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Corum Group Ltd. www.corumgroup.com SaaS in the Economic Storm Bellevue Boston Houston London Mexico City Munich Oslo Paris Philadelphia Phoenix Portland Santa Clara Toronto Zurich SIIA - On-demand Europe 2008

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corum group ltd www corumgroup com
Corum Group Ltd.www.corumgroup.com

SaaS in the Economic Storm

Bellevue Boston Houston London Mexico City Munich Oslo Paris Philadelphia Phoenix Portland Santa Clara Toronto Zurich

SIIA - On-demand Europe 2008

Software Industry M&A Market Update

June 10, 2008

slide2

Middle Market Software M&A Specialists

  • M&A specialists since 1985
  • Software and IT experts – mostly former CEOs
  • Publisher of industry-leading M&A research
  • Host of Selling Up Selling Out conferences / M&A workshop series
  • Dominant North American and European presence
  • 60%+ cross-border transactions
  • Platinum sponsor of World Financial Symposiums – Silicon Valley, Boston, London
  • $6 billion in wealth created
  • 200+ transactions completed
headlines tell the story
Headlines Tell the Story

“Can M&A’s Best Times Get Better?”

Wall Street Journal, January 2007

“Money is Everywhere – But for How Long?”

Wall Street Journal, January 2007

“Stock Surge + Bond Boom = M&A Magic”

Wall Street Journal, April 2007

“As Deal Barriers Fall, Takeover Bids Multiply”

Wall Street Journal, May 2007

“M&A – The Best Investment Game in Town”

Moneyextra.com UK, May 2007

“Market Pressures Test Resilience of Buyout Boom”

Wall Street Journal, June 2007

“Dry-Up in Debt Won’t Deter Tech Deals”

Barron’s, September 2007

“Time to Celebrate; 2007 Breaks M&A Record”

Wall Street Journal, October 2007

“M&A Seen on the Brink After Record 2007”

Reuters, December 2007

“Tech Cos Seen Going M&A Route, Not IPO in 2008”

Reuters, December 2007

“IT Spending Growth Expected to Slow in 08”

InformationWeek, December 2007

“Bear Stearns’ No. 1 Foe: Fear Itself”

CNN Money, March 2008

“Deal Making: It Shall Return”

Wall Street Journal, May 2008

“Let’s Still Make a Deal”

Business Week, June 2008

current market conditions
Current Market Conditions

Global economic infrastructure in disarray

Difficultly borrowing money

IPO markets are dead

Many are struggling

Worries about depth of recession

Concern over inflation

Price of oil up

Troubled housing market

Consumer confidence low

Unemployment up

Cost of food and consumer goods rising

the silver lining
The Silver Lining

On the plus side:

  • Technology revenues remain strong
  • Earnings remain positive
  • Forward analyst estimates look good
  • Lending requirements loosening
  • PE buyers see opportunity in the coming months
  • PE and VC investors raising new funds
  • International markets remain strong
  • No buyers saying “we’re pulling back”
  • Large cap stocks up
  • Strong cash reserves
  • M&A has become operational
reality check
Reality Check
  • Don’t take the current market for granted.
  • Volatile public markets
  • “Long, deep recession,” Warren Buffet
  • Price of oil continues to rise
  • Political change
  • Global conflicts
why does m a prevail
Why Does M&A Prevail?

The need to buy is stronger than ever

  • Acquisitions add more growth
  • Counter takeover attempts
  • Consolidation
  • Speed time to market
  • Buy talent and domain expertise
  • Fill product gaps
  • Get ahead of a technology curve
  • Tap into emerging consumer markets
  • Cost of being public and complying with SOX
  • Need for international presence
  • Only true liquidity event for managing shareholders
global m a activity
Global M&A Activity
  • Cross-border transactionlevels remain strong while international M&A activity contributed over 40% to the

total of announced deals for 2007

  • Europe and Asia both set records for deal volume in 2007
  • U.S. sellers continue to look overseas for buyers
  • Weak dollar attracting non-U.S. buyers
  • Strong € makes European targets attractive to acquisitive international buyers looking to increase revenues and profits based in stronger currency
  • 67 international tech co’s on BusinessWeek’s InfoTech 100 list up from 25 in 1998
emerging international markets
Emerging International Markets

Regions to watch:

  • China
  • Brazil
  • Israel
  • India
  • Eastern Europe
  • Russia
sectors
Sectors

2008 sector stats looking good…

public valuation revenue multiples
Public Valuation Revenue Multiples

TTM EV/S Multiples

Increased

Decreased

N/A

looking back valuation multiples
Looking Back – Valuation Multiples

M&A Transaction Revenue Multiples – Software Industry

2008 is starting off stronger than 2007 finishedQ1 P/S multiple of 2.6x

saas is mainstream
SaaS is Mainstream

70%plan to use SaaS (Aberdeen Group)

5% to 55%cost savings (Springboard Research)

30%+new soft licenses will be deployed as SaaS by 2012 (Saugatuck)

50%+software revenues from subscription by 2015 (Needham)

40%surveyed use hosted CRM (AMR)

49%will expand use of SaaS (AMR)

25%of business software revenue by 2011 (Gartner)

29%annual growth (IDC)

waves of saas evolution
Waves of SaaS Evolution

SaaS 1.0

SaaS 2.0

Wave I: 2001-2006Cost-effective Software Delivery

Wave II: 2005-2010Integrated Business Solutions

Wave III: 2008-2014Workflow-enabled Business Transformation

High

Ubiquitous AdoptionOptimized Bus. EcosystemsIT-targeted EcosystemsInter-enterprise CollaborationIT Utility / SaaS InfrastructureCustomized, Personalized WorkflowFocus on Business Transformation

Early AdoptionStand-alone AppsMulti-tenancyLimited ConfigurabilityFocus on TCO / rapid deployment

Mainstream AdoptionIntegrated w/ Business PortfolioSaaS Integration PlatformsBusiness Marketplaces and SaaS ecosystems

Adoption

SaaS Tipping-Point

Low

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

  • A platform for mission-critical application workloads

Source : Saugatuck Technology

the saas value chain drivers
The SaaS Value Chain – Drivers

Customer

Satisfaction

Margin

Solve customer business needs

valuation over 9 months
Valuation over 9 months
  • Multiples
  • In September 07
    • EV / Sales : 6.33 ; forward multiples : 4.19 (12months later)
  • In January 08
    • EV / Sales : 3.69 ; forward multiples : 2.65
  • In May 08
    • EV / Sales : 3.14 ; forward multiples : 2.35
  • Relevant M&A Transactions
saas in the heart of the 5 revolutions
SaaS in the heart of the 5 revolutions*
  • Unified communications
    • NGNetworks, IPT, SIP Presence, conferencing
  • Devices
    • What devices is right for particular application / activity
  • Datacenters
    • Virtualized and distributed architectures ; multithreading
  • SOA achitectures
    • Matching IT to business process ; core apps easy tailored
  • Application delivery
    • SaaS business model

All of them are interelated !!

* John Chapman – IT Europa

investors acquirers attracted to
Investors / Acquirers Attracted to:
  • SaaS is not only a matter of business model : part of a wider vision
  • SaaS is “reccession proof” : cutting costs and increasing flexibility
  • Predictable recurring cash flow
  • Revenue visibility this year and beyond
  • Low churn / high user satisfaction
  • Solves cutomer business needs or they’ll leave
  • Easier to plan and manage growth / scalability
  • Higher margins at scale
  • Cash flow is what gives a company value
  • License models are difficult to project
  • If it is not predictable it may be more volatile
  • Markets doesn’t like what’s volatile
seller motivation
Seller Motivation

Timing – personal, business, market

Have been approached

Need a larger partner to achieve vision

Capitalize on current success

Investors want out

Running out of cash

Founder age

Facing a build vs. sell decision

Tough to compete with larger players

Lacking resources to expand internationally

Lack of liquidity

Time for change

what do buyers really buy
Vision

Research

Management

Business Model

Planning R&D Process

Patents

Documentation

Pricing

Support

Market Share

Staff

User Base

What Do Buyers ReallyBuy?
  • Marketing Channels
  • Alliances
  • Competitive Position
  • Technology
  • Sales Process
  • Capital Structure
  • Growth
  • Profitability
  • Domain Expertise
buyers prioritize acquisition opportunities
Buyers – Prioritize Acquisition Opportunities
  • Target Size
  • Product prioritization – which new products / markets do they want to own?
  • Product leadership – compared to competition
  • Market size – addressable market large / expandable?
  • Can product port into other verticals, market segments?
  • Cultural and technical compatibility
  • Management team
will the numbers pencil
Will the Numbers Pencil?

Financial Considerations: Will the acquisition improve financial performance?

  • Return on Equity
  • EBITDA multiples
  • Impact of deal on revenue growth rate and EBITDA
  • Recurring revenue
  • Accretion / dilution to GAAP Earnings Per Share (public buyer); cash flow (private buyer)

Don’t forget -- third party analysts and / or lenders need to bless the deal

slide26

Corum’s Weekly M&A Update

Weekly M&A Update Complete list of week’s deals (Registration)

contact information
Contact Information

Corum Group Ltd.

10500 NE 8th Street, Suite 1500Bellevue, WA 98004USA+1 425-455-8281

Corum Group International S.à.r.l.BeimParadeplatzBasteiplatz 78001 ZurichSwitzerland+41 44 251 82 65

www.corumgroup.com

For full research and conference registration