UBS Market Overview - Bank Introduction Pitchbook

STRICTLY CONFIDENTIAL

UBS Technology M&A Discussion of Current Industry Trends

March 2005

[yu anni] [p rinted: 03/14/05 17:59] [saved: 03/14/05 18:01] S:\intc\M&A\Projects\2005\Seth Conference\Merrill Cor p Presentation_ pp t.pp t

Table of Contents SECTION 1

M&A Market Conditions

2

SECTION 2

M&A Drivers and Considerations

8

SECTION 3

UBS Overview

14

1

SECTION 1

M&A Market Conditions


M&A Volume in the US Current rebound in activity across all industries is reflective of a return to a healthier market j

j

Large, strategic combinations are back²Proctor & Gamble / Gil lette, JPMorgan / BankOne, Cing ular / AT&T Wireless, Sprint / Nextel, Oracle / PeopleSoft, Symantec / Veritas, Johnson & John son / Guidant and Wachovia / S unTr ust Significant financial sponsor activity in the middle market Taking advantage of de pressed market condition s and attractive debt market s

±

1,500

1,411 1,328

1,250

1,219

1,045 1,000 ) n o i l l i b n i

Volume up 41% in 2004 vs. 2003

750

$ (

608 530

529

500

433

407 296 250

97

110

116

1991

1992

1993

154

0

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

Source: Securities Data Cor poration

3


Technology M&A Activity Technology M&A olume Has Increased Steadily Since 2002 Lows

500

$485

450

95

$1bn - $10bn 2,500

< $1bn

400

) s n o i l l i B $ S U ( e u l a V l a e D

3,000

> $10bn

No. of Deals

350

2,000

$311

300 65

233

250

1,500

200 $143

150

148

1,000 $124

25 100

$85

26 50

157 98

58

$103

24

60

36 65

58

$65

$64

19

17

46

47

22 15

500

65

0

0 1997

No. of Deals

N o . o f D e a l s

1998

1999

2000

2001

2002

2003

2004

1997

1998

1999

2000

2001

2002

2003

2004

1,133

1,409

1,862

2,648

1,705

1,318

1,329

1,508

Source: Securities Data Cor poration Note: Oracle/PeopleSoft included as 2004 tran saction, original ho stile offer was fir st launched in Q3 2003

4


M&A Deal Activity is Intensifying Market recovery in 2003 and stability in 2004 have increased cor orate confidence and created an environment conducive to M&A transactions j

j

Technolog y companies are exiting defen sive, "survive the downt urn" mentality and reviewing strategic options ± Recalibrating under invested businesses ± Capturing upside as economic conditions continue to im prove Technolog y M&A deal vol ume increased 60% in 2004 ± M&A pipeline is expected to be strong for 2005

Number of Announced Transactions 1

Technology M&A Deal

500 400 300

281

325

352

371

399

370

394

olume (US$ Billions) 1

120 345

80

200

60%

(1%)

100 $64.9

102.6

$64.2

60

100

40 Q1

Q2

Q3 2003

Q4

Q1

Q2

Q3

Q4

2002

2003

2004

2004

j

179 additional tran sactions were announced in 2004 com pared with 2003

j

Volume of di scussions has intensified drastically

Source: Security Data Cor poration Note: 1 Oracle/PeopleSoft included as 2004 tran saction, original ho stile offer was fir st launched in Q2 2003

5


M&A and IPO Activity in the Technology Sector Number of Announced M&A Transactions and IPO Filings 3,000

3 0 30

2, 4 300

2, 00 s l a e A & M d e c n u o n n A f o . o N

2 0

23 2,000

,

2 , 0

,40

, 00 , 33 ,000

200 , 0 ,32

,3

0 24 00

N o . o f I P O s F i l e d

00 0

00

0 23

2

0

0 2000 M&A

200

2002

2003

2004

IPO

Source: Securities Data Cor poration and UBS E uity Capital Market s Group Note: Oracle/PeopleSoft included as 2004 M&A tran saction, original hostile offer was fir st launched in Q3 2003

7

SECTION 2

M&A Drivers and Considerations


Principal Drivers of Technology M&A

Achieve Scale

Expand Pr oduct ff ering

j

Critical mass and fi nancial str engt h

j

Cust omer lever age

j

Incr eased distri buti on and sales support

j

Market p ositi on consolidati on

j

Leapfr og competition

j

New

j

Captur e new cust omer bases

Complet e Soluti on

pr oduct or geogr aphy

j

uy vs. make

j

ngineering t alent and/or management acquisiti on

j

Off er

market entry

ti me t o market

ff-income st at ement

j

Fill

j

Capit alize on inst alled base

j

cceler at e ti me t o market

j j

pr oduct gaps

Str engt hen channel part ner ships

ff er one-st op shop

9


M&A Considerations A number of factors to consider in ursuing any M&A transaction

Business

Rati onale

Financial

Consider ati ons

j

Compelling str at egic r ati onale

j

Cr eat e or consolidat e market l eader ship p ositi on

j

ssenti al new t echno logies, market s or pr oducts

j

Tr ansaction multiples compar ed t o public compar ables and pr ecedent tr ansactions

j

Impact on combined company r evenue and ear nings gr ow t h tr ajectories

j

ff ect on mar gins

j

evenue and cost syner gies

j

PS accr eti on / dilution

j

Market p ercepti on of t ar get company / mer ger p art ner

M ar ket

j

Consist ent, simple t o under st and st ory

Reacti on

j

Financial

j

Price paid / consider ati on mix

j

Time t o closur e

Executi on Risk

j

par amet er clarity

nti-trust / r egulat ory

j

Tight contr act t er ms

j

Int egr ati on str at egy

10


Process Considerations Public Offering ersus Sale

Initial Public Offering PROS: j

Primar y shareholder s retain voting control and exi sting management contin ues to execute the strategic vision of the business

j

Proceed s from an IPO can be used to increase scale through ac uisitions or f uel organic growth

j

Shareholder s can participate in potential upside should the business continue to exec ute and m arket conditions remain favorable

Sale of Business PROS: j

Reduces or eliminates execution risks of the c urrent business plan as well as f uture capital market uncertainties

j

M&A valuation includes control premium

j

Can offer a more immediate path to li uidity for current shareholder s

j

Avoids the costs associated with being a public company

j

Partnering increases opportunity to cross-sell and up-sell through larger di stribution platform and gain ra pid critical mass to better com pete

CONS j

j

j

j

The organization m ust take on the co sts associated with public filing and com pliance re uirements while managing greater scr utiny by investor s

CONS: j

An IPO lock- up prevents current shareholder s from achieving immediate li uidity

Primar y shareholder s relin uish voting control and new management exec utes the strategic vision of the com pany

j

There is a high degree of uncertainty in f uture capital market conditions

Cash transactions eliminate the upside participation in the pro forma com pany

j

Integration and exec ution risk of combined b usiness

There is the potential for a down side in valuation should the business lose traction

11


Sarbanes-Oxley 404 Compliance Benefits

Costs

j

Intended to re store investor confidence in U.S. public markets

j

Drives greater consistency and transparenc y in reported filings

j

Increa sed executive accountability over financial reporting

j

Increa sed spending at the CFO and CTO level to meet compliance criteria

Advisory Services s. IT S ending Mix for SOX Com liance

) s

n o i l l i $

4 000 3 500 3 000 2 500 2 000 1 500 1 000 500 0

j

Increa sed cost of being public, especially small cap companies

j

Entail s significant allocation of re sources

j

Not meeting SOX deadline re uirements or announcing inade uacies in significant control s can have negative effect on stock price ± UTStarcom ± Chordiant Software ± Inter pu blic Group

Antici ated Technology S ending to Su Com liance

ort SOX

Securit y

1

Stora e

52

Process Control

40

ecord Mana e ent

39

usiness ntelli ence

2003

2004 Advisor y Services

Source: Gartner 2004 e stimates

2005

200 IT Spendin

2007

3

P 0

30 10

20

30

40

50

0

70

Source: Forrester Research survey of 454 technology decision-maker s

12


Typical Timing of an M&A Transaction Illustrative Timeline of a Sell-Side Controlled Auction Engagement Weeks Activity

Action

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

Organizational meeting s

Due Diligence and Pre aration

Due diligence m eeting s Information Memorandum Preparation of management presentation Finalize buyer list Initiate contact with buyer s

Marketing

Deliver Information Memorand um Finalize management presentation and data room Buyer due diligence

Receipt and review of final proposals

Negotiations and Closing

Negotiate and sign definitive agreement Closing

13

SECTION 3

UBS Overview


UBS²A Leading Global Financial Services Firm Our strength is backed by industry accolades

³Wall Street Powerhouse´ FORBES 2004

The UBS Way

BLOOMBERG 2004

World¶s Best Investment Bank EUROMONEY 2004

Best Investment Bank THE ECONOMIST 2003

World¶ s Best Bank EUROMONEY 2003

³

³

UBS is a banking giant b ut, 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. B ut it¶s the push into the rarified realm of Inve stment Banking that sets UBS apart. ³BIG KID ON THE BLOCK´

World¶s Best Investment Bank INVESTMENT DEALERS¶ DIGEST 2002

UBS has achieved what once seemed im possible for any European investment bank: it ha s broken into the front rank in the US market, source of roughly half the global inve stment banking fee pool. In the 12 month s ending in April 2004, it doubled its share in announced US M&A deal s.

´

WORLD¶S BEST IN ESTMENT BANK

´

EUROMONEY 2004

FORBES

15

UBS²A Leading M&A Advisor with Rapid Improvement in Market Share


#

2003±2004 of Transactions / Market Share 1

2003±2004 Market Share ver sus 2000²2002

oldman Sachs

459 42

JP Morgan Citigroup

1 . % 1 .0%

40

Morgan Stanley

12.2% 10. %

CSF

22

1 . %

10. %

+2 % Lehman ros

Deut sche ank

JP Morgan

Merrill Lynch

2 2

. %

Morgan Stanley

Lazard

197

. %

(1%)

Citigroup

. %

.1%

+ %

Goldman Sachs

2 5

252

+ %

Lazard

Deut sche ank

Lehman ros

+9%

(2%) (5%) (11%)

Merrill Lynch CSF

(2 %) (

%)

Notes: Data represents all M&A deal s worldwide greater than $100 million in tran saction value. Full credit given to ac uiror and target advi sor(s). Excludes withdrawn deal s, e uity carveouts, exchange offer s, and open market repurchases 1 Market share based on number of transaction s. Market shares do not sum to 100% due to multiple advisor s on each tran saction (e.g., target advi sor and ac uiror advi sor)

UBS has ositioned itself as one of the leading M&A advisors worldwide and has un recedented momentum, ca turing more market share than any other bank since 2002

16


Overview of UBS Technology M&A Group Technology M&A Ex ertise j

j

Strong technolog y-focused M&A presence with deep industr y knowledge and company relationships Experienced in a wide range of advi sor y assignments ± Buyer advisor y ± Seller advi sor y ± Cross-border transactions ± Merger of e uals ± Shareholder val ue protection ± Leveraged tran sactions

2004 Technology M&A Transactions Less Than $1 Billion Financial

Adv isor oldman Sachs Co Mo r gan St anley Cr edit Suisse Fir st ost on BS JP Mo r gan anc of merica Securities LLC Citi gr oup Jeff eries Co Lehman r ot her s ot hschild

Rank

Value ($mm ) . 7,

4

7 8

, .4 , 7. 4,4 . 4, 75 .4 , 48 . , 4. , . , .4 ,492 .

No. of Deals

7

11 4

Source: SDC

Selected Recent Transactions

Febr uar y

Febr uar y

S 415 million Sale to e ay

S 850 million Sale of Selected ynCor p nit s to eritas Capital

M ay

M ar ch

S 380 million Sale to Serena Soft w are

S 4 3 million Sale to SafeNet

November S 137million Sale to Ci sco Systems

July S 170 million Sale to Find hat.com

S 3 million Acq uisition of NPTest

Januar y S 01 million Sale to Man pow er

Januar y S 4 7 million Financial estr ucturing

November US 295 million Sale to NetScreen

M ay

17


Contact Information

UBS Securities LLC 555 California Street Suite 4650 San Francisco CA 94104 Tel. 1-415-352 5650

www.ubs.com

UBS Inve stment Bank is a business group of UBS AG UBS Sec urities LLC is a subsidiar y of UBS AG

This p resentationhas been p reparedby UBSSec urities LLC(³UBS´)fortheexclusive use o f r e cipient(togetherwithits su bsidiarie s andaffiliates,the³company´) usinginformationp rovidedb y thecompan y andother publicly availableinformation. UBS has notindependently verifiedthe informationcontainedherein,nor doe s UBSmakeany representationorwarranty,eitherexp ress o r i mplied,a s totheaccuracy,completeness orreliability ofthe informationcontainedin this presentation. Any e s timates or projections as toe vents thatma y occur i n t he f u t ure(incl uding projections ofrevenue , e xpense, netincomeand s tock performance)are based uponthebe st judgmentof UBSfromthe informationprovidedby thecompany andother publicly available informationas ofthedateof this p resentation. Therei s no g uaranteethatany ofthese estimates or projections will be achieved. Actua l r esults willvar y fromthe projections and such variati ons may be material. Nothing contained hereinis, or s hallbe relied upon as, a promise o r r epresentati on as tothe past o r fu tur e. U BS e xpressly disclaims any andall liabili ty relati ngor resulting fromthe use o f t his p resentation. This p resentationhas been prepared solel y forinformational pur poses a n d is nottobe constr ued as a solic ita tio nor anoffertobuy or sellany s ecurities or relatedfinancialinstr uments . T he c o mpan y s houldnotconstr ue thecontents ofthis p resentation as legal,tax,accountingor investmentadviceor a recommendation. Thecompan ys houldconsultits owncounsel,tax andfinancialadvisor s a s tolegal andrelatedmatter s concerningan y transactiondescribedherein. This p resentationdoes not pur port tobe all-in clusiveor toconta inalloftheinformati onwhich the com pany may re uire. Noinvestment, divestmentor otherfinancialdecisions oractions s houl d b e b ased solely on theinformati onin this p resentation. This p resentationhas been p reparedon aconfidentialbasis s olely forthe useandbenefitofthecompan y; providedthatthe company andany ofits em plo yees, rep resentatives,or otheragents ma y di sclose t o a ny andall per sons, withoutlimitationofa ny kind,thetax treatmentandtax str uct ur e o f t h e t r a nsactionand allmaterials o f a ny kind(including opinions orothertaxanalyses )thatare providedtothecompan y relating to suchtaxtreatmentand taxs tr uct ur e. D istributionofthis p resentationto any per sonotherthanthecompany andthose per sons retained toadvisethecompany is unauthorized. This materia lm ust n ot b e c opied,reproduced,distributedor passedtoother s atany timewithout t he priorwrittenconsentofUBS.

18

UBS Market Overview - Bank Introduction Pitchbook

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