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Has industry consolidation made it harder for senior software executives to find high paying jobs?

Yes. There are fewer startups, and therefore fewer open positions.

No. There is still very high demand for senior talent in the software industry.


Q1 Report: Software M&A up by 43%

By Ken Bender and David Legacki, Software Equity Group, L.L.C.

In North America, 425 M&A transactions were posted in 1Q07 in the software and IT services sector, virtually identical to the 426 deals posted in 1Q06. Aggregate M&A spending, however, increased by a remarkable 92% over the same quarter last year. Software deals fetched $26.3 billion in 1Q07, compared to a total of $13.7 billion in 1Q06. Looking at the trailing twelve months, software M&A is up 43% year-over-year due in part to the spate of larger deals. Below are a few of 1Q07’s more notable software M&A transactions.

Sign up for Software Equity Group’s (www.softwareequity.com)  1Q07 M&A Report which provides a comprehensive analysis of deals, valuations and trends in 1Q07.

Cisco acquires WebEx (NASDAQ: WEBX)
Category: Online Collaboration Software
Purchase Price: $2,854,850,000EV
Seller Revenue: $380,010,000
Seller EBITDA: $124,090,000
Revenue Multiple: 7.5xEV
EBITDA Multiple: 23.0xEV
Payment Terms: Cash

SEG’s Perspective:
Cisco continues to expand beyond its core networking business to applications and supporting infrastructure solutions with its acquisition of WebEx, developer of on-demand web conferencing software which reportedly controls 34% of the online collaboration market. With this acquisition, Cisco picks up one of the best brands in software while gaining entry, not only into the web conferencing market (expected to reach $1.5 billion in 2010 and grow at a five-year CAGR of 12%), but also into the on-demand software market which is expected to reach $6.4 billion in 2007 and grow 22% year-over-year. WebEx’s own growth has been spectacular, posting a 122% revenue CAGR since 1999 and projected to grow 21% in CY07 compared to CY06. Combined, Cisco and WebEx will be better equipped to compete against the likes of Citrix, Adobe and Microsoft. Cisco’s purchase price represents a 24% premium over WebEx’s prior day closing stock price.

Oracle (NASDAQ: ORCL) acquires Hyperion (NASDAQ: HYSL)
Category: Financial Analytics and Business Intelligence Software
Purchase Price: $2,813,570,000EV
Seller Revenue (TTM): $830,930,000
Seller Revenue (Projected FY071): $890,930,000
Seller EBITDA: $160,060,000
Revenue Multiple (TTM): 3.4xEV
EBITDA Multiple: 16.7xEV
Payment Terms: Cash
1: Fiscal Year End June 2007

SEG’s Perspective:
True to its commitment of rolling up the enterprise application software market, Oracle acquires Hyperion Solutions, a leading provider of business intelligence and financial analytic applications. The acquisition allows Oracle to build scale using Hyperion’s complementary products and customer base as it competes with SAP, IBM and Microsoft. Analysts were expecting Hyperion to grow revenue 16% in FY07 compared to FY06, warranting a 21% purchase price premium over Hyperion’s pre-announcement closing stock price. While Hyperion’s product focus (financial analytics) differs from Cognos and Business Objects’ (the two largest BI software companies) query and reporting product focus, the acquisition most likely leaves only two viable strategic buyers (SAP and IBM) for the two companies.

Pitney Bowes (NYSE: PBI) acquires MapInfo (NASDAQ: MAPS)
Category: Navigation Software
Purchase Price: $408,000,000EV
Seller Revenue: $168,600,000
Seller EBITDA: $25,470,000
Revenue Multiple: 2.4xEV
EBITDA Multiple: 16.0xEV
Projected Revenue Growth (FY06-FY07): 9.2%
TTM Revenue Growth: 9.7%
Payment Terms: Cash

SEG’s Perspective:
Pitney Bowes, a highly acquisitive $5.7 billion provider of mail management hardware, software and services, acquires MapInfo, developer of location intelligence solutions. Pitney Bowes will include MapInfo’s products, which allow customers to integrate geographical data into business intelligence functions, into its own software platform acquired from Group 1 ($263 millionEV, 2.4x TTM revenue multiple) in 2004. With $302 million in cash on its balance sheet and between $550 and $625 million in 2007 expected free cash flow, look for more acquisitions from Pitney Bowes as it rounds out its software product offering. Pitney Bowes paid a 53% premium to MapInfo’s closing stock price prior to announcement.

Siemens (NYSE: SI) acquires UGS
Category: Product Lifecycle Management Software
Purchase Price: $3,500,000,000 EV
Seller Revenue: $1,192,795,000
Seller EBITDA: $256,000,000 (estimate)
Revenue Multiple: 2.9xEV
EBITDA Multiple: 13.6xEV (estimate)
Payment Terms: Cash

SEG’s Perspective:
Siemens, a $116 billion industrial engineering conglomerate, acquires UGS Corporation, a global provider of Product Lifecycle Management (PLM) software and services. UGS’ software PLM platform fills a hole in Siemens’ existing manufacturing automation hardware products and will be folded into Siemens’ $24 billion Automation and Drives group. The combined product will offer Siemens’ customers an all-encompassing solution to manage products from cradle to grave. While UGS has been well positioned in the high growth PLM software market and was profitable (22% EBITDA margin and 13 consecutive quarters of profitability), it failed to grow revenue in line with its main competitors Dassault (11% TTM revenue growth) and PTC (19% TTM revenue growth). Still, the $3.5 billion purchase price is a handsome reward for UGS’ three private equity backers Bain, Silver Lake and Warburg Pincus, who acquired the company from EDS in early 2004 for $2.1 billion (2.4x TTM revenue).

Symantec (NASDAQ: SYMC) acquires Altiris (NASDAQ: ATRS)
Category: IT Asset Management Software
Purchase Price: $830,000,000EV
Revenue (TTM): $229,430,000
Revenue (Projected FY07): $249,820,000
EBITDA: $45,410,000
Revenue Multiple (TTM): 3.6x EV
Revenue Multiple (Projected FY07): 3.3x EV
EBITDA Multiple: 18.3x EV
Payment Terms: Cash

SEG’s Perspective:
Symantec, an infrastructure and security software powerhouse, acquires Altiris, developer of enterprise IT asset management software. Altiris’ management tools, desktop virtualization and configuration management database is a natural extension of Symantec’s existing security and data backup software. Symantec’s dominant market position in both consumer and enterprise security software is being chipped away by Microsoft, which is investing heavily at the low end of the market, and IBM, EMC, Cisco and others at the high end of the market demanding Symantec diversify sales into adjacent markets. Analysts were projecting Altiris to grow revenue 8.9% in CY07, falling short of its 12.7% TTM revenue growth. Altiris shareholders received a 21.6% premium to Altiris’ closing stock price prior to announcement.

Software Equity Group, L.L.C. (SEG), a mergers and acquisitions advisory firm serving the software, life science, and technology sectors, prepared this report. 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 for 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.

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