Mergers and Acquisitions in Financial Technologies

1
Mergers and Acquisitions in Financial
Technologies
Mark Johnson Vice Chairman, CheckFree
Corporation April 13, 2007
2
CheckFree Overview

• More than 25 Years as a Leading Provider of
  Financial Electronic Commerce Services and
  Products
• Publicly Traded on NASDAQ as CKFR
• 3,600 Employees Worldwide, 18 Locations
• Annual Revenues of 879.4 Million for Fiscal Year
  2006
• Three Divisions
• Electronic Commerce
• Investment Services
• Software

3
CheckFree Overview

• E-bill and e-payment solutions
• Walk-in and telephone bill payment solutions
• Internetworking across web, phone, and agent
  payment services
• Online banking transactions

• Outsourced technology and services to separately
  managed accounts industry
• Outsourced portfolio management solutions

InvestmentServices12
Software13
Electronic Commerce 75

• ACH processing through bank payment solutions
• Reconciliation, workflow and messaging solutions
• E-billing/e-statement software and services

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CheckFree Mergers and Acquisitions 1995-2000

• Feb. 1996 Servantis Systems Holding, Inc.
• 165.1 million
• May 1996 Security APL
• 53 million
• Jan. 1997 Intuit Services Corporation
• 199 million
• March 1999 Möbius Group, Inc.
• 19.1 million
• April 2000 BlueGill Technologies, Inc.
• 235 million (47 per share X 5 million
  shares)
• Sept. 2000 MSFDC LLC (TransPoint)
• (First Data, Microsoft and Citibank venture)
• 139.4 billion (82 per share X 17 million
  shares)

5
CheckFree Mergers and Acquisitions 2000-Present

• Nov. 2003 HelioGraph, Ltd.
• 18.3 million
• June 2004 American Payment Systems, Inc.
• 110 million
• April 2005 Accurate Software Ltd.
• 56 million
• Sept. 2005 Integrated Decision Systems Inc.
• 18 million
• Oct. 2005 Aphelion, Inc.
• 18 million
• Jan. 2006 PhoneCharge, Inc.
• 100 million
• April 2007 Carreker Corporation

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So Youre Interested in Selling Your Company

• What should you do?
• Do you know who you want to sell your company to?
• Do you want to use an Investment Banker to help
  you?

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When and Why are Investment Bankers Involved

• Investment bankers act as advisors on potential
  deals. For this they are paid a percentage of the
  deal
• They bring deal expertise
• If a deal isnt large dollar wise, they may have
  limited interest in advising
• If the deal is significantly large then the
  Investment Bankers can provide specialized
  capabilities. (Financing, legal structuring, tax
  advising etc.)
• Typically they will set up a bid process
• Potentially a higher price but much more work

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Evaluating the Opportunity

• CheckFree receives requests to evaluate 100 deals
  per year
• On average, 60 deals go through first round
  analysis
• 20 percent, or 12 deals per year proceed to
  second round evaluation
• 3 percent, or two deals per year progress to
  closing
• If were being contacted, more then likely we
  will be busy and have resource constraints

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Three Types of CheckFree Acquisitions

• Strategic Market, technology, future growth
• Drive future expansion and growth of core market
  strategy
• Adjacent Market Expansion
• Extend into a new market adjacent to a current
  market
• Transaction Services Growth
• Add efficiency and leverage to CheckFree
  processing model, can provide additional organic
  growth
• So, who would be interested in your company and
  why?

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Key Questions the Buyer will have in a Potential
Acquisition

• Does the company have good customers?
• Does the company offer relevant technology?
• Is the company well managed?
• Is the company operating based on a solid
  economic model?

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What is the Buyers Process? Heres CheckFrees
A
I
N
S
D
Target Assessment
Transaction Development
Negotiation and Execution
Integration and Control
Strategic Analysis

• Assessment of Industry Market Characteristics

• Identify / screen target for best strategic fit
• Selection / prioritize targets based on
  transaction execution risk

• Commercial due diligence on targets assessing
  impact of product, market, customer, competitor
  and industry risks on target performance

• Integration execution and monitoring
• Implement improvement initiatives identified
  during transaction process

• Validation of business strategy

• Negotiate purchase agreement and obtain
  board/shareholder approval

• Validation of transaction rationale and alignment
  with business strategy

• Continuous monitoring of transaction results
  against benchmarks

• Valuation and modeling linked to due diligence

• Identify best transaction alternatives

• Due diligence
• Financial / tax / hr / ops / tech / legal

• Sales / divestitures

• Transaction structure / Letter of Intent

• Development of profile compatibility and
  strategic fit measurements for target selection

• Integration assessment and planning,
  communication planning and synergy analysis

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What will the Buyer Want in Due Diligence?

• Business Plan
• Customers
• Review of the Financials
• Revenue growth
• Profitability of company
• Review of Balance sheet
• Management Team
• Employees Benefits
• Competition
• Culture of Organization

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Buyer Due Diligence, continued

• Detailed Information
• Contract information (term pricing)
• Employee salaries and agreements
• Law suits and other negative information
• Interfacing with levels below senior management
• Begin assessing go forward plan
• Business model
• Synergy opportunities
• Future management roles

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Acquisition Challenges

• Accessing information for in-depth due diligence
• Understanding the business model
• Understanding competitive threats
• Assessing a go forward plan
• Determining the future role of management
• How does this all impact the Buyers view of
  Valuation

15
Other Acquisition Considerations

• Potential Red Flags for Buyers
• Employing multiple family members
• Side agreements
• Company shells
• Excessive perks
• Pending lawsuits
• Patent issues
• Unrealistic Expectations

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Final Hurdles

• Can the Buyer and Seller agree on a price?
• Can they agree on the structure of the deal?
• Cash, stock, earn out
• Working capital
• Can they agree on the terms of a purchase
  agreement?
• Warranties Reps
• Escrow provisions
• Are there any Regulatory or Legal issues?
• Is the deal final?

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The Positive of Being in Financial Technology

• Financial technology is a growing space
• Recurring revenue model is very favorable
• Strong merger and acquisition activity has
  historically occurred
• So there is a very good chance youll be able to
  sell your business

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Mergers and Acquisitions in Financial
Technologies
Mark Johnson Vice Chairman, CheckFree April 13,
2007