2012 Better Acquisitions Gathering

Better Acquisitions Gathering 2012

M&A - Context and Trends

Kelly Porter

Managing Director and Partner

Co-Head of Software and Internet Services

[email protected]

January 18, 2012


Welcome.


We believe that this is

the most important conference

of the year.


Global Acquisitions Are Trending Up

20

11

In Dollar Volume (Billions – All Industries)

Source: Capital IQ


The IPO Market: Still Tepid

• High bar to IPO

• 52 venture-backed tech

companies raised $9.9 billion

in IPO’s

• Four companies raised

about half of the capital

• Two thirds of 2011 IPO’s

trading below their offering

prices.

• Significant IPO backlog

entering 2012: 216

companies; 57 are tech

companies

• Market generally supportive

of IPO’s

-92%

-83%

-71%

-59%

-39%

-27%

-25%

-8%

-7%

-2%

21%

22%

36%

48%

55%

56%

67%

-100% -80% -60% -40% -20% 0% 20% 40% 60% 80%

Friendfinder

21Vianet

Renren

Demand Media

Boingo

Yandex

Pandora

Zynga

HomeAway

GroupOn

Angie's List

Jive Software

Zillow

Fusion-io

Bankrate

LinkedIn

Imperva

Source: NVCA, WSJ

Performance Since Offering: Selected 2011 IPO’s


Global Software and Internet Acquisition Activity – Last Ten Years

2,038 1,951

2,281

2,814

3,429

3,758

3,240

2,524

3,158 3,436

$-

$20

$40

$60

$80

$100

$120

$140

-

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

# of Transactions

$ Value of Announced Transactions ($B)

Source: Capital IQ


Top-25 Acquirers in Software – Announced Acquisitions, Last Five Years

200+

• Importance of Google

• Otherwise relatively few consumer

internet acquirers

• However, new up & comers:

Facebook, Zynga

• Importance of cloud / enterprise

acquirers

• Embracing acquisitions: Autodesk

($2B revs); Nuance ($1.3B revs);

Citrix ($1.9B revs)

• Noteworthy who is not on the list:

Apple, Amazon

Source: Capital IQ


A Look At Google

Source: Capital IQ

Company Acquired Description SegmentAdMeld Display ad optimization Advertising

eBook Technologies e-reader technology Content

BeatThatQuote.com Financial product comparison site E-Commerce

Sparkbuy Comparison shopping for electronic devices E-Commerce

Punchd Digital loyalty-discounts E-Commerce

Dealmap Daily deals mapping E-Commerce

Zave Networks Digital coupons and loyalty programs E-Commerce

Zagat Restaurant guides Local

Clever Sense Recommendation app: bars, restaurants, etc Local

TalkBin Real-time customer feedback via mobile phones Mobile

SayNow Voice messaging Mobile

Motorola Mobility Patents Mobile

PushLife Music service provider for mobile Music

Apture In-Page Search Search

Zynamics Security Security

PostRank Social media analytics Social

SocialGrapple Twitter analytics Social

Katango Automated online social contacts organization Social

fflick Friend-based movie recommendation Video

Next New Networks Producer of online TV networks Video

Green Parrot Pictures Video editing tools Video

SageTV TV management software Video

PittPatt Facial recognition software Video

Rightsflow Music Rights Management Video

Financials

$36B revs LTM Sept 2011

+30% growth YOY

Revenues doubled last five years

$13B EBITDA

$43B Cash (~25% of EV)

$167B Enterprise Value

Observations

• Mostly smaller acquisitions

• Portfolio approach - diversified

• Outstanding use of innovation

ecosystem to build company

• Venture-like approach

Select 2011 Acquisitions


36 Key Software Companies: Cash + STI As a Percentage of Assets

Source: Capital IQ

22%

23%

24%

28%

30%

30%

32%

33%

33%

34%

36%

43%

43%

45%

52%

53%

62%

63%

Intuit

TIBCO Software

IAC/InterActiveCorp

Electronic Arts

Synopsys

Akamai Technologies

Adobe Systems

Check Point Software

Amazon.com

Red Hat

BMC Software

Oracle

Informatica

Autodesk

Microsoft

Trend Micro

Google

priceline

6%

6%

7%

9%

10%

10%

11%

12%

15%

15%

16%

18%

19%

19%

20%

20%

21%

22%

Open Text

H-P

Computer Sciences Corp

RIM

Visa

IBM

Software AG

Nuance

Yahoo!

EMC Corporation

eBay

Salesforce.com

Netflix

Symantec

Citrix Systems

CA Technologies

SAP

Apple

• $228 billion held by the companies below

• What is the right amount of cash?

• Issue / opportunity: cash stuck overseas


Breakdown of Software-Internet Transactions by Transaction size – Last five years

$1 Billion or More127 0%

$500M - $1 Billion:141 1%

$100M - $500M884 3%

$100M or less9,227 32%

Undisclosed:18,250 64%

Source: Capital IQ


Valuations in M&A – Avg Multiples of Revenue– Public Software Companies

0

1

2

3

4

5

6

7

8

9

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Source: Capital IQ


Notable Transactions in 2011

• Patents:

• Google buys Motorola Mobility for $12B

• Consortium buys Nortel Patent Portfolio for $4.5B

• Interesting companies purchased at a premium, but actually a discount:

• H-P buys Autonomy for $12B

• Microsoft buys Skype for $9B

• Bigger footprint in cloud:

• SAP buys SuccessFactors for $3.8B

• Stronger market presence in core markets:

• eBay buys GSI Commerce for $2.4B

• Electronic Arts buys PopCap Games for $1.3B


Five Key Market Drivers for the M&A Market in 2012

• CEO Confidence / Visibility

• Other Economic Factors

• Equity Markets

• Health of Venture Industry

• Key Market / Growth Opportunities


M&A Market Drivers 2012: CEO Confidence

Source: Vistage CEO Survey


“Do you expect overall economic conditions in the U.S. will be better, about the same, or worse than now?”

Survey of 1,600 U.S. CEOs - Forecast 2012 (Dec 2011)

“Do you expect your firm’s sales revenues will increase, remain about the same, or decrease?”

“Do you expect your firm’s profitability to improve, remain about the same, or worsen?”

40%

49%

10%

Better

About the same

Worse

No opinion

73%

21%

6% Increase

About the same

Decrease

No opinion

56%35%

9%

Improve

About the same

Worsen

No opinion

M&A Market Drivers 2012: CEO Confidence

Source: Vistage CEO Survey


Outlook Generally Positive:

• Moderate growth expected by economists

• Inflation below 2%

• Fed expected to keep rates near zero

• Profit margins highest since 1960’s

However:

• Europe is still a concern

• “Near paralysis in policy and creeping

austerity” – The Economist

M&A Market Drivers 2012: Broader Economic Factors

Source: The Economist


M&A Market Drivers 2012: Public Markets – S&P 500

Source: Yahoo Finance


M&A Market Drivers 2012: Health of the Venture Industry

% of VC-backed Company Financings That Were Up-Rounds

79 81 79

64

7268

73

54

2532

4147 49

5552

67 6761

70

0

100

2Q07 4Q07 2Q08 4Q08 2Q09 4Q09 2Q10 4Q10 2Q11

Source: Fenwick & West


75 7479

5549

53 55

25

-3-6

11

19 21

30 28

61

52

71 69

-30

10

50

90

2Q07 4Q07 2Q08 4Q08 2Q09 4Q09 2Q10 4Q10 2Q11

Average % Price Change Compared to Prior Funding

M&A Market Drivers 2012: Health of the Venture Industry

Source: Fenwick & West


M&A Market Drivers 2012: Key Market / Growth Opportunities

Games

AnalyticsOptimization

Reshaping

the Data

Center

Virtualization

MobileTablets

Social

PaymentsTV

EverywhereContent

Stuff we

haven’t

thought of

Security

AdvertisingBig Data


Summary – Expecting an Active Year For M&A

Positive Trends:

• CEO confidence is high

• Overall moderate economic recovery

• Huge market opportunities still nascent

• Competition

(Apple/Google/Facebook/Amazon)

• Plentiful currency:

- Rising equity markets

- Debt is at lowest cost ever

- Over $500B private equity available

• Presence of foreign buyers:

- US companies inexpensive to foreign

buyers

Mitigators:

• High valuations of private companies

• Policymakers


M&A - Context and Trends

Kelly Porter

Managing Director and Partner

Co-Head of Software and Internet Services

[email protected]

January 18, 2012

2012 Better Acquisitions Gathering

Economy & Finance

capital iqbetter acquisitions

global acquisitions

iposbetter acquisitions

b cash

b revs citrix

b revs nuance

b revs ltm

b revs noteworthy