The Software Industry

Financial Report

Software Equity Group, L.L.C.

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Q1 2012 Software Industry Financial Report Contents

U.S. ECONOMY: SOFTWARE INDUSTRY MACROECONOMICS........................................................................ 2
IT SPENDING ............................................................................................................................................................ 2
INTERNET RETAIL SPENDING AND ADVERTISING ............................................................................................ 3
UPDATED SEG INDICES ......................................................................................................................................... 3
PUBLIC SOFTWARE/SAAS/INTERNET COMPANY STOCK PERFORMANCE ................................................... 3
PUBLIC SOFTWARE COMPANY FINANCIAL PERFORMANCE .......................................................................... 4
PUBLIC SOFTWARE COMPANY MARKET VALUATIONS ................................................................................... 5
PUBLIC SOFTWARE COMPANY FINANCIAL PERFORMANCE: BY PRODUCT CATEGORY.......................... 6
PUBLIC SOFTWARE COMPANY MARKET VALUATIONS: BY PRODUCT CATEGORY ................................... 7
PUBLIC SOFTWARE AS A SERVICE (SAAS) FINANCIAL PERFORMANCE ...................................................... 8
PUBLIC SOFTWARE AS A SERVICE (SAAS) COMPANY MARKET VALUATIONS ........................................... 9
PUBLIC SOFTWARE AS A SERVICE (SAAS) FINANCIAL PERFORMANCE: BY PRODUCT CATEGORY .... 10
PUBLIC SOFTWARE AS A SERVICE (SAAS) COMPANY MARKET VALUATIONS: BY PRODUCT
CATEGORY ............................................................................................................................................................ 10
PUBLIC INTERNET COMPANY FINANCIAL PERFORMANCE ........................................................................... 10
PUBLIC INTERNET COMPANY MARKET VALUATIONS .................................................................................... 11
PUBLIC INTERNET COMPANY FINANCIAL PERFORMANCE: BY PRODUCT CATEGORY ........................... 12
PUBLIC INTERNET COMPANY MARKET VALUATIONS: BY PRODUCT CATEGORY .................................... 13
INITIAL PUBLIC OFFERINGS................................................................................................................................ 14
SOFTWARE/SAAS M&A DEAL VOLUME AND SPENDING ............................................................................... 15
IMPORTANT CHANGE IN SOFTWARE AND SAAS M&A DATA ACCOUNTING............................................... 16
SOFTWARE M&A VALUATIONS .......................................................................................................................... 16
SOFTWARE M&A VALUATIONS BY EQUITY STRUCTURE............................................................................... 17
SOFTWARE M&A VALUATIONS BY SIZE ........................................................................................................... 17
SOFTWARE M&A BY VERTICAL AND HORIZONTAL MARKETS ..................................................................... 18
M&A VALUATIONS BY SOFTWARE PRODUCT CATEGORY ............................................................................ 19
SOFTWARE AS A SERVICE (SAAS) M&A DEAL VOLUME AND VALUATIONS .............................................. 20
INTERNET M&A DEAL VOLUME AND VALUATIONS ......................................................................................... 22
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APPENDIX A: 1Q12 PUBLIC SOFTWARE MARKET VALUATIONS AND STATISTICS BY PRODUCT
CATEGORY ............................................................................................................................................................ 24
APPENDIX B: 1Q12 PUBLIC SAAS MARKET VALUATIONS AND STATISTICS BY PRODUCT CATEGORY 26
APPENDIX C: 1Q12 PUBLIC INTERNET MARKET VALUATIONS AND STATISTICS BY PRODUCT
CATEGORY ............................................................................................................................................................ 27
APPENDIX D: 1Q12 MERGERS AND ACQUISITIONS, SELECT PUBLIC SELLER VALUATIONS .................. 28
APPENDIX E: 1Q12 MERGERS AND ACQUISITIONS, MOST ACTIVE BUYERS .............................................. 29
APPENDIX F: 1Q12 MERGERS AND ACQUISITIONS, SELECT SOFTWARE INDUSTRY MEGA-DEALS ...... 31
APPENDIX G: 1Q12 MERGERS AND ACQUISITIONS, SELECT SOFTWARE-AS-A-SERVICE SELLERS ..... 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.
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Copyright 2012 Software Equity Group, L.L.C., All Rights Reserved

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Investment Banking / Mergers & Acquisitions

Figure 26: U.S. Software Mergers & Acquisition Activity

500

$25

450

431

421

407
400

440
$23.7
401

383

372
316

$21.3
430

$17.9

$20

$17.7

330
311

$17.3

$13.5

300

$12.7

$15

$13.1

250
$11.9

200

$10

Value(BIllions)

NumberofDeals

350

426

453

$7.6
150
$4.6

$3.3

100

$5

$2.9
50
$0

0
1Q09

2Q09

3Q09

4Q09

1Q10

2Q10

3Q10

Deals

4Q10

1Q11

2Q11

3Q11

4Q11

1Q12

Value

SOFTWARE/SAAS M&A DEAL VOLUME AND SPENDING

As we went to press, there were 401 software
industry M&A transactions reported in the first
quarter (Figure 26). We expect the final tally for
Q1 to reach 420, since M&A data for the quarter
is often revised and released well into the
following quarter. Indeed, the updated tally for
4Q11 is 440 software/SaaS transactions,
significantly greater than the 400 deals referenced
in our last report. If our projection holds true,
1Q12 deal volume will be in line with 4Q12s 440
deals and 1Q11s 426 deals. The quarterly
software/SaaS M&A tally has now exceeded the
historically healthy benchmark of 400 for seven
straight quarters.
A total of $17.7 billion was spent in Q1 on those
software/SaaS transactions with announced price
tags, 49% higher than 4Q11s $11.9 billion, and
the third highest quarterly software M&A spend
since 1Q09. Software and SaaS mega deals are
in large part responsible, as nearly 60% of the
aggregate M&A price tag in 1Q12 came from
transactions greater than $500 million.

15| 2Q11 SOFTWARE INDUSTRY EQUITY REPORT

Software/SaaS mega deals in the first quarter

included Ciscos acquisition of NDS Group ($4.9
billion EV, 5.0x TTM Revenue); Vista Equity
Partners acquisition of Misys ($2.0 billion EV,
3.2x TTM Revenue); Insight Venture Partners
acquisition of Quest Software ($1.9 billion EV,
2.3x TTM Revenue); and Oracle Corporations
acquisition of Taleo Corp ($1.8 billion EV, 5.7x
TTM Revenue). It is noteworthy that two of the
four mega-deals for the quarter involved private
equity firms, reflecting the large cash stockpile
many private equity firms currently have at their
disposal. Also noteworthy, 1Q12 marks the
second consecutive quarter in which the list of
mega-deals included a SaaS target, further
evidence that SaaS market adoption is growing
and more SaaS providers are achieving critical
mass to attract the largest public software
companies.
Since aggregate M&A spending fluctuates widely
each quarter, we rely upon TTM data to provide a
more reliable measure of M&A spending trends.
And on a TTM basis, the steady increase in total
M&A dollars paid is encouraging.

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