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The U.S. economy gained considerable momentum in 2003. Most notable was a significant improvement in Gross Domestic Product (GDP), a leading economic indicator, which reached its highest level since 1984. While third quarter GDP grew at the sizzling rate of 8.2%, the rate decelerated to a more sustainable 4.0% in Q4. For the year, GDP grew 3.1%, as compared to 2.2% in 2002 and 0.5% in 2001 (Figure 1).

Key contributors to the upturn in GDP were a

significant increase in business investments and

strong consumer spending, both of which surged in the third quarter. Business investments in equipment and software jumped 17.6% in Q3 and 10.0% in Q4. A weaker dollar and an improving global economy also drove the manufacturing sector, as demand for U.S. exports grew 19.1%, a seven year high, offsetting a 11.3% rise in imports. Consumers, who single-handedly kept the economy afloat in 2001 and 2002, continued to capitalize on decade low interest rates.

The Conference Board's Composite Index of Leading Economic Indicators, an important short-term forecasting tool, improved steadily the last three quarters of 2003, reaching the highest level in its history by year-end. Positive contributors included building permits, consumer optimism, new manufacturing orders for both non-defense and consumer goods, and stock market performance.

While the economic indicators were largely positive, there remained reason for caution. The number of unemployed was 8.4 million in December, 5.7% of the job force. While the number of jobless was down from the recent high in June 2003, the unemployment rate remained stubbornly high and reflected a drop-off in job seekers. The civilian labor force fell by 309,000 in December to 146.9 million; the labor force participation rate decreased over the month to 66.0%.

Entering the new year, consensus estimates put 2004 GDP at a sustained economic expansion rate of 4.5%, with business investments leading consumer spending. Consumer spending is expected to flatten or decline slightly as home sales weaken, interest rates rise and consumers begin to feel the impact of increased household debt and reduced savings.

Public Markets

U.S. markets ended a torrid year on yet another upswing in Q4, with the Dow, Nasdaq and S&P 500 climbing 13%, 12% and 12%. For the year, these same indices were up 25%, 49% and 26% (Figure 2). As a group, public software companies outpaced the broader market. For the year, the average market value of the SEG-Seventy, our index of public software companies, climbed 57%. The median market cap of the SEG-Seventy grew 78%. Other Q4 market indices for the SEG- Seventy compared to the prior quarter:

· Median revenue multiple for the group grew 11% to 2.8 times trailing-twelve-month (TTM) revenue.

· Median enterprise value (adding debt and deducting cash and cash equivalents) to revenue multiple increased 26% to 2.1x TTM.

· Median P/E ratio climbed 11% to 36.9x.

· Median multiple of EBITDA was 25.2x, up 20%.

· Average operating profit margin before depreciation, interest and taxes declined to 15.2% from 16.7% in Q3.

· Average revenue multiple for the SEG-Seventy was 3.6x (up from 3.1x in the prior period), and the corresponding confidence interval at 80% was 3.3x to 3.9x.

As expected, the markets continued to disproportionately reward the industry’s largest players – those public

software companies with the greatest revenue. Similar to last quarter, the 20 software companies in the SEG-Seventy with revenue between $200 million and $1 billion had a 2.8x median revenue multiple in Q4, as compared to 2.6x for companies with revenues below $200 million. Similarly, companies with revenue in excess of $1 billion recorded the highest median revenue multiple for the quarter, 5.0x. On an earnings basis, companies with revenue greater than $200 million had a7 median P/E of more than 40x, compared with 28x for those with revenue less than $200 million.

Public software company performance, however, did not keep track with escalating market caps and higher PEs. Median revenue of the SEG-Seventy actually declined 2.6% in 2003 from 2002 (Figure 3). Earnings of the group improved however, with the median growing 6.8% (Figure 4). Given the belt tightening that has occurred over the past three years, top line growth will likely be required to generate earnings sufficient to justify current market valuations.

Prospects for software company revenue growth appear better in 2004 than anytime in the past three years, but opinions vary. Both Gartner Group and IDC project a 5.0% increase in IT spending, but Goldman Sachs’ December survey of IT executives portends only a 1.5% increase in IT budgets (down from a 2.3% estimate in August, and a 3.5% estimate in June). Gartner also projects that IT spending will be greatest in the government and health care sectors during the next five years, each averaging in excess of 12% compounded annual growth. The financial services, education, manufacturing and communications sectors are each projected to increase IT spending by more than 6.5% over the same five year period.

The market valuations of public software companies continued to vary widely according to principal product focus, although virtually all categories saw quarter-over-quarter and year-over-year increases (Figure 5). SEG-Seventy median revenue multiples by principal product category for Q4 were:

· Business Intelligence (BI): 4.2x (up from 3.4x in Q3)

· CAD/CAE: 2.8x (up from 2.2x)

· Customer Relationship Management (CRM): 2.0x (up from 1.5x)

· Developer Tools (DT): 2.5x (down from 3.2x)

· Enterprise Application Integration (EAI): 2.6x (up from 2.5x)

· Enterprise Resource Planning (ERP): 3.4x (up from 2.4x)

· Information / Data Management (IM): 3.0x (up from 2.5x)

· Security: 4.5x (up from 3.6x)

· Supply Chain Management (SCM): 2.6x (up from 1.8x)

As in Q3, publicly traded security software developers boasted the highest market values, with median Q4 revenue multiples increasing an additional 24% over the prior quarter. Business intelligence software companies posted a 25% increase in the quarter, even though Cognos guided down next quarter expectations after beating analyst expectations. Public software companies focused primarily on enterprise resource planning (ERP) and customer relationship management (CRM) posted dramatic gains for the year of 227% and 87%, respectively. The developer tools segment, which has held much of its value in the past two years was hardest hit in the quarter, declining in market value 21.6% to 2.5x.

Initial Public Offerings

The market for initial public offerings (IPOs) declined

in 2003 relative to 2002. Only 73 deals priced, raising

an aggregate $15 billion, making 2003 one of the slowest years on record (Figure 6). However 89% of these IPOs, and 92% of all proceeds, came in the third and fourth quarters. 19 companies made it to market in Q3 and 42 were listed in Q4, suggesting there may finally be light at the end of the IPO tunnel in 2004 (Figure 7).

Venture-backed IPOs accounted for 29 of the offerings (40% of total activity) and raised an aggregate $2.3 billion (15% of overall funds raised). Perhaps signaling a trend, foreign issuers garnered more than 40% of 2003 IPO proceeds. The financial services sector led the IPO market with the largest number of offerings at sixteen.

Eight software companies went public in 2003, with seven coming to market in the second half of the year (Table 1). By year-end, these software companies were up a group average of 21% from their initial offering price. This contrasts sharply with 2002’s five software IPOs which declined an average 26% in price from date of offering to year-end.

iPayment, a provider of credit/debit card-based payment processing services to small merchants, climbed 114% from its offering price. Not all 2003 IPOs fared as well. By year-end, DVD software developer Intervideo had declined 21% and online travel agency Orbitz was down 10%. Perhaps most curiously, Kintera, an ASP targeted at non-profit organizations, was up 58% from its offering price. Kintera’s IPO supported more than a $225 million market cap for a company with less than $6 million in revenue, in an underwriting that harkened back to the “good old days” of 1999.

Four of the eight “software” companies categorized as 2003 IPOs primarily sell services rather than traditional “shrink-wrapped” or packaged software. These “software as a service” providers, iPayment, DigitalNet, Orbitz and Kintera, performed well as a group. Orbitz was the only company posting negative returns at year-end. Callidus, a provider of incentive management software, and Open Solutions, a provider of software and services for financial institutions, were the only traditional enterprise software companies to come to market in the period. Given the relatively strong level of activity in Q3 and Q4, and the continued strength of the overall equity markets, 2004 looks promising for software IPOs.

Private Equity

Overall, U.S. venture capital investments continued to decline in 2003, but apparently found bottom. With $18.2 billion invested in 2,715 companies, the number of companies funded in 2003 dropped by 12% (from 3,035) and dollars invested fell 18% (from $21.4 billion) in 2002. The average investment also fell by 5%, to $6.7 million. On a positive note, Q4 showed some reason for optimism, with $4.9 billion invested in 679 entities. (Figure 8).

Software, once again, continued to lead all other

industry sectors in attracting VC investment, with

718 companies funded in 2003 (20% of the total).

Relative to 2002, the number of software industry VC

investments declined 17%. In dollar terms, $3.6 billion was invested in software businesses in 2003, compared to $4.5 billion in 2002 and $8.8 billion in 2001. However Q4 showed a 13% improvement over Q3, with 145 software companies financed. Notable IT fundings included Grande Communications ($45 million), Vonage ($35 million), Alereon ($31.5 million) and Egenera ($30 million).

By comparison, two adjacent industry sectors,

Biotechnology and Medical Device companies attracted a combined $4.89 billion, or 27% of all venture capital. 69% of that amount went to biotech, with the balance invested primarily into medical devices. VC investments in telecommunications, networking, and semiconductors continued to decline in 2003, dropping to 11%, 9% and 6% of total investments.

In terms of the life cycle stage on companies

funded, 2003 mirrored 2002 for much of the year,

but hinted at change by year-end. VCs continued to

flock to relative safety, investing $4.7 billion in later

stage companies (26% of total) in 2003, the highest percentage for that category in the past 20 years according to MoneyTree (Figure 9). The average investment for later stage companies was $9.4 million. However, VC funding of less mature, expansion stage entities declined 22% in value from 2002, with $9.9 billion invested in 1,339 companies. Early stage company financing followed suit, declining 20% from 2002, to $3.3 billion. Funding for the youngest, seed stage entities leveled off at $354 million for the year, after plummeting 800% since 2000 (Figure 10). Viewed on a quarter-by-quarter basis, however, seed stage financing was erratic throughout the year, with Q4 declining 53% from Q3’s surprising $126 million windfall.

Across all industries, 624 companies received first-time funding totaling $3.4 billion, a decline of 27% from 2002. However Q4 first-time financings were 35% greater in amount than in Q3. Software was the leading sector for first-time financings, with 156 companies receiving $691 million. The closest competing segment was biotech, with 71 companies raising $462 million.

On a bright note, VCs raised $5.2 billion from limited partners in Q4, almost half the $10.8 billion raised for all of 2003. According to industry tracker VentureOne, nearly half the VCs surveyed said they expected to raise more money from limited partners in 2004.

Mergers & Acquisitions: The Trends

What drove this deal? It’s a question we ask every day as we review the most recent software industry transactions. To understand trends in software M&A, it’s essential to understand buyer motives, which shift over time to reflect fluctuations in the economy, changes in IT spending and new technologies which presage widespread market adoption. As those motives shift, so do the types of companies buyers target, and the prices they’ll pay. What were the deal drivers in 2003, and how did they impact valuations and purchase prices? How did buyer thinking evolve in 2003, and what does it portend for 2004?

A deal-by-deal analysis of transaction analyzed in 1H03 reveals fully 65% were driven by buyers, primarily public software companies, seeking small and mid-cap companies with strong financials, a suite of products, technology/market leadership and a significant installed base. Most were unwilling to stray far from home. Buyers sought an almost perfect strategic fit, acquiring companies which targeted the same market with highly complementary products and compatible technology. Examples abound, including JDA’s purchase of Vista Software for 1.0 times trailing-twelve-month (TTM) revenue, Serena Software’s acquisition of TeamShare for 1.4x, and FileNet’s acquisition of Shana for 1.1x.

Simply put, buyers in Q1 and Q2 sought incremental revenue at bargain basement prices. Median revenue valuations for software deals in Q1 and Q2 were 1.1x and 1.2x, respectively. There were few buyers, and most paid cash rather than use deflated stock as deal currency. Acquired companies had to have sufficient recurring revenue to pay for themselves in two or three years. Slightly higher prices were paid for companies which could generate incremental revenue almost immediately by cross-selling the buyer’s products into the seller’s installed base, and vice-versa.

In Q3, however, we began to discern a shift in buyer thinking. While the majority of transactions reflected the safe bet / incremental revenue rationale of Q1 and Q2, buyers proved more adventurous and less risk adverse in some 25% of the transactions. Public software companies were buoyed by sharply rebounding tech sector stock prices. The improving economy suggested increased corporate IT spending might follow shortly. For the first time in two and a half years, public software companies felt pressed to respond to competition and changing market requirements by acquiring proven solutions which would enhance the buyers’ offerings. We call these “strategic technology” buyers. Examples: Proprietary storage software vendor EMC acknowledges it must offer open platform storage technology and acquires Legato for $1.24 billion, a 4.4x TTM multiple; web content management provider Interwoven, losing deals to Documentum’s end-to-end knowledge management suite, pays $136 million, a 3.2x TTM multiple, to pick up iManage, a leader in content collaboration and document management to fill in the gaps.

Q3 also saw a sharp increase in vertical software acquisitions with more than 20 deals, particularly in the health care, financial services and legal markets. There were some 10 security software company sales in Q3, and almost as many wireless software company M&A transactions. There was a sharp decline, however, in financial buyouts, which is not surprising, given the median valuation multiple increased again, this time to 1.6x.

Q4 saw the number of buyers seeking bargains close to home decrease further, to about 40% of total transactions. The number of “strategic technology” buys, however, ramped sharply in Q4 to 48% of total transactions. Increasingly, buyers sought to add incremental technologies to materially enhance their core products, improve the end-user experience, and compete more effectively. Buyers beefed up help desk offerings with e-communications management (Primus / Amacis Group), web-publishing products with e-learning (Macromedia / eHelp), and online content with mobile media (InfoSpace / Moviso).

Some of Q4 remained standard fare. We counted four rollups, which we define as combining companies with functional components to comprise a full-fledged, standard category offering (e.g., HR + Accounting + Manufacturing +Supply chain + Logistics = ERP). We also saw four software companies taken out by direct competitors, and four buyouts by private equity firms or their proxies. 10 pure vertical software companies sold in Q4, down from 19 in Q3.

But Q4 also revealed a marked change in acquisition strategy for a surprising number of buyers. About one out of five buyers decided to venture well beyond their traditional space. In many cases, buyers acquired an entirely new software category, as they sought to diversify their revenue base, and in some cases reinvent themselves. A leading enterprise systems management provider added help desk software for SMEs (BMC / Magic Solutions). The behemoth of storage management added the leading content management developer (EMC / Documentum), and the leading Linux provider added storage management to its product line (Red Hat / Sistina). A market leader in security software expanded into enterprise infrastructure management (Symantec / ON Technology), and a healthcare ecommerce provider picked up a developer of object-oriented infrastructure software (Quovadx / Rogue Wave). The median M&A valuation multiple increased once again in Q4 to 2.1 times TTM revenue, driven in large part by higher multiples paid by these new software category buyers, as well as strategic technology buyers.

Mergers and Acquisitions: The Numbers

Overall, U.S. merger and acquisition activity showed noticeable improvement in 2003, halting a steady two year decline (Figure 11). For the year, domestic M&A activity for all industry sectors increased 10% to 8,198 transactions, and dollar value, at $529 billion, was up 20%.

Software mergers and acquisitions continued to lead all other industry sectors in number of transactions, with 1,325 deals, almost identical to 2002’s tally (Figure 12). After a very slow start in Q1, software M&A activity increased 10% in Q2 and 27% in Q3, but was flat in Q4. In terms of M&A dollar volume, software placed third behind banking & finance and insurance, but the $44 billion spent on software company acquisitions was 52% greater than 2002 (Figure 13). The sharp increase in aggregate purchase price can be chalked up to both improved valuations and a greater number of “mega” deals, including Peoplesoft / J.D. Edwards, EMC / Documentum, EMC / Legato and Business Objects / Crystal Decisions. In contrast, IBM / Rational and Microsoft / Navision were 2002’s only billion dollar deals. Software company exit valuations improved

steadily throughout 2003 (Figure 14). As noted above, the median software company M&A valuation (based on the equity purchase price) reached 2.1 times trailing-twelve-month (TTM) revenue, almost two times the M&A median valuation in Q1. For the year, the median software company M&A valuation, measured as a multiple of TTM revenue, was 1.6x.

As in prior years, software M&A valuations varied widely by product category (Figure 15). Categories which enterprise customers perceived as high investment / questionable return, such as ERP, CRM and supply chain software, lagged well behind lower investment / measurable return categories, such as storage management, systems management and developer tools. Valuations were

also higher in categories where leaders played catch-up with key competitors or redefined themselves by moving aggressively into a new category. Median revenue multiples by software product category were as follows:

· Accounting/Finance, 2.6x

· Business Intelligence, 1.5x

• Content/Document management, 1.4x

• Customer relationship management, 1.2x

• Data management, 1.3x

• Developer tools, 2.9x

• Enterprise resource planning, 1.0x

• Security, 2.5x

• Storage management, 5.0x

· Supply chain management, 0.7x

· Systems/Infrastructure management, 4.2x

Since early 2001, cash has been king in software M&A, and 2003 proved no exception. 54% of transactions were all cash, 19% all stock and 27% a combination of cash and stock (Figure 16). The use of stock as currency, however, ramped sharply as the year progressed, reflecting rapidly escalating tech sector stock prices. In 1H03, 67% of transactions were all cash, while only 19% were all stock and 14% a combination of the two. As the market rebounded, both buyers and sellers saw more value in stock as currency. In 2H03, 45% of software M&A transactions were all cash, 19% all stock and 35% a combination of the two (Figure 17).

In a period characterized by higher valuations and increased use of stock as currency, we’d expect to see a predominance of public buyers and private sellers. And so it was. Of 575 major software transactions we analyzed, 76% had public buyers and 86% private sellers.

Mergers and Acquisitions: Most Active Buyers

2003 saw a significant increase over 2002 in multi-transaction buyers. It was not unusal to see the same buyer roll-up a competitor, beef up its core offering with a strategic technology buy, and acquire a leading player in an adjacent market or product category. Some of the year’s most active buyers:

Agile Software

· Eigner

· MS2

· OneREV

· ProductFactory

· Tradec

Amdocs Limited

· Certain

· Exchange Applications

· XACCT Technologies

Cadence Design Systems

· Get2Chip

· K2 Technologies

· Verplex Systems

Chinadotcom

· Industri-Matematik International

· Pivotal

· Ross Systems

Eastman Kodak

· Algotec Systems

· MiraMedica

· PracticeWorks

· Scitex Corp. (select assets)

EMC Corporation

· Astrum Software Corporation

· Documentum

· Legato Systems

· Vmware

Epicor Software Corporation

· ROI Systems

· Scala Business Solutions

· CompuNet (select assets)

· TDC Solutions

Hewlett-Packard Company

· Baltimore Technologies (select assets)

· Extreme Logic

· Persist Technologies

· PipeBeach AB

· Talking Blocks

Hummingbird

· Key Automation Nederland B.V.

· Kramer Lee & Associates

· LegalKEY Technologies

· Valid Information Systems

International Business Machines

· Aptrix

· Green Pasture Software Key Automation

· Productivity Solutions

· Sector7 (select assets)

· Think Dynamics

International Microcomputer Software

· CADalog.com

· CADKEY

· Upperspace Corp. (select assets)

Lawson Software

· Apexion Technologies

· Closedloop Solutions

· Numbercraft

Mercury Interactive Corp.

· Allerez Corp. (select assets)

· Kintana

· Performant

Microsoft Corporation

· GeCAD Software

· PlaceWare

· Connectix Corp. (assets)

Network Associates

· Deersoft

· Entercept Security Technologies

· IntruVert Networks

Open Text

· Corechange

· Eloquent

· Gauss Interprise

· IXOS Software AG

· SER eGovernment

Pumatech

· Loudfire

· Spontaneous Technology

· Starfish Software

· Synchrologic

Reynolds and Reynolds

· Incadea AG

· MSN Auto Dealerpoint

· Third Coast Media

Science Applications International

· Atlantic Coast Telesys

· Computer Systems Technology

· Opta

· Predictive Systems Unit

· SCIENTECH

· VGS

Siebel Systems

· BoldFish

· Motiva (select assets)

· UpShot

SSA Global Technologies

· Elevon

· EXE Technologies

· Ironside Technologies

Sun Microsystems

· CenterRun

· Pixo

· Waveset Technologies

SunGard Data Systems

· FAME Information Services

· HTE

· Sherwood International PLC

· Systems & Computer Technology

Symantec

· Nexland

· ON Technology

· PowerQuest

· Safeweb

Synopsys

· InnoLogic Systems

· Numerical Technologies

· Qualis (select assets)

The Sage Group

· ATW Computer Services

· Concept Group

· Groupo SP

· Softline

· Timberline Software

Mergers and Acquisitions: Most Active Software Industry Categories

Table 2: Select Accounting/Financial Transactions

Acquirer	Seller	Purchase Price*	Seller Revenue	Revenue Multiple	Description
Best Software	ACCPAC International	$110,000,000	$88,700,000	1.2x	Provides end-to-end business management applications
Digital Insight Corp.	Magnet Comm.	$61,615,000	$17,000,000	3.6x	Web-based business banking solutions for financial institutions
Imaging Technologies	Greenland Corp.	$2,250,000	$334,000	6.7x	Provides wide range of automated financial services
Intuit	Income Dynamics	$10,000,000	$3,500,000 (estimate)	2.9x	Collector and provider of fair market values of donations
The Sage Group	Concept Group	$10,890,000	$16,250,000	0.7x	Provides treasury, cash management and financial consolidation solutions
The Sage Group	Groupo SP	$93,500,000	$38,300,000	2.4x	Entry-level accounting software to the Spanish market

Table 3: Select Business Intelligence Transactions

Acquirer	Seller	Purchase Price*	Seller Revenue	Revenue Multiple	Description
Acxiom Corp.	Claritas Europe	$40,000,000	$100,000,000	0.4x	Provide the largest source of consumer lifestyle and behavioral information for effective marketing across Europe
Business Objects	Crystal Decisions	$820,000,000	$270,000,000	3.0x	Software includes reporting, analysis, and information delivery, as well as related services
CheckFree Holdings Corp.	HelioGraph	$18,300,000	$8,000,000	2.3x	Supplies Transaction Process Management (TPM) tools for the securities industry
Geac Computer Corp.	Comshare, Inc.	$52,000,000	$58,300,000	0.9x	Develop, market and support management planning and control application software
Hyperion Solutions Corp.	Brio Software Inc.	$142,000,000	$101,800,000	1.4x	Help companies extract, integrate, analyze and report information
MapInfo Corp.	Thompson Associates	$13,000,000	$13,000,000	1.0x	Provide retail market analytics
Mercury Interactive Corp.	Kintana, Inc.	$225,000,000	$44,500,000	5.1x	Software digitizes and integrates IT business processes from demand to production, enabling real-time decision-making and execution for both strategic projects and 'keep-the-lights-on' activities
NetRatings	RedSheriff	$12,000,000	$7,500,000	1.6x	Provides tools and services that help companies optimize their Web sites

*Equity Value

Table 4: Select Content/Document Management Transactions

Acquirer	Seller	Purchase Price*	Seller Revenue	Revenue Multiple	Description
Bottomline Technologies	Create!form International	$7,375,000	$4,500,000 (estimate)	1.6x	Provide solutions to financial transactions including invoicing, payments, and reporting
Eastman Kodak Co.	Algotec Systems	$42,500,000	$1,250,000 (estimate)	34.0x	Provides Healthcare facilities with Web enabled, advanced solutions for Medical Imaging
Electronics for Imaging	T/R Systems	$21,000,000	$14,739,000	1.4x	Provides the printing and publishing industry with an integrated software suite that transforms digital copiers and printers into print-on-demand systems
EMC Corp.	Documentum	$1,700,000,000	$274,724,000	6.2x	Provides ECM solutions that enable organizations to unite teams, content and associated business processes
FileNET Corp.	Shana Corporation	$8,500,000	$7,500,000 (estimate)	1.1x	Provider of electronic forms software
Interwoven	iManage	$171,000,000	$41,326,000	4.1x	Content management software that enables businesses to manage and collaborate on critical business content
iXOS Software AG	Obtree Technologies	$5,000,000	$11,280,000	0.4x	Supplier of content management solutions
Open Text Corp.	IXOS Software	$226,000,000	$145,000,000	1.6x	Software solutions for the management of business documents
Primus Knowledge Solutions	Amacis Group	$6,966,132	$6,250,000 (estimate)	1.1x	Electronic communications management solutions to global enterprises
Savvis Comm. Corp.	Wam!Net’s commercial business unit	$3,000,000	$30,000,000	0.1x	Provider of digital content management and distribution services
SERENA Software	TeamShare	$18,000,000	$12,500,000 (estimate)	1.4x	Web-based enterprise collaborative software
SSA Global Technologies	Elevon	$20,280,000	$41,900,000	0.5x	Collaborative commerce and knowledge management
Vignette Corporation	Intraspect Software	$20,000,000	$17,500,000 (estimate)	1.1x	Provider of enterprise solutions that power complex business processes, manage content lifecycles and enhance internal and external collaboration
VitalWorks	AMICAS	$30,000,000	$6,250,000 (estimate)	4.8x	Provides Web-based medical and diagnostic image management software for health care providers

*Equity Value

Table 5: Select Customer Relationship Management Transactions

Acquirer	Seller	Purchase Price*	Seller Revenue	Revenue Multiple	Description
24/7 Media	Real Media Korea Co.	$21,000,000	$11,000,000	1.9x	Provides interactive marketing in the Republic of South Korea
Amdocs Ltd.	Exchange Applications	$5,000,000	$24,400,000	0.2x	Offer marketing campaign management capabilities
Chinadotcom Corp.	Pivotal Corp.	$56,239,200	$57,072,000	1.0x	Software that enables medium-sized enterprises worldwide to acquire, serve and manage their customers
Dendrite International	SYNAVANT	$49,000,000	$156,200,000	0.3x	Solutions provider servicing the biopharmaceutical and healthcare industries
Interwoven	MediaBin	$5,000,000	$1,750,000 (estimate)	2.9x	Enables enterprises to promote their products in multi-channel marketing programs
Island Pacific	Page Digital	$7,000,000	$6,000,000 (estimate)	1.2x	Provider of multi-channel software applications designed to enable effective operational diversity
Jaguar Technology Holdings	Firepond	$10,112,000	$13,800,000	0.7x	Provides enterprise software that is used to manage customer interactions
Open Text Corp.	Eloquent	$6,720,000	$2,490,000	2.7x	Allows companies to create, distribute, and track rich media presentations
Reynolds and Reynolds Co.	Third Coast Media	$8,000,000	$5,000,000	1.6x	Software development company with a focus on providing web-based software solutions primarily for the automotive industry

*Equity Value

Table 6: Select Data Management Transactions

Acquirer	Seller	Purchase Price*	Seller Revenue	Revenue Multiple	Description
Ascential Software	Mercator Software	$106,000,000	$102,600,000	1.0x	Business integration software solutions to global enterprises
DataMirror Corp.	PointBase	$3,500,000	$2,750,000 (estimate)	1.3x	Provider java based relational database and synchronization solutions
Group 1 Software	Sagent Technology	$17,000,000	$37,900,000	0.5x	Data flow server enables business users to easily extend the structure of a data warehouse
Infowave Software	Sproqit Technologies	$987,200	$2,000,000 (estimate)	0.5x	Offers a mobile application platform that enables users to obtain data via hand held personal digital assistant ("PDA")
Kofax Image Products	Mohomine	$9,000,000	$1,500,000 (estimate)	6.0x	Automated text classification and extraction
NVIDIA Corp.	MediaQ	$70,000,000	$12,500,000 (estimate)	5.6x	Provides software to manufacturers of mobile devices
Progress Software	DataDirect Tech. Ltd.	$88,000,000	$35,500,000 (estimate)	2.5x	Provider of components for connecting software to relational and XML data
Pumatech	Synchrologic	$60,000,000	$11,800,000	5.1x	Mobilizes enterprise email and applications, automates the delivery of documents and Web sites, and provides mobile systems management tools
Stellent, Inc.	Ancept	$2,826,000	$4,500,000 (estimate)	0.6x	Provides digital asset management applications

Table 7: Select Developer Tools Transactions

Acquirer	Seller	Purchase Price*	Seller Revenue	Revenue Multiple	Description
Macromedia	eHelp Corp.	$65,000,000	$22,300,000 (estimate)	2.9x	Assists developers in creating and publishing help modules
Novell	SUSE Linux	$210,000,000	$35,400,000	5.9x	Provider of Linux software and services
Pervasive Software	Data Junction Corp.	$51,700,000	$14,000,000	3.7x	Data transformation tools
Quovadx	Rogue Wave Software	$71,000,000	$32,900,000	2.2x	Markets and supports object-oriented and infrastructure software technology.
SCO Group	Vultus	$2,700,000	$1,250,000 (estimate)	2.2x	Web service technology

*Equity Value

Table 8: Select Enterprise Resource Planning Transactions

Acquirer	Seller	Purchase Price*	Seller Revenue	Revenue Multiple	Description
Battery Ventures	Made 2 Manage Systems	$30,000,000	$30,100,000	1.0x	Enterprise business systems designed for small and midsize manufacturers and distributors
Cerberus Capital Management	Baan	$135,000,000	$265,000,000	0.5x	Manufacturing enterprise solutions
Chinadotcom Corp.	Ross Systems	$68,900,000	$48,100,000	1.4x	Enterprise solutions software designed for process manufacturing companies
Epicor Software	ROI Systems Inc.	$21,433,000	$23,659,389	0.9x	Extended enterprise resource planning solutions
Epicor Software	Scala Business Solutions	$87,000,000	$71,240,000	1.2x	Offers a collaborative ERP system to make business simple
Indus International	SCT's GEUS business unit	$39,000,000	$74,200,000	0.5x	Provides advanced software and services solutions for utilities and energy service companies
PeopleSoft	J.D. Edwards	$1,750,000,000	$886,000,000	2.0x	Develops and markets collaborative enterprise software and provides consulting, education and support services
Primavera Systems	Evolve Software	$13,000,000	$18,300,000	0.7x	Enterprise software that optimizes the way organizations deliver services to their customers and employees
Reynolds and Reynolds Co.	Incadea AG	$7,000,000	$6,000,000	1.2x	Developer of a software platform for automotive built on Microsoft Navision
Speedware	Enterprise Computer Systems	$12,000,000	$20,200,000 (estimate)	0.6x	Provides a wide range of technology to their building materials distribution customers
Tecnomatix Technologies	USDATA Corp.	$10,300,000	$10,900,000	0.9x	Global provider of software and services
The Sage Group	Timberline Software Corp.	$102,900,000	$63,100,000	1.6x	Develops, markets and supports financial and operations software for the construction and real estate industries

*Equity Value

Table 9: Select Security Transactions

Acquirer	Seller	Purchase Price*	Seller Revenue	Revenue Multiple	Description
BeTRUSTed	Baltimore Tech. Managed Svcs Unit	$1,750,000	$1,500,000	1.2x	Issues digital certificates from a secure hosting facility
Blue Coat Systems	Ositis Software	$7,529,020	$6,250,000 (estimate)	1.2x	Develops, licenses, and markets software and hardware solutions that provide customers with a system to safeguard and connect networked PCs
Check Point Software Technologies Ltd.	Zone Labs	$205,000,000	$20,000,000 (estimate)	10.3x	Endpoint security solutions
Cisco Systems	Okena	$154,000,000	$6,000,000 (estimate)	25.7x	Network security software
CyberGuard Corp.	SnapGear	$16,000,000	$8,750,000 (estimate)	1.8x	Provides design, engineering and fulfillment services for network appliances that ensure secure Internet communications for business
Netegrity	Business Layers	$42,500,000	$8,750,000 (estimate)	4.9x	Global provider of provisioning software for identity management solutions
NetScreen Technologies	Neoteris	$265,000,000	$30,000,000	8.8x	SSL VPN and application security gateway products
SafeNet	Rainbow Technologies	$457,000,000	$126,052,000	3.6x	Global provider of information technology security solutions
Science Applications International	Predictive Systems Unit	$1,927,400	$1,380,000	1.4x	Perform analyses and notification of both physical and cyber threats, vulnerabilities, and warnings
Secure Computing Corp.	N2H2	$19,900,000	$11,100,000	1.8x	Content filtering and monitoring solutions
Symantec Corp.	Safeweb	$26,000,000	$2,500,000 (estimate)	10.4x	Designs secure remote access solutions
Symantec Corporation	Nexland	$19,600,000	$7,740,000	2.5x	Internet security company
Tumbleweed Communications Corp.	Valicert	$14,300,000	$12,200,000	1.2x	Provider of secure communications and authentication software

*Equity Value

Table 10: Select Storage Management Transactions

Acquirer	Seller	Purchase Price*	Seller Revenue	Revenue Multiple	Description
Applied Micro Circuits Corp.	JNI Corp.	$190,000,000	$38,362,000	5.0x	Designer and supplier of Fibre Channel enterprise storage connectivity products that connect servers and data storage devices
EMC Corp.	Legato Systems	$1,300,000,000	$280,300,000	4.6x	Markets and supports storage software products and services worldwide
Network Appliance	Spinnaker Networks	$300,000,000	$12,500,000 (estimate)	24.0x	Provides next-generation networked storage solutions
Red Hat	Sistina Software	$31,000,000	$2,250,000 (estimate)	13.8x	Provider of storage infrastructure software
Symantec Corp.	PowerQuest Corp.	$150,000,000	$50,000,000	3.0x	Allows enterprise customers to add new storage, reconfigure existing storage, monitor and manage storage devices

Table 11: Select Supply Chain Management Transactions

Acquirer	Seller	Purchase Price*	Seller Revenue	Revenue Multiple	Description
Chinadotcom Corp.	Industri-Matematik International Corp	$25,000,000	$45,000,000 (estimate)	0.6x	Supply chain solutions for the midmarket
Electronics for Imaging	Printcafe Software	$27,560,000	$44,200,000	0.6x	Software solutions designed specifically for the printing industry
JDA Software Group	Vista Software Solutions' IP Assets	$4,300,000	$4,300,000	1.0x	Web-based trade funds management solution
SSA Global Technologies	EXE Technologies	$47,357,000	$70,800,000	0.7x	Provides software that helps drive customers' supply chain execution processes, including fulfillment, warehousing, distribution and inventory management

*Equity Value

Table 12: Select Systems/Infrastructure Management Transactions

Acquirer	Seller	Purchase Price*	Seller Revenue	Revenue Multiple	Description
BMC Software	DGI	$3,000,000	$1,500,000 (estimate)	2.0x	Supplies performance management tools for DB2 UDB on UNIX, Linux, and Windows operating system platforms
BMC Software	IT Masters International S.A.	$42,000,000	$10,000,000 (estimate)	4.2x	Develops service management technology
EMC Corporation	Vmware	$635,000,000	$50,000,000	12.7x	Global provider of virtual infrastructure software for Intel-based systems
Gores Technology Group	Resonate	$54,000,000	$10,900,000	5.0x	Develops application performance management and traffic management solutions for business-critical environments
Micromuse	Network Harmoni	$23,000,000	$4,000,000 (estimate)	5.8x	Develops intelligent software agents that gathers data on the health and performance of mission-critical business applications and systems
NaviSite	Interliant	$7,000,000	$44,600,000	0.2x	Infrastructure solutions, encompassing messaging, security and hosting
Symantec Corp.	ON Technology Corp.	$95,360,000	$35,700,000	2.7x	Provider of enterprise infrastructure management solutions

*Equity Value

Mergers and Acquisitions: Select 2003 Software M&A Transactions

Buyer

Seller

Price

Revenue

Multiple

Currency

ACD Systems

(TSX: ASA)

Deneba Systems

$5,500,000

$4,600,000

1.2x

Cash & Stock

SEG’s Insight:

ACD, a developer of digital imaging and management software, acquires Deneba, a provider of photo editing and desktop publishing applications. Deneba’s core products and small file “foot print” complement ACD’s products and Web distribution model. Deneba should also aid in diversifying ACD’s revenue, likely derived mostly from its ACDSee product. ACD will pay $4.5 million in cash and $1 million in stock, but seeking to preserve its cash balance, has offered Deneba shareholders a 20% premium on any cash amount under $1.5 million taken in ACD stock.

Buyer

Seller

Price

Revenue

Multiple

Currency

Agilysys
(Nasdaq: AGYS)

Kyrus

$31,000,000

$130,000,000

0.2x

Cash

SEG’s Insight:

Agilysys, a distributor/reseller of enterprise hardware and software, acquires Kyrus, a leading provider of retail solutions and IBM POS reseller. While both firms sell software, revenues reflect a significant amount of hardware pass-through. For $31 million in cash and the assumption of $20 million in Kyrus debt, Agilysys gains access to the retail sector, one of several verticals it has targeted to beef up hardware sales. Agilysis, which has cut 2002 operating losses substantially, expects the deal to be accretive in 2004.

Buyer

Seller

Price

Revenue

Multiple

Currency

Amdocs

(NYSE: DOX)

Exchange Applications (Pink Sheet: EXAP)

$5,000,000

$24,400,000

0.2x

Cash

SEG’s Insight:

Amdocs, a leader in CRM and billing solutions for the telecom market, acquires the assets of Enterprise Applications (Xchange), a provider of campaign management and marketing automation software. The acquisition follows Xchange’s rapid demise after raising $99 million in the public markets, and enables Amdocs to broaden its ClarifyCRM product line, acquired from Nortel in late 2001 for $200 million. Laden with debt, Xchange shut its doors in February 2003 after an unsuccessful attempt at taking the business private.

Buyer

Seller

Price

Revenue

Multiple

Currency

Ascential Software (Nasdaq:ASCL)

Mercator Software

(Nasdaq:MCTR)

$97,900,000^EV

$111,900,000

0.9x

Cash

SEG’s Insight:

Fending off a hostile bid from Strategic Software Holdings, enterprise application/data integration provider Mercator agrees to a $106 million cash offer from Ascential. Since spinning out from Informix, the acquisitive Ascential has bought Vality, Torent Systems and Metagenix to beef up its data warehousing suite. The deal represents a 22% premium to Mercator’s shareholders. Ascential has more than $500 million in cash remaining.

Buyer

Seller

Price

Revenue

Multiple

Currency

Battery

Ventures

Made2Manage Systems (Nasdaq:MTMS)

$13,516,000^EV

$30,100,000

0.5x

Cash

SEG’s Insight:

Battery Ventures, a first-tier VC firm, takes private Made2Manage, an ERP provider to small and midsize manufacturers. Here’s another example of a struggling, undervalued public company being acquired at a price that looks like a real bargain at a 1.0x multiple, but represents a healthy 40% premium to shareholders. Look for additional acquisitions by Made2Manage now that it has Battery’s financial backing and greater flexibility as a private company.

Buyer

Seller

Price

Revenue

Multiple

Currency

BMC Software

(NYSE: BMC)

IT Masters Int’l

$42,000,000

$10,000,000

(estimate)

4.2x

Cash

SEG’s Insight:

BMC, the leader in IT systems management solutions, needed to extend its offering to remain competitive with HP’s Open View and IBM’s Tivoli. By acquiring IT Masters, BMC adds powerful adaptive service management solutions that enable organizations to understand the real-time business impact of IT problems and prioritize support efforts. Despite the economic downturn, IT Masters’ revenue grew 15% in Q2 and 30% in Q3 of 2002. We estimate IT Masters’ trailing twelve-month revenue to be $10 million.

Buyer

Seller

Price

Revenue

Multiple

Currency

BMC Software
(NYSE: BMC)

Magic Software unit of Network Associates

$47,000,000

$63,558,000

0.8x

Cash

SEG’s Insight:

IT infrastructure leader BMC Software, which picked up the remnants of help desk provider Remedy from bankrupt Peregrine Systems in late 2002 for $350 million in cash, now adds Magic Solutions to beef up its service management offering in the SME (small/medium enterprise) space. Magic was a business unit of computer security software provider Network Associates, acquired in March 1998 for $110 million. After six years, Network Associates decided to focus closer to home and the selling price this time was $47 million. Although BMC claims Magic is highly profitable with positive cash flow, it does not expect the transaction to be accretive until its next fiscal year. Still, Magic has revenue of $63.5 million and gives BMC access to 4,000 new midmarket customers, a good deal by almost any measure.

Buyer

Seller

Price

Revenue

Multiple

Currency

Business Objects (Nasdaq:BOJB)

Crystal Decisions

$820,000,000

$270,000,000

3.0x

Cash / stock

SEG’s Insight:

Business intelligence software provider Business Objects picks up the world’s leading report writer. BO covets the midmarket and Crystal boasts 14 million licenses as well as 350 OEMs. Incremental revenue through cross-licensing is the short-term goal, but BO will have to sell an awful lot of report writers to justify the multiple it paid. For Crystal Decisions, the sale scotches a planned IPO, but it’s doubtful the markets would have been as generous. BO also gets Crystal’s $95 million in cash and expects the acquisition to be immediately accretive.

Buyer

Seller

Price

Revenue

Multiple

Currency

Cerberus Capital Management / General Atlantic Partners

Baan

$135,000,000

$265,000,000

0.5x

Cash

SEG’s Insight:

Once a real competitor in the ERP space before falling early victim to an accounting scandal and selling to Invnesys for $800 million, Baan fell victim again – this time to the stagnant ERP market and depressed corporate IT spending. Private investment firms Cerberus and General Atlantic are the beneficiaries, picking up Baan for a song. The investors will combine Baan with SSA Global, leveraging Baan’s strength in open systems and its European focus with SSA’s AS/400 strength and North American focus. The combined business will boast $600 million in revenue.

Buyer

Seller

Price

Revenue

Multiple

Currency

Chinadotcom

(Nasdaq:CHINA)

Industri-Matematik

$25,000,000

$45,000,000

(estimate)

0.6x

SEG’s Insight:

Five days after its Ross buy, Chinadotcom (CDC) acquired 51% of IMI from Symphony Technology Group, a financial investor that bought IMI in 4Q02 for $11 million, yielding a $14 million profit after just nine months. CDC needed a supply chain solution company to round out its enterprise suite – which now includes Ross. Look for CDC to cut costs by funneling IMI development to its China R&D center. This rollup should enable CDC to lengthen its lead in China and the Pac Rim. Symphony retains 49% of IMI.

Buyer

Seller

Price

Revenue

Multiple

Currency

Chinadotcom (Nasdaq: CHINA)

Pivotal Corp.
(Nasdaq: PVTL)

$56,239,200^EV

$57,072,000

1.0x

Stock, cash

SEG’s Insight:

In a case of better late than never, Chinadotcom wins the battle for Pivotal Corp., the Canadian mid-market CRM specialist in a deal valued at $57 million. Following a protracted public struggle involving private equity firm Oak Investment Partners and CRM rival Onyx, Pivotal agreed to merge with Chinadotcom under terms providing shareholders with up to $2.14 per share in cash and Chinadotcom shares. Oak, which bid $1.78 per share and sought to combine Pivotal with portfolio company Talisma, will receive a $1.5 million breakup fee from Pivotal. Chinadotcom effectively paid less than 1x revenue and now adds CRM to its suite after acquiring midtier ERP provider Ross Systems in September. The same month, acquisitive Chinadotcom bought controlling interest in Industri-Matematik to address the supply chain software needs for its more than 600 Chinese and other Pacific Asia customers.

Buyer

Seller

Price

Revenue

Multiple

Currency

Chinadotcom

(Nasdaq: CHINA)

Ross Systems

(Nasdaq: ROSS)

$66,110,000^EV

$46,050,000

1.4x

Stock, cash

SEG’s Insight:

Hong Kong-based Chinadotcom (CDC), a pan-Asian enterprise software and services provider, acquires Ross Systems, a leading ERP vendor in the process manufacturing space. With a whopping 600 enterprise customers in Asia-Pacific, CDC aspires to dominate the region and preempt Tier 1 players, but lacked a comprehensive ERP offering. Ross was an obvious choice. After seeing revenue decline 50% over the past three years, Ross shareholders saw the writing on the wall and grabbed the 23% premium, but will receive only 26% of the purchase price in cash.

Buyer

Seller

Price

Revenue

Multiple

Currency

Cisco Systems (NASDAQ: CSCO

Linksys Group

$500,000,000

$429,000,000

1.2x

Stock

SEG’s Insight:

Powerhouse Cisco decided to reenter the home and SOHO markets by acquiring Linksys, the acknowledged leader in home networking gear. Cisco is attempting to find additional revenue to offset a standstill in enterprise and carrier IT spending, and increased competitive pressure in its primary market from the likes of Dell and China’s Huawei. This is a risky move for Cisco, as it enters the “cutthroat” consumer market with considerably lower margins. Linksys’ net profit margin is between 5% to 10% versus Cisco’s 25%. This is an all stock deal and Cisco’s third acquisition in 2003.

Buyer

Seller

Price

Revenue

Multiple

Currency

Cisco Systems (NASDAQ: CSCO)

SignalWorks

$13,500,000

Unknown

n/a

Stock

SEG’s Insight:

IP telephony is a Cisco priority, with 6,000 IP communications customers and 1.5 million IP phones shipped. By acquiring SignalWorks, a developer of advanced software that delivers high-performance audio capabilities for IP telephony systems, Cisco secures its technical lead and extends into new markets. This is an all stock deal - somewhat surprising since Cisco sees its stock as quite undervalued and has launched an aggressive $13 billion stock buyback initiative.

Buyer

Seller

Price

Revenue

Multiple

Currency

EMC Corp.
(NYSE: EMC)

Documentum (NASDAQ: DCTM)

$1,541,686,000^EV

$274,724,000

5.6x

Stock

SEG’s Insight:

Network storage behemoth EMC, hammered by three years of declining revenues and substantial losses, continues to reposition through acquisition. After buying Legato Systems, Astrum Software and Prisa Networks to provide a more open systems solution, EMC moves far beyond storage by acquiring Documentum, a leading enterprise content management company. EMC gets to redefine itself overnight and gains bidirectional cross-sell opportunities, which together account for the healthy 5.6 multiple.

Buyer

Seller

Price

Revenue

Multiple

Currency

EMC

(NYSE: EMC)

Legato Systems (Nasdaq: LGTO)

$1,239,420,000^EV

$280,300,000

4.4x

Stock

SEG’s Insight:

Information and storage leader EMC, hammered by IT budget cuts and resistance to its proprietary offering, continues its foray into open systems through acquisition. Its fourth software acquisition in the last 12 months, EMC acquires Legato, the number three seller of backup and recovery software. Expect EMC to also capitalize on Legato’s 500 strong sales force and customer base of some 31,000 businesses. Legato shareholders received a 16% premium, a nice outcome given the firm’s rocky road since its revenue recognition debacle in 2000.

Buyer

Seller

Price

Revenue

Multiple

Currency

EMC Corp.
(NYSE: EMC)

VMware

$635,000,000

$50,000,000

12.7x

Cash

SEG’s Insight:

EMC’s buying spree continues, as the world’s leading storage management software vendor moves further into the IT infrastructure. This time it’s VMware, a privately held software company that is the leader in virtual machines – software which enables multiple operating systems such as Windows, Linux and Netware to run simultaneously and independently on the same Intel server and move applications across platforms. EMC will operate VMware as a subsidiary, hoping to preserve its relationships with a wide array of server and storage vendors. We’ll see. Although EMC paid a whopping $635 million, all cash, it expects the deal to be dilutive by only $.01 in Q1 and accretive by 2005. The VMware acquisition follows closely on the heels of EMC’s December acquisition of Documentum for $1.5 billion and its October acquisition of Legato Software.

Buyer

Seller

Price

Revenue

Multiple

Currency

Epicor Software

(Nasdaq: PIC)

ROI Systems

$20,700,000

$20,000,000

1.0x

Cash

SEG’s Insight:

A provider of enterprise software to the mid-market, Epicor picks up ROI Systems, a privately held ERP vendor to multiple vertical sectors in manufacturing. This deal is typical of the current M&A market; Epicor looks to add immediate revenue and earnings by leveraging ROI’s complementary products and 6,500 customers. This is an all-cash deal of a business that has sustained 20 years of profitability for a price equivalent to one-time trailing 12 month revenue.

Buyer

Seller

Price

Revenue

Multiple

Currency

FileNet

(NASDAQ: FILE)

Shana Corp.

$8,500,000

$7,500,000

(estimate)

1.1x

Cash

SEG’s Insight:

With $160 million of cash on its books, cash rich FileNet, a provider of enterprise content and collaboration software, picks up Canadian based Shana, a privately held e-forms software vendor. A FileNet partner for the last twelve months, Shana complements FileNet’s offering and furthers its push to offer customers an end-to-end ECM solution. With 66 employees, Shana’s revenue is estimated to be $7.5 million.

Buyer

Seller

Price

Revenue

Multiple

Currency

Group 1 Software (Nasdaq: GSOF)

Sagent Technology (Nasdaq: SGNT)

$17,000,000

$37,900,000

0.5x

Cash

SEG’s Insight:

After defaulting on a $7 million loan in late March, data extraction and analysis provider Sagent threw in the towel. Group 1, a CRM solutions vendor, is the beneficiary. Group 1 pays 0.5 times Sagent’s LTM revenue and in return picks up 1,500 global customers, powerful complementary technology and a product it can sell immediately into its installed base of 2,000 customers.

Buyer

Seller

Price

Revenue

Multiple

Currency

Hewitt Associates (NYSE: HEW)

Cyborg Systems

$43,000,000

$40,000,000

1.1x

Cash

SEG’s Insight:

Global HR outsourcing and consulting firm Hewitt picks up Cyborg Worlwide, a provider of HR workforce management software. What really attracted Hewitt was Cyborg’s lucrative payroll services business, which Hewitt needs to round out its HR outsourcing business. Hewitt also gains access to 750 companies in 10 countries using Cyborg’s payroll service. At 1.1x, the multiple is in line with what we expect today from a strategic acquisition of a service provider.

Buyer

Seller

Price

Revenue

Multiple

Currency

Hyperion Solutions

(Nasdaq: HYSL)

Brio Software

(Nasdaq: BRIO)

$116,500,000^EV

$101,800,000

1.1x

Stock, cash

SEG’s Insight:

Just days after the Business Objects-Crystal Decisions deal, Hyperion, a leader in business performance management, acquires Brio after former partner Crystal Decisions sells to Business Objects. Brio’s strong query and reporting tools are an excellent entre to Hyperion’s dynamic enterprise performance monitoring. Brio’s declining revenues and ongoing operating losses starkly contrast with Crystal Decisions’ growth and profitability and help explain the lower multiple. Hyperion adds Brio’s 3,000 customers, while beefing up its query and reporting offering. Brio shareholders get a 39% premium.

Buyer

Seller

Price

Revenue

Multiple

Currency

Indus Int’l

(NASDAQ: IINT)

SCT’s GEUS

Business Unit

$39,000,000

$74,200,000

0.5x

Cash

SEG’s Insight:

Indus, an enterprise asset management provider to the utility and energy markets, picks up Systems and Computer Technology Corp’s Global Energy and Utility Solutions (GEUS) business unit. Here’s another example of a strategic acquisition in the same target market offering immediate incremental revenue opportunities. Considering GEUS’s revenue, net assets of $31.8 million and breakeven net income, it looks like Indus picked up GEUS for a song. GEUS gives Indus a CIS solution for its installed base, plus 200 new customers.

Buyer

Seller

Price

Revenue

Multiple

Currency

Interwoven

(Nasdaq: IWVN)

iManage
(Nasdaq :IMAN)

$135,918,000^EV

$42,700,000

3.2x

Stock, cash

SEG’s Insight:

After six months of partnering, Web content management leader Interwoven acquires iManage, a provider of content collaboration and document management solutions. Interwoven can now tout an end-to-end knowledge management suite to better compete against Documentum. iManage shareholders receive a 23.6% premium, but only about 18% in cash and the balance in stock. Could be risky. Interwoven lost $14.6 million on flat revenue of $52 million in 1H03. Its $2.40 market price fell on the announcement, but rebounded to $2.85.

EV: Enterprise value = Purchase price, plus debt, minus cash & equivalents

Buyer

Seller

Price

Revenue

Multiple

Currency

Intuit

(Nasdaq: INTU)

Income Dynamics

$10,000,000

$3,500,000

(estimate)

2.9x

Stock

SEG’s Insight:

Financial software behemoth Intuit reenters the acquisition fray, this time buying Income Dynamics, a maker of taxpayer tools that will strengthen market-leading TurboTax by giving it the power to easily estimate the value of items donated to charities. This is Intuit’s first acquisition since it bought IT resource and tracking firm Blue Ocean Software for $170 million in August 2002. Income Dynamics revenues are estimated to be $3.5 million.

Buyer

Seller

Price

Revenue

Multiple

Currency

Intuit

(Nasdaq: INTU)

Innovative Merchant Solutions

$116,000,000

$25,000,000

4.6x

Cash

SEG’s Insight:

Intuit’s buying continues, driven by its “beyond accounting” growth strategy. The latest addition is Innovative Merchant Solutions, a provider of merchant account services to small businesses. Intuit, which already has a modest merchant services operation, gains access to 85,000 IMS merchants and a much stronger presence in the highly profitable bankcard processor sector. Note the all cash purchase price has contingencies, most likely an earnout.

Buyer

Seller

Price

Revenue

Multiple

Currency

Itron

(Nasdaq: ITRI)

Silicon Energy

$71,200,000^EV

$15,000,000 (estimate)

4.8x

Cash

SEG’s Insight:

Itron, a leading technology provider to major utilities worldwide moves into the end-user market by announcing a bid for privately-held Silicon Energy, a provider of enterprise energy management solutions. Silicon Energy filed, then shelved an IPO back in 2001 at an implied market cap of $250 million. The $71.2 million price tag is a 4.8x multiple over Silicon Energy’s trailing revenue. Itron expects the deal to be mildly dilutive in 2003.

Buyer

Seller

Price

Revenue

Multiple

Currency

JDA Software
(Nasdaq: JDAS)

Vista Software Solutions

$4,300,000

1.0x

Cash

SEG’s Insight:

Leading retail industry software provider JDA beefs up its planning, forecasting and supply chain solutions by acquiring the IP assets and staff of Vista Software, a provider of data synchronization and integration solutions linking retailers, distributors and manufacturers. This is an inexpensive acquisition that will enable JDA customers to better manage trade promotions and synchronize data throughout their supply and demand chains. Vista had $1.4 million in software revenue.

Buyer

Seller

Price

Revenue

Multiple

Currency

Kofax Imaging Products

Mohomine

$9,000,000

$1,500,000

(estimate)

6.0x

Cash

SEG’s Insight:

Kofax, a provider of software and image-processing products for data and document capture, picks up Mohomine, a venture-backed developer of unstructured data capture. Mohomine’s patented classification and extraction technologies, which can classify up to 100 documents per second, further Kofax ’s pursuit of an end-to-end data capture solution. Kofax paid roughly 6x on LTM revenue between $1 million and $2 million, a relatively good return for Mohmine’s investors who received 80 cents on the dollar.

Buyer

Seller

Price

Revenue

Multiple

Currency

L-3 Communications (NYSE: LLL)

Ship Analytics

$11,400,000^EV

$25,000,000 (estimate)

0.5x

Cash

SEG’s Insight:

Beefing up its homeland security offering, L-3 Communications picks up privately held Ship Analytics (SA), a provider of crisis management software. Having partnered together earlier, L-3 decided to tie the knot and target state governments and FEMA. The purchase price is largely contingent. L-3 will pay $6.7 million, assume $4.7 million of Ship Analytics’ debt, and provide up to an additional $20.2 million as an earnout, subject to financial performance, through 2005. Ship Analytics does not disclose its financials, but we estimate revenues in the range of $25 million.

Buyer

Seller

Price

Revenue

Multiple

Currency

Macromedia
(Nasdaq: MACR)

eHelp Corp.

$65,000,000

$22,300,000 (estimate)

3.0x

Stock, cash

SEG’s Insight:

Macromedia, the leading rich media development tools company, acquires eHelp, the market leader in help authoring software. eHelp’s software will extend Macromedia’s product line, making it easier for developers to incorporate Flash-based help and tutorials into their offerings. eHelp extends Macromedia’s offering and provides access to a variety of Fortune 500 companies, but we’re not sure that justifies the healthy 3.0 multiple.

Buyer

Seller

Price

Revenue

Multiple

Currency

ManTech Int’l Corp. (Nasdaq: MANT)

Integrated Data Systems

$62,700,000^EV

$40,000,000

1.6x

Cash

SEG’s Insight:

ManTech, an IT services provider to the Federal government, picks up software developer and systems integrator IDS in order to beef up its secure messaging and security network offering. IDS, with year-over-year growth exceeding 80%, derives the vast majority of its revenue from ManTech’s target market - the DoD and intelligence community. ManTech paid 12.2 times IDS’ CY 2002 EBITDA and expects to receive highly favorable tax treatment due to the structure of the deal. This is ManTech’s third acquisition following its IPO in 2002.

Buyer

Seller

Price

Revenue

Multiple

Currency

MASBC Acquisition Corp.

Viador

(Nasdaq: VIAD)

$1,080,000^EV

$4,940,000

0.2x

Cash

SEG’s Insight:

Following in the footsteps of Industri-Matematik, Prophet 21 and Riverdeep, Viador, an enterprise portal vendor, takes its business private. MASBC, the acquisition corporation formed to purchase Viador, is financially backed by Suma Ventures and an existing Viador shareholder. Like the others, Viador lists cost savings, better management focus and a desire to reduce executive liability imposed by the Sarbanes-Oxley Act as primary drivers. Viador raised $36 million in a 1999 IPO, but saw its revenue decline precipitously from $26.2 million in 2000 to its current run rate of $4.9 million. Viador had approximately $1.4 million of cash on its books and a market cap of $168 thousand.

Buyer

Seller

Price

Revenue

Multiple

Currency

MICROS Systems (Nasdaq: MCRS)

Datavantage Corp.

$52,000,000

$42,000,000

1.2x

Stock, cash

SEG’s Insight:

MICROS, a leader in IT services and solutions to the hospitality industry, acquires Datavantage, a provider of POS software to the likes of Starbucks, IKEA and Staples. MICROS rationalized the acquisition by pointing out hospitality businesses often have retail operations. Fact is, MICROS is bucking the current trend of staying “close to home” by moving into a new and different vertical market that is faring better than travel and hospitality. Saratoga Partners, Datavantage’s investors, earned a 43% IRR.

Buyer

Seller

Price

Revenue

Multiple

Currency

NaviSite

(Nasdaq: NAVI)

Interliant

(Nasdaq: INIT)

$7,000,000

$44,600,000

0.2x

Cash

SEG’s Insight:

Navisite, a provider of application management and hosting services, acquires Interliant, a bankrupt competitor focused on corporate messaging and e-mail outsourcing. It’s fourth acquisition of a hosting business in recent months, NaviSite is taking advantage of depressed valuations and others’ misfortunes. While the market reacted favorably to the acquisition, driving NaviSite’s stock price upward 67%, we’re a little less enthusiastic. NaviSite has significant debt, a dwindling cash balance and negative operating income.

Buyer

Seller

Price

Revenue

Multiple

Currency

Open Text Corp. (Nasdaq: OTEX)

Corechange

$4,200,000

$18,000,000 (estimate)

0.2x

Cash

SEG’s Insight:

Knowledge management software provider Open Text follows up its recent acquisition of Eloquent by acquiring enterprise portal vendor Corechange. Open Text, hoping to beef up the front and back ends of its collaboration offering, will pay 0.2 times Corechange’s fiscal 2001 revenue, a multiple which clearly reflects the tough market environment for portal-only vendors. It’s likely Corechange was running out of cash. Another disappointment for VCs, who had $36 million invested.

Buyer

Seller

Price

Revenue

Multiple

Currency

Open Text Corp. (Nasdaq: OTEX)

Eloquent Corp. (Nasdaq: ELOQ)

$6,720,000

$2,500,000

2.7x

Cash

SEG’s Insight:

Open Text, a leader in online collaboration, plans to acquire Eloquent, a niche CRM player whose technology will add video conferencing to Open Text’s Livelink offering. Eloquent, with sharply declining revenue, a negative $12.2 million twelve month EBITDA and $12.1 million cash balance has been buyer shopping for 6 months. Open Text’s offer of 34 cents per share ($6.7 million all cash) is quite a come down. Eloquent traded as high as $39 per share in March 2000. How times change.

Buyer

Seller

Price

Revenue

Multiple

Currency

Open Text
(Nasdaq: OTEX)

IXOS Software (Nasdaq: XOSY)

$188,809,000^EV

$145,000,000

1.3x

Stock, cash

SEG’s Insight:

Open Text, a market leader in collaboration and knowledge management software, buys German content management and archiving tools provider IXOS Software. Though positioned as complementary, Open Text eliminates a competitor in a deal that denotes continued consolidation in the content management arena. Open Text gains greater access to the SAP base and 2,700 new customers. But contrast the multiple here, typical for a consolidation play, with the multiple paid by strategic buyer EMC for Open Text rival Documentum. Open Text, which also recently purchased Germany’s Gauss Interprises, remains fair game for acquisition itself. Like collaboration software, document management is rapidly being subsumed into broader enterprise categories.

Buyer

Seller

Price

Revenue

Multiple

Currency

Opsware
(Nasdaq: OPSW)

Tangram Enterprise Solutions (TESI.OB)

$10,000,000^EV

$10,435,000

1.0 x

Stock

SEG’s Insight:

Opsware, the data center automation innovator founded by Mark Andreessen, moves into IT asset management and IT security by acquiring Tangram Enterprise Solutions. Following a highly visible, ill-timed IPO in early 2001, Loudcloud (now Opsware) endured a $12 million per month cash burn and a threatened NASDAQ delisting before selling its managed services division to rival EDS last year for $64 million. Now Opsware seems to have finally found its niche and is cash-flow-positive. Tangram’s product line will leverage Opsware’s strategic relationships with EDS and HP. Tangram also brings more than 200 customers to Opsware, as well as the patent pending “Crosshair” technology embedded in its OverSight security product. Tangram was majority-owned by Safeguard Scientifics, which must believe in Opsware’s future prospects, since the $10 million all-stock deal was priced below recent Tangram trading levels. After paying off Tangram’s preferred shareholders, creditors and former employees, Tangram’s common shareholders’ receive roughly $5 million.

Buyer

Seller

Price

Revenue

Multiple

Currency

Oracle Corp.

(Nasdaq: ORCL)

PeopleSoft

(Nasdaq: PSFT)

$4,170,000,000^EV

$1,930,000,000

2.2x

Cash

SEG’s Insight:

On the heels of the PeopleSoft/J.D. Edwards announcement, Oracle responded promptly by tendering a hostile bid for PeopleSoft in the amount of $5.1billion, or $16 per share. Viewed by many as a grossly inadequate offer, PeopleSoft’s stock price was bid up from $15 to $18 in anticipation of a higher offer by Oracle or a white knight. Less than two weeks later, Oracle revised its bid upward 22% to $19.50 per share, but many obstacles remain. Oracle, which has historically abstained from acquisitions, was sufficiently threatened by the prospect of a PeopleSoft/Edwards merger to act as spoiler offering most of its $6 billion of cash. As of January 2004, Oracle continues its pursuit, most recently offering $26 per share.

Buyer

Seller

Price

Revenue

Multiple

Currency

PeopleSoft

(Nasdaq: PSFT)

J.D. Edwards

(Nasdaq: JDEC)

$1,350,000,000^EV

$886,000,000

1.5x

Stock, cash

SEG’s Insight:

Kicking off what was a very exciting week for software M&A, PeopleSoft announced it would acquire J.D. Edwards. With Edwards, PeopleSoft will greatly strengthen its position in the mid-market, as well as its presence in manufacturing and other key vertical industries such as real estate and construction. Though Edwards’ revenue declined 11% from its 2000 high, it has done reasonably well in the current economy. We’re a bit surprised at the price, which equates to a modest 1.5x multiple and only a 19% premium to Edwards’ shareholders.

Buyer

Seller

Price

Revenue

Multiple

Currency

Perot Systems

(NYSE: PER)

Soza & Company

$75,000,000

$137,000,000

0.6x

Cash

SEG’s Insight:

In the IT services arena, Perot Systems acquires Soza & Co. a professional services firm strongly focused on defense and homeland security, growth sectors which are clear priorities for Perot. Soza expands Perot’s Government Services Group, adding 900 employees and $137 million in revenue to the Perot Group’s 600 employees and $63 million of revenue. With an earnout in cash and stock of $32 million, the purchase price can approach a 0.8x revenue multiple, not bad for a services provider.

Buyer

Seller

Price

Revenue

Multiple

Currency

Plato Learning (Nasdaq: TUTR)

Lightspan

(Nasdaq: LSPND)

$32,970,000^EV

$50,000,000

0.7x

Stock

SEG’s Insight:

After racking up substantial losses, ($33.5 million on $50 million revenue in fiscal year ’03) and with only enough cash to fund two more quarters, education software vendor Lightspan sells to Plato Learning, a financially challenged provider of e-courseware to community colleges. Plato, which lost $5.7 million of operating income on $78 million in revenue during the last twelve months, hopes to beef up its presence in Lightspan’s K-12 market.

Buyer

Seller

Price

Revenue

Multiple

Currency

Primavera Systems

Evolve Software

(Nasdaq: EVLV)

$13,000,000

$18,300,000

0.7x

Cash

SEG’s Insight:

Primavera, a leading provider of project management software solutions, acquires Evolve’s project management, IT portfolio management and resource utilization assets out of bankruptcy. Primavera picks up a competitor and several new products of interest to its 41,000 customers – all for a mere $10 million in cash and the assumption of $3 million in liabilities. Since July 1999, Evolve raised $138 million with $25 million coming in the last eighteen months. Primavera is private with $80 million in revenue.

Buyer

Seller

Price

Revenue

Multiple

Currency

Progress Software Corp. (Nasdaq: PRGS)

DataDirect Technologies Ltd.

$88,000,000

$35,500,000 (estimate)

2.5x

Cash

SEG’s Insight:

Progress Software acquires privately held Data Direct Technologies, the leading developer of data access and connectivity components for software developers, in a $88 million, all-cash deal. Data Direct’s products are embedded in the apps of more than 250 software companies and most of the Fortune 100. Progress, which grew 13% in its fiscal year-ending 11/30/03, has now moved well beyond its 4^th GL development platform days and is considered a major software infrastructure player. Plans are for DataDirect to operate as a separate business unit to maintain an appearance of impartiality, similar to another highly successful Progress subsidiary, Sonic Software, its fully owned Internet middleware company. The transaction should be cash-flow-positive and slightly dilutive in year one and accretive thereafter.

Buyer

Seller

Price

Revenue

Multiple

Currency

Pumatech
(Nasdaq: PUMA)

Synchrologic

$60,000,000

$11,800,000

5.1x

Stock

SEG’s Insight:

Synchronization and mobile app solution provider Pumatech, with $25 million revenue and $27 million left in cash, pays a whopping $60 million (all stock) for competitor Synchrologic ($11.8 million rev). The two firms had been locked in patent litigation brought by Pumatech. For Pumatech, the deal eliminates that headache, as well as a competitor, and provides access to better synchronization and device management technology. Pumatech previously acquired Starfish, Loudfire and Spontaneous Technology.

Buyer

Seller

Price

Revenue

Multiple

Currency

Red Hat Inc.

(Nasdaq: RHAT)

Sistina Software

$31,000,000

$2,250,000 (estimate)

13.8x

Stock

SEG’s Insight:

Open Source Linux powerhouse Red Hat will acquire storage infrastructure software maker Sistina Software in an all-stock deal valued at $31 million. As evidenced by the 13.8x multiple, this is a highly strategic buy for Red Hat as it battles to replace proprietary systems in large corporation with open source Linux applications. Red Hat will retain Sistina's development team and plans to bring an open source version of Sistina's software out by mid-year. With this acquisition, Red Hat expands its applications offering beyond Web portals and content management. An application server is slated to join Red Hat’s line-up later this year. Sistina’s revenue is a D&B estimate.

Buyer

Seller

Price

Revenue

Multiple

Currency

Saratoga Partners

(NASDAQ: FILE)

Divine’s Managed Services Unit

$28,000,000

$60,000,000

0.5x

Cash

SEG’s Insight:

Fallout from the Divine debacle continues with the U.S. Bankruptcy Court’s approved sale of Divine’s managed services unit to Saratoga Partners, a New York private equity firm. Saratoga is one of the few private equity firms that saw opportunity in the current market and jumped headlong into the fray. This is Saratoga’s third acquisition since February and follows on the heels of its recent sale of Datavantage to MICROS Systems. The managed services unit was built through Divine’s acquisition of Data Return, Intira and Host One.

Buyer

Seller

Price

Revenue

Multiple

Currency

ScanSoft (Nasdaq:SSFT)

SpeechWorks Int’l (Nasdaq: SPWX)

$133,756,000^EV

$36,000,000

3.7x

Stock

SEG’s Insight:

ScanSoft, a leading developer of digital imaging software, continues to redefine itself by picking up publicly traded SpeechWorks, a speech recognition and text-to-speech vendor. This is ScanSoft’s third acquisition in this sector. ScanSoft clearly considers SpeechWorks to be highly strategic, considering the 63% premium it paid for a company that has historically lost significant amounts of cash. ScanSoft expects the deal to be 5% accretive after eliminating $27 million through headcount cuts and office consolidations.

Buyer

Seller

Price

Revenue

Multiple

Currency

Secure Computing

(Nasdaq: SCUR)

N2H2

(NTWO.OB)

$15,813,000^EV

$11,100,000

1.4x

Stock

SEG’s Insight:

Network security provider Secure Computing acquires content-filtering competitor N2H2, seeking to boost its number-three position in content filtering. Secure also picks up 2,000 new customers. Secure paid 1.4 times TTM revenue after factoring in N2H2’s cash and debt. The deal gives N2H2’s shareholders a 38% return based on a five-day preceding average, not bad considering the quarter ended June 2003 was the first time N2H2 recorded a profit…of $48,000.

Buyer

Seller

Price

Revenue

Multiple

Currency

SCO Group
(Nasdaq: SCOX)

Vultus

$2,700,000

$1,250,000

(estimate)

2.2x

Stock

SEG’s Insight:

SCO Group, a provider of tools and services for Linux developers that has seen its stock price rocket upward six fold since filing a $1 billion IP infringement suit against IBM, appears to be taking advantage of its new found wealth, with its all stock asset purchase of Vultus Technology, a developer of tools used to design Web app interfaces. This is the first of what SCO identifies as a string of $4 to $10 million strategic acquisitions. Sellers beware.

Buyer

Seller

Price

Revenue

Multiple

Currency

SERENA Software (Nasdaq: SRNA)

TeamShare

$18,000,000

$12,500,000

(estimate)

1.4x

Cash

SEG’s Insight:

Serena, a provider of software solutions used to manage enterprise application code and Web content changes, picks-up TeamShare, a “SoftLetter 100” provider of developer-oriented collaboration and workflow management tools. TeamShare’s product, which is already integrated with Serena’s, provides a highly complementary product extension for Serena. Revenue is estimated to be $12.5 million.

Buyer

Seller

Price

Revenue

Multiple

Currency

SSA Global Technologies

Elevon

(Nasdaq: ELVN)

$20,280,000

$33,000,000

0.6x

Cash

SEG’s Insight:

SSA GT, an enterprise software provider whose strategy is growth through acquisition, acquires Elevon, a global provider of collaborative commerce solutions. Elevon reported LTM revenue of $33 million, but backing out revenue from its recently divested UK operation, actual revenue was about $21 million, and the future looked bleak. Revenue fell 33% in the first quarter to $4 million and the company had a net loss of $1.5 million. Although the offer represents a 20% premium over Elevon’s current market cap, it’s actually less than Elevon’s $21 million cash on its balance sheet.

Buyer

Seller

Price

Revenue

Multiple

Currency

SSA Global Technologies

EXE Technologies

(Nasdaq:EXEE)

$16,026,000^EV

$73,656,000

0.2x

Cash

SEG’s Insight:

Enterprise software provider SSA Global Technologies nabs struggling EXE, the latest in its series of acquisitions. EXE’s highly regarded warehouse management/supply chain execution software will extend SSA’s ERP offerings to the mid-market. While EXE’s revenues have been flat, it reigned in expenses to near breakeven and had $32 million in cash, making the 0.2x purchase price appear curiously low. SSA, which earlier acquired Baan, Infinium and interBiz, has a record of picking up deals on the cheap.

Buyer

Seller

Price

Revenue

Multiple

Currency

Stellent

(Nasdaq: STEL)

Ancept

$2,770,000

$4,500,000

(estimate)

0.6x

Stock, cash

SEG’s Insight:

The content management sector consolidated further as Stellent picked up small, privately-held digital asset management vendor Ancept, an IBM partner. After Stellent competitors Documentum and Interwoven recently acquired digital asset management developers (Bulldog and MediaBin), Stellent had little choice but to embed the technology in its offering. Ancept shareholders receive $2 million in cash and 100,000 shares of Stellent stock.

Buyer

Seller

Price

Revenue

Multiple

Currency

SunGard Data Systems (NYSE: SDS)

Caminus Corp. (Nasdaq: CAMZ)

$119,000,000^EV

$84,000,000

1.4x

Cash

SEG’s Insight:

Sungard, the leader in financial services software, moves aggressively into the energy vertical, acquiring Caminus, a developer of trading and risk-management systems for that sector. Sungard’s value has declined 9.1% since its $9 a share offer, a $6.50 premium over Caminus’ trading price. We disagree. Backing out Caminus’ estimated $40 million cash balance, Sungard paid only 1.4x trailing 12 month revenue for a company growing at almost 50% annually. Caminus’ net losses are largely due to amortization expenses relating to prior acquisitions.

Buyer

Seller

Price

Revenue

Multiple

Currency

SunGard Data Systems (NYSE: SDS)

HTE

(Nasdaq: HTEI)

$96,900,000^EV

$70,000,000

1.4x

Cash

SEG’s Insight:

SunGard continues to ramp up its public services operating unit with the acquisition of HTE, a leader in IT and software solutions to the government sector, especially local agencies. Backing out HTE’s cash balance of $24.1 million, SunGard pays a 1.4x multiple, or $96.9 million. Although HTE’s revenue has hovered for the past two years around $65 million, it returned to profitability in 2002, attracting SunGard’s interest.

Buyer

Seller

Price

Revenue

Multiple

Currency

Sungard Data Systems (NYSE: SDS)

Systems & Computer Technology Corp.

$491,200,000

$269,700,000

1.8x

Cash

SEG’s Insight:

Highly acquisitive Sungard Data Systems continues to expand its market focus beyond the financial services sector. Following its 2003 acquisitions of Caminus, HTE and Sherwood International, which leverage Sungard in the energy and public sectors, Sungard beefs up its education sector business with Systems & Computer Technology (SCT), a leading provider of technology solutions to higher education. SCT adds 8 million users and 1,300 customers to Sungard’s installed base, but for SCT’s shareholders, the deal doesn’t quite add up. We wonder why they would settle for a mere 10% premium after SCT successfully divested non-core assets and expanded its higher education business through a string of savvy acquisitions. The strategy was working. In the last twelve months, SCT’s revenue grew 15.2% and EBITDA grew 18.0% to $45.8 million. SCT also boasted a strong balance sheet, which saw its current ratio remain near 3.5 and long-term debt fall from $74.7 million to $32.0 million over the same period.

Buyer

Seller

Price

Revenue

Multiple

Currency

Symantec Corp. (Nasdaq:SYMC)

Nexland

(OTC:XLND)

$20,100,000^EV

$7,740,000

2.6x

Cash

SEG’s Insight:

Symantec continues to reposition as a security software provider by acquiring Nexland, a small public company whose patent-pending security applications and appliances enable secure virtual private networking between corporate and remote offices. Here’s another example of a strategic partnership evolving into an acquisition with a decent multiple. After backing out Nexland’s cash and adding debt, Symantec paid $20.1 million. Nexland’s compound annual revenue growth rate exceeded 129% over the last two years.

Buyer

Seller

Price

Revenue

Multiple

Currency

Symantec
(Nasdaq: SYMC)

ON Technology (Nasdaq: ONTC)

$81,660,000^EV

$37,500,000

2.2x

Cash

SEG’s Insight:

Symantec further expands its administration software line with the acquisition of ON Technology, a leading provider of software distribution and configuration management solutions. Symantec, which had focused primarily on enterprise security software, has been building out storage management and IT administration product lines through a series of strategic buys, including September’s purchase of PowerQuest. Through acquisitions, the company has successfully redefined itself as an enterprise infrastructure solution provider.

Our predictions for 2004? Should the economy continue to improve, IT spending increase to projected levels, and technology sector stock prices hold, we estimate the total number of North American software industry M&A transactions will increase 25% to 1,650 transactions. We believe strategic technology buys will comprise about 60% of these deals and new category buys about 25%. Consolidations, roll-ups, financial buyouts will account for most of the balance. We see median valuations improving further, in a range of 2.3x – 2.5x TTM revenue.

This report was prepared by Software Equity Group, L.L.C. (SEG), a mergers and acquisitions advisory firm serving the software, life science and technology sectors. SEG is solely responsible for its content. This material is based on data obtained from sources we deem to be reliable; it is not guaranteed as to its accuracy and does not purport to be complete. This information is not to be used as the primary basis of investment decisions. For more, please visit www.softwareequity.com, or phone (858) 509-2800.