EUROPEAN AMERICAN SECURITIES European Software Companies: SHOW ME THE MONEY! October 15, 2004

EUROPEAN AMERICAN SECURITIES Table of Contents A crowded universe Where are the exits? A. IPO / Secondary B. M&A Who / where are the potential acquirers? Conclusion

EUROPEAN AMERICAN SECURITIES A CROWDED UNIVERSE1

Partner In Growth EUROPEAN AMERICAN SECURITIES 3 Crowded and Characterized by Fragmentation and Lack of Critical Mass  178 publicly traded software and IT service companies in the UK  100+ of which are software  Conservatively estimate that 10X more private software companies with €5+ million in revenues  > 5000 software companies across Europe?  Plus the services companies  … and each one offers the best and most unique solution  … if you ask the CTO  These companies have a complex positioning and are not visible to their potential acquirers (or customers)  THERE HAS NEVER BEEN AS MANY POTENTIAL PARTNERS BUT THECOMPETITION FOR VISIBILITY IS FIERCE A CROWDED UNIVERSE

Partner In Growth EUROPEAN AMERICAN SECURITIES 4 And growing… A CROWDED UNIVERSE Recent headline VC Fundings in European IT (round size E7.5 million or larger)

Partner In Growth EUROPEAN AMERICAN SECURITIES 5 And growing… A CROWDED UNIVERSE  DISPARITY OF DYNAMICS BETWEEN THE EUROPEAN AND US MARKETS FOR FUND RAISING  European VC fund raisings totaled just E860m in the first nine months compared with E1.4bn in the same period of Much of the capital raised has been raised by Israeli groups or a US group planning to invest in Europe (Benchmark)  US VC closes in the first nine months totaled $14.1bn, compared with just $2.2bn in the same period of The US fundraising cycle typically leads Europe by six to 12 months Increasingly conspicuous structural differences that might make that historical relationship less useful: the growing share of buy-out funds chiefly at the expense of the venture sector.

EUROPEAN AMERICAN SECURITIES WHERE ARE THE EXITS?2 A. IPOs / Secondary Direct B. M&A

Partner In Growth EUROPEAN AMERICAN SECURITIES 7 IPOs / Secondary Direct VC  The US as an indicator of trends for Europe  In the third quarter of 2004, 14 venture-backed US companies completed IPOs raising a total of $1.72bn (VentureOne)  It is a decrease from 29 in Q2 but still tied as the second highest quarter on record since Q  The Google IPO garnered a great deal of attention, but has not led to a dramatic flood of public offerings  In fact, seven venture-backed companies withdrew from registration in the Q3, while 13 filed to go public  41 companies currently in registration  IPO OPPORTUNITIES IN EUROPE EXIST BUT ARE LIMITED – beware – IPO  Exit WHERE ARE THE EXITS?

Partner In Growth EUROPEAN AMERICAN SECURITIES 8 IPOs / Secondary Direct VC  The secondary market is an established exit route for the buyout industry – can the model migrate to VC stage PE?  The secondary market for LP interests in VC funds or for portfolios of companies has developed efficiently over last 5 years  However there are no established secondary direct investors focusing on acquiring interests in individual companies  There are signs of interest in technology buyout from US players however they will only focus on very late stage companies  THE DIRECT SECONDARY EXIT ROUTE IS NOT AVAILABLE YET BUT COULD DEVELOP OVER THE MEDIUM TERM WHERE ARE THE EXITS?

Partner In Growth EUROPEAN AMERICAN SECURITIES 9 So M&A continues to be the more likely exit  In the US the number of acquisitions of venture-backed companies are at healthy levels:  In Q2, 86 venture-backed US companies were merged or acquired  In Q3, 90 venture-backed US companies were merged or acquired for a total of $5.89bn.  Information technology companies represented a majority of these transactions  This US appetite has flowed over to Europe with notable deals in 2004 such as:  UK Vault acquired by Veritas $225 million  Kelkoo acquired by Yahoo $575 million  Suze acquired by Novell $210 million  There have also been numerous smaller US acquisitions in Europe Trigenic acquired by Qualcomm $23 million Q4, 2004 Cisco acquired a networking co in the UK WHERE ARE THE EXITS?

Partner In Growth EUROPEAN AMERICAN SECURITIES 10 So M&A continues to be the more likely exit  As well as many domestic European deals  GIVE YOUR COMPANIES (and M&A bankers) A CHANCE TO INTEREST THE BUYERS: Map your space on an ongoing basis Meet your competitors Have good company presentations Issue news letters to keep main players informed of your progress WHERE ARE THE EXITS? in the enterprise application space

EUROPEAN AMERICAN SECURITIES WHO / WHERE ARE THE POTENTIAL ACQUIRERS 3

Partner In Growth EUROPEAN AMERICAN SECURITIES 12 The Mammoths  The mammoth industry leaders  They usually communicate clearly their technology paths and welcome small peripheral players  They have institutionalized partnership programs to identify complementary technologies  They are best positioned to leverage technologies over large customer bases  Therefore can justify paying higher valuations  Challenge is that they are large and bureaucratic  Most are US based and decision making is in the US  Relationships must be built long ahead of time using the partnership scheme  Need to demonstrate that the solution has been implemented on their platforms  EUROPEAN SMALL SOFTWARE COMPANIES FAIL TO CULTIVATE THESE RELATIONSHIPS! WHO ARE THE POTENTIAL ACQUIRERS?

Partner In Growth EUROPEAN AMERICAN SECURITIES 13 Middle Market Private And Public Companies  Private and public middle market companies  Middle market companies with revenues >E100 million  Most are publicly traded  Valuations of the public companies are highly dispersed  Entrepreneurial enough to identify the right technology opportunity  Less accretion / size sensitive than the smaller buyers  Tend to reach faster the decision makers  Challenges  They will be sensitive to equity dilution and rarely cash rich  Even a small mistake can adversely affect the stock price substantially  THESE ARE THE SWEET SPOT. EUROPEAN SMALL SOFTWARE COMPANIES OFTEN HAVE NOT SYSTEMATICALLY IDENTIFIED THEIR SPACE WHO ARE THE POTENTIAL ACQUIRERS?

Partner In Growth EUROPEAN AMERICAN SECURITIES 14 The Micro Combinations  The micro partners  Some still private, some are publicly traded: the “fallen angels”  Building critical mass is their priority  Will value a target for existing revenues rather than potential  Maybe interested only in cash balance  These are the tier 3 potential acquirers  Usually contacted when it is too late  Will not provide liquidity but potential long term upside  US companies are very efficient at completing rollups to build size, breadth and economies of scale  Egos tend to override realism  POTENTIAL FOR LONG TERM VALUE CREATION BETTER THAN THE WRITE OFF ALTERNATIVE WHO ARE THE POTENTIAL ACQUIRERS?

Partner In Growth EUROPEAN AMERICAN SECURITIES 15 Also Think Of The IT Services Companies and Japan for Internet  Valuations of Software and Services companies have converged  IT services companies are seeking to add value beyond body shopping Value Added WHO ARE THE POTENTIAL ACQUIRERS?

Partner In Growth EUROPEAN AMERICAN SECURITIES 16 Also Think Of The IT Services Companies and Japan for Internet  IT Services companies are potential software company buyers  SAGE is a good example of the quest to add value beyond by offering high value added solutions for wireless telecom  Business Process Outsourcing generates similar needs  Ordina acquires Innovity to add functionality to its BPO offering for Benelux financial institution back office needs in the  Remember that software companies rarely have less than 30% of revenues from services  usually closer to 60% for the earlier stage ones  As they seek to offer higher value added services their business models converge with software companies  Do not forget Japanese potential buyers  Japanese internet valuations still at height of internet bubble  They are willing to pay premiums for a foothold into European telcos  123 Multimedia (Fr) acquired by Index Corp. (Japn) in Q2, 2004 E120 million for 60% WHO ARE THE POTENTIAL ACQUIRERS?

EUROPEAN AMERICAN SECURITIES CONCLUSION

Partner In Growth EUROPEAN AMERICAN SECURITIES 18 SHOW ME THE MONEY  Opportunities for exits and consolidation are greater than ever before in a huge but crowded market  Software companies need to map their space and build visibility on an ongoing basis. This will be beneficial from strategic, commercial and exit perspectives  Consider a broad range of alternatives both from sector and geographic angles, it is a long term process, do not wait for a fire sale situation CONCLUSION

EUROPEAN AMERICAN SECURITIES European Software Companies: SHOW ME THE MONEY! October 15, 2004