Software Equity Report

Q 21
3 0
S F WA EIDUS RY
O T R N T
E UIYR P RT
Q T EO

ABOUT OUR FIRM
Software Equity Group is an investment bank and M&A advisory serving the software and
technology sectors. Founded in 1992, our firm has guided and advised companies on five
continents, including privately-held software and technology companies in the United States,
Canada, Europe, Asia Pacific, Africa and Israel. We have represented public companies listed
on the NASDAQ, NYSE, American, Toronto, London and Euronext exchanges. Software
Equity Group also advises several of the world's leading private equity firms. We are ranked
among the top ten investment banks worldwide for application software mergers and
acquisitions.

Our value proposition is unique and compelling. We are skilled and accomplished investment
bankers with extraordinary software, internet and technology domain expertise. Our industry
knowledge and experience span virtually every software product category, technology, market
and delivery model, including Software-as-a Service (SaaS), software on-demand and
perpetual license. We have profound understanding of software company finances,
operations and valuation. We monitor and analyze every publicly disclosed software M&A
transaction, as well as the market, economy and technology trends that impact these deals.
We're formidable negotiators and savvy dealmakers who facilitate strategic combinations that
enhance shareholder value.

Perhaps most important are the relationships we've built and the industry reputation we enjoy.
Software Equity Group is known and respected by publicly traded and privately owned
software and technology companies worldwide, and we speak with them often. Our Quarterly
and Annual Software Industry Equity Reports are read and relied upon by more than eighteen
thousand industry executives, entrepreneurs and equity investors in sixty-one countries, and
we have been quoted widely in such leading publications as The Wall Street Journal, Barrons,
Information Week, The Daily Deal, The Street.com, U.S. News & World Report, Reuters,
Mergers & Acquisitions, USA Today, Arizona Republic, Detroit Free Press, Entrepreneur
Magazine, Softletter, Software Success, Software CEO Online and Software Business
Magazine. Software Equity Group’s senior bankers have keynoted and spoken at more than
one hundred software industry conferences and seminars, including Software Business,
SoftExpo, Culpepper, VAR Conference, ACETECH, and the Arizona, Colorado, Chicago,
Southern California, Denver, San Diego, Washington State and Boulder Software
Associations.

Software Equity Group, LLC
12220 El Camino Real, Suite 320
San Diego, CA 92130
www.softwareequity.com

p: (858) 509-2800
f: (858) 509-2818

Software Equity Group, L.L.C.

3Q 2011 Software Industry Equity Report Contents

U.S. ECONOMY: SOFTWARE INDUSTRY MACROECONOMICS........................................................................ 2
IT SPENDING ............................................................................................................................................................ 3
INTERNET RETAIL SPENDING AND ADVERTISING ............................................................................................ 4
PUBLIC SOFTWARE/SAAS/INTERNET COMPANY STOCK PERFORMANCE ................................................... 4
PUBLIC SOFTWARE/SAAS/INTERNET COMPANY MARKET VALUATIONS ..................................................... 5
PUBLIC SOFTWARE COMPANY MARKET VALUATIONS ................................................................................... 5
PUBLIC SOFTWARE COMPANY FINANCIAL PERFORMANCE .......................................................................... 6
PUBLIC SOFTWARE COMPANY MARKET VALUATIONS AND FINANCIAL PERFORMANCE BY PRODUCT
CATEGORY .............................................................................................................................................................. 7
PUBLIC SOFTWARE AS A SERVICE (SAAS) COMPANY MARKET VALUATIONS ........................................... 9
PUBLIC SOFTWARE AS A SERVICE (SAAS) FINANCIAL PERFORMANCE .................................................... 10
PUBLIC INTERNET COMPANY MARKET VALUATIONS .................................................................................... 11
PUBLIC INTERNET COMPANY FINANCIAL PERFORMANCE ........................................................................... 12
PUBLIC INTERNET COMPANY MARKET VALUATIONS AND FINANCIAL PERFORMANCE BY PRODUCT
CATEGORY ............................................................................................................................................................ 12
INITIAL PUBLIC OFFERINGS................................................................................................................................ 14
M&A DEAL VOLUME AND SPENDING: ALL INDUSTRY SECTORS ................................................................. 17
SOFTWARE/SAAS M&A DEAL VOLUME AND SPENDING ................................................................................ 18
IMPORTANT CHANGE IN SOFTWARE AND SAAS M&A DATA ACCOUNTING............................................... 19
SOFTWARE M&A DEAL CURRENCY................................................................................................................... 19
SOFTWARE M&A VALUATIONS .......................................................................................................................... 19
SOFTWARE M&A VALUATIONS BY OWNERSHIP ............................................................................................. 20
SOFTWARE M&A VALUATIONS BY VERTICAL AND HORIZONTAL MARKETS ............................................. 21
M&A VALUATIONS BY SOFTWARE PRODUCT CATEGORY ............................................................................ 21
SOFTWARE AS A SERVICE (SAAS) M&A DEAL VOLUME AND VALUATIONS .............................................. 23
INTERNET M&A DEAL VOLUME AND VALUATIONS ......................................................................................... 24
APPENDIX A: 3Q11 PUBLIC SOFTWARE MARKET VALUATIONS AND STATISTICS BY PRODUCT
CATEGORY ............................................................................................................................................................ 26
APPENDIX B: 3Q11 PUBLIC INTERNET MARKET VALUATIONS AND STATISTICS BY PRODUCT
CATEGORY ............................................................................................................................................................ 29
APPENDIX C: 3Q11 MERGERS AND ACQUISITIONS, SELECT PUBLIC SELLER VALUATIONS .................. 30

This Report may not be reproduced in whole or in part without the expressed prior written authorization of Software Equity Group, L.L.C.
Software Equity Group registers each Report with the U.S. Copyright Office and vigorously enforces its intellectual property rights.
Copyright  2011 Software Equity Group, L.L.C., All Rights Reserved

Software Equity Group, L.L.C.

APPENDIX D: 3Q11 MERGERS AND ACQUISITIONS, MOST ACTIVE BUYERS ............................................. 31
APPENDIX E: 3Q11 MERGERS AND ACQUISITIONS, SELECT SOFTWARE INDUSTRY MEGA-DEALS ...... 33
APPENDIX F: 3Q11 MERGERS AND ACQUISITIONS, SELECT SOFTWARE-AS-A-SERVICE SELLERS ...... 34
APPENDIX G: 3Q11 MERGERS AND ACQUISITIONS – DEAL INSIGHT........................................................... 35
APPENDIX H: SELECT 3Q11 SOFTWARE INDUSTRY MERGERS AND ACQUISITIONS ................................ 37

This Report may not be reproduced in whole or in part without the expressed prior written authorization of Software Equity Group, L.L.C.
Software Equity Group registers each Report with the U.S. Copyright Office and vigorously enforces its intellectual property rights.

Software Equity Group, L.L.C. Investment Banking / Mergers & Acquisitions
Figure 1: U.S. Gross Domestic Product and Unemployment Rate
10%

GDP % Growth Unemployment Rate
8%

6%
4.8% 5.0%
3.9%
4% 3.6% 3.7%
3.2% 3.1%
2.7% 2.6% 2.0%
2.1% 2.1% 2.2%
1.5% 1.7%
2% 1.3% 1.2% 1.3%
1.1%
0.4%
0%

-0.7% -0.7%
-2%

-2.7%
-4%

-6% -5.4%

-6.4%
-8%
3Q05 3Q06 3Q07 3Q08 3Q09 3Q10 3Q11

U.S. ECONOMY: SOFTWARE INDUSTRY MACROECONOMICS

We begin with a brief synopsis of U.S. Gross 0.3% increase in June. Those predicting an
Domestic Product (GDP) performance in 3Q11 impending recession need only point to the dearth
based upon the latest data available at this time. of negative economic trends. Only four of the
GDP is best defined as the total market value of Board’s ten LEI indicators were positive: Real
all final goods and services produced in a country money supply, interest rate spread, building
in a given year, equal to total consumer, permits and the index of supplier deliveries. The
investment and government spending, plus the negative contributors, beginning with the largest
value of exports, minus the value of imports. negative contributor, were stock prices, the index
of consumer expectations, average weekly
In a Wall Street Journal survey of fifty six leading manufacturing hours, average weekly initial
economists in September 2011, the average 3Q claims for unemployment insurance (inverted),
2011 GDP growth rate was estimated to be 2.0%, manufacturers’ new orders for consumer goods
a modest but encouraging improvement over Q2’s and materials, and manufacturers’ new orders for
1.3% growth and Q1’s barely discernable uptick of nondefense capital goods.
0.4%. While 2011’s anemic growth rates and
recession predictions are worrisome, growth in Q3 The recent employment report, released by the
GDP would mark the ninth consecutive quarter of U.S. Bureau of Labor Statistics, provided some
economic expansion (Figure 1). However, the reason for guarded optimism. The U.S. economy
prospect of actually achieving that 2% forecast is added 103,000 workers in September, sharply
increasingly unlikely because of the pall hanging beating a Bloomberg News’ survey of economists
over the world’s financial markets from the which projected only 60,000 new workers. The
European debt crisis, head-spinning stock market U.S. unemployment rate refused to budge,
volatility, and other macro uncertainty. One in holding steady at 9.1%. Information services and
three economists surveyed by the Wall Street healthcare accounted for most of Q3’s new jobs.
Journal now predict the U.S. economy will slip into One economists surveyed by Bloomberg probably
recession during the next twelve months. sums it up best when he said, “The economy isn’t
doing well, but it didn’t lose the momentum that
The Conference Board’s index of U.S. Leading the markets feared.”
Economic Indicators (LEI) rose only 0.3% in
August, following a 0.6% increase in July and a

2| 3Q11 SOFTWARE INDUSTRY EQUITY REPORT www.softwareequity.com


IT SPENDING While 3% - 5% growth in IT spending may
conform to what Goldman Sachs characterizes as
For those who may be new to our reports, SEG “normal levels,” the wealth is not being spread
carefully monitors IT spending each quarter as a evenly among IT providers. A more granular
means of forecasting downstream public software analysis reveals the growth is driven mostly by a
company financial performance and M&A activity. relatively few product categories, including cloud
Several of the IT spending analysts we track computing and mobility, that are receiving a
modified their earlier projections of 5% - 7% rapidly increasing share of the IT budget. Gartner
growth in global IT spending, but they did not is forecasting tablet spending will grow at a 52%
always agree. Example: In early September, CAGR from 2010 to 2015, boosted by 206% YoY
Goldman Sachs cut its 2011 IT spending forecast growth from 2010 to 2011. Goldman Sachs
to 5% from 6%, citing lower IT spending in estimates the mobile sector, including tablets, will
developed markets as a key driver. In late grow at a CAGR of 75% from 2010 to 2014.
September, Gartner increased its 2011 IT
spending forecast to 7.6% from 7.1%, citing Investments in public cloud computing and SaaS
currency impacts, rather than any true underlying also continue to rapidly outgrow the broader IT
strength in the global IT spending. market. Gartner forecasts that spending on public
cloud computing and SaaS will grow at a five year
Domestically, Goldman and Gartner are CAGR of 19.1% and 14.9%, respectively, from
forecasting 3% and 5% IT growth, respectively, 2010 to 2015, while Goldman Sachs forecasts
for all of 2011. The projected domestic slowdown SaaS spending will see a 20.9% CAGR from 2010
is largely driven by sluggish U.S. GDP growth, to 2014, driving the percent of SaaS applications
which Goldman determined has a 62% correlation in the enterprise to 15% by 2014.
with IT spending growth. Another basis for the
spending slowdown: projections of lower S&P 500 The shift in mindset by enterprise CIOs, from
operating profits. After operating profit growth of rejection to growing acceptance of SaaS deployed
over 20% in 2010, Goldman is projecting S&P 500 solutions, has been clearly noted by large public
operating profits will improve a modest 14% in software companies. Our 2011 buyer survey
2011, and only 6% in 2012. (published in our 2010 Annual Report and
available on our blog) documented a 131%
increase in buyers – most larger, public software
Figure 2: Major Market Indices Compared to the SEG Software, Internet and SaaS Indices

DOW S&P NASDAQ SEG SaaS SEG SW Index SEG Internet Index

20.0%

15.0%

10.0%

5.0%

0.0%

(5.0%)

(10.0%)

(15.0%)

(20.0%)

(25.0%)
Jan Feb Mar Apr May Jun Jul Aug Sep



and IT companies - who declared that in 2011, PUBLIC SOFTWARE/SAAS/INTERNET COMPANY
SaaS deployed solutions were a “very important” STOCK PERFORMANCE
requisite for acquisition targets. We’ll poll buyers
again in early January, but we expect the trend to The major U.S. exchanges and the median stock
continue. price performance of public companies
comprising our Software, SaaS and Internet
Underscoring the shifting attitude of enterprise Indices all finished lower at the close of Q3 2011.
CIOs toward SaaS solutions, a recent Forrester A U.S. credit rating downgrade and European
study on enterprise spending found 44% of debt fears proved too much for investors, who
surveyed companies are currently implementing eventually opted for capital preservation over
or planning to implement SaaS solutions. upside potential. It was a jolting ride. In August
Moreover, the scope of SaaS deployed enterprise and September, the Dow industrials changed by
solutions is widening. A recent Gartner report more than 1% on 29 days, and more than 2% on
highlighted eight distinct SaaS product categories 15 days. The volatility was reminiscent of the
with notable and growing enterprise penetration. market’s extreme volatility in Q4 2008.
Collaboration and CRM were the most popular
enterprise deployments of SaaS, at 46% and 32% By the close of the third quarter, the Dow, S&P 500
respectively. SaaS deployed ERP applications, and NASDAQ were down 5.7%, 10.0% and 9.0%,
which have struggled to gain an enterprise respectively, from the first trading day of 2011
foothold due to their mission critical nature and (Figure 2). During the same period, the SEG
significant back office application integration Software, SEG SaaS and SEG Internet indices
requirements, reached 7% market penetration. were down 9.5%, 17.9% and 20.5% respectively.
The dramatic decline of public Software, SaaS and
INTERNET RETAIL SPENDING AND ADVERTISING Internet company stock prices reflects an investor
selloff of relatively risky technology stocks and a
In the Internet sector, we believe online retail flight to Treasurys. Across all three SEG tracking
sales and Internet advertising spending each indices, 197 (71%) of the 278 public companies
quarter presage the downstream financial comprising our indices reported lower year-to-date
performance and M&A activity of many public (YTD) stock prices, far greater than the 99
Internet companies. Buoyed by a greater number companies (35.6%) that saw their stock prices
of shoppers, online retail sales reached $37.5 decline by the close of 2Q11. Still, ten outstanding
billion in 2Q11 according to comScore, up 14% software companies managed to achieve YTD
from 2Q10. It was the seventh consecutive stock market returns on September 30 that
quarter of growth for online retail, which already exceeded the first trading day 2011 closing price
accounts for nearly $1 in every $10 of by more than 45% (Figure 3). Included in the
discretionary spending. Online retail categories group is Internet high flyer, LinkedIn, which posted
growing at least 15% in Q2 from the same period a 74% YTD return over its first day closing price in
a year ago included consumer electronics, May of this year.
computer hardware, computer software and event
tickets. Forrester projects online retail sales as a Figure 3: High Flyers – YTD Stock Market Return
percent of total retail sales will reach 15% by
2011 High Flyers - Stock Market Return
2015. 2011
Company Ticker Category Stock
The Interactive Advertising Bureau (IAB) and Return
Majesco
PricewaterhouseCoopers (PwC) reported Internet
Entertainment COOL Video Games 160%
advertising reached record levels in 1H11, with Company
Internet ad revenues rising 23.2% to $14.9 billion Liquidity Services LQDT Internet - Retail 128%
from $12.1 billion in 1H10. With such an LinkedIn LNKD Internet - Services 74%
auspicious first half, it appears highly likely digital 8x8, Inc. EGHT Internet - Infastructure 71%
Autonomy Corp. LSE:AU. Content/Document Management 70%
advertising by year end will exceed 2010’s record
Merge Healthcare MRGE Healthcare 63%
spend of $26 billion. Stamps.com STMP Internet - Services 54%
LoopNet, Inc. LOOP Internet - Services 54%
Athenahealth ATHN SaaS - Healthcare 45%
Cerner Corporation CERN Healthcare 45%



PUBLIC SOFTWARE/SAAS/INTERNET COMPANY Figure 5: High Flyers – Enterprise Value/Revenue
MARKET VALUATIONS
3Q11 High Flyers - Enterprise Value/Revenue (Median)
Company Ticker Category EV/R
The median market valuations of public Baidu.com, Inc. BIDU Internet - Search 29.9x
companies comprising the SEG Software, SaaS Qihoo QIHU Internet - Security 26.0x
and Internet indices, measured as a multiple of Youku YOKU Internet - Media 24.4x
EV/Revenue, were 2.1x, 4.8x and 2.6x, LinkedIn LNKD Internet -Social Network 22.5x
Renren RENN Internet - Social Network 21.3x
respectively, at the close of the third quarter Zillow Z Internet - Services 17.6x
(Figure 4). Although these Q3 median HomeAway AWAY Internet - Travel 17.5x
EV/Revenue multiples declined across the board Yandex YNDX Internet - Search 16.3x
SINA Corporation SINA Internet - Ad Tech 14.0x
from Q2, they were still markedly higher than from Cornerstone
CSOD SaaS - Workforce Management 12.2x
a year ago. OnDemand

Figure 4: SEG Indices 3Q11 Median EV/Revenue PUBLIC SOFTWARE COMPANY MARKET
VALUATIONS
SEG ‐ SaaS SEG ‐ Software SEG ‐ Internet

6.0x
5.2x
By the close of Q3, the median EV/Revenue
5.0x 4.8x multiple of public companies in our SEG Software
Median EV/Revenue Multiple

4.5x
4.2x
4.0x
Index had declined to 2.1x from 2.7x the prior
3.1x 3.0x
3.2x
quarter. Although 3Q11’s multiple was the lowest
2.8x
3.0x 2.6x 2.7x 2.7x 2.6x since 3Q10 (also 2.1x), it was still well above the
2.1x 2.1x
2.0x
1.9x recession valuations of 2008 – 2009. Despite the
decline, the median EV/Rev valuation of the SEG
1.0x
Software Index has now been at or above 2.0x for
0.0x eight consecutive quarters (Figure 6).
3Q10 4Q10 1Q11 2Q11 3Q11

Figure 6: SEG Software Index Key Statistics
Bucking the lower market valuation trend were ten
public software, SaaS and Internet companies SEG - Software: Median Metrics
that closed 3Q11 with stellar EV/Revenue Measure 3Q10 4Q10 1Q11 2Q11 3Q11
EV/Revenue 2.1x 2.6x 2.7x 2.7x 2.1x
multiples of 12.2x or higher, primarily because
EV/EBITDA 12.1x 13.6x 14.6x 13.3x 11.2x
investors clearly resonated with their stellar EV/Earnings 24.7x 26.5x 26.4x 24.7x 20.9x
median revenue growth rate of 67% (Figure 5). Current Ratio 2.0 2.0 2.1 2.1 2.0
Cash & Eq ($M) $106.1 $109.1 $127.3 $118.5 $117.4
Baidu, known as “China’s Google”, once again led Gross Profit Margin 67.1% 67.4% 67.0% 67.4% 66.8%
the pack with a median 3Q11 market valuation of EBITDA Margin 19.4% 18.9% 19.0% 19.2% 18.4%
29.9x EV/Revenue. Baidu reported year-over- Net Income Margin 8.5% 8.4% 8.3% 9.3% 9.1%
TTM Revenue Growth 6.3% 9.6% 13.9% 14.1% 14.7%
year revenue growth of 83.7% (which is
TTM Total Revenue ($M) $278.1 $286.7 $297.9 $295.4 $312.5
extraordinary, considering revenue exceeds $1B), TTM Total EBITDA ($M) $43.9 $45.1 $44.7 $45.3 $45.4
and a remarkable EBITDA margin of 56.9%. Debt / Equity Ratio 24.6% 29.2% 26.8% 25.6% 26.0%
Baidu narrowly beat out Qihoo, a Chinese
provider of online security that went public in Smaller public software companies were viewed
2011, for top market valuation honors. All told, by investors in 4Q10 and 1Q11 as well positioned
five of the ten EV/Revenue high flyers are for accelerated growth in a recovering economy.
headquartered in China, demonstrating continued By 3Q11, pummeled by a barrage of bad
investor enthusiasm for the mammoth Chinese economic news, investors saw most of these
domestic market, despite lingering concerns smaller software companies as especially
about inflation and slowed growth. vulnerable to a second recession. Despite
revenue growth rates nearly double their peers,
the median EV/Revenue multiple of SEG
Software Index companies with revenues
between $100 million and $200 million dropped
from 3.9x at the close of 1Q11 to 2.8x by the



close of the third quarter. The sharp decline The Street strategy of many public software
brought their valuations roughly in-line with their companies in 2011 has been to forecast
larger counterparts. conservative revenue growth in case of a sharp
economic downturn, then beat their guidance if it
Public software companies with revenues greater didn’t materialize. According to our random
than $1 billion, which have historically been sample of 28 public software companies with
viewed by software investors as a safer harbor recent earnings calls, 23 (82.1%) exceeded their
during stormy weather, had a median forecast revenue projections (Figure 8). With only
EV/Revenue multiple of 2.6x in 3Q11 - bolstered, one quarter left for CIOs to spend previously
no doubt, by a stellar median EBITDA margin of approved IT budget money, look for further
24.7% (Figure 7). improvement in the 4Q11 SEG Software Index
median TTM revenue growth rate.
On an EV/EBITDA basis, public software
company valuations overall closed 3Q11 with a Unsurprisingly, public software companies that
median 11.2x, well below 2Q11’s 13.3x (Figure 6). are focused on the hottest IT spending categories
In 3Q11, software companies with revenue and vertical markets, including mobility, cloud
greater than $1 billion posted a median infrastructure and healthcare, grew their 3Q11
EV/EBITDA multiple of 7.8x, while software TTM revenue far more aggressively than the
companies with revenue between $100 million 14.7% median. Among the most noteworthy:
and $200 million were valued at 10.8x mobility players Trunkbow International Holdings
EV/EBITDA (Figure 7). (104.4%), Gree (82.2%) and Opera (32.9%);
healthcare players Merge Healthcare (134.4%)
PUBLIC SOFTWARE COMPANY FINANCIAL and eResearchTechnology (80.3%); and cloud
PERFORMANCE infrastructure and optimization players F5
networks (36.0%) and VMWare (37.8%).
The median TTM revenue of the 144 public
companies comprising the SEG Software Index Throughout the Great Recession, as growth rates
grew 14.7% in 3Q11, compared to 14.1% the prior plummeted, public software companies shifted
quarter (Figure 6). The 14.7% median TTM attention to the bottom line and grew their
growth rate was the highest of any quarter since EBITDA margins from a median 11.2% in 4Q07 to
2Q07 (16%), and pushed the median TTM a high of 19.4% in 3Q10. The median EBITDA
revenue of the SEG Software Index above $300 margins of SEG Software Index companies was
million for the first time ever. The $300 million 18.4% at the close 3Q11, slightly below the peak.
milestone was achieved less than three years In unpredictable times, achieving forecasted
after the median TTM revenue of the SEG profitability is no easy feat. Of the 28 public
Software Index surpassed $200 million in 1Q09 – software companies in our random sample, only
further evidence that consolidation in the software six (21.4%) beat their EPS forecast to the Street
sector is resulting in not only fewer, but (Figure 8). Among the industry’s largest players,
considerably larger, publicly traded software Microsoft was the only $500+ million revenue
companies. company in our random sample to exceed its
earnings target.

Figure 7: SEG Software Valuation and Financial Performance by Size of Buyer (TTM Revenue)
SEG Software Index Companies
EV/Revenue EV/EBITDA Revenue Growth EBITDA Margin

3Q10 4Q10 1Q11 2Q11 3Q11 3Q10 4Q10 1Q11 2Q11 3Q11 3Q11 (TTM) 3Q11 (TTM)

Revenue Greater Than $1 billion 2.5x 2.6x 2.8x 2.7x 2.6x 8.7x 8.4x 8.5x 8.7x 7.8x 12.2% 24.7%
Revenue Between $200 million and $1 billion 2.2x 2.7x 2.6x 2.7x 2.1x 13.1x 14.2x 15.1x 15.5x 13.4x 12.8% 18.5%
Revenue Between $100 million and $200 million 2.4x 3.1x 3.9x 3.1x 2.8x 9.8x 12.1x 12.9x 12.6x 10.8x 24.7% 15.4%
Revenue Less Than $100 million 1.2x 1.5x 2.2x 2.2x 1.8x 13.5x 15.2x 15.7x 14.2x 13.1x 12.7% 10.5%



Figure 8: Expected vs. Delivered Revenue and Figure 9: SEG Software Historical Median Cash
EPS Results (as of September 30, 2011) and Median EBITDA Margins

Company Revenue EPS 140 25.00%
Microsoft Corporation 120
20.00%

Median EBITDA Margin
Cisco Systems, Inc.

Median Cash Balance
100
Oracle Corporation Company

($ millions)
Revenues: 80 15.00%
Google Inc.
Greater than
Adobe Systems Incorporated 60 10.00%
$1 billion
Electronic Arts Inc. 40
BMC Software, Inc. 5.00%
20
Mentor Graphics Corporation 0 0.00%
Informatica

3Q07
4Q07
1Q08
2Q08
3Q08
4Q08
1Q09
2Q09
3Q09
4Q09
1Q10
2Q10
3Q10
4Q10
1Q11
2Q11
3Q11
MSCI Inc. Company
Revenues:
TIBCO Software Inc. Cash EBITDA Margin
$500 million
Avid Technology Inc. to $1 billion
Open Text Corporation
NICE Systems Ltd.
PUBLIC SOFTWARE COMPANY MARKET
Manhattan Associates, Inc.
QAD Inc.
VALUATIONS AND FINANCIAL PERFORMANCE BY
TeleCommunication Systems, Inc. Company PRODUCT CATEGORY
Revenues:
MicroStrategy Incorporated
$100 - $500
Real Networks million While median financial performance metrics are
Velti
useful for assessing the overall health of the
SS&C Corporation
software industry and for comparisons to other
American Software, Inc.
economic sectors, a deeper analysis of these key
PCTEL, Inc.
PDF Solutions, Inc. Company metrics by software product category provides
Revenues: greater insight about the software ecosystem. By
Scientific Learning Corp.
Less than
Geeknet, Inc. $100 million analyzing how public software companies in
Pervasive Software Inc. discrete product categories are performing, we
NetSol Technologies Inc.
increase our understanding of market trends,
: Exceeded or Met Expectations sector health, product lifecycles, M&A valuations,
: Did Not Meet Expectations IT spending priorities and stock market biases.

Public software balance sheets remained healthy As we’ve noted in past reports, the median
in 3Q11. Median cash and equivalents were EV/Revenue valuations and financial results for a
$117.4 million, up 10.7% year-over-year and particular software category can be stagnant or
current ratios remained at a healthy level of 2.0 can fluctuate wildly each quarter. As a result,
(Figure 6). The steady increase in the cash software category rankings, measured by relative
reserves of most public software companies over median valuations and financial performance can
the past few years has undoubtedly been a by- also be consistent or volatile quarter-to-quarter.
product of their much improved EBITDA margins. That axiom held true, once again, in 3Q11 (Figure
Consider that in 3Q07 when the median EBITDA 10). We track this data because the current
margin was only 11.2%, the median cash and median valuation of companies comprising a
equivalents of the SEG Software Index was $70.5 particular software category often weighs heavily
million. In 3Q11 the median EBITDA margin was when buyers value acquisition targets.
18.4% and median cash and equivalents had
grown to $117.4 million, a 60% increase from
four years ago (Figure 9). The significant cash
reserves and strong balance sheets of most
public software companies, particularly the
industry’s largest players, bode well for many
small and mid-cap software company targets.



Figure 10: SEG Software Categories

Revenue EBITDA EBITDA YTD Stock
EV/Revenue EV/EBITDA
Category Grow th Grow th Margin Return
3Q10 4Q10 1Q11 2Q11 3Q11 3Q10 4Q10 1Q11 2Q11 3Q11 3Q11 (TTM) 3Q11 (TTM) 3Q11 (TTM) 2011
Infrastructure Softw are
Billing & Service Management 1.7x 1.8x 1.9x 1.9x 1.3x 9.7x 10.5x 8.7x 8.0x 5.8x 18.5% 7.7% 20.4% -27.0%
Content/Document Management 2.5x 2.7x 3.2x 3.4x 2.6x 10.0x 9.7x 11.1x 11.5x 9.8x 14.0% 14.4% 26.6% 9.2%
Data Management & Integration 2.3x 2.9x 3.3x 3.3x 2.9x 9.9x 11.0x 16.0x 14.3x 13.3x 20.9% 26.0% 23.4% 3.3%
Development Tools & Open Source 2.4x 2.8x 3.0x 2.7x 2.2x 8.6x 9.9x 11.4x 10.3x 6.8x 25.0% 30.2% 24.7% -20.3%
Netw orking & Netw ork Performance
2.5x 3.1x 4.3x 4.8x 3.8x 15.3x 18.8x 28.0x 24.7x 18.6x 21.2% 30.2% 22.6% -23.4%
Management
Security 2.4x 2.5x 2.4x 2.9x 2.2x 12.9x 14.0x 13.8x 13.9x 11.0x 12.8% 11.9% 20.9% -14.6%
Storage & Systems Management 2.4x 2.7x 3.1x 2.9x 2.1x 9.5x 12.0x 12.1x 11.8x 9.3x 10.8% 29.1% 23.1% -12.8%
Median 2.4x 2.7x 3.1x 2.9x 2.3x 11.3x 12.1x 12.3x 11.8x 8.9x 18.7% 22.3% 22.6% -10.8%
Application Softw are
Business Intelligence 2.6x 3.1x 3.7x 4.2x 3.9x 24.6x 29.4x 40.3x 46.2x 33.7x 26.3% 7.1% 9.2% -5.1%
Education & eLearning 2.0x 2.3x 2.3x 2.4x 3.0x 7.5x 9.9x 15.6x 12.5x 11.8x 6.8% 16.3% 29.1% -14.4%
Electronic Design Automation 1.4x 1.6x 2.1x 2.2x 1.6x 17.8x 20.4x 20.8x 20.5x 14.6x 12.0% 110.9% 10.4% -9.5%
Engineering, PLM & CAD/CAM 3.0x 3.7x 3.9x 3.7x 2.6x 15.5x 16.5x 19.2x 16.4x 12.8x 14.2% 25.3% 20.3% -27.3%
Enterprise Resource Planning 1.9x 2.0x 2.1x 2.1x 1.9x 9.9x 10.7x 11.0x 10.9x 8.9x 17.0% 24.1% 16.1% -8.2%
Financial Services 2.0x 2.1x 2.1x 2.4x 2.0x 8.5x 8.8x 9.2x 9.6x 8.4x 2.1% 1.4% 24.0% -7.2%
Healthcare 3.4x 3.5x 3.7x 3.8x 3.2x 16.0x 15.9x 17.5x 18.7x 17.4x 23.9% 34.1% 24.3% 5.3%
Mobile Solutions/Content 2.4x 3.0x 2.7x 2.7x 2.1x 10.4x 13.3x 22.2x 16.6x 15.6x 16.4% -1.9% 9.3% -26.1%
Multimedia, Graphics & Digital Media 3.4x 3.6x 4.0x 3.9x 2.8x 11.3x 17.1x 25.2x 26.5x 17.9x 14.7% 30.6% 21.1% -21.5%
Supply Chain Management & Logistics 1.5x 1.8x 1.8x 2.0x 1.7x 9.3x 10.8x 10.8x 11.5x 10.7x 14.4% 16.3% 9.9% -11.3%
Video Games 0.6x 0.7x 0.9x 1.0x 1.1x 12.0x 10.5x 8.3x 10.9x 8.3x 0.1% 94.1% 8.7% 3.7%
Workforce & Service Management 1.9x 2.2x 2.7x 2.7x 2.2x 16.2x 20.0x 17.3x 17.1x 13.6x 10.3% 31.6% 16.2% -7.3%
Other Softw are
IT Conglomerates 2.5x 2.1x 2.1x 2.2x 2.1x 7.3x 7.7x 7.1x 5.9x 6.0x 7.9% 6.8% 25.8% -10.8%
Vertical - Finance 4.4x 4.6x 4.9x 4.4x 3.6x 11.6x 12.9x 13.6x 13.3x 11.1x 15.6% 14.1% 31.7% -22.2%
Vertical - Other 2.0x 2.7x 2.8x 3.1x 2.9x 12.3x 14.2x 14.3x 14.0x 11.9x 15.5% 25.2% 18.6% 6.7%

The SEG Software Index is comprised of 22 2.1x EV/Revenue multiple and 14.1% revenue
software product categories sorted into three growth rate. The Networking and Network
broad groups, Infrastructure Software, Application Performance Management product category
Software and Other. The Infrastructure Software posted the highest median EV/Revenue multiple
group is comprised primarily of utilities, tools, in the Infrastructure Software segment, 3.8x.
middleware, systems, platforms and technologies Companies comprising the Networking and
to create, integrate, optimize, deliver, monitor, Network Performance Management product
store and protect enterprise applications. The category continued to benefit from strong demand
Application Software group consists primarily of for WAN optimization required to deliver software
solutions to perform, analyze, design and manage rapidly over cloud- based architectures.
information and data in one, or many, specific SolarWinds recorded the highest median
industry sectors. The Other Software group is EV/Revenue of the group at 8.7x while F5
comprised of companies that concentrate on a Networks posted the highest year-over-year
specific vertical or the emerging class of IT revenue growth of 36.0%.
Conglomerates who span numerous product
categories, such as Oracle, Microsoft, HP and Development tools & open source achieved the
IBM. highest median TTM revenue growth rates at
25.0%, led by Magic Software (45.0%), GeekNet
In 3Q11, public Infrastructure Software companies (42.6%) and BSQUARE (35.7%). Collectively, the
outpaced their Application Software counterparts group is driven by unprecedented demand for
in nearly all metrics tracked (Figure 10). software solutions and toolsets to create, power
Particularly noteworthy was the Infrastructure and deploy the infrastructure for mobile and cloud
group’s median 2.3x EV/Revenue multiple and computing.
18.7% TTM revenue growth in the third quarter,
as compared to the Application group’s median


Every product category within the infrastructure PUBLIC SOFTWARE AS A SERVICE (SAAS)
software group achieved median TTM EBITDA COMPANY MARKET VALUATIONS
margins greater than 20%, led by
Content/Document Management’s median TTM After dropping to a low of 3.1x median
EBITDA margin of 26.6%. EV/Revenue in 3Q10, public SaaS company
median EV/Revenue multiples have risen steadily,
From the standpoint of market valuation, the only reaching a three year high of 5.2x in 2Q11 before
category in the Infrastructure group with a median falling to 4.5x in the third quarter (Figure 11).
EV/Revenue multiple below the SEG Software
Index median of 2.1x was Billing & Service Figure 11: SEG SaaS Index Key Statistics
Management, which dropped from a median
SEG - SaaS: Median Metrics
EV/Revenue multiple of 1.9x in 2Q11 to 1.3x in
Measure 3Q10 4Q10 1Q11 2Q11 3Q11
3Q11 after recording the worst YTD stock return (-
EV/Revenue 3.1x 4.2x 4.8x 5.2x 4.5x
27%) of any category in the group.
EV/EBITDA 30.2x 34.4x 38.3x 40.3x 29.7x
EV/Earnings 76.0x 79.7x 124.2x 86.0x 78.2x
Within the Application Software segment, Current Ratio 1.7 1.8 1.8 2.0 2.0
Business Intelligence recorded the highest Cash & Eq ($M) $59.0 $61.0 $64.4 $66.3 $83.6
median EV/Revenue multiple of 3.9x in 3Q11, Gross Profit Margin 67.2% 68.1% 68.3% 69.0% 69.3%
down slightly from 4.2x in 2Q11. Public EBITDA Margin 9.7% 9.7% 10.1% 8.7% 9.5%
companies comprising the Business Intelligence Net Income Margin 1.3% 1.7% 1.3% 0.7% 1.0%
category are benefitting from enterprise demand TTM Revenue Growth 14.6% 15.1% 20.5% 23.3% 24.9%
for data mining, data handling and data analytics TTM Total Revenue ($M) $151.3 $159.9 $170.3 $177.2 $187.1
TTM Total EBITDA ($M) $11.0 $13.2 $14.7 $14.7 $16.6
solutions that can convert massive amounts of
Debt / Equity Ratio 2.1% 4.1% 3.8% 3.0% 2.8%
structured and unstructured data into intelligence
that can drive both top line growth and
profitability. The category leader was Qlik The Q3 decline in market valuation was
Technologies, boasting an impressive 7.7x pervasive, with 24 of 26 companies in the SEG
median EV/Revenue multiple, and impressive SaaS index reporting a quarter-over-quarter
TTM revenue growth (39.2%). decline in EV/Revenue. Athenahealth and SPS
Commerce were the only exceptions (Figure 12).
Other product categories with median Although Cornerstone OnDemand’s EV/Revenue
EV/Revenue multiples of 3.0x or higher include multiple plummeted from 21.5 in 1Q11 to 17.3x in
Healthcare (3.2x) and Education & eLearning 2Q11, and then to 12.2x in the third quarter, it was
(3.0x). Healthcare software companies continue the lone SaaS company trading above 10x
to benefit from strong market demand for median EV/Revenue at the close of Q3. Twelve
improved revenue management, HIPAA SaaS companies traded at median EV/Revenue
compliance and the growing digitization of patient multiples of 5.0x or higher in 3Q11 compared with
records. The Education & eLearning product only six the same quarter a year earlier.
category is struggling with delayed purchases due
to budget cuts and regulatory uncertainty - Our readers will recall that at the close of 2007,
resulting in a paltry 6.8% revenue growth rate, the public SaaS companies commanded a
second lowest among twenty two product breathtaking median EV/Revenue multiple of 6.4x,
categories. But despite these impediments, compared to the much lower, but historically high,
valuations and M&A activity in this category (more 2.7x median valuation multiple of their on-premise
on this below) increased in 3Q11 due to mounting counterparts. That equated to a 137% SaaS
pressure on school districts to improve student valuation premium. The median SaaS
and school performance with technology enabled EV/Revenue multiple for calendar year 2010
learning. dropped to 3.6x, compared to 2.3x for on-premise
software companies, narrowing the valuation
differential to 57%.


Figure 12: Public SaaS Companies
SEG SaaS Index
EV/Revenue EV/EBITDA TTM Revenue Grow th EBITDA Margin
Com pany Category
3Q10 4Q10 1Q11 2Q11 3Q11 3Q10 4Q10 1Q11 2Q11 3Q11 3Q10 4Q10 1Q11 2Q11 3Q11 3Q10 4Q10 1Q11 2Q11 3Q11
Athenahealth (ATHN) Health Care Mgmt 4.0x 5.6x 5.8x 5.5x 6.8x 36.0x 43.5x 42.2x 37.2x 40.1x 34.1% 33.9% 30.2% 29.2% 30.5% 11.2% 12.9% 13.8% 14.9% 16.9%
Concur (CNQR) Accounting & Finance 7.7x 8.0x 7.9x 7.4x 5.6x 33.4x 36.2x 37.7x 44.2x 38.0x 16.6% 18.3% 19.0% 18.6% 18.4% 23.2% 22.2% 21.0% 16.7% 14.7%
Constant Contact (CTCT) CRM 3.1x 3.4x 4.2x 3.6x 2.2x 65.9x 57.6x 59.0x 54.2x 27.1x 41.5% 38.2% 35.0% 31.6% 28.2% 4.7% 5.9% 7.2% 6.6% 8.0%
Convio (CNVO) CRM 1.6x 1.5x 1.8x 2.2x 1.6x 17.2x 15.2x 18.5x 25.5x 18.0x - - 10.6% 9.5% 10.2% 9.1% 9.7% 9.9% 8.6% 8.7%
Cornerstone OnDemand (CSOD) Workforce Mgmt - - 21.5x 17.3x 12.2x - - - - - 49.4% - 49.1% - - -17.0% -19.2% -26.1% -27.1% -33.7%
DealerTrack (TRAK) Vertical - Automotive 2.0x 2.6x 2.7x 3.1x 2.4x 19.4x 23.0x 22.3x 22.6x 15.4x 0.9% 3.5% 8.1% 16.6% 26.3% 10.4% 11.1% 12.1% 13.6% 15.7%
DemandTec (DMAN) SCM 2.0x 3.2x 4.0x 3.0x 1.6x - - - - - 0.6% 1.2% 4.3% 12.0% 13.2% -8.8% -8.8% -8.7% -8.5% -9.5%
Ellie Mae (ELLI) Financial Services - - - 4.3x 1.6x - - - 53.1x 15.7x - - 14.7% 23.3% - 3.6% -0.4% 6.6% 8.0% 10.5%
IntraLinks Holdings (IL) Financial Services 3.1x 6.5x 7.7x 5.9x 2.5x 30.8x 66.7x 43.5x 36.6x 18.1x - - 31.0% 34.8% 30.6% 10.0% 9.7% 17.6% 16.1% 13.9%
Kenexa (KNXA) Workforce Mgmt 1.3x 2.1x 2.8x 3.2x 2.2x 14.2x 26.1x 32.2x 40.3x 29.7x -7.6% 6.5% 24.5% 36.7% 46.9% 9.3% 8.2% 8.6% 7.9% 7.3%
LivePerson (LPSN) CRM 3.1x 4.2x 4.7x 4.9x 4.5x 15.2x 20.6x 23.7x 23.5x 21.7x 24.3% 27.2% 25.6% 23.7% 21.9% 20.3% 20.3% 19.7% 20.6% 20.5%
Medidata Solutions (MDSO) Clinical Mgmt 2.1x 2.5x 3.1x 2.8x 1.8x 13.3x 14.8x 16.1x 14.8x 8.3x 19.0% 16.8% 18.5% 17.4% 19.0% 15.5% 16.8% 19.5% 19.1% 21.4%
Netsuite (N) ERP 5.9x 7.6x 9.0x 10.7x 9.8x - - - - - 7.5% 11.6% 16.0% 19.6% 21.1% -7.9% -6.8% -6.9% -7.1% -7.9%
RealPage (RP) Property Mgmt 7.1x 10.0x 9.7x 9.2x 6.8x 50.8x 70.8x 70.3x 69.3x 51.4x - - 33.6% 36.6% 38.3% 13.9% 14.1% 13.8% 13.3% 13.1%
Responsys (MKTG) Digital Marketing - - - 7.3x 5.3x - - - 40.6x 28.6x 33.0% - 41.2% - - 20.8% 17.6% 19.9% 18.0% 18.5%
RightNow (RNOW) CRM 2.6x 4.0x 4.2x 5.0x 4.6x 29.6x 41.9x 39.8x 45.8x 44.5x 14.6% 19.4% 21.5% 23.3% 24.9% 8.6% 9.5% 10.6% 10.9% 10.3%
Salesforce.com (CRM) CRM 8.7x 9.5x 10.4x 10.3x 9.1x 75.8x 83.2x 108.1x 132.8x 153.1x 22.6% 25.2% 26.9% 29.6% 33.0% 11.5% 11.5% 9.7% 7.8% 5.9%
SciQuest (SQI) SCM 6.6x 5.6x 5.8x 6.6x 5.9x 30.8x 26.3x 29.3x 36.3x 38.7x - - 17.4% 19.0% 19.7% 21.5% 21.3% 19.7% 18.2% 15.3%
SoundBite Communications (SDBT) CRM 0.3x 0.3x 0.3x 0.2x 0.2x - - - - - 0.8% -0.7% -1.7% -4.5% -5.2% -3.2% -4.9% -3.6% -5.1% -3.9%
SPS Commerce (SPSC) SCM 2.4x 2.7x 3.2x 3.3x 3.6x 22.0x 24.0x 31.4x 37.4x 47.2x - 19.0% 18.2% 19.1% 22.5% 10.7% 11.4% 10.2% 8.7% 7.6%
SuccessFactors (SFSF) Workforce Mgmt 6.9x 9.6x 11.2x 9.9x 6.9x - - - - - 29.8% 30.7% 34.5% 40.7% 44.0% -2.5% -5.7% -7.1% -8.3% -11.2%
Taleo (TLEO) Workforce Mgmt 3.7x 4.3x 4.8x 5.2x 3.5x 27.3x 32.5x 38.9x 45.4x 26.5x 10.8% 12.6% 19.6% 23.5% 28.7% 13.4% 13.1% 12.4% 11.4% 13.1%
Tangoe (TNGO) Communication Mgmt - - - - 5.2x - - - - 67.5x - - 22.5% 27.4% 36.0% 7.6% 7.4% 7.3% 7.3% 7.7%
The Ultimate Softw are Group (ULTI) Workforce Mgmt 3.9x 4.7x 5.6x 5.7x 5.1x 66.2x 67.9x 67.6x 70.9x 59.4x 11.1% 13.3% 16.1% 16.5% 16.8% 5.9% 7.0% 8.3% 8.1% 8.6%
Vocus (VOCS) CRM 2.3x 4.2x 4.2x 4.3x 3.1x 135.0x 218.3x 271.9x - 1604.5x 8.6% 11.6% 14.4% 17.4% 19.1% 1.7% 1.9% 1.6% -0.5% 0.2%
Zix Corporation (ZIXI) Security 4.9x 8.0x 7.3x 6.0x 5.5x 13.9x 18.8x 36.2x 24.2x 20.1x -3.7% -3.3% 25.2% 30.9% 31.5% 35.1% 42.3% 20.2% 24.7% 27.2%
Median: 3.1x 4.2x 4.8x 5.2x 4.5x 30.2x 34.4x 38.3x 40.3x 29.7x 14.6% 15.1% 20.5% 23.3% 24.9% 9.7% 9.7% 10.1% 8.7% 9.5%

By the close of 3Q11, however, the valuation PUBLIC SOFTWARE AS A SERVICE (SAAS)
differential of public SaaS vs. public on-premise FINANCIAL PERFORMANCE
software providers grew to 114%, marking the
fourth consecutive quarter the SaaS valuation After bottoming out at 13.7% in 2Q10, the SaaS
premium widened (Figure 13). Indeed, SaaS median TTM revenue growth rate reversed
valuations outperformed the median on-premise course, inching up to 14.6% in 3Q10, ending
software valuation almost across the board. Of the eleven consecutive quarters of decline. In 4Q10
25 public SaaS companies comprising the SEG the TTM median revenue growth rate of public
SaaS Index, only five (20%) companies – Convio, SaaS providers was 15.1%, then climbed to
DemandTec, Elie Mae, Medidata Solutions and 20.5% in 1Q11 and 23.3% in the second quarter.
SoundBite Communications - posted median In 3Q11 the median TTM revenue growth rate
EV/Revenue multiples below the 2.1x median ticked up to 24.9%, the highest in eight quarters
EV/Revenue of the SEG Software Index. It’s clear and the fifth consecutive QoQ increase (Figure
investors continue to resonate with SaaS’ 11). Defying the stagnant economy, eight (31%)
subscription based revenue model and SaaS’ of twenty six public SaaS companies achieved
obvious appeal to the huge small/medium business TTM revenue growth greater than 30% in 3Q11
market. When that market begins to recover, look (Figure 12).
for many SaaS valuations to skyrocket.
Profitability posed more of a problem for public
Figure 13: Historical EV/Rev multiples for SaaS companies than revenue growth, mostly
SEG SaaS and SEG Software Indices because of their subscription models,
6.0x infrastructure investments and heavy spending on
SEG ‐ SaaS SEG ‐ Software 5.2x
4.8x sales and marketing. Historically, median SaaS
5.0x 4.5x
Median EV/Revenue Multiple

4.2x TTM EBITDA margins were dismal in comparison
3.8x
4.0x 3.5x to on-premise EBITDA margins. But as SaaS
3.1x revenue growth rates slowed during the Great
3.0x 2.6x 2.7x 2.7x
2.3x 2.3x
2.1x 2.1x
Recession, public SaaS providers focused on
2.0x improved profitability, and most succeeded in
growing their bottom lines through operational
1.0x improvements, reduced infrastructure spending
and subscription renewals.
0.0x
1Q10 2Q10 3Q10 4Q10 1Q11 2Q11



Predictably, SaaS EBITDA margins have eroded PUBLIC INTERNET COMPANY MARKET
somewhat post-Recession, declining to a median VALUATIONS
9.5% in 3Q11 from 10.1% in 1Q11. The decline
in the median EBITDA margin of the SEG SaaS The median EV/Revenue multiple for the 85
Index signals a reprioritization by public SaaS public companies comprising the SEG Internet
companies on growth over profitability, as Index was 2.6x in 3Q11, down 19% from the 3.2x
reflected by their YoY increased spending in posted in 2Q11. The median 3Q11 Internet
3Q11 on R&D, S&M and G&A as a percent of company EV/EBITDA multiple was 13.1x, down
total revenue (Figure 14). markedly from 18.1x in 2Q11 (Figure 16). The
second quarter of 2011 marks the fourth
Figure 14: SEG SaaS Median Operating consecutive quarter the SEG Internet Index
Expenses as a % of Total Revenue median EV/Revenue multiple has exceeded the
35.0%
SEG Software Index median EV/Revenue
multiple. While a similar phenomenon occurred in
30.0%
both 2Q08 and 2Q09, we believe this differential
25.0%
will continue and grow for the foreseeable future,
% of Revenue

20.0% as investors continue to shift their attention from
15.0% public on-premise software companies to public
10.0%
Internet and SaaS providers.
5.0% Figure 16: SEG Internet Index Key Statistics
0.0% SEG - Internet: Median Metrics
R&D S&M G&A
Measure 3Q10 4Q10 1Q11 2Q11 3Q11
3Q10 3Q11 EV/Revenue 1.9x 2.8x 3.0x 3.2x 2.6x
EV/EBITDA 11.9x 14.7x 15.0x 18.1x 13.1x
Profitability among the public SaaS providers EV/Earnings 21.5x 27.6x 26.9x 32.3x 28.1x
varied widely, as they shifted into growth mode at Current Ratio 2.4 2.4 2.4 2.4 2.7
varying speeds. Five (19%) of the twenty six Cash & Eq ($M) $102.6 $89.6 $113.3 $105.9 $132.0
public SaaS companies in our index reported Gross Profit Margin 63.6% 64.1% 63.7% 64.8% 65.2%
negative EBITDA margins in 3Q11, whereas three EBITDA Margin 16.8% 15.3% 16.8% 15.3% 16.4%
Net Income Margin 5.4% 5.7% 6.0% 5.4% 5.0%
public SaaS companies exceeded 20% EBITDA TTM Revenue Growth 17.7% 19.7% 22.6% 20.2% 20.9%
margins. TTM Total Revenue ($M) $246.4 $272.3 $291.7 $312.1 $342.1
TTM Total EBITDA ($M) $31.9 $32.7 $37.7 $35.8 $39.9
Investors appear to be fully on board with this shift Debt / Equity Ratio 5.6% 3.5% 3.8% 9.4% 5.7%
in operating emphasis. At the close of 3Q11,
public SaaS companies with TTM revenue growth Relative to their SaaS counterparts, however,
rates above 30% were rewarded with a median Internet EV/Revenue valuations still lag far
6.8x EV/Revenue multiple, compared to a median behind. In 3Q11, the median market valuation of
3.5x EV/Revenue multiple for public SaaS public Internet providers was 43% lower than
companies with TTM revenue growth rates below public SaaS companies, despite being 73% more
30% (Figure 15). profitable (Figure 17). As evidenced by the
Figure 15: 3Q11 Public SaaS EV/Rev inverse relationship between EBITDA margin and
Multiples vs. TTM Revenue Growth EV/Revenue multiples, investors are clearly not
8.0x
focused on profitability. Internet providers,
7.0x
6.8x currently spending a median 21% of all revenue
on sales & marketing, might be better served by
6.0x
upping the sales & marketing ante to equal the
Median EV/Revenue

5.0x
median 33% of revenue spent by public SaaS
4.0x 3.5x
providers.
3.0x

2.0x Chinese based Internet companies, impacted by
1.0x hints of a slowing Chinese economy and by
0.0x accounting irregularities, saw their valuations
TTM Revenue Growth TTM Revenue Growth
Greater than 30% Less Than 30%
plummet in 3Q11. In 3Q11, the fourteen


Software Equity Report

Recommandé

Recommandé

Contenu connexe

Similaire à Software Equity Report

Similaire à Software Equity Report (20)

Plus de MMMTechLaw

Plus de MMMTechLaw (20)

Dernier

Dernier (20)

Software Equity Report