -6.2% 3.3% 29.8% 29.8% 29.8% TTM Earnings Growth (YoY) 7.3% 14.4% -2.4% -7.0% 111.6% TTM Revenue Growth (YoY) 1.3% 0.8% 0.4% 3.3% 7.8% TTM Revenue Growth (YoY) 10.2% 8.3% 11.9% 13.1% 11.8% TTM EBITDA Growth (YoY) 8.3% 15.3% 8.8% 14.5% 16.2% TTM EBITDA Growth (YoY) 25.2% 19.8% 19.2% 20.1% 33.7% Cash as Percent of Market Cap 13.0% 13.7% 11.2% 12.1% 14.1% Cash as Percent of Market Cap 19.3% 15.5% 16.1% 18.8% 19.8% Enterprise Value Growth (YoY) -12.3% 31.4% 42.2% 41.1% 16.3% Enterprise Value Growth (YoY) -6.0% 25.8% 57.8% 33.0% 19.2% EV/Revenue 2.2x 2.3x 2.5x 2.6x 2.5x EV/Revenue 3.7x 3.5x 3.7x 3.6x 3.3x EV/EBITDA 9.6x 10.1x 13.4x 8.8x 8.6x EV/EBITDA 13.0x 13.4x 15.1x 14.5x 15.9x EV/Earnings 26.3x 24.5x 25.7x 22.3x 24.7x EV/Earnings 29.6x 15.9x 23.1x 23.6x 20.8x

Healthcare 3Q09 4Q09 1Q10 2Q10 3Q10 Storage & Systems Management 3Q09 4Q09 1Q10 2Q10 3Q10 Current Ratio 3.5 3.7 3.6 3.7 2.8 Current Ratio 2.1 2.1 2.2 2.1 2.1 EBITDA Margin 23.1% 23.4% 24.7% 24.9% 21.9% EBITDA Margin 19.5% 18.0% 16.8% 17.0% 18.4% Gross Profit Margin 68.7% 68.4% 68.4% 68.5% 65.7% Gross Profit Margin 80.6% 80.8% 80.3% 79.1% 77.2% Net Income Margin 10.6% 10.3% 10.1% 9.9% 8.9% Net Income Margin 6.1% 6.0% 8.3% 9.8% 10.9% TTM Earnings Growth (YoY) 4.0% -9.9% -3.5% 9.8% 8.6% TTM Earnings Growth (YoY) 0.2% -5.4% -1.8% -5.3% 24.4% TTM Revenue Growth (YoY) 6.5% 4.4% 5.5% 8.0% 11.7% TTM Revenue Growth (YoY) 5.7% 5.9% 1.0% 0.0% 7.0% TTM EBITDA Growth (YoY) -11.6% -9.7% 9.1% 9.4% 0.5% TTM EBITDA Growth (YoY) 14.1% 10.2% 4.1% 1.6% 4.8% Cash as Percent of Market Cap 7.7% 8.2% 8.5% 9.2% 9.9% Cash as Percent of Market Cap 18.1% 17.8% 20.4% 18.1% 22.9% Enterprise Value Growth (YoY) 38.5% 60.9% 82.2% 39.8% 15.7% Enterprise Value Growth (YoY) -13.0% 46.0% 51.6% 40.5% 24.8% EV/Revenue 3.1x 3.7x 2.8x 3.4x 3.2x EV/Revenue 2.1x 2.4x 2.5x 2.5x 2.3x EV/EBITDA 15.1x 15.6x 15.9x 15.5x 15.0x EV/EBITDA 11.1x 13.8x 11.8x 11.5x 10.8x EV/Earnings 32.8x 36.6x 33.7x 35.0x 34.1x EV/Earnings 26.1x 29.4x 26.4x 23.9x 18.9x

Messaging, Conferencing & Comm. 3Q09 4Q09 1Q10 2Q10 3Q10 Supply Chain Management & Logistics 3Q09 4Q09 1Q10 2Q10 3Q10 Current Ratio 1.7 1.8 1.9 2.0 2.0 Current Ratio 1.8 1.9 2.3 2.0 2.0 EBITDA Margin 9.8% 8.0% 7.5% 7.8% 12.9% EBITDA Margin 11.3% 11.3% 11.6% 11.2% 11.2% Gross Profit Margin 64.7% 65.8% 65.5% 67.1% 67.6% Gross Profit Margin 55.3% 56.4% 56.9% 57.0% 56.7% Net Income Margin 4.4% 3.0% 0.7% 6.8% 6.9% Net Income Margin 1.9% 3.6% 4.9% 4.8% 4.4% TTM Earnings Growth (YoY) -38.3% 64.7% 47.2% 28.8% 69.3% TTM Earnings Growth (YoY) 91.0% -18.7% -3.2% 18.8% 88.0% TTM Revenue Growth (YoY) 6.8% 9.3% 11.5% 10.0% 10.6% TTM Revenue Growth (YoY) 1.5% -3.4% -10.4% -1.8% 0.2% TTM EBITDA Growth (YoY) 39.9% 66.3% 23.8% 26.1% 59.3% TTM EBITDA Growth (YoY) -20.6% 12.7% 21.6% 40.8% 1.9% Cash as Percent of Market Cap 21.5% 21.1% 17.5% 18.8% 18.6% Cash as Percent of Market Cap 24.1% 16.6% 18.7% 16.1% 18.0% Enterprise Value Growth (YoY) 9.9% 138.2% 143.7% 77.1% 25.5% Enterprise Value Growth (YoY) -28.9% 83.4% 61.0% 57.3% 23.3% EV/Revenue 1.7x 1.8x 1.8x 1.9x 1.8x EV/Revenue 1.3x 1.6x 1.6x 1.8x 1.7x EV/EBITDA 11.0x 10.9x 14.1x 13.6x 12.6x EV/EBITDA 9.9x 13.1x 13.1x 11.9x 10.8x EV/Earnings 16.0x 21.1x 22.2x 26.1x 21.0x EV/Earnings 23.6x 26.2x 33.2x 29.9x 20.7x

23| 3Q10 SOFTWARE INDUSTRY EQUITY REPORT www.softwareequity.com

APPENDIX A: 3Q10 PUBLIC MARKET VALUATIONS AND STATISTICS BY PRODUCT CATEGORY (CONTINUED)

Wireless 3Q09 4Q09 1Q10 2Q10 3Q10 Current Ratio 2.4 2.6 2.0 2.0 2.9 EBITDA Margin 9.9% 10.4% 9.6% 11.8% 7.9% Gross Profit Margin 53.8% 53.1% 53.1% 52.9% 53.5% Net Income Margin -2.0% -10.0% -2.7% -0.5% -0.2% TTM Earnings Growth (YoY) 45.7% 14.1% -364.5% 88.5% 84.2% TTM Revenue Growth (YoY) 13.2% 2.2% -1.2% 13.6% 13.6% TTM EBITDA Growth (YoY) 83.2% -60.7% -13.5% 13.7% 24.0% Cash as Percent of Market Cap 21.9% 16.0% 17.7% 25.6% 36.6% Enterprise Value Growth (YoY) 23.4% 8.4% 42.2% 25.2% 15.6% EV/Revenue 1.2x 1.3x 1.7x 1.6x 1.5x EV/EBITDA 13.0x 14.8x 11.2x 15.8x 13.7x EV/Earnings 67.0x 32.0x 38.8x 42.7x 42.9x

24| 3Q10 SOFTWARE INDUSTRY EQUITY REPORT www.softwareequity.com

APPENDIX B: 3Q10 MERGERS AND ACQUISITIONS, SELECT PUBLIC SELLER VALUATIONS

TTM Rev Buyer Seller Purchase Price Enterprise Value EV/Rev EV/EBITDA Growth Intel McAfee, Inc. (NYSE:MFE) $7,695,310,000 $6,906,920,000 3.5x 16.1x 14.0% Hewlett-Packard ArcSight, Inc. (NASDAQ:ARST) $1,650,250,000 $1,499,510,000 7.7x 59.3x 36.3% IBM Unica Corporation (NASDAQ:UNCA) $489,910,000 $446,810,000 4.1x 44.3x 4.2% CSG Systems International Intec Telecom Systems plc (LSE:ITL) $357,250,000 $251,300,000 1.0x 6.4x -0.8% Marlin Equity Partners Phoenix Technologies (NASDAQ:PTEC) $138,250,000 $98,340,000 1.6x - -9.0% Synchronica iseemedia Inc. (TSXV:IEE) $8,880,000 $5,770,000 2.6x - 38.1%

25| 3Q10 SOFTWARE INDUSTRY EQUITY REPORT www.softwareequity.com

APPENDIX C: 3Q10 MERGERS AND ACQUISITIONS, MOST ACTIVE BUYERS

Buyer Seller Purchase Price Enterprise Value TTM Revenue EV/Rev AQ Interactive Cavia - - - - FeelPlus Inc. and Artoon Co. - - - - Asseco South Eastern Europe ITD $10,840,000 $10,880,000 $10,260,000 1.1x EST Bilisim Hizmetleri A.S. $3,260,000 $3,260,000 $2,470,000 1.3x Astute Gamma Engineers - - - - Speech Labs - - - - CA Arcot Systems $200,000,000 $200,000,000 - - HyPerformix - - - - Cegedim Pulse Systems $58,000,000 $58,000,000 - - Deskom - - - - Ims CRM and Direct Marketing Bus. - - - - Google ITA Software* $700,000,000 $700,000,000 $125,000,000 5.6x Instantiations, Java Business - - - - MentorWave Technologies - - - - Plannr - - - - Slide - - - - SocialDeck - - - - Hewlett-Packard ArcSight $1,650,250,000 $1,499,510,000 $194,990,000 7.7x Fortify Software - - - - Stratavia - - - - IHS Inc. Atrion International - - - - Syntex Management Systems - - - - Ingenix A-Life Medical - - - - Axolotl - - - - Picis - - - - Intel McAfee $7,695,310,000 $6,906,920,000 $2,002,010,000 3.5x Neocleus - - - - IBM Unica $489,910,000 $446,810,000 $109,240,000 4.1x BigFix - - - - Datacap - - - - OpenPages - - - - Merge Healthcare Olivia Greets System $1,620,000 $1,620,000 - - Stryker Imaging - - - - Motive Television Adecq Digital $4,650,000 $6,420,000 - - NXVision - - - - Quest Software Surgient - - - - Völcker Informatik - - - - Research In Motion Cellmania - - - - DataViz - - - - Sabre Airline Solutions Flightline Data Services - - - - flugwerkzeuge aviation software - - - - Thomson Reuters Healthcare Data Management - - - - TaxSimple - - - - Versata Metatomix - - - - TriActive - - - - Vmware Integrien - - - - TriCipher - - - - * Revenue Estimate

26| 3Q10 SOFTWARE INDUSTRY EQUITY REPORT www.softwareequity.com

APPENDIX D: 3Q10 MERGERS AND ACQUISITIONS, SOFTWARE INDUSTRY MEGA-DEALS

TTM Rev Date Buyer Seller Purchase Price Enterprise Value EV/Rev EV/EBITDA Growth 08/18/2010 Intel McAfee, Inc. (NYSE:MFE) $7,695,310,000 $6,906,920,000 3.5x 16.1x 14.0% 07/06/2010 Hexagon AB Intergraph Corporation $2,125,000,000 $2,125,000,000 2.8x 11.2x - 09/13/2010 Hewlett-Packard Company ArcSight, Inc. (NASDAQ:ARST) $1,650,250,000 $1,499,510,000 7.7x 59.3x 36.3% 07/27/2010 Walt Disney Playdom, Inc.* $763,200,000 $763,200,000 10.2x - - 07/01/2010 Google ITA Software, Inc.* $700,000,000 $700,000,000 5.6x - - 07/22/2010 Roper Industries iTradeNetwork, Inc.* $525,000,000 $525,000,000 6.6x - - * Revenue Estimate

27| 3Q10 SOFTWARE INDUSTRY EQUITY REPORT www.softwareequity.com

APPENDIX E: 3Q10 MERGERS AND ACQUISITIONS, SELECT SOFTWARE-AS-A-SERVICE SELLERS

Enterprise Buyer Seller Date Value Seller Revenue EV/Rev Zynga, Inc. Zynga Germany 9/24/10 - - - Battery Ventures; Benchmark Capital Panaya, Inc. 9/21/10 - - - GameHouse, Inc. Backstage Technologies Inc 9/14/10 - - - Tricom Infotech Solutions, Inc. GTESS Corporation 9/14/10 - - - MIJO Corporation adbeast 9/1/10 - - - Taleo Corp. (NASDAQ:TLEO) Learn.com, Inc.* 9/1/10 $125,000,000 $29,761,905 4.2x Kenexa Corp. (NASDAQ:KNXA) Salary.com, Inc. 8/31/10 $74,100,000 $45,460,123 1.6x CA Technologies (NASDAQ:CA) Arcot Systems, Inc. 8/30/10 $200,000,000 - ANXeBusiness Corp. TruArx, Inc. 8/26/10 - - - ExactTarget, Inc. ExactTarget Australia 8/23/10 - - - Visma ASA Severa Oyj 8/23/10 - - - Aliexpress Ltd. Auctiva Corporation 8/18/10 - - - Ingenix, Inc. Axolotl Corporation 8/16/10 - - - Telestream, Inc. Grab Networks, Inc. 8/13/10 - - - Call24, Inc. Medearc 8/10/10 - - - Benefitfocus.com, Inc. Benefit Informatics, Inc. 8/10/10 - - - Google Inc. (NASDAQ:GOOG) Slide, Inc. 8/6/10 - - - Dominion Enterprises Ziios Incorporated 8/5/10 - - - Stepstone Solutions (UK) Ltd. MrTed, Ltd. 8/2/10 - - - FleetMatics Limited SageQuest, LLC 7/31/10 - - - Parallax Capital Partners, LLC Daptiv, Inc. 7/27/10 - - - Versata Inc. TriActive, Inc. 7/23/10 - - - Mobile Media Unlimited Holdings, Inc. (OTC:MMUH) Enable Software Ltd. 7/22/10 - - - Roper Industries Inc. (NYSE:ROP) iTradeNetwork, Inc.* 7/22/10 $525,000,000 $80,000,000 6.6x Awareness Technologies, Inc. LegiTime Technologies, Inc. 7/19/10 - - - SDL plc (LSE:SDL) Language Weaver, Inc. 7/15/10 $42,500,000 $12,212,644 3.5x AirClic, Inc. Airversent, Inc. 7/13/10 - - - Powwownow Ltd. Yuuguu Ltd. 7/12/10 - - - Atlantic Link Ukraine LTD. Youmanage Limited 7/9/10 - - - Pictage, Inc. ShootQ, Inc. 7/7/10 - - - Webroot Software, Inc. BrightCloud, Inc. 7/7/10 - - - Bentley Systems, Incorporated BLUERIDGE Analytics, Inc. 7/7/10 - - - Access Formatta Corporation 7/6/10 - - - The SOS Print & Media Group (Australia) Pty Ltd U&I Direct Pty. Ltd. 7/2/10 - - - USU Software AG (XTRA:OSP2) Aspera GmbH Lizenzmanagement 7/1/10 $7,340,000 $4,993,197 1.5x Google Inc. (NASDAQ:GOOG) ITA Software, Inc.* 7/1/10 $700,000,000 $125,000,000 5.6x *revenue estimate

28| 3Q10 SOFTWARE INDUSTRY EQUITY REPORT www.softwareequity.com

APPENDIX F: 3Q10 MERGERS AND ACQUISITIONS – DEAL INSIGHT

Hexagon (OM:HEXA B) acquires Intergraph Category: Engineering and Geospatial Software Purchase Price: $2,125,000,000EV Seller Revenue (TTM): $770,189,000 Seller EBITDA (TTM): $189,000,000 Revenue Multiple (TTM): 2.8xEV EBITDA Multiple (TTM): 11.2xEV Payment Terms: Cash

SEG’s Perspective: Hexagon AB, a leading provider of engineering measurement technologies, acquires Intergraph, a leading provider of engineering and geospatial applications. Intergraph will provide a visual presentation layer for the management, analysis and sharing of vast amounts of data produced by Hexagon’s precision 3D measurement technologies, enabling Hexagon to provide a fully integrated suite of measurement and visualization applications. The jury is out, however, on whether Hexagon will continue to reinvest in Intergraph’s other product lines, including 3D modeling for manufacturing PLM, which may portend future divestiture opportunities. Intergraph was acquired for approximately $1.3 billion in 2006 by a group of private equity firms, Including Hellman & Friedman, TPG and JMI Equity. The better than $2.1 billion sale to Hexagon will likely generate a substantial IRR for investors.

IBM (NYSE:IBM) acquires Unica (NASDAQ:UNCA) Category: Enterprise Marketing Software Purchase Price: $446,810,000EV Seller Revenue (TTM): $109,190,000 Seller EBITDA (TTM): $10,080,000 Revenue Multiple (TTM): 4.1xEV EBITDA Multiple (TTM): 44.3xEV Payment Terms: Cash

SEG’s Perspective: Infrastructure computing behemoth, IBM, acquires leading enterprise marketing applications provider, Unica. IBM’s acquisition of Unica further leverages its position as a provider of solutions for the web and customer analytics, and highlights the continued growth of enterprise internet marketing and advertising spend. IBM’s recent acquisitions of ecommerce enablement vendor Sterling Commerce ($1.4 billion), web analytics provider Coremetrics, and consumer predictive analytics provider SPSS ($783.7EV, 2.7xEV TTM revenue) each provide a crucial component to IBM’s success in the internet commerce realm. IBM’s $21 per share tender offer represents a 118% premium over Unica’s 30 day pre-announcement average closing stock price. Unica marks IBM’s ninth software acquisition in 2010.

29| 3Q10 SOFTWARE INDUSTRY EQUITY REPORT www.softwareequity.com

APPENDIX F: 3Q10 MERGERS AND ACQUISITIONS – DEAL INSIGHT (CONTINUED)

Intel (NASDAQ:INTC) acquires McAfee (NYSE:MFE) Category: Security Software Purchase Price: $6,906,920,000EV Seller Revenue (TTM): $2,002,920,000 Seller EBITDA (TTM): $430,170,000 Revenue Multiple (TTM): 3.4xEV EBITDA Multiple (TTM): 16.1xEV Payment Terms: Cash

SEG’s Perspective: Intel hopes to tackle security concerns regarding the proliferation of Internet and IP enabled devices via its acquisition of security giant McAfee. The acquisition gives Intel security and security management technology, as well as utilities to add value to its chips and to differentiate it in the rapidly expanding mobile device market, an area it recently made significant foray into via acquisition of WindRiver Systems ($793.4EV million, 2.2xEV TTM revenue) in 2009. Interestingly, this acquisition also demonstrates a reinvestment in anti-malware security, as Intel divested its antivirus business to Symantec in 1998. Intel’s $48 per share tender offer represents a 53% premium over McAfee’s 30 day pre-announcement average closing stock price.

Roper Industries (NYSE:ROP) acquires iTradeNetwork Category: Retail & Foodservice Supply Chain Management Software Purchase Price: $525,000,000 Seller Revenue (Estimate): $80,000,000 Revenue Multiple (Estimate): 6.6x Payment Terms: Cash

SEG’s Perspective: Roper Industries acquires iTradeNetwork, a leading provider of SaaS based trading network and business intelligence applications for the food service supply chain. The acquisition further solidifies Roper’s position within the foodservice industry, following it’s acquisitions of CBORD ($344 million) and Horizon Software in 2008, both providers of food and nutrition services management applications. Private Equity firm Accel-KKR purchased iTradeNetwork in late 2007 and made two add-on acquisitions (Instill Corporation and Amphire Solutions) in 2008 prior to exiting to Roper.

30| 3Q10 SOFTWARE INDUSTRY EQUITY REPORT www.softwareequity.com

APPENDIX F: 3Q10 MERGERS AND ACQUISITIONS – DEAL INSIGHT (CONTINUED)

Taleo (NASDAQ:TLEO) acquires Learn.com Category: Learning and Talent Management Software Purchase Price: $125,000,000 Seller Revenue (Estimate): $30,000,000 Revenue Multiple (Estimate): 4.2xEV Payment Terms: Cash

SEG’s Perspective: SaaS talent management leader Taleo acquires Learn.com, a leading provider of SaaS employee learning management solutions. The acquisition of Learn.com provides Taleo with the final piece of what many believe to be a full talent management suite, tying together Taleo’s current employee recruitment, performance, compensation, succession, and development applications, with Learn.com’s e-learning and social learning capabilities. The acquisition also brings Taleo, historically focused on large enterprise environments, a strong mid-market presence with significant cross-sell opportunities and limited product overlap. With its roots in recruitment management, Taleo has developed its performance, succession and career development applications internally, while choosing to acquire compensation management (WorldWide Compensation, $18.4EV million) and learning management (Learn.com) functionality over the past two years.

31| 3Q10 SOFTWARE INDUSTRY EQUITY REPORT www.softwareequity.com

APPENDIX G: SELECT 3Q10 SOFTWARE INDUSTRY MERGERS AND ACQUISITIONS

Date Buyer Seller 09/30/2010 DataCard Corporation Dynamic Card Solutions, LLC 09/30/2010 KYOCERA MITA Corporation Epson Software Engineering (Philippines), Inc. 09/29/2010 Blytheco, LLC Result Data Consulting, Ltd., SalesLogix Practice 09/29/2010 ticketportal AG JetTicket Software GmbH 09/29/2010 truconneXion AS FairNet, spol. s r.o. 09/28/2010 CA Technologies (NasdaqGS:CA) HyPerformix, Inc. 09/28/2010 Google Inc. (NasdaqGS:GOOG) Plannr Company 09/28/2010 Sabre Airline Solutions Inc. flugwerkzeuge aviation software gmbh 09/27/2010 Asys Sarl Groupe Ares, Chronos Business 09/27/2010 Ebix Latin America Usix Technology S.A. 09/27/2010 HighJump Software, LLC True Commerce, Inc. 09/27/2010 UC Mobile Ltd. Blovestorm.com 09/27/2010 Temenos Group AG (SWX:TEMN) Odyssey Financial Technologies S.A. 09/26/2010 Kohlberg Kravis Roberts & Co. (NYSE:KKR) Visma ASA 09/24/2010 Aurionpro Solutions Limited (BSE:532668) Kairoleaf Analytics Private Ltd. 09/24/2010 Expesite LLC Vision Facilities Management Ltd. 09/24/2010 Hyland Software, Inc. Computer Systems Company, Inc. 09/24/2010 Zynga, Inc. Zynga Germany 09/24/2010 CSG Systems International Inc. (NasdaqGS:CSGS) Intec Telecom Systems plc (LSE:ITL) 09/23/2010 Bluewater Bio International Water Innovate Limited 09/23/2010 Concurrent Computer Corporation (NasdaqGM:CCUR) TellyTopia, Inc. 09/23/2010 Halliburton Company (NYSE:HAL) The Permedia Research Group Inc. 09/23/2010 Tibco Software, Inc. (NasdaqGS:TIBX) OpenSpirit Corporation 09/22/2010 Advanced Solutions International, Inc. Donor Management Pty Ltd. 09/22/2010 IHS Inc. (NYSE:IHS) Atrion International Inc. 09/22/2010 IHS Inc. (NYSE:IHS) Syntex Management Systems, Inc. 09/22/2010 MerchantCircle, Inc. TimeBridge, Inc. Amadeus IT Holding SA, Property Management Systems (PMS) 09/22/2010 SoftBrands, Inc. division 09/21/2010 Baker Hughes Incorporated (NYSE:BHI) Meyer & Associates, Inc. Battery Ventures; Benchmark Capital; Hasso Plattner Ventures 09/21/2010 Panaya, Inc. Management GmbH 09/21/2010 Freescale Semiconductor Inc. Swell Software, Inc. 09/21/2010 Ingenix, Inc. A-Life Medical, Inc. 09/21/2010 Maggioli S.p.A. C. & C. Sistemi SRL 09/21/2010 New Generation Initiative (NGI) Foundation Mandriva S.A (ENXTPA:MLMAN) 09/20/2010 Alliance Solutions Group, LLC Effective Resources Gulf States, Ltd., Software Division 09/20/2010 ITT Corporation (NYSE:ITT) SRA International Inc., Airport Operations Solutions 09/20/2010 SumTotal Systems, Inc. Softscape, Inc. 09/20/2010 Triple I Medimedia USA, Inc. Phoenix Marketing Group, LLC 09/20/2010 Wolters Kluwer Financial Services, Inc. FRS Belgium NV 09/17/2010 GFI Energy Ventures LLC Energy Solutions, Inc. 09/17/2010 Lenco Mobile Inc. (OTCPK:LNCM) Jetcast, Inc. 09/17/2010 Motive Television plc (AIM:MTV) Adecq Digital S.L. 09/16/2010 Altium Ltd. (ASX:ALU) Morfik Technology Pty Ltd. 09/16/2010 AutoTrader.com, Inc. VAuto, Inc. 09/16/2010 CherryRoad Technologies, Inc. MAXIMUS, Inc., Oracle PeopleSoft ERP Business 09/15/2010 Finanz Informatik GmbH & Co. KG S-Firm Gesellschaft für Software Development mbH 09/15/2010 Harman International Industries Inc. (NYSE:HAR) Aha Mobile, Inc. 09/15/2010 International Business Machines Corp. (NYSE:IBM) OpenPages, Inc. 09/15/2010 Mad Gravity LLC TCS Software, Inc. 09/15/2010 Microsemi Corp. (NasdaqGS:MSCC) Arxan Defense Systems, Inc. 09/15/2010 Motive Television plc (AIM:MTV) NXVision Ltd. 09/15/2010 Pretax Ltd. ProCountor International Oy 09/14/2010 ConnectEdu, Inc. Academic Management Systems, Inc. 09/14/2010 Dubsat Pty. Ltd. Vio Worldwide Limited 09/14/2010 GameHouse, Inc. Backstage Technologies Inc

32| 3Q10 SOFTWARE INDUSTRY EQUITY REPORT www.softwareequity.com

APPENDIX G: SELECT 3Q10 SOFTWARE INDUSTRY MERGERS AND ACQUISITIONS (CONTINUED)

Date Buyer Seller 09/14/2010 Gericom AG (XTRA:GRO) funworld ag 09/14/2010 Merge Healthcare Incorporated. (NasdaqGM:MRGE) Stryker Imaging Corporation 09/14/2010 Planit Software Ltd Radan BV 09/14/2010 Tricom Infotech Solutions, Inc. GTESS Corporation 09/13/2010 DeNA Global, Inc. Gameview Studios, LLC 09/13/2010 Google Inc. (NasdaqGS:GOOG) MentorWave Technologies Ltd. 09/13/2010 Philips Healthcare Wheb Sistemas SA 09/13/2010 RadNet, Inc. (NasdaqGM:RDNT) eRAD Image Medical, Inc. 09/13/2010 TecDoc Informations System GmbH TecCom GmbH 09/13/2010 Hewlett-Packard Company (NYSE:HPQ) ArcSight, Inc. (NasdaqGM:ARST) 09/12/2010 TouchStore, Ltd. Ocuco Ltd., Pharmacy Software Division Bootstrap Oy, Canon Business Center Operations in Forssa and 09/09/2010 Benecan Oy Loimaa 09/09/2010 Ecolab Inc. (NYSE:ECL) Dober Chemical Corp., Commercial Laundry Division 09/09/2010 Measured Progress, Inc. Nimble Assessment Systems, Inc. 09/09/2010 SUPPLY VISION, Inc. Infotek Consulting, Inc. 09/09/2010 Miranda Technologies Inc. (TSX:MT) OmniBus Systems Limited 09/08/2010 Datatech SmartSoft, Inc. PressWise, Inc. 09/08/2010 Infinitt Healthcare Co., Ltd. (KOSE:A071200) GNSK Co., Ltd. 09/08/2010 TNS Inc. (NYSE:TNS) Cequint Inc. 09/07/2010 Red Bend Software, Inc. VirtualLogix, Inc. 09/07/2010 Research In Motion Limited (TSX:RIM) DataViz Inc. 09/06/2010 Cegedim Edi Deskom SA 09/05/2010 Intel Corporation (NasdaqGS:INTC) Neocleus, Inc. 09/03/2010 Versata Inc. Metatomix, Inc. 09/02/2010 Cisco Systems, Inc. (NasdaqGS:CSCO) Arch Rock Corporation 09/02/2010 Fidelity National Financial, Inc. (NYSE:FNF) Commerce Velocity Inc. 09/02/2010 Norvestor Equity AS Apsis Sweden AB 09/02/2010 Raptor Technology AG (WBAG:RAP) Gamingstuff UG 09/02/2010 Stanmore Implants Worldwide Ltd. The Acrobot Company Limited 09/01/2010 Alcatel-Lucent (ENXTPA:ALU) Open-Plug SA 09/01/2010 comScore, Inc. (NasdaqGS:SCOR) Nedstat BV 09/01/2010 CoreMatrix Systems LLC Sales PRM Inc. 09/01/2010 G4S Secure Solutions (SA) (Pty) Ltd. Skycom (Pty) Ltd. 09/01/2010 MicroBilt Corporation CL Verify LLC 09/01/2010 MIJO Corporation adbeast 09/01/2010 Taleo Corp. (NasdaqGM:TLEO) Learn.com, Inc. 08/31/2010 Bechtle AG (XTRA:BC8) Solidpro Informationssysteme GmbH 08/31/2010 BServ, Inc. NetDeposit, LLC 08/31/2010 Ernst & Young LLP Global Analytics, Inc. 08/31/2010 MultiCorpora R&D Inc. Beetext Inc. 08/31/2010 Thomson Reuters Corporation (TSX:TRI) Healthcare Data Management, Inc. 08/31/2010 Vix Technology Pty. Ltd. ACIS Limited 08/31/2010 VMware, Inc. (NYSE:VMW) Integrien Corporation 08/31/2010 VMware, Inc. (NYSE:VMW) TriCipher, Inc. 08/31/2010 CompuGroup Holding USA, Inc. American Healthcare Holdings Inc. 08/31/2010 Kenexa Corp. (NasdaqGS:KNXA) Salary.com, Inc. 08/30/2010 Citrix Systems, Inc. (NasdaqGS:CTXS) VMLogix, Inc. 08/30/2010 Google Inc. (NasdaqGS:GOOG) SocialDeck Inc. Albit Informatik AG, h+r EDV Informationssysteme GmbH and h+r 08/30/2010 GUS Schweiz AG EDV Informationssysteme AG 08/30/2010 Sebring Software LLC SUMOTEXT, Inc. (OTCBB:SMXI.D) 08/30/2010 CA Technologies (NasdaqGS:CA) Arcot Systems, Inc. 08/27/2010 Centershift, Inc. Hi-Tech Smart Systems, Inc., RentPlus 08/27/2010 OPNET Technologies Inc. (NasdaqGS:OPNT) Embarcadero Technologies, Inc., DSAuditor 08/26/2010 ANXeBusiness Corp. TruArx, Inc. 08/26/2010 Hewlett-Packard Company (NYSE:HPQ) Stratavia Corporation

33| 3Q10 SOFTWARE INDUSTRY EQUITY REPORT www.softwareequity.com

APPENDIX G: SELECT 3Q10 SOFTWARE INDUSTRY MERGERS AND ACQUISITIONS (CONTINUED)

Date Buyer Seller 08/26/2010 ID Business Solutions Ltd. Subx Inc. 08/25/2010 MarketShare Partners, Inc. JovianDATA, Inc. 08/25/2010 ZWCAD Software Co., Ltd. VX Corporation 08/24/2010 Reeltime Rentals, Inc. (OTCPK:RLTR) EnabledWare, Inc. 08/24/2010 Research In Motion Limited (TSX:RIM) Cellmania, Inc. 08/24/2010 Sporlan Valve Company Micro Thermo, Inc. 08/24/2010 Technology Nexus AB PortWise AB 08/23/2010 ExactTarget, Inc. ExactTarget Australia 08/23/2010 Tencent Holdings Ltd. (SEHK:700) Comsenz Inc. 08/23/2010 Thoma Bravo, LLC LANDesk Software, Inc. 08/23/2010 TradeStation Technologies, Inc. RINA Technologies, LLC 08/23/2010 Ventana Medical Systems, Inc. BioImagene, Inc. 08/23/2010 Visma ASA Severa Oyj 08/20/2010 Nokia Corporation (HLSE:NOK1V) Motally, Inc. 08/19/2010 AppLabs Technologies Pvt. Ltd. ValueMinds Solutions (P) Ltd. 08/19/2010 Kongsberg Gruppen ASA (OB:KOG) Odfjell Consulting AS 08/19/2010 EMIS Group PLC (AIM:EMIS) Rx Systems Limited 08/18/2010 Aliexpress Ltd. Auctiva Corporation 08/18/2010 Quamtel, Inc. (OTCBB:QUMI) Syncpointe, LLC 08/18/2010 Religare Technova Ltd. (BSE:526927) Chase Cooper Ltd. 08/18/2010 Thomson Reuters Corporation (TSX:TRI) TaxSimple, Inc. 08/18/2010 Intel Corporation (NasdaqGS:INTC) McAfee, Inc. (NYSE:MFE) 08/18/2010 The Software Construction Co. Inc. Peladon Software, Inc. 08/17/2010 Applied Micro Circuits Corp. (NasdaqGS:AMCC) TPACK A/S 08/17/2010 Hewlett-Packard Company (NYSE:HPQ) Fortify Software, Inc. 08/17/2010 Marlin Equity Partners, LLC Phoenix Technologies Ltd. (NasdaqGM:PTEC) 08/16/2010 Broadridge Financial Solutions Inc. (NYSE:BR) NewRiver, Inc. 08/16/2010 Ingenix, Inc. Axolotl Corporation 08/13/2010 AQ Interactive, Inc. (TSE:3838) FeelPlus Inc. and Artoon Co., Ltd. 08/13/2010 Telestream, Inc. Grab Networks, Inc. 08/12/2010 Astute, Inc. Speech Labs, LLC 08/12/2010 Mooter Media Limited (ASX:MMZ) Entellect Solutions Limited 08/12/2010 Trimble Navigation Limited (NasdaqGS:TRMB) Accubid Systems Ltd. 08/12/2010 International Business Machines Corp. (NYSE:IBM) Unica Corporation (NasdaqGM:UNCA) 08/11/2010 AerData B.V. Waviatech Ltd. 08/11/2010 Black Creek Integrated Systems Corporation Alanco/TSI PRISM, Inc 08/11/2010 Saffron Hill Ventures, Ltd. Optasia Medical Ltd. 08/10/2010 Benefitfocus.com, Inc. Benefit Informatics, Inc. 08/10/2010 Call24, Inc. Medearc 08/10/2010 International Business Machines Corp. (NYSE:IBM) Datacap, Inc. 08/10/2010 Proactum Oy MSG Software Ltd 08/09/2010 Media Exchange Group, Inc. (OTCPK:CWLC) 5000 Ft., Inc. 08/09/2010 Orion Healthcare Ventures Aspyra Inc., Substantially All Assets 08/09/2010 Sypol Ltd. Enable Infomatrix Ltd. 08/09/2010 Tektronix Texas, LLC Arbor Networks, Inc. 08/06/2010 Google Inc. (NasdaqGS:GOOG) Slide, Inc. 08/05/2010 Coughlan Companies, Inc. Portage Interactive, LLC 08/05/2010 Dominion Enterprises Ziios Incorporated 08/05/2010 Openlane, Inc. (OTCPK:OPNN) Recovery Database Network, Inc.

08/05/2010 Press Ganey Associates, Inc. Maryland Hospital Association, Quality Indicator Project® Division

08/05/2010 Scientific Games Corporation (NasdaqGS:SGMS) GameLogic, Inc. 08/05/2010 Teradata Corporation (NYSE:TDC) Kickfire, Inc. 08/04/2010 Balmoral FX Systems, Inc. Sea Capital, LLC 08/04/2010 Google Inc. (NasdaqGS:GOOG) Instantiations, Inc., Java Business 08/04/2010 RuffaloCODY, LLC MoonFire Corporation

34| 3Q10 SOFTWARE INDUSTRY EQUITY REPORT www.softwareequity.com

APPENDIX G: SELECT 3Q10 SOFTWARE INDUSTRY MERGERS AND ACQUISITIONS (CONTINUED)

Date Buyer Seller 08/04/2010 Yardi Systems, Inc. Information Systems & Services, Inc. 08/03/2010 Astute, Inc. Gamma Engineers, LLC 08/03/2010 HgCapital; HgCapital Trust plc (LSE:HGT) TeamSystem S.p.A. 08/03/2010 Mansoft Qatar W.L.L. Utility Networks Information Systems Consultants 08/02/2010 Hybrid Learning Systems, LLC ImpactGames, LLC 08/02/2010 Stepstone Solutions (UK) Ltd. MrTed, Ltd. 07/31/2010 FleetMatics Limited SageQuest, LLC 07/31/2010 Greenpark Capital Ltd. Minority Stakes in Five Companies 07/30/2010 Fuji Xerox Australia Pty Ltd. Upstream Print Solutions Pty. Ltd. 07/30/2010 Merge Healthcare Incorporated. (NasdaqGM:MRGE) Merrick Healthcare Solutions, LLC, Olivia Greets System 07/30/2010 NTT DOCOMO, Inc. (TSE:9437) PacketVideo Corporation 07/30/2010 Redknee Solutions, Inc. (TSX:RKN) Nimbus Systems SL 07/30/2010 The Newton Group, Inc. Consultedge, Inc. 07/30/2010 Asseco South Eastern Europe SA (WSE:ASE) EST Elektronik Sanal Ticaret Bilisim Hizmetleri A.S. 07/30/2010 Asseco South Eastern Europe SA (WSE:ASE) ITD 07/29/2010 Administaff Inc. (NYSE:ASF) Galaxy Technologies, Inc. 07/29/2010 Asset Acceptance Capital Corp. (NasdaqGS:AACC) BSI eSolutions, LLC 07/29/2010 Cegedim Relationship Management Ims Health Gmbh, CRM and Direct Marketing Business Unit 07/29/2010 McAfee, Inc. (NYSE:MFE) tenCube Pte Ltd. 07/29/2010 Quest Software Inc. (NasdaqGS:QSFT) Surgient, Inc. 07/27/2010 Cegedim SA (ENXTPA:CGM) Pulse Systems, Inc. 07/27/2010 Juniper Networks, Inc. (NYSE:JNPR) SMobile Systems, Inc. 07/27/2010 Parallax Capital Partners, LLC Daptiv, Inc. 07/27/2010 Walt Disney Co. (NYSE:DIS) Playdom, Inc. 07/27/2010 IDOX plc (AIM:IDOX) Strand Electoral Management Services Limited 07/26/2010 Ab Technology (M) Sdn Bhd GPRO Technologies Bhd (KLSE:GPRO) 07/26/2010 Commtouch, Inc. Command Software Systems, Inc. 07/26/2010 CONVERSOft Grimmersoft SAS 07/26/2010 Open Solutions Inc. The Weiland Financial Group, Inc. 07/23/2010 CrowdGather, Inc. (OTCBB:CRWG) Meetroduction, LLC 07/23/2010 MobileWave Group plc (AIM:MBW) MobileWave Limited 07/23/2010 Versata Inc. TriActive, Inc. Emerson Process Management LLLP, iTrax Fixed Asset Monitoring 07/22/2010 BSM Technologies Inc. (TSXV:GPS) Business 07/22/2010 Camstar Systems, Inc. SigmaQuest, Inc. 07/22/2010 Harbinger Capital Partners LLC Ubisoft Entertainment SA (ENXTPA:UBI) 07/22/2010 Ingenix, Inc. Picis, Inc. 07/22/2010 Mobile Media Unlimited Holdings, Inc. (OTCPK:MMUH) Enable Software Ltd. 07/22/2010 Musicians Exchange (OTCBB:MUEX) SpeechPhone LLC 07/22/2010 Scantron Corporation Spectrum K12 School Solutions, Inc. 07/22/2010 West Interactive Corporation TuVox, Inc. 07/22/2010 Roper Industries Inc. (NYSE:ROP) iTradeNetwork, Inc. Voice Mobility International, Inc., Voice Mobility UCN250 Software 07/21/2010 Applied Voice & Speech Technologies, Inc. and Related Technology Assets 07/21/2010 Autodesk, Inc. (NasdaqGS:ADSK) Illuminate Labs AB LM Ericsson Telephone Co. (OM:ERIC B); Indra Sistemas, S.A. 07/21/2010 Telefónica Investigación y Desarrollo, S.A., Pre-Paid Billing Solution (CATS:IDR) 07/21/2010 Nuance Communications, Inc. (NasdaqGS:NUAN) Information Technologies Australia Pty. Ltd 07/21/2010 The Core Company Enigma Data Solutions Limited 07/20/2010 Motio, Inc. BIPT, Inc. 07/20/2010 Synchronica PLC (AIM:SYNC) iseemedia Inc. (TSXV:IEE) 07/19/2010 Awareness Technologies, Inc. LegiTime Technologies, Inc. NetSol Technologies Europe Limited and NetSol Technologies North 07/19/2010 Netsol Technologies Limited (KASE:NETSOL) America Inc. 07/19/2010 SunGard Data Systems Inc. Fox River Execution Technology, LLC 07/15/2010 Centego Marketing, Inc. MetroSplash Systems Group, Inc. Datalab Tehnologije, druzba za razvoj poslovno-informacijskih 07/15/2010 Blue Soft, d.o.o. sistemov, d. d. (LJSE:DATR) 07/15/2010 MSCI Inc. (NYSE:MSCI) Bear Measurisk, LLC 07/15/2010 Synclore Corporation Servo Software, Inc.

35| 3Q10 SOFTWARE INDUSTRY EQUITY REPORT www.softwareequity.com

APPENDIX G: SELECT 3Q10 SOFTWARE INDUSTRY MERGERS AND ACQUISITIONS (CONTINUED)

Date Buyer Seller 07/15/2010 SDL plc (LSE:SDL) Language Weaver, Inc. 07/14/2010 Global Equipment Services Corporation GES Infotek Pvt. Ltd. 07/14/2010 Primestream Corporation B4M(TM) 07/14/2010 Rally Software Development Corp. Blue Hole Software Inc., ScrumAway 07/13/2010 AirClic, Inc. Airversent, Inc. 07/13/2010 GFI Software Ltd. Sunbelt Software, Inc. 07/13/2010 Rivington Street Holdings PLC Blue Curve Ltd. 07/12/2010 AQ Interactive, Inc. (TSE:3838) Cavia, Inc. 07/12/2010 Dalet S.A. (ENXTPA:DLT) Gruppo TNT S.R.L. 07/12/2010 me2me AG iSpeech AG 07/12/2010 Powwownow Ltd. Yuuguu Ltd. 07/12/2010 Quest Software GmbH Völcker Informatik AG 07/09/2010 Atlantic Link Ukraine LTD. Youmanage Limited 07/09/2010 China Electronics Holdings, Inc. (OTCBB:CEHD) Buyonate Inc. 07/09/2010 Exakis Tacticiel SAS 07/08/2010 Qbase Holdings, LLC MetaCarta, Inc. 07/07/2010 Bentley Systems, Incorporated BLUERIDGE Analytics, Inc. 07/07/2010 Fortress Financial Services, Inc. BISNet, Inc. 07/07/2010 Logitech International SA (SWX:LOGN) Paradial AS 07/07/2010 Moqizone Holding, Corp. (OTCBB:MOQZ) Viva Red Company Limited 07/07/2010 Notrefamille.com (ENXTPA:ALNFA) Archimaine SARL 07/07/2010 Pictage, Inc. ShootQ, Inc. 07/07/2010 Rostekhnologii Corporation LLC ALT Linux 07/07/2010 Sabre Airline Solutions Inc. Flightline Data Services Inc. 07/07/2010 SANBlaze Technology Inc. Emtech LLC 07/07/2010 Sverica International Syscon Justice Systems Ltd. 07/07/2010 Webroot Software, Inc. BrightCloud, Inc. 07/06/2010 Access Formatta Corporation 07/06/2010 Diamant Art Corp. (OTCPK:DIAA.F) T & R International BV 07/06/2010 EMC Corporation (NYSE:EMC) Greenplum, Inc. 07/06/2010 HaCon Ingenieurgesellschaft mbH Ingenieurbüro für Bahnbetriebssysteme (IBS) GmbH 07/06/2010 Manatron, Inc. Beyond Appraisal, Inc. 07/06/2010 PostUp, Inc. Twidroyd 07/06/2010 SPIE Communications S.A. Veepee SA 07/06/2010 Synchronoss Technologies, Inc. (NasdaqGS:SNCR) FusionOne, Inc. 07/06/2010 Hexagon AB (OM:HEXA B) Intergraph Corporation 07/05/2010 DL Software (ENXTPA:ALSDL) CIM S.N.C. 07/04/2010 Airial Conseil SA T-Systems France SAS, Operational Branch in Lille 07/02/2010 Blackboard Inc. (NasdaqGS:BBBB) Wimba, Inc. 07/02/2010 Pulse Seismic Inc. (TSX:PSD) Divestco Inc., 2D and 3D Seismic Data Library 07/02/2010 Responsys, Inc. EservicesResponsys 07/02/2010 The SOS Print & Media Group (Australia) Pty Limited U&I Direct Pty. Ltd. 07/01/2010 Automatic Data Processing, Inc. (NasdaqGS:ADP) Workscape, Inc. 07/01/2010 Dell Inc. (NasdaqGS:DELL) Scalent Systems, Inc. 07/01/2010 Disney Interactive Media Group Tapulous Inc. 07/01/2010 Infor Global Solutions, Inc. Qurius N.V., ERP LN Business 07/01/2010 International Business Machines Corp. (NYSE:IBM) BigFix, Inc. 07/01/2010 Path Solutions Path Solutions Egypt 07/01/2010 Tier 1 Performance Solutions, LLC Motionplan, Inc. 07/01/2010 Zumasys, Inc. Choice Computing, Inc. 07/01/2010 Google Inc. (NasdaqGS:GOOG) ITA Software, Inc. 07/01/2010 Datalogic Scanning Holdings, Inc. Evolution Robotics Retail, Inc. 07/01/2010 USU Software AG (XTRA:OSP2) Aspera GmbH Lizenzmanagement

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