January 19, 2005

1

Software Mergers Acquisitions
Denver Software Club Boulder Software Club
January 19, 2005
Ken Bender Managing Director
Software Equity Group, LLC 12220 El Camino Real,
Suite 320 San Diego, CA 92130 858
509-2800 www.softwareequity.com
2
Software MA Update
Deal Drivers External The salability and
valuation of a privately held software company
are highly dependent upon

• U.S. Economy
• IT Spending
• Stock Market Performance
• Tech Sector Performance
• Small/Mid Cap vs. Large Cap Performance
• Product Category/Vertical Market Performance

3
Software MA Update
Market Indices
Percent change
4
Software MA Update
SEG-100 Revenue and Earnings Growth

• Q4 Revenue grew 2.6 over prior quarter
• Q4 Earnings grew 6.8 over prior quarter
• Q4 Revenue growth strongest in Storage
  Management (7.1) and Internet Tools (6.0)

TTM Revenue Growth Over Prior Quarter
TTM Earnings Growth Over Prior Quarter
5
Software MA Update
SEG-100 Valuation by Category
S/W Industry Software Industry BI Business
Intelligence CAD/CAE Computer Aided
Design/Engineering CRM Customer Relationship
Management DT Developer Tools
D/C Management Document/Content Management ERP
Enterprise Resource Planning ES Enterprise
Software ESM Enterprise System Mangement Int.
Tools Internet Tools
MW Middleware Manuf. Manufacturing Vertical OS
Operating System SM Storage Management SCM
Supply Chain Management
6
Software MA Update
2004 Initial Public Offerings

• 2004 16 software IPOs, or 30 of total
  technology IPOs
• 2004 Number of software IPOs doubled from 2003
• 2004 Software IPOs average year-end gain was 66
  compared to 20 for technology and 33 for all
  U.S. IPOs

7.4
Number of IPOs
14.4
Software IPOs
Source Thomson Venture Economics National
Venture Capital Association Source Software
Equity Group, LLC
7
Software MA Update
2004 Software Initial Public Offerings
8
Software MA Update
Transaction Volume and NASDAQ Performance
2637
2500
2000
1804
Software Deals
1630
NASDAQ
1500
1347
1325
1000
500
2000
2001
2002
2003
2004
9
Software MA Update
Transaction Volume and Aggregate Purchase Price

• Q4 394 software transactions, or 16 of total
  U.S. MA activity
• 2004 Number of software deals up 23 from 2003
• Q4 Software company purchase aggregated 26.5B
  (13B without Symantec/Veritas)

Software Deals Announced
Software MA Equity Value
Source Mergerstat
Oracle/Peoplesoft not included
10
Software MA Update
Median Valuation Multiples of Revenue and NASDAQ
Performance
4.0x
3.0x
NASDAQ
Median Revenue Multiple
2.0x
1.7x
1.0x
11
Software MA Update
Form of Payment
12
Software MA Update
MA Public vs. Private
Whos Buying?
Whos Selling?
13
Software MA Update
MA Valuation by Category
S/W MA Software Industry Acc. Fin.
Accounting Financial BI Business
Intelligence CRM Customer Relationship
Management D/C Manag Document/Content
Management
DM Data Management ERP Enterprise Resource
Planning Inf. Manag. Infrastructure
Management HR Human Resource Management SM
Storage Management
SCM Supply Chain Management
14
Software MA Update
2004 Software MA Transaction Type
Financial Investment
Vertical Consolidation
3
Product Category Consolidation
9
Product Enhancement
10
61
16
Product Enhancement
Market Expansion
15
Software MA Update
Product Enhancement Acquisitions
Your Odds 57 of 4Q04 Transactions

• Verity/Dralasoft (7.0x)
• Siebel/edocs (2.9x)
• Witness/Blue Pumpkin (2.4x)

Incremental Functionality 46
Buyer Seeks Significant Market
Opportunity Fulfill Known Market
Requirement Compete/Differentiate Incremental
Revenue
15 Enabling Technology
Estimate
16
Software MA Update
Market Expansion
Your Odds 23 of 4Q04 Transactions
New Vertical
3
Buyers Seeks Expand/Diversify Revenue
Base Greater Customer Control Revenue Growth via
Acquisition Street Visibility/Buzz/Share
Price SIZE MATTERS HERE

• Siebel/Eontec (4.7x)
• IMSI/Aladdin (1.1x)
• Agilysys/IAD (0.9x)

3

10
Seller Provides Best of Breed in
Category Revenue Installed Base Brand
Identity Major Market Opportunity
New Channel
New Geography

• InfoSpace/Elkware (6.5x)
• Evolving/Tertio (2.1x)
• PalmSource/China MobileSoft (?)

New Product Category

• Symantec/Veritas(6.9x)
• Selectica/Imany (1.8x)
• LexisNexis/Interface (?)

17
Software MA Update
Calculating Your Odds
18
Understanding the ProcessThe MA Timeline
MA Firm Retained Mini-Audit Database
Developed Initial Contact Letter
Developed Follow-up Materials Developed Contact
Letters Mailed Valuation Responses Received Book
Mailed Telephone Contact Nondisclosure
Signed Initial Meeting Technical
Evaluation Business Objectives Eval. Addl
Discussions Price/Structure Negotiations Letter
of Intent Due Diligence Contract Closing
Phase 1 Marketing
Phase 2 Selling
Phase 3 Negotiation
Phase 4 Close
Months
19

Software Mergers Acquisitions
Denver Software Club Boulder Software Club
January 19, 2005
Ken Bender Managing Director
Software Equity Group, LLC 12220 El Camino Real,
Suite 320 San Diego, CA 92130 858
509-2800 www.softwareequity.com