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UBS TMT Primer
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UBS Technology M&A
March 2005
Discussion of Current Industry Trends
STRICTLY CONFIDENTIAL
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Table of Contents
SECTION 1 M&A Market Conditions 2
SECTION 2 M&A Drivers and Considerations 8
SECTION 3 UBS Overview 14
SECTION 1
M&A Market Conditions
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M&A Volume in the US
Large, strategic combinations are back—Proctor & Gamble / Gillette, JPMorgan / BankOne, Cingular / AT&T Wireless, Sprint / Nextel, Oracle / PeopleSoft, Symantec / Veritas, Johnson & Johnson / Guidant and Wachovia / SunTrust
Significant financial sponsor activity in the middle market– Taking advantage of depressed market conditions and attractive debt markets
Current rebound in activity across all industries is reflective of a return to a healthier market
608
433
529
1,045
1,411
1,219
1,328
530
407
296
15411611097
0
250
500
750
1,000
1,250
1,500
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
($ in
bill
ion)
Volume up 41% in 2004 vs. 2003
Source: Securities Data Corporation
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Technology M&A ActivityTechnology M&A Volume Has Increased Steadily Since 2002 Lows
58 5898
157
65 46 47 65
2660
148
233
36
19 17
2524
$85
$143
$485
$124
$641522
65
95
$65
$311
$103
0
50
100
150
200
250
300
350
400
450
500
1997 1998 1999 2000 2001 2002 2003 2004
Dea
l Val
ue (U
S$ B
illio
ns)
0
500
1,000
1,500
2,000
2,500
3,000
No. of D
eals
> $10bn
$1bn - $10bn
< $1bn
No. of Deals
1997 1998 1999 2000 2001 2002 2003 2004
No. of Deals 1,133 1,409 1,862 2,648 1,705 1,318 1,329 1,508
Source: Securities Data Corporation
Note: Oracle/PeopleSoft included as 2004 transaction, original hostile offer was first launched in Q3 2003
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M&A Deal Activity is IntensifyingMarket recovery in 2003 and stability in 2004 have increased corporate confidence and created an environment conducive to M&A transactions
Technology companies are exiting defensive, "survive the downturn" mentality and reviewing strategic options – Recalibrating under invested businesses– Capturing upside as economic conditions continue to improve
Technology M&A deal volume increased 60% in 2004– M&A pipeline is expected to be strong for 2005
281325 352 371 370 394
345399
100
200
300
400
500
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
2003 2004
102.6
$64.2$64.9
40
60
80
100
120
2002 2003 2004
(1%)60%
Number of Announced Transactions 1 Technology M&A Deal Volume (US$ Billions) 1
179 additional transactions were announced in 2004 compared with 2003
Volume of discussions has intensified drastically
Source: Security Data Corporation
Note:1 Oracle/PeopleSoft included as 2004 transaction, original hostile offer was first launched in Q2 2003
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Current Trends in Technology M&A
TREND OVERVIEW RECENT TRANSACTIONS
Resurgence in Deal Activity
A recovery in technology stock prices and increased corporate confidence have driven M&A activity – Companies have restructured their businesses and increased earnings – Companies are eager to make acquisitions to capture upside as market conditions improve
2004 marked the return of the Technology M&A “mega-deals” – Deals over $1 billion represented 36% of deal value in 2004, versus 27% in 2003 – Return of landscape shaping deals such as Symantec/Veritas, ARM/Artisan and the
completion of Oracle/PeopleSoft
IBM / Ascential ($1,100mm) Symantec / Veritas ($13,521mm) Lenovo Group / IBM PC Business
($1,300mm) CA / Netegrity ($451mm) Juniper / Netscreen ($3,816mm) Oracle / Peoplesoft ($10,300mm) ARM / Artisan ($933mm)
Sector Consolidation
Sector consolidation continues to drive M&A – As companies refocus on growth, they are seeking opportunities to expand product
offerings, acquire new technology and achieve critical mass – Regulatory environments created product opportunities for acquirors and at the same time
forced smaller listed firms to re-assess the pros and cons of operating on a standalone basis
3Com / TippingPoint ($408mm) Credence / NPTest ($663mm) Serena / Merant ($380mm) Cisco / NetSolve ($137mm)
Mm)
Stock Consideration
Stock consideration has become a more favorable M&A currency as technology stock prices have recovered – Most technology companies have been trading at or close to their three-year highs
In some recent deals, cash consideration has been linked to stock consideration as acquirors tap into the equity markets to raise funds for acquisitions – Improvements in capital markets have allowed companies to raise cash at a low cost through
convertibles or straight equity
Symantec / Veritas ($13,521mm) Safenet / Rainbow ($463mm) Credence / NPTest ($663mm)
– Issued convertible Serena / Merant ($380mm)
– Issued convertible
Private Equity Activity
Private equity players continue to show interest in acquiring technology companies – Some technology stocks have enjoyed only limited participation in the market recovery – Low interest rates have enabled private equity players to borrow at low costs to fund
acquisitions – The downturn has created companies with lower cost structures and higher profitability – The recent market recovery has provided private equity players with better exit opportunities
Carlyle / Insight ($2,100mm) Golden Gate Capital / Blue Martini
($54mm) Veritas Capital / DynCorp from
CSC ($850mm) Bain Capital, Silver Lake Partners,
Warbug Pincus / UGS PLM from EDS ($2,050mm)
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M&A and IPO Activity in the Technology SectorNumber of Announced M&A Transactions and IPO Filings
Source: Securities Data Corporation and UBS Equity Capital Markets Group
Note: Oracle/PeopleSoft included as 2004 M&A transaction, original hostile offer was first launched in Q3 2003
1,133
1,409
1,862
2,648
1,705
1,318
1,508
1,329
124
100
309
235
23 19 21
60
0
500
1,000
1,500
2,000
2,500
3,000
1997 1998 1999 2000 2001 2002 2003 2004
No. o
f A
nnounce
d M
&A
Dea
ls
0
50
100
150
200
250
300
350
No. o
f IPOs Filed
M&A IPO
SECTION 2
M&A Drivers and Considerations
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Principal Drivers of Technology M&A
Achieve Scale
Critical mass and financial strength Customer leverage Increased distribution and sales support Market position consolidation Leapfrog competition
Expand Product Offering
New market entry — product or geography Capture new customer bases Buy vs. make — time to market Engineering talent and/or management acquisition Off-income statement R&D
Offer Complete Solution
Fill product gaps Capitalize on installed base Accelerate time to market Strengthen channel partnerships Offer one-stop shop
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M&A Considerations
Business Rationale
Compelling strategic rationale Create or consolidate market leadership position Essential new technologies, markets or products
Financial Considerations
Transaction multiples compared to public comparables and precedent transactions Impact on combined company revenue and earnings growth trajectories Effect on margins Revenue and cost synergies EPS accretion / dilution
Market Reaction
Market perception of target company / merger partner Consistent, simple to understand story Financial parameter clarity Price paid / consideration mix
Execution Risk
Time to closure Anti-trust / regulatory Tight contract terms Integration strategy
A number of factors to consider in pursuing any M&A transaction
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Process ConsiderationsPublic Offering Versus Sale
Initial Public Offering Sale of Business
PROS:
Primary shareholders retain voting control and existing management continues to execute the strategic vision of the business
Proceeds from an IPO can be used to increase scale through acquisitions or fuel organic growth
Shareholders can participate in potential upside should the business continue to execute and market conditions remain favorable
CONS
The organization must take on the costs associated with public filing and compliance requirements while managing greater scrutiny by investors
An IPO lock-up prevents current shareholders from achieving immediate liquidity
There is a high degree of uncertainty in future capital market conditions
There is the potential for a downside in valuation should the business lose traction
PROS:
Reduces or eliminates execution risks of the current business plan as well as future capital market uncertainties
M&A valuation includes control premium
Can offer a more immediate path to liquidity for current shareholders
Avoids the costs associated with being a public company
Partnering increases opportunity to cross-sell and up-sell through larger distribution platform and gain rapid critical mass to better compete
CONS:
Primary shareholders relinquish voting control and new management executes the strategic vision of the company
Cash transactions eliminate the upside participation in the pro forma company
Integration and execution risk of combined business
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30%
36%
39%
40%
52%
61%
0% 10% 20% 30% 40% 50% 60% 70%
ERP
Business Intelligence
Record Management
Process Control
Storage
Security
0500
1,0001,5002,0002,5003,0003,5004,000
2003 2004 2005 2006 2007
($ m
illio
ns)
Advisory Services IT Spending
Sarbanes-Oxley 404 Compliance
Benefits Costs
Intended to restore investor confidence in U.S. public markets
Drives greater consistency and transparency in reported filings
Increased executive accountability over financial reporting
Increased spending at the CFO and CTO level to meet compliance criteria
Increased cost of being public, especially small cap companies
Entails significant allocation of resources
Not meeting SOX deadline requirements or announcing inadequacies in significant controls can have negative effect on stock price– UTStarcom– Chordiant Software– Interpublic Group
Advisory Services Vs. IT Spending Mix for SOX Compliance
Anticipated Technology Spending to Support SOX Compliance
Source: Forrester Research survey of 454 technology decision-makers Source: Gartner 2004 estimates
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Typical Timing of an M&A TransactionIllustrative Timeline of a Sell-Side Controlled Auction Engagement
Negotiations and Closing
Negotiate and sign definitive agreement
Closing
Due Diligence and Preparation
Marketing
Preparation of management presentation
Initiate contact with buyers
Activity
Due diligence meetings
Information Memorandum
Finalize buyer list
Deliver Information Memorandum
Finalize management presentation and data room
Buyer due diligence
Receipt and review of final proposals
Organizational meetings
Action
Weeks
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17
SECTION 3
UBS Overview
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UBS—A Leading Global Financial Services Firm
“Wall Street Powerhouse”FORBES 2004
The UBS WayBLOOMBERG 2004
World’s Best Investment BankEUROMONEY 2004
World’s Best BankEUROMONEY 2003
Best Investment BankTHE ECONOMIST 2003
World’s Best Investment Bank INVESTMENT DEALERS’ DIGEST 2002
“UBS is a banking giant but, a Wall Street powerhouse? Oh Yes.
This is a house… that’s grown out of its regional shell to assume premier proportions in world finance. But it’s the push into the rarified realm of Investment Banking that sets UBS apart. ”“BIG KID ON THE BLOCK”
FORBES
“UBS has achieved what once seemed impossible for any European investment bank: it has broken into the front rank in the US market, source of roughly half the global investment banking fee pool. In the 12 months ending in April 2004, it doubled its share in announced US M&A deals. ”WORLD’S BEST INVESTMENT BANK
EUROMONEY 2004
Our strength is backed by industry accolades
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2003–2004# of Transactions / Market Share 1
2003–2004 Market Share versus 2000—2002
Notes: Data represents all M&A deals worldwide greater than $100 million in transaction value. Full credit given to acquiror and target advisor(s). Excludes withdrawn deals, equity carveouts, exchange offers, and open market repurchases
1 Market share based on number of transactions. Market shares do not sum to 100% due to multiple advisors on each transaction (e.g., target advisor and acquiror advisor)UBS has positioned itself as one of the leading M&A advisors worldwide and has
unprecedented momentum, capturing more market share than any other bank since 2002
6.4%
8.1%
8.5%
8.6%
10.4%
10.8%
12.2%
13.0%
13.8%
14.8%
Lazard
Lehman Bros
Merrill Lynch
Deutsche Bank
CSFB
Morgan Stanley
Citigroup
JP Morgan
Goldman Sachs 459
426
403
377
333
322
265
262
252
197 (38%)
(23%)
(11%)
(5%)
(2%)
(1%)
+3%
+6%
+9%
+23%
CSFB
Merrill Lynch
Morgan Stanley
JP Morgan
Citigroup
Goldman Sachs
Lazard
Deutsche Bank
Lehman Bros
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February 2005 US$415 million Sale to eBay
February 2005 US$850 million Sale of Selected DynCorp Units to Veritas Capital
November 2004 US$137million Sale to Cisco Systems
July 2004 US$170 million Sale to FindWhat.com
May 2004 US$663 million Acquisition of NPTest
May 2004 US$380 million Sale to Serena Software
March 2004 US$463 million Sale to SafeNet
January 2004 US$601 million Sale to Manpower
January 2004 US$467 million Financial Restructuring
November 2003 US$295 million Sale to NetScreen
Overview of UBS Technology M&A Group
Strong technology-focused M&A presence with deep industry knowledge and company relationships
Experienced in a wide range of advisory assignments– Buyer advisory– Seller advisory– Cross-border transactions– Merger of equals– Shareholder value protection– Leveraged transactions
Technology M&A Expertise 2004 Technology M&A Transactions Less Than $1 Billion
Source: SDC
Financial Advisor Rank Value ($mm) No. of Deals
Goldman Sachs & Co 1 7,168.2 17 Morgan Stanley 2 6,025.4 22 Credit Suisse First Boston 3 5,187.3 15 UBS 4 4,476.8 11 JP Morgan 5 4,375.4 14 Banc of America Securities LLC 6 2,148.2 5 Citigroup 7 2,114.1 12 Jefferies & Co 8 2,093.0 21 Lehman Brothers 9 1,560.4 9 Rothschild 10 1,492.6 3
Selected Recent Transactions
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Contact Information
UBS Securities LLC555 California StreetSuite 4650San Francisco CA 94104Tel. +1-415-352 5650
www.ubs.com
UBS Investment Bank is a business group of UBS AGUBS Securities LLC is a subsidiary of UBS AG
This presentation has been prepared by UBS Securities LLC (“UBS”) for the exclusive use of recipient (together with its subsidiaries and affiliates, the “company”) using information provided by the company and other publicly available information. UBS has not independently verified the information contained herein, nor does UBS make any representation or warranty, either express or implied, as to the accuracy, completeness or reliability of the information contained in this presentation. Any estimates or projections as to events that may occur in the future (including projections of revenue, expense, net income and stock performance) are based upon the best judgment of UBS from the information provided by the company and other publicly available information as of the date of this presentation. There is no guarantee that any of these estimates or projections will be achieved. Actual results will vary from the projections and such variations may be material. Nothing contained herein is, or shall be relied upon as, a promise or representation as to the past or future. UBS expressly disclaims any and all liability relating or resulting from the use of this presentation.
This presentation has been prepared solely for informational purposes and is not to be construed as a solicitation or an offer to buy or sell any securities or related financial instruments. The company should not construe the contents of this presentation as legal, tax, accounting or investment advice or a recommendation. The company should consult its own counsel, tax and financial advisors as to legal and related matters concerning any transaction described herein. This presentation does not purport to be all-inclusive or to contain all of the information which the company may require. No investment, divestment or other financial decisions or actions should be based solely on the information in this presentation.
This presentation has been prepared on a confidential basis solely for the use and benefit of the company; provided that the company and any of its employees, representatives, or other agents may disclose to any and all persons, without limitation of any kind, the tax treatment and tax structure of the transaction and all materials of any kind (including opinions or other tax analyses) that are provided to the company relating to such tax treatment and tax structure. Distribution of this presentation to any person other than the company and those persons retained to advise the company is unauthorized. This material must not be copied, reproduced, distributed or passed to others at any time without the prior written consent of UBS.