The Software Industry Financial Report SOFTWARE INDUSTRY FINANCIAL REPORT CONTENTS About Software Equity Group Leaders in Software M&A 4 Extensive Global Reach 5 Software Industry Macroeconomics Global GDP 8 U.S. GDP and Unemployment 9 Global IT Spending 10 E-Commerce and Digital Advertising Spend 11 SEG Indices vs. Benchmark Indices 12 Public Software Financial and Valuation Performance The SEG Software Index 14 The SEG Software Index: Financial Performance 15-17 The SEG Software Index: Market Multiples 18-19 The SEG Software Index by Product Category 20 The SEG Software Index by Product Category: Financial Performance 21 The SEG Software Index by Product Category: Market Multiples 22 Public SaaS Company Financial and Valuation Performance The SEG SaaS Index 24 The SEG SaaS Index Detail 25 The SEG SaaS Index: Financial Performance 26-28 The SEG SaaS Index: Market Multiples 29-30 The SEG SaaS Index by Product Category 31 The SEG SaaS Index by Product Category: Financial Performance 32 The SEG SaaS Index by Product Category: Market Multiples 33 Public Internet Company Financial and Valuation Performance The SEG Internet Index 35 The SEG Internet Index: Financial Performance 36-38 The SEG Internet Index: Market Multiples 39-40 The SEG Internet Index by Product Category 41 The SEG Internet Index by Product Category: Financial Performance 42 The SEG Internet Index by Product Category: Market Multiples 43 1 Q3 2013 Software Industry Financial Report Copyright © 2013 by Software Equity Group, LLC All Rights Reserved SOFTWARE INDUSTRY FINANCIAL REPORT CONTENTS Software Industry M&A Market Update Software/SaaS M&A Deal Volume and Spending 45 Software M&A Exit Multiples 46 Software M&A by Ownership Structure and Size 47 Software M&A by Vertical and Horizontal Markets 48 Software M&A by Product Category 49-50 SaaS M&A Deal Volume and Exit Multiples 51 SaaS M&A by Product Category 52 SaaS M&A: 3Q13 Transactions 53-55 Internet M&A: Deal Volume and Exit Multiples 56-57 Appendix The SEG Software Index Companies 58-61 The SEG SaaS Index Companies 62 The SEG Internet Index Companies 63-65 The SEG Software Index by Key Metrics 66-69 The SEG SaaS Index by Key Metrics 70 The SEG Internet Index by Key Metrics 71-73 The SEG Software Index Metrics by Product Category 74-75 The SEG SaaS Index Metrics by Product Category 76 The SEG Internet Index Metrics by Product Category 77 3Q13 Public Sellers 78 3Q13 Software Mega Deals (>$500M) 79 3Q13 Most Active Buyers 80 2 Q3 2013 Software Industry Financial Report Copyright © 2013 by Software Equity Group, LLC All Rights Reserved ABOUT SOFTWARE EQUITY GROUP 3 Q3 2013 Software Industry Financial Report Copyright © 2013 by Software Equity Group, LLC All Rights Reserved LEADERS IN SOFTWARE M&A • Industry leading boutique investment bank, founded in 1992, representing public and private software and We Do Deals. internet companies seeking: • Strategic exit • Growth capital • Buyout • Inorganic growth via acquisition • Buy and sell-side mentoring • Fairness opinions and valuations • Sell-side client revenue range: $5 - 75 million • Buy-side clients include private equity firms and NASDAQ, NYSE and foreign exchange listed companies • Clients span virtually every software technology, product category, delivery model and vertical market • Global presence providing advice and guidance to more than 2 ,000 pri vat e and publi c compan ies throug hou t US, Canada, Europe, Asia-Pacific, Africa and Israel • Strong cross-functional team leveraging transaction, operating, legal and engineering experience • Unparalleled software industry reputation and track record. • Highly referenceable base of past clients 4 Q3 2013 Software Industry Financial Report Copyright © 2013 by Software Equity Group, LLC All Rights Reserved EXTENSIVE GLOBAL REACH Current Sell-side Representation • SEG currently represents software companies in the United States, Canada, France, Germany, Australia & Saudi Arabia Recent Sell-side Representation • In addition to the countries listed above, SEG has recently represented software companies in the United Kingdom, France, Netherlands, Israel, and South Africa SEG Research Distribution • SEG’s Quarterly and Annual Software Industry Eqyquity Re ports and Monthly Flash Re ports are distributed to an opt-in list of 50,000 public software company CEOs, software entrepreneurs, private equity managing directors, VCs, high tech corporate lawyers, pp,ublic accountants, etc. in 76 countries. 5 Q3 2013 Software Industry Financial Report Copyright © 2013 by Software Equity Group, LLC All Rights Reserved ABOUT SOFTWARE EQUITY GROUP Software Eqqyuity Group is an investment bank and M&A advisory serving the software and technology sectors. Founded in 1992,,g 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. Per haps mos t i mport ant are th e rel ati onshi ps we' ve bu ilt an d the in dus try repu ta tion we en joy. So ftware Equ ity Group is known andtdbblild 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 thousands of 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. To keep your finger on the pulse of the software equity markets, subscribe to our Annual and Quarterly Research Reports. Software Equity Group is an investment bank and M&A advisory serving the software and technology sectors. For a confidential consultation without obligation, please contact Kris Beible, Director, Business Development (858) 509-2800, [email protected] . CONTACT INFORMATION: Software Equity Group, L.L.C. 12220 El Camino Real, Suite 320 San Diego, CA 92130 www.softwareequity . com p: (858) 509-2800 The information contained in this Report is obtained from sources we believe to be reliable, but no representation or guarantee is made about the accuracy or completeness of such information, or the opinions expressed herein. Nothing in this Report is intended to be a recommendation of a specific security or company or intended to constitute an offer to buy or sell, or the solicitation of an offer to buy or sell, any security. Software Equity Group LLC may have an interest in one or more of the securities or companies discussed herein. Financial data provided by Capital IQ. 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. 6 Q3 2013 Software Industry Financial Report Copyright © 2013 by Software Equity Group, LLC All Rights Reserved SOFTWARE INDUSTRY MACROECONOMICS 7 Q3 2013 Software Industry Financial Report Copyright © 2013 by Software Equity Group, LLC All Rights Reserved GLOBAL GDP • According to the Economist, Global GDP growth slowed in 2Q13 (the latest data available), retreating to 2. 1% from 3. 1% in 2Q12. • The global economy was constrained by the Europe’s continuing recession and slowing GDP growth in China, which is where a major experiment is underway to shift its economy from rural to urban based and consumer driven. • Other key emerging markets struggle with social unrunrestest from high unemployment and lackluster growth. • For the year, PIMCO forecasts Global GDP to grow 2.0% - 2.5%, up slightly from previous forecasts due to strengthened economies in the U.S. and Japan, which are hoped to offset Europe’s economic malaise and slowed growth among the larger emerging nations. Sources: Worldbank, The Economist Q3 2013 Software Industry Financial Report 8 and PIMCO Copyright © 2013 by Software Equity Group, LLC All Rights Reserved U.S. GDP AND UNEMPLOYMENT 10% GDP % Growth Unemployment Rate 8% 6% 5.0% 41%4.1% 36%3.6% 3.7% 4% 3.1% 3.1% 2.6% 2.5% 2.5% 2.2% 2.1% 2.2% 1.7% 2.0% 1.8% 2% 1.5% 1.3% 1.3% 0.4% 0.4% 0% -07%0.7% -0.7% -2% -2.7% -4% -6% -5.4% -64%6.4% -8% 3Q07 3Q08 3Q09 3Q10 3Q11 3Q12 3Q13 • According to August’ s Federal Reserve survey of 42 economists, GDP growth in 3Q13 is predicted to be 2.2%. For the year, expectations are the U.S. economy will grow 2.0%. • PIMCO, however, is a bit more conservative. In its 3Q13 market perspectives, PIMCO forecast U.S. GDP growth of 1.5% - 2.0% for the year, citing continuing strength in the housing market.